SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
FIRSTCITY FINANCIAL CORPORATION
(Name of the Issuer)
FIRSTCITY FINANCIAL CORPORATION
(Name of Person(s) Filing Statement)
Special Preferred Stock
($.01 par value per share)
(Title of Class of Securities)
33761X 206
(CUSIP Number of Class of Securities)
James R. Hawkins Copy to:
FirstCity Financial Corporation Steven D. Rubin
6400 Imperial Drive Weil Gotshal & Manges LLP
Waco, Texas 76712 700 Louisiana, Suite 1600
(254) 751-1750 Houston, Texas 77002
(Name, Address and Telephone Number
of Person Authorized to Receive Notices
and Communications on Behalf of the
Person(s) Filing Statement)
August 31, 1998
(Date Tender Offer First Published, Sent or Given to Security Holders)
Calculation of Filing Fee
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Transaction
Valuation Amount Of Filing Fee
- --------------------------------------------------------------------------
<S> <C>
$17,794,330(1) $3,558.87(2)
</TABLE>
(1) This amount is based upon the exchange of each outstanding share of
Special Preferred Stock, $.01 par value per share, for one share of the
Company's New Preferred Stock, $.01 par value per share. Currently there
are 849,777 shares of Special Preferred Stock outstanding.
(2) Such a fee comprises one-fiftieth of one percent of the aggregate amount
of $17,794,330.
[ ]Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount previously Paid: Not Applicable.
Form or registration no.: Not Applicable.
Filing party: Not Applicable.
Date filed: Not Applicable.
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
Item 1. Security and Issuer.
(a) The name of the issuer of the security to which this statement
relates is FirstCity Financial Corporation, a Delaware corporation (the
"Company"). The address of the principal executive office of the Company is 6400
Imperial Drive, Waco, Texas, 76712.
(b) This Issuer Tender Offer Statement on Schedule 13E-4 (this
"Statement") relates to a tender offer by the Company to exchange each share of
its outstanding Special Preferred Stock, $.01 par value per share ("Special
Preferred Stock"), for one share of the Company's New Preferred Stock, $.01 par
value per share ("New Preferred Stock"), upon the terms and subject to the
conditions set forth in the Exchange Offer dated August 31, 1998 (the "Exchange
Offer") and in the related Letter of Transmittal (the "Letter of Transmittal").
As of June 30, 1998 there were 849,777 issued and outstanding shares
of Special Preferred Stock and 1,073,704 issued and outstanding shares of New
Preferred Stock.
The Exchange Offer and the Letter of Transmittal together constitute
the "Offer" and are annexed to and filed with this Statement as Exhibits (a)(1)
and (a)(2), respectively.
As to participation in the Exchange Offer by officers, directors or
affiliates of the Company, the information set forth in the Exchange Offer under
the caption "Special Factors Related to the Exchange Offer--Interests in the
Special Preferred Stock" is incorporated herein by reference.
(c) The information set forth under the caption "Market Information"
in the Exchange Offer is incorporated herein by reference.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
(a) The information set forth in the Exchange Offer under the
captions "The Exchange Offer--General," "Description of the Outstanding Capital
Stock of the Company," "The Exchange Offer--Terms of the Exchange Offer" and
"Summary--The Exchange Offer" is incorporated herein by reference.
(b) Not applicable.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the Exchange Offer under the captions
"Risk Factors--Dependence on Key Personnel," "Risk Factors--Influence of Certain
Shareholders," "Risk Factors--Continuing Need for Financing" and "Special
Factors Related to the Exchange Offer--Background and Purposes of the Exchange
Offer" is incorporated herein by reference. The information contained in the
Company's Current Report on Form 8-K filed with the Commission on August 24,
1998 is incorporated herein by reference.
(a)-(d) Not applicable.
(e) The information set forth in the Exchange Offer under the
caption "Special Factors Related to the Exchange Offer--Position of the Board;
Alternatives to the Exchange Offer" is incorporated herein by reference.
2
<PAGE>
(f)-(g) Not applicable.
(h)-(i) The information set forth in the Exchange Offer under the
caption "Special Factors Related to the Exchange Offer--Consequences for
Unexchanged Special Preferred Stock" is incorporated herein by reference.
(j) Not applicable.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships With
Respect to the Issuer's Securities.
Not applicable.
Item 6. Persons Retained, Employed or to be Compensated.
The information set forth in the Exchange Offer under the caption
"The Exchange Offer--Fees and Expenses" and "The Exchange Offer--Miscellaneous"
is incorporated herein by reference.
Item 7. Financial Information.
The incorporation by reference herein of the financial information
described below does not constitute an admission that such information is
material to the Special Preferred Stockholders' decision to tender or hold the
Special Preferred Stock being sought in the Exchange Offer.
(a) The information set forth in the Exchange Offer under the
captions "Capitalization" and "Financial Information" is incorporated herein by
reference. The information contained in Item 6 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and in Item II of the
Company's Quarterly Report for the period ending June 30, 1998 is incorporated
herein by reference.
(b) Not applicable.
Item 8. Additional Information.
(a) Not applicable.
(b) The information set forth in the Exchange Offer under the
caption "The Exchange Offer--Conditions" is incorporated herein by reference.
The Company must comply with various sections of the Securities Act of 1933, as
amended, and by the Exchange Act, and certain of the rules promulgated
thereunder. The Company must also comply with the various requirements of state
"blue sky" laws.
(c) Not applicable.
(d) Not applicable.
3
<PAGE>
(e) The information set forth in the Exchange Offer and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, is incorporated herein by reference.
Item 9. Material to be Filed as Exhibits.
(a)(1) Offer to Exchange of the Company, dated August 31, 1998.
(2) Letter of Transmittal.
(3) Letter to Clients, dated August 31, 1998.
(4) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees, dated August 31, 1997.
(5) Notice of Guaranteed Delivery.
(6) Press Release of FirstCity dated August 31, 1998.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Matt A. Landry, Jr.
-------------------------------------
Name: Matt A. Landry, Jr.
Title: Executive Vice President and
Chief Administrative Officer
August 31, 1998
5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
99.(a)(1) Offer to Exchange, dated August 31, 1998.
99.(a)(2) Letter of Transmittal.
99.(a)(3) Letter to Clients, dated August 31, 1998.
99.(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees, dated August 31, 1998.
99.(a)(5) Notice of Guaranteed Delivery.
99.(a)(6) Press release of FirstCity dated August 31, 1998.
6
EXHIBIT 99.(a)(1)
FIRSTCITY FINANCIAL CORPORATION
6400 Imperial Drive
Waco, Texas 76712
August 31, 1998
To: FirstCity's Special Preferred Shareholders
From: Jim Hawkins, Chairman, FirstCity Financial Corporation
The attached Offering Circular contains important information
regarding the shares of FirstCity's Special Preferred Stock that you hold. As
you know, these shares are redeemable at $21 per share on September 30, 1998.
The Offering Circular outlines information regarding FirstCity's offer to
exchange its New Preferred Stock for the currently outstanding shares of Special
Preferred Stock. This is an important transaction for you and for FirstCity. As
such, I encourage you to consider the exchange proposal.
The Special Preferred Stock which you hold today has a redemption
value of $21.00 per share and bears a coupon rate of 15% or $3.15 per year. On
August 27, 1998, the closing per share sales price of the Special Preferred
Stock was $20.94 per share as quoted on Nasdaq. The security FirstCity is
offering to exchange (the "New Preferred Stock") has an equivalent $21.00
redemption value, bears a dividend rate of 10% and will not be callable for 5
years. In an offer to exchange by the Company that expired on August 4, 1997,
1,073,704 shares of New Preferred Stock were issued in exchange for an equal
number of shares of Special Preferred Stock. The New Preferred Stock is quoted
on Nasdaq and on August 27, 1998, the closing per share sales price of the New
Preferred Stock was $21.50 per share.
We have structured the exchange so that it generally will be tax
free under current law (see the attached Offering Circular, "Special Factors
Related to the Exchange Offer--Certain Federal Income Tax Consequences,"
discussing certain potential exceptions to the tax free nature of the exchange).
Thus, if you exchange, you generally will not have any tax consequences to deal
with (other than with respect to the receipt of dividends) until you sell your
shares or the company redeems the stock at its redemption date no sooner than
five years out. By contrast, the existing Special Preferred, when redeemed, will
trigger some tax consequence for most of you. Some of you have little or no
basis in the stock. In that case, you may have a taxable transaction upon
redemption and only have after-tax proceeds to reinvest following redemption. By
exchanging on a tax free basis, you will, in effect, be reinvesting the total
redemption value of the existing Special Preferred in a security we believe has
an attractive yield. Those of you who have purchased your stock since July 3,
1995 probably paid in excess of the redemption value of the Special Preferred.
In that case, upon redemption of the Special Preferred, you may have a tax loss
which may or may not have any value to you depending on your particular tax
circumstances.
In summary, we believe we are offering an attractive reinvestment
option for you to consider with the advantage of being able to allow you to
defer any tax consequences you might incur upon a redemption of the existing
Special Preferred. We also believe that the terms, including rate and maturity
of the New Preferred Stock, offer attractive spreads to other similarly situated
securities.
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
EXHIBIT 99.(a)(1)
OFFERING CIRCULAR
FIRSTCITY FINANCIAL CORPORATION
OFFER TO EXCHANGE
FOR EACH SHARE OF OUTSTANDING SPECIAL PREFERRED STOCK (AS HEREINAFTER
DEFINED) TENDERED BY THE EXPIRATION DATE (AS HEREINAFTER DEFINED) THE EXCHANGING
HOLDER WILL RECEIVE ONE SHARE OF THE NEW PREFERRED STOCK, $21 LIQUIDATION VALUE
PER SHARE OF FIRSTCITY FINANCIAL CORPORATION.
----------
THIS OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON TUESDAY,
SEPTEMBER 29, 1998, UNLESS THIS OFFER IS EXTENDED (THE "EXPIRATION DATE").
----------
FirstCity Financial Corporation, a Delaware corporation ("FirstCity" or
the "Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Exchange Offer (the "Exchange Offer") to exchange each share of
its outstanding Special Preferred Stock, $.01 par value per share ("Special
Preferred Stock"), for one share of the Company's New Preferred Stock, $.01 par
value per share ("New Preferred Stock"). Currently, there are 849,777 shares of
Special Preferred Stock outstanding and 1,073,704 shares of New Preferred Stock
outstanding. As of August 28, 1998, there were approximately 50 record owners
and 300 beneficial owners of Special Preferred Stock, and approximately 40
record owners and 400 beneficial owners of New Preferred Stock.
SEE "SPECIAL FACTORS RELATED TO THE EXCHANGE OFFER" AND "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THE EXCHANGE OFFER.
Subject to applicable law and the terms set forth in this Exchange Offer,
the Company reserves the right to waive any and all conditions to the Exchange
Offer, to extend or to terminate the Exchange Offer and otherwise amend the
Exchange Offer in any respect. See "The Exchange Offer -- Conditions" and "--
Expiration; Extension; Termination; Amendment."
----------
Tenders of Special Preferred Stock made pursuant to the Exchange Offer may
be withdrawn prior to the Expiration Date.
Holders of shares of Special Preferred Stock who elect to tender such
shares for exchange pursuant hereto should do so in accordance with the
procedures set forth herein and in the orange Letter of Transmittal. Holders of
shares of Special Preferred Stock who elect NOT to tender such shares for
exchange pursuant hereto should tender such shares for redemption by following
the procedure set forth in the green Letter of Transmittal.
----------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION. THE COMMISSION HAS NOT PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON
2
<PAGE>
EXHIBIT 99.(a)(1)
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------
EXCHANGE AGENT
American Stock Transfer & Trust Company (the "Exchange Agent") has agreed
to provide services as exchange agent for the Exchange Offer. All deliveries and
correspondence sent to the Exchange Agent should be directed to 40 Wall Street,
New York, New York 10005. Requests for assistance or additional copies of this
Exchange Offer or the Letter of Transmittal should be delivered to the Company
at 1021 Main, Suite 250, Houston, Texas 77002, Attention: Suzy Taylor, Vice
President-Investor Relations.
The date of this Exchange Offer is August 31, 1998.
IMPORTANT
Any holder of Special Preferred Stock desiring to tender all or any
portion of such holder's shares of Special Preferred Stock should either (1)
complete and sign the Letter of Transmittal or a facsimile copy thereof in
accordance with the instructions in the Letter of Transmittal, mail or deliver
it with any other required documents to the Exchange Agent and either deliver
the certificates for such shares of Special Preferred Stock to the Exchange
Agent along with the Letter of Transmittal or deliver such shares of Special
Preferred Stock pursuant to the procedures for book-entry transfer set forth in
"The Exchange Offer -- Procedures for Tendering" or (2) request such holder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such holder. Holders whose shares of Special Preferred Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if they desire to tender such shares of Special Preferred
Stock. Any holder of shares of Special Preferred Stock who desires to tender
shares of Special Preferred Stock and whose certificates for such shares of
Special Preferred Stock are not immediately available or who cannot comply with
the procedures for book entry transfer on a timely basis may tender such Special
Preferred Stock by following the procedure for guaranteed delivery set forth in
"The Exchange Offer -- Procedures for Tendering."
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY HOLDER OF SHARES OF SPECIAL PREFERRED STOCK AS TO WHETHER TO TENDER OR TO
REFRAIN FROM TENDERING SHARES OF SPECIAL PREFERRED STOCK. EACH HOLDER OF SHARES
OF SPECIAL PREFERRED STOCK MUST MAKE HIS OWN DECISION WHETHER TO TENDER SHARES
OF SPECIAL PREFERRED STOCK AND, IF SO, THE NUMBER OF SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER HOLDERS OF SHARES OF SPECIAL PREFERRED STOCK SHOULD TENDER
OR REFRAIN FROM TENDERING SHARES OF SPECIAL PREFERRED STOCK PURSUANT TO THE
EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE
CONTAINED IN THIS EXCHANGE OFFER OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR
MADE, SUCH RECOMMENDATION, INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
3
<PAGE>
EXHIBIT 99.(a)(1)
The delivery of this Exchange Offer shall not, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
TENDERS FROM, HOLDERS OF THE SHARES OF SPECIAL PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The
Company, therefore, will not pay any commission or other remuneration to any
broker, dealer, salesman or other person for soliciting tenders of the shares of
Special Preferred Stock. Regular employees of the Company, who will not receive
additional compensation therefor, may solicit tenders from holders of shares of
Special Preferred Stock.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Schedule 13E-3 (as amended, the "Schedule 13E-3") and a Schedule
13E-4 (as amended, the "Schedule 13E-4") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), with respect to the Exchange Offer. This
Exchange Offer does not contain all the information set forth in the Schedule
13E-3 and the exhibits thereto and the Schedule 13E-4 and the exhibits thereto
to which reference is hereby made for further information about the Company and
the Exchange Offer.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Information as of particular dates concerning
the Company's directors and officers, their compensation and any material
interest of such persons in transactions with the Company is set forth in the
reports filed with the Commission. Such reports and other information may be
inspected and copies may be obtained at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York, 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. If available, such information also may be accessed through the
Commission's electronic data gathering analysis and retrieval System ("EDGAR")
via electronic means, including the Commission's home page on the Internet
(http://www.sec.gov). In addition, the reports of, proxy and information
statements filed pursuant to Sections 14(a) and 14(c) of the Exchange Act by,
and other information concerning, FirstCity, whose securities are included in
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") and designated on the Nasdaq National Market, can be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "Company 10-K"), a copy of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998 (the "Company 10-Q"), a copy of
the Company's Current Report on Form 8-K filed with the Commission on August 24,
1998 and a copy of the Company's Current Report on Form 8-K filed with the
Commission on August 28, 1998 are annexed hereto as Appendix A, B, D and E
respectively.
4
<PAGE>
EXHIBIT 99.(a)(1)
CAUTIONARY STATEMENT
The statements included in this Offering Circular regarding future
financial performance and results and the other statements that are not
historical facts are forward-looking statements. The words "expect," "project,"
"estimate," "predict," "anticipate," "believes" and similar expressions are also
intended to identify forward-looking statements. Such statements are subject to
numerous risks, uncertainties and assumptions, including but not limited to, the
uncertainties relating to industry and market conditions, such as availability
of assets, increased competition for available assets, increased price
competition as the industry in which the Company primarily operates matures,
interest rates and the availability of financing, and other risks and
uncertainties described in this Offering Circular and in the Company's other
filings with the Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
5
<PAGE>
EXHIBIT 99.(a)(1)
TABLE OF CONTENTS
PAGE
SUMMARY.............................................................. 1
The Company.................................................... 1
Background of the Exchange Offer............................... 1
The Exchange Offer............................................. 2
Conditions to the Exchange Offer............................... 2
Structure, Timing and Effects of the Exchange Offer............ 2
Certain Federal Income Tax Considerations...................... 2
Terms of the New Preferred Stock............................... 3
Certain Considerations......................................... 4
SPECIAL FACTORS RELATED TO THE EXCHANGE OFFER........................ 4
Background and Purposes of the Exchange Offer.................. 4
The Exchange Offer............................................. 5
Position of the Board; Alternatives to the Exchange Offer...... 6
Fairness of the Exchange Offer................................. 7
Consequences for Unexchanged Special Preferred Stock........... 8
Absence of Financial Adviser................................... 8
Nasdaq Quotation............................................... 8
Interests in the Special Preferred Stock....................... 8
Plans or Proposals of the Issuer............................... 8
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................ 8
Recapitalization............................................... 9
Dividend Arrearages............................................ 9
Redemption Premium............................................. 10
RISK FACTORS......................................................... 10
Risks Associated with Rapid Growth and Entry into New Businesses 10
Continuing Need For Financing.................................. 10
Risks of Securitization........................................ 11
Impact of Changing Interest Rates.............................. 13
Credit Impaired Borrowers...................................... 14
Availability of Portfolio Assets............................... 14
Availability of Net Operating Loss Carryforwards............... 14
Assumptions Underlying Portfolio Asset Performance............. 15
General Economic Conditions.................................... 15
Risk of Declining Value of Collateral.......................... 16
Government Regulation.......................................... 16
Environmental Liabilities...................................... 17
Competition.................................................... 17
Risks Associated with Foreign Operations....................... 17
Dependence on Independent Mortgage Brokers..................... 17
Dependence on Automobile Dealership Relationships.............. 18
Litigation..................................................... 18
Relationship With and Dependence Upon Cargill.................. 18
Dependence on Key Personnel.................................... 19
Influence of Certain Shareholders.............................. 19
Reliance on Systems; Year 2000 Issues.......................... 20
i
<PAGE>
EXHIBIT 99.(a)(1)
Anti-Takeover Considerations................................... 20
Period to Period Variances..................................... 20
Tax, Monetary and Fiscal Policy Changes........................ 20
THE EXCHANGE OFFER
General.............................................................. 21
Terms of the Exchange Offer.................................... 21
Conditions..................................................... 21
Expiration; Extension; Termination; Amendment.................. 23
Procedures for Tendering....................................... 24
Delivery of Letters of Transmittal............................. 24
Book-Entry Transfer............................................ 25
Signature Guarantees........................................... 25
Guaranteed Delivery............................................ 25
Lost or Missing Certificates................................... 26
Other Matters.................................................. 26
Withdrawal of Tenders.......................................... 27
Acceptance of Special Preferred Stock; Delivery of Tender
Offer Consideration ......................................... 27
Fees and Expenses.............................................. 28
Exchange Agent................................................. 28
Appraisal Rights............................................... 28
Miscellaneous.................................................. 28
FINANCIAL INFORMATION................................................ 29
FirstCity Selected Historical Financial Data................... 29
Ratio of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends................ 30
CAPITALIZATION....................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................... 32
MARKET INFORMATION................................................... 32
......................................................... 32
DESCRIPTION OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY....................... 33
FirstCity Common Stock......................................... 33
Special Preferred Stock........................................ 33
New Preferred Stock............................................ 35
BUSINESS OF THE COMPANY.............................................. 36
MANAGEMENT OF FIRSTCITY.............................................. 36
PRINCIPAL STOCKHOLDERS OF FIRSTCITY.................................. 36
APPENDIX A Annual Report on Form 10-K for the year ended December 31, 1997.
APPENDIX B Quarterly Report on Form 10-Q for the period ended June 30, 1998.
ii
<PAGE>
EXHIBIT 99.(a)(1)
APPENDIX C Form of Certificate of Designations of the New Preferred Stock.
APPENDIX D Current Report on Form 8-K filed with the Commission on August 24,
1998.
APPENDIX E Current Report on Form 8-K filed with the Commission on August
28, 1998.
iii
<PAGE>
EXHIBIT 99.(a)(1)
SUMMARY
The following is a summary of certain information contained elsewhere in
this Offering Circular and is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Offering Circular and
the Appendices hereto. As used herein, unless the context otherwise requires,
the "Company" and "FirstCity" refer to FirstCity Financial Corporation and its
consolidated subsidiaries. Holders of the Company's shares of Special Preferred
Stock are urged to read this Exchange Offer in its entirety prior to tendering
any of their Special Preferred Stock.
The Company
The Company is a diversified financial services company headquartered in
Waco, Texas with over 100 offices throughout the United States and a presence in
France, Asia and Mexico. The Company began operations in 1986 as a specialty
financial services company focused on acquiring and resolving distressed loans
and other assets purchased at a discount relative to the aggregate unpaid
principal balance of the loans or the appraised value of the other assets ("Face
Value"). To date, the Company has acquired, for its own account and through
various affiliated partnerships, pools of assets or single assets (collectively
referred to as "Portfolio Assets" or "Portfolios") with a Face Value of
approximately $3.0 billion. In 1996, the Company adopted a growth strategy to
diversify and expand its financial services business. To implement its growth
strategy, the Company has acquired or established several businesses in the
financial services industry, building upon its core strength and expertise as
one of the earliest participants in the business of acquiring and resolving
distressed financial assets and other assets. The Company's servicing expertise,
which it has developed largely through the resolution of distressed assets, is a
cornerstone of its growth strategy. Today the Company is engaged in three
principal businesses: (i) residential and commercial mortgage banking, which is
operated through FirstCity Financial Mortgage Corporation ("Mortgage Corp.") and
FC Capital Corporation ("Capital Corp."); (ii) Portfolio Asset acquisition and
resolution, which is operated through FirstCity Commercial Corporation
("Commercial Corp."); and (iii) consumer lending, which is operated through
FirstCity Consumer Lending Corporation ("Consumer Corp."). As part of its
ongoing management process, the Company continually evaluates the allocation of
its capital and funding resources among these business lines. As a result of
this process, the Company recently has determined to reduce its allocation of
capital and funding to Mortgage Corp. and is in the process of implementing a
strategy to effect such change. Reference is made to the additional information
contained in the Company's Current Report on Form 8-K filed with the Commission
on August 28, 1998, a copy of which is attached hereto as Appendix E.
Background of the Exchange Offer
Formation of the Company. The Company was formed July 3, 1995 by the
merger (the "J-Hawk Merger") of J-Hawk Corporation ("J-Hawk"), which was engaged
in the asset acquisition, management and disposition business, with and into
First City Bancorporation of Texas, Inc. ("FCBOT"), a bank holding company that
had been engaged in a proceeding under Chapter 11 of the Bankruptcy Code since
November 1992, following the closure of its bank subsidiaries by regulatory
agencies. The J-Hawk Merger was accomplished pursuant to the Plan of
Reorganization of FCBOT (the "Plan").
As a result of the J-Hawk Merger, the former holders of common stock of
J-Hawk received, in the aggregate, approximately 49.9 percent of the Company's
outstanding Common Stock in exchange for their shares of J-Hawk common stock and
approximately 50.1 percent of the Company's outstanding Common Stock was
distributed among former security holders of FCBOT. The Company also issued, to
certain former security holders of FCBOT, certain senior subordinated notes, the
Special Preferred Stock and warrants to acquire common stock of FirstCity, and
all of the debt and equity securities of FCBOT outstanding immediately prior to
the consummation of the J-Hawk Merger were canceled.
<PAGE>
EXHIBIT 99.(a)(1)
In connection with the J-Hawk Merger, certain assets of FCBOT (primarily
real estate and real estate loans) were placed in the FirstCity Liquidating
Trust (the "Trust") to be liquidated. The beneficiaries of the trust included
FirstCity, which, under the trust agreement establishing the Trust, was entitled
to receive sufficient amounts therefrom to pay principal and interest in respect
to the senior subordinated notes, dividends and redemption value on the Special
Preferred Stock and certain expenses. To the extent there were any proceeds
remaining after satisfying such obligations, the Trust could make distributions
to its other beneficiaries who were former holders of certain FCBOT securities.
In June 1997, the Trust and FirstCity entered into a New Special Preferred
Stock Distribution Agreement (the "Distribution Agreement") pursuant to which
the Trust, in satisfaction of its obligations to FirstCity as holder of the
Class A Certificate, made a lump sum distribution to FirstCity. In exchange,
FirstCity agreed to pay when and as due any and all dividends on the Special
Preferred Stock and to redeem the Special Preferred Stock when and as required.
See "Special Factors Related to the Exchange Offer -- Background and Purposes of
and Alternatives to the Exchange Offer."
The Exchange Offer
The Company is offering, upon the terms and subject to the conditions
stated in this Offering Circular and the accompanying Letter of Transmittal, to
exchange for each currently outstanding share of Special Preferred Stock
tendered to the Company one share of the Company's New Preferred Stock. The
Exchange Offer is being made for all of the outstanding shares of Special
Preferred Stock.
As of the date of this Exchange Offer, 849,777 shares of the Special
Preferred Stock were outstanding and 1,073,704 shares of the New Preferred Stock
were outstanding.
Conditions to the Exchange Offer
The obligation of the Company to consummate the Exchange Offer is subject
to certain conditions as described in this Exchange Offer, including, among
others, the requirement that there shall not have occurred any change or
development involving a prospective change in or affecting the business or
financial affairs of the Company which, in the sole judgment of the board of
directors of the Company (the "Board of Directors"), would or might prohibit,
restrict or delay consummation of the Exchange Offer or materially impair the
contemplated benefits to the Company of the Exchange Offer.
Structure, Timing and Effects of the Exchange Offer
The Exchange Offer was designed to provide FirstCity the opportunity to
efficiently raise medium term capital. See "Special Factors Related to the
Exchange Offer -- Background and Purposes of the Exchange Offer." In addition to
permitting FirstCity to raise capital, the Exchange Offer permits existing
preferred shareholders the ability to retain an investment in FirstCity through
ownership of a security, the New Preferred Stock, with a longer term before
maturity than the Special Preferred Stock. See "Special Factors Related to the
Exchange Offer -- Position of the Board; Alternatives to the Exchange Offer" and
"-- Background and Purposes of the Exchange Offer."
Certain Federal Income Tax Considerations
For information concerning the federal income tax ramifications of the
Exchange Offer to tendering holders of the Special Preferred Stock, see "Certain
Federal Income Tax Considerations."
2
<PAGE>
EXHIBIT 99.(a)(1)
Terms of the New Preferred Stock
Pursuant to the Exchange Offer, FirstCity is offering to exchange each
outstanding share of Special Preferred Stock for one share of New Preferred.
Each share of Special Preferred Stock not exchanged pursuant to the Exchange
Offer will be redeemed at $21 per share plus accrued dividends on September 30,
1998. Following is a summary of the primary terms of the New Preferred Stock.
Dividends................. Cumulative from the date of first issuance of
the New Preferred Stock (the "Issuance Date") at
an annual rate of $2.10 per share (10% of
redemption value per annum) payable quarterly on
the last business day of March, June, September
and December of each year commencing the last
business day of the first full quarter following
the Issuance Date.
Optional Redemption....... After September 30, 2003, at the Company's
option at $21 per share, plus accrued dividends.
Scheduled Redemption...... September 30, 2005.
Rank...................... Company obligation; Subordinate to claims of the
Company's creditors including any debt currently
outstanding or that may be issued or incurred by
the Company in the future, senior to other
series of preferred stock of the Company other
than the Special Preferred Stock and prior to
other equity securities of the Company. The
Company expects that it will, from time to time,
incur debt obligations to finance its business
activities. Any such indebtedness will be senior
in priority to claims of the holders of New
Preferred Stock.
Voting Rights............. Nonvoting, unless dividends are in arrears in an
aggregate amount equal to six dividend quarters,
then, voting as a class with all other shares of
preferred stock, entitled to elect two
directors.
Trading................... Quoted on Nasdaq.
Taxes..................... Dividends, if and when paid, are taxable,
whether paid in cash or additional shares of New
Preferred Stock, as ordinary income, but only to
the extent of FirstCity's accumulated or current
earnings and profits. Under current law, if a
distribution by FirstCity is treated as a
dividend, corporate stockholders may be entitled
to claim a deduction equal to 70% of the
dividend, subject to applicable limitations. For
information concerning proposals to enact
legislation which, if enacted, would affect the
amount and availability of the dividends-
received deduction, see "Certain Federal Income
Tax Considerations -- Dividend Arrearages and
Increase in Proportionate Interest."
For further information with respect to the New Preferred Stock, see
"Description of the Outstanding Capital Stock of the Company -- New Preferred
Stock". For further information with respect to the Special Preferred Stock, see
"Description of the Outstanding Capital Stock of the Company -- Special
Preferred Stock."
On August 27, 1998, the last trading day prior to public announcement of
the Exchange Offer, the last sales price for the Special Preferred Stock
reported on Nasdaq was $20.94 per share, and the last sales price for the New
Preferred Stock reported on Nasdaq was $21.50 per share. See "Market Information
- -- Market Prices".
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<PAGE>
EXHIBIT 99.(a)(1)
Certain Considerations
Prior to deciding whether to tender in the Exchange Offer, beneficial
owners of the Special Preferred Stock should consider all of the information
contained in this Exchange Offer, especially the matters set forth in "Special
Factors Related to the Exchange Offer" and "Risk Factors."
SPECIAL FACTORS RELATED TO THE EXCHANGE OFFER
In addition to the other information set forth in this Offering Circular
and incorporated herein by reference, holders of Special Preferred Stock should
carefully consider the following information.
Background and Purposes of the Exchange Offer
Prior to consummation of the transactions contemplated by the Distribution
Agreement described below, FirstCity was obligated to make payments of dividends
and in respect of redemption to the holders of Special Preferred Stock only to
the extent that it has received distributions from the Trust sufficient to pay
such amounts. FirstCity had no other financial obligation on the Special
Preferred Stock. FirstCity's claim against the Trust, under which it received
payments to fund distributions to holders of the Special Preferred Stock was
represented by FirstCity's ownership of the Class A Certificate of the Trust.
The Class A Certificate was the most senior of the three classes of certificates
issued by the Trust. The Trust's obligations under the Class A Certificate
related to the Special Preferred Stock had to be satisfied before the Trust
could make any distributions to any class of Certificate junior to the A
Certificate.
At the Trust's inception, it held substantial non-cash assets which, under
the agreement establishing the Trust, were required to be converted to cash to
meet the following obligations:
1. Repayment of borrowings incurred to complete the Plan
2. Expenses of administering the Plan
3. Distributions under the Class A Certificate to meet the
obligations of FirstCity to its Senior Subordinate note holders
4. Distributions under the Class A Certificate to meet the dividend
payment requirements of the Special Preferred Stock (the
"Dividend Distribution Amount"), and
5. Distributions under the Class A Certificate to meet the
redemption payment requirements of the Special Preferred Stock
(the "Redemption Distribution Amount")
At the inception of the Trust pursuant to the Plan, the parties to the Plan
anticipated that approximately three years would be necessary to convert Trust
assets to cash to a sufficient degree to assure sufficient cash flow to meet all
of the Trust's obligations. However, cash collections were realized by the Trust
in amounts greater than, and in advance of the timing, expected at the inception
of the Trust. Under the terms of the Trust instrument, the Trust was required to
distribute its cash to satisfy its obligations in accordance with the priorities
described above.
In June 1997, when the last remaining material obligation of the Trust
under the Class A Certificate was to pay the remaining Dividend Distribution
Amount and the Redemption Distribution Amount, the Trust and FirstCity entered
into the Distribution Agreement to maximize the total amount of the potential
distribution to holders of certificates junior to the Class A Certificate. Under
the terms thereof, the Trust and FirstCity agreed to the effect that the Trust
would make a lump sum distribution to FirstCity and thereupon would have met its
distribution obligations to FirstCity as the holder of the Class A Certificate.
With its obligation thus satisfied, the Trust would then be permitted to make
distributions to the holders of Certificates junior to the claims of the Class A
Certificate holder.
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<PAGE>
EXHIBIT 99.(a)(1)
Also in June 1997, the Company commenced an offer to exchange each
outstanding share of Special Preferred Stock for one share of New Preferred
Stock (the "1997 Preferred Exchange Offer") pursuant to which 1,073,704 shares
of Special Preferred Stock were exchanged for an equal number of shares of New
Preferred stock, leaving 849,777 shares of Special Preferred Stock outstanding.
Pursuant to the Distribution Agreement:
1. The Trust paid to FirstCity an amount equal to the product of $22.75
times the number of outstanding shares of Special Preferred Stock
outstanding on June 30, 1997 (the "Special Preferred Redemption
Amount").
2. The Trust paid to FirstCity an amount equal to the product of $.7875
times the number of outstanding shares of Special Preferred Stock
outstanding on June 30, 1997 (the "Special Preferred Dividend
Amount").
3. The Trust affirmed its obligations to FirstCity for certain
indemnification obligations in favor of FirstCity under the terms of
the Plan.
4. FirstCity indemnified the Trust against any claims by holders of the
Special Preferred Stock for account of non-payment by FirstCity of
obligations to pay Special Preferred Dividends or to redeem the
Special Preferred Stock at the designated redemption date.
5. Of the amounts paid as described in item 1 above, $21,193,438,
representing $24.94 per share of Special Preferred Stock not
exchanged pursuant to the 1997 Preferred Exchange Offer (or 849,777
shares), was allocated to the Special Preferred Stock.
The effect of the Distribution Agreement described above was to transfer
to FirstCity, in exchange for the payments from the Trust aggregating
approximately $44 million, the Trust's obligations to FirstCity to make any
additional distributions to FirstCity on account of the Special Preferred Stock.
In exchange, FirstCity, in effect, agreed to pay when and as due any and all
dividends on the Special Preferred Stock and to redeem the Special Preferred
Stock when and as required by the Amended and Restated Certificate of
Incorporation of FirstCity.
The Exchange Offer
FirstCity believes that its proposal to exchange the Special Preferred
Stock for the New Preferred Stock offers a continuing investment alternative
that could be attractive to the existing holders of its Special Preferred Stock.
The factors considered in proposing the terms of the exchange offer are intended
to address certain factors that FirstCity believes could be important to the
holders of Special Preferred Stock. Such factors include, but are not
necessarily limited to, the following:
1. The holders of the Special Preferred Stock who received their
stock pursuant to the terms of the Plan are likely to have
substantial capital gains on the redemption date. Depending upon
the tax status of the holder, such holders could have tax
liability imposed under federal and state tax laws, reducing net
proceeds from the redemption available for reinvestment
following the redemption. The exchange of the Special Preferred
Stock for New Preferred Stock will be a tax-free exchange under
present federal tax laws. As such, the current holders of
Special Preferred holders will effectively reinvest the total
redemption amount of the Special Preferred Stock in the New
Preferred Stock upon the Exchange.
5
<PAGE>
EXHIBIT 99.(a)(1)
2. By extending the final maturity of the New Preferred Stock to
September 30, 2005, the current holders of the Special Preferred
Stock will be offered the opportunity to extend their current
investment at an attractive yield as compared to current market
rates.
3. By providing that FirstCity will not be permitted to redeem the
Special Preferred Stock prior to September 30, 2003, FirstCity
believes that it is offering to the holders of the Special
Preferred Stock attractive yields compared to alternative
investments available to the Special Preferred holders.
4. Based on trading activity in the Special Preferred Stock since
it was originally issued, and the prices at which it has traded,
FirstCity believes that there are a substantial number of
holders who have acquired their Special Preferred Stock at
substantial premiums to the Redemption Amount of $21.00 per
share. As a result, at maturity, such holders might realize a
capital loss, the deduction of which could be limited under
currently applicable tax laws. Through the exchange offer,
FirstCity believes that such holder's basis and holding period
in the Special Preferred Stock will become the basis and holding
period of the New Preferred Stock affording the holder a longer
time during which to trigger the recognition of the potential
capital loss. This could permit a holder to offset the potential
capital loss against other capital gains.
Position of the Board; Alternatives to the Exchange Offer
The Board of Directors approved the Exchange Offer. All of the directors
voted to approve the Exchange Offer other than three directors who hold shares
of Special Preferred Stock none of whom participated in the Board of Directors'
vote on the Exchange Offer. The Board of Directors believes that the Exchange
Offer is in the best interest of the Company and its stockholders because the
exchange offer provides for FirstCity the opportunity to raise medium term
capital efficiently by permitting it to retain and utilize capital received from
the Trust and allocated to the Special Preferred Stock following the expiration
of the 1997 Preferred Exchange Offer pursuant to the Distribution Agreement
insofar as shares of the New Preferred Stock are exchanged for the Special
Preferred Stock. In addition to permitting FirstCity to raise capital, the
Exchange Offer permits holders of the Special Preferred Stock, which by its
terms will be redeemed (if not exchanged for New Preferred Stock pursuant to
this Exchange Offer) on September 30, 1998, the ability to retain an investment
in the Company through ownership of the New Preferred Stock. The Company
continually evaluates other proposals to raise capital either publicly or
privately, including secured and unsecured subordinated term debt, convertible
debt, perpetual preferred stock, trust preferred stock and by issuing limited
life preferred stock. The Company expects to raise capital through issuance or
incurrence of debt during the pendency of, or soon after the termination of, the
Exchange Offer. To the extent that shares of Special Preferred Stock are not
exchanged pursuant hereto, a portion of the proceeds of such other financing
arrangement made by the Company may be used to redeem such shares. Among the
various alternatives for raising capital considered, the Company believes the
limited life preferred stock is a sound alternative that will complement any
such other financing by the Company. The Board of Directors further believes
that the financial structure of the Company will be better suited to the
Company's expected level of operations and profitability, and the Company will
have greater flexibility to move forward with the growth and diversification of
its business if the Exchange Offer is consummated because the exchange will
result in a larger equity base upon which the Company will be able to leverage
to build its investment activity and portfolio acquisitions and other specialty
finance businesses.
The decision to tender Special Preferred Stock pursuant to the Exchange
Offer should be made by beneficial owners based upon individual investment
objectives and other factors affecting such beneficial owners individually,
including any federal, state, local or foreign tax consequences of tendering
Special Preferred Stock pursuant to the Exchange Offer. Consequently, the Board
of Directors is not
6
<PAGE>
EXHIBIT 99.(a)(1)
making any recommendation to beneficial owners with respect to the Exchange
Offer and has not authorized any person to make any such recommendations.
Beneficial owners are urged to evaluate carefully all information contained in
this Exchange Offer and to consult their own financial and tax advisers to make
their own decisions concerning whether to tender Special Preferred Stock in the
Exchange Offer. See "Special Factors Related to the Exchange Offer -- Certain
Federal Income Tax Considerations," and " -- Fairness of the Exchange Offer."
Fairness of the Exchange Offer
The Company believes that the Exchange Offer is fair from a financial
point of view to the beneficial owners of Special Preferred Stock from a
financial perspective. The Exchange Offer was approved by all of the directors
of the Company other than the two abstaining directors.
Factors considered by the Board of Directors in connection with the
structuring of the Exchange Offer were (i) the liquidation/redemption preference
of the Special Preferred Stock and the New Preferred Stock; (ii) the date on
which the Special Preferred Stock is mandatorily redeemable and the dates on
which the New Preferred Stock are mandatorily and optionally redeemable; (iii)
the dividend rate of the Special Preferred Stock and the New Preferred Stock;
(iv) the relative preferences and other terms of the Special Preferred Stock and
New Preferred Stock; (v) the fact that acceptance of the Exchange Offer is not
mandatory and that the shares of Special Preferred Stock that are not tendered
will remain outstanding following the Exchange Offer; (vi) the historical
trading pattern of the Special Preferred Stock; (vii) recent market prices for
Special Preferred Stock and the New Preferred Stock; (viii) the pro forma effect
of acceptance of the Exchange Offer on the Company's consolidated
capitalization; and (ix) the federal income tax consequences of the Exchange
Offer on the Company and on the beneficial owners of Special Preferred Stock. In
light of its consideration of the foregoing factors, the Board of Directors
concluded that the Exchange Offer is fair to beneficial owners of Special
Preferred Stock.
The Company has not requested a fairness opinion, appraisal or similar
report relating to the Exchange Offer from any investment banker or financial
adviser. A fairness opinion, appraisal or similar report sometimes is requested
by a company to obtain an opinion on whether a transaction is fair from a
financial perspective to a particular group of persons. Based on the cost of
obtaining such an opinion, appraisal or similar report, the Board of Directors
believes it is appropriate not to seek a fairness opinion, appraisal or similar
report relating to the Exchange Offer. In addition, the non-employee directors
of the Company have not retained an unaffiliated representative to act solely on
behalf of unaffiliated beneficial owners of Special Preferred Stock to negotiate
the terms of the Exchange Offer or prepare a report concerning the terms of the
Exchange Offer or prepare a report concerning the fairness thereof.
The holders of Special Preferred Stock have no voting rights in respect
thereof and the approval of a majority of the beneficial owners of Special
Preferred Stock is not required for the Company to consummate the Exchange
Offer. Nonetheless, if a beneficial owner of Special Preferred Stock does not
approve of the terms of the Exchange Offer, such beneficial owner can elect not
to tender its shares of Special Preferred Stock and such shares of Special
Preferred Stock will remain outstanding. See "Special Factors Related to the
Exchange Offer -- Consequences for Unexchanged Special Preferred Stock."
The approval of a majority of unaffiliated security holders is not
required for consummation of the Exchange Offer.
For a discussion of certain federal income tax consequences of the
Exchange Offer applicable to beneficial owners of the Special Preferred Stock
and the Company, see "Certain Federal Income Tax Considerations."
7
<PAGE>
EXHIBIT 99.(a)(1)
Consequences for Unexchanged Special Preferred Stock
The shares of Special Preferred Stock not tendered and accepted in the
Exchange Offer will be redeemed on September 30, 1998, at $21 per share plus
accrued dividends as required by the Amended and Restated Certificate of
Incorporation of FirstCity.
Absence of Financial Adviser
The Company has not retained any investment banker or financial adviser to
assist it in structuring the terms of the Exchange Offer. See "Special Factors
Related to the Exchange Offer -- Fairness of the Exchange Offer."
Nasdaq Quotation
The New Preferred Stock is quoted on Nasdaq. As of August 27, 1998, the
last full trading day prior to public announcement of the Exchange Offer, the
closing per share sale price of New Preferred Stock was $21.50 per share.
Interests in the Special Preferred Stock
The following table sets forth the number of shares of Special Preferred
Stock held by each of the named executive officers and/or directors of
FirstCity.
Shares of
Special
Executive Officer/Director Preferred Stock
-------------------------- ---------------
Donald J. Douglass 13,000
James R. Hawkins 17,250
Rick R. Hagelstein 670
C. Ivan Wilson 15,078
James T. Sartain 17,250
Such executive officers and/or directors will be offered the same opportunity to
tender securities of the Company in connection with this Exchange Offer as the
other shareholders. While such officers and directors have not yet made a
decision with respect to exchange of the shares of Special Preferred Stock held
by them, such officers and directors will be making their exchange decision on
the basis of an evaluation of their own circumstances and investment objectives.
Plans or Proposals of the Issuer
The Special Preferred Stock that is tendered by security holders in
connection with the Exchange Offer by the Expiration Date will be retired by the
Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a summary of the principal federal income tax
consequences of an exchange of shares of Special Preferred Stock for shares of
New Preferred Stock pursuant to the Exchange Offer. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations, administrative pronouncements and judicial decisions now
in effect, all of
8
<PAGE>
EXHIBIT 99.(a)(1)
which are subject to change (possibly on a retroactive basis). This summary does
not address foreign, state or local tax consequences, nor does it address estate
or gift tax considerations. Furthermore, the summary does not address all
aspects of federal income taxation that may be relevant to investors in light of
their particular circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (such as dealers in
securities, tax-exempt organizations, pass-through entities, life insurance
companies, other financial institutions, regulated investment companies, foreign
stockholders, or other stockholders holding the Special Preferred Stock as part
of a conversion or hedging transaction or as a position in a straddle for tax
purposes).
Each holder of Special Preferred Stock is urged to consult with and rely
on the holder's own tax advisor with respect to the tax consequences to the
holder of exchanging Special Preferred Stock for New Preferred Stock pursuant to
the Exchange Offer.
Recapitalization
The exchange of Special Preferred Stock for New Preferred Stock pursuant
to the Exchange Offer should constitute a tax-free recapitalization under
section 368(a) of the Code.
By reason of the Exchange Offer being at recapitalization, except as
otherwise provided below, (i) no gain or loss will be recognized by a holder on
the receipt of New Preferred Stock in exchange for such holder's Special
Preferred Stock pursuant to the Exchange Offer, (ii) a holder's tax basis in the
New Preferred Stock will be the same as the holder's tax basis in the Special
Preferred Stock exchanged therefor, and (iii) a holder's holding period for the
New Preferred Stock will include the holding period for the Special Preferred
Stock surrendered in the Exchange Offer, provided that the Special Preferred
Stock was a capital asset in the hands of such holder.
The Taxpayer Relief Act of 1997 amended the rules regarding nonrecognition
treatment for certain types of preferred stock received in a reorganization.
Specifically, if nonqualified preferred stock (as defined in section 351(g) of
the Code) is received in a reorganization in exchange for stock other than
nonqualified preferred stock, the nonqualified preferred stock will not be
treated as stock, and gain or loss may be recognized in whole or in part.
Moreover, the nonrecognition rules of section 1036 of the Code no longer apply
to exchanges involving nonqualified preferred stock. However, if nonqualified
preferred stock is exchanged solely for nonqualified preferred stock in a
transaction that would otherwise qualify as a reorganization, no gain or loss is
recognized, except as required by section 305 as set forth below. Consequently,
if the New Preferred Stock, but not the Special Preferred Stock, is considered
nonqualified preferred stock within the meaning of section 351(g) of the Code,
the holders of Special Preferred Stock that exchange such stock for New
Preferred Stock could be required to recognize gain or loss in connection with
the Exchange Offer. Included in the definition of nonqualified preferred stock
is any preferred stock if "the issuer or a related party is required to redeem
or purchase such stock." Because the Corporation has an obligation to redeem
both the Special Preferred Stock and the New Preferred Stock, both stocks should
be considered nonqualified preferred stock, and the Exchange Offer should
constitute a tax-free exchange as described above to the exchanging holders who
receive New Preferred Stock.
Dividend Arrearages
Under section 305(c) of the Code, certain recapitalizations are treated as
taxable distributions if they remove dividend arrearages on preferred stock.
There currently are no dividend arrearages with respect to the Special Preferred
Stock and FirstCity does not believe that any such arrearages will exist at the
time of the Exchange Offer. Therefore, section 305(c) of the Code will not apply
to treat any portion of the New Preferred Stock as a dividend.
9
<PAGE>
EXHIBIT 99.(a)(1)
Redemption Premium
On August 27, 1998, the last full trading day prior to public announcement
of the Exchange Offer, the closing per share price of the New Preferred Stock
was $21.50. If the fair market value of the New Preferred Stock on the date of
the Exchange Offer is less than its $21 redemption price, then such difference
generally will be treated under section 305(c) of the Code as a series of
taxable distributions that are to be taken into account over the term of the New
Preferred Stock under principles comparable to those applicable to original
issue discount on debt instruments. Such constructive distributions will be
taxable as ordinary income (i.e., dividends) to the extent of FirstCity's
current and accumulated earnings and profits (if any) for each taxable year in
which they accrue.
RISK FACTORS
In addition to the other information contained in this Offering Circular
and incorporated herein by reference, holders of Special Preferred Stock should
carefully consider the following information. Reference is made to additional
information contained in Parts I and II of the Company 10-K and the Company 10-Q
which are attached hereto as Appendices A and B, respectively.
Risks Associated with Rapid Growth and Entry into New Businesses
The Company has recently entered the residential and commercial mortgage
banking business and the consumer lending business through a combination of
acquisitions and the start-up of new business ventures. The entry of the Company
into these new businesses has resulted in increased demands on the Company's
personnel and systems. The development and integration of the new businesses
requires the investment of additional capital and the continuous involvement of
senior management. The Company also must manage a variety of businesses with
differing markets, customer bases, financial products, systems and managements.
An inability to develop, integrate and manage its businesses could have a
material adverse effect on the Company's financial condition, results of
operations and business prospects. The Company's ability to support and manage
continued growth is dependent upon, among other things, its ability to attract
and retain senior management for each of its businesses, to hire, train, and
manage its workforce and to continue to develop the skills necessary for the
Company to compete successfully in its existing and new business lines. There
can be no assurance that the Company will successfully meet all of these
challenges.
Since the Company acquired Mortgage Corp. in July 1997, Mortgage Corp. has
experienced dramatic growth. To support such growth, the Company has furnished
Mortgage Corp. over $100 million in capital during this period. The Company has
concluded that the size of its capital commitment to Mortgage Corp. should be
reduced to continue to ensure that appropriate and adequate levels of capital
resources remain available to each of the Company's operating subsidiaries. As a
result, Mortgage Corp. is implementing a program to sell a portion of its owned
residential servicing rights and certain other assets. Although the Company
expects that such actions will reduce the capital committed to Mortgage Corp.
from the current level of over $100 million to approximately $50 to $70 million
over a six to nine month time frame, there can be no assurance that the Company
will be able to successfully implement such strategy. Reference is made to the
additional information contained in the Company's Current Report on Form 8-K
filed with the Commission on August 28, 1998, a copy of which is attached hereto
as Appendix E.
Continuing Need For Financing
General. The successful execution of the Company's business strategy
depends on its continued access to warehouse financing for each of its major
operating subsidiaries. In addition to the need for such warehouse financing,
the Company is required to invest as equity or subordinated debt the funds
10
<PAGE>
EXHIBIT 99.(a)(1)
necessary to meet the capital needs of its subsidiaries. To the extent that cash
flow to the Company from its subsidiaries is insufficient to provide all the
capital necessary to support the subsidiaries' operations, the Company is
required to access the debt and equity markets and to secure intermediate term
debt. The Company's access to the capital markets is affected by such factors as
changes in interest rates, general economic conditions, and the perception in
the capital markets of the Company's business, results of operations, leverage,
financial condition and business prospects. In addition, the Company's ability
to issue and sell common equity (including securities convertible into, or
exercisable or exchangeable for, common equity) is limited as a result of the
tax laws relating to the preservation of the NOLs available to the Company as a
result of the Merger. There can be no assurance that the Company's funding
relationships with commercial banks, investment banks and financial services
companies that have previously provided financing for the Company and its
subsidiaries will continue past their respective current maturity dates. The
majority of the credit facilities to which the Company and its subsidiaries are
parties have short-term maturities. If the Company and its subsidiaries are
unable to extend the terms of such credit facilities prior to their maturity and
the Company or its subsidiaries cannot find alternative funding sources on
satisfactory terms, or at all, the Company's financial condition, results of
operations and business prospects would be materially adversely affected.
Each of the Company and its major operating subsidiaries has its own
source of debt financing. In certain circumstances, a default by the Company or
any of its major operating subsidiaries in respect of indebtedness owed to a
third party constitutes a default under the Company's $75 million revolving
credit facility. The credit facilities to which the Company's major operating
subsidiaries are party do not contain similar cross-default or
cross-acceleration provisions. Although the Company intends to continue to
segregate the debt obligations of each such subsidiary, there can be no
assurance that its existing financing sources will continue to agree to such
arrangements or that alternative financing sources that would accept such
arrangements would be available. In the event the Company's major operating
subsidiaries are compelled to accept cross-guarantees, cross-default or
cross-acceleration provisions in connection with their respective credit
facilities, financial difficulties experienced by one of the Company's
subsidiaries could adversely impact the Company's other subsidiaries.
Dependence on Warehouse Financing. As is customary in the mortgage banking
and consumer lending businesses, the Company's subsidiaries depend upon
warehouse credit facilities with financial institutions or institutional lenders
to finance the origination and purchase of loans on a short-term basis pending
sale or securitization. Implementation of the Company's business strategy
requires the continued availability of warehouse credit facilities, and may
require increases in the permitted borrowing levels under such facilities. There
can be no assurance that such financing will be available on terms satisfactory
to the Company. The inability of the Company to arrange additional warehouse
credit facilities, to extend or replace existing facilities when they expire or
to increase the capacity of such facilities may have a material adverse effect
on the Company's financial condition, results of operations and business
prospects.
Risks of Securitization
Significance of Securitization. The Company may, subject to market
conditions, continue to securitize residential mortgage loans originated by the
Company to borrowers with significant equity in their homes who generally do not
satisfy the underwriting standards of the traditional mortgage lending market
(such loans referred to herein as "Home Equity Loans"), sub-prime automobile
loans and other loans to efficiently finance the volume of assets expected to be
generated. Accordingly, adverse changes in the secondary market for such loans
could impair the Company's ability to originate, purchase and sell loans on a
favorable or timely basis. Any such impairment could have a material adverse
effect upon the Company's financial condition, results of operations and
business prospects. Proceeds from the securitization of originated and acquired
loans are required to be used to repay borrowings under warehouse credit
facilities, thereby making such facilities available to finance the origination
and purchase
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EXHIBIT 99.(a)(1)
of additional loan assets. There can be no assurance that, as the Company's
volume of loans originated or purchased increases and other new products
available for securitization increases, the Company will be able to securitize
its loan production efficiently. An inability to efficiently securitize its loan
production could have a material adverse effect on the Company's financial
condition, results of operations and business prospects.
Securitization transactions may be affected by a number of factors, some
of which are beyond the Company's control, including, among other things, the
adverse financial condition of, or developments related to, some of the
Company's competitors, conditions in the securities markets in general, and
conditions in the asset-backed securitization market. The Company's
securitizations typically utilize credit enhancements in the form of financial
guaranty insurance policies to achieve enhanced credit ratings. Failure to
obtain insurance company credit enhancement could adversely affect the timing
of, or ability of the Company to effect, securitizations. In addition, the
failure to satisfy rating agency requirements with respect to loan pools would
adversely impact the Company's ability to effect securitizations.
Contingent Risks. Although the Company intends to sell substantially all
of the Home Equity Loans, sub-prime automobile loans and other consumer loans
that it originates or purchases, the Company retains some degree of credit risk
on substantially all loans sold. During the period in which loans are held
pending sale, the Company is subject to various business risks associated with
the lending business, including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers. The Company expects
that the terms of its securitizations will require it to establish deposit
accounts or build over-collateralization levels through retention of
distributions otherwise payable to the holders of subordinated interests in the
securitization. The Company also expects to be required to commit to repurchase
or replace loans that do not conform to the representations and warranties made
by the Company at the time of sale.
Retained Risks of Securitized Loans. The Company makes various
representations with respect to the loans that it securitizes. With respect to
acquired loans, the Company's representations rely in part on similar
representations made by the originators of such loans when they were purchased
by the Company. In the event of a breach of its representations, the Company may
be required to repurchase or replace the related loan using its own funds. While
the Company may have a claim against the originator in the event of a breach of
any of these representations made by the originators, the Company's ability to
recover on any such claim will be dependent on the financial condition of the
originator. There can be no assurance that the Company will not experience a
material loss in respect of any of these contingencies.
Performance Assumptions. The future net income of certain of the Company's
subsidiaries will be highly dependent on realizing securitization gains on the
sale of loans. Such gains will be dependent largely upon the estimated present
values of the subordinated interests expected to be derived from the
transactions and retained by the Company. Management makes a number of
assumptions in determining the estimated present values for the subordinated
interests. These assumptions include, but are not limited to, prepayment speeds,
default rates and subsequent losses on the underlying loans, and the discount
rates used to present value the future cash flows. All of the assumptions are
subjective. Varying the assumptions can have a material effect on the present
value determination in one securitization as compared to any other. Subsequent
events will cause the actual occurrences of prepayments, losses and interest
rates to be different from the assumptions used for such factors at the time of
the recognition of the sale of the loans. The effect of the subsequently
occurring events could cause a re-evaluation of the carrying values of the
previously estimated values of the subordinated interests and excess spreads and
such adjustment could be material.
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EXHIBIT 99.(a)(1)
Because the subordinated interests to be retained by such subsidiaries
represent claims to future cash flow that are subordinated to holders of senior
interests, such subsidiaries retain a significant portion of the risk of whether
the full value of the underlying loans may be realized. In addition, holders of
the senior interests may have the right to receive certain additional payments
on account of principal in order to reduce the balance of the senior interests
in proportion to the credit enhancement requirements of any particular
transaction. Such payments for the benefit of the senior interest holders will
delay the payment, if any, of excess cash flow to such subsidiaries as the
holder of the subordinated interests.
Impact of Changing Interest Rates
Because most of the Company's borrowings are at variable rates of
interest, the Company will be impacted by fluctuations in interest rates. The
Company monitors the interest rate environment and seeks to employ hedging
strategies designed to mitigate certain effects of changes in interest rates
when the Company deems such strategies appropriate. However, certain effects of
changes in interest rates, such as increased prepayments of outstanding loans,
cannot be mitigated. Fluctuations in interest rates could have a material
adverse effect on the Company's financial condition, results of operations and
business prospects.
Among other things, a decline in interest rates could result in increased
prepayments of outstanding loans, particularly on loans in the servicing
portfolio of Mortgage Corp. The value of servicing rights is a significant asset
of Mortgage Corp.; at June 30, 1998, the value of such servicing rights was
recorded at $124 million. Currently, Mortgage Corp. anticipates selling up to $3
billion of its owned residential servicing rights. The Company also anticipates
that Mortgage Corp. will, for the foreseeable future, sell periodically, a
portion of the servicing rights related to future loan production. See "- Risks
Associated with Rapid Growth and Entry into New Businesses." Reference is also
made to the additional information contained in the Company's Current Report on
Form 8-K filed with the Commission on August 28, 1998, a copy of which is
attached hereto as Appendix E. As prepayments of serviced mortgages increase,
the value of such servicing rights (as reflected on the Company's balance sheet)
declines, with a corresponding reduction in income as a result of the impairment
of the value of mortgage servicing rights. Although to date the impact of such
effect has largely been mitigated by increased production of mortgages from
refinancings during periods of declining interest rates, there can be no
assurance that new mortgage production will be sufficient to mitigate such
effect in the future. Absent a level of new mortgage production sufficient to
mitigate the effect of mortgage loan prepayments, the future revenue and
earnings of the Company will be adversely affected. In addition to prepayment
risks, during periods of declining interest rates, Mortgage Corp. experiences
higher levels of borrowers who elect not to close on loans for which they have
applied because they tend to find loans at lower interest rates. If Mortgage
Corp. has entered into commitments to sell such a loan on a forward basis and
the prospective borrower fails to close, Mortgage Corp. must nevertheless meet
its commitment to deliver the contracted for loans at the promised yields.
Mortgage Corp. will incur a loss if it is required to deliver loans to an
investor at a committed yield higher than current market rates. A substantial
and sustained decline in interest rates also may adversely impact the amount of
distressed assets available for purchase by the Company. The value of the
Company's interest-earning assets and liabilities may be directly affected by
the level of and fluctuations in interest rates, including the valuation of any
residual interests in securitizations that would be severely impacted by
increased loan prepayments resulting from declining interest rates. At June 30,
1998, the Company had residual interests resulting from its previous
securitizations aggregating approximately $43 million.
Conversely, a substantial and sustained increase in interest rates could
adversely affect the ability of the Company to originate loans and could reduce
the gains recognized by the Company upon their securitization and sale.
Fluctuating interest rates also may affect the net interest income earned by the
Company resulting from the difference between the yield to the Company on
mortgage and other loans
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EXHIBIT 99.(a)(1)
held pending sale and the interest paid by the Company for funds borrowed under
the Company's warehouse credit facilities or otherwise.
Credit Impaired Borrowers
The Company's sub-prime borrowers generally are unable to obtain credit
from traditional financial institutions due to factors such as an impaired or
poor credit history, low income or another adverse credit event. The Company is
subject to various risks associated with these borrowers, including, but not
limited to, the risk that the borrowers will not satisfy their debt service
obligations and that the realizable value of the assets securing their loans
will not be sufficient to repay the borrowers' debt. While the Company believes
that the underwriting criteria and collection methods it employs enable it to
identify and control the higher risks inherent in loans made to such borrowers,
and that the interest rates charged compensate the Company for the risks
inherent in such loans, no assurance can be given that such criteria or methods,
or such interest rates, will afford adequate protection against, or compensation
for, higher than anticipated delinquencies, foreclosures or losses. The actual
rate of delinquencies, foreclosures or losses could be significantly accelerated
by an economic downturn or recession. Consequently, the Company's financial
condition, results of operations and business prospects could be materially
adversely affected. The Company has established an allowance for loan losses
through periodic earnings charges and purchase discounts on acquired receivables
to cover anticipated loan losses on the loans currently in its portfolio. No
assurance can be given, however, that loan losses in excess of the allowance
will not occur in the future or that additional provisions will not be required
to provide for adequate allowances in the future.
Availability of Portfolio Assets
The Portfolio Asset acquisition and resolution business is affected by
long-term cycles in the general economy. In addition, the volume of domestic
Portfolio Assets available for purchase by investors such as the Company has
generally declined since 1993 as large pools of distressed assets acquired by
governmental agencies in the 1980s and early 1990s have been resolved or sold.
The Company cannot predict its future annual acquisition volume of Portfolio
Assets. Moreover, future Portfolio Asset purchases will depend on the
availability of Portfolios offered for sale, the availability of capital and the
Company's ability to submit successful bids to purchase Portfolio Assets. The
acquisition of Portfolio Assets has become highly competitive in the United
States. This may require the Company to acquire Portfolio Assets at higher
prices thereby lowering profit margins on the resolution of such Portfolios.
Under certain circumstances, the Company may choose not to bid for Portfolio
Assets that it believes cannot be acquired at attractive prices. As a result of
all the above factors, Portfolio Asset purchases, and the revenue derived from
the resolution of Portfolio Assets, may vary significantly from quarter to
quarter. The Company may acquire assets in other countries. See " -- Risks
Associated with Foreign Operations."
Availability of Net Operating Loss Carryforwards
The Company believes that, as a result of the Merger, approximately $596
million of NOLs were available to the Company to offset future taxable income as
of December 31, 1995. Since December 31, 1995, the Company estimates that it has
generated an additional $12 million in NOLs. Accordingly, as of December 31,
1997, the Company estimates that it had approximately $608 million of NOLs
available to offset future taxable income. In accordance with the terms of
Financial Accounting Standards Board Statement Number 109 (relating to
accounting for income taxes), the Company has established a future utilization
equivalent to approximately $87.7 million of the total $608 million of NOLs,
which equates to a $30.6 million deferred tax asset on the Company's books and
records. However, because the Company's position in respect of its NOLs is based
upon factual determinations and upon legal issues with respect to which there is
uncertainty and because no ruling has been obtained from the Internal
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EXHIBIT 99.(a)(1)
Revenue Service (the "IRS") regarding the amount or availability of the NOLs to
the Company, there can be no assurance that the IRS will not challenge the
amount or availability of the Company's NOLs and, if challenged, that the IRS
will not be successful in disallowing the entire amount of the Company's NOLs,
with the result that the Company's $30.6 million deferred tax asset would be
reduced or eliminated.
Assuming that the $608 million in NOLs is available to the Company, the
entire amount of such NOLs may be carried forward to offset future taxable
income of the Company until the tax year 2005. Thereafter, the NOLs begin to
expire. The ability of the Company to utilize such NOLs will be severely limited
if there is a more than 50% ownership change of the Company during a three-year
testing period within the meaning of section 382 of the Internal Revenue Code of
1986, as amended (the "Code"). There can be no assurance that future
transactions, alone or in combination, will not result in a more than 50%
ownership change of the Company and a limitation of the Company's utilization of
such NOLs.
If the Company were unable to utilize its NOLs to offset future taxable
income, it would lose significant competitive advantages that it now enjoys.
Such advantages include, but are not limited to, the Company's ability to offset
non-cash income recognized by the Company in connection with certain
securitizations, to generate capital to support its expansion plans on a
tax-advantaged basis, to offset its and its consolidated subsidiaries' pre-tax
income, and to have access to the cash flow that would otherwise be represented
by payments of federal tax liabilities.
Assumptions Underlying Portfolio Asset Performance
The purchase price and carrying value of Portfolio Assets acquired by
Commercial Corp. is determined largely by estimating expected future cash flows
from such assets. The Company develops and revises such estimates based on its
historical experience and current market conditions, and based on the discount
rates that the Company believes are appropriate for the assets comprising the
Portfolios. In addition, many obligors on Portfolio Assets have impaired credit,
with risks associated with such obligors similar to the risks described in
respect of borrowers under "-- Credit Impaired Borrowers." If the amount and
timing of actual cash flows is materially different from estimates, the
Company's financial condition, results of operations and business prospects
could be materially adversely affected.
General Economic Conditions
Periods of economic slowdown or recession, or declining demand for
residential or commercial real estate, automobile loans or other commercial or
consumer loans may adversely affect the Company's business. Economic downturns
may reduce the number of loan originations by the Company's mortgage banking,
consumer and commercial finance businesses and negatively impact its
securitization activity and generally reduce the value of the Company's assets.
In addition, periods of economic slowdown or recession, whether general,
regional or industry-related, may increase the risk of default on mortgage loans
and other loans and could have a material adverse effect on the Company's
financial condition, results of operations and business prospects. Such periods
also may be accompanied by declining values of homes, automobiles and other
property securing outstanding loans, thereby weakening collateral coverage and
increasing the possibility of losses in the event of default. Significant
increases in homes or automobiles for sale during recessionary economic periods
may depress the prices at which such collateral may be sold or delay the timing
of such sales. There can be no assurance that there will be adequate markets for
the sale of foreclosed homes or repossessed automobiles. Any material
deterioration of such markets could reduce recoveries from the sale of
collateral.
Such economic conditions could also adversely affect the resolution of
Portfolio Assets, lead to a decline in prices or demand for collateral
underlying Portfolio Assets, or increase the cost of capital invested by the
Company and the length of time that capital is invested in a particular
Portfolio. All or
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EXHIBIT 99.(a)(1)
any one of these events could decrease the rate of return and profits to be
realized from such Portfolio and materially adversely affect the Company's
financial condition, results of operations and business prospects.
Risk of Declining Value of Collateral
The value of the collateral securing mortgage loans, automobile and other
consumer loans and loans acquired for resolution, as well as real estate or
other acquired distressed assets, is subject to various risks, including
uninsured damage, change in location or decline in value caused by use, age or
market conditions. Any material decline in the value of such collateral could
adversely affect the financial condition, results of operations and business
prospects of the Company.
Government Regulation
Many aspects of the Company's business are subject to regulation,
examination and licensing under various federal, state and local statutes and
regulations that impose requirements and restrictions affecting, among other
things, the Company's loan originations, credit activities, maximum interest
rates, finance and other charges, disclosures to customers, the terms of secured
transactions, collection, repossession and claims handling procedures, multiple
qualification and licensing requirements for doing business in various
jurisdictions, and other trade practices. The Company believes it is currently
in compliance in all material respects with applicable regulations, but there
can be no assurance that the Company will be able to maintain such compliance.
Failure to comply with, or changes in, these laws or regulations, or the
expansion of the Company's business into jurisdictions that have adopted more
stringent regulatory requirements than those in which the Company currently
conducts business, could have an adverse effect on the Company by, among other
things, limiting the interest and fee income the Company may generate on
existing and additional loans, limiting the states in which the Company may
operate or restricting the Company's ability to realize on the collateral
securing its loans.
The mortgage banking industry in particular is highly regulated. Failure
to comply with any of the various state and federal laws affecting the industry,
all of which are subject to regular modification, may result in, among other
things, demands for indemnification or mortgage loan repurchases, certain rights
of rescission for mortgage loans, class action lawsuits, administrative
enforcement actions and civil and criminal liability. Furthermore, currently
there are proposed various laws, rules and regulations which, if adopted, could
materially affect the Company's business. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or regulations
will not be adopted in the future that will make compliance more difficult or
expensive, restrict the Company's ability to originate, purchase, service or
sell loans, further limit or restrict the amount of commissions, interest and
other charges earned on loans originated, purchased, serviced or sold by the
Company, or otherwise have a material adverse effect on the Company's financial
condition, results of operations and business prospects.
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. The reduction or elimination of these tax benefits may
lessen the demand for residential mortgage loans and Home Equity Loans, and
could have a material adverse effect on the Company's financial condition,
results of operations and business prospects.
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EXHIBIT 99.(a)(1)
Environmental Liabilities
The Company, through its subsidiaries and affiliates, acquires real
property in its Portfolio Asset acquisition and resolution business, and
periodically acquires real property through foreclosure of mortgage loans that
are in default. There is a risk that properties acquired by the Company could
contain hazardous substances or waste, contaminants or pollutants. The Company
may be required to remove such substances from the affected properties at its
expense, and the cost of such removal may substantially exceed the value of the
affected properties or the loans secured by such properties. Furthermore, the
Company may not have adequate remedies against the prior owners or other
responsible parties to recover its costs, either as a matter of law or
regulation, or as a result of such prior owners' financial inability to pay such
costs. The Company may find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
Competition
All of the businesses in which the Company operates are highly
competitive. Some of the Company's principal competitors are substantially
larger and better capitalized than the Company. Because of their resources,
these companies may be better able than the Company to obtain new customers for
mortgage or other loan production, to acquire Portfolio Assets, to pursue new
business opportunities or to survive periods of industry consolidation. Access
to and the cost of capital are critical to the Company's ability to compete.
Many of the Company's competitors have superior access to capital sources and
can arrange or obtain lower cost of capital, resulting in a competitive
disadvantage to the Company with respect to such competitors.
In addition, certain of the Company's competitors may have higher risk
tolerances or different risk assessments, which could allow these competitors to
establish lower margin requirements and pricing levels than those established by
the Company. In the event a significant number of competitors establish pricing
levels below those established by the Company, the Company's ability to compete
would be adversely affected.
Risks Associated with Foreign Operations
The Company has acquired, and manages and resolves, Portfolio Assets
located in France and is actively pursuing opportunities to purchase additional
pools of distressed assets in France, other areas of Western Europe, Asia and
Mexico. Foreign operations are subject to various special risks, including
currency translation risks, currency exchange rate fluctuations, exchange
controls and different political, social and legal and regulatory environments
within such foreign markets. To the extent future financing in foreign
currencies is unavailable at reasonable rates, the Company would be further
exposed to currency translation risks, currency exchange rate fluctuations and
exchange controls. In addition, earnings of foreign operations may be subject to
foreign income taxes that reduce cash flow available to meet debt service
requirements and other obligations of the Company, which may be payable even if
the Company has no earnings on a consolidated basis. Any or all of the foregoing
could have a material adverse effect on the Company's financial condition,
results of operations and business prospects.
Dependence on Independent Mortgage Brokers
The Company depends in large part on independent mortgage brokers for the
origination and purchase of mortgage loans. A substantial portion of the loans
originated by Mortgage Corp., and all of the Home Equity Loans originated by
Capital Corp., are currently originated with and through a network of
approximately 6500 independent mortgage brokers or otherwise acquired from third
parties. In 1997, $2.67 billion of loans were originated through independent
brokers and $565.4 million were originated through Mortgage Corp.'s retail
system. For the first 6 months of 1998, $3.27 billion of loans were
17
<PAGE>
EXHIBIT 99.(a)(1)
originated through independent brokers and $585 million were originated through
Mortgage Corp.'s retail system. The independent mortgage brokers deal with
multiple lenders for each prospective borrower. The Company competes with these
lenders for the independent brokers' business based on a number of factors,
including price, service, loan fees and costs. The Company's financial
condition, results of operations and business prospects could be adversely
affected by changes in the volume and profitability of mortgage loans resulting
from, among other things, competition with other lenders and purchasers of such
loans.
Class action lawsuits have been filed against a number of mortgage
lenders, including Mortgage Corp., alleging that such lenders have violated the
federal Real Estate Settlement Procedures Act of 1974 by making certain payments
to independent mortgage brokers. If these cases are resolved against the
lenders, it may cause an industry-wide change in the way independent mortgage
brokers are compensated. Such changes may have a material adverse effect on the
Company's results of operations, financial condition and business prospects.
Dependence on Automobile Dealership Relationships
The ability of the Company to expand into new geographic markets and to
maintain or increase its volume of automobile loans is dependent upon
maintaining and expanding the network of franchised automobile dealerships from
which it purchases contracts. The Company currently purchases contracts from
approximately 250 automobile dealerships. Increased competition, including
competition from captive finance affiliates of automobile manufacturers, could
have a material adverse effect on the Company's ability to maintain or expand
its dealership network.
Litigation
Industry participants in the lending business from time to time are named
as defendants in litigation involving alleged violations of federal and state
consumer protection or other similar laws and regulations. A judgment against
the Company in connection with any such litigation could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects.
Relationship With and Dependence Upon Cargill
The Company's relationship with Cargill Financial is significant in a
number of respects. Cargill Financial, a subsidiary of Cargill, Incorporated, a
privately held, multi-national agricultural company, provides equity and debt
financings for many of the Acquisition Partnerships. Cargill Financial owns
approximately 2.7% of the Company's outstanding Common Stock, and a Cargill
Financial designee, David W. MacLennan, serves as a director of the Company. The
Company believes its relationship with Cargill Financial significantly enhances
the Company's credibility as a purchaser of Portfolio Assets and facilitates its
ability to expand into other businesses and foreign markets. Although management
believes that the Company's relationship with Cargill Financial is excellent,
there can be no assurance that such relationship will continue in the future.
Absent such relationship, the Acquisition Partnerships would be required to find
alternative sources for the financing that Cargill Financial has historically
provided. There can be no assurance that such alternative financing would be
available. Any termination of such relationship could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects.
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EXHIBIT 99.(a)(1)
Dependence on Key Personnel
The Company is dependent on the efforts of its senior executive officers,
particularly James R. Hawkins (Chairman and Chief Executive Officer), James T.
Sartain (President and Chief Operating Officer), Rick R. Hagelstein (Executive
Vice President and Director of Subsidiary Operations) and Matt A. Landry, Jr.
(Executive Vice President and Chief Administrative Officer). The Company is also
dependent on several of the key members of management of each of its operating
subsidiaries, many of whom were instrumental in developing and implementing the
business strategy for such subsidiaries. As a result of the recent retirement of
Richard J. Gillen, Rick R. Hagelstein has assumed the position of Chairman,
President and Chief Executive Officer of Mortgage Corp. The inability or
unwillingness of one or more of these individuals to continue in his present
role could have a material adverse effect on the Company's financial condition,
results of operations and business prospects. None of the senior executive
officers has entered into an employment agreement with the Company. There can be
no assurance that any of the foregoing individuals will continue to serve in his
current capacity or for what time period such service might continue. The
Company does not maintain key person life insurance for any of its senior
executive officers.
Reference is made to the additional information contained in the Company's
Current Report on Form 8-K filed with the Commission on August 24, 1998, a copy
of which is attached hereto as Appendix D.
Influence of Certain Shareholders
The directors and executive officers of the Company collectively
beneficially own approximately 30.9% of the Common Stock. Although there are no
agreements or arrangements with respect to voting such Common Stock among such
persons except as described below, such persons, if acting together, may
effectively be able to control any vote of shareholders of the Company and
thereby exert considerable influence over the affairs of the Company. James R.
Hawkins, the Chairman of the Board and Chief Executive Officer of the Company,
is the beneficial owner of approximately 11.5% of the outstanding Common Stock.
James T. Sartain, President and Chief Operating Officer of the Company, and
ATARA I, Ltd. ("ATARA"), an entity associated with Rick R. Hagelstein, Executive
Vice President and Director of Subsidiary Operations of the Company,
beneficially own approximately 4.3% and 4.1% of the outstanding Common Stock,
respectively. In addition, Cargill Financial owns approximately 2.7% of the
Common Stock. Mr. Hawkins, Mr. Sartain, Cargill Financial and ATARA are parties
to a shareholder voting agreement (the "Shareholder Voting Agreement"). Under
the Shareholder Voting Agreement, Mr. Hawkins, Mr. Sartain and ATARA are
required to vote their shares in favor of Cargill Financial's designee for
director of the Company, and Cargill Financial is required to vote its shares in
favor of one or more of the designees of Messrs. Hawkins and Sartain and ATARA.
ATARA, Cargill Financial and Messrs. Hawkins and Sartain are the beneficial
owners of an aggregate of 22.6% of the outstanding Common Stock and are able to
exert considerable influence over the affairs of the Company. Richard J. Gillen,
former Chairman, President and Chief Executive Officer of Mortgage Corp., and Ed
Smith are the beneficial owners of 7.8% and 7.2%, respectively, of the Common
Stock. As a result, Messrs. Gillen and Smith may be able to exert influence over
the affairs of the Company and if their shares are combined with the holdings of
Messrs. Hawkins and Sartain and the shares held by ATARA, will have effective
control of the Company. There can be no assurance that the interests of
management or the other entities and individuals named above will be aligned
with the Company's other shareholders.
As of the date hereof, directors and executive officers of the Company own
63,248 shares of the outstanding Special Preferred Stock and 98,100 shares of
the outstanding New Preferred Stock.
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EXHIBIT 99.(a)(1)
Reliance on Systems; Year 2000 Issues
The Company's computer systems are integral to the operation of its
businesses. There can be no assurance that these systems will continue to be
adequate to support the Company's growth. A failure of the Company's computer
systems, including a failure of data integrity or accuracy, could have a
material adverse effect on the Company's financial condition, results of
operations and business prospects.
Although the Company maintains its own computer systems for a significant
portion of its operations, the Company is substantially dependent on the
services of third-party servicers in its mortgage banking and Portfolio Asset
acquisition and resolution businesses. The Company has been informed by such
servicers that, although they intend to make the necessary modifications to
their computer systems, the computer systems operated by them are not yet year
2000 compliant. In addition, the Company interacts electronically with several
government agencies, including FHLMC, FNMA, FHA, FMHA and GNMA, whose computer
systems are not yet year 2000 compliant. There can be no assurance that such
third parties and government agencies will make the necessary modifications to
their respective computer systems to enable proper processing of transactions
relating to the year 2000 and beyond. Any failure by such entities to timely
correct year 2000 issues could have a material adverse effect on the Company's
financial condition, results of operations and business prospects.
Anti-Takeover Considerations
The Company's Amended and Restated Certificate of Incorporation and
by-laws contain a number of provisions relating to corporate governance and the
rights of shareholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect to the extent they are utilized to delay, defer
or prevent a change of control of the Company by deterring unsolicited tender
offers or other unilateral takeover proposals and compelling negotiations with
the Company's Board of Directors rather than non-negotiated takeover attempts
even if such events may be in the best interests of the Company's shareholders.
The Amended and Restated Certificate of Incorporation also contains certain
provisions restricting the transfer of its securities that are designed to
prevent ownership changes that might limit or eliminate the ability of the
Company to use its NOLs.
Period to Period Variances
The Company recognizes revenue from Portfolio Assets and Acquisition
Partnerships based on proceeds realized from the resolution of the Portfolio
Assets, which proceeds have historically varied significantly and likely will
continue to vary significantly from period to period. Consequently, the
Company's period to period revenue and net income have historically varied, and
are likely to continue to vary, correspondingly. Such variances, alone or with
other factors, such as conditions in the economy or the financial services
industries or other developments affecting the Company, may result in
significant fluctuations in the reported earnings of the Company and in the
trading prices of the Company's securities, particularly the Common Stock.
Tax, Monetary and Fiscal Policy Changes
The Company originates and acquires financial assets, the value and income
potential of which are subject to influence by various state and federal tax,
monetary and fiscal policies in effect from time to time. The nature and
direction of such policies are entirely outside the control of the Company, and
the Company cannot predict the timing or effect of changes in such policies.
Changes in such policies could have a material adverse effect on the Company's
financial condition, results of operations and business prospects.
20
<PAGE>
EXHIBIT 99.(a)(1)
THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
stated in this Exchange Offer, and the accompanying Letter of Transmittal, to
exchange for each share of Special Preferred Stock tendered to the Company one
share of New Preferred Stock (the "Tender Offer Consideration"). The Exchange
Offer is being made for all of the outstanding shares of Special Preferred
Stock.
As of the date of this Exchange Offer, 849,777 shares of Special Preferred
Stock were outstanding.
Dividends in respect of shares of Special Preferred Stock validly tendered
and accepted in exchange will be paid through September 30, 1998. Dividends on
the New Preferred Stock will accrue from and after October 1, 1998.
The Special Preferred Stock constitutes the consideration to be used in
the Exchange Offer to the extent that it is redeemed prior to the Expiration
Date in return for New Preferred Stock.
Terms of the Exchange Offer
Although the Company has no present intention to do so, if it should
modify the Tender Offer Consideration offered for the Special Preferred Stock in
the Exchange Offer, the modified consideration would be paid with regard to all
Special Preferred Stock accepted in the Exchange Offer, including shares
tendered before the announcement of the modification. If the Company modifies
the Tender Offer Consideration, the Exchange Offer will remain open at least 10
business days from the date the Company first publishes, sends or gives notice,
by public announcement or otherwise, of such modification to the holders of
Special Preferred Stock.
Although the Company has no current plan or intention to do so, it
reserves the right, subject to applicable law, to purchase or make offers for
any shares of Special Preferred Stock that remain outstanding subsequent to the
Expiration Date. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Tendering holders of Special Preferred Stock will not be required to pay
brokerage commissions or fees. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
Conditions
The obligation of the Company to consummate the Exchange Offer is subject
to certain conditions, including, among others, the requirement that there shall
not have occurred any change or development involving a prospective change in or
affecting the business or financial affairs of the Company which, in the sole
judgment of the Board of Directors, would or might prohibit, restrict or delay
consummation of the Exchange Offer or materially impair the contemplated
benefits to the Company of the Exchange Offer.
In addition, notwithstanding any other provision of the Exchange Offer,
the Company shall not be required to accept for exchange or, subject to any
applicable rules or regulations of the Commission, exchange any Special
Preferred Stock tendered for exchange and may postpone the acceptance for
exchange of any Special Preferred Stock tendered and to be exchanged by it, and
may terminate or amend the Exchange Offer as provided herein if at any time on
or after the date of this Exchange Offer
21
<PAGE>
EXHIBIT 99.(a)(1)
and before acceptance for exchange of any shares of Special Preferred Stock, any
of the following conditions have occurred:
(1) there shall have been instituted or threatened or be pending any
action or proceeding before or by any court or governmental, regulatory or
administrative agency or instrumentality, or by any other person, in
connection with the Exchange Offer that is, or is reasonably likely to be,
in the sole judgment of the Company, materially adverse to the business,
operations, properties, condition (financial or otherwise), assets,
liabilities or prospects of the Company;
(2) there shall have occurred any material adverse development, in
the sole judgment of the Company, with respect to any action or proceeding
concerning the Company;
(3) an order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated by any court or administrative agency or
instrumentality that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of the Exchange Offer
that is, or is reasonably likely to be, materially adverse to the
business, operations, properties, condition (financial or otherwise),
assets, liabilities or prospects of the Company;
(4) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company or which, in
the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer or that will, or is
reasonably likely to, materially impair the contemplated benefits to the
Company of the Exchange Offer, or otherwise result in the consummation of
the Exchange Offer not being or not reasonably likely to be in the best
interests of the Company;
(5) the Company shall not have received from any federal, state or
local governmental, regulatory or administrative agency or
instrumentality, any approval, authorization or consent that, in the sole
judgment of the Company, is necessary to effect the Exchange Offer; or
(6) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (ii) any significant adverse change in
the price of the Special Preferred Stock in the United States securities
or financial markets, (iii) a material impairment in the trading market
for securities, (iv) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (v) any
limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on,
or other event that, in the reasonable judgment of the Company, might
affect, the extension of credit by banks or other lending institutions,
(vi) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States,
(vii) any imposition of a general suspension of trading or limitation of
prices on the New York Stock Exchange or the Nasdaq National Market System
or (viii) in the case of any of the foregoing existing on the date hereof,
a material acceleration or worsening thereof.
All the foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such conditions and may be waived by the Company, in whole or in part, at any
time and from time to time, in the sole discretion of the Company. The failure
by the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
22
<PAGE>
EXHIBIT 99.(a)(1)
If any of the conditions set forth in this section shall not be satisfied,
the Company may, subject to applicable law, (i) terminate the Exchange Offer and
return all Special Preferred Stock tendered pursuant to the Exchange Offer to
tendering holders; (ii) extend the Exchange Offer and retain all tendered
Special Preferred Stock until the Expiration Date as extended; (iii) amend the
terms of the Exchange Offer or modify the consideration to be paid by the
Company pursuant to the Exchange Offer; or (iv) waive the unsatisfied conditions
with respect to the Exchange Offer and accept all Special Preferred Stock
tendered pursuant to the Exchange Offer.
Expiration; Extension; Termination; Amendment
The Exchange Offer will expire at 12:00 Midnight, New York City time, on
Tuesday, September 29, 1998 (the "Expiration Date"). The Company expressly
reserves the right, in its sole discretion, at any time or from time to time, to
extend the period during which the Exchange Offer is open by giving oral or
written notice of such extension to the Exchange Agent and making a public
announcement thereof. There can be no assurance that the Company will exercise
its right to extend the Exchange Offer or that the Exchange Offer otherwise will
be extended. During any extension of the Exchange Offer, all Special Preferred
Stock previously tendered pursuant thereto and not converted or withdrawn will
remain subject to the Exchange Offer and may be accepted for exchange by the
Company at the expiration of the Exchange Offer subject to the right of a
tendering holder to withdraw his Special Preferred Stock prior to the Expiration
Date. See "The Exchange Offer -- Withdrawal of Tenders." Under no circumstances
will interest on the Tender Offer Consideration be paid by the Company by reason
of any such extension.
The Company also expressly reserves the right, subject to applicable law,
to delay acceptance for the exchange of any Special Preferred Stock or,
regardless of whether such shares of Special Preferred Stock were theretofore
accepted for exchange, to delay the exchange of any Special Preferred Stock
pursuant to the Exchange Offer or to terminate the Exchange Offer and not accept
for exchange any Special Preferred Stock, if any of the conditions to the
Exchange Offer specified herein fail to be satisfied, by giving oral or written
notice of such delay or termination to the Exchange Agent. The reservation by
the Company of the right to delay the exchange or acceptance for exchange of
Special Preferred Stock is subject to the provisions of Rule 13e-4(f)(5) under
the Exchange Act, which requires that the Company pay the consideration offered
or return the Special Preferred Stock deposited by or on behalf of holders
thereof promptly after the termination or withdrawal of the Exchange Offer.
Any extension, delay, termination or amendment of the Exchange Offer will
be followed as promptly as practicable by a public announcement thereof. Without
limiting the manner in which the Company may choose to make a public
announcement of any extension, delay, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a release to the
Dow Jones News Service, except in the case of an announcement of an extension of
the Exchange Offer, in which case the Company shall have no obligation to
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date.
If the Company increases or decreases the Tender Offer Consideration or
decreases the amount of Special Preferred Stock sought in the Exchange Offer,
the Exchange Offer will remain open at least 10 business days from the date that
the Company first publishes, sends or gives notice, by public announcement or
otherwise, of such increase or decrease. The Company has no current intention to
increase or decrease the Tender Offer Consideration currently offered or the
amount of Special Preferred Stock sought to be purchased.
23
<PAGE>
EXHIBIT 99.(a)(1)
If the Company materially changes the terms of the Exchange Offer or the
information concerning the Exchange Offer, the Company will extend the Exchange
Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated
under the Exchange Act. These rules provide that the minimum period during which
an offer must remain open following a material change in the terms of the offer
or information concerning the offer (other than a change in consideration
offered or a change in percentage of securities sought) will depend on the facts
and circumstances, including the relative materiality of such terms or
information. The Commission has stated that as a general rule, it is of the view
that an offer should remain open for a minimum of five business days from the
date that notice of such a material change is first published, sent or given.
Procedures for Tendering
For a holder validly to tender Special Preferred Stock pursuant to the
Exchange Offer, a properly completed and validly executed Letter of Transmittal
(or a facsimile thereof), together with any signature guarantees and any other
documents required by the instructions to the Letter of Transmittal, must be
received by the Exchange Agent prior to the Expiration Date at one of the
addresses set forth on the back cover page of this Exchange Offer. In addition,
the Exchange Agent must receive either certificates for tendered Special
Preferred Stock at any of such addresses or such Special Preferred Stock must be
transferred pursuant to the procedures for book-entry transfer described below
and a configuration of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date. A holder who desires to tender Special
Preferred Stock and who cannot comply with the procedures set forth herein for
tender on a timely basis or whose shares of Special Preferred Stock are not
immediately available must comply with the procedures for guaranteed delivery
set forth below. Letters of Transmittal, certificates representing Special
Preferred Stock and confirmations of book-entry transfer should be sent only to
the Exchange Agent, and not to the Company.
Delivery of Letters of Transmittal
If the certificates for Special Preferred Stock are registered in the name
of a person other than the signer of the Letter of Transmittal relating thereto,
then to tender such Special Preferred Stock pursuant to the Exchange Offer, the
certificates evidencing such Special Preferred Stock must be endorsed or
accompanied by appropriate stock powers signed exactly as the name or names of
the registered owner or owners appear on the certificates, with the signatures
on the certificates or stock powers guaranteed as provided below.
Any beneficial owner whose shares of Special Preferred Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender Special Preferred Stock should contact
such registered holder promptly and instruct such registered holder to tender
the Special Preferred Stock on such beneficial owner's behalf. If any beneficial
owner wishes to tender Special Preferred Stock himself, that beneficial owner
must, prior to completing and executing the Letter of Transmittal and, where
applicable, delivering his Special Preferred Stock, either make appropriate
arrangements to register ownership of the Special Preferred Stock in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take a considerable
amount of time.
The method of delivery of Special Preferred Stock, Letters of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holder tendering the Special Preferred Stock. If delivery is to be
made by mail, it is suggested that the holder use properly insured, registered
mail with return receipt requested, and that the mailing be made sufficiently in
advance of the Expiration Date to permit delivery to the Exchange Agent prior to
that date and time.
24
<PAGE>
EXHIBIT 99.(a)(1)
Book-Entry Transfer
Promptly after the commencement of the Exchange Offer, the Exchange Agent
will seek to establish a new account or utilize an existing account with respect
to the Special Preferred Stock at The Depository Trust Company (the "Book-Entry
Transfer Facility"). Any financial institution that is a participant in the
Book-Entry Transfer Facility system and whose name appears on a security
position listing as the owner of Special Preferred Stock may make book-entry
delivery of such Special Preferred Stock by causing the Book-Entry Transfer
Facility to transfer such Special Preferred Stock into the Exchange Agent's
account in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. However, although delivery of Special Preferred Stock may be
effected through book-entry transfer at a Book-Entry Transfer Facility, the
applicable Letter of Transmittal (or a facsimile thereof), properly completed
and validly executed, with any required signature guarantees and any other
required documents, must, in any case, be received by the Exchange Agent at its
address set forth on the back cover page of this Exchange Offer on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures described below. Delivery of the Letter of Transmittal and
any other required documents to a Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
Signature Guarantees
Signatures on the Letter of Transmittal must be guaranteed by a firm that
is a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States or by any other
company having an office or correspondent in the United States or by any other
"eligible guarantor institution" as defined in Rule 17Ad-15 under the Exchange
Act (each of the foregoing being an "Eligible Institution") unless (a) the
Letter of Transmittal is signed by the registered holder of the Special
Preferred Stock tendered therewith (or by a participant in one of the Book-Entry
Transfer Facilities whose name appears on a security position listing as the
owner of such Special Preferred Stock) and neither the "Special Issuing and
Delivery Instructions" box nor the "Special Delivery Instructions" box of the
Letter of Transmittal is completed, or (b) such shares of Special Preferred
Stock are tendered for the account of an Eligible Institution.
Guaranteed Delivery
If a holder desires to tender Special Preferred Stock pursuant to the
Exchange Offer and (i) certificates representing such Special Preferred Stock
are not immediately available, (ii) time will not permit such holder's Letter of
Transmittal, certificates evidencing such Special Preferred Stock or other
required documents to reach the Exchange Agent prior to the Expiration Date or
(iii) such holder cannot complete the procedures for book-entry transfer prior
to the Expiration Date, a tender may be effected if all the following are
complied with:
(a) such tender is made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Exchange Agent has
received from such Eligible Institution, at the address of the Exchange
Agent set forth on the back cover page of this Exchange Offer, a properly
completed and validly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) in substantially the
form accompanying this Exchange Offer, setting forth the name and address
of the registered holder and the principal amount of Special Preferred
Stock being tendered and stating that the tender is being made thereby and
guaranteeing that, within three Nasdaq National Market System trading days
after the date of the Notice of Guaranteed Delivery, the Letter of
Transmittal validly executed (or a facsimile thereof), together with
certificates evidencing the Special Preferred
25
<PAGE>
EXHIBIT 99.(a)(1)
Stock (or confirmation of book-entry transfer of such Special Preferred
Stock into the Exchange Agent's account with a transfer of such Special
Preferred Stock into the Exchange Agent's account with a Book-Entry
Transfer Facility), and any other documents required by the Letter of
Transmittal and the instructions thereto, will be deposited by such
Eligible Institution with the Exchange Agent; and
(c) such Letter of Transmittal (or a facsimile thereof), properly
completed and validly executed, together with certificates evidencing all
physically delivered Special Preferred Stock in proper form for transfer
(or confirmation of book-entry transfer of such Special Preferred Stock
into the Exchange Agent's account with a Book-Entry Transfer Facility) and
any other required documents are received by the Exchange Agent within
three Nasdaq National Market System trading days after the date of such
Notice of Guaranteed Delivery.
Lost or Missing Certificates
If a holder desires to tender Special Preferred Stock pursuant to the
Exchange Offer but the certificates evidencing such Special Preferred Stock have
been mutilated, lost, stolen or destroyed, such holder should write to or
telephone the Exchange Agent at the address or telephone number listed on the
back cover of this Exchange Offer about procedures for obtaining replacement
certificates for such Special Preferred Stock or arranging for indemnification
or any other matter that requires handling by the Exchange Agent.
Other Matters
Notwithstanding any other provision of the Exchange Offer, delivery of the
Tender Offer Consideration for Special Preferred Stock tendered and accepted
pursuant to the Exchange Offer will occur only after timely receipt by the
Exchange Agent of such Special Preferred Stock (or confirmation of book-entry
transfer of such Special Preferred Stock into the Exchange Agent's account with
a Book-Entry Transfer Facility), together with properly completed and validly
executed Letters of Transmittal (or a facsimile thereof) and any other required
documents.
Tenders of Special Preferred Stock pursuant to any of the procedures
described above and acceptance thereof by the Company will constitute a binding
agreement between the Company and the tendering holder upon the terms and
subject to the conditions of the Exchange Offer.
All questions as to the form of all documents, the validity (including
time of receipt) and acceptance of tenders of the Special Preferred Stock will
be determined by the Company, in its sole discretion, the determination of which
shall be final and binding. Alternative, conditional or contingent tenders of
Special Preferred Stock will not be considered valid. The Company reserves the
absolute right to reject any or all tenders of Special Preferred Stock that are
not in proper form or the acceptance of which, in the Company's opinion, would
be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Special Preferred Stock.
If the Company waives its right to reject a defective tender of Special
Preferred Stock, the holder will be entitled to the Tender Offer Consideration.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding. Any defect or irregularity in connection with tenders of Special
Preferred Stock must be cured within such time as the Company determines, unless
waived by the Company. Tenders of Special Preferred Stock shall not be deemed to
have been made until all defects and irregularities have been waived by the
Company or cured. Neither the Company, the Exchange Agent nor any other person
will be under any duty to give notice of any defects or irregularities in
tenders of Special Preferred Stock, or will incur any liability to holders for
failure to give any such notice.
26
<PAGE>
EXHIBIT 99.(a)(1)
Withdrawal of Tenders
Tenders of Special Preferred Stock may be withdrawn at any time until the
Expiration Date. Thereafter, such tenders are irrevocable. Holders who wish to
exercise their right of withdrawal with respect to a tender of Special Preferred
Stock pursuant to the Exchange Offer must give written notice of withdrawal,
delivered by mail or hand delivery or facsimile transmission, to the Exchange
Agent at one of its addresses set forth on the back cover page of this Exchange
Offer prior to the Expiration Date or at such other time as otherwise provided
for herein. In order to be effective, a notice of withdrawal must specify the
name of the person who deposited the Special Preferred Stock to be withdrawn
(the "Depositor"), the name in which the shares of Special Preferred Stock are
registered, if different from that of the Depositor, and the number of shares of
the Special Preferred Stock to be withdrawn. If tendered shares of Special
Preferred Stock to be withdrawn have been delivered or identified through
confirmation of book-entry transfer to the Exchange Agent, the notice of
withdrawal also must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with withdrawn Special Preferred
Stock. The notice of withdrawal must be signed by the registered holder of such
Special Preferred Stock in the same manner as the applicable Letter of
Transmittal (including any required signature guarantees), or be accompanied by
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the beneficial ownership of such Special Preferred Stock.
Withdrawals of tenders of Special Preferred Stock may not be rescinded, and any
Special Preferred Stock withdrawn will be deemed not validly tendered thereafter
for purposes of the Exchange Offer. However, properly withdrawn Special
Preferred Stock may be tendered again at any time prior to the Expiration Date
by following the procedures for tendering not previously tendered Special
Preferred Stock described elsewhere herein.
All questions as to the form and validity (including time of receipt) of
any withdrawal of tendered Special Preferred Stock will be determined by the
Company, in its sole discretion, which determination shall be final and binding.
Neither the Company, the Exchange Agent nor any other person will be under any
duty to give notification of any defect or irregularity in any withdrawal of
tendered Special Preferred Stock or will incur any liability for failure to give
any such notification.
If the Company is delayed in its acceptance for exchange and payment for
any Special Preferred Stock or is unable to accept for exchange or exchange any
Special Preferred Stock pursuant to the Exchange Offer for any reason, then,
without prejudice to the Company's rights hereunder, tendered Special Preferred
Stock may be retained by the Exchange Agent on behalf of the Company and may not
be withdrawn (subject to Rule 13e-4(f)(5) under the Exchange Act, which requires
that the issuer making the tender offer pay the consideration offered, or return
the tendered securities, promptly after the termination or withdrawal of a
tender offer), except as otherwise permitted hereby.
Acceptance of Special Preferred Stock; Delivery of Tender Offer Consideration
The acceptance of shares of the Special Preferred Stock validly tendered
and not withdrawn will be made as promptly as practicable after the Expiration
Date. For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange validly tendered Special Preferred Stock if, as and when
the Company gives oral or written notice thereof to the Exchange Agent. Such
notice of acceptance shall constitute a binding contract between the Company and
the tendering holder pursuant to which the Company will be obligated to pay the
Tender Offer Consideration for the tendered Special Preferred Stock, and upon
such notice of acceptance the tendered Special Preferred Stock will be canceled
and will cease to be treated as outstanding securities of the Company. Subject
to the terms and conditions of the Exchange Offer, delivery of New Preferred
Stock in respect of Special Preferred Stock accepted and exchanged pursuant to
the Exchange Offer will be made by the Exchange Agent as soon as practicable
after receipt of such notice. The Exchange Agent will act as agent for the
tendering holders of Special Preferred Stock for the purposes of receiving New
Preferred Stock from the Company and
27
<PAGE>
EXHIBIT 99.(a)(1)
transmitting the New Preferred Stock to the tendering holders. Tendered Special
Preferred Stock not accepted for exchange by the Company, if any, will be
returned without expense to the tendering holder of such Special Preferred Stock
(or, in the case of Special Preferred Stock tendered by book-entry transfer into
the Exchange Agent's account at a Book-Entry Transfer Facility, such Special
Preferred Stock will be credited to an account maintained at a Book-Entry
Transfer Facility) as promptly as practicable following the Expiration Date.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile transmission, telephone or in person by officers and
regular employees of the Company and their affiliates. The Company will pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of the Exchange
Offer material to the beneficial owners of the Special Preferred Stock, and in
handling and forwarding tenders to the Exchange Agent.
The Company has not retained any dealer manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting tenders for the Exchange Offer.
The Company estimates that expenses of making the Exchange Offer,
including the fees and expenses of the Exchange Agent (approximately $2,500),
printing and mailing costs (approximately $5,000), filing fees (approximately
$3,600), legal fees (approximately $25,000), and accounting fees (approximately
$10,000), will total approximately $46,100. Such expenses will be paid from the
Company's general working capital.
Exchange Agent
American Stock Transfer & Trust Company has been appointed Exchange Agent
for the Exchange Offer. All deliveries and correspondence sent to the Exchange
Agent should be directed to one of its addresses set forth on the back cover
page of this Exchange Offer. Requests for assistance or additional copies of
this Exchange Offer and the Letter of Transmittal should be directed to the
Company at its address and phone number as set forth on the back cover page of
this Exchange Offer. The Company has agreed to pay the Exchange Agent customary
fees for its services and to reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company also has agreed to
indemnify the Exchange Agent for certain liabilities, including liabilities
under the federal securities laws.
Appraisal Rights
No appraisal or similar statutory rights are available to beneficial
owners of Special Preferred Stock in connection with the Exchange Offer.
Although holders of Special Preferred Stock have the right not to exchange
their shares of Special Preferred Stock in the Exchange Offer, no additional
rights exist in connection with this transaction.
Miscellaneous
The Company has not retained any dealer manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting tenders of Special Preferred Stock. However,
directors, officers and regular employees of the Company (who will
28
<PAGE>
EXHIBIT 99.(a)(1)
not be separately compensated for such services) may solicit tenders by use of
the mails, personally or by telephone, facsimile or similar means of electronic
transmission. The Company also will pay brokerage houses and other custodians,
nominees and fiduciaries their reasonable out-of-pocket expenses incurred in
forwarding copies of this Exchange Offer and related documents to the beneficial
owners of the Special Preferred Stocks and in handling or forwarding tenders of
Special Preferred Stocks by their customers.
FINANCIAL INFORMATION
FirstCity Selected Historical Financial Data
Reference is made to the information contained in Item 6 of the Company
10-K and Item II of the Company 10-Q, copies of which are attached hereto as
Appendix A and Appendix B, respectively.
29
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
EXHIBIT 99.(a)(1)
Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and
Preferred Stock Dividends
The following table sets forth the Company's and its consolidated
subsidiaries' ratios of earnings to fixed charges and ratios of earnings to
combined fixed charges and preferred stock dividends, and the figures used to
calculate such ratios, for the periods indicated.
<TABLE>
<CAPTION>
Six Months ended Year Ended December 31,
June 30,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ------------ ----------- -------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings available to cover
fixed charges:
Net earnings before
minority interest,
preferred
dividends and
income taxes....... $12,038 $14,238 $20,300 $25,380 $16,444 $8,216 $10,189
Undistributed earnings of
less than fifty
percent owned
subsidiaries....... (1,374) - - - - - -
Interest charges............ 30,720 10,071 37,528 19,499 8,629 5,213 3,030
Interest charges on
subordinated debt........... - - - 3,892 4,721 - -
Proportionate share of
interest charges
of fifty percent
owned subsidiaries. 1,896 3,308 5,330 11,033 13,517 11,272 4,789
---------- ---------- ------------ ----------- -------- ---------- -----------
Earnings available
to cover
fixed
charges... $43,280 $27,617 $63,158 $59,084 $43,311 $24,701 $18,008
========== ========== ============ =========== ======== ========== ===========
Fixed charges:
Interest charges............ 30,720 10,071 37,528 19,499 8,629 5,213 3,030
Interest charges on
subordinated debt........... - - - 3,892 4,721 - -
Proportionate share of
interest charges
of fifty percent
owned subsidiaries. 1,896 3,308 5,330 11,033 13,517 11,272 4,789
---------- ---------- ------------ ----------- -------- ---------- -----------
Total fixed charges $32,616 $13,379 $42,858 $34,424 $26,867 $16,485 $7,819
========== ========== ============ =========== ======== ========== ===========
Ratio of earnings to fixed
charges..................... 1.33x 2.06x 1.47x 1.74x 1.61x 1.50x 2.30x
Preferred dividends......... 3,030 3,174 6,203 7,709 3,876 ? ?
---------- ---------- ------------ ----------- -------- ---------- -----------
Fixed charges combined with
preferred dividends $35,646 $16,553 $49,061 $42,133 $30,743 $16,485 $7,819
========== ========== ============ =========== ======== ========== ===========
Ratio of earnings to fixed
charges combined
with preferred
dividends.......... 1.21x 1.67x 1.29x 1.42x 1.41x 1.50x 2.30x
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, "earnings"
consists of income from continuing operations before federal income taxes and
fixed charges, less undistributed income of less than fifty-percent-owned
entities. "Fixed charges" consists of interest expense.
30
<PAGE>
EXHIBIT 99.(a)(1)
Book Value
The book value per share of the Company's Common Stock as of June 30, 1998
was $20.82 and as of December 31, 1997 was $17.28.
CAPITALIZATION
The following table sets forth the total capitalization of the Company (i)
as of June 30, 1998, (ii) pro forma to reflect the conversion of 500,000 shares
of Special Preferred Stock into New Preferred Stock and (iii) pro forma to
reflect the conversion of all the outstanding shares of Special Preferred Stock
(849,777 as of June 30, 1998) into New Preferred Stock. The pro forma
information should be read in conjunction with the historical financial
statements of FirstCity and the related notes thereto. The pro forma information
is not necessarily indicative of the results of operations or financial position
that would have resulted had the proposed conversion of special preferred stock
been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations of future periods or future
combined financial position.
<TABLE>
<CAPTION>
As of June 30, 1998
(Amounts in thousands except per share data)
--------------------------------------------
Pro forma
with Pro forma
500,000 with all
shares shares
Actual converting converting
------ ---------- ----------
<S> <C> <C> <C>
Liabilities:
Notes payable $ 1,227,966 $ 1,227,966 $ 1,227,966
------------- ------------- -------------
Special preferred stock, including
dividends of $669, $275 and $0,
respectively (nominal stated value
of $21 per share; 2,500,000 shares
authorized; issued and
outstanding: 849,777 and 349,777
and 0, respectively) 18,515 7,621 _
Adjusting rate preferred stock,
including dividends of $846,
$1,240 and $1,515, respectively
(par value $.01 per share; 2,000,000
shares authorized; 1,073,704,
1,573,704 and 1,923,481 shares issued
and outstanding, respectively) 23,393 34,287 41,908
Shareholders' equity:
Paid in capital 83 83 83
Retained earnings 78,091 78,091 78,091
Common stock (par value $.01 per
share; 100,000,000 shares
authorized; issued and
outstanding: 8,260,582) 93,827 93,827 93,827
--------------- --------------- ---------------
Total shareholders' equity: 172,001 172,001 172,001
--------------- --------------- ---------------
Total capitalization: $ 1,441,875 $ 1,441,875 $ 1,441,875
=============== =============== ===============
</TABLE>
31
<PAGE>
EXHIBIT 99.(a)(1)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See Item 7 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company 10-K, which is attached hereto as
Appendix A, and Item 2 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company 10-Q, a copy of which is
attached hereto as Appendix B.
MARKET INFORMATION
Both the Special Preferred Stock and the New Preferred Stock are listed
and traded on the Nasdaq National Market System. The following tables set forth
for the calendar periods indicated the high and low per share sale prices of
Special Preferred Stock and the New Preferred Stock as reported thereon.
SPECIAL PREFERRED STOCK
DIVIDENDS
QUARTER ENDED HIGH LOW PAID
- ------------- ---- --- ----
1996
September 30............. $ 26.50 $ 25.31 $ --
December 31.............. 26.50 22.00 3.92 (1)
1997
March 31................. 23.88 22.88 .7875
June 30.................. 24.38 22.88 .7875
September 30 ............ 24.00 21.88 .7875
December 31.............. 23.00 21.88 .7875
1998
March 31................. 22.88 21.88 .7875
June 30 ................. 22.38 21.13 .7875
- --------------------
(1) Accrued dividend from July 3, 1995 through September 30, 1996.
NEW PREFERRED STOCK
DIVIDENDS
QUARTER ENDED HIGH LOW PAID
- ------------- ---- --- ----
1997
September 30 (2)......... $ 23.50 $ 22.00 $ --
December 31 ............. 23.00 21.00 .7875
1998
March 31................. 23.25 21.75 .7875
June 30.................. 23.88 21.50 .7875
32
<PAGE>
EXHIBIT 99.(a)(1)
- --------------------
(2) Beginning August 13, 1997.
On August 27, 1998, the last full day of trading prior to the public
announcement of the Exchange Offer, the closing per share sale price of Special
Preferred Stock as reported on Nasdaq was $20.94 per share, and the closing per
share sale price of the New Preferred Stock was $21.50 per share.
DESCRIPTION OF THE OUTSTANDING CAPITAL
STOCK OF THE COMPANY
FirstCity Common Stock
The holders of shares of FirstCity Common Stock are entitled to one vote
for each share on all matters submitted to a vote of common stockholders. Except
as otherwise provided by law or by the Certificate of Incorporation (including
all limited rights of holders of FirstCity Special Preferred Stock to vote on
certain matters under certain circumstances as described below under the caption
"FirstCity Special Preferred Stock") or by the By-Laws of FirstCity, the holders
of shares of FirstCity Common Stock exclusively possess the voting power for the
election of directors of FirstCity and for all other purposes. Except as
otherwise provided by law, the Certificate of Incorporation or the Bylaws of
FirstCity, the vote of the holders of at least a majority of the outstanding
shares of FirstCity Common Stock who are present, in person or by proxy, at a
meeting at which a quorum is present is required to take action. There is no
provision in the Certificate of Incorporation for cumulative voting with respect
to the election of directors of FirstCity. Directors of FirstCity are elected by
a plurality of the votes of the shares entitled to vote in the election of
directors. Each share of FirstCity Common Stock is entitled to participate
equally in dividends, when, as and if declared by the board of directors of
FirstCity, and in the distribution of net assets in the event of any voluntary
or involuntary liquidation, dissolution or winding up of FirstCity, subject in
all cases to any prior rights of outstanding shares of preferred stock of
FirstCity. The shares of FirstCity Common Stock have no preemptive or conversion
rights, redemption rights or sinking fund provisions and are not subject to
calls, assessments or rights of redemption by FirstCity.
As set forth in the Certificate of Incorporation, subject to certain
limited exceptions (including the prior approval of the board of directors of
FirstCity), during the period (the "Restricted Transfer Period") beginning on
the Effective Date and ending on the earlier of (1) the expiration of 15 years
after the Effective Date and (2) the first day of the taxable year of FirstCity
to which no Tax Benefits (as such term is defined below) may be carried forward
by the Registrant, the shares of FirstCity Common Stock may not be sold or
otherwise transferred to any transferee (including a group acting in concert)
who directly or indirectly owns 4.75% or more of the outstanding shares of the
FirstCity Common Stock or any other class of securities of FirstCity similarly
restricted or, after giving effect to the sale or transfer, would directly or
indirectly own more than 4.75% of the outstanding shares of the FirstCity Common
Stock or any other class of securities of FirstCity similarly restricted.
Similarly, during the Restricted Transfer Period, any transfer of shares of
FirstCity Common Stock by a transferor who directly or indirectly owns 5% or
more of the outstanding shares of the FirstCity Common Stock or any other class
of securities of FirstCity similarly restricted is prohibited. "Tax Benefits" is
defined under the Plan as net operating loss carryovers, capital loss
carryovers, general business credit carryovers, alternative minimum tax
carryovers, foreign tax credit carryovers and any net unrealized built-in
losses.
Special Preferred Stock
Prior to the third anniversary of the Effective Date (such third
anniversary, the "Determination Date"), the holders of shares of FirstCity
Special Preferred Stock are entitled to receive, when, as and if declared by
FirstCity's board of directors, out of funds legally available for the payment
of dividends, cumulative quarterly cash dividends at the annual rate of $3.15
per share on each Dividend Payment Date (as such term is defined in the Plan);
provided, however, that if FirstCity is required to disburse any funds to the
Federal Deposit Insurance
33
<PAGE>
EXHIBIT 99.(a)(1)
Corporation ("FDIC") pursuant to the FDIC Note (as such term is defined below),
no such dividends may be declared by the board of directors until the
Determination Date; provided, further, however, that if at any time, in the
judgment of the board of directors, there would be after the payment of a
dividend on the FirstCity Special Preferred Stock insufficient Determination
Value (as such term is defined below) estimated to be available on the
Determination Date attributable to the Trust to satisfy the then outstanding or
estimated claims to be payable from the Trust (other than in respect of the
Special Preferred Stock), the board of directors must suspend the declaration of
any further dividends on the Special Preferred Stock until there is sufficient
cash available to pay such outstanding or estimated claims. Subject to the legal
availability of funds and the provisos in the foregoing sentence, dividends in
respect of the Special Preferred Stock are payable in arrears in equal quarterly
payments commencing on the earliest of the last day of March, June, September,
and December ("Dividend Payment Date") following the Effective Date. Such
dividends will be paid to the holders of record at the close of business on the
date specified by the board of directors of FirstCity at the time such dividend
is declared; provided, however, that such date may not be more than sixty (60)
days nor less than ten (10) days prior to the respective Dividend Payment Date.
Each of such quarterly dividends shall be fully cumulative and accrue (whether
or not declared), without interest, from the first day of the quarter in which
such dividend may be payable as herein provided, except that with respect to the
first Dividend Payment Date, dividends accrue from the Effective Date.
The holders of shares of Special Preferred Stock are entitled to receive
the nominal stated value of the Special Preferred Stock plus accrued and unpaid
dividends upon any voluntary or involuntary liquidation, dissolution, or winding
up of the affairs of FirstCity; provided, however, that the holders of shares of
Special Preferred Stock shall not receive, upon any such liquidation,
dissolution or winding up, an amount per share of Special Preferred Stock in
excess of (1) the aggregate amounts, if any, distributed to and received by or
distributable to FirstCity for the payment of dividends or other amounts on the
Special Preferred Stock pursuant to Section 7.2 of the Trust Agreement, divided
by (2) the aggregate number of shares of Special Preferred Stock.
Neither FirstCity nor the holders of shares of Special Preferred Stock
have the unilateral option to redeem such shares by the express terms thereof
(but FirstCity must redeem each outstanding share of Special Preferred Stock as
set forth in the immediately succeeding sentence). The Company must redeem each
outstanding share of Special Preferred Stock for the Determination Value (as
such term is defined in the Plan) on the Determination Date, and the Special
Preferred Stock is not exchangeable by the express terms thereof at the option
of either the holder or First City prior to such date into any other capital
stock authorized by FirstCity that is senior to FirstCity Common Stock as to
payment of dividends, liquidation preferences, voting rights, or terms of
redemption.
The holders of shares of Special Preferred Stock have no voting rights
except as described below or as otherwise provided by law. If dividends on the
Special Preferred Stock declared by FirstCity's board of directors are in
arrears and unpaid in an amount equal to six consecutive full quarterly dividend
periods, the number of directors constituting such board of directors will be
increased by two and the holders of shares of the Special Preferred Stock will
have the exclusive right, voting separately as a class, to elect the directors
of FirstCity to fill such newly-created directorships. Such voting right will
continue until such time as all accrued and unpaid dividends accumulated on the
Special Preferred Stock have been paid in full or declared and set apart for
payment, at which time such voting right will terminate, subject to revesting in
the event of any subsequent failure of FirstCity of the character described
above. The term of office of all directors so elected will terminate immediately
upon the termination of such voting rights. In addition, if the holder of the
Class A Certificate representing the Class A interest in the Trust, in its
capacity as such, proposes to remove the Liquidating Trustee, the holders of
shares of the Special Preferred Stock will have the exclusive right, voting
separately as a class, to approve or disapprove such removal and to select a
replacement Liquidating Trustee following such removal (and no such removal or
appointment of a replacement Liquidating Trustee may occur without such
approval). The affirmative vote (or written consent) of the holders of at least
two-thirds of the then outstanding shares of Special Preferred Stock will
constitute the act of the holders of the Special Preferred Stock with respect to
any such proposed removal or appointment of a replacement Liquidating Trustee.
In exercising the voting rights described in this paragraph, each share of
Special Preferred Stock will have one vote per share.
34
<PAGE>
EXHIBIT 99.(a)(1)
New Preferred Stock
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of Registrant, holders of the New Preferred Stock are entitled to
receive $21.00 per share plus any accrued and unpaid dividends before any
distribution is made on the Common Stock, or on any other shares of capital
stock ranking junior to the New Preferred Stock. After provision for the
preferential amounts to which the New Preferred Stock and other series of
preferred stock of the Registrant are entitled, the holder of any shares of
capital stock ranking junior to the New Preferred Stock are entitled to receive
the remaining assets according to their respective rights. The dividend and
liquidation rights of the New Preferred Stock are senior to those of the other
series of preferred stock of the Registrant except the Special Preferred Stock.
If the assets of the Registrant are not sufficient to pay in full the
liquidation preference payable to the holders of New Preferred Stock and other
series of preferred stock of the Registrant, each will share ratably in such
distribution of assets. A consolidation or merger of the Registrant with another
entity will not be deemed a voluntary or involuntary liquidation, dissolution or
winding up of the Registrant.
Dividends on the New Preferred Stock initially accrue quarterly at an
annual rate of $3.15 per share reducing to an annual rate of $2.10 per share on
October 1, 1998, and are cumulative. Dividends are payable by the Registrant,
when, as and if declared by its Board of Directors, out of funds legally
available therefor in equal quarterly payments on the last business day of
March, June, September and December (each of such dates being a "dividend
payment date") in each year with respect to the quarter ending on the last day
of the month in which payment is made, commencing on the last business day of
the first full quarter following the date of first issuance of the New Preferred
Stock (the "Issuance Date"). Such payment of dividends will be in preference to
dividends on any shares of capital stock ranking junior to the New Preferred
Stock.
The shares of New Preferred Stock have no preemptive or conversion rights,
nor any sinking fund provisions. The New Preferred Stock is not subject to any
calls or assessments of the Registrant until September 30, 2003.
There are no restrictions on the repurchase or redemption of shares of New
Preferred Stock by the Registrant as a result of any arrearage in the payment of
dividends.
The holders of the New Preferred Stock have no voting rights except as
otherwise provided by law and as set forth in the Registrant's Certificate of
Incorporation, except that the holders of New Preferred Stock, voting as a
single class shall have the right to elect two directors if (a) dividends shall
be in arrears in an aggregate amount equal to six quarterly dividends on all
shares of preferred stock and (b) in certain other circumstances in which their
existing rights as holders of preferred stock are affected. In any such vote,
holders of the New Preferred Stock will be entitled to one vote for each such
share.
There is no provision in the Certificate of Incorporation for cumulative
voting with respect to the election of directors of the Registrant.
The New Preferred Stock may not be redeemed optionally by the Registrant
prior to September 30, 2003. Thereafter, the New Preferred Stock may be
redeemed, in whole or in part, at the option of the Registrant, at $21.00 per
share, together with accrued and unpaid dividends. The Registrant will be
required to redeem all outstanding shares of New Preferred Stock at $21.00 per
share, together with accrued and unpaid dividends, on or before September 30,
2005. In the event that fewer than all the outstanding shares of New Preferred
Stock are to be redeemed, the number of shares to be redeemed will be determined
by the Board of Directors and the shares to be redeemed will be determined by
lot or pro rata as may be determined by the Board of Directors. Notice of
redemption will be given by first class mail, postage prepaid, at least 30 days
but no more than 60 days before the redemption date to each holder of record of
the shares of New Preferred Stock to be redeemed, at the address of such holder
shown on the books of the Registrant. On and after the redemption date,
dividends will cease to accrue on shares of New Preferred Stock called for
redemption and all rights of holders of such shares will
35
<PAGE>
EXHIBIT 99.(a)(1)
terminate, except the right to receive the redemption price (unless the
Registrant defaults in the payment of the redemption price).
BUSINESS OF THE COMPANY
See the information contained in Item 1--"Business", Item 2--"Properties"
and Item 3--"Legal Proceedings" in the Company 10-K, which is attached hereto as
Appendix A, and in the Company 10-Q, a copy of which is attached hereto as
Appendix B, and in the Company's Current Report on Form 8-K filed with the
Commission on August 28, 1998, a copy of which is attached hereto as Appendix E.
MANAGEMENT OF FIRSTCITY
For information with respect to the directors and executive officers of
the Company, see Item 10--"Directors and Executive Officers of FirstCity," Item
11--"Executive Compensation" and Item 13--"Certain Relationships and Related
Transactions" in the Company 10-K, a copy of which is attached hereto as
Appendix A, and the information contained in the Company's Current Report on
Form 8-K filed with the Commission on
August 28, 1998, a copy of which is attached hereto as Appendix E.
PRINCIPAL STOCKHOLDERS OF FIRSTCITY
For information with respect to principal stockholders of FirstCity see
Item 12--"Security Ownership of Certain Beneficial Owners and Management" in the
Company 10-K, a copy of which is attached hereto as Appendix A.
36
<PAGE>
APPENDIX A
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7614
FIRSTCITY FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6400 IMPERIAL DRIVE, WACO, TX 76712
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
----------------
Common Stock, par value $.01
Special Preferred Stock, par value $.01
Adjusting Rate Preferred Stock, par value $.01
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of common stock outstanding at March 24, 1998 was
6,570,081. As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based upon the closing price of
the common stock on the NASDAQ National Market System, was approximately
$91,674,437.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF FORM 10-K
------- ---------
<S> <C>
Notice of Annual Meeting and Proxy Statement for the 1998
Annual Meeting of Shareholders............................ III
</TABLE>
================================================================================
<PAGE> 2
FIRSTCITY FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 32
Item 3. Legal Proceedings........................................... 32
Item 4. Submission of Matters to a Vote of Security Holders......... 33
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 33
Item 6. Selected Financial Data..................................... 33
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 34
Item 8. Financial Statements and Supplementary Data................. 66
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 101
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 101
Item 11. Executive Compensation...................................... 101
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 101
Item 13. Certain Relationships and Related Transactions.............. 101
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 102
</TABLE>
<PAGE> 3
FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K may contain forward-looking statements. The
factors identified under "Risk Factors" are important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made by,
or on behalf of, the Company.
When any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. When, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," "anticipate" and similar
expressions identify forward-looking statements.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a diversified financial services company headquartered in
Waco, Texas with over 90 offices throughout the United States and a presence in
France and Mexico. The Company began operating in 1986 as a specialty financial
services company focused on acquiring and resolving distressed loans and other
assets purchased at a discount relative to the aggregate unpaid principal
balance of the loans or the appraised value of the other assets ("Face Value").
To date the Company has acquired, for its own account and through various
affiliated partnerships, pools of assets of single assets (collectively referred
to as "Portfolio Assets" or "Portfolios") with a Face Value of approximately
$3.0 billion. In 1996, the Company adopted a growth strategy to diversify and
expand its financial services business. To implement its growth strategy, the
Company has acquired or established several businesses in the financial services
industry, building upon its core strength and expertise as one of the earliest
participants in the business of acquiring and resolving distressed financial
assets and other assets. The Company's servicing expertise, which it has
developed largely through the resolution of distressed assets, is a cornerstone
of its growth strategy. Today the Company is engaged in three principal
businesses: (i) residential and commercial mortgage banking; (ii) Portfolio
Asset acquisition and resolution; and (iii) consumer lending.
2
<PAGE> 4
The following chart depicts the business conducted by the Company and the
principal entities through which such businesses are conducted.
[Organizational Chart]
The Company is consolidating all of its servicing capabilities into a
single subsidiary, FirstCity Servicing Corporation ("Servicing Corp."). This
process is designed to combine all servicing activities under a single
management group in an effort to achieve further operating efficiencies, enhance
the quality of asset servicing and coordinate and improve the technology support
for all of the Company's businesses. When this consolidation is complete,
Servicing Corp. will have responsibility for the management of all of the
Company's activities related to servicing mortgage loans, Home Equity Loans,
Portfolio Assets and automobile and other consumer loans.
BUSINESS STRATEGY
The Company's business strategy is to continue to broaden and expand its
business within the financial services industry while building on its core
servicing strengths and credit expertise. The following principles are key
elements to the execution of the Company's business strategy:
- Expand the financial products and services offered by existing
businesses.
- Broaden its sources of revenue and operating earnings by developing or
acquiring additional businesses that leverage its core strengths and
management expertise.
- Cross-sell between the Company's businesses.
- Invest in fragmented or underdeveloped markets in which the Company has
the investment and servicing expertise to achieve attractive risk
adjusted rates of return.
- Pursue new business opportunities through joint ventures, thereby
capitalizing on the expertise of partners whose skills complement those
of the Company.
- Maximize growth in earnings, thereby permitting the utilization of the
Company's net operating loss carryforwards ("NOLs").
3
<PAGE> 5
BACKGROUND
The Company began operating in the financial service business in 1986 as a
purchaser of distressed assets from the Federal Deposit Insurance Corporation
("FDIC"). From its original office in Waco, Texas, with a staff of four
professionals, the Company's asset acquisition and resolution business grew to
become a significant participant in an industry fueled by the problems
experienced by banks and thrifts throughout the United States. In the late
1980s, the Company also began acquiring assets from healthy financial
institutions interested in eliminating nonperforming assets from their
portfolios. The Company began its relationship with Cargill Financial Services
Corporation ("Cargill Financial") in 1991. Since that time, the Company and
Cargill Financial have formed a series of Acquisition Partnerships through which
they have jointly acquired over $2.2 billion in Face Value of distressed assets.
By the end of 1994, the Company had grown to nine offices with over 180
professionals and had acquired portfolios with assets in virtually every state.
In July 1995, the Company acquired by merger (the "Merger") First City
Bancorporation of Texas, Inc. ("FCBOT"), a former bank holding company that had
been engaged in a proceeding under Chapter 11 of the Bankruptcy Code since
November 1992. As a result of the Merger, the Common Stock of the Company became
publicly held and the Company received $20 million of additional equity capital
and entered into an incentive-based servicing agreement to manage approximately
$300 million in assets for the benefit of the former equity holders of FCBOT. In
addition, as a result of the Merger, the Company retained FCBOT's rights to
approximately $596 million in NOLs, which the Company believes it can use to
offset taxable income generated by the Company and its consolidated
subsidiaries.
Following the Merger, the Company adopted a growth and diversification
strategy designed to capitalize on its servicing and credit expertise to expand
into additional financial service businesses with management partners that have
distinguished themselves among competitors. To that end, in July 1997 the
Company acquired Harbor Financial Group, Inc., a company engaged in the
residential and commercial mortgage banking business since 1983. The Company has
also expanded into related niche financial services markets, such as consumer
finance and mortgage conduit banking.
MORTGAGE BANKING
General
The Company engages in the mortgage banking business through two principal
subsidiaries, FirstCity Financial Mortgage Corporation ("Mortgage Corp.") and FC
Capital Corporation ("Capital Corp."). Mortgage Corp. is a direct retail and
broker retail mortgage bank, which originates, purchases, sells and services
residential and commercial mortgage loans through more than 80 offices
throughout the United States. The Company acquired Mortgage Corp. (then named
Harbor Financial Group, Inc.) by merger in July 1997 (the "Harbor Merger").
Mortgage Corp.'s senior management team has extensive experience with all
aspects of the residential, construction and commercial mortgage banking
business, including the direct retail, broker retail, secondary marketing,
servicing, financial and operating expertise necessary to manage a growing
business. This management team formed Mortgage Corp. as a subsidiary of a
savings and loan association in 1983, completed a management led buy-out of the
ownership of Mortgage Corp. in 1987 and continued to expand through acquisitions
and internal growth. Many of Mortgage Corp.'s acquisitions represented
opportunistic situations whereby it was able to acquire origination capability
or servicing portfolios from the FDIC, the Resolution Trust Corporation ("RTC")
or other sellers of distressed assets. Mortgage Corp. conducts its residential
and commercial mortgage banking and servicing business through its subsidiaries
Harbor Financial Mortgage Corporation ("Harbor") and New America Financial, Inc.
("New America"). Mortgage Corp. ranks among the 50 largest mortgage banks in the
United States.
Capital Corp. was formed in 1997 to acquire, originate, warehouse,
securitize and service residential mortgage loans to borrowers who have
significant equity in their homes and who generally do not satisfy the more
rigid underwriting standards of the traditional residential mortgage lending
market (referred to herein as "Home Equity Loans"). These loans are extended to
borrowers who demonstrate an ability and willingness to repay credit, but who
might have experienced an adverse event, such as job loss, illness or divorce,
or have had past credit problems such as delinquency, bankruptcy, repossession
or charge-offs. Such an event normally will
4
<PAGE> 6
temporarily impair a borrower's credit rating such that the borrower will not
qualify as a prime borrower from a traditional mortgage lender that concentrates
on prime credit quality conventional conforming loans.
The Company owns 80% of the outstanding stock of Capital Corp. and Capital
Corp.'s senior management owns the remaining 20%. This ownership structure
aligns the interests of the key management team of Capital Corp. with those of
the Company. The Company became acquainted with Capital Corp.'s management team
during their tenure as senior management for a Wall Street firm's mortgage
conduit and structured finance division. This team has demonstrated to the
Company a disciplined approach to growing a business where the emphasis is on
credit quality and sound operating standards. The Company and the management
shareholders of Capital Corp. entered into a shareholders' agreement in
connection with the formation of Capital Corp. in August 1997. Commencing on the
fifth anniversary of such agreement, the Company and the management shareholders
have put and call options with respect to the stock of Capital Corp. held by the
other party at a mutually agreed upon fair market value.
Residential Mortgage Banking
Products and Services
Mortgage Corp. originates and purchases both fixed rate and adjustable rate
mortgage loans, primarily secured by first liens on single family residences.
The majority of the residential loans originated by Mortgage Corp. are
conventional conforming loans that qualify for sale to, or conversion into
securities issued by, Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC"). Additionally, Mortgage Corp.
originates loans insured by the Federal Housing Administration ("FHA") and the
Farmers Home Administration ("FMHA") and loans guaranteed by the Veterans
Administration ("VA"). These loans qualify for inclusion in guarantee programs
sponsored by the Government National Mortgage Association ("GNMA").
Substantially all the conventional conforming loans are originated with
loan-to-value ratios at or below 80% unless the borrower obtains private
mortgage insurance. The Company also originates a number of other mortgage loan
products to respond to a variety of customer needs. These products include:
- First lien residential mortgage loans that meet the specific underwriting
standards of private investors, issuers of mortgage backed securities,
and other conduits seeking to purchase loans originated by Mortgage Corp.
These loans do not meet the established standards of FNMA or FHLMC and
are generally referred to as non-conforming mortgage loans. The loans may
be non-conforming because, among other reasons, they exceed the dollar
limitations established by FNMA or FHLMC, are originated with an original
loan-to-value ratio in excess of 80%, or are made to a borrower who is
self-employed.
- First and second lien residential mortgage Home Equity Loans to borrowers
who have some level of impaired credit.
- First and second lien residential home improvement loans.
Mortgage Corp. offers its customers a range of choices with respect to
repayment plans and interest rates on the loans that it originates. Most loans
originated by Mortgage Corp. have either 15 or 30 year terms and accrue interest
at fixed or variable rates. Quoted interest rates are a function of the current
interest rate environment and generally may be reduced at the option of the
customer by paying additional discount points at the time the loan is
originated. The adjustable rate mortgage ("ARM") products offered by Mortgage
Corp. reflect the current offerings of its agency or private investors. A basic
ARM loan could have an interest rate that adjusts on an annual basis throughout
its term with limits on the amount of the annual and aggregate lifetime
adjustments. A more complicated ARM loan could have a fixed rate of interest for
a stipulated period of time (for example, five years) with the annual adjustment
rate option commencing on an annual basis after the expiration of the initial
fixed term. Mortgage Corp. continuously monitors and adjusts its product
offerings and pricing so that it is able to sell the loans that it originates in
the secondary markets. To that end, price quotes and product descriptions are
distributed throughout its origination network on a daily basis.
5
<PAGE> 7
In 1996, Mortgage Corp. implemented a program to supplement its
conventional conforming loans by offering Home Equity Loans. Mortgage Corp.'s
customers use the proceeds of Home Equity Loans to finance home purchases and
improvements, debt consolidation, education and other consumer needs.
Approximately 74% of the Home Equity Loans originated by Mortgage Corp. in 1997
were secured by first mortgages. In addition to originating Home Equity Loans,
as a result of the formation of Capital Corp. in the third quarter of 1997, the
Company also operates a mortgage conduit business, which acquires Home Equity
Loans individually and in bulk from several independent loan origination
sources.
The Home Equity Loans originated and acquired by Mortgage Corp. and Capital
Corp. are similar in nature. Home Equity Loans have repayment options and
interest rate options that are similar to the options available for conventional
conforming loans. The primary difference between Home Equity Loans and
conventional conforming loans is the underwriting guidelines that govern the two
types of loans. Various underwriting criteria are evaluated to establish
guidelines as to the amount and type of credit for which the prospective
borrower is eligible. These factors also determine the interest rate and
repayment terms to be offered to the borrower. Interest rates on Home Equity
Loans are generally in excess of rates of interest charged on agency or
conforming residential loans. The underwriting guidelines and interest rates
charged for Home Equity Loans are revised as necessary to address market
conditions, the interest rate environment, general economic conditions and other
factors. See "-- Underwriting."
Through various other subsidiaries and affiliates, Mortgage Corp. conducts
business in a number of areas related to its principal mortgage business. Harbor
Financial Property Management, Inc. manages residential properties throughout
the United States for institutional investors. Dungey and Associates, Inc. is a
property appraisal and inspection company that provides services to Mortgage
Corp. and third parties in the Texas market. Hamilton, Carter, Smith & Co. is a
financial advisory firm that provides services to the mortgage industry in the
areas of portfolio/corporate evaluations, risk management and hedging advisory
services, marketing of loan servicing portfolios, and mergers and acquisitions
advisory services. Under management contracts, an affiliate of Mortgage Corp.
provides management and administrative services to Harbor Financial Insurance
Agency, which offers complete lines of personal, commercial and property
insurance products, and to JMC Title, Inc., which provides outside services for
title escrow and insurance services. None of these businesses contributes a
significant portion of the Company's earnings.
Loan Origination
General. Mortgage Corp. originates and acquires mortgage loans through a
direct retail group ("Direct Retail") that operates principally within Harbor,
and a broker retail group ("Broker Retail") whose activities are conducted
through New America. Mortgage Corp. believes that the Direct Retail and Broker
Retail origination channels offer distinct advantages and seeks to expand the
operations of both channels. A customer of the Direct Retail business works with
an employee of Mortgage Corp. throughout the entire loan origination process.
Direct Retail loan origination offers the advantage of greater fee retention to
compensate for higher fixed operating costs. It also facilitates the formation
of direct relationships with customers, which tends to create a more sustainable
loan origination franchise and results in increased control over the lending
process and the refinance activity that is becoming more prevalent in the
mortgage industry. As of December 31, 1997, Direct Retail employed 125 loan
officers, who were supported by 65 loan processing staff and 10 loan
underwriting staff, all of whom are employees of Mortgage Corp. The Direct
Retail group operates through 37 branches located in 11 states.
In the Broker Retail business, customers conduct a substantial portion of
their business with an independent broker who will present a relatively complete
loan application to the Broker Retail account executives for consideration.
Broker Retail mortgage loan origination is cost effective because it does not
involve fixed overhead costs for items such as offices, furniture, computer
equipment and telephones, or additional personnel costs, such as loan officers
and loan processors. By limiting the number of offices and personnel needed to
generate production, Mortgage Corp.'s Broker Retail business transfers the
overhead burden of mortgage origination to the independent mortgage loan
brokers. As a result, through its Broker Retail network Mortgage Corp. is able
to match its loan origination costs more closely with loan origination volume so
that a substantial portion of its loan origination costs are variable rather
than fixed. In addition,
6
<PAGE> 8
Broker Retail affords management the flexibility to expand or contract
production capacity as market conditions warrant. As of December 31, 1997,
Broker Retail employed 82 account executives working in 23 offices and operating
in 42 states. Broker Retail account executives work with and through a group of
approximately 6,500 independent mortgage loan brokers, approximately 2,700 of
whom closed loans through the Broker Retail network in 1997.
As a complement to its Direct Retail and Broker Retail businesses, the
Company operates a mortgage conduit business through Capital Corp. Capital Corp.
acquires Home Equity Loans from third-party origination sources for
securitization. Capital Corp. was formed in August 1997 and, as of February 28,
1998, had 19 employees.
Direct Retail. The Direct Retail group originates mortgage loans using
direct contact with consumers and operates through a network of 37 branches
located in Texas, Oklahoma, Pennsylvania, Virginia, West Virginia, Maryland,
Florida, Washington, Arizona, Colorado and Illinois. The marketing efforts of
the Direct Retail group are focused on the loan origination activities of retail
loan officers located in the branch offices. These loan officers identify
prospective customers through contacts within their local markets by developing
relationships with real estate agents, large employers, home builders,
commercial bankers, accountants, attorneys and others who would have contact
with prospective home owners seeking financing or refinancing. Over time,
successful loan officers develop a reputation for being able to provide quick
and accurate service to the customer and often generate new customers through
referrals from existing customers. The marketing efforts of the loan officers
are supported by print media advertising in selected local markets to target
prospects with featured product types or to highlight Mortgage Corp.'s broad
range of service capabilities. Mortgage Corp. has expanded its Direct Retail
network of loan officers by hiring experienced lenders in targeted markets and
by acquiring successful retail mortgage origination businesses.
The following table presents the number and dollar amount of loan
originations through Direct Retail for the periods indicated.
DIRECT RETAIL RESIDENTIAL MORTGAGE LOAN ORIGINATIONS
<TABLE>
<CAPTION>
FISCAL YEAR(1)
------------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Conventional Loans:
Volume of loans...................................... $182,640 $162,117 $145,398
Number of loans...................................... 1,425 1,374 1,354
FHA/VA/FMHA Loans:
Volume of loans...................................... $319,667 $184,098 $108,074
Number of loans...................................... 3,300 2,073 1,474
Home Improvement Loans:(2)
Volume of loans...................................... $ 631 $ 211 $ 141
Number of loans...................................... 14 12 7
Brokered Loans:(3)
Volume of loans...................................... $ 62,524 $ 19,851 $ 32,799
Number of loans...................................... 532 99 133
Total Originations:
Volume of loans...................................... $565,462 $366,277 $286,412
Number of loans...................................... 5,271 3,558 2,968
</TABLE>
- ---------------
(1) 1997 data is for the 12 months ended December 31; data for all other years
is for the 12 months ended September 30, which was the fiscal year end for
Mortgage Corp. prior to the Harbor Merger.
(2) Home Improvement Loans are loans that are used by borrowers to finance
various home improvement projects and are generally secured by second liens.
7
<PAGE> 9
(3) Brokered Loans are originated through the Direct Retail process but are
closed and funded by a third-party correspondent.
Broker Retail. Mortgage Corp. entered into the Broker Retail business
through the acquisition of New America in July 1994. At the time of the
acquisition, New America had offices in Dallas, Texas and Fort Lauderdale,
Florida. Since becoming a part of Mortgage Corp., New America has expanded to
its present complement of 23 offices. Broker Retail account executives work with
and through independent mortgage loan brokers to identify lending opportunities
for the various loan products offered by Mortgage Corp.
In arranging mortgage loans, independent mortgage loan brokers act as
intermediaries between prospective borrowers and Mortgage Corp. Mortgage Corp.
is an approved FHMA, FHLMC and GNMA seller/servicer and has access to private
investors as well, which provides brokers access to the secondary market for the
sale of mortgage loans that they otherwise could not access because they do not
meet the applicable seller/servicer net worth requirements. Mortgage Corp.
attracts and maintains relationships with mortgage brokers by offering a variety
of competitive and responsive services as well as a variety of mortgage loan
products at competitive prices. Mortgage Corp.'s relationship with these
independent mortgage brokers differs from traditional wholesale purchases in
that Mortgage Corp. underwrites and funds substantially all of the loans funded
through the Broker Retail channel in its own name.
Separately, the Broker Retail channel conducts a whole loan pool
acquisition business. In most cases, the loans purchased in bulk are
underwritten by the seller-originator to FHA, FMHA, VA, FNMA or FHLMC
underwriting standards, with the seller warranting that such loans comply with
such standards. Mortgage Corp. employs quality review procedures prior to
purchase in an effort to ensure that the loans acquired in bulk purchases meet
such standards. See "-- Underwriting." During 1997, bulk acquisitions of loans
constituted less than 1% of Broker Retail production.
The following table presents the number and dollar amount of Broker Retail
production, including bulk acquisitions, for the periods indicated.
BROKER RETAIL RESIDENTIAL MORTGAGE LOAN PRODUCTION
<TABLE>
<CAPTION>
FISCAL YEAR(1)
------------------------------------
1997 1996 1995
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Conventional Loans:
Volume of loans....................................... $2,222,232 $1,270,497 $364,049
Number of loans....................................... 18,332 11,665 3,506
FHA/VA/FMHA Loans:
Volume of loans....................................... $ 273,336 $ 55,917 $ 24,085
Number of loans....................................... 2,741 632 315
Home Equity Loans:
Volume of loans....................................... $ 178,492 $ 6,583 --
Number of loans....................................... 2,423 183 --
Total Production:
Volume of loans....................................... $2,674,060 $1,332,997 $388,134
Number of loans....................................... 23,496 12,480 3,821
</TABLE>
- ---------------
(1) 1997 data is for the 12 months ended December 31; data for all other years
is for the 12 months ended September 30, which was the fiscal year end for
Mortgage Corp. prior to the Harbor Merger.
Characteristics of Retail Loan Production. As a result of Mortgage Corp.'s
extensive Direct Retail and Broker Retail origination networks, the portfolio of
retail mortgage loans originated by Mortgage Corp. on an annual basis is
comprised of loans with a variety of characteristics that are offered to
borrowers who are geographically dispersed. Based upon production data
maintained by Mortgage Corp., the following table sets forth, as a percentage of
aggregate principal balance, the geographic distribution and other data for the
loans
8
<PAGE> 10
originated through the retail network of Mortgage Corp. for the 12 month periods
ended December 31, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Production by State:
California............................................... 23% 9%
Texas.................................................... 13 25
Florida.................................................. 7 7
Oregon................................................... 7 --
Washington............................................... 7 5
Georgia.................................................. 6 9
Arizona.................................................. 5 7
All others............................................... 32 38
--- ---
Total............................................ 100% 100%
Interest rate characteristics:
Fixed rate loans......................................... 93% 93%
Variable rate loans...................................... 7 7
--- ---
Total............................................ 100% 100%
Loan purpose:
Purchase transactions.................................... 61% 69%
Refinance transactions................................... 39 31
--- ---
Total............................................ 100% 100%
</TABLE>
Substantially all of the retail mortgage production of Mortgage Corp. represents
loans secured by first liens on the underlying collateral.
Mortgage Conduit. The Company organized Capital Corp. in August 1997 to
acquire Home Equity Loans from third-party origination sources for
securitization. Capital Corp. acquires existing pools of Home Equity Loans in
individually negotiated transactions from several loan origination sources. From
its inception through December 31, 1997, Capital Corp. acquired 480 Home Equity
Loans in nine pools with principal balances totaling $53.6 million from four
different sellers, including one pool for $35.1 million purchased from the
former employer of Capital Corp.'s management. In addition to acquiring pools of
Home Equity Loans from third-party origination sources for securitization,
Capital Corp. intends to acquire loans originated by New America's extensive
Broker Retail network.
In addition to the acquisition of Home Equity Loans, Capital Corp. intends
to originate Home Equity Loans on a retail basis or through broker referrals.
Capital Corp. recently signed a letter of intent to acquire three existing
retail branch offices. In selected instances, Capital Corp. will seek
opportunities to extend secured warehouse lines of credit to certain approved
sellers of Home Equity Loans and will consider originating mezzanine loans to,
or making equity investments in, selected sellers. The objectives of such loans
and investments are to diversify and solidify the flow of product from selected
mortgage banks who provide Home Equity Loans to Capital Corp.
Characteristics of Mortgage Conduit Production. The loans acquired by
Capital Corp. have been acquired from Home Equity Loan originators who originate
loans throughout the United States. The following table sets forth, as a
percentage of aggregate principal balance, the geographic distribution and other
data for the portfolio of loans acquired by Capital Corp. from its first
acquisition of loans in October 1997 through December 31, 1997.
9
<PAGE> 11
<TABLE>
<S> <C>
Production by state:
Georgia................................................... 29%
New York.................................................. 22
Florida................................................... 15
Illinois.................................................. 11
North Carolina............................................ 5
All others (27 states).................................... 18
---
Total............................................. 100%
Interest rate characteristics:
Fixed rate loans.......................................... 43%
Variable rate loans....................................... 57
---
Total............................................. 100%
Lien status:
First liens............................................... 96%
Subordinate liens......................................... 4
---
Total............................................. 100%
</TABLE>
Underwriting
Direct Retail and Broker Retail. Loan underwriting in both the Direct
Retail and Broker Retail groups is performed on a regional basis in larger
branch locations. Substantially all Direct Retail and Broker Retail loans are
processed and individually underwritten by Mortgage Corp. personnel and are
directly funded by Mortgage Corp. Mortgage Corp. believes that having
underwriters in each market area enables these personnel to remain abreast of
changing conditions in property values, employment conditions and various other
conditions in each market. Furthermore, in order to ensure compliance with
Mortgage Corp.'s underwriting guidelines, the underwriters operate independently
of origination personnel.
Mortgage Corp.'s guidelines for underwriting conventional conforming loans
comply with the criteria employed by FHLMC and FNMA, as applicable. Mortgage
Corp.'s guidelines for underwriting FHA and FMHA insured loans and VA guaranteed
loans comply with the criteria established by these agencies. Mortgage Corp.'s
guidelines for underwriting conventional non-conforming loans are based on the
underwriting standards employed by private mortgage insurers and private
investors that purchase such loans. Mortgage Corp.'s guidelines for underwriting
Home Equity Loans are based on the underwriting standards employed by the
private and conduit investors that purchase such loans and are similar to the
underwriting standards employed by Capital Corp. for acquired Home Equity Loans.
Such private investors (i) have given Mortgage Corp. delegated underwriting
authority for approval to close and sell such loans based on policy and
guidelines established by the investor, (ii) require that the loan be
underwritten on a contract basis for the closing and sale of such loans by an
independent third party approved by the investor, typically a mortgage insurance
company, or (iii) are approved directly by the investor before closing and sale
of such loans.
Mortgage Corp. performs a quality control review of loans originated by
having approximately 10% of its loans re-underwritten by independent third
parties that contract with Mortgage Corp. to perform this service. This practice
is designed to ensure that the loan origination practices and decisions are
acceptable to Mortgage Corp.'s loan pool investors and are in compliance with
regulatory requirements. Mortgage Corp. believes that its quality control review
meets or exceeds the review requirements of FNMA, FHLMC and applicable laws and
regulations.
Home Equity Loans are extended to borrowers who, for some reason, do not
qualify for an agency or conventional mortgage loan. In most cases, borrowers
seeking Home Equity Loans have experienced some level of historical credit
difficulty. Through a tiered underwriting system, Mortgage Corp. subjects
borrowers seeking Home Equity Loans to limits based, among other things, on the
loan-to-value ratio applicable to the particular transaction. The maximum
allowed loan-to-value ratio varies depending upon whether the collateral is
classified as a primary, secondary or investor residence. Maximum loan amounts
established for each classification of collateral generally do not exceed
$500,000 for a primary residence with a loan-to-value ratio
10
<PAGE> 12
of less than 80%. At the low end of the credit spectrum for qualified Home
Equity Loan borrowers, the maximum loan-to-value ratios cannot exceed 65%, with
security limited to a primary residence and the loan amount limited to $100,000.
Sub-limits within the underwriting guidelines also place loan-to-value and
borrowing amount limitations on the Home Equity Loan based upon whether the loan
is a purchase money or cash-out refinance loan. Through December 31, 1997,
Mortgage Corp. has sold, on a servicing released basis, substantially all of its
Home Equity Loan production.
Mortgage Conduit. Capital Corp. acquires existing Home Equity Loans from
several loan origination sources under a tiered underwriting system. Capital
Corp. acquires each loan pool in an individually negotiated transaction from the
seller after a full underwriting review by Capital Corp. prior to the offer to
purchase. The underwriting review is performed to determine that the loans to be
acquired meet the various underwriting criteria for each credit grade.
Generally, the underwriting grade is a function of the prospective borrower's
credit history, which, in turn, will drive the loan-to-value relationship, the
debt to income ratio, and other credit criteria to be applied by Capital Corp.
in evaluating a loan.
11
<PAGE> 13
Capital Corp.'s categories and general criteria for grading the credit
history of potential Home Equity Loan borrowers are set forth in the table
below.
UNDERWRITING GUIDELINES(1)
<TABLE>
<CAPTION>
A1 PROGRAM A2 PROGRAM B PROGRAM C PROGRAM
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Existing mortgage
history.............. Maximum one 30-day Maximum two 30-day Maximum three 30-day Maximum five 30-day
late payment within late payments and no late payments and no and two 60-day late
last 12 months and 60-day late payments 60-day late payments payments within last
two 30-day late within last 12 within last 12 12 months: must be
payments in last 24 months; must be months; must be current at
months; must be current at current at application time
current at application time application time
application time
Other credit
history.............. No more than one No more than two Over 12 month prior Significant prior
30-day late payment 30-day late payments defaults acceptable; defaults acceptable
in last 12 months or in last 12 months. not more than $5,000 if over two years
two 30-day late Minor derogatory in open collection old; generally, not
payments in last 24 items allowed; no accounts or charge- more than $5,000 in
months; must be more than $2,500 in offs open after open collection
current at open collection funding; some 30- accounts or
application time accounts or and 60-day charge-offs open
charge-offs open delinquencies after funding; some
after funding, all 60- and 90-day
current credit must delinquencies
be current
Bankruptcy filings.... Generally, no notice Generally, no Generally, no Generally, no
of default filings bankruptcy or notice bankruptcy or notice bankruptcy or notice
in last two years of default filings of default filings of default filings
in last three years in last two years in last two years
and credit has been and credit has been
reestablished reestablished
subsequent to subsequent to
bankruptcy bankruptcy
Employment history.... Two years stable Two years stable Two years stable Two years stable
Debt service to income
ratio................ 45% or less 45% or less 50% or less 50% or less
Maximum loan-to-value
ratio:
Owner occupied;
single family...... 85% 85% 80% 75%
condo/two-to-four
unit............. 85% 80% 75% 75%
Non-owner occupied... 75% 75% 70% 70%
<CAPTION>
D PROGRAM
--------------------
<S> <C>
Existing mortgage
history.............. No more than three
months delinquent at
closing
Other credit
history.............. Significant defaults
acceptable; not more
than $5,000 in open
charge-offs or
collection amounts
may remain open
after funding;
applicant has
sporadic payment
history
Bankruptcy filings.... Bankruptcy, notice
of sale filing,
notice of default
filing or
foreclosure
permitted if over 12
months old
Employment history.... One year stable
Debt service to income
ratio................ 50% or less
Maximum loan-to-value
ratio:
Owner occupied;
single family...... 65%
condo/two-to-four
unit............. 60%
Non-owner occupied... N.A.
</TABLE>
- ---------------
(1) The letter grades applied to each risk classification reflect Capital
Corp.'s internal standards and do not necessarily correspond to the
classifications used by other home equity lenders. The data presented are
for first lien mortgages. More stringent requirements apply to mortgages
secured by second liens.
12
<PAGE> 14
The following table presents, for each of Capital Corp.'s underwriting
grades, for the period from Capital Corp.'s formation in August 1997 to December
31, 1997, the aggregate principal balance of loans acquired, the aggregate
number of loans acquired, the weighted average coupon rate of loans acquired,
and the relationship of amount financed to the estimated appraised value of the
mortgaged collateral. Because of the short time period reflected in the
following table, the characteristics of the loans reflected therein are not
necessarily indicative of future loans that may be acquired or originated by
Capital Corp.
CAPITAL CORP.'S LOAN PRODUCTION
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AGGREGATE LOAN NUMBER OF WEIGHTED AVERAGE LOAN-TO-VALUE
CAPITAL CORP.'S GRADE BALANCE LOANS COUPON RATIO
--------------------- -------------- --------- ---------------- ----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
A1...................................... $17,582 131 9.6% 79.1%
A2...................................... 20,077 176 10.3 80.3
B....................................... 8,434 92 10.8 76.0
C....................................... 5,086 52 10.9 73.8
D....................................... 2,445 29 11.6 68.6
------- --- ---- ----
Total or Weighted Average..... $53,624 480 10.3% 78.2%
======= === ==== ====
</TABLE>
Financing Strategy
Direct Retail and Broker Retail. Mortgage Corp. finances originated
mortgage loans primarily through its warehouse credit facilities provided by a
group of commercial bank lenders. Loans are generally held in inventory by
Mortgage Corp. for up to 45 days pending their sale to investors or agencies.
From the stage of initial application by the borrower through the final sale of
the loan, Mortgage Corp. bears interest rate risk.
In order to offset the risk that a change in interest rates will result in
a decrease in the value of Mortgage Corp.'s current mortgage loan inventory or
its commitments to purchase or originate mortgage loans ("Committed Pipeline"),
Mortgage Corp. enters into hedging transactions. Mortgage Corp.'s hedging
policies generally require that substantially all of its inventory of
conventional conforming and agency loans and the maximum portion of the
Committed Pipeline that Mortgage Corp. believes may close be hedged with forward
contracts for the delivery of mortgage-backed securities ("MBS") or options on
MBS. The inventory is then used to form the MBS that will fill the forward
delivery contracts and options. Mortgage Corp. hedges its inventory and
Committed Pipeline of jumbo (generally loans in excess of $227,200) and other
non-conforming mortgage loans, by using whole-loan sale commitments to ultimate
buyers or, because such loans are ultimately sold based on a market spread to
MBS, by selling a like amount of MBS. Because the market value of the loan and
the MBS are both subject to interest rate fluctuations, Mortgage Corp. is not
exposed to significant risk and will not derive any significant benefit from
changes in interest rates on the price of the inventory net of gains or losses
in associated hedge positions.
The correlation between price performance of the hedging instruments and
the inventory being hedged is very high as a result of the similarity of the
asset and the related hedge instrument. Mortgage Corp. is exposed to
interest-rate risk to the extent that the portion of loans from the Committed
Pipeline that actually closes at the committed price is different from the
portion expected to close and hedged in the manner described. Mortgage Corp.
determines the portion of its Committed Pipeline that it will hedge based on
numerous assumptions, including composition of the Committed Pipeline, the
portion of such Committed Pipeline likely to close, the timing of such closings
and anticipated changes in interest rates. See Notes 15 and 18 to the Company's
Consolidated Financial Statements.
Mortgage Corp. customarily sells all loans that it originates or purchases.
Conventional conforming and agency loans are generally sold servicing retained
and non-conforming loans are generally sold servicing released. Mortgage Corp.
packages substantially all of its FHA- and FMHA-insured and VA-guaranteed
mortgage loans into pools of loans. It sells these pools to national or regional
broker-dealers in the form of
13
<PAGE> 15
modified pass-through MBS guaranteed by GNMA. With respect to loans securitized
through GNMA programs, Mortgage Corp. is insured against foreclosure loss by the
FHA or FMHA or partially guaranteed against foreclosure loss by the VA (at
present, generally 25% to 50% of the loan, up to a maximum amount of $50,750,
depending upon the amount of the loan). Conventional conforming loans are also
pooled by Mortgage Corp. and exchanged for securities guaranteed by FNMA or
FHLMC, which securities are then sold to national or regional broker-dealers.
Loans securitized through FNMA or FHLMC are sold on a nonrecourse basis whereby
foreclosure losses are generally the responsibility of FNMA and FHLMC, and not
Mortgage Corp. Alternatively, Mortgage Corp. may sell FHA- and FMHA-insured and
VA-guaranteed mortgage loans and conventional conforming loans, and consistently
sells its jumbo loan production to large buyers in the secondary market (which
can include national or regional broker-dealers) on a nonrecourse basis. These
loans can be sold either on a whole-loan basis or in the form of pools backing
securities which are not guaranteed by any governmental instrumentality but
which generally have the benefit of some form of external credit enhancement,
such as insurance, letter of credit, payment guarantees or senior/subordinated
structures. Substantially all loans sold by Mortgage Corp. are sold without
recourse, subject, in the case of VA loans, to the limits of the VA guaranty
described above. To date, losses on VA loans in excess of the VA guaranty have
not been material to Mortgage Corp.
Mortgage Conduit. Capital Corp. currently finances the purchase of Home
Equity Loans with cash flow from the Company, a sub-line under Mortgage Corp.'s
warehouse credit facility and other short-term credit facilities. Typically,
under these credit facilities, Capital Corp. is only permitted to finance a
portion of the purchase price of loans, which are generally purchased at prices
that exceed their par value. Capital Corp. is in the process of negotiating
nonrecourse warehouse credit facilities in its own name for an aggregate amount
of $500 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Capital Corp. intends to securitize substantially all of the Home Equity
Loans it acquires or originates. The securitization transactions are expected to
be consummated through the creation of special purpose trusts. The Home Equity
Loans will be transferred to a trust in exchange for certificates representing
the senior interest in the securitized loans held by the trust and, if
applicable, a subordinated interest in the securitized loans. The subordinated
interests generally consist of the excess spread between the interest and
principal paid by the borrowers on the loans pooled in the securitization and
the interest and principal of the senior interests issued in the securitization,
and other unrated interests issued in the securitization. The senior interests
are subsequently sold to investors for cash. Capital Corp. may elect to retain
the subordinated interests or may sell all or some portion of the subordinated
interests to investors for cash. Capital Corp. anticipates that it will retain
the rights to the excess spreads.
Upon the sale of Home Equity Loans in securitization transactions, the sum
of the cash proceeds received, and the estimated present values of the
subordinated interests less the costs of origination and securitization and, the
basis in the Home Equity Loans sold results in the gain recognized at the time
of the securitization transaction. The present values of the subordinated
interests to be recognized by Capital Corp. are to be determined based upon
prepayment, loss and discount rate assumptions that will be determined in
accordance with the unique underlying characteristics of the Home Equity Loans
comprising each securitization.
Servicing
Direct Retail and Broker Retail. Generally, it is Mortgage Corp.'s strategy
to build and retain its servicing portfolio. With the exception of Home Equity
Loans, Mortgage Corp. services substantially all of the mortgage loans that it
originates. In addition, Mortgage Corp. may, from time to time, purchase bulk
servicing contracts for servicing of single family residential mortgage loans
originated by other lenders. Following Mortgage Corp.'s acquisition by the
Company in July 1997, it has retained substantially all of the newly originated
mortgage servicing rights when the option to retain such rights existed.
Mortgage Corp. has been able to retain such rights as a result of the capital
support available from the Company to fund the cash investment required to grow
the servicing portfolio.
14
<PAGE> 16
The servicing of mortgage loans generally includes collecting and remitting
loan payments, making advances when required, accounting for principal and
interest, holding custodial (escrow) funds for payment of property taxes and
hazard insurance, making necessary physical inspections of the property,
counseling delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, and generally administering
the loans. Mortgage Corp. receives a fee for servicing mortgage loans ranging
generally from 1/4% to 1/2% per annum on the declining principal balances of
the loans. The servicing fee is collected by Mortgage Corp. out of monthly
mortgage payments.
Currently, a large portion of Mortgage Corp.'s costs of servicing loans are
incurred as a result of the labor intensive data entry process required in
connection with each new loan. Mortgage Corp. is currently implementing a system
that will automate a large portion of the data entry process for serviced loans.
Mortgage Corp. expects that this system will be fully implemented by the third
quarter of 1998 and will significantly decrease the variable costs associated
with servicing loans.
Mortgage Corp.'s servicing portfolio is subject to reduction by scheduled
amortization or by prepayment or foreclosure of outstanding loans. In addition,
Mortgage Corp. has sold, and may sell in the future, a portion of its portfolio
of loan servicing rights to other mortgage servicers. In general, the decision
to sell servicing rights is based on management's assessment of the market value
of servicing rights and other factors.
The following table presents certain information regarding Mortgage Corp.'s
residential servicing portfolio, including loans held for sale as of the dates
indicated.
RESIDENTIAL SERVICING PORTFOLIO BALANCES
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHA-insured mortgage loans............................. $ 429,216 $ 342,694 $ 240,217
VA-guaranteed mortgage loans........................... 266,294 178,943 149,830
Conventional mortgage loans............................ 4,280,315 3,234,197 894,840
Other.................................................. 20,688 66,815 68,802
---------- ---------- ----------
Total residential servicing portfolio........ $4,996,513 $3,822,649 $1,353,689
</TABLE>
- ---------------
(1) 1997 data is as of December 31; data for all other years is as of September
30, which was the fiscal year end for Mortgage Corp. prior to the Harbor
Merger.
Mortgage Corp.'s contractual right to subservice approximately $707 million
of residential mortgages at December 31, 1997 is included in the data presented
in the preceding table. Of the total subservicing portfolio, approximately $624
million (88.2%) represents subservicing for loans in California. No other state
accounts for more than 5% of Mortgage Corp.'s subservicing portfolio. These
subservicing rights represent Mortgage Corp.'s right to service loans as to
which third parties own the servicing rights. Such parties have contracted with
Mortgage Corp. to service the portfolio of loans under short-term contracts
(generally for original terms of less than five years) for a fixed dollar amount
of servicing fee per year (generally approximately $75.00 per loan per year).
15
<PAGE> 17
Mortgage Corp.'s residential servicing portfolio (excluding subserviced
loans), stratified by interest rate, was as follows as of the dates indicated:
RESIDENTIAL SERVICING PORTFOLIO
INTEREST RATE STRATIFICATION
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL
BALANCE SERVICED
------------------------
FISCAL YEAR(1)
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Under 7.0%.................................................. 7.9% 9.8%
7.0 to 7.49................................................. 15.2 14.7
7.5 to 7.99................................................. 28.1 21.1
8.0 to 8.49................................................. 22.4 18.0
8.5 to 8.99................................................. 15.0 15.8
9.0 to 9.49................................................. 3.4 6.7
9.5 to 9.99................................................. 4.0 6.9
10% and over................................................ 4.0 7.0
------ ------
Total residential servicing portfolio............. 100.0% 100.0%
====== ======
</TABLE>
- ---------------
(1) 1997 data is as of December 31; 1996 data is as of September 30, which was
the fiscal year end for Mortgage Corp. prior to the Harbor Merger.
At December 31, 1997, 92% of the principal balance of loans in the
servicing portfolio bore interest at fixed rates and 8% bore interest at
adjustable rates. The weighted average servicing fee of the portfolio was 0.34%
of the principal balance of serviced loans at December 31, 1997.
The following table presents the geographic distribution of Mortgage
Corp.'s residential servicing portfolio (excluding subserviced loans), as of the
dates indicated.
RESIDENTIAL SERVICING PORTFOLIO GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE OF PRINCIPAL
BALANCE SERVICED
------------------------
FISCAL YEAR(1)
------------------------
1997 1996
--------- ---------
<S> <C> <C>
California.................................................. 27.8% 29.5%
Texas....................................................... 17.3 40.3
Florida..................................................... 7.1 4.2
Washington.................................................. 6.7 2.4
Maryland.................................................... 5.2 3.4
Other states (none more than 5%)............................ 35.9 20.2
------ ------
Total residential servicing portfolio............. 100.0% 100.0%
====== ======
</TABLE>
- ---------------
(1) 1997 data is as of December 31; 1996 data is as of September 30, which was
the fiscal year end for Mortgage Corp. prior to the Harbor Merger.
16
<PAGE> 18
The following table presents, as a percentage of aggregate principal
balance, the delinquency statistics of Mortgage Corp.'s residential servicing
portfolio (excluding subserviced loans) as of the dates indicated.
RESIDENTIAL SERVICING PORTFOLIO DELINQUENCY STATISTICS
<TABLE>
<CAPTION>
FISCAL YEAR(1)
--------------
1997 1996
----- -----
<S> <C> <C>
Delinquencies at period end:
30 days................................................ 2.4% 2.1%
60 days................................................ 0.5 0.6
90 days or more........................................ 0.2 0.3
--- ---
Total delinquencies......................................... 3.1% 3.0%
=== ===
Foreclosures pending........................................ 0.7% 0.9%
=== ===
</TABLE>
- ---------------
(1) 1997 data is as of December 31; 1996 data is as of September 30, which was
the fiscal year end for Mortgage Corp. prior to the Harbor Merger.
The delinquency data included in the preceding table include the results of
three distressed servicing portfolios acquired by Mortgage Corp. At December 31,
1997, the distressed portfolios totaled approximately $172.3 million of
servicing, of which approximately 7.1% represented delinquent principal
balances. In addition, approximately 4.9% of the principal balance of these
distressed portfolios was in foreclosure at year end 1997.
Mortgage Corp. has increased its servicing portfolio by retaining the
servicing rights on the loans it originates and by acquiring servicing rights
from other mortgage banks. In particular, Mortgage Corp. has sought to acquire
servicing rights from other mortgage banks at a substantial discount to the
market value of currently originated servicing. Such servicing is available at
discounts because of high delinquency levels or other characteristics deemed
unattractive to other servicers seeking more traditional servicing portfolios.
Mortgage Corp. has been able to acquire these servicing portfolios at prices
that, in its view, are attractive compared to the market value of currently
originated servicing. Mortgage Corp. has devoted substantial attention to
improving the overall quality of these distressed servicing portfolios and, as a
result, has developed particular expertise in servicing loans evidencing some
level of distress.
To capitalize further on its distressed servicing expertise, Mortgage Corp.
has initiated a trial program whereby it will acquire delinquent FHA and VA
loans from other mortgage bankers' GNMA securitizations. Mortgage Corp. believes
that a financial and business incentive exists for some mortgage banks to sell
the targeted loans and, therefore, a significant amount of such loans are
available for sale. The GNMA seller-servicers are required to pass through to
the holder of the GNMA security the scheduled principal and interest payments on
all loans in the security pool, even though the borrower may not be making such
payments. The mortgage banker is, therefore, making corporate advances to the
security holder from its own funds. By removing the delinquent loans from the
securitization by a sale to Mortgage Corp., the selling mortgage banker is
relieved from further obligations to make such advances to the GNMA security
holder. Through December 31, 1997, Mortgage Corp. has acquired approximately $16
million of such loans.
Residential mortgage loans are serviced from facilities located in Houston,
Texas and Scottsbluff, Nebraska. The Scottsbluff center, a newly renovated
21,000 square foot facility, was acquired as part of Mortgage Corp.'s 1996
acquisition of Hamilton. This service center has advantageous lease terms and an
efficient cost structure as compared to metropolitan servicing centers. The
addition of Hamilton's servicing and subservicing portfolios almost doubled
Mortgage Corp.'s consolidated servicing portfolio.
In order to track information on its mortgage servicing portfolio, Mortgage
Corp. utilizes a data processing system provided by Alltel Information Systems,
Inc. ("Alltel"). Alltel is one of the largest mortgage banking service bureaus
in the United States. Management believes that this system gives Mortgage
17
<PAGE> 19
Corp. sufficient capacity to support the anticipated expansion of its
residential mortgage loan servicing portfolio. See "Risk Factors -- Reliance on
Systems; Year 2000 Issues."
Mortgage Conduit. The loans acquired by Capital Corp. to date are being
subserviced by Advanta Mortgage Corp. USA. Capital Corp. owns the servicing
rights to its loans as master servicer and intends to assign collection and
resolution responsibilities to a subsidiary of the Company as special servicer
when its loans reach certain stages of delinquency, thus placing the final
decisions as to collection management under the control of the Company. Having
acquired and managed consumer portfolios totaling in excess of $580 million in
Face Value in its Portfolio Asset acquisition and resolution business, the
Company believes that the servicing experience and skills it has gained are
valuable to support the unique collection and resolution needs of a Home Equity
Loan portfolio. Capital Corp. intends to ultimately replace Advanta Mortgage
Corp. USA with the combined capabilities of Mortgage Corp. and the Company to
service Capital Corp.'s portfolio of Home Equity Loans and the loans within its
securitized pools. The Company and Mortgage Corp. are in the process of seeking
the approval of the servicer rating agencies as a preliminary step in the
process of retaining the servicing of all new Home Equity Loans in-house.
Strategy
Direct Retail and Broker Retail. Mortgage Corp. intends to pursue the
following strategies in an effort to continue growth in earnings in all aspects
of its residential mortgage business:
- Maintain steady growth in earnings by increasing the size of Mortgage
Corp.'s servicing portfolio.
- Continue opportunistic geographic expansion.
- Increase the range of mortgage products offered.
- Expand the Direct Retail and Broker Retail origination channels.
- Acquire distressed servicing portfolios and delinquent FHA, FMHA and VA
loans from other seller-servicers' GNMA securitizations.
Mortgage Conduit. Capital Corp. intends to implement the following
strategies as it continues to develop and grow its mortgage conduit business:
- Capitalize on the existing Home Equity Loan origination network of
Mortgage Corp. to generate loans for securitization.
- Form strategic relationships with selected small originators of Home
Equity Loans by extending secured warehouse lines of credit or mezzanine
loans to, or making equity investments in, such entities.
- Capitalize on the distressed asset collection experience of Commercial
Corp. to address the collection and resolution challenges inherent in
Home Equity Loan servicing.
- Establish an internal servicing platform to service the Home Equity Loans
originated or acquired by Capital Corp.
18
<PAGE> 20
Commercial Mortgage Banking
Mortgage Corp.'s commercial mortgage banking business consists of
commercial loans secured by commercial real estate properties and single family
residential construction loans. The following table presents the number and
dollar amount of Mortgage Corp.'s commercial loan production for the periods
indicated.
COMMERCIAL MORTGAGE LOAN ORIGINATIONS
<TABLE>
<CAPTION>
FISCAL YEAR(1)
------------------------------
1997 1996 1995
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Correspondent Loans:
Volume of loans........................................ $348,060 $35,600 $53,405
Number of loans........................................ 86 3 9
Construction Loans:
Volume of loans........................................ $ 65,740 $28,780 --
Number of loans........................................ 466 263 --
Total Loans:
Volume of loans........................................ $413,800 $64,380 $53,405
======== ======= =======
Number of loans........................................ 552 266 9
======== ======= =======
</TABLE>
- ---------------
(1) 1997 data is for the 12 months ended December 31; data for all other years
is for the 12 months ended September 30, which was Mortgage Corp.'s fiscal
year end prior to the Harbor Merger.
Correspondent Loan Business
Through eight offices located in California, Texas and Colorado, Mortgage
Corp. originates commercial loans that are funded by third parties for which
Mortgage Corp. serves as the correspondent. The loans are secured by
multi-family residential projects, office buildings, shopping centers and other
income producing properties. Revenues derived from Mortgage Corp.'s commercial
lending business are principally origination fees based on a percentage of the
loan amount and, in certain instances, application fees assessed at the time a
loan application is processed by Mortgage Corp. During 1997, Mortgage Corp.
generated $2.7 million in origination fees from its commercial mortgage
origination business. Mortgage Corp.'s commercial lending offices are staffed by
20 loan officers and nine servicing personnel.
Mortgage Corp. originates commercial loans in accordance with the
underwriting guidelines of its investors. These investors include life insurance
companies, commercial mortgage conduits, real estate investment trusts, and
others. Commercial loans are funded by investors at closing. Mortgage Corp.
originated a substantial portion of its 1997 commercial production for a single
large insurance company. In addition, a substantial portion of its commercial
servicing portfolio consists of servicing for such company.
At December 31, 1997, Mortgage Corp. serviced a portfolio of commercial
loans for 36 investors totaling approximately $1.7 billion representing 543
loans (compared to approximately $129 million representing 93 loans at September
30, 1996). At December 31, 1997, the commercial servicing portfolio represented
loans in 23 states with California (65%), Texas (12%), Colorado (7%) and Arizona
(4%) representing the largest concentrations of the principal balance of loans
serviced. The significant increase in the commercial servicing portfolio as
compared to the prior year is the result of Mortgage Corp.'s acquisition of a
large commercial servicing portfolio in 1997.
Commercial loans are serviced in a servicing center located in Walnut
Creek, California. Mortgage Corp. owns the rights to service its correspondent's
loans, with termination rights by the correspondent on a 30-day notice basis.
Servicing fees for such loans range from five to eight basis points per annum of
the principal balance of the loans.
19
<PAGE> 21
Construction Loans
In 1995, Mortgage Corp. began originating for its own account and servicing
single-family residential construction loans through a construction loan
department headquartered in Houston, Texas. Mortgage Corp. serves customers in
nine states with construction loan products tailored to its builder and
individual customers. Mortgage Corp. extends construction lines of credit to
approximately 30 builders for the construction of custom and speculative homes.
Generally, builders are limited to no more than 50% of the committed line for
speculative homes. Total commitments outstanding at December 31, 1997 were
approximately $25 million with a maximum extended to any one builder of
approximately $2.5 million. During 1997, approximately 70% of total construction
loan volume was conducted with builder borrowers.
In addition to its builder customer base, Mortgage Corp. offers a
construction-to-permanent loan package to individual customers who are building
or remodeling their own home. Under this program, the customer has one
application and loan approval process to provide for both the interim
construction and permanent financing. During 1997, approximately 30% of total
construction loan volume was conducted with individual borrowers.
The underwriting and servicing of the construction loans is conducted in
Houston, Texas with the construction progress inspection support provided by the
branch office personnel or outside vendors specializing in property inspections
for construction lenders. Construction loans are extended for up to 90% of the
cost of construction for a period of up to nine months with one three month
renewal option on the part of the builder. If the loan remains unpaid after the
first renewal, amortization of at least 10% of the principal balance is required
for any further renewals. Substantially all construction loans bear interest at
variable rates of interest at margins over a base lending rate.
Mortgage Corp. solicits construction loan builder and individual customers
through its major Direct Retail offices and, as a result, conducts most of its
business in Texas (72% in 1997), Maryland (8% in 1997), Virginia (5% in 1997)
and Tennessee (5% in 1997).
Strategy
In its commercial mortgage banking business, Mortgage Corp. intends to
continue to serve its correspondent clients by sourcing opportunities through
its retail offices and its home builder clients. It is the Company's intention
to explore and develop cross-selling opportunities between the commercial
mortgage capability of Mortgage Corp. and the commercial lending business of
Commercial Corp.
In its construction lending business, Mortgage Corp. intends to expand its
customer base by continuing to emphasize the construction-to-permanent loan
product. To that end, a regional construction loan product specialist resides in
the mid-Atlantic regional retail office to introduce the construction loan
product to borrowers in the region. The balance of Mortgage Corp.'s expansion
efforts in the construction lending business are focused on providing a larger
volume of construction loan products to Mortgage Corp.'s existing builder
customers.
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
The Company engages in the Portfolio Asset acquisition and resolution
business and is beginning to originate commercial loans through its wholly owned
subsidiary, FirstCity Commercial Corporation, and its subsidiaries ("Commercial
Corp."). In the Portfolio Asset acquisition and resolution business Commercial
Corp. acquires and resolves portfolios of performing and nonperforming
commercial and consumer loans and other assets, which are generally acquired at
a discount to Face Value. Purchases may be in the form of pools of assets or
single assets. Performing assets are those as to which debt service payments are
being made in accordance with the original or restructured terms of such assets.
Nonperforming assets are those as to which debt service payments are not being
made in accordance with the original or restructured terms of such assets, or as
to which no debt service payments are being made. Portfolios are designated as
nonperforming unless substantially all of the assets comprising the Portfolio
are performing. Once a Portfolio has been designated as either performing or
nonperforming, such designation is not changed regardless of the performance of
the
20
<PAGE> 22
assets comprising the Portfolio. Portfolios are either acquired for Commercial
Corp.'s own account or through investment entities formed with Cargill Financial
or one or more other co-investors (each such entity, an "Acquisition
Partnership"). See "-- Portfolio Asset Acquisition and Resolution
Business -- Relationship with Cargill Financial." To date, Commercial Corp. and
the Acquisition Partnerships have acquired over $3.0 billion in Face Value of
assets.
The Company's development of a niche commercial lending business is a
logical extension of its extensive experience with the resolution of distressed
assets. In many cases, the resolution of such assets involves the modification
of an existing debt into a new or modified extension of credit more suited to
the borrower's needs, ability to pay and value of the underlying collateral. The
Company intends to use such experience as the foundation upon which Commercial
Corp. will seek niche commercial lending opportunities.
Portfolio Asset Acquisition and Resolution Business
Background
In the early 1990s large quantities of nonperforming assets were available
for acquisition from the RTC and the FDIC. Since 1993, most sellers of
nonperforming assets have been private sellers, rather than government agencies.
These private sellers include financial institutions and other institutional
lenders, both in the United States and in various foreign countries, and, to a
lesser extent, insurance companies in the United States. As a result of mergers,
acquisitions and corporate downsizing efforts, other business entities
frequently access the market served by the Company to dispose of excess real
estate property or other financial assets not meeting the strategic needs of a
seller. Sales of such assets improve the seller's balance sheet, reduce overhead
costs, reduce staffing requirements and avoid management and personnel
distractions associated with the intensive and time-consuming task of resolving
loans and disposing of real estate. Consolidations within a broad range of
industries, especially banking, have augmented the trend of financial
institutions and other sellers packaging and selling asset portfolios to
investors as a means of disposing of nonperforming loans or other surplus
assets.
Portfolio Assets
Commercial Corp. acquires and manages Portfolio Assets, which are generally
purchased at a discount to Face Value by Commercial Corp. or through Acquisition
Partnerships. The Portfolio Assets are generally nonhomogeneous assets,
including loans of varying qualities that are secured by diverse collateral
types and foreclosed properties. Some Portfolio Assets are loans for which
resolution is tied primarily to the real estate securing the loan, while others
may be collateralized business loans, the resolution of which may be based
either on business or real estate or other collateral cash flow. Consumer loans
may be secured (by real or personal property) or unsecured. Portfolio Assets may
be designated as performing or nonperforming. Commercial Corp. generally expects
to resolve Portfolio Assets within three to five years after purchase.
To date, a substantial majority of the Portfolio Assets acquired by
Commercial Corp. have been designated as nonperforming. Commercial Corp. seeks
to resolve nonperforming Portfolio Assets through (i) a negotiated settlement
with the borrower in which the borrower pays all or a discounted amount of the
loan, (ii) conversion of the loan into a performing asset through extensive
servicing efforts followed by either a sale of the loan to a third party or
retention of the loan by Commercial Corp. or (iii) foreclosure of the loan and
sale of the collateral securing the loan. Commercial Corp. generally retains
Portfolio Assets that are designated as performing for the life of the loans
comprising the Portfolio.
Commercial Corp. has substantial experience acquiring, managing and
resolving a wide variety of asset types and classes. As a result, it does not
limit itself as to the types of Portfolios it will evaluate and purchase. The
main factors determining Commercial Corp.'s willingness to acquire Portfolio
Assets include the information that is available regarding the assets in a
portfolio, the price at which such portfolio can be acquired and the expected
net cash flows from the resolution of such assets. Commercial Corp. has acquired
Portfolio Assets in virtually all 50 states, the Virgin Islands, Puerto Rico and
France. Commercial Corp. believes that its willingness to acquire nonhomogeneous
Portfolio Assets without regard to geographical location provides it with an
advantage over certain competitors that limit their activities to either a
specific
21
<PAGE> 23
asset type or geographical location. Although Commercial Corp. imposes no
constraints on geographic locations of Portfolio Assets, the majority of assets
acquired to date have been in the Northeastern and Southern areas of the United
States.
Commercial Corp. also seeks to capitalize on emerging opportunities in
foreign markets where the market for nonperforming loans of the type generally
purchased by Commercial Corp. is less efficient than the market for such assets
in the United States. Through December 31, 1997, Commercial Corp. has acquired,
with Cargill Financial and a local French partner, three Portfolios in France,
consisting of approximately 6,500 assets, for an aggregate purchase price of
approximately $142 million. Such assets had a Face Value of approximately $513
million. Commercial Corp.'s share of the equity interest in the Portfolios
acquired in France ranges from 10% to 33 1/3% and Commercial Corp. has made a
total equity investment therein of approximately $10 million. The underlying
assets and debt are denominated in French francs and Commercial Corp.'s equity
investments are funded with a French franc line of credit, thereby mitigating
against foreign currency translation risks. Commercial Corp. does not otherwise
attempt to hedge any profits that might be derived from its equity investments.
Commercial Corp. has an established presence in Paris, France and is actively
pursuing opportunities to purchase additional pools of distressed assets in
France and other areas of Western Europe. In addition, Commercial Corp. has
established an office in Mexico City, Mexico to explore asset acquisition
opportunities in Mexico.
The following table presents, for each of the years in the three-year
period ended December 31, 1997, selected data for the Portfolio Assets acquired
by Commercial Corp.
PORTFOLIO ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Face Value......................................... $504,891 $413,844 $699,662
Total purchase price............................... 183,229 205,524 213,187
Total equity invested.............................. 54,764 92,937 26,534
Commercial Corp. equity invested................... $ 37,109 $ 35,973 $ 24,603
Total number of Portfolio Assets................... 5,503 5,921 19,031
</TABLE>
Sources of Portfolio Assets
Commercial Corp. develops its Portfolio Asset opportunities through a
variety of sources. The activities or contemplated activities of expected
sellers are publicized in industry publications and through other similar
sources. Commercial Corp. also maintains relationships with a variety of parties
involved as sellers or as brokers or agents for sellers. Many of the brokers and
agents concentrate by asset type and have become familiar with Commercial
Corp.'s acquisition criteria and periodically approach Commercial Corp. with
identified opportunities. In addition, repeat business referrals from Cargill
Financial or other co-investors in Acquisition Partnerships, repeat business
from previous sellers, focused marketing by Commercial Corp. and the nationwide
presence of Commercial Corp. and the Company are important sources of business.
Commercial Corp. has identified and seeks to continue to identify foreign
partners that have contacts within each foreign market and can bring Portfolio
Asset opportunities to Commercial Corp. Commercial Corp. expects that it will
only pursue acquisitions in foreign markets in conjunction with a local foreign
partner. Commercial Corp. has in the past pursued, and expects in the
foreseeable future to pursue, foreign acquisition opportunities in markets where
Cargill Financial has a presence.
Asset Analysis and Underwriting
Prior to making an offer to acquire any Portfolio, Commercial Corp.
performs an extensive evaluation of the assets that comprise the Portfolio. If,
as is often the case, the Portfolio Assets are nonhomogeneous, Commercial Corp.
will evaluate all individual assets determined to be significant to the total of
the proposed purchase. If the Portfolio Assets are homogenous in nature, a
sample of the assets comprising the Portfolio is
22
<PAGE> 24
selected for evaluation. The evaluation of an individual asset generally
includes analyzing the credit and collateral file or other due diligence
information supplied by the seller. Based upon such seller-provided information,
Commercial Corp. will undertake additional evaluations of the asset which, to
the extent permitted by the seller, will include site visits to and
environmental reviews of the property securing the loan or the asset proposed to
be purchased. Commercial Corp. will also analyze relevant local economic and
market conditions based on information obtained from its prior experience in the
market or from other sources, such as local appraisers, real estate principals,
realtors and brokers.
The evaluation further includes an analysis of an asset's projected cash
flow and sources of repayment, including the availability of third party
guarantees. Commercial Corp. values loans (and other assets included in a
portfolio) on the basis of its estimate of the present value of estimated cash
flow to be derived in the resolution process. Once the cash flow estimates for a
proposed purchase and the financing and partnership structure, if any, are
finalized, Commercial Corp. can complete the determination of its proposed
purchase price for the targeted Portfolio Assets. Purchases are subject to
purchase and sale agreements between the seller and the purchasing affiliate of
Commercial Corp.
Servicing
After a Portfolio is acquired, Commercial Corp. assigns it to an account
servicing officer who is independent of the officer that performed the due
diligence evaluation in connection with the purchase of the Portfolio. Portfolio
Assets are serviced either at the Company's headquarters or in one of Commercial
Corp.'s other offices. Commercial Corp. generally establishes servicing
operations in locations in close proximity to significant concentrations of
Portfolio Assets. Most of such offices are considered temporary and are reviewed
for closing after the assets in the geographic region surrounding the office are
substantially resolved. The assigned account servicing officer develops a
business plan and budget for each asset based upon an independent review of the
cash flow projections developed during the investment evaluation, a physical
inspection of each asset or the collateral underlying the related loan, local
market conditions and discussions with the relevant borrower. Budgets are
periodically reviewed and revised as necessary. Commercial Corp. employs loan
tracking software and other operational systems that are generally similar to
systems used by commercial banks, but which have been enhanced to track both the
collected and the projected cash flows from Portfolio Assets.
To date, the net present value of Commercial Corp.'s cash flows from
serviced assets has exceeded initial projections. Because of this success,
Commercial Corp. has been able to structure securitization and structured
financing transactions based upon cash flow projections expected to be derived
from Portfolio Assets. The basis for such transactions differs from traditional
securitization structures in which the execution levels are predicated upon the
existence of an underlying contractual stream of cash flows from periodic
payments on underlying loans. Transactions completed by Commercial Corp. to date
have been based not only on the cash flow from performing assets but also the
projected cash flows from nonperforming assets such as unoccupied real estate
and raw land parcels. Commercial Corp. believes that its success in predicting
cash flows from Portfolio Assets has permitted it to access the securitization
markets on attractive terms.
Commercial Corp. services all of the Portfolio Assets owned for its own
account, all of the Portfolio Assets owned by the Acquisition Partnerships and,
to a very limited extent, Portfolio Assets owned by related third parties. In
connection with the Acquisition Partnerships, Commercial Corp. earns a servicing
fee of between 3% and 8% of gross cash collections generated in the Acquisition
Partnerships rather than a periodic management fee based on the Face Value of
the asset being serviced. The rate of servicing fee charged is a function of the
average Face Value of the assets within each pool being serviced (the larger the
average Face Value of the assets in a Portfolio, the lower the fee percentage
within the prescribed range).
Structure and Financing of Portfolio Asset Purchases
Portfolio Assets are acquired for the account of a subsidiary of Commercial
Corp. and through the Acquisition Partnerships. Portfolio Assets owned directly
by a subsidiary of Commercial Corp. are financed with cash contributed by
Commercial Corp. and secured senior debt that is recourse only to such
subsidiary.
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Each Acquisition Partnership is a separate legal entity, generally formed
as a limited partnership. Commercial Corp. and an investor typically form a
corporation to serve as the corporate general partner of each Acquisition
Partnership. Generally, Commercial Corp. and the investor each own 50% of the
general partner and a 49% limited partnership interest in the Acquisition
Partnership (the general partner owns the other 2% interest). Cargill Financial
or its affiliates are the investor in the vast majority of the Acquisition
Partnerships currently in existence. See "-- Relationship with Cargill
Financial." Certain institutional investors have also held limited partnership
interests in the Acquisition Partnerships and may hold interests in the related
corporate general partners. Acquisition Partnerships may also be formed as a
trust, corporation or other type of entity.
The Acquisition Partnerships generally are financed by debt secured only by
the assets of the individual entity and are nonrecourse to the Company,
Commercial Corp., its co-investors and the other Acquisition Partnerships.
Commercial Corp. believes that such legal structure insulates it, the Company
and the other Acquisition Partnerships from certain potential risks, while
permitting Commercial Corp. to share in the economic benefits of each
Acquisition Partnership. Prior to the Merger, a significant portion of the
funding for each Acquisition Partnership was provided in the form of
subordinated debt provided by Cargill Financial. Because the Merger increased
the capital available to Commercial Corp., the need for subordinated debt has
been substantially eliminated, enabling Commercial Corp. to commit a larger
portion of its own funds to the Acquisition Partnerships. In addition, the
Merger has enhanced Commercial Corp.'s capacity to invest in Portfolios without
the participation of an investment partner.
Senior secured acquisition financing currently provides the majority of the
funding for the purchase of Portfolios. Commercial Corp. and the Acquisition
Partnerships have relationships with a number of senior lenders including Nomura
Securities, Inc. ("Nomura"), Cargill Financial and others. Senior acquisition
financing is obtained at variable interest rates ranging from LIBOR to prime
based pricing with negotiated spreads to the base rates. The final maturity of
the senior secured acquisition debt is normally two years from the date of
funding of each advance under the facility. The terms of the senior acquisition
debt of the Acquisition Partnerships generally allow, under certain conditions,
distributions to equity partners before the debt is repaid in full.
Prior to maturity of the senior acquisition debt, the Acquisition
Partnerships typically refinance the senior acquisition debt with long-term debt
secured by the assets of partnerships or transfer assets from the Portfolios to
special purpose entities to effect structured financings or securitization
transactions. Such long-term debt generally accrues interest at a lower rate
than the senior acquisition debt, has collateral terms similar to the senior
acquisition debt, and permits distributions of excess cash flow generated by the
partnership to the equity partners so long as the partnership is in compliance
with applicable financial covenants.
Relationship with Cargill Financial
Cargill Financial, a diversified financial services company, is a wholly
owned subsidiary of Cargill, Incorporated, which is generally regarded as one of
the world's largest privately-held corporations and has offices worldwide.
Cargill Financial and its affiliates provide significant debt and equity
financing to the Acquisition Partnerships. In addition, Commercial Corp.
believes its relationship with Cargill Financial significantly enhances
Commercial Corp.'s credibility as a purchaser of Portfolio Assets and
facilitates its ability to expand into other businesses and foreign markets.
Under a Right of First Refusal Agreement and Due Diligence Reimbursement
Agreement effective as of January 1, 1998 (the "Right of First Refusal
Agreement") among the Company, FirstCity Servicing Corporation, Cargill
Financial and its wholly owned subsidiary CFSC Capital Corp. II ("CFSC"), if the
Company receives an invitation to bid on or otherwise obtains an opportunity to
acquire interests in domestic loans, receivables, real estate or other assets in
which the aggregate amount to be bid exceeds $4 million, the Company is required
to follow a prescribed notice procedure pursuant to which CFSC has the option to
participate in the proposed purchase by requiring that such purchase or
acquisition be effected through an Acquisition Partnership formed by the Company
and Cargill Financial (or an affiliate). The Right of First Refusal Agreement
does not prohibit the Company from holding discussions with entities other than
CFSC
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regarding potential joint purchases of interests in loans, receivables, real
estate or other assets, provided that any such purchase is subject to CFSC's
right to participate in the Company's share of the investment. The Right of
First Refusal Agreement further provides that, subject to certain conditions,
CFSC will bear 50% of the due diligence expenses incurred by the Company in
connection with proposed asset purchases. The Right of First Refusal Agreement
is an amendment and extension of a similar agreement entered into among the
Company, certain members of the Company's management and Cargill Financial in
1992. The Right of First Refusal Agreement terminates on January 1, 2000.
Business Strategy
Historically, Commercial Corp. has leveraged its expertise in asset
resolution and servicing by investing in a wide variety of asset types across a
broad geographic scope. Commercial Corp. continues to follow this investment
strategy and seeks expansion opportunities into new asset classes and geographic
areas when it believes it can achieve attractive risk adjusted returns. The
following are the key elements of Commercial Corp.'s business strategy in the
portfolio acquisition and resolution business:
- Niche markets. Commercial Corp. will continue to pursue profitable
private market niches in which to invest. The niche investment
opportunities that Commercial Corp. has pursued to date include (i) the
acquisition of improved or unimproved real estate, including excess
retail sites, (ii) periodic purchases of single financial or real estate
assets from banks and other financial institutions with which Commercial
Corp. has established relationships, and from a variety of other sellers
that are familiar with the Company's reputation for acting quickly and
efficiently and (iii) the purchase of charged-off credit card
receivables.
- Emphasis on smaller Portfolios. Generally, Commercial Corp. seeks
purchases of Portfolio Assets with a purchase price of less than $100
million in order to avoid large portfolio offerings that attract larger
institutional purchasers and hedge funds, which have lower threshold
return requirements and lower funding costs than Commercial Corp.
- Foreign markets. Commercial Corp. believes that the foreign markets for
distressed assets are less developed than the U.S. market, and therefore
provide a greater opportunity to achieve attractive risk adjusted
returns. Commercial Corp. has purchased Portfolio Assets in France and
expects to continue to seek purchase opportunities outside of the United
States.
Commercial Lending Opportunities
Commercial Corp.'s extensive experience in the asset acquisition and
resolution business has led to numerous opportunities to originate commercial
loans. In most cases, the prospective borrower was unwilling or unable to meet a
traditional lenders' requirements or found that a traditional lender could not
or would not be responsive within a short time frame. In some cases, the
prospective borrower was already aware of Commercial Corp.'s familiarity and
comfort with a particular type of collateral, such as lodging properties, small
commercial real estate developments, franchisee properties or small multi-family
projects. In Commercial Corp.'s view, its extensive experience in servicing
difficult distressed asset credits qualifies it to originate, and service,
commercial loans. To that end, Commercial Corp. is currently evaluating the
possibility of making debtor-in-possession loans to borrowers in bankruptcy
reorganization proceedings, mezzanine loans or venture capital investments in
emerging growth company situations and commercial loans meeting the underwriting
and other standards of qualification for a Small Business Administration
guarantee. Commercial Corp. is also analyzing the special funding needs of
borrowers who are franchisees, and is considering the factoring of receivables.
Commercial Corp. expects that it will analyze other commercial lending
opportunities as they arise. In some cases, the opportunity might be a unique
and defined lending opportunity. In others, an attractive opportunity would be
characterized by a flow of lending opportunities, such as in the factoring
business. Commercial Corp. will also entertain the opportunity to joint venture
with businesses already in the targeted business activity but which need
additional capital or funding and the servicing expertise of Commercial Corp.
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CONSUMER LENDING
The Company conducts all of its consumer receivable origination activities
through FirstCity Consumer Lending Corporation and its subsidiaries ("Consumer
Corp."). Consumer Corp.'s current focus is on the origination and servicing of
sub-prime consumer loans. Such loans are extended to borrowers who evidence an
ability and willingness to repay credit, but have experienced an adverse event,
such as a job loss, illness or divorce, or have had past credit problems, such
as delinquency, bankruptcy, repossession or charge-offs. The significant
majority of Consumer Corp.'s current business is focused on the sub-prime
automobile sector, with each loan funded after individual underwriting and
pricing of each proposed extension of credit.
Market Background
The sub-prime automobile finance business has been characterized by several
factors that the Company believes increase its likelihood of being able to build
a successful sub-prime automobile finance business. Within the past several
years, significant amounts of new capital have become available, thereby
allowing a large number of new market participants to originate loans to
sub-prime automobile borrowers. This increase in competition led to reduced
credit underwriting standards and lower dealer discounts as lenders sought to
maintain earnings by increasing loan origination levels. In the Company's view,
too little attention was paid to both the importance of matching the discount to
the expected loss per occurrence and the special effort required to service a
sub-prime automobile loan. Because of many notable failures, especially among
mono-line automobile finance businesses, the Company believes that the
opportunity now exists to increase market share by providing a fully
underwritten loan product that utilizes risk-adjusted pricing to franchised
automobile dealerships that seek a steady source of funding supported by
meaningful and responsive service.
Consumer Corp. Background
Through its Portfolio Asset acquisition and resolution business, the
Company has acquired approximately $580 million in Face Value of distressed
consumer loans. In addition, through its wholly owned subsidiary, FirstCity
Servicing Corporation of California ("Consumer Servicing") the Company has
extensive experience in the servicing of distressed sub-prime automobile loans.
The Company's initial venture into the sub-prime automobile market involved
the acquisition of a distressed sub-prime automobile loan portfolio from a
secured lender. In addition to acquiring the distressed loans, the Company
acquired the equity of the company that operated the program through which the
loans had been originated. This program involved the indirect acquisition of
automobile loans from financial intermediaries that had direct contact with
automobile dealerships. The Company was required to purchase loans that
satisfied minimum contractual underwriting standards and was not permitted to
negotiate purchase discounts for a loan based on the individual risk profile of
the loan and the borrower. After operating this program for approximately 15
months, the Company concluded that the contractual underwriting standards and
purchase discounts on which the program was based were insufficient to generate
sub-prime automobile loans of acceptable quality to the Company. As a result,
the Company terminated its obligations with the financial institutions
participating in such origination program effective as of January 31, 1998.
With the benefit of the experience gained by the Company through its
initial attempt at originating acceptable sub-prime automobile loans, the
Company began, in early 1997, to explore other business models that it felt
would be successful in the current market environment. This investigation and
research resulted in the formation, during the third quarter of 1997, of
FirstCity Funding Corporation ("Funding Corp."), 80% of which is owned by the
Company and 20% of which is owned by Funding Corp.'s management team. Funding
Corp.'s management team is experienced in the automobile finance business, with
significant prior experience in the sales and finance activities of franchised
dealerships. Funding Corp.'s business model is predicated upon the acquisition
of newly originated sub-prime automobile finance contracts at a price that is
adjusted to reflect the expected loss per occurrence on defaulted contracts. The
approach emphasizes service to the dealership and a steady source of funding for
contracts that meet Funding Corp.'s underwriting and pricing criteria. In
addition, all loans are serviced by Consumer Servicing, which is dedicated
exclusively to the servicing of consumer loans originated or acquired by
Consumer Corp.
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Consumer Corp. and the management shareholders of Funding Corp. entered
into a shareholders' agreement in connection with the formation of Funding Corp.
in September 1997. Commencing on the fifth anniversary of such agreement,
Consumer Corp. and the management shareholders have put and call options with
respect to the stock of Funding Corp. held by the other party, which will be
priced at a mutually agreed upon fair market value.
Product Description
Consumer Corp. currently acquires and originates loans, secured by
automobiles, to borrowers who have had past credit problems or have little or no
credit experience. Such loans are individually underwritten to Consumer Corp.'s
underwriting and credit guidelines. See "-- Loan Acquisition and Underwriting."
The collateral for the loan generally is a used automobile purchased from a
franchised automobile dealership. The loans generally have a term of no more
than 60 months and generally accrue interest at the maximum rate allowed by
applicable state law.
Origination Channels
Through a sales staff managed by professionals with an extensive automobile
dealership background, Funding Corp. markets its loan products and dealership
services directly to participating franchised automobile dealerships. Funding
Corp. currently maintains approximately 250 automobile dealership relationships
in Texas, Missouri and Oklahoma. Near term plans call for expansion into other
states as staffing levels, licensing and training permit. Funding Corp. is
targeting expansion into states that offer attractive opportunities due to
population growth, attractive consumer lending rate environments and
lender-friendly repossession and collection remedies with respect to defaulting
borrowers.
The dealership servicing and marketing staff of Funding Corp. consists of
eight marketing representatives who work with dealers that submit funding
applications to Funding Corp. These marketing representatives call upon new
dealership prospects within the current marketing territories and work with
existing dealerships to solicit additional loan acquisition opportunities. All
of the marketing staff are full time employees of Funding Corp. and have
completed an extensive training program. In addition to the initial training,
weekly updates with the marketing representatives and monthly meetings for the
entire staff are held to maintain current knowledge of the dealership programs
and product offerings.
Participating dealerships submit funding applications for each prospective
loan to Funding Corp.'s home office in Dallas, Texas. Applications are reviewed
and checked for completeness and all complete applications are forwarded to a
credit analyst for review. Within two hours after receipt of an application, a
representative of Funding Corp. will notify the dealership of the terms on which
it would acquire the loan, subject to confirmation of the application data. See
"-- Loan Acquisition and Underwriting."
In addition to Funding Corp.'s operations, FirstCity Consumer Finance
Corporation ("Consumer Finance"), a wholly owned subsidiary of Consumer Corp.,
originates loans with borrowers who have established payment records on recently
originated automobile receivables through direct marketing to the consumer.
Through contractual relationships with third parties, Consumer Finance
identifies loan prospects for underwriting, documentation and funding upon final
approval of a request for credit. The activities of Consumer Finance are not
significant to date, with 20 loans having an aggregate principal balance of
approximately $200,000 outstanding at December 31, 1997.
Loan Acquisition and Underwriting
Funding Corp. acquires sub-prime automobile loans originated by franchised
dealerships under a tiered pricing system. Under its pricing and underwriting
guidelines, each loan is purchased in an individually negotiated transaction
from the selling dealership only after it has been fully underwritten and
independently verified by Funding Corp. A staff of 22 credit and compliance
personnel in Funding Corp.'s home office completes the underwriting and due
diligence for each funding application. During the compliance phase of the
underwriting review, Funding Corp. verifies all pertinent information on a
borrower's credit application, including verification of landlord information
for borrowers without a mortgage. As an additional check on the
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quality of the prospective loan, each borrower is personally contacted by
Funding Corp. prior to the acquisition of the loan. At such time, all of the
details of the proposed transaction are confirmed with the borrower, including
the borrower's level of satisfaction with the purchased vehicle.
Each transaction is individually priced to achieve a risk-adjusted target
purchase price, which is expressed as a percentage of the par value of the loan.
The tiered pricing structure of Funding Corp. is designed as a guideline for
establishing minimum underwriting and pricing standards for the loans to be
acquired. The minimum amount of the discount from par for the four tiers ranges
from no discount for tier 1 loans to a 10% discount for tier 4 loans. Funding
Corp.'s underwriting standards do not permit the purchase of a loan for more
than its par value. Other factors impacting the tier level of a loan include,
but are not limited to, prior credit history, repossession and bankruptcy
history, open credit account status, income minimums, down payment requirements,
payment ratio tests and the contract advance amount as a percentage of the
wholesale value of the collateral vehicle. The purpose of the tiered
underwriting and pricing structure is to acquire loans that are priced in
accordance with risk characteristics and the underlying value of the collateral.
The process is designed to approve loan applications for borrowers who are
likely to pay as agreed, and to minimize the risk of loss on the disposition of
the underlying collateral in the event that a default occurs.
Funding Corp. seeks to acquire loans that have the following
characteristics:
- Loans originated by a new automobile franchised dealership
- Loans secured by automobiles that have established resale values and a
targeted age of approximately two years
- The borrower has made a substantial down payment on the automobile, which
evidences a significant equity commitment
- The loan is underwritten to provide a debt to income ratio permitting the
borrower to comfortably afford the monthly payments
- The borrower evidences a tendency toward repairing impaired credit
- Funding Corp.'s purchase price of the contract from the dealership is
less than the published wholesale value of the automobile
From its inception in September 1997 through December 31, 1997, Funding
Corp. acquired a total of 502 automobile loans representing an aggregate of
approximately $7.1 million in Face Value. The loans had a weighted average
coupon rate of 19.1%. The average Face Value of the loans acquired was $14,209,
which on average represented approximately 104.3% of the published wholesale
value of the financed automobile. Funding Corp. acquired the loans from
dealerships at an average discount of approximately 11.4% from their Face Value.
As a result, the average amount advanced by Funding Corp. for a particular loan
was equal to approximately 92.4% of the published wholesale value of the
financed automobile.
The average automobile financed by Funding Corp. through December 31, 1997
was two and one half years old with approximately 32,000 miles. The average
contractual repayment term for the loans acquired by Funding Corp. was 52
months. The ratio of the borrower's monthly debt service amount to the
borrower's monthly gross income was, on average, equal to 12.1%.
Financing Strategy
Funding Corp. finances its operations with a warehouse credit facility
provided by ContiTrade Services L.L.C. ("ContiTrade"), in connection with which
ContiFinancial Services Corporation, an affiliate of ContiTrade, has the right
to provide advisory and placement services to Funding Corp. for the
securitization of acquired loans. Funding Corp. plans to provide permanent
financing for its acquired consumer loans through securitizations of pools of
loans totaling between $40 and $50 million.
The securitization transactions are expected to be consummated through the
creation of special purpose trusts. The loans will be transferred to a trust in
exchange for certificates representing the senior interest in the
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securitized loans held by the trust and, if applicable, a subordinated interest
in the securitized loans. The subordinated interests generally consist of the
excess spread between the interest and principal paid by the borrowers on the
loans pooled in the securitization and the interest and principal of the senior
interests issued in the securitization, and other unrated interests issued in
the securitization. The senior interests are subsequently sold to investors for
cash. Consumer Corp. may elect to retain the subordinated interests or may sell
all or some portion of the subordinated interests to investors for cash.
Consumer Corp. anticipates that it will retain the rights to the excess spreads.
Upon the sale of loans in securitization transactions, the sum of the cash
proceeds received and the estimated present values of the subordinated interests
less the costs of origination and securitization and the basis in the loans sold
results in the gain recognized at the time of the securitization transaction.
The present values of the subordinated interests to be recognized by Consumer
Corp. are to be determined based upon prepayment, loss and discount rate
assumptions that will be determined in accordance with the unique underlying
characteristics of the loans comprising each securitization.
Servicing
Consumer Servicing, an indirect wholly owned subsidiary of the Company, is
responsible for the loan accounting, collection, payment processing, skip
tracing and recovery activities associated with the Company's consumer lending
activities. Consumer Servicing has extensive experience in servicing automobile
loans and the Company believes that Consumer Servicing is a critical element to
the Company's ultimate success in the consumer loan business. Consumer
Servicing's activities are closely integrated with the activities of Consumer
Corp. This enables Consumer Servicing to take advantage of the information
regarding the quality of originated credit that is available from a servicer in
order to assist in the evaluation and modification of product design and
underwriting criteria.
The staffing of Consumer Servicing consists of 61 personnel, including 34
assigned to customer service and collections and 10 assigned to the special
recovery activities associated with assignments for repossession through the
liquidation of the collateral (in addition to two individuals at Funding Corp.
who work in asset liquidation). This group also coordinates any contract
reinstatements, notices of intent to dispose of collateral and recovery of any
insurance, warranty or other premium payments subject to recovery in the event
of cancellation. An additional staff of seven personnel is dedicated to asset
recovery, which includes tracing of individuals who cannot be located, seeking
to collect on deficiencies, managing the storage of repossessed vehicles prior
to their disposition and physical damage claims on collateral vehicles. An
administrative staff handles the special issues associated with borrowers in
bankruptcy and the more complicated issues associated with contracts involved in
other legal disputes.
The servicing practices associated with sub-prime loans are extensive. For
example, Consumer Servicing personnel contact each borrower three days prior to
the payment due date during each of the first three months of the contract. This
process assists in avoiding first payment defaults and confirms that the
customer can be located. If a borrower is delinquent in payment, an attempt to
contact the borrower is made on the first day of delinquency. Continual contact
is attempted until the borrower is located and payment is made, or a commitment
is made to bring the contract current. If the borrower cannot be contacted, the
account may be assigned to Consumer Servicing's asset recovery staff.
If the borrower does not meet a payment commitment and has not indicated a
verifiable and reasonable intention to bring the loan current, the account is
assigned to outside agents for repossession at the thirty-third day of
delinquency. At such time, the borrower has missed two payments and has not
indicated a willingness to enter into a repayment plan. After the collateral is
repossessed, the borrower has a limited opportunity to reinstate the obligation
under applicable state law by bringing the payment current and reimbursing
Consumer Servicing for its repossession expenses. If the loan is not reinstated
within the reinstatement period, the collateral is sold by the asset liquidation
group. Funding Corp. disposes of repossessed automobiles at auction after a
thorough inspection and detailing. A representative of Funding Corp. generally
will attend the auction to represent Funding Corp. and ensure that the
automobile is properly represented by the auction firm.
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Strategy
The Company continues to evaluate a number of businessntention to bring the loan
current, the account is
assigned to outside agents for repossession at the thirty-third day of
delinquency. At such time, the borrower has missed two payments and has not
indicated a willingness to enter into a repayment plan.e
secured consumer loan products and certain aspects of direct and indirect
unsecured consumer lending. Through contacts with investment banks, business
brokers and others in the consumer lending field, the Company seeks acquisition
or merger candidates or qualified management teams with which to associate in
start-up ventures. As with other aspects of its business, the Company seeks to
be opportunistic in targeting additional consumer lending opportunities.
GOVERNMENT REGULATION
Many aspects of the Company's business are subject to regulation,
examination and licensing under various federal, state and local statutes and
regulations that impose requirements and restrictions affecting, among other
things, the Company's loan originations, credit activities, maximum interest
rates, finance and other charges, disclosures to customers, the terms of secured
transactions, collection repossession and claims handling procedures, multiple
qualification and licensing requirements for doing business in various
jurisdictions, and other trade practices.
Mortgage Banking. The Company's mortgage banking business is subject to
extensive and complex rules and regulations of, and examinations by, various
federal, state and local government authorities. These rules and regulations
impose obligations and restrictions on loan originations, credit activities and
secured transactions. In addition, these rules limit the interest rates, finance
charges and other fees that Mortgage Corp. and Capital Corp. may assess, mandate
extensive disclosure to their customers, prohibit discrimination and impose
multiple qualification and licensing obligations. Failure to comply with these
requirements may result in, among other things, demands for indemnification or
mortgage loan repurchases, certain rights of rescission for mortgage loans,
class action lawsuits, administrative enforcement actions and civil and criminal
liability. The Company believes that its mortgage banking business is in
compliance with these rules and regulations in all material respects.
Loan origination activities are subject to the laws and regulations in each
of the states in which those activities are conducted. For example, state usury
laws limit the interest rates that can be charged on loans. Lending activities
are also subject to various federal laws, including those described below.
Mortgage Corp. and Capital Corp. are subject to certain disclosure requirements
under the Federal Truth-In-Lending Act ("TILA") and the Federal Reserve Board's
Regulation Z promulgated thereunder. TILA is designed to provide consumers with
uniform, understandable information with respect to the terms and conditions of
loan and credit transactions. TILA also guarantees consumers a three day right
to cancel certain credit transactions, including loans of the type originated by
Mortgage Corp. and Capital Corp. Such three day right to rescind may remain
unexpired for up to three years if the lender fails to provide the requisite
disclosures to the consumer.
Mortgage Corp. and Capital Corp. are also subject to the High Cost Mortgage
Act ("HCMA"), which amends TILA. The HCMA generally applies to consumer credit
transactions secured by the consumer's principal residence, other than
residential mortgage transactions, reverse mortgage transactions or transactions
under an open-end credit plan, in which the loan has either (i) total points and
fees upon origination in excess of the greater of eight percent of the loan
amount or $400 or (ii) an annual percentage rate of more than ten percentage
points higher than United States Treasury securities of comparable maturity
("Covered Loans"). The HCMA imposes additional disclosure requirements on
lenders originating Covered Loans. In addition, it prohibits lenders from, among
other things, (i) originating Covered Loans that are underwritten solely on the
basis of the borrower's home equity without regard to the borrower's ability to
repay the loan and (ii) including prepayment fee clauses in Covered Loans to
borrowers with a debt-to-income ratio in excess of 50% or Covered Loans used to
refinance existing loans originated by the same lender. The HCMA also restricts,
among other things, certain balloon payments and negative amortization features.
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Mortgage Corp. and Capital Corp. are also required to comply with the Equal
Credit Opportunity Act ("ECOA") and the Federal Reserve Board's Regulation B
promulgated thereunder, the Fair Credit Reporting Act ("FCRA"), the Real Estate
Settlement Procedures Act of 1974 ("RESPA"), the Home Mortgage Disclosure Act
("HMDA") and the Federal Fair Debt Collection Procedures Act. Regulation B
restricts creditors from requesting certain types of information from loan
applicants. FCRA requires lenders, among other things, to supply an applicant
with certain disclosures concerning settlement fees and charges and mortgage
servicing transfer practices. It also prohibits the payment or receipt of
kickbacks or referral fees in connection with the performance of settlement
services. In addition, beginning with loans originated in 1994, an annual report
must be filed with the Department of Housing and Urban Development pursuant to
HMDA, which requires the collection and reporting of statistical data concerning
loan transactions.
Regulation of Sub-prime Automobile Lending. Consumer Corp.'s automobile
lending activities are subject to various federal and state consumer protection
laws, including TILA, ECOA, FCRA, the Federal Fair Debt Collection Practices
Act, the Federal Trade Commission Act, the Federal Reserve Board's Regulations B
and Z, and state motor vehicle retail installment sales acts and other similar
laws that regulate the origination and collection of consumer receivables and
impact Consumer Corp.'s business. These laws, among other things, (i) require
Consumer Corp. to obtain and maintain certain licenses and qualifications, (ii)
limit the finance charges, fees and other charges on the contracts purchased,
(iii) require Consumer Corp. to provide specific disclosures to consumers, (iv)
limit the terms of the contracts, (v) regulate the credit application and
evaluation process, (vi) regulate certain servicing and collection practices,
and (vii) regulate the repossession and sale of collateral. These laws impose
specific statutory liabilities upon creditors who fail to comply with their
provisions and may give rise to defenses to the payment of the consumer's
obligation. In addition, certain of the laws make the assignee of a consumer
installment contract liable for the violations of the assignor.
Each dealer agreement contains representations and warranties by the dealer
that, as of the date of assignment, the dealer has complied with all applicable
laws and regulations with respect to each contract. The dealer is obligated to
indemnify Consumer Corp. for any breach of any of the representations and
warranties and to repurchase any non-conforming contracts. Consumer Corp.
generally verifies dealer compliance with usury laws, but does not audit a
dealer's full compliance with applicable laws. There can be no assurance that
Consumer Corp. will detect all dealer violations or that individual dealers will
have the financial ability and resources either to repurchase contracts or
indemnify Consumer Corp. against losses. Accordingly, failure by dealers to
comply with applicable laws, or with their representations and warranties under
the dealer agreement, could have a material adverse effect on Consumer Corp.
If a borrower defaults on a contract, Consumer Corp., as the servicer of
the contract, is entitled to exercise the remedies of a secured party under the
Uniform Commercial Code (the "UCC"), which typically includes the right to
repossession by self-help unless such means would constitute a breach of peace.
The UCC and other state laws regulate repossession and sales of collateral by
requiring reasonable notice to the borrower of the date, time and place of any
public sale of collateral, the date after which any private sale of the
collateral may be held and the borrower's right to redeem the financed vehicle
prior to any such sale, and by providing that any such sale must be conducted in
a commercially reasonable manner.
COMPETITION
All of the business lines in which the Company operates are highly
competitive. Some of the Company's principal competitors in certain of its
businesses are substantially larger and better capitalized than the Company.
Because of these resources, these companies may be better able than the Company
to obtain new customers for mortgage or other loan production, to acquire
Portfolio Assets, to pursue new business opportunities or to survive periods of
industry consolidation.
The Company encounters significant competition in its mortgage banking
business. Mortgage Corp. competes with other mortgage banking companies,
mortgage and servicing brokers, commercial banks, savings associations, credit
unions, other financial institutions and various other lenders. A number of
these competitors have substantially greater financial resources and greater
operating efficiencies. Customers
31
<PAGE> 33
distinguish between product and service providers in the industries in which
Mortgage Corp. operates for various reasons, including convenience in obtaining
the product or service, overall customer service, marketing and distribution
channels and pricing (primarily in the form of prevailing interest rates).
Competition for Mortgage Corp. is particularly affected by fluctuations in
interest rates. During periods of rising interest rates, competitors of Mortgage
Corp. who have locked into lower borrowing costs may have a competitive
advantage. During periods of declining rates, competitors may solicit Mortgage
Corp.'s customers to refinance their loans.
The Company believes that it is one of the largest, independent,
full-service companies in the distressed asset business. There are, however, no
published rankings available, because many of the transactions that would be
used for ranking purposes are with private parties. Generally, there are three
aspects of the distressed asset business: due diligence, principal activities,
and servicing. The Company is a major participant in all three areas, whereas
certain of its competitors (including certain securities and banking firms) have
historically competed primarily as portfolio purchasers, as they have
customarily engaged other parties to conduct due diligence on potential
portfolio purchases and to service acquired assets, and certain other
competitors (including certain banking and other firms) have historically
competed primarily as servicing companies.
The Company believes that its ability to acquire Portfolios for its own
account and through Acquisition Partnerships will be an important aspect of the
Company's overall future growth. Acquisitions of Portfolios are often based on
competitive bidding, which involves the danger of bidding too low (which
generates no business), or bidding too high (which could win the Portfolio at an
economically unattractive price).
The sub-prime automobile finance market is highly fragmented and very
competitive. There are numerous financial services companies serving, or capable
of serving, this market, including traditional financial institutions such as
banks, savings and loans, credit unions, and captive finance companies owned by
automobile manufacturers, and other non-traditional consumer finance companies,
many of which have significantly greater financial and other resources than the
Company.
The Company also encounters significant competition in its other
businesses. Within the Home Equity Loan securitization businesses, access to and
the cost of capital are critical to the Company's ability to compete. Many of
the Company's competitors have superior access to capital sources and can
arrange or obtain lower cost of capital for customers.
EMPLOYEES
The Company had 1,186 employees as of December 31, 1997. No employee is a
member of a labor union or party to a collective bargaining agreement. The
Company believes that its employee relations are good.
ITEM 2. PROPERTIES.
FirstCity leases all its office locations. FirstCity leases its current
headquarters building from a related party under a noncancellable operating
lease which expires December 2001. All leases of the other offices of FirstCity
and subsidiaries expire prior to 2005.
ITEM 3. LEGAL PROCEEDINGS.
Periodically, FirstCity, its subsidiaries, its affiliates and the
Acquisition Partnerships are parties to or otherwise involved in legal
proceedings arising in the normal course of business. FirstCity does not believe
that there is any proceeding threatened or pending against it, its subsidiaries,
its affiliates or the Acquisition Partnerships which, if determined adversely,
would have a material adverse effect on the consolidated financial position,
results of operations or liquidity of FirstCity, its subsidiaries, its
affiliates or the Acquisition Partnerships.
32
<PAGE> 34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON AND PREFERRED STOCK DATA
FirstCity's common stock, $.01 par value per share (the "Common Stock")
(FCFC), and its special preferred (FCFCP) and adjusting rate preferred (FCFCO)
stock are listed on the Nasdaq National Market System. The number of common
stockholders of record on March 24, 1998 was approximately 515. High and low
stock prices and dividends in 1997 and 1996 are displayed in the following
table:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
MARKET PRICE CASH MARKET PRICE CASH
--------------- DIVIDENDS --------------- DIVIDENDS
QUARTER ENDED HIGH LOW PAID HIGH LOW PAID
------------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
March 31.................... $29.50 $23.00 $ -- $22.88 $18.25 $ --
June 30..................... 27.75 20.00 -- 29.00 18.75 --
September 30................ 29.00 23.88 -- 29.50 24.63 --
December 31................. 30.75 25.25 -- 31.88 27.75 --
Special Preferred Stock:
March 31.................... $23.88 $22.88 $.7875 $24.75 $23.13 $ --
June 30..................... 24.38 22.88 .7875 25.75 24.13 --
September 30................ 24.00 21.88 .7875 26.50 25.31 --
December 31................. 23.00 21.88 .7875 26.50 22.00 3.92(1)
Adjusting Rate Preferred
Stock:
March 31.................... $ -- $ -- $ -- $ -- $ -- $ --
June 30..................... -- -- -- -- --
September 30(2)............. 23.50 22.00 -- -- -- --
December 31................. 23.00 21.00 .7875 -- -- --
</TABLE>
- ---------------
(1) Accrued dividend from July 3, 1995 through September 30, 1996.
(2) Beginning August 13, 1997.
The Company has never declared or paid a dividend on the Common Stock. The
Company currently intends to retain future earnings to finance its growth and
development and therefore does not anticipate that it will declare or pay any
dividends on the Common Stock in the foreseeable future. Any future
determination as to payment of dividends will be made at the discretion of the
Board of Directors of the Company and will depend upon the Company's operating
results, financial condition, capital requirements, general business conditions
and such other factors that the Board of Directors deems relevant. The Company
Credit Facility and substantially all of the credit facilities to which the
Company's subsidiaries and the Acquisition Partnerships are parties contain
restrictions relating to the payment of dividends and other distributions.
ITEM 6. SELECTED FINANCIAL DATA.
The Harbor Merger, which occurred in July 1997, was accounted for as a
pooling of interests. The Company's historical financial statements have
therefore been retroactively restated to include the financial position and
results of operations of Mortgage Corp. for all periods presented. Earnings per
share has been calculated in conformity with SFAS No. 128, Earnings Per Share,
and all prior periods have been restated.
33
<PAGE> 35
The Selected Financial Data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report and with the related Consolidated
Financial Statements and Notes thereto under Item 8 of this Report.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Income................................ $129,622 $ 99,089 $ 59,965 $ 40,865 $39,030
Expenses.............................. 109,322 73,709 43,521 32,649 28,801
Net earnings before minority interest,
preferred dividends and income
taxes............................... 20,300 25,380 16,444 8,216 10,189
Net earnings before minority interest
and preferred dividends(1).......... 35,785 39,129 15,244 5,445 6,799
Redeemable preferred dividends........ 6,203 7,709 3,876 -- --
Net earnings to common
shareholders(1)..................... 29,425 31,420 11,368 5,445 6,799
Net earnings per common
share -- Basic(1)................... 4.51 4.83 2.18 1.32 1.65
Net earnings per common share --
Diluted(1).......................... 4.46 4.79 2.18 1.32 1.65
Dividends per common share............ -- -- -- -- --
At year end:
Total assets........................ 940,119 425,189 439,051 105,812 92,872
Total notes payable................. 750,781 266,166 317,189 72,843 66,420
Preferred stock..................... 41,908 53,617 55,555 -- --
Total common equity................... 112,758 84,802 52,788 27,122 19,359
</TABLE>
- ---------------
(1) Includes $15.5 million and $13.7 million, respectively, of deferred tax
benefits in 1997 and 1996
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a diversified financial services company engaged in
residential and commercial mortgage banking, Portfolio Asset acquisition and
resolution and consumer lending. The mortgage banking business involves the
origination, acquisition and servicing of residential and commercial mortgage
loans and the subsequent warehousing, sale or securitization of such loans
through various public and private secondary markets. The Portfolio Asset
acquisition and resolution business involves acquiring Portfolio Assets at a
discount to Face Value and servicing and resolving such Portfolios in an effort
to maximize the present value of the ultimate cash recoveries. The Company also
seeks opportunities to originate and retain high yield commercial loans to
businesses and to finance real estate projects that are unable to access
traditional lending sources. The consumer lending business involves the
acquisition, origination, warehousing, securitization and servicing of consumer
receivables. The Company's current consumer lending operations are focused on
the acquisition of sub-prime automobile receivables.
The Company's financial results are affected by many factors including
levels of and fluctuations in interest rates, fluctuations in the underlying
values of real estate and other assets, and the availability and prices for
loans and assets acquired in all of the Company's businesses. The Company's
business and results of operations are also affected by the availability of
financing with terms acceptable to the Company and the Company's access to
capital markets, including the securitization markets.
The Company consummated the Merger of J-Hawk and FCBOT in July 1995. The
Company's financial statements reflect the Merger as an acquisition of FCBOT by
J-Hawk. For periods prior to July 1995 (with the exception of the restatement
for the Harbor Merger), the Company's financial statements reflect the
activities of J-Hawk. During such periods, J-Hawk was principally engaged in the
Portfolio Asset acquisition and resolution business. The Harbor Merger, which
occurred in July 1997, was accounted for as a pooling of interests. The
Company's historical financial statements have therefore been retroactively
restated to include the financial position and results of operations of Mortgage
Corp. for all periods presented. As a result of the
34
<PAGE> 36
Merger, the Harbor Merger and the significant period to period fluctuations in
the revenues and earnings of the Company's Portfolio Asset acquisition and
resolution business, period to period comparisons of the Company's results of
operations may not be meaningful.
ANALYSIS OF REVENUES AND EXPENSES
The following table summarizes the revenues and expenses of each of the
Company's businesses and presents the contribution that each business makes to
the Company's operating margin.
ANALYSIS OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
MORTGAGE BANKING:
Revenues:
Net mortgage warehouse income.......................... $ 3,499 $ 3,224 $ 2,355
Gain on sale of mortgage loans......................... 36,496 19,298 7,864
Servicing fees......................................... 14,732 10,079 6,508
Other.................................................. 10,999 5,019 3,715
------- ------- -------
Total............................................. 65,726 37,620 20,442
Expenses:
Salaries and benefits.................................. 30,398 16,105 8,673
Amortization of mortgage servicing rights.............. 7,550 4,091 3,823
Interest on other notes payables....................... 1,187 423 437
Occupancy, data processing, communication and other.... 20,705 11,013 6,734
------- ------- -------
Total............................................. 59,840 31,632 19,667
------- ------- -------
Operating contribution before direct taxes................ $ 5,886 $ 5,988 $ 775
======= ======= =======
Operating contribution, net of direct taxes............... $ 7,975 $ 3,724 $ 511
======= ======= =======
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets................. $24,183 $19,510 $11,984
Equity in earnings of Acquisition Partnerships......... 7,605 6,125 3,834
Servicing fees......................................... 11,513 12,440 10,903
Other.................................................. 4,402 6,592 4,205
------- ------- -------
Total............................................. 47,703 44,667 30,926
Expenses:
Salaries and benefits.................................. 5,353 6,002 4,500
Interest on other notes payable........................ 7,084 6,447 3,931
Asset level expenses, occupancy, data processing and
other................................................ 11,774 10,862 5,814
------- ------- -------
Total............................................. 24,211 23,311 14,245
------- ------- -------
Operating contribution before direct taxes................ $23,492 $21,356 $16,681
======= ======= =======
Operating contribution, net of direct taxes............... $23,299 $21,210 $15,745
======= ======= =======
CONSUMER LENDING:
Revenues:
Interest income........................................ $ 9,649 $ 3,604 $ --
Servicing fees and other............................... 632 46 --
------- ------- -------
Total............................................. 10,281 3,650 --
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Expenses:
Salaries and benefits.................................. 2,959 698 --
Provision for loan losses.............................. 6,613 2,029 --
Interest on other notes payable........................ 3,033 1,284 --
Occupancy, data processing and other................... 3,414 1,469 --
------- ------- -------
Total............................................. 16,019 5,480
------- ------- -------
Operating contribution before direct taxes................ $(5,738) $(1,830) $ --
======= ======= =======
Operating contribution, net of direct taxes............... $(5,741) $(1,830) $ --
======= ======= =======
CORPORATE OVERHEAD:
Interest income on Class A Certificate(1)................. $ 3,553 $11,601 $ 8,597
Interest expense on senior subordinated notes............. -- (3,892) (4,721)
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... (5,275) (7,843) (4,888)
------- ------- -------
Total............................................. (1,722) (134) (1,012)
------- ------- -------
Deferred tax benefit...................................... 13,592 16,159 --
Harbor Merger related expenses............................ (1,618) -- --
------- ------- -------
Net earnings before minority interest and preferred
dividends.............................................. 35,785 39,129 15,244
Minority interest......................................... (157) -- --
Preferred dividends....................................... (6,203) (7,709) (3,876)
------- ------- -------
Net earnings to common shareholders............... $29,425 $31,420 $11,368
======= ======= =======
SHARE DATA:
Net earnings per common share -- basic.................... $ 4.51 $ 4.83 $ 2.18
Net earnings per common share -- diluted.................. $ 4.46 $ 4.79 $ 2.18
Weighted average common shares outstanding -- basic....... 6,518 6,504 5,223
Weighted average common shares outstanding -- diluted..... 6,591 6,556 5,223
</TABLE>
- ---------------
(1) Represents dividends on preferred stock accrued or paid prior to June 30,
1997 and interest paid on outstanding senior subordinated notes.
36
<PAGE> 38
MORTGAGE BANKING
The primary components of revenues derived by Mortgage Corp. and Capital
Corp. are net mortgage warehouse income, gain on sale of mortgage loans,
servicing fees earned for loan servicing activities, and other miscellaneous
sources of revenues associated with the origination and servicing of residential
and commercial mortgages. The principal components of expenses of Mortgage Corp.
and Capital Corp. are salaries and employee benefits, amortization of originated
and acquired mortgage servicing rights, interest expense and other general and
administrative expenses. The following paragraphs describe the principal factors
affecting each of the significant components of revenues of Mortgage Corp. and
Capital Corp. The following table presents selected information regarding the
revenues and expenses of the Company's mortgage banking business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
MORTGAGE BANKING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
WAREHOUSE INVENTORY:
Average inventory balance............................ $ 329,112 $ 138,035 $ 59,823
Net mortgage warehouse income:
Dollar amount..................................... 3,499 3,224 2,355
Percentage of average inventory balance........... 1.06% 2.34% 3.94%
GAIN ON SALE OF MORTGAGE LOANS:
Gain on sale of mortgage loans as a percentage of
loans sold:
Residential....................................... 0.98% 1.16% 1.27%
Home Equity....................................... 3.55% -- --
OMSR income as a percentage of residential mortgage
loans sold........................................ 1.75% 1.79% 1.82%
SERVICING REVENUES:
Average servicing portfolios:
Residential....................................... $3,661,031 $2,144,298 $1,262,497
Commercial........................................ 1,134,348 109,581 124,710
Sub-serviced...................................... 741,174 305,149 --
Servicing fees:
Residential....................................... $ 13,091 $ 9,625 $ 6,394
Commercial........................................ 809 126 114
Sub-serviced...................................... 832 328 --
---------- ---------- ----------
Total........................................ 14,732 10,079 6,508
Annualized servicing fee percentage:
Residential....................................... 0.36% 0.45% 0.51%
Commercial........................................ 0.07% 0.11% 0.09%
Sub-serviced...................................... 0.11% 0.11% --
Gain on sale of servicing rights..................... $ 4,246 $ 2,641 $ 2,011
Amortization of servicing rights:
Servicing rights amortization..................... $ 7,481 $ 4,091 $ 3,823
Servicing rights amortization as a percentage of
average servicing portfolio..................... 0.20% 0.19% 0.30%
PERSONNEL:
Personnel expenses................................... $ 30,398 $ 16,105 $ 8,673
Number of personnel (at period end):
Production........................................ 586 319 225
Servicing......................................... 118 93 49
Other............................................. 255 155 98
---------- ---------- ----------
Total........................................ 959 567 372
Salaried.......................................... 87% 84% 82%
Commission........................................ 13% 16% 18%
</TABLE>
37
<PAGE> 39
Net Mortgage Warehouse Income
Mortgage Corp. originates or acquires residential mortgage loans, which are
recorded as mortgage loans held for sale and financed under warehouse credit
facilities pending sale. The difference between interest income on the
originated or acquired loans and the cost of warehouse borrowings is recorded as
net mortgage warehouse income. The amount of recorded net mortgage warehouse
income varies with the average volume of loans in the warehouse and the spread
between the coupon rate of interest on the loans and the interest cost of the
warehouse credit facility.
Gain on Sale of Mortgage Loans
Residential mortgage loans originated or acquired by Mortgage Corp.
currently are accumulated in inventory and held for sale. The disposition of the
loans generally produces a gain. Such gains result from the cash sale of the
mortgage loans and the additional recognition of the value of mortgage servicing
rights as proceeds, less the basis of the mortgage loans sold.
As of December 31, 1997, Capital Corp. had not completed a securitization
of Home Equity Loans. The portion of the Company's mortgage banking business
conducted through Capital Corp. is devoted to the acquisition of Home Equity
Loans with the expectation that they will be pooled and sold in public or
private securitization transactions. Gains on the securitization and sale of
Home Equity Loans represent the amount by which the proceeds received (including
the estimated value of retained subordinated interests) exceed the basis of the
Home Equity Loans and the costs associated with the securitization process. The
retained interests will be valued at the discounted present value of the cash
flows expected to be realized over the anticipated average life of the assets
sold after deducting future estimated credit losses, estimated prepayments,
servicing fees and other securitization fees related to the Home Equity Loans
sold. The recorded value of retained interests will be computed using Capital
Corp.'s assumptions of market discount rates, prepayment speeds, default rates,
credit losses and other costs based upon the unique underlying characteristics
of the Home Equity Loans comprising each securitization.
Capital Corp. expects that the assumptions it will use in its
securitization transactions will include discount rates of 15% and prepayment
speeds at annualized rates starting at approximately 4% per year and, depending
upon the mix of fixed and variable rate and prepayment penalty provisions of the
underlying loans, increasing to 25% to 40% per year. Loss assumptions are
expected to vary depending upon the mix of the credit quality and loan to value
characteristics of the underlying loans that are securitized. The actual
assumptions used by Capital Corp. in its securitization transactions will vary
based on numerous factors, including those listed above, and there can be no
assurance that actual assumptions will correspond to Capital Corp.'s current
expectations.
Servicing Fees and Amortization of Mortgage Servicing Rights
A significant component of Mortgage Corp.'s residential mortgage banking
business is attributable to the future right to service the residential mortgage
loans it originates or acquires. Mortgage Corp. generally retains the servicing
right upon the sale of the originated loan (and expects to retain such rights
upon securitization) and records the value of such right as mortgage servicing
rights on its balance sheet. Subsequently, Mortgage Corp. earns revenues as
compensation for the servicing activities it performs. Mortgage Corp. amortizes
the mortgage servicing right asset as a periodic expense to allocate the cost of
the servicing right to the income generated on a periodic basis.
The recorded values of mortgage servicing rights are reviewed on a
quarterly basis by comparing the fair market value of these rights as determined
by a third party to their recorded values. Based on this review, Mortgage Corp.
either adjusts amortization rates of such mortgage servicing rights or, if there
is any impairment in value, records a charge to earnings in the period during
which such impairment is deemed to have occurred. The fair market value of
mortgage servicing rights is heavily impacted by the relative levels of
residential mortgage interest rates. When interest rates decline, underlying
loan prepayment speeds generally increase. Prepayments in excess of anticipated
levels will cause actual fair market values of mortgage servicing
38
<PAGE> 40
rights to be less than recorded values thereby resulting in increases in the
rates of amortization, or a revaluation of recorded mortgage servicing rights as
described above.
A decline in interest rates generally contributes to higher levels of
mortgage loan origination (particularly refinancings) and the related
recognition of increased levels of gain on sale of mortgage loans. The ability
of Mortgage Corp. to originate loans and its ability to regenerate the recorded
value of its servicing portfolio on an annualized basis also provides Mortgage
Corp. with the ability to approximately replace the recorded value of its
residential servicing portfolio in a one-year time frame, based upon current
origination levels. Loans originated during periods of relatively low interest
rates generate servicing rights with a higher overall value due to the decreased
probability of future prepayment by the borrower. Accordingly, Mortgage Corp.
believes that it has an inherent hedge against a significant and swift decline
in the value of its recorded mortgage servicing rights. There can be no
assurance that, in the long term, Mortgage Corp. will be able to continue to
maintain an even balance between the production capacity of its origination
network and the principal value of its servicing portfolio.
In an environment of increasing interest rates, the rate of current and
projected future prepayments decreases, resulting in increases in fair market
values of mortgage servicing rights. Although the Company does not recognize
gain as a result of such increases in fair market values, it may decrease the
rate of amortization of the mortgage servicing rights. In addition, in periods
of rising interest rates, mortgage loan origination rates generally decline.
Other
In its commercial mortgage business, Mortgage Corp. generates loan
origination fees paid by commercial borrowers for underwriting and application
activities performed by Mortgage Corp. as a correspondent of various insurance
company and conduit lenders. In addition, Mortgage Corp. generates other fees
and revenues from various activities associated with originating and servicing
residential and commercial mortgage loans and in its construction lending
activities. Mortgage Corp. has in the past sold, and may in the future sell, a
portion of its rights to service residential mortgage loans. The results of such
sales are recorded as gains on sales of mortgage servicing rights and reflected
as a component of other revenue.
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
Revenues at Commercial Corp. consist primarily of cash proceeds on
disposition of assets acquired in Portfolio Asset acquisitions for Commercial
Corp.'s own account and its equity in the earnings of affiliated Acquisition
Partnerships. In addition, Commercial Corp. derives servicing fees from
Acquisition Partnerships for the servicing activities performed related to the
assets held in the Acquisition Partnerships. Following the Merger, Commercial
Corp. serviced assets held in an affiliated liquidating trust created for the
benefit of former FCBOT shareholders (the "Trust") and derived servicing fees
for its activities under a servicing agreement between the Trust and Commercial
Corp. During the first quarter of 1997, the Trust terminated the servicing
agreement and paid Commercial Corp. a termination payment of $6.8 million
representing the present value of servicing fees projected to have been earned
by Commercial Corp. upon the liquidation of the assets of the Trust, which was
expected to occur principally in 1997.
In its Portfolio Asset acquisition and resolution business, Commercial
Corp. acquires Portfolio Assets that are designated as nonperforming, performing
or real estate. Each Portfolio is accounted for as a whole and not on an
individual asset basis. To date, a substantial majority of the Portfolio Assets
acquired by Commercial Corp. have been designated as nonperforming. Once a
Portfolio has been designated as either nonperforming or performing, such
designation is not changed regardless of the performance of the assets
comprising the Portfolio. The Company recognizes revenue from Portfolio Assets
and Acquisition Partnerships based on proceeds realized from the resolution of
Portfolio Assets, which proceeds have historically varied significantly and
likely will continue to vary significantly from period to period. The following
table presents selected information regarding the revenues and expenses of the
Company's Portfolio Asset acquisition and resolution business.
39
<PAGE> 41
ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios............................... $61,764 $42,123 $27,298
Performing Portfolios.................................. 9,759 10,280 3,776
Real estate Portfolios................................. 21,602 30,224 39,795
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios............................... $20,288 $11,635 $10,189
Real estate Portfolios................................. 3,895 7,875 1,795
------- ------- -------
Total................................................ 24,183 19,510 11,984
Interest income on performing Portfolios.................. $ 2,052 $ 2,603 $ 1,112
Gross profit percentage on resolution of Portfolio Assets:
Nonperforming Portfolios............................... 27.8% 38.5% 28.0%
Real estate Portfolios................................. 27.9% 19.3% 21.6%
Weighted average gross profit percentage............... 27.8% 27.5% 26.8%
Interest yield on performing Portfolios................... 21.0% 25.3% 29.5%
SERVICING FEE REVENUES:
Acquisition Partnerships.................................. $ 4,363 $ 6,468 $ 6,834
Trust..................................................... 6,800 4,241 3,110
Affiliates................................................ 350 1,731 959
------- ------- -------
Total................................................ 11,513 12,440 10,903
PERSONNEL:
Personnel expenses........................................ $ 5,353 $ 6,002 $ 4,500
Number of personnel (at period end):
Production............................................. 9 12 9
Servicing.............................................. 68 107 116
INTEREST EXPENSE:
Average debt.............................................. $85,262 $64,343 $36,348
Interest expense.......................................... 7,084 6,447 3,931
Average yield............................................. 8.3% 10.0% 10.8%
</TABLE>
Nonperforming Portfolio Assets
Nonperforming Portfolio Assets consist primarily of distressed loans and
loan related assets, such as foreclosed-upon collateral. Portfolio Assets are
designated as nonperforming unless substantially all of the assets comprising
the Portfolio are being repaid in accordance with the contractual terms of the
underlying loan agreements. Commercial Corp. acquires such assets on the basis
of an evaluation of the timing and amount of cash flow expected to be derived
from borrower payments or disposition of the underlying asset securing the loan.
On a monthly basis, the amortized cost of each nonperforming Portfolio is
evaluated for impairment. A valuation allowance is established for any
impairment identified with provisions to establish such allowance charged to
earnings in the period identified.
All nonperforming Portfolio Assets are purchased at substantial discounts
from their Face Value. Net gain on the resolution of nonperforming Portfolio
Assets is recognized to the extent that proceeds collected on the Portfolio
exceed a pro rata portion of allocated costs of the resolved Portfolio Assets.
Proceeds from the resolution of Portfolio Assets that are nonperforming are
recognized as cash is realized from the collection, disposition and other
resolution activities associated with the Portfolio Assets. No interest income
or any other yield component of revenue is recognized separately on
nonperforming Portfolio Assets.
40
<PAGE> 42
Performing Portfolio Assets
Performing Portfolio Assets consist of consumer and commercial loans
acquired at a discount from the aggregate amount of Face Value. Portfolio Assets
are classified as performing if substantially all of the loans comprising the
Portfolio are being repaid in accordance with the contractual terms of the
underlying loan agreements. On a monthly basis, the amortized cost of each
performing Portfolio is evaluated for impairment. A valuation allowance is
established for any identified impairment with provisions to establish such
allowance charged to earnings in the period identified.
Interest income is recognized when accrued in accordance with the
contractual terms of the loans. The accrual of interest is discontinued once a
loan becomes past due 90 days or more. Acquisition discounts for the Portfolio
Assets as a whole are accreted as an adjustment to yield over the estimated life
of the Portfolio.
Real Estate Portfolios
Commercial Corp. also acquires Portfolios comprised solely of real estate.
Real estate Portfolios are recorded at the lower of cost or fair value less
estimated costs to sell. Costs relating to the development or improvement are
capitalized and costs relating to holding assets are charged to expense as
incurred. Rental income, net of expenses, is recognized as revenue when
received. Gains and losses are recognized based on the allocated cost of each
specific real estate asset.
Equity in Earnings of Acquisition Partnerships
Commercial Corp. accounts for its investments in Acquisition Partnerships
using the equity method of accounting. This accounting method generally results
in the pass-through of its pro rata share of earnings from the Acquisition
Partnerships' activities as if it had a direct investment in the underlying
Portfolio Assets held by the Acquisition Partnership. The revenues and earnings
of the Acquisition Partnerships are determined on a basis consistent with the
accounting methodology applied to nonperforming, performing and real estate
Portfolios described in the preceding paragraphs.
Distributions of cash flow from the Acquisition Partnerships are a function
of the terms and covenants of the loan agreements related to the secured
borrowings of the Acquisition Partnerships. Generally, the terms of the
underlying loan agreements permit some distribution of cash flow to the equity
partners so long as loan to cost and loan to value relationships are in
compliance with the terms and covenants of the applicable loan agreement. Once
the secured borrowings of the Acquisition Partnerships are fully paid, all cash
flow in excess
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of operating expenses is available for distribution to the equity partners. The
following chart presents selected information regarding the revenues and
expenses of the Acquisition Partnerships.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Gain on resolution of Portfolio Assets................... $ 26,533 $ 39,505 $ 51,370
Gross profit percentage on resolution of Portfolio
Assets................................................ 16.7% 22.7% 27.2%
Interest income on performing Portfolios................. $ 8,432 $ 7,870 $ --
Other interest income.................................... 1,053 862 --
INTEREST EXPENSE:
Interest expense......................................... 10,294 22,065 26,482
Average debt............................................. 111,422 188,231 223,028
Average interest cost.................................... 9.24% 11.72% 11.87%
OTHER EXPENSES:
Servicing fees........................................... $ 4,353 $ 6,809 $ 6,834
Legal.................................................... 1,957 2,266 2,109
Property protection...................................... 3,956 5,712 3,797
Other.................................................... 531 693 2,606
-------- -------- --------
Total other expenses............................. 10,797 15,480 15,346
-------- -------- --------
NET EARNINGS............................................... $ 14,927 $ 10,692 $ 9,542
======== ======== ========
</TABLE>
The above table does not include equity earnings from the Acquisition
Partnerships operating in France, which equaled $519,000 in 1997.
Servicing Fee Revenues
Commercial Corp. derives fee income for its servicing activities performed
on behalf of the Acquisition Partnerships. Prior to the second quarter of 1997,
Commercial Corp. also derived servicing fees from the servicing of assets held
in the Trust. In connection with the Acquisition Partnerships, Commercial Corp.
earns a servicing fee of between 3% and 8% of gross cash collections generated
by the Acquisition Partnerships, rather than a periodic management fee based on
the Face Value of the assets being serviced. The rate of servicing fee charged
is a function of the average Face Value of the assets within each Portfolio
being serviced (the larger the average Face Value of the assets in a Portfolio,
the lower the fee percentage within the prescribed range).
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<PAGE> 44
CONSUMER LENDING
The primary components of revenue derived by Consumer Corp. are interest
income and gain on sale of loans. The primary expenses of Consumer Corp. are
salaries and benefits, provision for loan losses and interest expense. The
following chart presents selected information regarding the revenues and
expenses of Consumer Corp.'s consumer lending business during 1997 and 1996.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
CONSUMER LENDING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Average loans
Auto................................................... $50,154 $19,740
Other.................................................. 3,558 144
Interest income
Auto................................................... 9,067 3,546
Other.................................................. 570 30
Average yield
Auto................................................... 18.1% 18.0%
Other.................................................. 16.0% 20.8%
SERVICING REVENUES:
Affiliates................................................ $ 553 $ 16
PERSONNEL:
Personnel expenses........................................ $ 2,959 $ 698
Number of personnel (at period end):
Production............................................. 53 15
Servicing.............................................. 53 26
INTEREST EXPENSE:
Average debt.............................................. $34,129 $14,885
Interest expense.......................................... 3,016 1,258
Average yield............................................. 8.8% 8.5%
</TABLE>
Interest Income
Interest income is accrued on originated and acquired loans at the
contractual rate of interest of the underlying loan. The accrual of interest
income is discontinued once a loan becomes 90 days past due.
Gain on Sale of Loans
Funding Corp. intends to accumulate and pool automobile loans acquired from
franchised dealerships for sales in public and private securitization
transactions. Such transactions are expected to result in the recognition of
gains to the extent that the proceeds received (including the estimated value of
the retained subordinated interests) exceed the basis of the automobile loans
and the costs associated with the securitization process. When the automobile
loans are securitized and sold, the retained interests will be valued at the
discounted present value of the cash flows expected to be realized over the
anticipated average life of the assets sold after future estimated credit
losses, estimated prepayments, servicing fees and other securitization fees
related to the loans sold. The discounted present value of such interests will
be computed using Consumer Corp.'s assumptions of market discount rates,
prepayment speeds, default rates, credit losses and other costs based upon the
unique underlying characteristics of the automobile loans comprising each
securitization.
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<PAGE> 45
In its securitization transaction completed in 1997, Consumer Corp. assumed
that losses would approximate an aggregate of 14% of the outstanding principal
balance of the underlying loans. Consumer Corp. calculated the present value of
future cash flows from the securitization using discount rates of 12% to 15% per
year.
Provision for Loan Losses
The carrying value of consumer loans is evaluated on a monthly basis for
impairment. A valuation allowance is established for any impairment identified
with provisions to augment the allowance charged to earnings in the period
identified. The evaluation of the need for an allowance is determined on a pool
basis, with each pool being the loans originated or acquired during a quarterly
period of production or acquisition. Loans generally are acquired at a discount
from the Face Value of the loan with the acquisition discount established as an
allowance for losses at the acquisition date of the loan. If the initially
established allowance is deemed to be insufficient, additional allowances are
established through provisions charged to earnings.
The operating margin of Consumer Corp. was significantly impacted by 1997
provisions for loan losses in the amount of approximately $6.6 million related
to the loans originated in Consumer Corp.'s sub-prime auto receivable business.
The Company's initial venture into the sub-prime automobile market involved the
acquisition of a distressed sub-prime portfolio from a secured lender. Following
the acquisition of the portfolio, the Company began the acquisition of
additional loans on an indirect basis from financial institutions who originated
loans pursuant to contractual agreements with a subsidiary of Consumer Corp. The
Company concluded that the contractual underwriting standards and the purchase
discounts on which the initial program was based were insufficient to generate
automobile loans of acceptable quality to the Company. As a result, the Company
terminated its obligations with the financial institutions participating in the
original origination program effective January 31, 1998. The continued flow of
production into 1998 will require that the Company continue to provide for the
losses anticipated on such loans in 1998.
Based upon the experience gained with its initial consumer origination
program, the Company undertook to develop an origination and underwriting
approach that would give Consumer Corp. significantly greater control over the
origination and pricing standards governing its consumer lending activities. The
formation of Funding Corp. resulted from these development activities. The
underwriting process and purchase discount methodology employed by Funding Corp.
has significantly changed the underwriting criteria and purchase standards of
Consumer Corp. from the methodology employed during the majority of 1996 and
1997. In Funding Corp.'s case, the objectives established for purchasing loans
from originating dealers are designed to result in the purchase discount
equaling or exceeding the expected loss for all loans acquired.
BENEFIT (PROVISION) FOR INCOME TAXES
As a result of the Merger, the Company has substantial federal NOLs, which
can be used to offset the tax liability associated with the Company's pre-tax
earnings until the earlier of the expiration or utilization of such NOLs. The
Company accounts for the benefit of the NOLs by recording the benefit as an
asset and then establishing an allowance to value the net deferred tax asset at
a value commensurate with the Company's expectation of being able to utilize the
recognized benefit in the next three to four year period. Such estimates are
reevaluated on a quarterly basis with the adjustment to the allowance recorded
as an adjustment to the income tax expense generated by the quarterly earnings.
Significant events that change the Company's view of its currently estimated
ability to utilize the tax benefits, such as the Harbor Merger in the third
quarter of 1997, result in substantial changes to the estimated allowance
required to value the deferred tax benefits recognized in the Company's periodic
financial statements. Similar events could occur in the future, and would impact
the quarterly recognition of the Company's estimate of the required valuation
allowance associated with its NOLs.
Earnings for 1997 and 1996 were significantly increased by the recognition
of tax benefits resulting from the Company's reassessment of the valuation
allowance related to its NOL asset. Realization of the asset is dependent upon
generating sufficient taxable earnings to utilize the NOL. Prior to 1996, the
deferred tax asset resulting from the Company's NOL was entirely offset by its
valuation reserve. In 1997 and 1996, the
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<PAGE> 46
valuation reserve was adjusted based on the Company's estimate of its future
pre-tax income. The amount of tax benefits recognized will be adjusted in future
periods should the estimates of future taxable income change. If there are
changes in the estimated level of the required reserve, net earnings will be
affected accordingly.
FIRSTCITY LIQUIDATING TRUST AND EXCHANGE OF PREFERRED STOCK
In connection with the Merger, the Company received the Class A Certificate
of the Trust (the "Class A Certificate"). Distributions from the Trust in
respect of the Class A Certificate were used to retire the senior subordinated
notes of the Company and to pay dividends on, and repurchase some of, the
special preferred stock of the Company (the "Special Preferred"). Pursuant to a
June 1997 settlement agreement with the Company, the Trust's obligation to the
Company under the Class A Certificate was terminated (other than the Trust's
obligation to reimburse the Company for certain expenses) in exchange for the
Trust's agreement to pay the Company an amount equal to $22.75 per share for the
1,923,481 shares of Special Preferred outstanding at June 30, 1997, the 1997
second quarter dividend of $0.7875 per share, and 15% interest from June 30,
1997 on any unpaid portion of the settlement agreement. Under such agreement,
the Company assumes the obligation for the payment of the liquidation preference
amount and the future dividends on the Special Preferred. As of December 31,
1997, the Trust had distributed $44.1 million to the Company under the
settlement agreement.
In June 1997, the Company began an offer to exchange one share of newly
issued adjusting rate preferred stock ("Adjusting Rate Preferred") for each
outstanding share of Special Preferred. The Company completed such exchange
offer in the third quarter of 1997 pursuant to which 1,073,704 shares of Special
Preferred were tendered for a like number of shares of Adjusting Rate Preferred.
The Special Preferred has a redemption value of $21.00 per share, a 15% annual
dividend rate and a redemption date of September 30, 1998. The Adjusting Rate
Preferred has a redemption value of $21.00 per share and a 15% annual dividend
rate through September 30, 1998, at which time the dividend rate is reduced to
10% per annum. The Adjusting Rate Preferred is redeemable by the Company on or
after September 30, 2003, with a mandatory maturity date of September 30, 2005.
The redemption by the Trust of its obligation on the Class A Certificate
represented a premium over the redemption value of the Special Preferred, which
is reflected as a deferred credit in the Company's financial statements. The
deferred credit is being accreted to income over the weighted average life of
the Special Preferred and the Adjusting Rate Preferred.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of the Company (including the Notes
thereto) included elsewhere in this Annual Report on Form 10-K.
1997 COMPARED TO 1996
The Company reported net earnings before minority interest and preferred
dividends of $35.8 million in 1997 (including a $15.5 million deferred tax
benefit) compared to $39.1 million in 1996 (including a $13.7 million deferred
tax benefit). Net earnings to common shareholders were $29.4 million in 1997
compared to $31.4 million in 1996. On a per share basis, basic net earnings
attributable to common shareholders were $4.51 in 1997 compared to $4.83 in
1996. Diluted net earnings per common share were $4.46 in 1997 compared to $4.79
in 1996.
Mortgage Banking
Mortgage Corp. experienced significant revenue growth in 1997 relative to
1996. The Direct Retail and Broker Retail origination networks experienced
substantial growth in levels of origination volume reflecting, in part, the
level of capital that has been contributed to Mortgage Corp. by the Company
following the Harbor
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<PAGE> 47
Merger and relatively lower interest rates in 1997 compared to 1996. Such
revenue growth was partially offset by increases in operating expenses
associated with the increased levels of origination volume.
The Company entered the mortgage conduit business in August 1997 with the
formation of Capital Corp. Capital Corp. has generated nominal interest revenue
from its acquired Home Equity Loans, has incurred interest expense to finance
the acquisition of such loans and has incurred general and administrative
expenses in its start-up phase.
Gain on sale of mortgage loans. Gain on sale of mortgage loans increased by
89% to $36.5 million in 1997 from $19.3 million in 1996. This increase was the
result of substantial increases in the levels of residential mortgage loan
origination generated principally by the Broker Retail network of Mortgage Corp.
and, to a lesser extent, the Direct Retail network of Mortgage Corp., and the
resulting sales of such loans to government agencies and other investors. The
change in the gain on sale percentage recognized in 1997 compared to 1996 is the
result of the sale, on a servicing released basis, of approximately $120 million
of Home Equity Loans in 1997.
Net mortgage warehouse income. Net mortgage warehouse income increased by
8.5% to $3.5 million in 1997 from $3.2 million in 1996. This increase is the
result of a significant increase in the average balance of loans held in
inventory during the year offset by a decrease in the spread earned between the
interest rate on the underlying mortgages and the interest cost of the warehouse
credit facility as the overall levels of interest rates on residential mortgage
loans reached their lowest levels in several years.
Servicing fee revenues. Servicing fee revenues increased by 46.2% to $14.7
million in 1997 from $10.1 million in 1996 as a result of an increase in the
size of the servicing portfolio. Mortgage Corp. increased its servicing
portfolio with the purchase, in the second quarter of 1996, of Hamilton
Financial Services Corporation ("Hamilton") and its right to service
approximately $1.7 billion in mortgage loans, and by retaining the servicing
rights to a substantial portion of the residential mortgage loans originated
since the Harbor Merger. In addition, Mortgage Corp. substantially increased its
commercial mortgage servicing portfolio and its ability to originate commercial
mortgage loans for correspondents and conduit lenders with the purchase, in the
second quarter of 1997, of MIG Financial Corporation ("MIG"), a commercial loan
origination and servicing company based in California with a $1.6 billion
commercial mortgage servicing portfolio.
Other revenues. Other revenues increased by 119% to $11.0 million in 1997
from $5.0 million in 1996. This increase resulted from an increase in the gain
on sale of mortgage servicing rights of $1.6 million to $4.2 million in 1997
from $2.6 million in 1996 and an increase of $2.2 million in fee income
associated with residential and commercial mortgage origination activity.
Operating expenses. Operating expenses of Mortgage Corp. increased by 89.2%
to $59.8 million in 1997 from $31.6 million in 1996. The acquisition of Hamilton
in 1996 and MIG in 1997, both of which were accounted for as purchases by
Mortgage Corp., produced higher relative totals for all components of Mortgage
Corp.'s operating expenses in 1997 compared to 1996. The commencement of Capital
Corp.'s operations in late 1997 also contributed to the year over year
increases.
Salaries and benefits increased by $14.3 million in 1997 compared to 1996
reflecting the over 400 additional staff required to support the increase in
origination volumes derived principally from the Broker Retail network and, to a
lesser extent, the Direct Retail network, and the increase in the size and
number of loans in the residential and commercial servicing portfolios in 1997
compared to 1996.
Amortization of mortgage servicing rights increased in 1997 compared to
1996 as a result of the substantially larger investment in mortgage servicing
rights in 1997 compared to 1996. Interest on other notes payable (the portion
not associated with Mortgage Corp.'s warehouse credit facility) increased due to
increased working capital borrowings during 1997 as compared to 1996.
Occupancy expense increased by $3.6 million in 1997 compared to 1996 as the
result of the opening or acquisition of several new offices in 1997 in the
Broker Retail and Direct Retail networks. Increases in data
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<PAGE> 48
processing, communication and other expenses in 1997 compared to 1996 resulted
from the substantial increases in the production and servicing volumes
experienced during 1997.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $183.2 million of Portfolio Assets during 1997
for its own account and through the Acquisition Partnerships compared to $205.5
million in acquisitions in 1996. Commercial Corp.'s year end investment in
Portfolio Assets increased to $90.0 million in 1997 from $76.2 million in 1996.
Commercial Corp. invested $37.1 million in equity in Portfolio Assets in 1997
compared to $36.0 million in 1996.
Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets increased by 22.8% to $87.1 million in 1997 from $70.9 million
in 1996. The net gain on resolution of Portfolio Assets increased by 24.0% to
$24.2 million in 1997 from $19.5 million in 1996 as the result of increased cash
proceeds and a higher gross profit percentage in 1997 compared to 1996. The
gross profit percentage on the proceeds from the resolution of Portfolio Assets
in 1997 was 27.8% as compared to 27.5% in 1996.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships declined by
38.0% to $107.8 million in 1997 from $174.0 million in 1996 while the gross
profit percentage on proceeds increased to 25.2% in 1997 from 22.7% in 1996.
Offsetting the decline in cash proceeds was the reduction in interest and other
expenses incurred by the Acquisition Partnerships in 1997 compared to 1996.
Interest income in the Acquisition Partnerships increased nominally while
interest expense decreased by $11.8 million in 1997 compared to 1996. The year
to year comparisons result from the relative levels of interest earning assets
and interest bearing liabilities carried by the Acquisition Partnerships in each
of the two periods. In addition, the effect of refinancing Acquisition
Partnership Portfolio Assets reduced average interest rates incurred on
borrowings in 1997 to 9.2% from 11.7% in 1996. Other expenses of the Acquisition
Partnerships decreased by $4.7 million in 1997 generally reflecting the
relatively lower costs associated with the resolution of Portfolio Assets in
somewhat mature partnerships as compared to the property protection and
improvement expenses normally associated with new Portfolio Asset acquisitions.
The net result was an overall increase in the net income of the Acquisition
Partnerships of 39.6% to $14.9 million in 1997 from $10.7 million in 1996. As a
result, Commercial Corp.'s equity earnings from Acquisition Partnerships
increased by 24.2% to $7.6 million in 1997 from $6.1 million in 1996.
Servicing fee revenues. Servicing fee revenues decreased by 7.5% to $11.5
million in 1997 from $12.4 million in 1996. Servicing fees reported during 1997
included the receipt of a $6.8 million cash payment related to the early
termination of a servicing agreement between the Company and the Trust, under
which the Company serviced the assets of the Trust. The $6.8 million payment
represents the present value of servicing fees projected to have been earned by
Commercial Corp. upon liquidation of the Trust assets, which was expected to
occur principally in 1997. Servicing fees earned from the Trust in 1996 were
$4.2 million. Excluding fees related to Trust assets, servicing fees decreased
by 42.7% to $4.7 million in 1997 from $8.2 million in 1996 as a result of
decreased collection levels in the Acquisition Partnerships and affiliated
entities.
Other revenues. Other revenues declined to $4.4 million in 1997 compared to
$6.6 million in 1996 as a result of reduced levels of rental income derived from
lower average investments in real estate Portfolios in 1997 as compared to 1996.
Operating expenses. Operating expenses increased to $24.2 million in 1997
from $23.3 million in 1996. The relatively stable levels of operating expenses
incurred by Commercial Corp. in 1997 compared to 1996 reflect the relatively
consistent levels of investment and servicing activities associated with
Commercial Corp.'s operations during such periods.
Salaries and benefits declined in 1997 as a result of the consolidation of
some of the servicing offices as the Portfolios being serviced in the closed
offices reached final resolution.
Interest on other notes payable increased as a result of increased average
borrowing levels in 1997 as compared to 1996 offset by lower average costs of
borrowings.
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Asset level expenses incurred in connection with the servicing of Portfolio
Assets increased in 1997 compared to 1996 as a result of the increase in
investments in Portfolio Assets in 1997 compared to 1996. Occupancy and other
expenses decreased as a result of the consolidation of servicing offices in
1997.
Consumer Lending
Consumer Corp.'s revenues and expenses in 1997 were derived principally
from its original sub-prime automobile financing program, which was established
during the first quarter of 1996. Consumer Corp. terminated its obligations to
the financial institutions participating in such program effective as of January
31, 1998. In late 1997 Consumer Corp., through its 80% owned subsidiary, Funding
Corp., established a new sub-prime automobile financing program through which it
originates automobile loans through direct relationships with franchised
automobile dealerships. Substantially all of Consumer Corp.'s activities are
expected to be conducted through Funding Corp. during 1998.
Interest income. Interest income on consumer loans increased by 168% to
$9.6 million in 1997 from $3.6 million in 1996 reflecting increased levels of
loan origination activity in 1997 as compared to 1996 and an increase in the
average balance of aggregate loans held by Consumer Corp. during 1997.
Interest expense. Interest expense increased by 136% to $3.0 million in
1997 from $1.3 million in 1996 as a result of an increase in the average
outstanding level of borrowings secured by automobile receivables to $34.1
million in 1997 from $14.9 million in 1996. The average rate at which such
borrowings incurred interest increased to 8.8% from 8.5% for the same period.
Operating expenses. Salaries and benefits increased by 324% to $3.0 million
in 1997 from $0.7 million in 1996 as a result of the increased levels of
operating activity in 1997 as compared to 1996. In addition, during the later
portion of 1997, Consumer Corp.'s operating expenses reflected the duplicative
effects of the start up of Funding Corp. while still operating the indirect
origination program.
Provision for loan losses. The provision for loan losses on automobile
receivables increased by 226% to $6.6 million in 1997 from $2.0 million in 1996.
The increase is attributable to loan originations of $89.8 million in 1997
compared to loan originations of $17.6 million in 1996. Consumer Corp. increased
its rate of provision for loan losses based on its determination that the
discount rate at which it acquired loans under its original origination program
did not properly provide for the losses expected to be realized on the acquired
loans. The origination program currently operated by Funding Corp. generally
allows for the acquisition of loans from automobile dealerships at a larger
discount from par than Consumer Corp.'s original financing program. The Company
believes that such acquisition prices more closely approximate the expected loss
per occurrence on the loans originated. To the extent that Funding Corp. cannot
match such discount to expected losses, additional provisions might, in the
future, be required to properly provide for the risk of loss on the loans
originated. The Company expects to incur provisions for loan losses in 1998 on
automobile loans acquired by it during early 1998 through its original
origination program.
Securitization of automobile loans. During the second quarter of 1997,
Consumer Corp. completed its first sale and securitization of automobile loans.
Consumer Corp. has retained subordinated interests in the form of nonrated
tranches and excess spreads resulting from the securitization transaction and
reflected an aggregate of $6.7 million in such interests at December 31, 1997.
Other Items Affecting Net Income
The following items affect the Company's overall results of operations and
are not directly related to any one of the Company's businesses discussed above.
Corporate overhead. Interest income on the Class A Certificate during 1997
represents reimbursement to the Company from the Trust of accrual of dividends
of $3.6 million on special preferred stock through June 30, 1997 and interest
paid under a June 1997 agreement to retire the Class A Certificate. Company
level interest expense declined by 49.8% to $1.1 million in 1997 from $2.2
million in 1996 as a result of lower volumes of debt associated with the equity
required to purchase Portfolio Assets, equity interests in Acquisition
Partnerships and capital support to operating subsidiaries. The Company incurred
less indebted-
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<PAGE> 50
ness in 1997 because a substantial portion of the Company's funding needs in
1997 were met by the Trust's redemption of its obligation under the Class A
Certificate. Other corporate income increased due to interest earned on the
excess liquidity derived from the Trust's redemption of the Class A Certificate.
Salary and benefits, occupancy and professional fees account for the majority of
other overhead expenses, which decreased in 1997 compared to 1996 as a result of
the decrease in the amount of executive and other officer bonuses granted in
1997 compared to 1996.
Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income and are offset by NOLs that the Company believes are available to
it as a result of the Merger. The tax benefit of the NOLs is recorded in the
period during which the benefit is realized. The Company reported a deferred tax
benefit of $13.6 million in 1997 as compared to a benefit of $16.2 million in
1996.
Harbor Merger related expenses. In 1997 the Company incurred Harbor Merger
related expenses of $1.6 million for legal, other professional and financial
advisory costs associated with the Harbor Merger.
1996 COMPARED TO 1995
The Company reported net earnings before minority interest and preferred
dividends of $39.1 million in 1996 (including a $13.7 million deferred tax
benefit) compared to $15.2 million in 1995. Net earnings to common shareholders
were $31.4 million in 1996 compared to $11.4 million in 1995. On a per share
basis, basic net earnings attributable to common shareholders were $4.83 in 1996
compared to $2.18 in 1995. Diluted net earnings per common share were $4.79 in
1996 compared to $2.18 in 1995.
Mortgage Banking
Mortgage Corp. experienced significant revenue growth in 1996 relative to
1995. The Broker Retail origination network in particular experienced
substantial growth in levels of production and origination volume. Such revenue
growth was partially offset by increases in operating expenses associated with
the increased levels of production and origination volume.
Gain on sale of mortgage loans. Gain on sale of mortgage loans increased by
145% to $19.3 million in 1996 from $7.9 million in 1995 due to substantial
increases in the levels of residential mortgage loan origination generated
principally by the Broker Retail origination network of Mortgage Corp. and, to a
lesser extent, the Direct Retail network of Mortgage Corp. Total production in
1996 increased to over $1.7 billion from $0.7 billion in 1995, which resulted in
increased sales volume of originated loans to government agencies and other
investors.
Net mortgage warehouse income. Net mortgage warehouse income increased by
36.9% to $3.2 million in 1996 from $2.4 million in 1995. This increase is the
result of an increase in the average balance of loans held in inventory during
the year coupled with a favorable spread between the interest rate on the
underlying mortgages and the interest cost of the warehouse credit facility
during the year.
Servicing fee revenues. Servicing fee revenues increased by 54.9% to $10.1
million in 1996 from $6.5 million in 1995 as a result of an increase in the size
of the servicing portfolio. Mortgage Corp. increased its servicing portfolio
with the purchase in the second quarter of 1996 of Hamilton and its right to
service approximately $1.7 billion in residential mortgage loans.
Other revenues. Other revenues increased by 35.1% to $5.0 million in 1996
from $3.7 million in 1995. This increase resulted from an increase in the gain
on sale of mortgage servicing rights of $0.6 million to $2.6 million in 1996
from $2.0 million in 1995. Other miscellaneous sources of fee income associated
with increased levels of mortgage loan production account for the balance of the
1996 over 1995 increase in other revenues.
Operating expenses. Operating expenses of Mortgage Corp. increased by 60.8%
to $31.6 million in 1996 from $19.7 million in 1995. The acquisition of Hamilton
in 1996, which was accounted for as a purchase, produced higher relative totals
for all components of Mortgage Corp.'s operating expenses in 1996 as compared to
1995.
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<PAGE> 51
Salaries and benefits increased year over year reflecting the additional
staff required to support the increase in production volumes derived from the
Direct Retail and Broker Retail networks in 1996 as compared to 1995 and the
increase in the size and number of loans in the residential and commercial
servicing portfolios as compared to prior year totals.
Amortization of mortgage servicing rights increased in 1996 compared to
1995 as a result of the substantially larger investment in mortgage servicing
rights in 1996 compared to 1995.
Interest expense on other notes payable (the portion not associated with
Mortgage Corp.'s warehouse credit facility) remained constant from 1996 to 1995.
Increases in occupancy, data processing and other expenses in 1996 as
compared to 1995 resulted from the substantial increases in production and
servicing volume experienced during 1996.
Portfolio Asset Acquisition and Resolution
The Portfolio Asset acquisition and resolution business of the Company
generated substantial revenues in 1996. Commercial Corp. purchased $205.5
million of Portfolio Assets during 1996 for its own account and through
Acquisition Partnerships compared to $213.2 million in acquisitions in 1995.
Commercial Corp.'s investment in Portfolio Assets increased to $76.2 million at
year end 1996 from $47.0 million at year end 1995. Commercial Corp. invested
$36.0 million in equity in Portfolio Assets in 1996 compared to $24.6 million in
1995.
Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets increased by 58.6% to $70.9 million in 1996 from $44.8 million
in 1995. The net gain on resolution of Portfolio Assets increased by 62.8% to
$19.5 million in 1996 from $12.0 million in 1995 as the result of increased cash
proceeds and a higher gross profit percentage in 1996 compared to 1995. The
gross profit percentage on the proceeds from the resolution of Portfolio Assets
in 1996 was 27.5% compared to 26.8% in 1995.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships declined by 7.9%
to $174.0 million in 1996 from $188.9 million in 1995 while the gross profit
percentage declined to 22.7% in 1996 from 27.2% in 1995. Offsetting the decline
in the gross profit percentage was an increase in the effective ownership
percentage of Commercial Corp. in the equity of the Acquisition Partnerships.
Interest income in the Acquisition Partnerships was $8.7 million in 1996
compared to no interest income in 1995. No performing Asset Portfolios were
acquired by the Acquisition Partnerships prior to 1996. Interest expense
decreased by $4.4 million in 1996 compared to 1995 reflecting a reduced level of
borrowing by the Acquisition Partnerships in 1996 compared to 1995. Interest
costs were relatively constant at 11.7% in 1996 as compared to 11.9% in 1995.
Other expenses of the Acquisition Partnerships were relatively unchanged at
$15.5 million in 1996 compared to $15.3 million in 1995. The net result was a
59.8% increase in the equity in earnings of Acquisition Partnerships to $6.1
million in 1996 from $3.8 million in 1995.
Servicing fee revenues. Servicing fee revenues increased by 14.1% to $12.4
million in 1996 from $10.9 million in 1995. Servicing fees from Acquisition
Partnerships totaled $6.5 million in 1996 compared to $6.8 million in 1995 while
fees from the Trust in 1996 were $4.2 million compared to $3.1 million in 1995.
Operating expenses. Salaries and benefits, amortization and other general
and administrative expenses increased by 63.6% to $23.3 million in 1996 from
$14.2 million in 1995, principally as a result of the increase in such costs
attributable to the acquisition of a portfolio and small commercial servicing
business in 1995, increased property expenses and amortization of goodwill and
servicing rights in 1996 (such expenses were incurred only in a portion of
1995). In addition, other expenses in 1995 included a recovery of $0.7 million
of prior year expenses related to the Merger.
Consumer Lending
The Company began its consumer lending business during the first quarter of
1996 with the acquisition of a sub-prime automobile loan portfolio and the
acquisition of the company through which the loans had been
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<PAGE> 52
originated. During 1996, Consumer Corp. acquired $24.1 million in consumer loans
and originated $17.6 million in consumer loans.
Interest income. Interest income on consumer loans totaled $3.6 million in
1996 and reflected the recognition of interest income on the automobile finance
receivable contracts purchased or originated during the year.
Interest expense. Interest expense incurred during 1996 totaled $1.3
million on average borrowings of $14.8 million. Such borrowings incurred
interest at an average interest rate of 8.5% during 1996.
Operating expenses. Operating expenses reflect salaries, occupancy and
other expenses incurred in the first year's operation of the Company's
automobile finance business.
Provision for loan losses. The provision for loan losses on automobile
loans was $2.0 million in 1996, which reflects Consumer Corp.'s estimate of the
amount by which expected losses would exceed the discount at which the loans
were purchased.
Other Items Affecting Net Income
The following items affect the Company's overall results of operations and
are not directly related to any one of the Company's businesses discussed above.
Corporate overhead. Interest income on the Class A Certificate during 1996
represents reimbursement to the Company by the Trust of $3.9 million of interest
expense on the senior subordinated notes and accrual of dividends of $7.7
million on special preferred stock in 1996 compared to $4.7 million of interest
expense on the senior subordinated notes and $3.9 million of dividends on the
special preferred stock in 1995. Interest expense increased to $2.2 million in
1996 from $0.4 million in 1995 as a result of higher combined volumes of debt
associated with the equity required for the purchase of Portfolio Assets and
equity interests in Acquisition Partnerships, especially following the Merger. A
substantial portion of the Company's funding needs in 1995 were met by the cash
received by the Company in connection with the Merger. Increases in salaries and
benefits, occupancy and other expenses reflect the increases associated with
Company staff functions such as accounting, finance and treasury activities
required to support the growth and diversification efforts of the Company
following the Merger. A portion of the increase in overhead expenses is the
result of an increase in executive and officer bonuses in 1996 compared to 1995.
Income taxes. Federal income taxes are provided at a 35% rate applied to
taxable income and are offset by NOLs that the Company believes are available to
it as a result of the Merger. The tax benefit of the NOLs is recorded in the
period during which the benefit is realized. The Company reported a deferred tax
benefit of $16.2 million in 1996 as compared to an expense of $1.2 million in
1995 (reflecting income taxes accrued on income reported prior to the Merger).
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Company requires liquidity to fund its operations, working
capital, payment of debt, equity for acquisition of Portfolio Assets,
investments in and advances to the Acquisition Partnerships, investments in
expanding businesses to support their growth, retirement of and dividends on
preferred stock, and other investments by the Company. The potential sources of
liquidity are funds generated from operations, equity distributions from the
Acquisition Partnerships, interest and principal payments on subordinated debt
and dividends from the Company's subsidiaries, short-term borrowings from
revolving lines of credit, proceeds from equity market transactions,
securitization and other structured finance transactions and other special
purpose short-term borrowings.
In the future, the Company anticipates being able to raise capital through
a variety of sources including, but not limited to, public debt or equity
offerings (subject to limitations related to the preservation of the Company's
NOLs), thus enhancing the investment and growth opportunities of the Company.
The Company believes that these and other sources of liquidity, including
refinancing and expanding the Company's revolving credit facility to the extent
necessary, securitizations, and funding from senior lenders providing
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<PAGE> 53
funding for Acquisition Partnership investments and direct portfolio and
business acquisitions, should prove adequate to continue to fund the Company's
contemplated activities and meet its liquidity needs.
The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance its respective operations. Each of the
credit facilities to which the operating subsidiaries are parties are
nonrecourse to the Company and the other operating subsidiaries, except as
discussed below.
Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships, as of December 31, 1997 the Company and its subsidiaries had
credit facilities providing for borrowings in an aggregate principal amount of
$1,041 million and outstanding borrowings of $751 million. The following table
summarizes the material terms of the credit facilities to which the Company, its
major operating subsidiaries and the Acquisition Partnerships were parties as of
March 24, 1998 and the outstanding borrowings under such facilities as of
December 31, 1997.
CREDIT FACILITIES
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT DECEMBER 31, 1997 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ----------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Credit
Facility.............. $ 35 $ 7 LIBOR + 5.0% Secured by the assets of
the Company, expires March
28, 1998(1)
Term fixed asset
facility.............. 1 1 Fixed 9.25% Secured by certain fixed
assets, expires January 1,
2001
MORTGAGE CORP.
Warehouse facility...... 450 309 LIBOR + 0.5% to 2.5% Revolving line to
warehouse residential
mortgage loans, expires
March 31, 1999
Supplemental warehouse
facility.............. 36 29 LIBOR + 0.5% to 2.25% Revolving line to
warehouse residential
mortgage loans and related
receivables, expires March
31, 1999
FNMA warehouse
facility.............. 187 187 Fed Funds + 0.8% to Open facility to fund
1.0% committed loans to FNMA
Operating line.......... 45 38 LIBOR + 2.25% Revolving operating line
secured by the
unencumbered assets of
Harbor, expires December
15, 2002
CAPITAL CORP.
Warehouse facility...... 36 36 Fixed 6.85% Repurchase agreement to
facilitate the acquisition
of Home Equity Loans,
expires April 13, 1998
COMMERCIAL CORP.
Portfolio acquisition
facility.............. 100 -- LIBOR + 2.5% Acquisition facility to
acquire Portfolio Assets,
expires February 28, 1999
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT DECEMBER 31, 1997 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ----------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
French acquisition
facility.............. 15 8 French franc Acquisition facility to
LIBOR + 3.5% fund equity investments in
French Portfolio Assets,
expires March 31, 1999.
Guaranteed by Commercial
Corp. and the Company.
Term acquisition
facilities............ 86 86 Fixed at 7% to 7.66% Acquisition facilities for
and LIBOR + 5% existing Portfolio Assets.
Secured by assets of
Acquisition Partnerships,
various maturities
CONSUMER CORP.
Warehouse facility...... 50 50 LIBOR + 3% Revolving line secured by
automobile receivables,
expires May 17, 1998
UNCONSOLIDATED ACQUISITION
PARTNERSHIPS
Term acquisition
facilities.............. 69 69 Fixed at 7.51% to Senior and subordinated
10.17%, LIBOR + 3% to loans secured by Portfolio
6.5% and Prime + 2% Assets, various maturities
to 7%
</TABLE>
- ---------------
(1) The Company Credit Facility maturing March 28, 1998 is expected to be
replaced by a similar facility totalling $40 million, maturing March 31,
1999.
FirstCity. The Company Credit Facility is a revolving credit facility with
Cargill Financial and is secured by the assets of the Company, including a
pledge of the stock of substantially all of its operating subsidiaries and its
equity interests in the Acquisition Partnerships. The amount of such facility
has ranged from $25 to $35 million since the Merger, with a maximum outstanding
amount of approximately $31 million. At December 31, 1997, the amount
outstanding under the facility totaled approximately $7 million. The Company
Credit Facility matures on March 28, 1998. The Company has received and executed
a preliminary term sheet commitment from a foreign bank outlining the terms of a
new credit facility to replace the Company Credit Facility. The term sheet
proposes a $40 million revolving credit facility, which will mature on March 31,
1999 and will be secured by substantially all of the Company's equity interests
in its subsidiaries and the Acquisition Partnerships.
Mortgage Corp. Currently, Mortgage Corp. has a primary warehouse facility
of $450 million with a group of banks led by Chase Bank, Houston. The facility,
which matures in March 1999, is used to finance mortgage warehouse operations as
well as other activities. The $450 million facility is priced at LIBOR plus a
different margin to LIBOR for each of the sub-limits within the facility. The
primary warehouse components of the facility are priced at LIBOR plus from
1.375% to 1.625%, depending upon the status of the warehouse collateral securing
the loan. In addition to its primary warehouse facility, Mortgage Corp.
maintains a $36 million supplemental facility priced at LIBOR plus 0.5% to 2.5%.
In addition, Mortgage Corp. has an additional revolving operating line with such
banks of $45 million, which bears interest at a rate of LIBOR plus 2.25%. The
banks are obligated to fund loans under such line through March 31, 1999,
although final maturity of any then outstanding loans may be extended, at
Mortgage Corp.'s election, to December 15, 2002.
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<PAGE> 55
Mortgage Corp. considers these facilities adequate for its current and
anticipated levels of activity in its mortgage operations.
The Company has executed a performance guarantee in favor of the lending
bank group in the event of overdrafts arising in Mortgage Corp.'s funding
accounts. An overdraft could occur in the event of the presentment of a loan
closing draft to the drawee bank prior to receipt of full closed loan
documentation from the closing agent. The receipt of documents by the lending
bank would release funds under the warehouse facility to cover the closing draft
prior to the presentment of the draft, in normal circumstances. The possibility
exists, therefore, for an overdraft in Mortgage Corp.'s funding account. The
performance guarantee by the Company in favor of the lending bank group is to
cover such overdrafts that are not cleared in a specified period of time. In
addition, Mortgage Corp. has a $172 million warehouse facility for loans to be
resold to FNMA.
Capital Corp. Capital Corp. funds its activities with equity investments
and subordinated debt from the Company and is in the process of negotiating
nonrecourse warehouse credit and securitization facilities with three nationally
recognized investment banking firms in an aggregate amount of $500 million.
Funding for Home Equity Loans purchased by Capital Corp. is provided, in part,
under Mortgage Corp.'s warehouse credit facility and is subject to Mortgage
Corp.'s sub-limit for Home Equity Loans meeting the criteria established in
Mortgage Corp.'s warehouse credit agreement. The remainder of Capital Corp.'s
Home Equity Loan warehouse is funded under a loan repurchase agreement with
Nomura Securities, Inc. ("Nomura"). The repurchase agreement expires on April
13, 1998. Capital Corp. anticipates being able to successfully conclude
negotiations on some of its warehouse and securitization facilities prior to the
expiration of the Nomura repurchase facility. However, if it is unable to do so,
it would have to curtail activities to a significant degree.
Commercial Corp. Commercial Corp. funds its activities with equity
investments and subordinated debt from the Company and nonrecourse financing
provided by a variety of bank and institutional lenders. Such lenders provide
funds to the special purpose entities formed for the purpose of acquiring
Portfolio Assets or to Acquisition Partnerships formed for the purpose of
co-investing in asset pools with other investors, principally Cargill Financial.
Commercial Corp. recently entered into a credit facility with Nomura in the
amount of $100 million, priced at LIBOR plus 2.25% to 2.50%, the proceeds of
which fund up to 85% of the purchase price of Portfolio Assets acquired by
Commercial Corp. or the Acquisition Partnerships. This facility matures on
February 28, 1999. Commercial Corp. believes that such facility, when combined
with the cash flow from its existing Portfolio Assets and its investment in
equities of Acquisition Partnerships, is adequate to meet its current and
anticipated liquidity needs. A Commercial Corp. subsidiary recently entered into
a $15 million dollar equivalent French franc facility for use in Portfolio
purchases in France, which facility accrues interest at LIBOR plus 3.50%,
matures on March 31, 1999 and is guaranteed by Commercial Corp. and the Company.
Consumer Corp. Consumer Corp. funds its activities with equity investments
and subordinated debt from the Company and a limited recourse $50 million
warehouse credit facility with ContiTrade Services L.L.C. ("ContiTrade"). Funds
are advanced under the facility in accordance with an eligible loan borrowing
base with the facility priced at LIBOR plus 3.0%. Loans are eligible for
inclusion in the borrowing base if they meet documented underwriting standards
as approved by ContiTrade and are not delinquent beyond terms established in the
loan agreement. At various times, the size of the facility has been in excess of
the $50 million committed amount based upon approvals by the lender. Under the
terms of the credit facility, the Company guarantees 25% of the amount
outstanding under the facility from time to time in addition to an undertaking
by the Company to support the liquidity requirements required in securitization
transactions. The ContiTrade facility matures on May 17, 1998. Negotiations are
underway to extend the facility, but there can be no assurance that such
negotiations will be successful.
54
<PAGE> 56
FOURTH QUARTER
Net earnings before minority interest and preferred dividends for the
fourth quarter of 1997 were $5.7 million, including a $.3 million deferred tax
benefit. After deducting minority interest and preferred dividends, net earnings
attributable to common equity were $3.8 million, or $.58 per diluted share.
These results represent an annualized return on average equity of 13.7%. Net
earnings before minority interest and preferred dividends for the fourth quarter
of 1996 were $7.7 million, including a $1.9 million deferred tax benefit. After
deducting minority interest and preferred dividends, net earnings attributable
to common equity were $5.7 million in 1996, or $.86 per diluted share,
representing an annualized return on average equity of 28.2%. The following
table presents a summary of operations for the fourth quarters of 1997 and 1996.
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996
FOURTH FOURTH
QUARTER QUARTER
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................................... $34,921 $24,238
Expenses.................................................... 29,219 18,296
------- -------
Net earnings before minority interest, preferred dividends
and income taxes.......................................... 5,702 5,942
Benefit (provision) for income taxes........................ (12) 1,742
------- -------
Net earnings before minority interest and preferred
dividends................................................. $ 5,690 $ 7,684
======= =======
Preferred dividends......................................... 1,515 1,937
Net earnings to common shareholders......................... $ 3,836 $ 5,747
======= =======
Net earnings per common share -- basic...................... $ 0.59 $ 0.88
Net earnings per common share -- diluted.................... $ 0.58 $ 0.86
</TABLE>
EFFECT OF NEW ACCOUNTING STANDARDS
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," is effective for transfers of financial
assets and extinguishment of liabilities occurring after December 31, 1996 and
is to be applied prospectively. The Statement provides accounting and reporting
standards for transfers and servicing of financial assets that are sales from
transfers that are secured borrowings. This Statement has not had a material
impact on the Company's financial position or results of operations. SFAS No.
128, "Earnings Per Share," is effective for per share earnings calculations and
disclosures for periods ending after December 15, 1997, including interim
periods, and requires restatement of all prior period earnings per share data
that is presented. The accompanying earnings per share data included in this
document reflect the retroactive application of SFAS No. 128.
SFAS No. 129, "Disclosure of Information about Capital Structure,"
establishes standards for disclosing information about an entity's capital
structure and is effective for financial statements for periods ending after
December 15, 1997. SFAS No. 130, issued in June 1997, "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131, issued in June
1997, "Disclosure about Segments of an Enterprise and Related Information,"
establishes standards as to how public companies disclose information about
operating segments, products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. These statements relate principally to disclosure issues and
are not expected to have a material impact on the Company's consolidated
financial position or results of operations.
55
<PAGE> 57
RISK FACTORS
RISKS ASSOCIATED WITH RAPID GROWTH AND ENTRY INTO NEW BUSINESSES
Following the Merger, the Company embarked upon a strategic diversification
of its business. Previously, the Company had been engaged primarily in the
Portfolio Asset acquisition and resolution business. The Company has recently
entered the residential and commercial mortgage banking business and the
consumer lending business through a combination of acquisitions and the start-up
of new business ventures. The entry of the Company into these new businesses has
resulted in increased demands on the Company's personnel and systems. The
development and integration of the new businesses requires the investment of
additional capital and the continuous involvement of senior management. The
Company also must manage a variety of businesses with differing markets,
customer bases, financial products, systems and managements. An inability to
develop, integrate and manage its businesses could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects. The Company's ability to support and manage continued growth is
dependent upon, among other things, its ability to attract and retain senior
management for each of its businesses, to hire, train, and manage its workforce
and to continue to develop the skills necessary for the Company to compete
successfully in its existing and new business lines. There can be no assurance
that the Company will successfully meet all of these challenges.
CONTINUING NEED FOR FINANCING
General. The successful execution of the Company's business strategy
depends on its continued access to financing for each of its major operating
subsidiaries. In addition to the need for such financing, the Company must have
access to liquidity to invest as equity or subordinated debt to meet the capital
needs of its subsidiaries. Liquidity is generated by the cash flow to the
Company from subsidiaries, access to the public debt and equity markets and
borrowings incurred by the Company. The Company's access to the capital markets
is affected by such factors as changes in interest rates, general economic
conditions, and the perception in the capital markets of the Company's business,
results of operations, leverage, financial condition and business prospects. In
addition, the Company's ability to issue and sell common equity (including
securities convertible into, or exercisable or exchangeable for, common equity)
is limited as a result of the tax laws relating to the preservation of the NOLs
available to the Company as a result of the Merger. There can be no assurance
that the Company's funding relationships with commercial banks, investment banks
and financial services companies (including Cargill Financial) that have
previously provided financing for the Company and its subsidiaries will continue
past their respective current maturity dates. The majority of the credit
facilities to which the Company and its subsidiaries are parties have short-term
maturities. Negotiations are underway to extend certain of such credit
facilities that are approaching maturity and the Company expects that it will be
necessary to extend the maturities of other such credit facilities in the near
future. There can be no assurance that such negotiations will be successful. If
such negotiations do not result in the extension of the maturities of such
credit facilities and the Company or its subsidiaries cannot find alternative
funding sources on satisfactory terms, or at all, the Company's financial
condition, results of operations and business prospects would be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Each of the Company and its major operating subsidiaries has its own source
of debt financing. In certain circumstances, a default by the Company or any of
its major operating subsidiaries in respect of indebtedness owed to a third
party constitutes a default under the Company Credit Facility. The credit
facilities to which the Company's major operating subsidiaries are party do not
contain similar cross-default or cross-acceleration provisions. Although the
Company intends to continue to segregate the debt obligations of each such
subsidiary, there can be no assurance that its existing financing sources will
continue to agree to such arrangements or that alternative financing sources
that would accept such arrangements would be available. In the event the
Company's major operating subsidiaries are compelled to accept cross-guarantees,
or cross-default or cross-acceleration provisions in connection with their
respective credit facilities, financial difficulties experienced by one of the
Company's subsidiaries could adversely impact the Company's other subsidiaries.
56
<PAGE> 58
Dependence on Warehouse Financing. As is customary in the mortgage banking
and consumer lending businesses, the Company's subsidiaries depend upon
warehouse credit facilities with financial institutions or institutional lenders
to finance the origination and purchase of loans on a short-term basis pending
sale or securitization. Implementation of the Company's business strategy
requires the continued availability of warehouse credit facilities, and may
require increases in the permitted borrowing levels under such facilities. There
can be no assurance that such financing will be available on terms satisfactory
to the Company. The inability of the Company to arrange additional warehouse
credit facilities, to extend or replace existing facilities when they expire or
to increase the capacity of such facilities may have a material adverse effect
on the Company's financial condition, results of operations and business
prospects.
RISKS OF SECURITIZATION
Significance of Securitization. The Company believes that it will become
increasingly dependent upon its ability to securitize Home Equity Loans,
sub-prime automobile loans and other loans to efficiently finance the volume of
assets expected to be generated. Accordingly, adverse changes in the secondary
market for such loans could impair the Company's ability to originate, purchase
and sell loans on a favorable or timely basis. Any such impairment could have a
material adverse effect upon the Company's financial condition, results of
operations and business prospects. Proceeds from the securitization of
originated and acquired loans are required to be used to repay borrowings under
warehouse credit facilities, thereby making such facilities available to finance
the origination and purchase of additional loan assets. There can be no
assurance that, as the Company's volume of loans originated or purchased
increases and other new products available for securitization increases, the
Company will be able to securitize its loan production efficiently. An inability
to efficiently securitize its loan production could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects.
Securitization transactions may be affected by a number of factors, some of
which are beyond the Company's control, including, among other things, the
adverse financial condition of, or developments related to, some of the
Company's competitors, conditions in the securities markets in general, and
conditions in the asset-backed securitization market. The Company's
securitizations typically utilize credit enhancements in the form of financial
guaranty insurance policies in order to achieve enhanced credit ratings. Failure
to obtain insurance company credit enhancement could adversely affect the timing
of, or ability of the Company to effect, securitizations. In addition, the
failure to satisfy rating agency requirements with respect to loan pools would
adversely impact the Company's ability to effect securitizations.
Contingent Risks. Although the Company intends to sell substantially all of
the Home Equity Loans, sub-prime automobile loans and other consumer loans that
it originates or purchases, the Company retains some degree of credit risk on
substantially all loans sold. During the period in which loans are held pending
sale, the Company is subject to various business risks associated with the
lending business, including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers. The Company expects
that the terms of its securitizations will require it to establish deposit
accounts or build over-collateralization levels through retention of
distributions otherwise payable to the holders of subordinated interests in the
securitization. The Company also expects to be required to commit to repurchase
or replace loans that do not conform to the representations and warranties made
by the Company at the time of sale.
Retained Risks of Securitized Loans. The Company makes various
representations with respect to the loans that it securitizes. With respect to
acquired loans, the Company's representations rely in part on similar
representations made by the originators of such loans when they were purchased
by the Company. In the event of a breach of its representations, the Company may
be required to repurchase or replace the related loan using its own funds. While
the Company may have a claim against the originator in the event of a breach of
any of these representations made by the originators, the Company's ability to
recover on any such claim will be dependent on the financial condition of the
originator. There can be no assurance that the Company will not experience a
material loss in respect of any of these contingencies.
57
<PAGE> 59
Performance Assumptions. Capital Corp. and Funding Corp.'s future net
income will be highly dependent on realizing securitization gains on the sale of
loans. Such gains will be dependent largely upon the estimated present values of
the subordinated interests expected to be derived from the transactions and
retained by the Company. Management makes a number of assumptions in determining
the estimated present values for the subordinated interests. These assumptions
include, but are not limited to, prepayment speeds, default rates and subsequent
losses on the underlying loans, and the discount rates used to present value the
future cash flows. All of the assumptions are subjective. Varying the
assumptions can have a material effect on the present value determination in one
securitization as compared to any other. Subsequent events will cause the actual
occurrences of prepayments, losses and interest rates to be different from the
assumptions used for such factors at the time of the recognition of the sale of
the loans. The effect of the subsequently occurring events could cause a
re-evaluation of the carrying values of the previously estimated values of the
subordinated interests and excess spreads and such adjustment could be material.
Because the subordinated interests to be retained by Capital Corp. and
Funding Corp. represent claims to future cash flow that are subordinated to
holders of senior interests, Capital Corp. and Funding Corp. retain a
significant portion of the risk of whether the full value of the underlying
loans may be realized. In addition, holders of the senior interests may have the
right to receive certain additional payments on account of principal in order to
reduce the balance of the senior interests in proportion to the credit
enhancement requirements of any particular transaction. Such payments for the
benefit of the senior interest holders will delay the payment, if any, of excess
cash flow to Capital Corp. and Funding Corp. as the holder of the subordinated
interests.
IMPACT OF CHANGING INTEREST RATES
Because most of the Company's borrowings are at variable rates of interest,
the Company will be impacted by fluctuations in interest rates. The Company
monitors the interest rate environment and employs hedging strategies designed
to mitigate certain effects of changes in interest rates when the Company deems
such strategies appropriate. However, certain effects of changes in interest
rates, such as increased prepayments of outstanding loans, cannot be mitigated.
Fluctuations in interest rates could have a material adverse effect on the
Company's financial condition, results of operations and business prospects.
Among other things, a decline in interest rates could result in increased
prepayments of outstanding loans, particularly on loans in the servicing
portfolio of Mortgage Corp. The value of servicing rights is a significant asset
of Mortgage Corp. As prepayments of serviced mortgages increase, the value of
such servicing rights (as reflected on the Company's balance sheet) declines,
with a corresponding reduction in income as a result of the impairment of the
value of mortgage servicing rights. Although to date the impact of such effect
has largely been mitigated by increased production of mortgages from
refinancings during periods of declining interest rates, there can be no
assurance that new mortgage production will be sufficient to mitigate such
effect in the future. Absent a level of new mortgage production sufficient to
mitigate the effect of mortgage loan prepayments, the future revenue and
earnings of the Company will be adversely affected. In addition to prepayment
risks, during periods of declining interest rates, Mortgage Corp. experiences
higher levels of borrowers who elect not to close on loans for which they have
applied because they tend to find loans at lower interest rates. If Mortgage
Corp. has entered into commitments to sell such a loan on a forward basis and
the prospective borrower fails to close, Mortgage Corp. must nevertheless meet
its commitment to deliver the contracted for loans at the promised yields.
Mortgage Corp. will incur a loss if it is required to deliver loans to an
investor at a committed yield higher than current market rates. A substantial
and sustained decline in interest rates also may adversely impact the amount of
distressed assets available for purchase by Commercial Corp. The value of the
Company's interest-earning assets and liabilities may be directly affected by
the level of and fluctuations in interest rates, including the valuation of any
residual interests in securitizations that would be severely impacted by
increased loan prepayments resulting from declining interest rates.
Conversely, a substantial and sustained increase in interest rates could
adversely affect the ability of the Company to originate loans and could reduce
the gains recognized by the Company upon their securitization and sale.
Fluctuating interest rates also may affect the net interest income earned by the
Company resulting from the difference between the yield to the Company on
mortgage and other loans held pending sale and the
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<PAGE> 60
interest paid by the Company for funds borrowed under the Company's warehouse
credit facilities or otherwise.
CREDIT IMPAIRED BORROWERS
The Company's sub-prime borrowers generally are unable to obtain credit
from traditional financial institutions due to factors such as an impaired or
poor credit history, low income or another adverse credit event. The Company is
subject to various risks associated with these borrowers, including, but not
limited to, the risk that the borrowers will not satisfy their debt service
obligations and that the realizable value of the assets securing their loans
will not be sufficient to repay the borrowers' debt. While the Company believes
that the underwriting criteria and collection methods it employs enable it to
identify and control the higher risks inherent in loans made to such borrowers,
and that the interest rates charged compensate the Company for the risks
inherent in such loans, no assurance can be given that such criteria or methods,
or such interest rates, will afford adequate protection against, or compensation
for, higher than anticipated delinquencies, foreclosures or losses. The actual
rate of delinquencies, foreclosures or losses could be significantly accelerated
by an economic downturn or recession. Consequently, the Company's financial
condition, results of operations and business prospects could be materially
adversely affected. The Company has established an allowance for loan losses
through periodic earnings charges and purchase discounts on acquired receivables
to cover anticipated loan losses on the loans currently in its portfolio. No
assurance can be given, however, that loan losses in excess of the allowance
will not occur in the future or that additional provisions will not be required
to provide for adequate allowances in the future.
AVAILABILITY OF PORTFOLIO ASSETS
The Portfolio Asset acquisition and resolution business is affected by
long-term cycles in the general economy. In addition, the volume of domestic
Portfolio Assets available for purchase by investors such as the Company has
generally declined since 1993 as large pools of distressed assets acquired by
governmental agencies in the 1980s and early 1990s have been resolved or sold.
The Company cannot predict its future annual acquisition volume of Portfolio
Assets. Moreover, future Portfolio Asset purchases will depend on the
availability of Portfolios offered for sale, the availability of capital and the
Company's ability to submit successful bids to purchase Portfolio Assets. The
acquisition of Portfolio Assets has become highly competitive in the United
States. This may require the Company to acquire Portfolio Assets at higher
prices thereby lowering profit margins on the resolution of such Portfolios.
Under certain circumstances, the Company may choose not to bid for Portfolio
Assets that it believes cannot be acquired at attractive prices. As a result of
all the above factors, Portfolio Asset purchases, and the revenue derived from
the resolution of Portfolio Assets, may vary significantly from quarter to
quarter.
AVAILABILITY OF NET OPERATING LOSS CARRYFORWARDS
The Company believes that, as a result of the Merger, approximately $596
million of NOLs were available to the Company to offset future taxable income as
of December 31, 1995. Since December 31, 1995, the Company has generated an
additional $12 million in tax operating losses. Accordingly, as of December 31,
1997, the Company believes that it has approximately $608 million of NOLs
available to offset future taxable income. In accordance with the terms of
Financial Accounting Standards Board Statement Number 109 (relating to
accounting for income taxes), the Company has established a future utilization
equivalent to approximately $87.7 million of the total $608 million of NOLs,
which equates to a $30.7 million deferred tax asset on the Company's books and
records. However, because the Company's position in respect of its NOLs is based
upon factual determinations and upon legal issues with respect to which there is
uncertainty and because no ruling has been obtained from the Internal Revenue
Service (the "IRS") regarding the availability of the NOLs to the Company, there
can be no assurance that the IRS will not challenge the availability of the
Company's NOLs and, if challenged, that the IRS will not be successful in
disallowing the entire amount of the Company's NOLs, with the result that the
Company's $30.7 million deferred tax asset would be reduced or eliminated.
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<PAGE> 61
Assuming that the $608 million in NOLs is available to the Company, the
entire amount of such NOLs may be carried forward to offset future taxable
income of the Company until the tax year 2005. Thereafter, the NOLs begin to
expire. The ability of the Company to utilize such NOLs will be severely limited
if there is a more than 50% ownership change of the Company during a three-year
testing period within the meaning of section 382 of the Internal Revenue Code of
1986, as amended (the "Tax Code").
If the Company were unable to utilize its NOLs to offset future taxable
income, it would lose significant competitive advantages that it now enjoys.
Such advantages include, but are not limited to, the Company's ability to offset
non-cash income recognized by the Company in connection with certain
securitizations, to generate capital to support its expansion plans on a
tax-advantaged basis, to offset its and its consolidated subsidiaries' pretax
income, and to have access to the cash flow that would otherwise be represented
by payments of federal tax liabilities.
ASSUMPTIONS UNDERLYING PORTFOLIO ASSET PERFORMANCE
The purchase price and carrying value of Portfolio Assets acquired by
Commercial Corp. are determined largely by estimating expected future cash flows
from such assets. Commercial Corp. develops and revises such estimates based on
its historical experience and current market conditions, and based on the
discount rates that the Company believes are appropriate for the assets
comprising the Portfolios. In addition, many obligors on Portfolio Assets have
impaired credit, with risks associated with such obligors similar to the risks
described in respect of borrowers under "-- Credit Impaired Borrowers." If the
amount and timing of actual cash flows is materially different from estimates,
the Company's financial condition, results of operations and business prospects
could be materially adversely affected.
GENERAL ECONOMIC CONDITIONS
Periods of economic slowdown or recession, or declining demand for
residential or commercial real estate, automobile loans or other commercial or
consumer loans may adversely affect the Company's business. Economic downturns
may reduce the number of loan originations by the Company's mortgage banking,
consumer and commercial finance businesses and negatively impact its
securitization activity and generally reduce the value of the Company's assets.
In addition, periods of economic slowdown or recession, whether general,
regional or industry-related, may increase the risk of default on mortgage loans
and other loans and could have a material adverse effect on the Company's
financial condition, results of operations and business prospects. Such periods
also may be accompanied by declining values of homes, automobiles and other
property securing outstanding loans, thereby weakening collateral coverage and
increasing the possibility of losses in the event of default. Significant
increases in homes or automobiles for sale during recessionary economic periods
may depress the prices at which such collateral may be sold or delay the timing
of such sales. There can be no assurance that there will be adequate markets for
the sale of foreclosed homes or repossessed automobiles. Any material
deterioration of such markets could reduce recoveries from the sale of
collateral.
Such economic conditions could also adversely affect the resolution of
Portfolio Assets, lead to a decline in prices or demand for collateral
underlying Portfolio Assets, or increase the cost of capital invested by the
Company and the length of time that capital is invested in a particular
Portfolio. All or any one of these events could decrease the rate of return and
profits to be realized from such Portfolio and materially adversely affect the
Company's financial condition, results of operations and business prospects.
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<PAGE> 62
RISK OF DECLINING VALUE OF COLLATERAL
The value of the collateral securing mortgage loans, automobile and other
consumer loans and loans acquired for resolution, as well as real estate or
other acquired distressed assets, is subject to various risks, including
uninsured damage, change in location or decline in value caused by use, age or
market conditions. Any material decline in the value of such collateral could
adversely affect the financial condition, results of operations and business
prospects of the Company.
GOVERNMENT REGULATION
Many aspects of the Company's business are subject to regulation,
examination and licensing under various federal, state and local statutes and
regulations that impose requirements and restrictions affecting, among other
things, the Company's loan originations, credit activities, maximum interest
rates, finance and other charges, disclosures to customers, the terms of secured
transactions, collection, repossession and claims handling procedures, multiple
qualification and licensing requirements for doing business in various
jurisdictions, and other trade practices. The Company believes it is currently
in compliance in all material respects with applicable regulations, but there
can be no assurance that the Company will be able to maintain such compliance.
Failure to comply with, or changes in, these laws or regulations, or the
expansion of the Company's business into jurisdictions that have adopted more
stringent regulatory requirements than those in which the Company currently
conducts business, could have an adverse effect on the Company by, among other
things, limiting the interest and fee income the Company may generate on
existing and additional loans, limiting the states in which the Company may
operate or restricting the Company's ability to realize on the collateral
securing its loans. See "Business -- Government Regulation."
The mortgage banking industry in particular is highly regulated. Failure to
comply with any of the various state and federal laws affecting the industry,
all of which are subject to regular modification, may result in, among other
things, demands for indemnification or mortgage loan repurchases, certain rights
of rescission for mortgage loans, class action lawsuits, administrative
enforcement actions and civil and criminal liability. Furthermore, currently
there are proposed various laws, rules and regulations which, if adopted, could
materially affect the Company's business. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or regulations
will not be adopted in the future that will make compliance more difficult or
expensive, restrict the Company's ability to originate, purchase, service or
sell loans, further limit or restrict the amount of commissions, interest and
other charges earned on loans originated, purchased, serviced or sold by the
Company, or otherwise have a material adverse effect on the Company's financial
condition, results of operations and business prospects. See
"Business -- Government Regulation."
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. The reduction or elimination of these tax benefits may
lessen the demand for residential mortgage loans and Home Equity Loans, and
could have a material adverse effect on the Company's financial condition,
results of operations and business prospects.
ENVIRONMENTAL LIABILITIES
The Company, through its subsidiaries and affiliates, acquires real
property in its Portfolio Asset acquisition and resolution business, and
periodically acquires real property through foreclosure of mortgage loans that
are in default. There is a risk that properties acquired by the Company could
contain hazardous substances or waste, contaminants or pollutants. The Company
may be required to remove such substances from the affected properties at its
expense, and the cost of such removal may substantially exceed the value of the
affected properties or the loans secured by such properties. Furthermore, the
Company may not have adequate remedies against the prior owners or other
responsible parties to recover its costs, either as a matter of law or
regulation, or as a result of such prior owners' financial inability to pay such
costs. The Company may find it difficult or impossible to sell the affected
properties either prior to or following any such removal.
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<PAGE> 63
COMPETITION
All of the businesses in which the Company operates are highly competitive.
Some of the Company's principal competitors are substantially larger and better
capitalized than the Company. Because of their resources, these companies may be
better able than the Company to obtain new customers for mortgage or other loan
production, to acquire Portfolio Assets, to pursue new business opportunities or
to survive periods of industry consolidation. Access to and the cost of capital
are critical to the Company's ability to compete. Many of the Company's
competitors have superior access to capital sources and can arrange or obtain
lower cost of capital, resulting in a competitive disadvantage to the Company
with respect to such competitors.
In addition, certain of the Company's competitors may have higher risk
tolerances or different risk assessments, which could allow these competitors to
establish lower margin requirements and pricing levels than those established by
the Company. In the event a significant number of competitors establish pricing
levels below those established by the Company, the Company's ability to compete
would be adversely affected.
RISK ASSOCIATED WITH FOREIGN OPERATIONS
Commercial Corp. has acquired, and manages and resolves, Portfolio Assets
located in France, and is actively pursuing opportunities to purchase additional
pools of distressed assets in France, other areas of Western Europe and Mexico.
Foreign operations are subject to various special risks, including currency
translation risks, currency exchange rate fluctuations, exchange controls and
different political, social and legal environments within such foreign markets.
To the extent future financing in foreign currencies is unavailable at
reasonable rates, the Company would be further exposed to currency translation
risks, currency exchange rate fluctuations and exchange controls. In addition,
earnings of foreign operations may be subject to foreign income taxes that
reduce cash flow available to meet debt service requirements and other
obligations of the Company, which may be payable even if the Company has no
earnings on a consolidated basis. Any or all of the foregoing could have a
material adverse effect on the Company's financial condition, results of
operations and business prospects.
DEPENDENCE ON INDEPENDENT MORTGAGE BROKERS
The Company depends in large part on independent mortgage brokers for the
origination and purchase of mortgage loans. In 1997, a substantial portion of
the loans originated by Mortgage Corp., and all of the loans originated by
Capital Corp., were originated by independent mortgage brokers or otherwise
acquired from third parties. These independent mortgage brokers deal with
multiple lenders for each prospective borrower. The Company competes with these
lenders for the independent brokers' business based on a number of factors,
including price, service, loan fees and costs. The Company's financial
condition, results of operations and business prospects could be adversely
affected by changes in the volume and profitability of mortgage loans resulting
from, among other things, competition with other lenders and purchasers of such
loans.
Class action lawsuits have been filed against a number of mortgage lenders,
including Mortgage Corp., alleging that such lenders have violated the federal
Real Estate Settlement Procedures Act of 1974 by making certain payments to
independent mortgage brokers. If these cases are resolved against the lenders,
it may cause an industry-wide change in the way independent mortgage brokers are
compensated. Such changes may have a material adverse effect on the Company's
results of operations, financial condition and business prospects.
DEPENDENCE ON AUTOMOBILE DEALERSHIP RELATIONSHIPS
The ability of the Company to expand into new geographic markets and to
maintain or increase its volume of automobile loans is dependent upon
maintaining and expanding the network of franchised automobile dealerships from
which it purchases contracts. Increased competition, including competition from
captive finance affiliates of automobile manufacturers, could have a material
adverse effect on the Company's ability to maintain or expand its dealership
network.
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<PAGE> 64
LITIGATION
Industry participants in the mortgage and consumer lending businesses from
time to time are named as defendants in litigation involving alleged violations
of federal and state consumer protection or other similar laws and regulations.
A judgment against the Company in connection with any such litigation could have
a material adverse effect on the Company's consolidated financial condition,
results of operations and business prospects.
RELATIONSHIP WITH AND DEPENDENCE UPON CARGILL
The Company's relationship with Cargill Financial is significant in a
number of respects. Cargill Financial, a subsidiary of Cargill, Incorporated, a
privately held, multi-national agricultural and financial services company,
provides equity and debt financings for many of the Acquisition Partnerships,
and provides a $35 million revolving line of credit to the Company, which
expires on March 28, 1998. Cargill Financial owns approximately 3.7% of the
Company's outstanding Common Stock, and a Cargill Financial designee, David W.
MacLennan, serves as a director of the Company. The Company believes its
relationship with Cargill Financial significantly enhances the Company's
credibility as a purchaser of Portfolio Assets and facilitates its ability to
expand into other businesses and foreign markets. Although management believes
that the Company's relationship with Cargill Financial is excellent, there can
be no assurance that such relationship will continue in the future. Absent such
relationship, the Company and the Acquisition Partnerships would be required to
find alternative sources for the financing that Cargill Financial has
historically provided. There can be no assurance that such alternative financing
would be available. Any termination of such relationship could have a material
adverse effect on the Company's financial condition, results of operations and
business prospects.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its senior executive officers,
particularly James R. Hawkins (Chairman and Chief Executive Officer), James T.
Sartain (President and Chief Operating Officer), Rick R. Hagelstein (Executive
Vice President and Director of Subsidiary Operations), Matt A. Landry, Jr.
(Executive Vice President and Chief Administrative Officer) and Richard J.
Gillen (Managing Director of Mortgage Finance). The Company is also dependent on
several of the key members of management of each of its operating subsidiaries,
many of whom were instrumental in developing and implementing the business
strategy for such subsidiaries. The inability or unwillingness of one or more of
these individuals to continue in his present role could have a material adverse
effect on the Company's financial condition, results of operations and business
prospects. Except for Mr. Gillen, none of the senior executive officers has
entered into an employment agreement with the Company. There can be no assurance
that any of the foregoing individuals will continue to serve in his current
capacity or for what time period such service might continue. The Company does
not maintain key person life insurance for any of its senior executive officers
other than Mr. Gillen.
INFLUENCE OF CERTAIN SHAREHOLDERS
The directors and executive officers of the Company collectively
beneficially own 42.3% of the Common Stock. Although there are no agreements or
arrangements with respect to voting such Common Stock among such persons except
as described below, such persons, if acting together, may effectively be able to
control any vote of shareholders of the Company and thereby exert considerable
influence over the affairs of the Company. James R. Hawkins, the Chairman of the
Board and Chief Executive Officer of the Company, is the beneficial owner of
15.8% of the Common Stock. James T. Sartain, President and Chief Operating
Officer of the Company, and ATARA I, Ltd. ("ATARA"), an entity associated with
Rick R. Hagelstein, Executive Vice President and Director of Subsidiary
Operations of the Company each beneficially own 5.8% of the outstanding Common
Stock. In addition, Cargill Financial owns approximately 3.7% of the Common
Stock. Mr. Hawkins, Mr. Sartain, Cargill Financial and ATARA are parties to a
shareholder voting agreement (the "Shareholder Voting Agreement"). Under the
Shareholder Voting Agreement, Mr. Hawkins, Mr. Sartain and ATARA are required to
vote their shares in favor of Cargill Financial's designee for director of the
Company,
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and Cargill Financial is required to vote its shares in favor of one or more of
the designees of Messrs. Hawkins and Sartain and ATARA. Richard J. Gillen,
Managing Director of Mortgage Finance, and Ed Smith are the beneficial owners of
10.6% and 9.7%, respectively, of the Common Stock. As a result, Messrs. Gillen
and Smith may be able to exert influence over the affairs of the Company and if
their shares are combined with the holdings of Messrs. Hawkins and Sartain and
the shares held by ATARA, will have effective control of the Company. There can
be no assurance that the interests of management or the other entities and
individuals named above will be aligned with the Company's other shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
The utilization of the Company's NOLs may be limited or prohibited under
the Tax Code in the event of certain ownership changes. The Company's Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation")
contains provisions restricting the transfer of its securities that are designed
to avoid the possibility of such changes. Such restrictions may prevent certain
holders of common stock of the Company from transferring such stock even if such
holders are permitted to sell such stock without restriction under the
Securities Act, and may limit the Company's ability to sell common stock to
certain existing holders of common stock at an advantageous time or at a time
when capital may be required but unavailable from any other source.
RELIANCE ON SYSTEMS; YEAR 2000 ISSUES
The Company's computer systems are integral to the operation of its
businesses. There can be no assurance that these systems will continue to be
adequate to support the Company's growth. A failure of the Company's computer
systems, including a failure of data integrity or accuracy, could have a
material adverse effect on the Company's consolidated financial condition,
results of operations and business prospects.
Although the Company maintains its own computer systems for a significant
portion of its operations, the Company is substantially dependent on the
services of third-party servicers in its mortgage banking and Portfolio Asset
acquisition and resolution businesses. The Company has been informed by such
servicers that, although they intend to make the necessary modifications to
their computer systems, the computer systems operated by them are not yet year
2000 compliant. In addition, the Company interacts electronically with several
government agencies, including FHLMC, FNMA, FHA, FMHA and GNMA, whose computer
systems are not yet year 2000 compliant. There can be no assurance that such
third parties and government agencies will make the necessary modifications to
their respective computer systems to enable proper processing of transactions
relating to the year 2000 and beyond. Any failure by such entities to timely
correct year 2000 issues could have a material adverse effect on the Company's
consolidated financial condition, results of operations and business prospects.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and by-laws contain a number of
provisions relating to corporate governance and the rights of shareholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect to the extent they are utilized to delay, defer or prevent a change of
control of the Company by deterring unsolicited tender offers or other
unilateral takeover proposals and compelling negotiations with the Company's
Board of Directors rather than non-negotiated takeover attempts even if such
events may be in the best interests of the Company's shareholders. The
Certificate of Incorporation also contains certain provisions restricting the
transfer of its securities that are designed to prevent ownership changes that
might limit or eliminate the ability of the Company to use its NOLs.
PERIOD TO PERIOD VARIANCES
The Company Portfolio Assets and Acquisition Partnerships based proceeds
realized from the resolution of the Portfolio Assets, which proceeds have
historically varied significantly and likely will continue to vary significantly
from period to period. Consequently, the Company's period to period revenue and
net income have historically varied, and are likely to continue to vary,
correspondingly. Such variances, alone or with other
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factors, such as conditions in the economy or the financial services industries
or other developments affecting the Company, may result in significant
fluctuations in the reported earnings of the Company and in the trading prices
of the Company's securities, particularly the Common Stock.
TAX, MONETARY AND FISCAL POLICY CHANGES
The Company originates and acquires financial assets, the value and income
potential of which are subject to influence by various state and federal tax,
monetary and fiscal policies in effect from time to time. The nature and
direction of such policies are entirely outside the control of the Company, and
the Company cannot predict the timing or effect of changes in such policies.
Changes in such policies could have a material adverse effect on the Company's
consolidated financial condition, results of operations and business prospects.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 31,605 $ 16,445
Portfolio Assets, net....................................... 89,951 76,240
Loans receivable, net....................................... 90,115 41,310
Mortgage loans held for sale................................ 533,751 134,348
Equity investments in and advances to Acquisition
Partnerships.............................................. 35,529 21,761
Class A Certificate of FirstCity Liquidating Trust.......... -- 53,617
Mortgage servicing rights................................... 69,634 33,517
Receivable for servicing advances and accrued interest...... 21,410 16,045
Deferred tax benefit, net................................... 30,614 13,898
Other assets, net........................................... 37,510 18,008
-------- --------
Total Assets...................................... $940,119 $425,189
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $750,781 $266,166
Other liabilities......................................... 34,672 20,604
-------- --------
Total Liabilities................................. 785,453 286,770
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Special preferred stock, including dividends of $669 and
$1,938, respectively (nominal stated value of $21 per
share; 2,500,000 shares authorized; 849,777 and
2,460,911 shares, respectively, issued and
outstanding)........................................... 18,515 53,617
Adjusting rate preferred stock, including dividends of
$846 in 1997 (redemption value of $21 per share;
2,000,000 shares authorized; 1,073,704 shares issued
and outstanding in 1997)............................... 23,393 --
Shareholders' equity:
Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)........................................... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized; issued and outstanding: 6,526,510 and
6,513,346 shares, respectively)........................ 65 65
Paid in capital........................................... 29,509 29,783
Retained earnings......................................... 83,184 54,954
-------- --------
Total Shareholders' Equity........................ 112,758 84,802
-------- --------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $940,119 $425,189
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Gain on sale of mortgage loans............................ $ 36,496 $ 19,298 $ 7,864
Net mortgage warehouse income............................. 3,499 3,224 2,355
Gain on sale of mortgage servicing rights................. 4,246 2,641 2,011
Servicing fees:
Mortgage............................................... 14,732 10,079 6,508
Other.................................................. 12,066 12,456 10,903
Gain on resolution of Portfolio Assets.................... 24,183 19,510 11,984
Equity in earnings of Acquisition Partnerships............ 7,605 6,125 3,834
Rental income on real estate Portfolios................... 332 3,033 1,277
Interest income........................................... 13,448 7,707 1,572
Other income.............................................. 9,462 3,415 3,060
Interest income on Class A Certificate.................... 3,553 11,601 8,597
-------- -------- -------
Total revenues.................................... 129,622 99,089 59,965
-------- -------- -------
Expenses:
Interest on other notes payable........................... 12,433 10,403 4,721
Salaries and benefits..................................... 42,191 26,927 16,767
Amortization:
Mortgage servicing rights.............................. 7,550 4,091 3,823
Other.................................................. 2,563 3,113 1,534
Provision for loan losses................................. 6,613 2,029 --
Harbor Merger related expenses............................ 1,618 -- --
Occupancy, data processing, communication and other....... 36,354 23,254 11,955
Interest on senior subordinated notes..................... -- 3,892 4,721
-------- -------- -------
Total expenses.................................... 109,322 73,709 43,521
-------- -------- -------
Net earnings before minority interest, preferred dividends
and income taxes.......................................... 20,300 25,380 16,444
Benefit (provision) for income taxes...................... 15,485 13,749 (1,200)
-------- -------- -------
Net earnings before minority interest and preferred
dividends................................................. 35,785 39,129 15,244
Minority interest......................................... (157) -- --
Preferred dividends....................................... (6,203) (7,709) (3,876)
-------- -------- -------
Net earnings to common shareholders......................... $ 29,425 $ 31,420 $11,368
======== ======== =======
Net earnings per common share -- basic...................... $ 4.51 $ 4.83 $ 2.18
Net earnings per common share -- diluted.................... $ 4.46 $ 4.79 $ 2.18
Weighted average common shares outstanding -- basic......... 6,518 6,504 5,223
Weighted average common shares outstanding -- diluted....... 6,591 6,556 5,223
</TABLE>
See accompanying notes to consolidated financial statements.
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FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF TOTAL
COMMON COMMON PAID IN RETAINED SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
--------- ------- ------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994.................. 255,257 $ 1,590 $ 8,014 $17,518 $ 27,122
Common stock issued........................ 5,935 59 720 -- 779
Common stock retired....................... (11,080) (111) (1,089) -- (1,200)
Net assets spun off to Combined Financial
Corporation............................. -- -- -- (5,352) (5,352)
Merger with First City Bancorporation of
Texas, Inc. (Note 2).................... 6,252,296 (1,473) 21,473 -- 20,000
Net earnings for 1995...................... -- -- -- 15,244 15,244
Preferred dividends........................ -- -- -- (3,876) (3,876)
Other...................................... -- -- 71 -- 71
--------- ------- ------- ------- --------
BALANCES, DECEMBER 31, 1995.................. 6,502,408 65 29,189 23,534 52,788
Exercise of warrants, options and employee
stock purchase plan..................... 10,938 -- 266 -- 266
Net earnings for 1996...................... -- -- -- 39,129 39,129
Preferred dividends........................ -- -- -- (7,709) (7,709)
Other...................................... -- -- 328 -- 328
--------- ------- ------- ------- --------
BALANCES, DECEMBER 31, 1996.................. 6,513,346.. 65 29,783 54,954 84,802
--------- ------- ------- ------- --------
Exercise of warrants, options and employee
stock purchase plan..................... 13,164 -- 318 -- 318
Change in subsidiary year end.............. -- -- -- (1,195) (1,195)
Net earnings for 1997, after minority
interest................................ -- -- -- 35,628 35,628
Preferred dividends........................ -- -- -- (6,203) (6,203)
Other...................................... -- -- (592) -- (592)
--------- ------- ------- ------- --------
BALANCES, DECEMBER 31, 1997.................. 6,526,510 $ 65 $29,509 $83,184 $112,758
========= ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE> 70
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 35,785 $ 39,129 $ 15,244
Adjustments to reconcile net earnings to net cash used in
operating activities, net of effect of acquisitions:
Proceeds from resolution of Portfolio Assets............ 87,138 70,940 44,760
Gain on resolution of Portfolio Assets.................. (24,183) (19,510) (11,984)
Purchase of Portfolio Assets............................ (38,367) (60,329) (42,727)
Origination of automobile receivables................... (89,845) (17,635) --
Gain on sale of mortgage servicing rights............... (4,246) (2,641) (2,011)
Increase in mortgage loans held for sale................ (396,599) (30,418) (67,690)
Increase in construction loans receivable............... (10,414) (7,370) (1,446)
Originated mortgage servicing rights.................... (40,734) (18,128) (3,950)
Purchases of mortgage servicing rights.................. (5,798) (3,075) (2,429)
Proceeds from sale of mortgage servicing rights......... 14,598 9,048 2,130
Provision for loan losses............................... 6,613 2,029 --
Equity in earnings of Acquisition Partnerships.......... (7,605) (6,125) (3,834)
Proceeds from performing Portfolio Assets............... 78,821 11,646 1,293
(Increase) decrease in net deferred tax asset........... (14,200) (14,235) 186
Depreciation and amortization........................... 11,791 8,791 6,200
Increase in other assets................................ (25,370) (18,554) (11,770)
Increase (decrease) in other liabilities................ 17,220 (344) 2,797
Adjustment to equity from change in subsidiary year
end................................................... (1,195) -- --
----------- ----------- -----------
Net cash used in operating activities.............. (406,590) (56,781) (75,231)
----------- ----------- -----------
Cash flows from investing activities, net of effect of
acquisitions:
Advances to Acquisition Partnerships...................... (50) (1,256) (9,755)
Payments on advances to Acquisition Partnerships.......... 1,029 9,821 169
Acquisition of subsidiaries............................... 1,118 (3,936) (7,753)
Proceeds from sales of and payments on loans held for
investment.............................................. 492 122 465
Repurchases of loans from investors....................... (5,983) (1,196) --
Principal payments on Class A Certificate................. 46,477 115,337 --
Property and equipment, net............................... (2,919) (2,530) (1,821)
Contributions to Acquisition Partnerships................. (25,282) (30,704) (3,583)
Distributions from Acquisition Partnerships............... 11,833 31,279 5,206
----------- ----------- -----------
Net cash provided by (used in) investing
activities....................................... 26,715 116,937 (17,072)
----------- ----------- -----------
Cash flows from financing activities, net of effect of
acquisitions:
Borrowings under notes payable............................ 9,196,377 4,105,451 1,137,662
Payments of notes payable................................. (8,777,337) (4,048,369) (1,056,179)
Payment of senior subordinated notes...................... -- (105,690) --
Additions to notes payable to shareholders and officers... -- -- 1,930
Reduction of notes payable to shareholders and officers... -- -- (1,843)
Capital contribution of FCBOT ............................ -- -- 20,000
Purchase of special preferred stock....................... (12,567) -- --
Proceeds from issuance of common stock.................... 318 266 779
Distributions to minority interest........................ (5,129) -- --
Preferred dividends paid.................................. (6,627) (9,647) --
Retirement of common stock................................ -- -- (1,200)
Other increases in paid in capital........................ -- 64 64
----------- ----------- -----------
Net cash provided by (used in) financing
activities....................................... 395,035 (57,925) 101,213
----------- ----------- -----------
Net increase in cash........................................ $ 15,160 $ 2,231 $ 8,910
Cash, beginning of year..................................... 16,445 14,214 5,304
----------- ----------- -----------
Cash, end of year........................................... $ 31,605 $ 16,445 $ 14,214
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................ $ 37,284 $ 21,420 $ 10,476
=========== =========== ===========
Income taxes............................................ $ 852 $ 116 $ 1,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE> 71
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
As more fully discussed in Note 2, on July 3, 1995, FirstCity Financial
Corporation (the "Company" or "FirstCity") was formed by the merger of J-Hawk
Corporation and First City Bancorporation of Texas, Inc. Historical financial
statements prior to the merger date reflect the financial position and results
of operations of J-Hawk Corporation. Additionally, the Company's merger with
Harbor Financial Group, Inc. ("Mortgage Corp.") on July 1, 1997 is accounted for
as a pooling of interests. The accompanying consolidated financial statements
are retroactively restated to reflect the pooling of interests.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the estimation of future
collections on purchased portfolio assets used in the calculation of net gain on
resolution of portfolio assets, interest rate environments, prepayment speeds of
loans in servicing portfolios, collectibility on loans held in inventory and for
investment. Actual results could differ materially from those estimates.
(B) DESCRIPTION OF BUSINESS
The Company is a diversified financial services company with offices
throughout the United States, and a presence in France and Mexico. The Company
is engaged in three principal businesses: (i) residential and commercial
mortgage banking; (ii) portfolio asset acquisition and resolution; and (iii)
consumer lending.
The Company engages in the mortgage banking business through direct retail
and broker retail mortgage banking activities through which it originates,
purchases, sells and services residential and commercial mortgage loans
throughout the United States. Additionally the Company acquires, originates,
warehouses and securitizes mortgage loans to borrowers who have significant
equity in their homes and who generally do not satisfy the more rigid
underwriting standards of the traditional residential mortgage lending market
(referred to herein as "Home Equity Loans"). In addition to mortgage banking
activities, the Company performs other ancillary services such as residential
property management, property appraisal and inspection, portfolio/corporate
evaluations, risk management and hedging advisory services, marketing of loan
servicing portfolios, and mergers and acquisitions advisory services.
In the portfolio asset acquisition and resolution business the Company
acquires and resolves portfolios of performing and nonperforming commercial and
consumer loans and other assets (collectively, "Portfolio Assets" or
"Portfolios"), which are generally acquired at a discount to their legal
principal balance. Purchases may be in the form of pools of assets or single
assets. The Portfolio Assets are generally nonhomogeneous assets, including
loans of varying qualities that are secured by diverse collateral types and
foreclosed properties. Some Portfolio Assets are loans for which resolution is
tied primarily to the real estate securing the loan, while others may be
collateralized business loans, the resolution of which may be based either on
business or real estate or other collateral cash flow. Portfolio Assets are
acquired on behalf of the Company or its wholly-owned subsidiaries, and on
behalf of legally independent domestic and foreign partnerships and other
entities ("Acquisition Partnerships") in which a partially owned affiliate of
the Company is the general partner and the Company and other investors are
limited partners.
The Company's consumer lending activities include the origination,
acquisition and servicing of sub-prime consumer loans principally secured by
automobiles with the intention of selling the acquired loans in securitization
transactions.
The Company services, manages and ultimately resolves or otherwise disposes
of substantially all of the assets it, its Acquisition Partnerships, or other
related entities acquire. The Company services all such assets until they are
collected or sold and normally does not manage assets for non-affiliated third
parties.
70
<PAGE> 72
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(C) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
all of the majority owned subsidiaries of the Company. Investments in 20 percent
to 50 percent owned affiliates are accounted for on the equity method. All
significant intercompany transactions and balances have been eliminated in
consolidation.
(D) CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents. The Company has maintained balances in
various operating and money market accounts in excess of federally insured
limits.
(E) PORTFOLIO ASSETS
Portfolio Assets are reflected in the accompanying consolidated financial
statements as non-performing Portfolio Assets, performing Portfolio Assets or
real estate Portfolios. The following is a description of each classification
and the related accounting policy accorded to each Portfolio type:
Non-Performing Portfolio Assets
Non-performing Portfolio Assets consist primarily of distressed loans and
loan related assets, such as foreclosed upon collateral. Portfolio Assets are
designated as non-performing unless substantially all of the loans in the
Portfolio are being repaid in accordance with the contractual terms of the
underlying loan agreements. Such Portfolios are acquired on the basis of an
evaluation by the Company of the timing and amount of cash flow expected to be
derived from borrower payments or other resolution of the underlying collateral
securing the loan.
All non-performing Portfolio Assets are purchased at substantial discounts
from their outstanding legal principal amount, the total of the aggregate of
expected future sales prices and the total payments to be received from
obligors. Subsequent to acquisition, the amortized cost of non-performing
Portfolio Assets is evaluated for impairment on a quarterly basis. A valuation
allowance is established for any impairment identified through provisions
charged to earnings in the period the impairment is identified.
Net gain on resolution of non-performing Portfolio Assets is recognized as
income to the extent that proceeds collected exceed a pro rata portion of
allocated cost from the Portfolio. Cost allocation is based on a proration of
actual proceeds divided by total estimated proceeds of the pool. No interest
income is recognized separately on non-performing Portfolio Assets. All
proceeds, of whatever type, are included in proceeds from resolution of
Portfolio Assets in determining the gain on resolution of such assets.
Accounting for Portfolios is on a pool basis as opposed to an individual
asset-by-asset basis.
Performing Portfolio Assets
Performing Portfolio Assets consist primarily of Portfolios of consumer and
commercial loans acquired at a discount from the aggregate amount of the
borrowers' obligation. Portfolios are classified as performing if substantially
all of the loans in the Portfolio are being repaid in accordance with the
contractual terms of the underlying loan agreements.
Performing Portfolio Assets are carried at the unpaid principal balance of
the underlying loans, net of acquisition discounts. Interest is accrued when
earned in accordance with the contractual terms of the loans. The accrual of
interest is discontinued once a loan becomes past due 90 days or more.
Acquisition discounts for the Portfolio as a whole are accreted as an adjustment
to yield over the estimated life of the Portfolio. Accounting for these
Portfolios is on a pool basis as opposed to an individual asset-by-asset basis.
The Company accounts for its performing Portfolio Assets in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
which requires creditors to evaluate the collectibility of both contractual
interest and principal of loans when assessing the need for a loss accrual.
Impairment is measured
71
<PAGE> 73
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on the present value of the expected future cash flows discounted at the
loans' effective interest rates, or the fair value of the collateral, less
estimated selling costs, if any loans are collateral dependent and foreclosure
is probable.
Real Estate Portfolios
Real estate Portfolios consist of real estate assets acquired from a
variety of sellers. Such Portfolios are carried at the lower of cost or fair
value less estimated costs to sell. Costs relating to the development and
improvement of real estate are capitalized, whereas those relating to holding
assets are charged to expense. Income or loss is recognized upon the disposal of
the real estate. Rental income, net of expenses, on real estate Portfolios is
recognized when received.
(F) LOANS RECEIVABLE
Construction loans receivable consist of single-family residential
construction loans originated by the Company and are carried at the lower of
cost or market.
Loans held for investment include originated residential mortgage loans and
other loans made to third parties. Mortgage loans held for investment are
transferred to the investment category at the lower of cost or market on the
date of transfer. The mortgage loans consist principally of loans originated by
the Company which do not meet investor purchase criteria and loans repurchased
from mortgage-backed securities pools.
Automobile and consumer finance receivables consist of sub-prime automobile
finance receivables and student loan receivables, which are originated and
acquired from third party dealers and other originators, purchased at a
non-refundable discount from the contractual principal amount. This discount is
allocated between discount available for loan losses and discount available for
accretion to interest income. Discounts allocated to discounts available for
accretion are deferred and accreted to income using the interest method. To date
all acquired discounts have been allocated as discounts available for loan
losses. To the extent the discount is considered insufficient to absorb
anticipated losses on the loans receivable, additions to the allowance are made
through a periodic provision for loan losses (see Note 4). The evaluation of the
allowance considers loan portfolio performance, historical losses, delinquency
statistics, collateral valuations and current economic conditions. Such
evaluation is made on an individual loan basis using static pool analyses.
Interest is accrued when earned in accordance with the contractual terms of
the loans. The accrual of interest is discontinued once a loan becomes past due
90 days or more.
(G) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale include the market value of related hedge
contracts and are stated at the lower of cost or market value, as determined by
outstanding commitments from investors on an aggregate portfolio basis. Any
differences between the carrying amounts and the proceeds from sales are
credited or charged to operations at the time the sale proceeds are collected.
Loan origination fees and certain direct loan origination costs are
deferred until the related loan is sold. Discounts from origination of mortgage
loans held for sale are deferred and recognized as adjustments to gain or loss
upon sale. Loan servicing income represents fees earned for servicing loans
owned by investors. The fees generally are based on a contractual percentage of
the outstanding principal balance. Fees are recorded as income when cash
payments are received. Loan servicing costs are charged to expense as incurred.
(H) MORTGAGE SERVICING RIGHTS
The Company accounts for mortgage servicing rights in accordance with the
provisions of SFAS No. 122 ("Statement 122"), Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65.
72
<PAGE> 74
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement 122 requires a mortgage banking enterprise to recognize, as separate
assets, the rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. This statement also requires that these
capitalized mortgage servicing rights be assessed for impairment based on the
fair value of those rights. In assessing impairment, the mortgage servicing
rights capitalized after adoption of Statement 122 are to be stratified based on
one or more of the predominant risk characteristics of the underlying loans.
Impairment is to be recognized through a valuation allowance for each impaired
stratum.
Mortgage servicing rights are recorded at the lower of cost or present
value of the estimated net future servicing income. The recorded cost is
amortized in proportion to, and over the period of, estimated future servicing
income adjusted to reflect the effect of prepayments received and anticipated.
The carrying value of mortgage servicing rights is stratified into pools based
on loan type and note rate. The fair value of each pool is evaluated in relation
to the estimated future discounted net servicing income over the estimated
remaining loan lives.
When mortgage loans are sold with servicing retained and the stated
servicing fee rate differs materially from the normal servicing fee rate, the
sales price is adjusted for this excess servicing for purposes of determining
gain or loss on the sale to provide for the recognition of a reduced servicing
fee in subsequent years. The adjustment approximates the present value of the
difference between the normal and stated servicing fees over the estimated life
of the mortgage loans. The capitalized excess fees are amortized in proportion
to, and over the period of, estimated net servicing income.
SFAS No. 125 ("Statement 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control of assets and liabilities.
Under this approach, after a transfer, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. Statement 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 Company adopted Statement 125
effective January 1, 1997. Adoption of Statement 125 did not have a material
impact on the consolidated financial position or results of operations of the
Company.
(I) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and are included in other assets. Depreciation is provided using accelerated
methods over the estimated useful lives of the assets.
(J) RECEIVABLE FOR SERVICING ADVANCES
Funds advanced for escrow, foreclosure and other investor requirements are
recorded as receivables and a loss provision is recorded for estimated
uncollectible amounts. An allowance for losses is provided for potential losses
on loans serviced for others that are in the process of foreclosure or may be
reasonably expected to be foreclosed in the future.
(K) PREPAID COMMITMENT FEES
Prepaid commitment fees are included in other assets and represent fees
paid primarily to permanent investors for the right to deliver mortgage loans in
the future at a specified yield. These fees are recognized as expense when the
loans are sold to permanent investors, when the commitment expires, or when it
is determined that loans will not be delivered under the commitment. Deferred
gains or losses are included in the carrying amount of the loans being hedged,
which are valued at the lower of aggregate cost or market value.
73
<PAGE> 75
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(L) INTANGIBLES
Intangible assets represent the excess of cost over fair value of assets
acquired in connection with purchase transactions (goodwill) as well as the
purchase price of future service fee revenues and are included in other assets.
These intangible assets are amortized over periods estimated to coincide with
the expected life of the underlying asset pool owned or serviced by the acquired
subsidiary. The Company periodically evaluates the existence of intangible asset
impairment on the basis of whether such intangibles are fully recoverable from
the projected, undiscounted net cash flows of the related assets acquired.
(M) TAXES
The Company files a consolidated federal income tax return with its 80% or
greater owned subsidiaries. The Company records all of the allocated federal
income tax provision of the consolidated group in the parent corporation.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities and
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effects of future changes in tax laws or rates are not
anticipated. The measurement of deferred tax assets, if any, is reduced by the
amount of any tax benefits that, based on available evidence, are not expected
to be realized.
(N) NET EARNINGS PER COMMON SHARE
The Company adopted the provisions of SFAS No. 128, Earnings Per Share,
which revised the previous calculation methods and presentation of earnings per
share in the fourth quarter of 1997. Basic net earnings per common share
calculations are based upon the weighted average number of common shares
outstanding restated to reflect the equivalent number of shares of the Company's
common stock that were issued to the J-Hawk Corporation shareholders in
connection with the Merger and the Harbor Merger discussed in Note 2. Earnings
included in the earnings per common share calculation are reduced by minority
interest and preferred stock dividends. Potentially dilutive common share
equivalents include warrants and stock options in the diluted earnings per
common share calculations.
(O) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, ("Statement 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. Statement 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of Statement 121 did not have a material impact on the
consolidated financial position or results of operations of the Company.
(P) RECLASSIFICATIONS
Certain amounts in the financial statements for prior periods have been
reclassified to conform with current financial statement presentation.
74
<PAGE> 76
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) MERGERS AND ACQUISITIONS
A Joint Plan of Reorganization by First City Bancorporation of Texas, Inc.
("FCBOT"), Official Committee of Equity Security Holders, and J-Hawk Corporation
("J-Hawk"), with the Participation of Cargill Financial Services Corporation
("Cargill Financial"), Under Chapter 11 of the United States Bankruptcy Code,
(the "Plan of Reorganization"), became effective on July 3, 1995. Pursuant to
the Plan of Reorganization and an Agreement and Plan of Merger (collectively
referred to as the "Plan") between FCBOT and J-Hawk, on July 3, 1995, J-Hawk was
merged (the "Merger") with and into FCBOT. Pursuant to the Merger, (i) the
former holders of common stock of J-Hawk received, in the aggregate,
approximately 49.9% of the outstanding common stock of the surviving entity, in
exchange for their shares of J-Hawk common stock, (ii) 2,460,911 shares or
approximately 50.1% of the outstanding common stock of the surviving entity was
distributed among former security holders of FCBOT pursuant to the Plan, and
(iii) the name of the corporation was changed to FirstCity Financial
Corporation. As a result of the implementation of the Plan and the consummation
of the Merger, FirstCity also issued (i) 9% senior subordinated notes (all of
which have been redeemed), (ii) warrants to purchase 500,000 shares of its
common stock at an exercise price of $25 per share, and (iii) special preferred
stock to certain former security holders of FCBOT.
J-Hawk contributed substantially all of its interests in its Acquisition
Partnerships, all of its servicing operations, substantially all of its
leasehold improvements and equipment and its entire management team to
FirstCity. All remaining assets and liabilities of J-Hawk were spun out to
Combined Financial Corporation (owned by the former J-Hawk shareholders) in June
1995. The common stock of J-Hawk was converted into 2,460,511 shares of
FirstCity common stock. FCBOT contributed $20 million in cash to FirstCity.
While the transaction was legally structured as a merger, substantively, the
transaction has been treated for accounting purposes as a purchase of FCBOT by
J-Hawk. The net assets of J-Hawk spun out to Combined Financial Corporation were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and equivalents........................................ $ 232
Purchased asset pools....................................... 12,375
Other assets................................................ 2,839
Notes payable............................................... (8,187)
Payable to stockholders and officers........................ (1,669)
Other liabilities........................................... (238)
-------
Net assets spun out............................... $ 5,352
=======
</TABLE>
Pursuant to the Plan, substantially all of the legal and beneficial
interest in the assets of FCBOT, other than the $20 million in cash contributed
to FirstCity, were transferred to the newly-formed FirstCity Liquidating Trust
(the "Trust"), or to subsidiaries of the Trust. Such assets are being liquidated
over the life of the Trust pursuant to the terms thereof. FirstCity, as the sole
holder of the Class A Certificate of the Trust (the "Class A Certificate"),
received from the Trust amounts sufficient to pay certain expenses and its
obligations under the 9% senior subordinated notes and the special preferred
stock. The liquidation of the assets transferred to the Trust was managed by the
Company pursuant to an Investment Management Agreement between the Trust and the
Company. In the first quarter of 1997, the Investment Management Agreement was
terminated and the Company received $6.8 million.
75
<PAGE> 77
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 21, 1995, the Company acquired the capital stock of
Diversified Financial Systems, Inc. and Diversified Performing Assets, Inc.
(collectively, "Diversified") for $12.9 million in cash, notes and additional
contingent consideration payable in the form of "cash flow" notes. The aggregate
purchase price was allocated to the net assets of Diversified based upon fair
value at acquisition date as follows (dollars in thousands):
<TABLE>
<S> <C>
Purchased asset pools....................................... $ 68,834
Intangibles................................................. 9,379
Other assets................................................ 414
Notes payable............................................... (63,515)
Other liabilities........................................... (2,196)
--------
Purchase price, net of cash received........................ $ 12,916
========
</TABLE>
At December 31, 1996, the Company reflected a liability of $3.1 million to
a former shareholder related to such cash flow notes in a transaction accounted
for as a purchase and a note receivable from the same shareholder in the amount
of $1 million. In 1997, the Company entered into a modified note agreement with
the former shareholder providing for an amended note payable in the amount of
$5.4 million. The modified note agreement extinguishes the Company's liability
for any amounts due related to the cash flow notes and acts to off-set the note
receivable from the former shareholder. The additional net liability resulting
from this modification was reflected as an adjustment to goodwill in the
Company's 1997 consolidated balance sheet.
On July 1, 1997, the Company merged with Mortgage Corp. (the "Harbor
Merger"). The Company issued 1,580,986 shares of its common stock in exchange
for 100% of Mortgage Corp.'s outstanding capital stock in a transaction
accounted for as a pooling of interests. Mortgage Corp. originates and services
residential and commercial mortgage loans. Mortgage Corp. had approximately $12
million in equity, assets of over $300 million and 700 employees prior to the
Harbor Merger. The consolidated financial statements of the Company have been
restated to reflect the Harbor Merger as if it occurred on January 1, 1995.
Prior to the Harbor Merger, Mortgage Corp.'s fiscal year end was September 30.
During 1997, the year end of Mortgage Corp. and its subsidiaries was changed to
conform with the year end of the Company. Accordingly, the consolidated balance
sheet as of December 31, 1996 and the consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1996 and
1995 include information and contain the accounts of Mortgage Corp. and its
subsidiaries as of September 30, 1996 and for the years ended September 30, 1996
and 1995.
On May 15, 1996, Mortgage Corp. acquired for $3.6 million all of the
outstanding common stock of Hamilton Financial Services Corporation ("Hamilton")
and subsidiaries in a transaction accounted for as a purchase. The assets and
liabilities assumed have been recorded at their fair values effective May 1,
1996. No goodwill was recorded as a result of the acquisition. The Company's
consolidated financial statements include the results of operations and cash
flows of Hamilton since the acquisition date. Because the assets acquired by
Mortgage Corp. are immaterial to the consolidated financial position or results
of operations of the Company, the presentation of pro forma results of
operations of the Company and Hamilton for periods prior to the acquisition
would not be meaningful.
On May 15, 1997, Mortgage Corp. acquired substantially all of the assets of
MIG Financial Corporation ("MIG"), MIG's $1.7 billion commercial mortgage
servicing portfolio, and MIG's commercial mortgage operations headquartered in
Walnut Creek, California for an aggregate purchase price of $4 million plus the
assumption of certain liabilities in a transaction accounted for as a purchase.
The assets purchased consisted of servicing rights, fixed assets and the
business relationships of MIG. MIG's asset revenues and historical earnings are
insignificant to the total assets and results of operations of the Company. The
transaction was accounted for as a purchase. MIG originated about $400 million
in commercial mortgage loans in 1996. The
76
<PAGE> 78
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transaction was funded by $1.3 million of senior debt and $2.6 million of
subordinated debt. The Company provided the $2.6 million subordinated loan in
connection with such transaction. The terms of the loan reflected market terms
for comparable loans made on an arms'-length basis.
The Company's net revenues, net earnings to common shareholders and net
earnings per common share, for the six months ended June 30, 1997 and each of
the years in the two-year period ended December 31, 1996, before and after the
Harbor Merger are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------
1997 1996 1995
---------- ------- -------
<S> <C> <C> <C>
Net revenues (including equity earnings):
Before 1997 pooling................................ $34,838 $61,469 $39,523
1997 pooling....................................... 29,830 37,620 20,442
After 1997 pooling................................. 64,668 99,089 59,965
Net earnings to common shareholders:
Before 1997 pooling................................ $ 8,966 $27,696 $10,857
1997 pooling....................................... 1,447 3,724 511
After 1997 pooling................................. 10,413 31,420 11,368
Net earnings per common share -- diluted:
Before 1997 pooling................................ $ 1.79 $ 5.57 $ 2.98
1997 pooling....................................... (0.21) (0.78) (0.80)
After 1997 pooling................................. 1.58 4.79 2.18
</TABLE>
(3) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
-------- ---------
<S> <C> <C>
Non-performing Portfolio Assets............................. $130,657 $ 302,239
Performing Portfolio Assets................................. 16,131 13,986
Real estate Portfolios...................................... 22,777 25,303
-------- ---------
Total Portfolio Assets............................ 169,565 341,528
Discount required to reflect Portfolio Assets at carrying
value..................................................... (79,614) (265,288)
-------- ---------
Portfolio Assets, net............................. $ 89,951 $ 76,240
======== =========
</TABLE>
Portfolio Assets are pledged to secure non-recourse notes payable.
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Construction loans receivable............................... $19,594 $ 8,816
Residential mortgage loans held for investment.............. 6,386 1,097
Automobile and consumer finance receivables................. 73,417 34,090
Allowance for loan losses................................... (9,282) (2,693)
------- -------
Loans receivable, net..................................... $90,115 $41,310
======= =======
</TABLE>
77
<PAGE> 79
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity in the allowance for loan losses is summarized as follows for
the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
Balances, beginning of year................................. $ 2,693 $ --
Provision for loan losses................................. 6,613 2,029
Discounts acquired........................................ 13,152 5,989
Reduction in contingent liabilities....................... 458 1,415
Other (allocation of reserves to sold loans).............. (1,363) --
Charge off activity:
Principal balances charged off......................... (15,126) (7,390)
Recoveries............................................. 2,855 650
-------- -------
Net charge offs...................................... (12,271) (6,740)
-------- -------
Balances, end of year....................................... $ 9,282 $ 2,693
======== =======
</TABLE>
During 1997 and 1996, a note recorded at the time of original purchase of
the initial automobile finance receivables pool and contingent on the ultimate
performance of the pool was adjusted to reflect a reduction in anticipated
payments due pursuant to the contingency. The reductions in the recorded
contingent liability were recorded as increases in the allowance for losses.
(5) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale include loans collateralized by first lien
mortgages on one-to-four family residences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Residential mortgage loans.................................. $522,970 $132,193
Unamortized premiums and discounts.......................... 10,781 2,155
-------- --------
$533,751 $134,348
======== ========
</TABLE>
(6) INVESTMENTS IN ACQUISITION PARTNERSHIPS
The Company has investments in Acquisition Partnerships and their general
partners that are accounted for on the equity method. Acquisition Partnerships
invest in Portfolio Assets in a manner similar to the Company, as described in
Note 1. The condensed combined financial position and results of operations of
the Acquisition Partnerships, which include the domestic and foreign Acquisition
Partnerships and their general partners, are summarized below:
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Assets...................................................... $338,484 $240,733
======== ========
Liabilities................................................. $250,477 $144,094
Net equity.................................................. 88,007 96,639
-------- --------
$338,484 $240,733
======== ========
Company's equity in Acquisition Partnerships................ $ 35,529 $ 21,761
======== ========
</TABLE>
78
<PAGE> 80
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED COMBINED SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Proceeds from resolution of Portfolio Assets....... $178,222 $174,012 $188,934
Gross margin....................................... 33,398 39,505 51,370
Interest income on performing Portfolio Assets..... 8,432 7,870 --
Net earnings....................................... $ 20,117 $ 10,692 $ 9,542
======== ======== ========
Company's equity in earnings of Acquisition
Partnerships..................................... $ 7,605 $ 6,125 $ 3,834
======== ======== ========
</TABLE>
In the third quarter of 1996, the Company recognized $2.0 million in
servicing fees in connection with the sale and securitization of $75 million of
performing loans from the Acquisition Partnerships. During the third quarter of
1996, a majority of the debt of the Acquisition Partnerships was refinanced,
resulting in a $7 million equity distribution to the Company.
(7) CLASS A CERTIFICATE
The Company was the sole holder of the Class A Certificate. Distributions
from the Trust in respect of the Class A Certificate were used to retire the
senior subordinated notes payable. Pursuant to a June 1997 agreement with the
Trust, the Trust's obligation to the Company under the Class A Certificate was
terminated (other than the Trust's obligation to reimburse the Company for
certain expenses) in exchange for the Trust's agreement to pay the Company an
amount equal to $22.75 per share for the 1,923,481 outstanding shares of the
Company's special preferred stock at June 30, 1997, the 1997 second quarter
dividend of $.7875 per share, and 15% interest from June 30, 1997 on any unpaid
portion of the settlement amount. In 1997, the Company paid dividends of $5.1
million on special preferred stock and purchased 537,430 shares (representing
$11.3 million in liquidation preference) of special preferred stock with
distributions from the Trust. The Trust has distributed $44.1 million to the
Company as full satisfaction of the June 1997 agreement.
(8) MORTGAGE SERVICING RIGHTS AND DEFERRED EXCESS SERVICING FEES
Mortgage servicing rights and deferred excess servicing fees consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Mortgage servicing rightsisition
Partnerships..................................... $ 7,605 $ 6,125 $ 3,834
======== ======== ========
In the third quarter of 1996, the Company recognized $2 93,671 49,605
Accumulated amortization.................................... (23,489) (15,640)
-------- --------
70,182 33,965
Valuation allowance......................................... (548) (448)
-------- --------
$ 69,634 $ 33,517
======== ========
</TABLE>
79
<PAGE> 81
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Collateralized loans, secured by Portfolio Assets:
Fixed rate (7.66% at December 31, 1997), due 2002......... $ 79,206 $ --
Prime (8.25% at December 31, 1996) plus 3.00% to 5.00%.... -- 37,491
French franc LIBOR (3.5156% at December 31, 1997) plus
4.00%, due 1998........................................ 8,301
LIBOR (5.9637% at December 31, 1997) plus 4.00% to 5.00%,
due 1998............................................... 3,259 7,947
Collateralized loans, secured by automobile finance
receivables:
LIBOR (5.9637% at December 31, 1997) plus 3.00%, due
1998................................................... 50,006 25,329
Residential mortgage warehouse lines of credit, secured by
individual notes:
LIBOR (5.9637% at December 31, 1997) plus .50 to 2.50%,
due 1998............................................... 337,598 148,579
Fed Funds (6.75% at December 31, 1997) plus .80 to 1.0%,
due 1998............................................... 187,141 --
Repurchase agreements (5.9637% at December 31, 1997) plus
0.85%, due 1998........................................ 35,826 --
Other notes payable, secured by substantially all the assets
of Mortgage Corp.:
LIBOR (5.9637% at December 31, 1997) plus 2.25%, due
2002................................................... 38,000 20,000
Borrowings under revolving line of credit, secured and with
recourse to the Company................................... 6,994 19,384
Other secured borrowings, secured by fixed assets........... 849 2,689
-------- --------
Notes payable, secured.................................... 747,180 261,419
Notes payable to others (Diversified shareholder debt) 7%,
due 2003............................................... 3,601 4,747
-------- --------
$750,781 $266,166
======== ========
</TABLE>
The Company has a $35 million revolving line of credit with Cargill
Financial. The line bears interest at LIBOR plus 5% and expires on March 28,
1998. The line is secured by substantially all of the Company's unencumbered
assets.
Under terms of certain borrowings, the Company and its subsidiaries are
required to maintain certain tangible net worth levels and debt to equity and
debt service coverage ratios. The terms also restrict future levels of debt. The
Company was in compliance with all covenants at December 31, 1997. At December
31, 1997, cash restricted pursuant to loan covenants totaled $2.1 million. The
aggregate maturities of notes payable for the five years ending December 31,
2002 are as follows: $627,693 in 1998, $11,409 in 1999, $10,671 in 2000, $11,240
in 2001 and $89,693 in 2002.
80
<PAGE> 82
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) MORTGAGE SERVICING PORTFOLIO AND RELATED OFF-BALANCE SHEET CREDIT RISK, AND
INSURANCE COVERAGE
At December 31, 1997, a substantial portion of the Company's loan
production activity and collateral for loans serviced is concentrated within the
states of Texas and California. The Company's mortgage servicing portfolio is
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Number of loans (in thousands).............................. 62 52
Aggregate principal balance................................. $6,688,452 $3,947,028
Related escrow funds........................................ $ 32,708 $ 49,462
</TABLE>
The above table includes subserviced mortgage loans of approximately $707
million and $835 million at December 31, 1997 and 1996, respectively.
The Company is required to advance, from corporate funds, escrow and
foreclosure costs for loans which it services. A portion of these advances for
loans serviced for GNMA are not recoverable. As of December 31, 1997 and 1996,
reserves for unrecoverable advances of approximately $357 and $232,
respectively, were established for GNMA loans in default.
Upon foreclosure, an FHA/VA property is typically conveyed to HUD or the
VA. However, the VA has the authority to deny conveyance of the foreclosed
property to the VA (a "VA no-bid"). The VA, instead, reimburses the Company
based on a percentage of the loan's outstanding principal balance ("guarantee"
amount). For GNMA VA no-bids, the foreclosed property is conveyed to the Company
and the Company then assumes the market risk of disposing of the property. The
related allowance for GNMA VA loans in default for potential no-bid losses as of
December 31, 1997 and 1996, is included in the allowance for unrecoverable
advances described above.
The Company is servicing approximately $11.2 million in loans with recourse
to Mortgage Corp. on behalf of FNMA and other investors. The recourse obligation
is the result of servicing purchases by Mortgage Corp. pursuant to which
Mortgage Corp. assumed the recourse obligation. As a result, Mortgage Corp. is
obligated to repurchase those loans that ultimately foreclose.
In addition, Mortgage Corp. has issued various representations and
warranties associated with whole loan and bulk servicing sales. The
representations and warranties may require Mortgage Corp. to repurchase
defective loans as defined by the applicable servicing and sales agreements.
Mortgage Corp. and its subsidiaries originated and purchased mortgage loans
with principal balances totaling approximately $3.7 billion, $1.8 billion and
$.7 billion, respectively, in 1997, 1996 and 1995. Errors and omissions and
fidelity bond insurance coverage under a mortgage banker's bond was $4.5 million
at December 31, 1997 and 1996.
(11) PREFERRED STOCK AND SHAREHOLDERS' EQUITY
The authorized capital stock of the Company consists of the following: (1)
2.5 million shares of special preferred stock, par value $.01 per share, with a
nominal stated value of $21.00 per share; (2) 2 million shares of adjusting rate
preferred stock, par value $.01 per share, with a redemption value of $21.00 per
share; (3) 98 million shares of optional preferred stock, par value $.01 per
share; and (4) 100 million shares of common stock, par value $.01 per share.
Additionally, on July 3, 1995, under the Plan, the Company authorized the
issuance of up to 500,000 warrants to purchase common stock to certain of FCBOT
shareholders. In connection with the Merger, 4,921,422 shares of common stock,
2,460,911 shares of special preferred stock and 500,000 warrants to purchase
common stock were issued.
81
<PAGE> 83
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The holders of shares of common stock are entitled to one vote for each
share on all matters submitted to a vote of common shareholders. In order to
preserve certain tax benefits available to the Company, transactions involving
shareholders holding or proposing to acquire more than 4.75% of outstanding
common shares are prohibited unless the prior approval of the Board of Directors
is obtained.
The holders of special preferred stock are entitled to receive the nominal
stated value on September 30, 1998, and cumulative quarterly cash dividends at
the annual rate of $3.15 per share. Accrued dividends through September 30, 1996
of $9.6 million, or $3.92 per share, were paid in 1996. Dividends of $5.8
million, or $3.15 per share, were paid in 1997. At December 31, 1997, accrued
dividends totaled $.7 million, or $.7875 per share, and were paid on January 15,
1998. In 1997, the Company purchased 537,430 shares (representing $11.3 million
in liquidation preference) of special preferred stock with a distribution from
the Trust. The special preferred stock carries no voting rights, except in the
event of non-payment of declared dividends.
In June 1997, the Company initiated an offer to exchange one share of
special preferred stock for one share of the newly designated adjusting rate
preferred stock. The adjusting rate preferred stock has a redemption value of
$21.00 per share and cumulative quarterly cash dividends at the annual rate of
$3.15 per share through September 30, 1998, adjusting to $2.10 per share through
the redemption date of September 30, 2005. The Company may redeem the adjusting
rate preferred stock after September 30, 2003 for $21 per share plus accrued
dividends. The adjusting rate preferred stock carries no voting rights except in
the event of non-payment of dividends. Pursuant to the exchange offer, 1,073,704
shares of special preferred stock were accepted for exchange for a like number
of shares of adjusting rate preferred stock. Dividends of $.8 million, or $.7875
per share, were paid in 1997 and additional dividends of $.8 million, or $.7875
per share were accrued at December 31, 1997 (paid on January 15, 1998).
The Board of Directors of the Company may designate the relative rights and
preferences of the optional preferred stock when and if issued. Such rights and
preferences can include liquidation preferences, redemption rights, voting
rights and dividends and shares can be issued in multiple series with different
rights and preferences. The Company has no current plans for the issuance of an
additional series of optional preferred stock.
Each warrant entitles the holder to purchase one share of common stock at
an exercise price of $25.00 per share, subject to adjustment in certain
circumstances, and expires on July 3, 1999. The Company may repurchase the
warrants for $1.00 per warrant should the quoted market price of the Company's
common stock exceed $31.25 for any 10 out of 15 consecutive trading days. During
1997 and 1996, 106 and 2,625 warrants, respectively, were exercised, with
497,269 warrants outstanding at December 31, 1997.
The Company has stock option and award plans for the benefit of key
individuals, including its directors, officers and key employees. The plans are
administered by a committee of the Board of Directors and provide for the grant
of up to a total of 730,000 shares of common stock.
The per share weighted-average fair value of stock options granted during
1997 and 1996 was $19.14 and $13.19, respectively, on the grant date using the
Black-Scholes option pricing model with the following assumptions: 1997 -- $0
expected dividend yield, risk-free interest rate of 6.46%, expected volatility
of 30%, and an expected life of 10 years; 1996 -- $0 expected dividend yield,
risk-free interest rate of 5.75%, expected volatility of 30%, and an expected
life of 9.7 years.
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock option and award plans and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net earnings
82
<PAGE> 84
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to common shareholders and net earnings per common share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net earnings to common shareholders:
As reported............................................... $29,425 $31,420
Pro forma................................................. 28,263 30,707
Net earnings per common share -- diluted:
As reported............................................... $ 4.46 $ 4.79
Pro forma................................................. 4.29 4.68
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.............. 223,100 $21.07 229,600 $20.20
Granted....................................... 125,200 26.47 18,000 30.75
Exercised..................................... (4,750) 20.00 (4,500) 20.00
Forfeited..................................... (29,250) 25.91 (20,000) 20.00
------- -------
Outstanding at end of year.................... 314,300 $22.64 223,100 $21.07
======= =======
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $20.00 -- $30.75 and 7
years, respectively.
At December 31, 1997, there were 87,710 options exercisable with a
weighted-average exercise price of $20.25.
The Company has an employee stock purchase plan which allows employees to
acquire an aggregate of 100,000 shares of common stock of the Company at 85% of
the fair value at the end of each quarterly plan period. The value of the shares
purchased under the plan is limited to the lesser of 10% of compensation or
$25,000 per year. Under the plan, 8,308 shares were issued in 1997 and 3,813
shares were issued during 1996. At December 31, 1997, an additional 87,879
shares of common stock are available for issuance pursuant to the plan.
Earnings per share ("EPS") has been calculated in conformity with SFAS No.
128, Earnings Per Share, and all prior periods have been restated. A
reconciliation between the weighted average shares outstanding used in the basic
and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings to common shareholders.............. $ 29,425 $ 31,420 $ 11,368
========== ========== ==========
Weighted average common shares
outstanding -- basic........................... 6,517,716 6,504,065 5,223,021
Effect of dilutive securities:
Assumed exercise of stock options.............. 48,824 45,467 --
Assumed exercise of warrants................... 24,672 6,392 --
---------- ---------- ----------
Weighted average common shares
outstanding -- diluted......................... 6,591,212 6,555,924 5,223,021
========== ========== ==========
Net earnings per common share -- basic........... $ 4.51 $ 4.83 $ 2.18
Net earnings per common share -- diluted......... $ 4.46 $ 4.79 $ 2.18
</TABLE>
83
<PAGE> 85
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Federal and state current expense...................... $ 1,231 $ 2,751 $1,264
Federal deferred expense (benefit)..................... (16,716) (16,500) (64)
-------- -------- ------
Total........................................ $(15,485) $(13,749) $1,200
======== ======== ======
</TABLE>
The actual income tax expense (benefit) attributable to earnings from
operations differs from the expected tax expense (computed by applying the
federal corporate tax rate of 35% to earnings from operations before income
taxes) as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Computed expected tax expense......................... $ 7,105 $ 8,883 $ 5,755
Increase (reduction) in income taxes resulting from:
Tax effect of Class A Certificate................... (1,243) (4,060) (3,009)
Change in valuation allowance....................... (23,388) (18,616) (1,522)
Alternative minimum tax and state income tax........ 1,646 -- --
REMIC excess inclusion income....................... 268 -- --
Other............................................... 127 44 (24)
-------- -------- -------
$(15,485) $(13,749) $ 1,200
======== ======== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Investments in Acquisition Partnerships, principally due
to differences in basis for tax and financial reporting
purposes............................................... 1,453 $ 403
Intangibles, principally due to differences in
amortization........................................... 1,317 1,138
Book loss reserve greater than tax loss reserve........... (1,200) 849
Tax basis in fixed assets greater than book............... 255 255
Federal net operating loss carryforward................... 213,028 210,681
Valuation allowance....................................... (168,971) (192,360)
--------- ---------
Total deferred tax assets......................... 45,882 20,966
Deferred tax liabilities:
Book basis in servicing rights greater than tax basis..... (15,231) (7,031)
Other, net................................................ (37) (37)
--------- ---------
Total deferred tax liabilities.................... 15,268 (7,068)
--------- ---------
Net deferred tax asset...................................... $ 30,614 $ 13,898
========= =========
</TABLE>
As a result of the Merger described in Note 2, the Company has net
operating loss carryforwards for federal income tax purposes of approximately
$608 million at December 31, 1997, available to offset future federal taxable
income, if any, through the year 2012. A valuation allowance is provided to
reduce the deferred tax assets to a level which, more likely than not, will be
realized. During 1997 and 1996, the Company adjusted the previously established
valuation allowance to recognize a deferred tax benefit of $23.4 million.
84
<PAGE> 86
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ultimate realization of the resulting net deferred tax asset is dependent
upon generating sufficient taxable income prior to expiration of the net
operating loss carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the recorded deferred tax asset,
net of the allowance, will be realized. The amount of the deferred tax asset
considered realizable, however, could be adjusted in the future if estimates of
future taxable income during the carryforward period change. The change in
valuation allowance represents primarily an increase in the estimate of the
future taxable income during the carryforward period since the prior year end
and the utilization of net operating loss carryforwards since the Merger. The
ability of the Company to realize the deferred tax asset is periodically
reviewed and the valuation allowance is adjusted accordingly.
(13) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 401(k) employee profit sharing plan
pursuant to which the Company matches employee contributions at a stated
percentage of employee contributions to a defined maximum. The Company's
contributions to the 401(k) plan were $603 in 1997, $407 in 1996 and $226 in
1995.
(14) LEASES
The Company leases its current headquarters from a related party under a
noncancelable operating lease. The lease calls for monthly payments of $7.5
through its expiration in December 2001 and includes an option to renew for two
additional five-year periods. Rental expense for 1997, 1996 and 1995 under this
lease was $90 each year.
The Company also leases office space and equipment from unrelated parties
under operating leases expiring in various years through 2004. Rental expense
under these leases for 1997, 1996 and 1995 was $4.1 million, $2.3 million and
$1.5 million, respectively. As of December 31, 1997, the future minimum lease
payments under all noncancelable operating leases are: $4,992 in 1998, $4,326 in
1999, $2,234 in 2000, $1,486 in 2001 and $1,360 in 2002 and beyond.
The Company has subleased various office space. These sublease agreements
primarily relate to leases assumed in the acquisition of Hamilton. Future
minimum rentals to be received under noncancelable operating leases are $1,109,
$1,036 and $227 for the years 1998, 1999 and 2000, respectively.
(15) MORTGAGE LOAN PIPELINE, HEDGES, AND RELATED OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business through the origination and selling of mortgage
loans. The risks are associated with fluctuations in interest rates. The
financial instruments include commitments to extend credit, mandatory forward
contracts, and various hedging instruments. The instruments involve, to varying
degrees, interest rate risk in excess of the amount recognized in the
consolidated financial statements.
The Company's mortgage loan pipeline as of December 31, 1997, totaled
approximately $1.6 billion. The Company's exposure to loss in the event of
nonperformance by the party committed to purchase the mortgage loan is
represented by the amount of loss in value due to increases in interest rates on
its fixed rate commitments. The pipeline consists of approximately $300 million
of fixed rate commitments and $1.3 billion of floating rate obligations. The
floating rate commitments are not subject to significant interest rate risk.
Management believes that the Company had adequate lines of credit at December
31, 1997 to fund its projected loan closings from its mortgage loan pipeline.
The Company uses a variety of methods to hedge the interest rate risk of
the mortgage loans in the pipeline that are expected to close and the mortgage
loans held for sale. Mandatory forward commitments to sell whole loans and
mortgage-backed securities are the Company's primary hedge instruments. At
Decem-
85
<PAGE> 87
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 1997, the Company had approximately $423 million of mandatory forward
commitments to sell. To the extent mortgage loans at the appropriate rates are
not available to fill these commitments, the Company has interest rate risk due
primarily to the impact of interest rate fluctuations on its obligations to fill
forward commitments.
The Company's mortgage loan pipeline and mandatory forward commitments are
included in the lower of cost or market value calculation of mortgage loans held
for sale.
(16) OTHER RELATED PARTY TRANSACTIONS
During 1996, the Company acquired a portfolio of sub-prime automobile
finance receivables from an Acquisition Partnership for approximately $23.6
million. This acquisition was at the carrying value of the Portfolio in the
Acquisition Partnership, thus resulting in no gain or loss on the transaction to
the Acquisition Partnership.
In January 1995, the Company entered into an agreement with a shareholder
to repurchase 11,080 shares of J-Hawk common stock for $1.2 million. The Company
paid the former shareholder $.4 million in cash and issued a $.8 million note,
which was assumed by Combined Financial Corporation, an affiliated entity, prior
to the Merger.
In 1995, the Company sold approximately $12 million (allocated cost) of
loans to a partnership owned by certain executive officers of J-Hawk. The
Company recognized approximately $3 million in gain from the transaction.
Additionally, the Company entered into a servicing arrangement with the
partnership to service the sold assets for a fee based on collections.
The Company has contracted with the Trust, the Acquisition Partnerships and
related parties as a third party loan servicer. Servicing fees totaling $12.1
million, $12.5 million and $10.9 million for 1997, 1996 and 1995, respectively,
and due diligence fees (included in other income) were derived from such
affiliates.
During 1997, the Company, along with selected Acquisition Partnerships,
sold certain assets to an entity 80% owned by the Company. The gain on the sale
of the assets was deferred and is being recognized as the assets are ultimately
resolved.
(17) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings in the ordinary course
of business. In the opinion of management, the resolution of such matters will
not have a material adverse impact on the consolidated financial condition,
results of operations or liquidity of the Company.
The Company is a 50% owner in an entity that is obligated to advance up to
$2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At December 31, 1997, advances of $.2 million had
been made under the obligation.
(18) FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values of its financial
instruments. Fair value estimates, methods and assumptions are set forth below.
(A) CASH AND CASH EQUIVALENTS AND CLASS A CERTIFICATE
The carrying amount of cash and cash equivalents and the Class A
Certificate approximated fair value at December 31, 1997 and 1996.
86
<PAGE> 88
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) PORTFOLIO ASSETS AND LOANS RECEIVABLE
The Portfolio Assets and loans receivable are carried at the lower of cost
or estimated fair value. The estimated fair value is calculated by discounting
projected cash flows on an asset-by-asset basis using estimated market discount
rates that reflect the credit and interest rate risks inherent in the assets.
The carrying value of the Portfolio Assets and loans receivable was $180 million
and $118 million, respectively, at December 31, 1997 and 1996. The estimated
fair value of the Portfolio Assets and loans receivable was approximately $199
million and $134 million, respectively, at December 31, 1997 and 1996.
(C) MORTGAGE LOANS HELD FOR SALE
Market values of loans held for sale are generally based on quoted market
prices or dealer quotes. The carrying value of mortgage loans held for sale was
$534 million and $134 million, respectively, at December 31, 1997 and 1996. The
estimated fair value of mortgage loans held for sale approximated their carrying
value at December 31, 1997 and 1996.
(D) NOTES PAYABLE
Management believes that the repayment terms for similar rate financial
instruments with similar credit risks and the stated interest rates at December
31, 1997 and 1996 approximate the market terms for similar credit instruments.
Accordingly, the carrying amount of notes payable is believed to approximate
fair value.
(E) REDEEMABLE PREFERRED STOCK
Redeemable preferred stock is carried at redemption value plus accrued but
unpaid dividends. Carrying values were $41,908 and $53,617 at December 31, 1997
and 1996, respectively. Fair market values based on quoted market rates were
$42,048 and $59,062 at December 31, 1997 and 1996, respectively.
87
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FirstCity Financial Corporation:
We have audited the accompanying consolidated balance sheets of FirstCity
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FirstCity
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 24, 1998
88
<PAGE> 90
FIRSTCITY FINANCIAL CORPORATION
The Harbor Merger, which occurred in July 1997, was accounted for as a
pooling of interests. The Company's historical financial statements have
therefore been retroactively restated to include the financial position and
results of operations of Mortgage Corp. for all periods presented. Earnings per
share has been calculated in conformity with SFAS No. 128, Earnings Per Share,
and all prior periods have been restated.
SELECTED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income.................. $32,060 $28,295 $28,235 $33,427 $21,184 $24,238 $25,176 $22,366
Expenses................ 24,032 26,399 29,672 29,219 16,640 18,449 20,324 18,296
Equity in earnings of
Acquisition
Partnerships.......... 1,541 2,772 1,798 1,494 714 916 2,623 1,872
Net earnings before
minority interest and
preferred
dividends(2).......... 9,217 4,439 16,439 5,690 4,530 20,173 6,742 7,684
Preferred dividends..... 1,659 1,515 1,514 1,515 1,938 1,938 1,896 1,937
Net earnings to common
shareholders(2)....... 7,558 2,855 15,176 3,836 2,592 18,235 4,846 5,747
Net earnings per common
share -- Basic(2)..... 1.16 0.44 2.33 0.59 0.40 2.80 0.75 0.88
Net earnings per common
share -- Diluted(2)... 1.14 0.44 2.30 0.58 0.40 2.80 0.73 0.86
</TABLE>
- ---------------
(2) Includes $13.3 million and $14.6 million, respectively, of deferred tax
benefits in third quarter of 1997 and second quarter of 1996
89
<PAGE> 91
WAMCO PARTNERSHIPS
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash........................................................ $ 11,467 $ 8,812
Portfolio Assets, net....................................... 104,189 177,480
Investments in partnerships................................. 185 --
Investments in trust certificates........................... 5,816 5,195
Receivable from affiliates.................................. 892 234
Restricted cash............................................. 235 795
Other assets, net........................................... 2,958 3,150
-------- --------
$125,742 $195,666
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable (including $330 and $574 to affiliates in
1997 and 1996, respectively).............................. $ 441 $ 1,756
Accrued liabilities......................................... 1,081 1,738
Long-term debt (including $58,923 and $74,341 to affiliates
in 1997 and 1996, respectively)........................... 68,950 141,054
-------- --------
Total liabilities................................. 70,472 144,548
Commitments and contingencies............................... -- --
Partners' capital........................................... 55,270 51,118
-------- --------
$125,742 $195,666
======== ========
</TABLE>
See accompanying notes to combined financial statements.
90
<PAGE> 92
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Proceeds from resolution of Portfolio Assets.............. $ 159,159 $ 174,012 $ 188,934
Cost of Portfolio Assets resolved......................... (132,626) (134,507) (137,564)
--------- --------- ---------
Gain on resolution of Portfolio Assets.................. 26,533 39,505 51,370
Interest income on performing Portfolio Assets............ 8,432 7,870 --
Interest expense (including $8,187, $14,571 and $13,333 to
affiliates in 1997, 1996 and 1995, respectively)........ (10,659) (22,065) (27,034)
General, administrative and operating expenses............ (10,338) (14,777) (14,870)
Other income (expense), net............................... 1,008 210 121
--------- --------- ---------
Net earnings............................................ $ 14,976 $ 10,743 $ 9,587
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
91
<PAGE> 93
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS B
CLASS A EQUITY EQUITY
------------------- --------
GENERAL LIMITED LIMITED GENERAL LIMITED
PARTNERS PARTNERS PARTNERS PARTNERS PARTNERS TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... $ 534 $ 26,193 $ 21,169 $ 56 $ 2,750 $ 50,702
Contributions.................. 82 4,027 -- 60 2,946 7,115
Distributions.................. (197) (9,645) (1,585) (31) (1,527) (12,985)
Net earnings................... 154 7,511 1,648 6 268 9,587
----- -------- -------- ----- -------- --------
Balance at December 31, 1995..... 573 28,086 21,232 91 4,437 54,419
Contributions.................. 54 2,621 -- 986 48,303 51,964
Distributions.................. (400) (19,598) (3,082) (860) (42,068) (66,008)
Net earnings................... 47 2,301 556 156 7,683 10,743
----- -------- -------- ----- -------- --------
Balance at December 31, 1996..... 274 13,410 18,706 373 18,355 51,118
Contributions.................. -- -- -- 522 29,592 30,114
Distributions.................. (113) (5,522) (16,533) (375) (18,395) (40,938)
Net earnings................... 111 5,432 1,173 162 8,098 14,976
----- -------- -------- ----- -------- --------
Balance at December 31, 1997..... $ 272 $ 13,320 $ 3,346 $ 682 $ 37,650 $ 55,270
===== ======== ======== ===== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
92
<PAGE> 94
WAMCO PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.......................................... $ 14,976 $ 10,743 $ 9,587
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of loan origination and commitment
fees............................................. 1,707 1,483 2,415
Provision (credit) for losses...................... (587) 585 --
Net gain on Portfolio Assets....................... (26,533) (39,505) (51,370)
Purchase of Portfolio Assets....................... (73,734) (102,695) (101,626)
Capitalized costs on Portfolio Assets.............. (1,143) (3,330) (1,643)
Proceeds from resolution of Portfolio Assets....... 159,159 188,002 188,934
(Increase) decrease in receivable from
affiliates....................................... (660) (126) 49
Decrease in restricted cash........................ 560 1,956 765
Increase in other assets........................... (1,556) (2,191) (1,186)
Increase (decrease) in accounts payable ........... (1,304) 1,032 (135)
Increase (decrease) in accrued liabilities......... (601) (6,812) 1,730
--------- --------- ---------
Net cash provided by operating activities..... 70,284 49,142 47,520
Cash flows from investing activities:
Contribution to subsidiaries.......................... (185)
Purchase of trust certificates........................ (225) (4,224) --
Payments received from trust certificates............. 191 -- --
--------- --------- ---------
Net cash used in operating activities......... (219) (4,224) --
Cash flows from financing activities:
Borrowing on acquisition debt......................... -- -- 12,840
Repayment of acquisition debt......................... -- (28,967) (12,840)
Borrowing on long-term debt........................... 34,489 263,614 112,050
Repayment of long-term debt........................... (106,593) (265,041) (154,312)
Capital contributions................................. 30,114 38,180 7,115
Capital distributions................................. (25,420) (52,224) (12,985)
--------- --------- ---------
Net cash used in financing activities......... (67,410) (44,438) (48,132)
--------- --------- ---------
Net increase (decrease) in cash......................... 2,655 480 (612)
Cash at beginning of year............................... 8,812 8,332 8,944
--------- --------- ---------
Cash at end of year..................................... $ 11,467 $ 8,812 $ 8,332
========= ========= =========
</TABLE>
Supplemental disclosure of cash flow information (note 5):
Cash paid for interest was approximately $11,091, $27,652 and $23,074 and for
1997, 1996 and 1995, respectively.
WAMCO V and WAMCO XVII contributed $1,243 and $324 of portfolio assets,
respectively, in exchange for an investment in trust certificates in 1996.
WAMCO IX, WAMCO XXI and WAMCO XXII contributed $1,542 of portfolio assets in
exchange for an equity interest in a related party. This equity interest was
subsequently distributed to the partners of the partnerships.
In January, 1997 a partner purchased the other 50% interest in the Whitewater
partnership, thus removing $14,043 in Portfolio and other assets and $14,043
of other liabilities and partners' capital from the accounts of the combined
WAMCO partnerships.
See accompanying notes to combined financial statements.
93
<PAGE> 95
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND PARTNERSHIP AGREEMENTS
The combined financial statements include the accounts of WAMCO III, Ltd.;
WAMCO V, Ltd.; WAMCO IX, Ltd.; WAMCO XVII, Ltd.; WAMCO XXI, Ltd.; WAMCO XXII,
Ltd.; WAMCO XXIII, Ltd.; WAMCO XXIV, Ltd.; WAMCO XXV, Ltd.; Calibat Fund, LLC;
DAP City Partners, L.P.; First B Realty, L.P.; First Paradee, L.P.; GLS
Properties, Ltd.; Imperial Fund I, L.P.; VOJ Partners, L.P. and Whitewater
Acquisition Co. One L.P., all of which are Texas limited partnerships
(Acquisition Partnerships or Partnerships). FirstCity Financial Corporation or
its wholly owned subsidiary, FirstCity Commercial Corporation, owns limited
partnership interests in all of the Partnerships. All significant intercompany
balances have been eliminated.
The Partnerships were formed to acquire, hold and dispose of Portfolio
Assets acquired from the Federal Deposit Insurance Corporation, Resolution Trust
Corporation and other nongovernmental agency sellers, pursuant to certain
purchase agreements or assignments of such purchase agreements. In accordance
with the purchase agreements, the Partnerships retain certain rights of return
regarding the assets related to defective title, past due real estate taxes,
environmental contamination, structural damage and other limited legal
representations and warranties.
Generally, the partnership agreements of the Partnerships provide for
certain preferences as to the distribution of cash flows. Proceeds from
disposition of and payments received on the Portfolio Assets are allocated based
on the partnership and other agreements which ordinarily provide for the payment
of interest and mandatory principal installments on outstanding debt before
payment of intercompany servicing fees and return of capital and restricted
distributions to partners.
Additionally, WAMCO III, Ltd., WAMCO V, Ltd., WAMCO XVII, Ltd., WAMCO XXI,
Ltd. and Whitewater Acquisition Co. One L.P. provide for Class A and Class B
Equity partners in their individual partnership agreements. The Class B Equity
limited partners are allocated 20 percent of cumulative net income recognized by
the respective partnerships prior to allocation to the Class A Equity limited
partners and the general partners.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PORTFOLIO ASSETS
The Partnerships acquire and resolve portfolios of performing and
nonperforming commercial and consumer loans and other assets (collectively,
"Portfolio Assets" or "Portfolios"), which are generally acquired at a discount
to their legal principal balance. Purchases may be in the form of pools of
assets or single assets. The Portfolio Assets are generally nonhomogeneous
assets, including loans of varying qualities that are secured by diverse
collateral types and foreclosed properties. Some Portfolio Assets are loans for
which resolution is tied primarily to the real estate securing the loan, while
others may be collateralized business loans, the resolution of which may be
based either on business or real estate or other collateral cash flow. Portfolio
Assets are acquired on behalf of legally independent partnerships ("Acquisition
Partnerships") in which a corporate general partner, FirstCity Financial
Corporation ("FirstCity") and other investors are limited partners.
94
<PAGE> 96
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Portfolio Assets are reflected in the accompanying consolidated financial
statements as non-performing Portfolio Assets, performing Portfolio Assets or
real estate Portfolios. The following is a description of each classification
and the related accounting policy accorded to each Portfolio type:
Non-Performing Portfolio Assets
Non-performing Portfolio Assets consist primarily of distressed loans and
loan related assets, such as foreclosed upon collateral. Portfolio Assets are
designated as non-performing unless substantially all of the loans in the
Portfolio are being repaid in accordance with the contractual terms of the
underlying loan agreements. Such Portfolios are acquired on the basis of an
evaluation by the Partnerships of the timing and amount of cash flow expected to
be derived from borrower payments or other resolution of the underlying
collateral securing the loan.
All non-performing Portfolio Assets are purchased at substantial discounts
from their outstanding legal principal amount, the total of the aggregate of
expected future sales prices and the total payments to be received from
obligors. Subsequent to acquisition, the amortized cost of non-performing
Portfolio Assets is evaluated for impairment on a quarterly basis. A valuation
allowance is established for any impairment identified through provisions
charged to earnings in the period the impairment is identified.
Net gain on resolution of non-performing Portfolio Assets is recognized as
income to the extent that proceeds collected exceed a pro rata portion of
allocated cost from the Portfolio. Cost allocation is based on a proration of
actual proceeds divided by total estimated proceeds of the Portfolio. No
interest income is recognized separately on non-performing Portfolio Assets. All
proceeds, of whatever type, are included in proceeds from resolution of
Portfolio Assets in determining the gain on resolution of such assets.
Accounting for Portfolios is on a pool basis as opposed to an individual
asset-by-asset basis.
Performing Portfolio Assets
Performing Portfolio Assets consist primarily of Portfolios of consumer and
commercial loans acquired at a discount from the aggregate amount of the
borrowers' obligation. Portfolios are classified as performing if substantially
all of the loans in the Portfolio are being repaid in accordance with the
contractual terms of the underlying loan agreements.
Performing Portfolio Assets are carried at the unpaid principal balance of
the underlying loans, net of acquisition discounts. Interest is accrued when
earned in accordance with the contractual terms of the loans. The accrual of
interest is discontinued once a loan becomes past due 90 days or more.
Acquisition discounts for the Portfolio as a whole are accreted as an adjustment
to yield over the estimated life of the Portfolio. Accounting for these
Portfolios is on a pool basis as opposed to an individual asset-by-asset basis.
The Partnerships account for performing Portfolio Assets in accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
which requires creditors to evaluate the collectibility of both contractual
interest and principal of loans when assessing the need for a loss accrual.
Impairment is measured based on the present value of the expected future cash
flows discounted at the loans' effective interest rates, or the fair value of
the collateral, less estimated selling costs, if any loans are collateral
dependent and foreclosure is probable.
Real Estate Portfolios
Real estate Portfolios consist of real estate assets acquired from a
variety of sellers. Such Portfolios are carried at the lower of cost or fair
value less estimated costs to sell. Costs relating to the development and
improvement of real estate are capitalized, whereas those relating to holding
assets are charged to expense. Income or loss is recognized upon the disposal of
the real estate. Rental income, net of expenses, on real estate Portfolios is
recognized when received.
95
<PAGE> 97
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Assets are foreclosed when necessary through an arrangement with an
affiliated entity whereby title to the foreclosed asset is held by the
affiliated entity and a note receivable from the affiliate is held by the
Partnership. Costs relating to the development and improvement of foreclosed
assets are capitalized by the Partnership. Costs relating to holding foreclosed
assets are charged to operating expense by the Partnership. For financial
statement presentation, the affiliated entity note receivable created by the
arrangement is included in Portfolio Assets and is recorded at the lower of
allocated cost or fair value less estimated cost to sell the underlying asset.
(B) INVESTMENT IN TRUST CERTIFICATES
The Partnerships hold an investment in trust certificates, representing an
interest in a REMIC created by the sale of certain Partnership assets. This
interest is subordinate to the senior tranches of the certificate. The
investment is carried at the unpaid balance of the certificate, net of
acquisition discounts. Interest is accrued in accordance with the contractual
terms of the agreement. Acquisition discounts are accreted as an adjustment to
yield over the estimated life of the investment.
(C) INCOME TAXES
Under current Federal laws, partnerships are not subject to income taxes;
therefore, no provision has been made for such taxes in the accompanying
combined financial statements. For tax purposes, income or loss is included in
the individual tax returns of the partners.
(D) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- ---------
<S> <C> <C>
Non-performing Portfolio Assets............................. $106,377 $ 308,554
Performing Portfolio Assets................................. 77,794 15,786
Real estate Portfolios...................................... 6,696 --
-------- ---------
Total Portfolio Assets............................ 190,867 324,340
Discount required to reflect Portfolio Assets at carrying
value..................................................... (86,678) (146,860)
-------- ---------
Portfolio Assets, net............................. $104,189 $ 177,480
======== =========
</TABLE>
Portfolio Assets are pledged to secure non-recourse notes payable.
96
<PAGE> 98
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Senior collateralized loans, secured by Portfolio Assets:
Prime (8.5% at December 31, 1997) plus 1.5% to 2.5%....... $ -- $ 39,283
LIBOR (5.7% at December 31, 1997) plus 3.00% to 6.5%...... 43,198 92,455
New York inter-bank offering rate (6.5% at December 31,
1996) plus 3%.......................................... -- 4,457
Fixed rate -- 7.51% to 10.17%............................. 24,681 --
Subordinated collateralized loans, secured by Portfolio
Assets:
Prime (8.5% at December 31, 1997) plus 2% to 7%........... 1,071 4,859
------- --------
$68,950 $141,054
======= ========
</TABLE>
Collateralized loans are typically payable based on proceeds from
disposition of and payments received on the Portfolio Assets.
Contractual maturities (excluding principal and interest payments payable
from proceeds from dispositions of and payments received on the Portfolio
Assets) of long term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................... $ 6,068
1999................................................... 31,538
2000................................................... --
2001................................................... 27,344
2002................................................... --
Thereafter............................................. 4,000
-------
$68,950
=======
</TABLE>
The loan agreements and master note purchase agreements, under which notes
payable were incurred, contain various covenants including limitations on other
indebtedness, maintenance of service agreements and restrictions on use of
proceeds from disposition of and payments received on the Portfolio Assets. As
of December 31, 1997, the Partnerships were in compliance with the
aforementioned covenants.
In connection with the long term debt, the Partnerships incurred
origination and commitment fees. These fees are amortized proportionate to the
principal reductions on the related notes and are included in general,
administrative and operating expenses. At December 31, 1997 and 1996,
approximately $1,298 and $2,712, respectively, of origination and commitment
fees are included in other assets, net.
Additionally, certain loan agreements contain provisions requiring the
Partnerships to maintain minimum balances in a restricted cash account as
additional security for certain notes payable. Approximately $235 and $552 of
restricted cash was held in such accounts as of December 31, 1997 and 1996,
respectively.
(5) TRANSACTIONS WITH AFFILIATES
Under the terms of the various servicing agreements between the
Partnerships and FirstCity, FirstCity receives a servicing fee based on proceeds
from resolution of the Portfolio Assets for processing transactions on the
Portfolio Assets and for conducting settlement, collection and other resolution
activities. Included in general, administrative and operating expenses in the
accompanying combined statements of operations is approximately $4,353, $6,468
and $6,834 in servicing fees incurred by the Partnerships in 1997, 1996 and
1995, respectively.
97
<PAGE> 99
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the Partnership Agreement of Whitewater Acquisition Co.
One L.P. ("Whitewater"), the Class B Equity limited partners are to receive
interest on their Class B equity interest at prime plus 7% calculated on a
monthly basis. Whitewater has expensed $0, $3,435 and $3,486 in 1997, 1996 and
1995, respectively, included in interest expense in the accompanying combined
financial statements, under this partnership agreement. The interest will be
paid to the Class B Equity limited partners upon final disposition of the
Portfolio Assets or in accordance with the Master Note Purchase Agreement.
Under the terms of a Master Note Purchase Agreement, Varde, Varde II-A and
OPCO, limited partners of VOJ Partners L.P. ("VOJ"), are to receive 5 percent, 5
percent and 10 percent, respectively, of cumulative income before profit
participation expense recognized by VOJ. Due to continued net losses, VOJ wrote
off $103 of receivables from affiliates related to this profit participation
agreement. No amounts were accrued under this agreement during 1997. VOJ accrued
$103 in 1996 included in the receivables from affiliates and recognized $18 and
$68 in 1997 and 1996, respectively, included in other income (expenses), net, in
the accompanying combined financial statements.
Under the terms of a Master Note Purchase Agreement, each of two limited
partners of Imperial Fund I, L.P. ("Imperial") are to receive 10 percent of
cumulative income before profit participation expense recognized by Imperial.
Imperial has recorded accounts payable of $23 and $236 at December 31, 1997 and
1996, respectively, and expensed $92, $40 and $114 in the years ended December
31, 1997, 1996 and 1995, respectively, in the accompanying combined financial
statements under this profit participation agreement. The profit participation
will be paid to the limited partners upon final disposition of the Portfolio
Assets in accordance with the Master Note Purchase Agreement.
During 1996 in conjunction with a refinancing transaction, WAMCO XXII
transferred $42,047 in assets and $28,967 in liabilities to First Paradee in
return for a partnership interest in First Paradee. Subsequent to the transfer,
WAMCO XXII distributed its interest in First Paradee to its partners.
During 1996, WAMCO III distributed $704 in assets to its partners which was
subsequently contributed to WAMCO IX.
On January 1, 1997, FirstCity purchased the other limited partner's
interest in Whitewater for $4,165.
During 1997, Wamco XXI, Ltd. and Whitewater merged into WAMCO XXII, Ltd.
After the merger, Wamco XXII, Ltd. transferred $47,517 in assets and $516 in
liabilities to Bosque Asset Corporation (Bosque) in exchange for cash and an
investment in Bosque. Subsequent to the transaction, Wamco XXII, Ltd.
distributed its investment in Bosque to its partners and dissolved. During 1997,
Wamco IX, Ltd. contributed $3,316 in notes to Bosque in exchange for cash and an
investment in Bosque. Subsequent to the transfer, WAMCO IX, Ltd. distributed its
investment in Bosque to its partners.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Partnerships disclose
estimated fair values of their financial instruments. Fair value estimates,
methods and assumptions are set forth below.
(a) CASH, RESTRICTED CASH, RECEIVABLE FROM AFFILIATES, ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
The carrying amount of cash, restricted cash, receivable from affiliates,
accounts payable and accrued liabilities approximates fair value at December 31,
1997 and 1996 due to the short-term nature of such accounts.
98
<PAGE> 100
WAMCO PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) PORTFOLIO ASSETS
Portfolio Assets are carried at the lower of cost or estimated fair value.
The estimated fair value is calculated by discounting projected cash flows on an
asset-by-asset basis using estimated market discount rates that reflect the
credit and interest rate risk inherent in the assets. The carrying value of
Portfolio Assets is $104,189 and $177,480 at December 31, 1997 and 1996,
respectively. The estimated fair value of the Portfolio Assets is approximately
$122,515 and $221,352 at December 31, 1997 and 1996, respectively.
(c) INVESTMENTS IN TRUST CERTIFICATES
Investments in trust certificates are carried at the lower of cost or
estimated fair value. Management estimates that the cost of the investments
approximates fair value at December 31, 1997 and 1996.
(d) LONG-TERM DEBT
Management believes that for similar financial instruments with comparable
credit risks, the stated interest rates at December 31, 1997 and 1996
approximate market rates. Accordingly, the carrying amount of long-term debt is
believed to approximate fair value.
(7) COMMITMENTS AND CONTINGENCIES
Calibat Fund, LLC has committed to make additional investments in
partnerships up to $2,315 at December 31, 1997.
The Partnerships are involved in various legal proceedings in the ordinary
course of business. In the opinion of management, the resolution of such matters
will not have a material adverse impact on the combined financial condition,
results of operations or liquidity of the Partnerships.
99
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Partners
WAMCO Partnerships:
We have audited the accompanying combined balance sheets of the WAMCO
Partnerships as of December 31, 1997 and 1996, and the related combined
statements of operations, changes in partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 1997. These combined
financial statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the WAMCO
Partnerships as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 24, 1998
100
<PAGE> 102
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by this item with respect to the Company's
directors and executive officers is incorporated by reference from the Company's
definitive proxy statement pertaining to the 1998 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for by this item is incorporated by reference from
the Company's definitive proxy statement pertaining to the 1998 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by this item is incorporated by reference from
the Company's definitive proxy statement pertaining to the 1998 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by this item is incorporated by reference from
the Company's definitive proxy statement pertaining to the 1998 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A.
101
<PAGE> 103
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The consolidated financial statements of FirstCity and combined
financial statements of Acquisition Partnerships are incorporated
herein by reference to Item 8, "Financial Statements and
Supplementary Data," of this Report.
2. Financial Statement Schedules
Financial statement schedules have been omitted because the
information is either not required, not applicable, or is included
in Item 8, "Financial Statements and Supplementary Data."
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company.
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith.
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company.
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation.
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
</TABLE>
102
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto.
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen.
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FirstCity Funding
Corporation and each of James H. Aronoff and Christopher
J. Morrissey.
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman.
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation.
</TABLE>
103
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation.
</TABLE>
104
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A.
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland.
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation.
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk Corporation (now known as FirstCity Commercial
Corporation) in favor of Bank of Scotland.
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland.
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation.
10.20 -- Funding Commitment, dated as of May 17, 1996, by and
between ContiTrade Services L.L.C. and the Company.
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of KPMG Peat Marwick LLP.
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Annual Report on Form 10-K being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>
(b) The Company did not file a Report on Form 8-K during, or dated during,
the fourth quarter of 1997.
104
<PAGE> 107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRSTCITY FINANCIAL CORPORATION
By /s/ JAMES R. HAWKINS
-----------------------------------
James R. Hawkins
Chairman of the Board
March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES R. HAWKINS Chairman of the Board, Chief March 24, 1998
- ----------------------------------------------------- Executive Officer and Director
James R. Hawkins (Principal Executive Officer)
/s/ C. IVAN WILSON Vice Chairman and Director March 24, 1998
- -----------------------------------------------------
C. Ivan Wilson
/s/ JAMES T. SARTAIN President, Chief Operating Officer March 24, 1998
- ----------------------------------------------------- and Director
James T. Sartain
/s/ MATT A. LANDRY, JR. Executive Vice President, Senior March 24, 1998
- ----------------------------------------------------- Financial Officer, Managing
Matt A. Landry, Jr. Director -- Mergers and
Acquisitions and Director
(Principal Financial Officer and
Principal Accounting Officer)
/s/ RICK R. HAGELSTEIN Executive Vice President, Managing March 24, 1998
- ----------------------------------------------------- Director and Director
Rick R. Hagelstein
/s/ RICHARD J. GILLEN Chairman of the Board, President March 24, 1998
- ----------------------------------------------------- and Chief Executive Officer of
Richard J. Gillen FirstCity Financial Mortgage,
Managing Director and Director
</TABLE>
105
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD E. BEAN Director March 24, 1998
- -----------------------------------------------------
Richard E. Bean
/s/ BART A. BROWN, JR. Director March 24, 1998
- -----------------------------------------------------
Bart A. Brown, Jr.
/s/ DONALD J. DOUGLASS Director March 24, 1998
- -----------------------------------------------------
Donald J. Douglass
</TABLE>
106
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company.
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith.
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company.
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation.
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995).
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto.
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen.
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FirstCity Funding
Corporation and each of James H. Aronoff and Christopher
J. Morrissey.
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman.
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation.
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation.
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A.
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland.
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation.
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk Corporation (now known as FirstCity Commercial
Corporation) in favor of Bank of Scotland.
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland.
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation.
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 -- Funding Commitment, dated as of May 17, 1996, by and
between ContiTrade Services L.L.C. and the Company.
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill Financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of KPMG Peat Marwick LLP.
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this
Annual Report on Form 10-K being submitted to the
Securities and Exchange Commission. Exhibit 27.1 shall
not be deemed filed for purposes of Section 11 of the
Securities Act of 1933, Section 18 of the Securities Act
of 1934, as amended, or Section 323 of the Trust
Indenture Act of 1939, as amended, or otherwise be
subject to the liabilities of such sections, nor shall it
be deemed a part of any registration statement to which
it relates.)
</TABLE>
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF THE
NEW PREFERRED STOCK
($0.01 Par Value)
OF
FIRSTCITY FINANCIAL CORPORATION
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on May 30, 1997, by the Board of Directors (the "Board") of FirstCity
Financial Corporation, a Delaware corporation (the "Corporation"), at a duly
convened meeting of the Board at which a quorum was present and active
throughout;
RESOLVED, that pursuant to authority expressly granted to and vested in the
Board by the provisions of the Amended and Restated Certificate of Incorporation
of the Corporation (the "Certificate of Incorporation"), the issuance of a
series of preferred stock (the "New Preferred Stock"), which shall consist of up
to 2,000,000 of the 100,000,000 shares of the Optional Preferred Stock, par
value $0.01 per share (the "Optional Preferred Stock"), which the Corporation
now has authority to issue, be, and the same hereby is, authorized, and the
Board hereby fixes the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series (in addition
to the powers, designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which may be applicable
to the Optional Preferred Stock) as follows:
For the purposes of this resolution: (a) "Common Stock" means the shares
of Common Stock, $0.01 par value per share, of the Corporation; and (b) "Special
Preferred Stock" means the shares of Special Preferred Stock, $0.01 par value
per share, of the Corporation.
I. Designation and Amount. The series of Optional Preferred Stock
authorized by this resolution shall be designated the "New Preferred Stock". The
maximum number of shares of New Preferred Stock shall be 2,000,000.
<PAGE> 2
II. Dividends and Distributions. Holders of shares of New Preferred Stock
shall be entitled to receive, when, as and if declared by the Board out of funds
of the Corporation legally available therefor, dividends at an annual rate of
$3.15 per share until and including September 30, 1998, and thereafter at an
annual rate of $2.10 per share, payable in quarterly installments on the last
business day of March, June, September and December of each year, commencing
September 30, 1997 (each a "Dividend Payment Date"). Dividends on the New
Preferred Stock shall accrue and be cumulative from July 1, 1997. Dividends
shall be payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than sixty (60) days nor less than
ten (10) days preceding the payment dates thereof, as shall be fixed by the
Board (each a "Dividend Payment Record Date"). No Dividend Payment Record Date
shall precede the date upon which the resolution fixing the Dividend Payment
Record Date is adopted. Unless full cumulative dividends on the New Preferred
Stock shall have been paid, dividends (other than in Common Stock (as defined in
Paragraph III below), other stock ranking junior to the New Preferred Stock and
rights to acquire the foregoing) may not be paid or declared and set aside for
payment and other distributions may not be made upon the Common Stock or on any
other stock of the Corporation, except for dividends on the Special Preferred
Stock (as defined in Paragraph III below), nor may any Common Stock or any other
stock of the Corporation be redeemed, purchased or otherwise acquired for any
consideration by the Corporation (except for redemption of the Special Preferred
Stock and except by conversion into or exchange for stock of the Corporation
ranking junior to the New Preferred Stock as to dividends). Dividends payable
for any partial dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. Accrued but unpaid dividends shall not bear
interest.
III. Rank. The shares of New Preferred Stock shall rank prior to the
shares of the Corporation's Common Stock, par value $0.01 per share (the "Common
Stock") and any other class of stock of the Corporation except the Special
Preferred Stock ("Junior Liquidation Stock"), so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the New Preferred Stock shall be entitled to receive
out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any Junior Liquidation Stock, an
amount equal to $21.00 per share (the "Liquidation Preference") plus an amount
equal to all dividends (whether or not earned or declared) accumulated and
unpaid on the shares of New Preferred Stock to the date of final distribution.
After payment of the full amount of the Liquidation Preference and accumulated
dividends to which holders of shares of New Preferred Stock are entitled, the
holders of shares of New Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the Corporation. For the
purposes hereof, neither a consolidation or merger of the Corporation with or
into any other corporation, nor a sale or transfer of all or any part of the
Corporation's assets for cash or securities, shall be considered a liquidation,
dissolution or winding up of the Corporation.
IV. Status. Upon any conversion, exchange or redemption of shares of New
Preferred Stock, the shares of New Preferred Stock so converted, exchanged or
redeemed shall have the status of authorized and unissued shares of New
Preferred Stock, and the number of shares of New Preferred Stock which the
Corporation shall have authority to issue shall not be decreased by the
conversion, exchange or redemption of shares of New Preferred Stock.
<PAGE> 3
V. Voting Rights. The holders of shares of New Preferred Stock shall
have no voting rights whatsoever, except for any voting rights to which they may
be entitled under the laws of the State of Delaware, and except as follows:
(a) (i) If and whenever at any time or times dividends payable on the
New Preferred Stock shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding of any the amount of dividends payable thereon
for six quarterly periods, then the holders of the New Preferred Stock and
of any class or series of Optional Preferred Stock having similar voting
rights then exercisable ("Voting Parity Preferred Stock") shall have the
exclusive right, voting as a single class without regard to series, to
elect two directors of the Corporation, such directors to be in addition to
the number of directors constituting the Board immediately prior to the
accrual of that right. The remaining directors shall be elected in
accordance with the provisions of the Corporation's Certificate of
Incorporation and Bylaws by the other class or classes of stock entitled to
vote thereof at each meeting of stockholders held for the purpose of
electing directors. Such voting right of the New Preferred Stock shall
continue until such time as all cumulative dividends accumulated on the New
Preferred Stock shall have been paid in full at which time the voting right
of the holders of the New Preferred Stock shall terminate, subject to
revesting in accordance with the provisions of the first sentence of this
Subparagraph V(a)(i) in the event of each and every subsequent event of
default of the character indicated above.
(ii) Whenever the voting right described in Subparagraph V(a)(i)
above shall have vested in the holders of the New Preferred Stock, the
right may be exercised initially either at a special meeting of the holders
of the New Preferred Stock and Voting Parity Preferred Stock (if any),
called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at each
successive annual meeting.
(iii) At any time when the voting rights described in Subparagraph
V(a)(i) above shall have vested in the holders of the New Preferred Stock,
and if the right shall not already have been initially exercised, a proper
officer of the Corporation shall, upon the written request of the holders
of record of 10% in number of the shares of the New Preferred Stock then
outstanding, addressed to the Secretary of the Corporation, call a special
meeting of the holders of the New Preferred Stock and Voting Parity
Preferred Stock for the purpose of electing directors. Such meeting shall
be held at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding of annual meetings
of stockholders of the Corporation, or, if none, at a place designated by
the Secretary of the Corporation. If the meeting shall not be called by
the proper officers of the Corporation within thirty (30) days after the
personal service of such written request upon the Secretary of the
Corporation, or within thirty (30) days after mailing it within the United
States of America, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registery receipt issued by the postal authorities), then the holders of
record of 10% in number of shares of the New Preferred Stock then
outstanding may designate in writing one of their number to call such
meeting at the expense of the Corporation, and such meeting may be called
by such person so
<PAGE> 4
designated upon the notice required for annual meetings of stockholders and
shall be held at the same place as is elsewhere provided for in this
Subparagraph V(a). Any holder of the New Preferred Stock shall have access
to the stock books of the Corporation for the purpose of causing a meeting
of the stockholders to be called pursuant to the provisions of this
Subparagraph V(a)(iii). Notwithstanding the provision of this
Subparagraph, however, no such special meeting shall be held during a
period within ninety (90) days immediately preceding the date fixed for the
next annual meeting of stockholders.
(iv) At any meeting held for the purpose of electing directors at
which the holders of the New Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the
holders of a majority of the then outstanding shares of the New Preferred
Stock and Voting Parity Preferred Stock shall be required and be sufficient
to constitute a quorum of the holders of such preferred stock for the
election of directors by the holders of such preferred stock. At any such
meeting or adjournment thereof (A) the absence of a quorum of the holders
of the New Preferred Stock and Voting Parity Preferred Stock shall not
prevent the election of directors other than those to be elected by the
holders of such preferred stock, and the absence of a quorum or quorums of
the holders of other classes or series of capital stock entitled to elect
such other directors shall not prevent the election of directors to be
elected by the holders of the New Preferred Stock and Voting Parity
Preferred Stock, and (B) in the absence of a quorum of the holders of New
Preferred Stock and Voting Parity Preferred Stock, a majority of the
holders present in person or by proxy of such preferred stock shall have
the power to adjourn the meeting, or appropriate portion thereof, for the
election of directors which the holders of such preferred stock are
entitled to elect, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
(v) The directors elected pursuant to this Subparagraph V(a) shall
serve until the next annual meeting or until their respective successors
shall be elected and shall qualify; provided, however, that when the right
of the holders of the New Preferred Stock to elect directors as herein
provided shall terminate, the terms of office of all persons so elected by
the holders of the New Preferred Stock shall terminate, and the number of
directors of the Corporation shall thereupon be such number as may be
provided in accordance with the Certificate of Incorporation and Bylaws of
the Corporation irrespective of any increase made pursuant to this
Subparagraph V(a).
(vi) So long as any shares of New Preferred Stock are outstanding,
the Certificate of Incorporation and Bylaws of the Corporation shall
contain provisions ensuring that the number of Directors of the Corporation
shall at all times be such that the exercise by the holders of shares of
New Preferred Stock of the right to elect directors under the circumstances
provided in this Subparagraph V(a) shall not contravene any provisions of
the Corporation's Certificate of Incorporation or Bylaws.
(b) So long as any shares of the New Preferred Stock remain outstanding,
the Corporation shall not, (i) create or issue or increase the authorized number
of shares of any class or classes or series of stock ranking prior to the New
Preferred Stock either as to dividends or upon
<PAGE> 5
liquidation, (ii) amend, alter or repeal any of the provisions of the
Certificate of Incorporation (including this resolution) so as to affect
adversely the preferences, special rights or powers of the New Preferred Stock
or (iii) authorize any reclassification of the New Preferred Stock.
VI. Redemption by the Corporation.
(a) The shares of New Preferred Stock may be redeemed for cash at the
option of the Corporation, in whole or from time to time in part, at any
time on or after September 30, 2003, on at least fifteen (15) but not more
than sixty (60) days' prior notice mailed to the holders of the shares to
be redeemed, at $21.00 per share, together with an amount equal to all
dividends (whether or not earned or declared) accumulated and unpaid to the
date fixed for redemption. The shares of New Preferred Stock shall be
redeemed for cash on September 30, 2005, at $21.00 per share together with
an amount equal to all dividends (whether or not earned or declared)
accumulated and unpaid as of September 30, 2005.
(b) If full cumulative dividends on the New Preferred Stock have not
been paid through the most recent Dividend Payment Date, the New Preferred
Stock may not be redeemed in part and the Corporation may not purchase or
acquire any shares of the New Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of the New
Preferred Stock. If less than all the outstanding shares of New Preferred
Stock are to be redeemed, redemption may be either a pro rata proportion of
the shares of the New Preferred Stock to be redeemed or the Corporation may
select the shares of the New Preferred Stock to be redeemed by lot or a
substantially equivalent method.
(c) (i) If a notice of redemption has been given pursuant to this
Paragraph VI and if, on or before the date fixed for the redemption, the
funds necessary for the redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificates for those shares have not been
surrendered for cancellation, on the date fixed fore redemption dividends
shall cease to accrue on the shares of New Preferred Stock to be redeemed,
and at the close of business on the date fixed for redemption the holders
of those shares shall cease to be stockholders with respect to those shares
and shall have no interest in or claims against the Corporation by virtue
thereof and shall have no voting or other rights with respect to the
shares, except the right to receive the monies payable upon such redemption
and the right to accumulated and unpaid dividends, without interest
thereon, upon surrender (the endorsement, if required by the Corporation)
of their certificates, and, unless the Corporation subsequently shall
default in mailing payment of these amounts, the shares shall default in
mailing payment of these amounts, the shares evidenced thereby shall no
longer be deemed outstanding for any purpose.
(ii) If on or before the date fixed for redemption (but not less
than fifteen (15) days after the date the notice of redemption is mailed to
the holders of the New Preferred Stock) the Corporation shall deposit, in a
trust fund, with any bank or trust
<PAGE> 6
company organized under the laws of the United States of America or any
state thereof having a combined capital and surplus of at least $5,000,000
(the "Redemption Agent") monies sufficient to redeem on the date fixed for
redemption the shares of New Preferred Stock to be redeemed, with
irrevocable instructions and authority to the Redemption Agent on behalf
and at the expense of the Corporation, to pay, on the date fixed for
redemption or prior to that date, the full amount of the consideration
(consisting of the redemption price plus accrued and unpaid dividends, if
any, to the date fixed for redemption, without interest) payable to the
holders of the New Preferred Stock upon the redemption, upon surrender (and
endorsement, if required by the Corporation) of their certificates, then,
from and after the close of business on the date of such deposit (although
prior to the dated fixed for redemption) the "Deposit Date"), the deposit
shall be deemed to constitute full and final payment for the shares of New
Preferred Stock to be redeemed to the holders thereof and, notwithstanding
that any certificates for those shares have not been surrendered for
cancellation, on the date fixed for redemption dividends shall cease to
accrue on the shares of New Preferred Stock to be redeemed, and at the
close of business on the Deposit Date the holders of those shares shall
cease to be stockholders with respect to those shares and shall have no
interest in or claims against the Corporation by virtue thereof and shall
have no voting or other rights with respect to the shares, except the right
to receive the monies payable upon redemption and the right to accumulated
and unpaid dividends to the date fixed for redemption without interest
thereof, upon surrender (and endorsement, if required by the Corporation)
of their certificates, and the shares evidenced thereby shall no longer be
deemed outstanding for any purposes.
(iii) Subject to applicable escheat laws, any monies necessary
for redemption set aside or deposited by the Corporation and unclaimed at
the end of two years from the date fixed for redemption shall revert to the
general funds of the Corporation, after which reversion the holders of such
shares so called for redemption but not surrendered shall look only to the
general funds of the Corporation for the payment of the amounts payable
upon such redemption. Any interest accrued on funds so set aside or
deposited shall belong to the Corporation and shall be paid to it from time
to time.
VII. Consent. No consent of the holders of the New Preferred Stock shall
be required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or issuance, or increase or decrease in the
amount, of any class or series of stock of the Corporation not ranking prior as
to dividends or upon liquidation to the New Preferred Stock, (c) any increase or
decrease in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof or in any other terms thereof or (d) of any
increase or decrease in the authorized amount of preferred stock issuable by the
Board of Directors in series.
VIII. Number of Shares of New Preferred Stock. The Board reserves the
right by subsequent amendment of this resolution from time to time to amend this
resolution within the limitations provided by law, this resolution and the
Certificate of Incorporation.
IX. Miscellaneous
.
<PAGE> 7
(a) Except as otherwise expressly provided, whenever in this
resolution notices or other communications are required to be made,
delivered or otherwise given to holders of shares of New Preferred Stock,
the notice or other communication shall be deemed properly given if
deposited in the United States mail, postage prepaid, addressed to the
persons shown on the books of the Corporation as such holders at the
addresses as they appear in the books of the Corporation, as of a record
date or dates determined in accordance with the Corporations' Certificate
of Incorporation and Bylaws and applicable law, as in effect from time to
time.
(b) The holders of the New Preferred Stock shall not have any
preemptive right to subscribe for or purchase any shares or any other
securities which may be issued by the Corporation.
(c) Except as may otherwise be required by law, the shares of New
Preferred Stock shall not have any designations, preferences, limitations
or relative rights, other than those specifically set forth in this
resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation.
(d) The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
(e) If any right, preference or limitation of the New Preferred Stock
set forth in this resolution (as such resolution may be amended from time
to time) is invalid, unlawful or incapable of being enforced by reason of
any rule or law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no
right, preference or limitation herein set forth shall be deemed dependent
upon any other such right, preference or limitation unless so expressed
herein.
IN WITNESS WHEREOF, FirstCity Financial Corporation has caused this
certificate to be made under the seal of the Corporation and signed by James T.
Sartain, its President, and attested by Joe S. Greak, its Secretary, this 31st
day of July, 1997.
FirstCity Financial Corporation
By: /s/ JAMES T. SARTAIN
----------------------------
James T. Sartain, President
ATTEST:
/s/ JOE S. GREAK, SECRETARY
- ------------------------------------
Joe S. Greak, Secretary
<PAGE>
EXHIBIT 4.3
EXECUTION DRAFT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") entered into
and effective as of July 1, 1997 among FirstCity Financial Corporation, a
Delaware corporation (the "Company"), and Richard J. Gillen, Bernice J. Gillen,
Harbor Financial Mortgage Company Employees Pension Plan, Lindsey Capital
Corporation, Ed Smith and Thomas E. Smith (collectively, the "Stockholder
Parties").
W I T N E S S E T H:
WHEREAS, the Company, HFGI Acquisition Corp. ("Acquisition
Corp.") and Harbor Financial Group, Inc. ("HFGI") have entered into an
Agreement and Plan of Merger dated as of March 26, 1997 (the "Merger
Agreement"), pursuant to which Acquisition Corp. is being merged with and into
HFGI (the "Merger");
WHEREAS, as a result of the consummation of the Merger, the
Stockholder Parties are receiving shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company; and
WHEREAS, in connection with and as a condition to the
consummation of the Merger, the parties hereto have entered into this Agreement
in order to define certain rights, duties and obligations of such parties.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Except as otherwise set forth below, terms
defined in the Stockholders Agreement (as defined below) are used herein as
therein defined.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of Houston, Texas are
authorized by law to close.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means any Person who holds Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 6(c)
below.
"Indemnifying Party" has the meaning set forth in Section 6(c)
below.
"Material Adverse Effect" has the meaning set forth in Section
2(d) below.
"Registrable Securities" means the Common Stock issued to the
Stockholder Parties pursuant to the Merger Agreement, and any other securities
issuable with respect to such Common Stock by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; provided that
(1) any Registrable Security will cease to be a
Registrable Security when (a) a registration statement
covering such Registrable Security has been declared effective
by the SEC and it has been disposed of pursuant to such
effective registration statement, (b) it is sold under
circumstances in which all of the applicable conditions of
Rule 144 or Rule 145 under the Securities Act (or any similar
provisions then in force) under the Securities Act are met or
(c) (i) it has been otherwise transferred and (ii) the Company
has delivered a new certificate or other evidence of ownership
for it not bearing the legend pertaining to the Securities Act
and (iii) it may be resold without subsequent registration
under the Securities Act;
2
<PAGE> 3
(2) with respect to any Registrable Securities shall only
include such Registrable Securities which any Requesting
Holder could not otherwise sell pursuant to Rule 144 or Rule
145, without restriction as a result of volume limitations,
whether under subsection (k) of Rule 144 or otherwise.
"Registration Expenses" has the meaning set forth in Section 5
below.
"Registration Period" has the meaning set forth in Section 2
below.
"Registration Statement" has the meaning set forth in Section
2 below.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means any Stockholder Party who is selling
Registrable Securities pursuant to the Registration Statement.
"SEC" means the Securities and Exchange Commission.
2. Registration. (a) As soon as practicable after the
consummation of the Merger (the "Closing"), the Company shall file with the SEC
a registration statement (the "Registration Statement") on any form for which
the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of the Registrable
Securities to be registered thereunder (including, without limitation, by way
of a post- effective amendment to the Registration Statement on Form S-4,
Registration Number 333-24347), to permit the Stockholder Parties to offer and
sell their Registrable Securities on a delayed or continuous basis under Rule
415 under the Securities Act, and shall use its reasonable efforts to cause the
Registration Statement to become effective under the Securities Act. After the
Registration Statement has been declared effective, the Company shall use all
reasonable efforts to keep the Registration Statement effective for a period of
two years from the Closing (the "Registration Period").
(b) If at the time the Company or any of its subsidiaries
become engaged in confidential negotiations or other confidential business
activities or developments, disclosure of which may, in the good faith judgment
of the Board of Directors
3
<PAGE> 4
of the Company, materially and adversely affect the Company or the Company's
ability to pursue any such negotiations or business activities, or the Board of
Directors commences consideration of making a registered or unregistered
offering of the Company's securities for the Company's account (such
negotiations, activities, developments or prospective offering referred to
herein as "Pending Matters"), the Company may notify the Stockholder Parties
that they are required to cease using the Registration Statement (and the
prospectus forming a part thereof) in connection with the offer and sale of
Registrable Securities (such notice a "Stoppage Notice"), and the Stockholder
Parties shall immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement. If the Pending Matters are publicly
disclosed or terminated or abandoned, the Company shall promptly so notify the
Stockholder Parties who then may offer and sell Registrable Securities pursuant
to the Registration Statement
3. Restrictions on Public Sale by Holder of Registrable
Securities; Piggyback Registration Rights. (a) Upon the request of the
Company, each Holder of Registrable Securities agrees not to effect any public
sale or distribution of Registrable Securities, including a sale pursuant to
Rule 144 or Rule 145, during the 7 days prior to, and during such period as the
Company specifies (not to exceed 180 days) in such request (as shall be
required by the managing underwriter of the offering contemplated by the
registration statement referred to in this Section 3(a)) beginning on the
effective date of a registration statement with respect to any securities of
the Company if and to the extent requested by the Company.
(b) Subject to the provisions of this Agreement, if the
Company proposes to file a registration statement under the Securities Act with
respect to an offering of its Common Stock by the Company for its own account,
then the Company shall give prompt written notice of such proposed filing to
holders of the Registrable Securities. Upon the written request of any such
holder made within 20 days after the receipt of any such notice, except as set
forth below, the Company shall include in each such registration (a "Piggyback
Registration") all Registrable Securities requested to be included in the
registration for such offering. The Company shall use its reasonable efforts
to cause the managing underwriter of any such proposed underwritten offering to
permit the Registrable Securities requested by the holder thereof to be
included in the registration statement for such offering ("Piggyback
Securities") on the same terms and conditions as the Company's Common Stock
included therein.
4
<PAGE> 5
Notwithstanding the foregoing, the Company shall not be required to include
such holder's Piggyback Securities in such offering if the managing underwriter
of such proposed underwritten offering advises the Company that in its opinion
the total amount of securities, including Piggyback Securities, exceeds the
number which can be sold in such offering without causing a material adverse
effect on the price or success of such offering. If the managing underwriter
so advises the Company, the Company will include in such registration, to the
extent of the number which the Company is so advised can be sold in such
offering without causing such a material adverse effect, first the securities
being sold by the Company, and next any other securities pro rata among the
Stockholder Parties on the basis of the number of Registrable Securities
requested to be included in such registration by each such Stockholder Party.
4. Registration Procedures. The Company will:
(a) prepare and promptly file with the SEC such amendments
and supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the Registration Period (except as provided in the last paragraph
of this Section 4) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Selling Holders thereof set forth in the Registration
Statement;
(b) furnish to each such Stockholder Party such number of
copies of the Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in the
Registration Statement and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Selling Holder;
(c) notify the Selling Holders promptly, and (if requested by
any such person) confirm such notice in writing, (i) when the Registration
Statement or any post-effective amendment has become effective under the
Securities Act and applicable state law, (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or related prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the
5
<PAGE> 6
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (v) of the happening of any
event which makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such registration statement, prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that in
the case of the prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) use its reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) use its reasonable efforts to cooperate with the Selling
Holders to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit with
The Depositary Trust Company; and enable such Registrable Securities to be
registered in such names as the Selling Holders may request at least two
business days prior to any sale of Registrable Securities;
(f) use its reasonable efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities
or blue sky laws of such jurisdictions as any Selling Holder reasonably (in
light of the intended plan of distribution) requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Selling Holder; provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (g), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction;
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<PAGE> 7
(g) use its reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Selling Holder thereof to consummate
the disposition of such Registrable Securities;
(h) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(i) use its reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or quoted on any inter-dealer quotation
system on which similar securities issued by the Company are then quoted; and
(j) if any event contemplated by Section 4(c)(v) above shall
occur (subject to Section 2(b) above), as promptly as practicable prepare a
supplement or amendment or post-effective amendment to the Registration
Statement or the related prospectus or any document incorporated therein by
reference or promptly file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution
of the Registrable Securities as it may from time to time reasonably request
and such other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company
shall have the right to exclude from the Registration Statement the Registrable
Securities of any Selling Holder who does not comply with the provisions of the
immediately preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4(c)(v) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 4(c)(v) hereof, and, if so
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<PAGE> 8
directed by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice.
5. Registration Expenses. In connection with the
Registration Statement the Company shall pay the following registration
expenses (the "Registration Expenses"): (i) all registration and filing fees
(including, without limitation, with respect to filings to be made with the
National Association of Securities Dealers, Inc.), (ii) fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) word processing, duplicating and printing
expenses, (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) transfer agents', trustees', depositories', registrars' and fiscal
agents' fees, (vi) the fees and expenses incurred in connection with the
listing on an exchange or quoted on an inter-dealer quotation system of the
Registrable Securities, (vii) reasonable fees and disbursements of counsel for
the Company and customary fees and expenses for independent certified public
accountants retained by the Company and (viii) the reasonable fees and expenses
of any special experts retained by the Company in connection with such
registration. The Company shall not be responsible for underwriting fees,
discounts and commissions and transfer taxes, if any, in respect of the
Registrable Securities or the fees and expenses of counsel or other
professionals retained by any of the Stockholder Parties in connection with the
preparation of the Registration Statement or the disposition of Registrable
Securities thereunder.
6. Indemnification; Contribution. (a) Indemnification by
the Company. The Company agrees to indemnify and hold harmless each Selling
Holder, each Person, if any, who controls such Selling Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the officers, directors, agents, general and limited partners, and
employees of each Selling Holder and each such controlling person from and
against any and all losses, claims, damages, liabilities, and reasonable
expenses (including reasonable costs of investigation) directly or indirectly
arising out of or based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or prospectus
relating to the Registrable Securities or in any
8
<PAGE> 9
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or reasonable expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon information
furnished to the Company by such Selling Holder or on such Selling Holder's
behalf expressly for use therein; and the Company will reimburse such
Indemnified Party for any legal or other expenses reasonably incurred by them
in connection with enforcing its rights hereunder, provided, however, that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the persons asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the
sale of the Registrable Securities concerned to such person if it is determined
that (i)(A) it was the responsibility of such Selling Holder to provide such
person with a current copy of the prospectus, (B) such Selling Holder was
provided with a current copy of the prospectus prior to the written
confirmation of sale and (C) such current copy of the prospectus would have
cured the defect giving rise to such loss, claim, damage, liability or expense
or (ii) the Selling Holder provided a prospectus to any person in violation of
Section 4 hereof.
(b) Indemnification by Holder of Registrable Securities.
Each Selling Holder agrees to indemnify and hold harmless the Company, and each
Person, if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of the Company and each such controlling Person
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to written information furnished by such Selling
Holder or on such Selling Holder's behalf expressly for use in the Registration
Statement or prospectus relating to the Registrable Securities. The liability
of any Selling Holder under this Section 8(b) shall be limited to the net
amount of proceeds received by such Selling Holder pursuant to the sale of
Registrable Securities covered by the Registration Statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation)
9
<PAGE> 10
shall be brought or asserted against any Person entitled to indemnification
under Section 8(a) or 8(b) above (an "Indemnified Party") in respect of which
indemnity may be sought from any party who has agreed to provide such
indemnification under Section 8(a) or 8(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party, provided
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
8, except to the extent that such Indemnifying Party is materially prejudiced
by such failure to give notice. The Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Party, and shall assume the payment of all reasonable expenses
of such defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party has agreed
to pay such fees and expenses or (ii) the Indemnifying Party fails promptly to
assume the defense of such action or proceeding or fails to employ counsel
reasonably satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties) include both
such Indemnified Party and Indemnifying Party (or an Affiliate of the
Indemnifying Party), and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable at any time for the fees and expenses
of more than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be liable for any
settlement of any such action or proceeding effected without its written
consent (which consent will not be unreasonably withheld), but if settled with
its written consent, or if there be a final judgment for the plaintiff in any
such action or proceeding, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Party from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment. The
10
<PAGE> 11
Indemnifying Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release, in form and
substance satisfactory to the Indemnified Party, from all liability in respect
of such action or proceeding for which such Indemnified Party would be entitled
to indemnification hereunder.
(d) Contribution. If the indemnification provided for in
this Section 8 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein, then each
such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments as between the
Company on the one hand and each Selling Holder on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and
of each Selling Holder in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of each Selling Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation
11
<PAGE> 12
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
7. Miscellaneous. (a) Rule 144 etc. The Company will file
the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission
thereunder, and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such rule may be amended from time to time, or
(ii) any successor rule or regulation hereafter adopted by the Commission.
Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether it has complied with
such requirements.
(b) Amendment. Any provision of this Agreement may be
altered, supplemented, amended, or waived only by the written consent of each
of the parties hereto.
(c) Specific Performance. The parties hereto recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the parties may
have specific performance and injunctive relief (in addition to damages) as a
remedy for the enforcement hereof, without proving damages.
(d) Assignment. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto. In addition, and provided that an express assignment shall have been
made, a copy of which shall have been delivered to the Company, the provisions
of this Agreement which are for the benefit of a holder of Registrable
Securities shall be for the benefit of and enforceable by any subsequent holder
of any Registrable Securities. Any purported assignment made in violation of
this Section 10(d) shall be void and of no force and effect.
(e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"Notice") shall be given in writing by overnight courier, telegram, or telecopy
(with receipt confirmed)
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<PAGE> 13
which shall be addressed, or sent, to the respective addresses as follows (or
such other address as any party may specify to the Company and all other
parties by Notice):
The Company:
FirstCity Financial Corporation
6400 Imperial Drive
Waco, Texas 76712
Attn:
Telecopy Number: (817) 751-7648
Copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy Number: (713) 224-9511
If to the Stockholder Parties, to:
Richard J. Gillen
Harbor Financial Group, Inc.
340 North Sam Houston Parkway East
Suite 100
Houston, Texas 77060
with a copy to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
Attention: Rick L. Wittenbraker
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the
business day immediately following the day on which such Notice is delivered to
a reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No
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<PAGE> 14
party shall be entitled to receive a Notice hereunder (or a copy of a Notice
delivered to the Company) if, at the time such Notice is to be sent, such party
(including its Affiliates and the employees of such party and its Affiliates)
no longer owns any Registrable Securities.
(f) Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
(g) Section Headings. Headings contained in this Agreement
are inserted only as a matter of convenience and in no way define, limit, or
extend the scope or intent of this Agreement or any provisions hereof.
(h) No Punitive Damages; Waiver of Jury Trial; Prevailing
Party's Fees and Expenses. The parties hereto agree to waive any and all
rights to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights under this Registration Rights Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall
be entitled to receive an award of, and to recover from any non-prevailing
party, any fees or expenses incurred by him or it (including, without
limitation, fees and disbursements of such prevailing party's counsel) in
connection with any such action or proceeding.
(i) Choice of Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Texas
(without regard to the principles of conflicts of law) applicable to a contract
executed and to be performed in such state. Each of the parties hereto (a)
agrees to submit to personal jurisdiction and to waive any objection as to
venue in the State or federal courts located in McLennan County, Texas, (b)
agrees that any action or proceeding shall be brought exclusively in such
courts, unless subject matter jurisdiction or personal jurisdiction cannot be
obtained, and (c) agrees that service of process on any party in any such
action shall be effective if made by registered or certified mail addressed to
such party at the address specified herein, or to any party hereto at such
other addresses as it or he may from time to time specify to the other parties
in writing for such purpose. The exclusive choice of forum set forth in this
Section 7(i) shall not be deemed to preclude the enforcement of any judgment
obtained in such forum or the taking of any action under this
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<PAGE> 15
Agreement to enforce such judgment in any appropriate jurisdiction.
(j) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior agreements, discussions and understandings with respect
thereto.
(k) Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
(l) Termination. This Agreement shall terminate on the
second anniversary of the Closing.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Registration Rights Agreement as of the date first above
written.
FirstCity Financial Corporation
By: /s/ MATT LANDRY, JR.
---------------------------------
Name: Matt Landry, Jr.
-------------------------------
Title: Executive Vice President
------------------------------
STOCKHOLDERS:
/s/ RICHARD J. GILLEN
------------------------------------
RICHARD J. GILLEN
/s/ BERNICE J. GILLEN
------------------------------------
BERNICE J. GILLEN
/s/ ED SMITH
------------------------------------
ED SMITH
/s/ THOMAS S. SMITH
------------------------------------
THOMAS S. SMITH
HARBOR FINANCIAL MORTGAGE COMPANY
EMPLOYEES PENSION PLAN
By: /s/ RICHARD J. GILLEN
---------------------------------
Name: Richard J. Gillen
-------------------------------
Title:
------------------------------
LINDSEY CAPITAL CORPORATION
By: /s/ ED SMITH
---------------------------------
Name: Ed Smith
-------------------------------
Title: Chairman
------------------------------
16
<PAGE>
EXHIBIT 4.4
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into
effective as of March 24, 1998 by and between FirstCity Financial Corporation,
a Delaware corporation (the "Company"), and Texas Commerce Shareholders
Company, a Texas corporation ("Purchaser").
SECTION 1
SALE OF STOCK; CLOSING; DELIVERY
1.1 Sale of Stock. Subject to the terms and conditions hereof,
the Company agrees to issue and sell to Purchaser, and Purchaser agrees to buy
from the Company 41,000 shares (the "Shares") of the Company's authorized but
unissued common stock, par value $.01 per share (the "Common Stock"), in
exchange for 17,917 shares (the "Harbor Shares") of the common stock, par value
$.01 per share, of Harbor Financial Mortgage Corporation ("Harbor").
1.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") will take place at 10:00 a.m., local time, on a date
specified by the parties no later than March 30, 1998 (the "Closing Date"), at
the offices of Weil, Gotshal & Manges LLP, 700 Louisiana, Suite 1600, Houston,
Texas, or at such other time and place upon which the Company and Purchaser may
mutually agree.
1.3 Payment and Delivery. At the Closing, the Company will
deliver to Purchaser a certificate evidencing the Shares and the Purchaser
shall deliver to the Company a certificate evidencing the Harbor Shares, which
shall be duly endorsed in blank or accompanied by a stock power duly endorsed
in blank.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date
hereof and as of the Closing as follows:
2.1 Organization and Standing; Certificate of Incorporation and
Bylaws. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. The Company has all
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
currently qualified to do business as a foreign corporation in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on the properties or business as now conducted or financial condition of
the Company and its subsidiaries, taken as a whole.
<PAGE> 2
2.2 Corporate Power. The Company has and will have on the Closing
Date all requisite corporate power and authority to execute and deliver this
Agreement, to sell and issue the Shares hereunder and to carry out and perform
its obligations under the terms of this Agreement.
2.3 Authorization. All corporate action on the part of the
Company, its shareholders and its board of directors necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Shares and the
performance of all of the Company's obligations hereunder has been taken or
will be taken prior to the Closing. This Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as such enforcement is subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization or other laws relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law). The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable; and the Shares
will be free of any pledges, liens, encumbrances or preemptive rights, other
than any liens or encumbrances created by or imposed upon the Purchaser and
restrictions on transfer under federal and state securities laws as set forth
herein.
2.4 SEC Documents. The Company has furnished to Purchaser a copy
of its Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
(the "1997 10-K"). The financial statements of the Company contained in the
1997 10-K fairly present the financial condition and results of operations of
the Company as of the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. There has been
no material adverse change in the properties or business of the Company since
the date of the 1997 10-K.
2.5 Compliance with Other Instruments. The execution, delivery
and performance of and compliance with this Agreement, and the issuance of the
Shares, have not resulted and will not result in any violation of, or conflict
with, or constitute a default under, the Company's certificate of incorporation
or bylaws nor result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company.
2.6 Compliance with Laws. In reliance on Purchaser's investment
representations contained in Section 3, the offer, issuance, sale and delivery
of the Shares, as provided in this Agreement, are exempt from the registration
requirements of the Securities Act and all applicable state securities laws,
and will not result in any violation by the Company of any law, rule or
regulation.
2
<PAGE> 3
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company with respect
to the purchase of the Shares as of the date hereof and as of the Closing as
follows:
3.1 Experience. It has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
3.2 Accredited Investor. It is an "accredited investor" as such
term is defined in Rule 501(a) of the Securities Act of 1933, as amended (the
"Securities Act").
3.3 Private Placement. It understands that the Shares to be
purchased have not been, and will not be, registered under the Securities Act
by reason of a specific exemption from the registration provisions of the
Securities Act.
3.4 Rule 144. It acknowledges that the Shares and the underlying
Common Stock must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available. It
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain
current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the security to be sold,
the sale being effected through a "broker's transaction" or in transactions
directly with a "market maker" and the number of shares being sold during any
three month period not exceeding specified limitations.
3.5 No Federal or State Approval. It understands that no federal
or state agency has passed upon the Shares or made any finding or determination
as to the fairness of the investment or any recommendation or endorsement of
the Shares.
3.6 Authorization. This Agreement constitutes a valid and legally
binding obligation of Purchaser, enforceable in accordance with its terms,
except as such enforcement is subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization or other laws relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
3
<PAGE> 4
3.7 Corporate Power. Purchaser has and will have on the Closing Date
all requisite power and authority to execute and deliver this Agreement, to
purchase the Shares, to sell and transfer the Harbor Shares and to carry out
and perform its obligations under the terms of this Agreement. Purchaser is
the record owner of the Harbor Shares, free and clear of any and all liens,
pledges, encumbrances, charges, agreements or claims of any kind whatsoever.
Delivery by Purchaser of the Harbor Shares will convey to the Company good and
marketable title to the Harbor Shares, free and clear of any and all liens,
pledges, encumbrances, charges, agreements or claims of any kind whatsoever.
3.8 Brokers or Finders. The Company has not, and will not, incur,
directly or indirectly, as a result of any action taken by Purchaser, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
3.9 Compliance with Other Instruments. The execution, delivery
and performance of and compliance with this Agreement and the purchase of the
Shares, have not resulted and will not result in any violation of, or conflict
with, or constitute a default under, the Purchaser's organizational documents
nor result in the creation of, any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Purchaser.
SECTION 4
CONDITIONS TO CLOSING OF PURCHASER
Purchaser's obligations to purchase the Shares at the Closing are, at
the option of the Purchaser, subject to the fulfillment of the following
condition:
The representations and warranties made by the Company in Section 2
hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though the same had been made on and as
of the Closing Date.
SECTION 5
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing
Date is, at the option of the Company, subject to the fulfillment as of the
Closing Date of the following condition:
4
<PAGE> 5
The representations and warranties made by the Purchaser in Section 3
hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as though the same had been made on and as
of the Closing Date.
SECTION 6
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
6.1 Restrictions on Transferability. The Shares to be issued
hereunder are "Restricted Securities" and shall not be sold, assigned,
transferred or pledged except upon the conditions specified in this Section 6,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. To the extent required by law, Purchaser will cause any
proposed purchaser, assignee, transferee, or pledgee of the Shares held by
Purchaser to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Section 6.
6.2 Restrictive Legend. Each certificate representing (i) the
Shares and (ii) any other securities issued in respect of the Shares upon any
stock split stock dividend, recapitalization, merger, consolidation or similar
event shall (unless otherwise permitted by the provisions of Section 6.3 below)
be stamped or otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state securities laws):
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may
not be sold, transferred or assigned in the absence of an
effective registration statement for these shares under the
Securities Act of 1933 or an opinion of the Company's counsel
that registration is not require under said Act.
Purchaser consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Shares in order to implement
the restrictions on transfer established in this Section 6.
6.3 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in
all respects with the provisions of this Section 6.3. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities (other than a
transfer not involving a change in beneficial ownership), unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such
5
<PAGE> 6
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge
in sufficient detail, and shall, be accompanied, at such holder's expense, by
either (i) a written opinion of legal counsel, who shall be and whose legal
opinion shall be reasonably satisfactory to the Company, addressed to the
Company, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act or (ii) a "no
action" letter from the staff of the Securities and Exchange Commission (the
"Commission") to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144
or a registration statement under the Securities Act, the appropriate
restrictive legend set forth in Section 6.2 above, except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for such
holder and the Company such legend is not required in order to establish
compliance with any provision of the Securities Act.
SECTION 7
REGISTRATION OF THE SHARES
7.1 Current Registration. The parties acknowledge that the
Company expects to register 1,542,150 shares of its Common Stock under the
Securities Act in connection with a proposed public offering (the "Offering")
of such shares to be underwritten by Piper Jeffray, Inc., The Robinson-Humphrey
Company, LLC and Sandler O'Neill & Partners, L.P. The Company and the
Purchaser have agreed that the Shares shall be registered and offered for sale
in connection with such Offering, on the same terms and conditions as the other
selling shareholders are offering their shares of Common Stock for sale in the
Offering (including, without limitation, entering into a purchase agreement
with the aforesaid underwriters).
7.2 Registration Rights. The parties have entered into a
Registration Rights Agreement of even date herewith.
7.3 Indemnification; Contribution. (a) Indemnification by the
Company. The Company agrees to indemnify and hold harmless the Purchaser, each
Person, if any, who controls the Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the officers, directors, agents, general and
limited partners, and employees of the Purchaser and each such controlling
person from and against any and all losses, claims, damages, liabilities, and
reasonable expenses (including reasonable attorneys' fees and costs of
investigation) directly or
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<PAGE> 7
indirectly arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement relating
to the Offering (the "Registration Statement") or prospectus relating to the
Offering or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or reasonable expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by the Purchaser or on the
Purchaser's behalf expressly for use therein; and the Company will reimburse
such Indemnified Party (as hereinafter defined) as incurred for any legal or
other expenses reasonably incurred by them in connection with enforcing its
rights hereunder or to which it is entitled to indemnity hereunder, provided,
however, that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the persons asserting
any such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Shares concerned to such person if it is
determined that (A) it was the responsibility of the Purchaser to provide such
person with a current copy of the prospectus, (B) the Purchaser was provided
with a current copy of the prospectus prior to the written confirmation of sale
and (C) such current copy of the prospectus would have cured the defect giving
rise to such loss, claim, damage, liability or expense.
(b) Indemnification by the Purchaser. The Purchaser agrees
to indemnify and hold harmless the Company, and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act and the officers, directors, agents and
employees of the Company and each such controlling Person to the same extent as
the foregoing indemnity from the Company to the Purchaser, but only with
respect to written information furnished by the Purchaser or on the Purchaser's
behalf expressly for use in the Registration Statement or prospectus relating
to the Offering. The liability of the Purchaser under this Section 7.3(b)
shall be limited to the net amount of proceeds received by the Purchaser
pursuant to the sale of the Shares covered by the Registration Statement or
prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 7.3(a) or
7.3(b) above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification under
Section 7.3(a) or 7.3(b) above (an "Indemnifying Party"), the Indemnified Party
shall give prompt notice to the Indemnifying Party, provided that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of
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<PAGE> 8
its obligations under this Section 7.3, except to the extent that such
Indemnifying Party is materially prejudiced by such failure to give notice.
The Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all reasonable expenses of such defense. Such
Indemnified Party shall have the right to employ separate counsel in any such
action or proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party has agreed to pay such fees and expenses or
(ii) the Indemnifying Party fails promptly to assume the defense of such action
or proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and
Indemnifying Party (or an Affiliate of the Indemnifying Party), and such
Indemnified Party shall have been advised by counsel that there is a conflict
of interest, or a conflict of interest may reasonably be anticipated to arise,
on the part of counsel employed by the Indemnifying Party to represent such
Indemnified Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party). Notwithstanding the foregoing, the Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable at any
time for the fees and expenses of more than one separate firm of attorneys
(together in each case with appropriate local counsel). The Indemnifying Party
shall not be liable for any settlement of any such action or proceeding
effected without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Party from and against
any loss or liability (to the extent stated above) by reason of such settlement
or judgment. The Indemnifying Party shall not consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance satisfactory to the Indemnified Party, from all
liability in respect of such action or proceeding for which such Indemnified
Party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in
this Section 7.3 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities, expenses or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities, expenses and
judgments as between the Company on the one hand and the Purchaser on the
other, in such proportion as is appropriate to reflect the relative fault of
the Company and of the Purchaser in connection with
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<PAGE> 9
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
Purchaser on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 7.3(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7.3(d), the
Purchaser shall not be required to contribute any amount in excess of the
amount by which the net amount of proceeds received by the Purchaser pursuant
to the sale of Shares in the Offering exceeds the amount of any damages which
the Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(e) Survival. This Section 7.3 shall survive the
consummation of the Offering.
SECTION 8
MISCELLANEOUS
8.1 Governing Law. This Agreement shall be governed and construed
in all respects in accordance with the laws of the State of Texas as applied to
agreements made and performed in Texas by residents of the State of Texas.
8.2 Successors and Assigns. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
8.3 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and
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<PAGE> 10
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought.
8.4 Confidentiality. Purchaser acknowledges and agrees that any
information or data it has acquired from the Company, not otherwise properly in
the public domain, was received in confidence. Purchaser agrees not to
divulge, communicate or disclose, except as may be required by law or for the
performance of this Agreement, or use to the detriment of the Company or for
the benefit of any other person or persons, or misuse in any way, any
confidential information of the Company.
8.5 Notices, etc. Unless otherwise provided, any notice, request,
demand or other communication required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified, or when sent by telex or telecopier (with
receipt confirmed), or one business day after deposit with overnight courier or
three business days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed as follows (or at
such other address as a party may designate by notice to the other):
If to the Company:
FirstCity Financial Corporation
P.O. Box 8216
Waco, Texas 76714-8216
Attention: Matt A. Landry, Jr.
Telephone: (254) 751-1750
Facsimile: (254) 751-7648
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<PAGE> 11
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Attention: Steven D. Rubin
Telephone: (713) 546-5030
Facsimile: (713) 224-9511
If to the Purchaser:
Texas Commerce Shareholders Company
717 Travis, 6th Floor
Houston, TX 77002
Attention: Bob Salcetti
Telephone: (713) 216-5367
Facsimile: (713) 216-2082
with a copy to:
Liddell Sapp Zivley Hill & LaBoon LLP
3500 Chase Tower
Houston, TX 77002
Attention: Marcus A. Watts
Telephone: (713) 226-1408
Facsimile: (713) 223-3717
8.6 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid, unenforceable or void, this Agreement shall continue in full
force and effect without said provision. In such event, the parties shall
negotiate, in good faith, a legal, valid and enforceable substitute provision
which most nearly effects the intent of the parties in entering into this
Agreement.
8.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.8 Facsimile Signatures. Any signature page delivered by a fax
machine or telecopy machine shall be binding to the same extent as an original
signature page, with regard to any
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<PAGE> 12
agreement subject to the terms hereof or any amendment thereto. Any party who
delivers such a signature page agrees to later deliver an original counterpart
to any party which requests it.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
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<PAGE> 13
The foregoing agreement is hereby executed as of the date first above
written.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ MATT LANDRY, JR.
------------------------------
Name: Matt Landry, Jr.
----------------------------
Title: Executive Vice President
---------------------------
TEXAS COMMERCE SHAREHOLDERS COMPANY
By: /s/ KENNETH TILTON
------------------------------
Name: Kenneth Tilton
----------------------------
Title:
---------------------------
13
<PAGE>
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") entered into
and effective as of March 24, 1998 among FirstCity Financial Corporation, a
Delaware corporation (the "Company"), and Texas Commerce Shareholders Company
(the "Stockholder").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholder have entered into
that certain Stock Purchase Agreement dated as of March 24, 1998 (the "Stock
Purchase Agreement"), pursuant to which the Company is issuing and selling to
the Stockholder, and the Stockholder is acquiring, forty-one thousand (41,000)
shares of Common Stock, par value $.01 per share (the "Common Stock"), of the
Company; and
WHEREAS, in connection with the consummation of the
transactions contemplated by the Stock Purchase Agreement, the parties hereto
have entered into this Agreement in order to define certain rights, duties and
obligations of such parties.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Except as otherwise set forth below, terms
defined in the Stock Purchase Agreement are used herein as therein defined.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of Houston, Texas are
authorized by law to close.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Indemnified Party" has the meaning set forth in Section 6(c)
below.
"Indemnifying Party" has the meaning set forth in Section 6(c)
below.
"Material Adverse Effect" has the meaning set forth in Section
2(d) below.
<PAGE> 2
"Offering" has the meaning set forth for such term in the
Stock Purchase Agreement.
"Pending Matters" has the meaning set forth in Section 2 below.
"Registrable Securities" means the Shares and any other
securities issuable with respect to the Shares by way of a stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or reorganization; provided that
(1) any Registrable Security will cease to be a
Registrable Security when (a) a registration statement
covering such Registrable Security has been declared effective
by the SEC and it has been disposed of pursuant to such
effective registration statement, (b) it is sold under
circumstances in which all of the applicable conditions of
Rule 144 or Rule 145 under the Securities Act (or any similar
provisions then in force) under the Securities Act are met or
(c) (i) it has been otherwise transferred and (ii) the Company
has delivered a new certificate or other evidence of ownership
for it not bearing the legend pertaining to the Securities Act
and (iii) it may be resold without subsequent registration
under the Securities Act;
(2) with respect to any Registrable Securities shall only
include such Registrable Securities which any Requesting
Holder could not otherwise sell pursuant to Rule 144 or Rule
145, without restriction as a result of volume limitations,
whether under subsection (k) of Rule 144 or otherwise.
"Registration Expenses" has the meaning set forth in Section 5
below.
"Registration Period" has the meaning set forth in Section 2
below.
"Registration Statement" has the meaning set forth in Section
2 below.
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<PAGE> 3
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"Stoppage Notice" has the meaning set forth in Section 2 below.
2. Registration. (a) In the event some or all of the Shares
have not been sold in the Offering on or prior to June 30, 1998, upon the
written request of the Stockholder, the Company shall, as promptly as
reasonably practicable, file with the SEC a registration statement (the
"Registration Statement") on any form reasonably acceptable to the Stockholder
for which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder, to permit the Stockholder
to offer and sell its Registrable Securities on a delayed or continuous basis
under Rule 415 under the Securities Act, and shall use its reasonable efforts
to cause the Registration Statement to become effective under the Securities
Act. After the Registration Statement has been declared effective, the Company
shall use all reasonable efforts to keep the Registration Statement effective
until March 24, 1999 (the "Registration Period").
(b) If at the time the Company or any of its subsidiaries
become engaged in confidential negotiations or other confidential business
activities or developments, disclosure of which may, in the good faith judgment
of the Board of Directors of the Company, materially and adversely affect the
Company or the Company's ability to pursue any such negotiations or business
activities, or the Board of Directors commences consideration of making a
registered or unregistered offering of the Company's securities for the
Company's account (such negotiations, activities, developments or prospective
offering referred to herein as "Pending Matters"), the Company may notify the
Stockholder that it is required to cease using the Registration Statement (and
the prospectus forming a part thereof) in connection with the offer and sale of
Registrable Securities (such notice a "Stoppage Notice"), and the Stockholder
shall immediately discontinue disposition of Registrable Securities pursuant to
the Registration Statement. If the Pending Matters are publicly disclosed or
terminated or abandoned, the Company shall promptly so notify the Stockholder
who then may offer and sell Registrable Securities pursuant to the Registration
Statement
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<PAGE> 4
3. Piggyback Registration Rights. Subject to the provisions
of this Agreement, if the Company proposes to file a registration statement
under the Securities Act with respect to an offering of its Common Stock by the
Company for its own account, then the Company shall give prompt written notice
of such proposed filing to the Stockholder. Upon the written request of the
Stockholder made within 20 days after the receipt of any such notice, except as
set forth below, the Company shall include in each such registration (a
"Piggyback Registration") all Registrable Securities requested to be included
in the registration for such offering. The Company shall use its reasonable
efforts to cause the managing underwriter of any such proposed underwritten
offering to permit the Registrable Securities requested by the holder thereof
to be included in the registration statement for such offering ("Piggyback
Securities") on the same terms and conditions as the Company's Common Stock
included therein. Notwithstanding the foregoing, the Company shall not be
required to include such holder's Piggyback Securities in such offering if the
managing underwriter of such proposed underwritten offering advises the Company
that in its opinion the total amount of securities, including Piggyback
Securities, exceeds the number which can be sold in such offering without
causing a material adverse effect on the price or success of such offering. If
the managing underwriter so advises the Company, the Company will include in
such registration, to the extent of the number which the Company is so advised
can be sold in such offering without causing such a material adverse effect,
first the securities being sold by the Company, and next any other securities
pro rata among the Stockholder and any other persons who have similar rights on
the basis of the number of shares of Common Stock requested to be included in
such registration by each such person.
4. Registration Procedures. The Company will:
(a) prepare and promptly file with the SEC such amendments
and supplements to the Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the Registration Period (except as provided in the last paragraph
of this Section 4) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Stockholder set forth in the Registration Statement;
(b) furnish to the Stockholder such number of copies of the
Registration Statement, each amendment and supplement
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<PAGE> 5
thereto (in each case including all exhibits thereto), the prospectus included
in the Registration Statement and such other documents as the Stockholder may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by the Stockholder;
(c) notify the Stockholder promptly, and (if requested by the
Stockholder) confirm such notice in writing, (i) when the Registration
Statement or any post-effective amendment has become effective under the
Securities Act and applicable state law, (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or related prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (v) of the happening of any
event which makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such registration statement, prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that in
the case of the prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) use its reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) use its reasonable efforts to cooperate with the
Stockholder to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and shall be in a form eligible for deposit with
The Depositary Trust Company; and enable such Registrable Securities to be
registered
5
<PAGE> 6
in such names as the Stockholder may request at least two business days prior
to any sale of Registrable Securities;
(f) use its reasonable efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities
or blue sky laws of such jurisdictions as the Stockholder reasonably (in light
of the intended plan of distribution) requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable the
Stockholder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by the Stockholder; provided that the Company will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this paragraph (g),
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
(g) use its reasonable efforts to cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Stockholder thereof to consummate the
disposition of such Registrable Securities;
(h) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(i) use its reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or quoted on any inter-dealer quotation
system on which similar securities issued by the Company are then quoted; and
(j) if any event contemplated by Section 4(c)(v) above shall
occur (subject to Section 2(b) above), as promptly as practicable prepare a
supplement or amendment or post-effective amendment to the Registration
Statement or the related prospectus or any document incorporated therein by
reference or promptly file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
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<PAGE> 7
The Company may require the Stockholder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as it may from time to time reasonably request and such
other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company
shall have the right to exclude from the Registration Statement the Registrable
Securities if the Stockholder does not comply with the provisions of the
immediately preceding sentence.
The Stockholder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4(c)(v) hereof, the Stockholder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until the
Stockholder receives copies of the supplemented or amended prospectus
contemplated by Section 4(c)(v) hereof, and, if so directed by the Company, the
Stockholder will deliver to the Company all copies, other than permanent file
copies, then in the Stockholder's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such notice.
5. Registration Expenses. In connection with the
Registration Statement the Company shall pay the following registration
expenses (the "Registration Expenses"): (i) all registration and filing fees
(including, without limitation, with respect to filings to be made with the
National Association of Securities Dealers, Inc.), (ii) fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) word processing, duplicating and printing
expenses, (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) transfer agents', trustees', depositories', registrars' and fiscal
agents' fees, (vi) the fees and expenses incurred in connection with the
listing on an exchange or quotation on an inter-dealer quotation system of the
Registrable Securities, (vii) reasonable fees and disbursements of counsel for
the Company and customary fees and expenses for independent certified public
accountants retained by the Company and (viii) the reasonable fees and expenses
of any special experts retained by the Company in connection with such
registration. The Company shall not be responsible for underwriting fees,
discounts and commissions and transfer taxes, if any, in respect of the
Registrable Securities or the fees and expenses of counsel or other
professionals retained by the
7
<PAGE> 8
Stockholder in connection with the preparation of the Registration Statement or
the disposition of Registrable Securities thereunder.
6. Indemnification; Contribution. (a) Indemnification by
the Company. The Company agrees to indemnify and hold harmless the
Stockholder, each Person, if any, who controls the Stockholder within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the officers, directors, agents, general and limited partners, and
employees of the Stockholder and each such controlling person from and against
any and all losses, claims, damages, liabilities, and reasonable expenses
(including reasonable attorneys' fees and costs of investigation) directly or
indirectly arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
prospectus relating to the Registrable Securities or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
reasonable expenses arise out of, or are based upon, any such untrue statement
or omission or allegation thereof based upon information furnished in writing
to the Company by the Stockholder or on the Stockholder's behalf expressly for
use therein; and the Company will reimburse such Indemnified Party for any
legal or other expenses reasonably incurred by them in connection with
enforcing its rights hereunder or to which it is entitled to indemnity
hereunder, provided, however, that with respect to any untrue statement or
omission or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall not apply
to the extent that any such loss, claim, damage, liability or expense results
from the fact that a current copy of the prospectus was not sent or given to
the persons asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities
concerned to such person if it is determined that (A) it was the responsibility
of such Selling Holder to provide such person with a current copy of the
prospectus, (B) such Selling Holder was provided with a current copy of the
prospectus prior to the written confirmation of sale and (C) such current copy
of the prospectus would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
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<PAGE> 9
(b) Indemnification by Holder of Registrable Securities. The
Stockholder agrees to indemnify and hold harmless the Company, and each Person,
if any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers, directors,
agents and employees of the Company and each such controlling Person to the
same extent as the foregoing indemnity from the Company to the Stockholder, but
only with respect to written information furnished by the Stockholder or on the
Stockholder's behalf expressly for use in the Registration Statement or
prospectus relating to the Registrable Securities. The liability of the
Stockholder under this Section 8(b) shall be limited to the net amount of
proceeds received by the Stockholder pursuant to the sale of Registrable
Securities covered by the Registration Statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 8(a) or
8(b) above (an "Indemnified Party") in respect of which indemnity may be sought
from any party who has agreed to provide such indemnification under Section
8(a) or 8(b) above (an "Indemnifying Party"), the Indemnified Party shall give
prompt notice to the Indemnifying Party, provided that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8, except to the
extent that such Indemnifying Party is materially prejudiced by such failure to
give notice. The Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such defense.
Such Indemnified Party shall have the right to employ separate counsel in any
such action or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless (i) the Indemnifying Party has agreed to pay such fees and
expenses or (ii) the Indemnifying Party fails promptly to assume the defense of
such action or proceeding or fails to employ counsel reasonably satisfactory to
such Indemnified Party or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified
Party and Indemnifying Party (or an Affiliate of the Indemnifying Party), and
such Indemnified Party shall have been advised by counsel that there is a
conflict of interest, or a conflict of interest may reasonably be anticipated
to arise, on the part of counsel employed by the Indemnifying Party to
represent such Indemnified Party (in which case, if such Indemnified Party
notifies the
9
<PAGE> 10
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party). Notwithstanding the foregoing, the Indemnifying Party
shall not, in connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable at any
time for the fees and expenses of more than one separate firm of attorneys
(together in each case with appropriate local counsel). The Indemnifying Party
shall not be liable for any settlement of any such action or proceeding
effected without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action or proceeding, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Party from and against
any loss or liability (to the extent stated above) by reason of such settlement
or judgment. The Indemnifying Party shall not consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance satisfactory to the Indemnified Party, from all
liability in respect of such action or proceeding for which such Indemnified
Party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in
this Section 8 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities, expenses or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities, expenses and
judgments as between the Company on the one hand and the Stockholder on the
other, in such proportion as is appropriate to reflect the relative fault of
the Company and of the Stockholder in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and the Stockholder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
10
<PAGE> 11
The Company and the Stockholder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), the Stockholder shall not be required to contribute any amount in
excess of the amount by which the net amount of proceeds received by the
Purchaser pursuant to the sale of Shares in the applicable offering exceeds the
amount of any damages which the Stockholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
(e) Survival. This Section 6 shall survive the sale of
Shares pursuant to any offering thereof.
7. Miscellaneous. (a) Rule 144 etc. The Company will file
the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission
thereunder, and will take such further action the Stockholder may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time, or (ii) any
successor rule or regulation hereafter adopted by the Commission. Upon the
request of the Stockholder, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
(b) Amendment. Any provision of this Agreement may be
altered, supplemented, amended, or waived only by the written consent of each
of the parties hereto.
(c) Specific Performance. The parties hereto recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient
11
<PAGE> 12
remedy; consequently, it is agreed that the parties may have specific
performance and injunctive relief (in addition to damages) as a remedy for the
enforcement hereof, without proving damages.
(d) Assignment. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
hereto. Any purported assignment made in violation of this Section 10(d) shall
be void and of no force and effect.
(e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"Notice") shall be given in writing by overnight courier, telegram, or telecopy
(with receipt confirmed) which shall be addressed, or sent, to the respective
addresses as follows (or such other address as any party may specify to the
Company and all other parties by Notice):
The Company:
FirstCity Financial Corporation
6400 Imperial Drive
Waco, Texas 76712
Attn: President
Telecopy Number: (254) 751-7648
Copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy Number: (713) 224-9511
If to the Stockholder Parties, to:
Texas Commerce Shareholders, Inc.
717 Travis, 6th Floor
Houston, TX 77002
Attention: Bob Salcetti
Telephone: (713) 216-5367
Facsimile: (713) 216-2082
12
<PAGE> 13
with a copy to:
Liddell Sapp Zivley Hill & LaBoon LLP
3500 Chase Tower
Houston, Texas 77002
Attention: Marcus A. Watts
Telephone: (713) 226-1408
Facsimile: (713) 223-3717
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the
business day immediately following the day on which such Notice is delivered to
a reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No party shall be entitled
to receive a Notice hereunder (or a copy of a Notice delivered to the Company)
if, at the time such Notice is to be sent, such party (including its Affiliates
and the employees of such party and its Affiliates) no longer owns any
Registrable Securities.
(f) Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
(g) Section Headings. Headings contained in this Agreement
are inserted only as a matter of convenience and in no way define, limit, or
extend the scope or intent of this Agreement or any provisions hereof.
(h) No Punitive Damages; Waiver of Jury Trial; Prevailing
Party's Fees and Expenses. The parties hereto agree to waive any and all
rights to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights under this Registration Rights Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall
be entitled to receive an award of, and to recover from any non-prevailing
party, any fees or expenses incurred by him or it (including, without
limitation, fees and disbursements of such prevailing party's counsel) in
connection with any such action or proceeding.
13
<PAGE> 14
(i) Choice of Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Texas
(without regard to the principles of conflicts of law) applicable to a contract
executed and to be performed in such state. Each of the parties hereto agrees
that service of process on any party in any such action shall be effective if
made by registered or certified mail addressed to such party at the address
specified herein, or to any party hereto at such other addresses as it or he
may from time to time specify to the other parties in writing for such purpose.
(j) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto respecting the subject matter hereof and
supersedes all prior agreements, discussions and understandings with respect
thereto.
(k) Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
(l) Termination. This Agreement shall terminate on March 25,
1998; provided that Section 6 shall survive any termination hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Registration Rights Agreement as of the date first above
written.
FirstCity Financial Corporation
By: /s/ MATT LANDRY, JR.
--------------------------------------
Name: Matt Landry, Jr.
------------------------------------
Title: Executive Vice President
-----------------------------------
TEXAS COMMERCE SHAREHOLDERS COMPANY
By: /s/ KENNETH TILTON
--------------------------------------
Name: Kenneth Tilton
------------------------------------
Title:
-----------------------------------
15
<PAGE>
EXHIBIT 9.1
SHAREHOLDER VOTING AGREEMENT
THIS SHAREHOLDER VOTING AGREEMENT (the "Agreement"), dated as of
June 29, 1995, is by and among James R. Hawkins, James T. Sartain, ATARA I,
Ltd., A Texas limited partnership ("ATARA" and collectively the "JHC
Shareholders") and Cargill Financial Services Corporation, a Delaware
corporation ("CFSC").
RECITALS
WHEREAS, on or about October 31, 1992, First City Bancorporation
of Texas, Inc., a Delaware corporation (the "Corporation") filed a petition in
bankruptcy with the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division, under Chapter 11 of the United States Bankruptcy Code;
WHEREAS, the Corporation has been or will be reorganized by the
merger of J-Hawk Corporation ("J-Hawk") with and into the Corporation (the
"Merger") pursuant to a Joint Plan of Reorganization by the Corporation, the
Official Committee of Equity Security Holders of the Corporation, and J-Hawk
with the participation of CFSC (the "Joint Plan");
WHEREAS, as of the date of this Agreement, CFSC has acquired
shares of common stock of J-Hawk from the JHC Shareholders pursuant to a Stock
Purchase Agreement of even date herewith;
WHEREAS, as of the date of this Agreement, CFSC has also
acquired, or anticipates acquiring, additional shares of common stock of J-Hawk
and anticipates that it will own, immediately prior to the consummation of the
Merger, a total number of shares of common stock of J-Hawk as set forth on
Exhibit A hereto;
WHEREAS, pursuant to the Joint Plan, on the Effective Date
J-Hawk's shareholders will exchange their shares in J-Hawk for approximately
49.9% of the newly issues shares of the reorganized Corporation;
WHEREAS, pursuant to the Joint Plan, on the Effective Date of the
Merger, the Board of Directors of the reorganized Corporation will consist of
not more than twelve members, of which three directors will be the JHC
Shareholders and CFSC, as a plan participant, will be entitled to designate one
director of the reorganized Corporation; and
WHEREAS, CFSC and the JHC Shareholders wish to enter into
certain agreements relating to (i) the nomination of persons to serve as
directors of the
<PAGE> 2
Corporation, and (ii) the voting of the shares of common stock of the
Corporation respectively owned by each of them with respect to the election of
such director nominees;
NOW THEREFORE, in consideration of the premises herein contained,
CFSC and the JHC Shareholders hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement:
"Agreement" means this Shareholder Voting Agreement.
"Board of Directors" shall mean the Board of Directors of the
Corporation, as now or hereafter constituted.
"CFSC" means Cargill Financial Services Corporation, a Delaware
corporation.
"CFSC Director" shall mean a member of the Board of Directors
designated by CFSC and duly nominated and elected as a member of the Board of
Directors.
"Common Stock" shall mean all shares of common stock of the
Corporation issued and outstanding on the Effective Date and all shares of
common stock that may hereafter or thereafter be owned by CFSC and any JHC
Shareholder.
"Corporation" means First City Bancorporation of Texas, Inc., a
Delaware corporation, and any successor or surviving corporation after the
Effective Date of the Merger.
"Effective Date" shall mean that date defined as the Effective
Date in the Joint Plan.
"J-Hawk" means J-Hawk Corporation, a Texas corporation.
"JHC Directors" shall mean the members of the Board of Directors
designated by the JHC Shareholders and duly nominated and elected as a member
of the Board of Directors.
"JHC Shareholders" shall mean those persons identified as such
in the introductory paragraph of this Agreement.
2
<PAGE> 3
"Joint Plan" shall mean the plan identified as such in the second
recital of this Agreement.
"Merger" shall mean the corporate merger identified as such in
the second recital to this Agreement.
"Shareholders" shall mean the holders from time to time of the
Common Stock.
2. VOTING OF SHARES OF COMMON STOCK.
2.1 At any Shareholder meeting or in connection with
the solicitation by any party of the consent of all Shareholders of the
Corporation during the term of this Agreement, each JHC Shareholder agrees to
vote all shares of the Common Stock owned by him, directly or indirectly, in
accordance with the following provisions of this Section 2.1:
(a) The JHC Shareholders shall vote all of their shares
affirmatively to elect the CFSC Director nominee as a member of the Board of
Directors at each annual meeting or any other meeting of the Shareholders held
for the election of directors during this term of this Agreement. Each JHC
Shareholder shall in no event vote for or otherwise consent to the removal of
the CFSC Director as a director of the Corporation, except upon the occurrence
of any of the following events:
(i) any material act or omission constituting gross
negligence or willful misconduct by the CFSC Director in the exercise of his
rights or duties as a director of the Corporation; or
(ii) any assignment, voluntary or involuntary, for the
benefit of creditors of the CFSC Director, the commencement of any bankruptcy,
insolvency or other proceeding under any debtor relief laws by or against the
CFSC Director, which proceeding is not dismissed within ninety (90) days from
the commencement thereof, or the appointment of a receiver, trustee,
liquidator, conservator or similar person for all or substantially all of the
assets of the CFSC Director with or without the consent of the CFSC
3
<PAGE> 4
Director, which appointment is not revoked or otherwise terminated within 90
days thereof.
(b) CFSC (or its successor in interest), as the case may be,
shall have the right at any time to nominate a substitute director to replace
the CFSC Director in the event that the CFSC Director should die, become
disabled, resign or be removed as a director during the term of this Agreement,
and, upon such event, the JHC Shareholders shall vote to elect such nominee as
the replacement CFSC Director.
2.2 At any meeting or in connection with the
solicitation by any party of the consent of all Shareholders of the Corporation
during the term of this Agreement, CFSC agrees to vote all shares of the Common
Stock owned by it, directly or indirectly, in accordance with the following
provisions of this Section 2.2:
(a) CFSC shall vote all of its shares affirmatively to elect
one or more of the JHC Director nominees as members of the Board of Directors
at each annual meeting or any other meeting of the Shareholders held for the
election of directors during this term of this Agreement. CFSC shall in no
event vote for or otherwise consent to the removal of any JHC Director as a
director of the Corporation, except upon the occurrence of any of the following
events:
(i) any material act or omission constituting gross
negligence or willful misconduct by a JHC Director in the exercise of his
rights or duties as a director of the Corporation; or
(ii) any assignment, voluntary or involuntary, for the
benefit of creditors of a JHC Director, the commencement of any bankruptcy,
insolvency or other proceeding under any debtor relief laws by or against any
JHC Director, which proceeding is not dismissed within ninety (90) days from
the commencement thereof, or the appointment of a receiver, trustee,
liquidator, conservator or similar person for all or substantially all of the
assets of any JHC Director with or without the consent of the JHC Director,
which appointment is not revoked or otherwise terminated within 90 days
thereof.
(b) The JHC Shareholders shall have the right at any time to
nominate a substitute director to
4
<PAGE> 5
replace a JHC Director in the event that any JHC Director should die, become
disabled, resign or be removed as a director during the term of this Agreement,
and, upon such event, CFSC shall vote to elect such nominee as a replacement
JHC Director.
3. TERM.
This Agreement shall continue in full force and effect for a term
commencing on the date hereof and ending on (i) December 31, 2016, or (ii) when
this Agreement is terminated pursuant to Section 5(e) hereinafter, if sooner.
4. NOTICES.
Any notice, request, demand or other communication under this
Agreement shall be in writing and shall be deemed to have been duly given or
made if in writing and delivered, sent by registered mail, postage prepaid, or
telexed to the recipient at the address set forth for such person on Exhibit A
to this Agreement, or, in each case, to such other address as may hereafter
have been designated most recently in writing, with specific reference to this
Agreement, by the addressee to the addresser. Such notices shall be effective
when received, or if mailed, on the date of mailing if confirmed by telex or
telegram.
5. MISCELLANEOUS PROVISIONS.
(a) This Agreement shall be subject to and governed by the
laws of the State of Delaware without giving effect to the principles of
conflicts of laws.
(b) This Agreement shall be binding upon CFSC and the JHC
Shareholders.
(c) Wherever the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter, and the number of
all words shall include the singular and plural.
(d) This Agreement may be amended from time to time by an
instrument in writing signed by CFSC and each of the JHC Shareholders or their
respective successors.
(e) This Agreement shall terminate automatically and without
prior notice to any of the parties hereto upon the bankruptcy or dissolution or
liquidation
5
<PAGE> 6
of the Corporation. This Agreement may also be terminated by an instrument in
writing signed by the CFSC and each of the JHC Shareholders.
(f) Each party hereto acknowledges that a remedy at law for
any breach or attempted breach of this Agreement shall be inadequate and agrees
that each other party hereto shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach or attempted
breach, and further agrees to waive any requirement for the securing or posting
or any bond in connection with the obtaining of any such injunctive or other
equitable relief.
(g) If any one or more of the terms or provisions contained
herein shall be held invalid, illegal or unenforceable in any respect by a
court, such invalidity, illegality or unenforceability shall be in no way and
to no degree affect the other terms or provisions stated herein; provided,
however, that the remaining provisions of this Agreement can be reasonably
construed together.
(h) Neither CFSC nor any of the undersigned JHC Shareholders
are or shall become a party to any other agreement (exclusive of the
Corporation's Articles of Incorporation and Bylaws) covering or otherwise
affecting voting of the Common Stock or additional shares of the Corporation's
common stock which may be hereinafter owned by them.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement in multiple counterparts, each of which shall be deemed an original,
on the date and year first above written.
CFSC: Cargill Financial Services Corporation
By: /s/ David W. Rogers
Name: David W. Rogers
Title: President
JHC SHAREHOLDERS:
/s/ James R. Hawkins
- ----------------------------
James R. Hawkins
/s/ James T. Sartain
- ----------------------------
James T. Sartain
ATARA I, Ltd.,
by its general partner,
ATARA Corporation
By: /s/ Rick R. Hagelstein
----------------------
Name: Rick R. Hagelstein
Title: President
7
<PAGE> 8
Exhibit A
<TABLE>
<S> <C>
Entity/Address Number of Shares of J-Hawk Stock*
- -------------- ---------------------------------
Cargill Financial Services Corporation 14,923
6000 Clearwater Drive
Minnetonka, MN 55343-9497
Attn: David W. MacLennan
Value Investment Group
JHC Shareholder/Address Number Shares of J-Hawk Stock*
- ----------------------- ------------------------------
James R. Hawkins 59,906
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
James T. Sartain 22,923
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
ATARA I, Ltd. 22,923
c/o ATARA Corporation
ATTN: Rick R. Hagelstein, President
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
</TABLE>
* Number of shares of J-Hawk Corporation common stock owned by each of
the above entities/persons immediately prior to the Merger.
8
<PAGE>
EXHIBIT 10.6
_______________________________________________________________
HARBOR FINANCIAL MORTGAGE CORPORATION
AND
NEW AMERICA FINANCIAL, INC.
(THE OBLIGORS)
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
IN ITS CAPACITY AS ONE OF THE BANKS, A
WAREHOUSE BANK, A SERVICING ACQUISITION BANK
AND AS AGENT FOR THE OTHER BANKS,
BANK ONE, TEXAS, N.A.,
BANK OF SCOTLAND,
THE BANK OF NEW YORK,
GUARANTY FEDERAL BANK, F.S.B.,
HIBERNIA NATIONAL BANK,
PNC BANK KENTUCKY, INC.,
COMERICA BANK,
BANK UNITED,
FLEET BANK N.A.,
NATIONAL CITY BANK OF KENTUCKY
AND
THE FIRST NATIONAL BANK OF CHICAGO
JOINED FOR SPECIFIED PURPOSES BY
HARBOR FINANCIAL GROUP, INC.
(GUARANTOR)
12/97 AMENDED AND RESTATED
FACILITIES AGREEMENT
EFFECTIVE AS OF DECEMBER 3, 1997
_______________________________________________________________
[TEXAS COMMERCE LOGO APPEARS HERE]
<PAGE> 2
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"1/97 A&R Facilities Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"12/97 A&R Facilities Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"12/97 Master Servicing Acquisition Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
"12/97 Master Warehouse Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"4/97 Amendment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"9/97 Amendment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Acquisition Cost" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Adjusted Balances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Adjusted Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Adjusted LIBOR Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Adjusted Tangible Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Affected Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Agent, et al." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Allocated Commitment Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Amended Facilities Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Applicable Margin" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Applicable Repurchase Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Ceiling Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Change of Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Chapter 1D" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Claims" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
"Collateral Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
"Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Commitments Lapse Provision" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"Commitments Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Committed Sum" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Compliance Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Consolidated Fixed Charges" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Consolidated Servicing and Receivables Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Continuing Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Conventional Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Current Facilities Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Current Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Current Servicing Acquisition Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
"Current Servicing Acquisition Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
"Current Warehouse Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"Defective Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Eligible Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Eligible Receivables" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Eligible Servicing Portfolio Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Eligible Servicing Portfolio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"ERISA Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Eurodollar Base Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Eurodollar Rate Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Eurodollar Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Eurodollar Reserve Requirement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Facilities Papers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Failure Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
"Federal Funds Effective Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"FHA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"FHA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"FHLMC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Financial Statements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"FirstCity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Float Control Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Float Control Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"FNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Foreclosed Properties Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Foreclosed Properties Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Foreclosed Properties Sub-subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Foreclosed Properties Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Foreclosed Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Free Adjusted Balances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Funding Availability Termination Provisions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"Funding Share" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Funds from Operations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"GNMA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Governmental Authority" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Guarantor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
"Guide" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"HUD" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
"ICF Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
"In Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"indicated rate ceiling" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Interbank Market" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Interest Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Investor Commitment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Jumbo Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Laws" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"LIBOR Rate Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"LIBOR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Linked Lines Limit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Linked Lines" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Liquid Reserves" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Loan Request" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Loan Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Loan Servicing Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Majority Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Majority Servicing Acquisition Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Majority Warehouse Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Make Whole Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Margin Obligations to the Warehouse Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
"Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"MBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Mortgage Pools Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Mortgage-Backed Security" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Mortgages Purchase Limit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"MPPA Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"New Am Inc." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"New Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Nonconforming Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Obligor Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Obligors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
"Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
"Owned Servicing Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"P&I Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"P&I Sub-subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"P&I Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Par Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Past Due Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"PC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Pledged Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"PMI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Pool Purchase Price Paid" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Pools Stated Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Potential Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
"Processing Fees" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Qualified Investment Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Qualified Investor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Qualified Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Qualified Substitute Ticket" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"Ratably" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Rate Designation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Receivables Advances Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Receivables Advances Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Receivables Advances Subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Receivables Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Receivables Loan Values" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Receivables Pledge Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Regulation Q" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Released Persons" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Replacement Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Reportable Event" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Repurchased Defaulted Mortgages Sub-subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Repurchased Defaulted Mortgages Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Repurchased Defaulted Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Residential Mortgage File" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Residential Mortgage Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Residential Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Retiring Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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"Reuters Screen LIBO Page" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Revolving Servicing Acquisition Facility Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"Revolving Servicing Acquisition Termination/Conversion Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"RHS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Sale Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
"Second-Lien Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Second-Lien Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Second-Lien Subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Securities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Securitized" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Senior Acquisition Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Serviced Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Servicing Acquisition Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Servicing Acquisition Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Servicing Acquisition Limit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
"Servicing Acquisition Line Commitments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
"Servicing Acquisition Line" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Servicing Acquisition Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Servicing Records" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"Servicing Rights Security Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Servicing Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Settlement Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Shortfall Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Standard Financial Statements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Stated Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Stock Pledge Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Sub-sublines" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Sublines" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Subordinated Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Subprime Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Subprime Mortgages Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Subprime Mortgages Subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
"Subprime Underwriting Standards" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Subprime Warehouse Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Substitute Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Super Jumbo Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Swing Line Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Swing Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Swing Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Swing Subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"T&I Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"T&I Sub-subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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"T&I Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Tangible Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
"TCB Balances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
"TCB" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Termination Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"Texas Finance Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Total Mortgages Purchase Limit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
"Total Servicing Acquisition Line Commitments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
"Total Warehouse Line Commitments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Trade Ticket" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
"Transaction Claim" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
"UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"VA Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"VA/FHA/PMI Foreclosure Receivables Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"VA/FHA/PMI Foreclosure Receivables Sub-subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"VA/FHA/PMI Foreclosure Receivables Sublimit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"VA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Warehouse Banks' Invested Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
"Warehouse Banks' Net Share" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
"Warehouse Banks" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Warehouse Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Warehouse Facility Fee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Warehouse Final Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Warehouse Line Commitments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
"Warehouse Line" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Warehouse Loan Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Warehouse Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Warehouse Pledge Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Warehouse Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"weekly ceiling" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Wet Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
"Wet Warehousing Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Wet Warehousing Sublimit," . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Wet Warehousing Subline" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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Article 1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 2. The Warehouse Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.1 General Terms for the Warehouse Line and its Sublines and Sub-sublines . . . . . . . . . . 31
Section 2.2 The Warehouse Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.3 Linked Lines and Sublines and Sub-subline defined . . . . . . . . . . . . . . . . . . . . 32
Section 2.4 Warehouse Line Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.5 12/97 Master Warehouse Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.6 Current Warehouse Notes' Interest Accrual and Payment . . . . . . . . . . . . . . . . . . 36
Section 2.7 Current Warehouse Notes' Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.8 Current Warehouse Notes Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.9 Current Warehouse Notes Mandatory Payments . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.10 Warehouse Line Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.11 Warehouse Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.12 Obligors' Processing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.13 Amount the Obligors May Borrow Against Each Eligible Mortgage; Investor Commitment
Coverage and Weekly Reports of Coverages Required; Warehouse Loan Value . . . . . . . . . 39
Section 2.14 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.15 Releases of Sold or Securitized Pledged Mortgages . . . . . . . . . . . . . . . . . . . . 43
Section 2.16 Mandatory Prepayments or Collateral Substitutions for Ineligible Mortgages . . . . . . . . 44
Section 2.17 Mandatory Prepayments or Collateral Substitutions for Ineligible Foreclosed Property
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 2.18 Title Insurance; Recording of Foreclosed Properties Mortgages . . . . . . . . . . . . . . 45
Section 2.19 Disposition of Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 2.20 Partial Releases of Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . 45
Article 3. Mortgage Pools Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.1 General Description and Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.2 Pool Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.3 Servicing After Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.4 Additional Rights Purchased by Pool Purchase Price Payment . . . . . . . . . . . . . . . . 49
Section 3.5 Qualified Mortgage Loans Lent to the Selling Obligor for Transfer to Qualified
Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.6 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.7 Obligation on any Transaction Failure . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.8 Margin Calls by Obligor's Qualified Investor . . . . . . . . . . . . . . . . . . . . . . . 56
Section 3.9 Margin Obligations to the Warehouse Banks . . . . . . . . . . . . . . . . . . . . . . . . 56
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Section 3.10 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 3.11 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 3.12 Fee to Accrue and to be Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Article 4. Servicing Acquisition Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 4.1 General Terms for the Servicing Acquisition Line . . . . . . . . . . . . . . . . . . . . . 60
Section 4.2 Borrowing under the Servicing Acquisition Line . . . . . . . . . . . . . . . . . . . . . . 61
Section 4.3 Conversion of Servicing Acquisition Loans to Term Debt . . . . . . . . . . . . . . . . . . 61
Section 4.4 12/97 Master Servicing Acquisition Notes . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 4.5 Current Servicing Acquisition Notes' Payment Schedule . . . . . . . . . . . . . . . . . . 62
Section 4.6 Current Servicing Acquisition Notes Voluntary Prepayments . . . . . . . . . . . . . . . . 62
Section 4.7 Servicing Acquisition Line Security . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 4.8 Revolving Servicing Acquisition Facility Fee . . . . . . . . . . . . . . . . . . . . . . . 62
Section 4.9 Borrowing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 4.10 Amount the Obligors May Borrow Against the Eligible Servicing Portfolio . . . . . . . . . 64
Article 5. Interest Rate Election Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.1 Interest Rate Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.2 Inadequacy of Pricing and Rate Determination . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.3 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 5.4 Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.5 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.6 Funding Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.7 Rate of Return Maintenance Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 5.8 Illegality of Eurodollar Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Article 6. Provisions Applicable to All Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 6.1 Commitments Lapse Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 6.2 Fundings Availability Termination Provisions . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.3 Application of Proceeds of Realization on Collateral . . . . . . . . . . . . . . . . . . . 68
Section 6.4 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 6.5 Application of Setoff Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 6.6 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Article 7. The Obligors' Warranties and Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.2 Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.3 No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 7.4 Approved Lender, Seller and Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 7.5 Obligors Are Not Investment Companies or Controlled by One . . . . . . . . . . . . . . . . 74
Section 7.6 Obligors and Affiliates Are Not Public Utility Companies, Etc . . . . . . . . . . . . . . 74
Section 7.7 Obligors' Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
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Section 7.8 Financial Statements Accurate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 7.9 Representations Are True and Not Misleading . . . . . . . . . . . . . . . . . . . . . . . 74
Section 7.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 7.11 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 7.12 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Article 8. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.1 Note Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.2 Covenant Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.3 Default on Other Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.4 Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.5 False Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.6 Undischarged Final Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.7 Lien Claimed or Held Invalid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.8 Disposition, Encumbrance or Loss of Collateral . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.9 Liquidation, Etc. Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.10 Default under Other Facilities Papers . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.11 Assignment for the Benefit of Creditors, Voluntary Bankruptcy . . . . . . . . . . . . . . 77
Section 8.12 Involuntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.13 General Failures, Writ of Attachment, Etc . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.14 Fraudulent Concealment or Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.15 Dissolution, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.16 Environmental Claim Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.17 ERISA Claim Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.18 RICO Claim Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.19 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.20 Subordinated Line of Credit Commitment Change . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.21 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Article 9. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.2 Promptly Correct Escrow Imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.3 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.4 Maintenance of Existence and Properties; Conduct of Business . . . . . . . . . . . . . . . 82
Section 9.5 Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.6 Perform Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.7 Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.8 Investor Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.10 Pay Debt, Taxes, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.12 Other Loan Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.13 Covenants Concerning Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
</TABLE>
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Section 9.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.15 Benefit Plan Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 9.16 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Article 10. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.1 No Change of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.2 No Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.3 No Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.4 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 10.5 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.6 Minimum Servicing Portfolio Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.7 Maximum Debt to Servicing Portfolio Ratios . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.8 Minimum Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.9 Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.10 Minimum Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 10.11 Maximum Adjusted Debt to Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . . 89
Section 10.12 Maximum Adjusted Debt Less Warehouse Debt to Adjusted Tangible Net Worth . . . . . . . . . 89
Section 10.14 Maximum Serviced Mortgages Delinquency Ratio . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.15 Limitations on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 90
Section 10.16 Limitation on Unmarketable Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.17 No Uncovered Commercial Loans and No ADC, Etc. Loans . . . . . . . . . . . . . . . . . . . 91
Section 10.18 Loss of Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.19 Fiscal Year Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.20 Loans, Advances and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.21 Actions with Respect to Pledged Mortgages . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 10.22 Cancellation of Loan Servicing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 10.23 Change of Underwriting Standards for "C" or "D" Grade Mortgage Loans. . . . . . . . . . . 93
Section 10.24 Continuous Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Article 11. Agreements Concerning the Agent and the Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.1 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 11.2 Agent Will Ship Mortgage Loans with Bailee Letters . . . . . . . . . . . . . . . . . . . . 94
Section 11.3 Employment of Others by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 11.4 No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 11.5 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.6 Qualifications of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.7 Resignation of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 11.8 Removal of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.9 Effective Date of Resignation or Removal . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.10 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 11.11 Merger of the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
</TABLE>
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Section 11.12 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 11.13 Participation; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 11.14 Loan Requests; Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 11.15 Lenders' Sharing Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 11.16 Application of Collateral Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.17 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.18 Information Concerning Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.19 Expense Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 11.20 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 11.21 Rights of Individual Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 11.22 Notice to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.23 No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.24 Amendments, Modifications and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.25 Replacement of Retiring Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 11.26 Replacement Banks Replace Retiring Banks . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 11.27 Termination of Retiring Bank's Commitments . . . . . . . . . . . . . . . . . . . . . . . 105
Article 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 12.1 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 12.3 Governing Law; Jurisdiction and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 12.4 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.5 Survival; Successors and Assigns; Term . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.7 Usury Not Intended; Credit or Refund of Any Excess Payments . . . . . . . . . . . . . . . 108
Section 12.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.11 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.13 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.14 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.15 Release of Transaction Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.16 Notice Pursuant to Section 26.02 of the Tex. Bus. & Comm. Code . . . . . . . . . . . . . 110
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12/97 AMENDED AND RESTATED FACILITIES AGREEMENT
PREAMBLE:
THIS 12/97 AMENDED AND RESTATED FACILITIES AGREEMENT (the "12/97 A&R
Facilities Agreement" or within itself only, this "Agreement") dated effective
as of December 3, 1997 (the "Effective Date") made by and among (a) HARBOR
FINANCIAL MORTGAGE CORPORATION (the "Company"), a Texas corporation; (b) NEW
AMERICA FINANCIAL, INC. ("New Am Inc."), a Texas corporation that is a
wholly-owned subsidiary of the Company (the Company and New Am Inc. being the
"Obligors"); (c) TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national
banking association, in its capacities as one of the Banks, a Warehouse Bank
and a Servicing Acquisition Bank and as Agent (it and its successors in that
capacity being called the "Agent") for the other Banks; (d) the other warehouse
lenders (together with TCB, the "Warehouse Banks" and servicing acquisition
lenders (together with TCB, the "Servicing Acquisition Banks") that are
signatories and parties to this Agreement from time to time (the term "Banks"
meaning and including the Warehouse Banks and the Servicing Acquisition Banks),
and (e) HARBOR FINANCIAL GROUP, INC. ("Guarantor"), a Delaware corporation;
amending and restating in its entirety as of the Effective Date the 1/97
Amended and Restated Facilities Agreement dated as of January 31, 1997 (the
"1/97 A&R Facilities Agreement"), as amended by the 4/97 Amendment to 1/97 A&R
Facilities Agreement dated as of April ___, 1997 (the "4/97 Amendment") and the
9/97 Amendment to 1/97 A&R Facilities Agreement dated as of September ___, 1997
(the "9/97 Amendment"), each among the Obligors, the Agent and the Banks that
were then parties to them (the 1/97 A&R Facilities Agreement, as amended by the
4/97 Amendment and the 9/97 Amendment, being herein called the "Amended
Facilities Agreement");
W I T N E S S E T H :
RECITALS:
This 12/97 A&R Facilities Agreement, as it may hereafter be
supplemented, amended or restated by one or more written agreements signed by
the Obligors and the then-Banks is called the "Current Facilities Agreement",
amends and restates in its entirety the Amended Facilities Agreement and
provides for and governs (a) the $450 million revolving mortgage warehouse
credit line (the "Warehouse Line") provided for the Obligors by the Warehouse
Banks with sublimits (i) for the Warehouse Line's swing loan subline equal to
15% of the total of the Banks' Warehouse Line commitments hereunder; (ii) for
its wet warehousing subline equal to 15% or 25% thereof; (iii) for its
second-lien subline equal to 5% thereof, (iv) for its receivables advances
subline equal to 7.5% thereof -- with sub-sublimits under such receivables
advances subline (1) for such receivables advance subline's principal and
interest advances sub-subline equal to 2.5% of the Total Warehouse Line
Commitments, (2) for its taxes and insurance advances sub-subline equal to 2.5%
thereof, (3) for its VA/FHA/PMI foreclosure receivables sub-subline equal to 3%
thereof, (4) for its repurchased defaulted mortgages sub-subline equal to 1%
thereof and (5) for its foreclosed properties sub-subline
<PAGE> 14
equal to 1% thereof -- and (v) for its subprime mortgages subline equal to 20%
of such total Warehouse Line commitments of the Banks hereunder, (b) the up to
$200 million mortgage pools purchase agreement (the "Mortgage Pools Purchase
Agreement") also provided for the Obligors by the Warehouse Banks and (c) the
$45 million Servicing Acquisition Line provided for the Obligors by the
Servicing Acquisition Banks with provision for automatic conversion thereof to
an amortizing four-year term loan on December 3, 1998, the Warehouse Line and
the Mortgage Pools Purchase Agreement being subject to a $450 million Linked
Lines Limit and all of such facilities being subject to a $495 million
aggregate limit.
The Banks that are currently parties to this Agreement are named on
and have executed their respective signature pages to this Agreement.
All terms defined in this Agreement that are not specifically
redefined (or whose definition is not modified) by any future supplement or
amendment to this Agreement shall have the same meanings there as here;
provided that in the event of any conflict or inconsistency between (a) any
provision of this Agreement or any supplement or amendment to it and (b) any
provision of any later supplement or amendment to it, the provisions of the
supplement or amendment having the latest effective date shall govern and
control.
AGREEMENTS:
In consideration of the premises and $10 and other good and valuable
consideration paid by the parties to each other, the receipt and sufficiency of
which are hereby acknowledged, they hereby agree as follows:
ARTICLE 1. CERTAIN DEFINITIONS
In addition to the terms defined elsewhere in the text of this
Agreement, these terms are defined as follows:
"12/97 Master Servicing Acquisition Notes" is defined in Section 4.4.
"12/97 Master Warehouse Notes" is defined in Section 2.5.
"Adjusted Balances" means, for any calendar month, that month's daily
average of all collected balances in all non-interest bearing accounts
maintained by the Obligors with TCB during that month (although the Obligors
shall have no obligation whatsoever to maintain any deposits with TCB) less
amounts necessary (a) to satisfy reserve and deposit insurance requirements
allocable to that month and (b) to compensate TCB for services rendered to the
Obligors for that month, with each element calculated in accordance with TCB's
system of allocating reserve and deposit insurance requirements and charges for
services and as that system may be changed from time to time without notice.
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<PAGE> 15
"Adjusted Debt" means, with respect to any Person and on any day, all
of that Person's Debt on that day minus (a) the portion of that Person's Debt
which on that day is fully secured by Qualified Investment Securities and (b)
all amounts outstanding under the Mortgage Pools Purchase Agreement.
"Adjusted LIBOR Rate" means a rate per annum that on any day is equal
to the quotient of (a) LIBOR for that day divided by (b) 1.00 minus the
Eurodollar Reserve Requirement (if any) for one (1) day loans.
"Adjusted Tangible Net Worth" means, with respect to the Obligors and
on any day:
(a) the Obligors' aggregate Tangible Net Worth on that
day;
plus: (b) one hundred percent (100%) of the sum of (i) the
aggregate appraised value, as determined in accordance with Section
9.3(e)(2) by the quarterly independent appraisal (the "SR Appraisal")
most recently made (the "Current SR Appraisal") of the Obligors'
Eligible Servicing Portfolio as it existed on the effective date of
such appraisal (the "Current SR Appraisal Date") plus (ii) the
aggregate value of OMSRs (including flow Loan Servicing Rights)
subsequently sold to others and acquired by Obligors since the Current
SR Appraisal Date, determined by multiplying the aggregate outstanding
principal balances of the Serviced Mortgages that are the subject of
such recently-acquired OMSRs by the same factor (the "Applicable OMSR
Valuation Factor") that was applied by the appraiser in the Current SR
Appraisal to the principal balances of the Mortgage Loans that were
the subject of the OMSRs appraised to determine their appraised value
plus (iii) the aggregate value of the Obligors' Owned Servicing Rights
purchased from others to service Mortgage Loans not originated by the
Obligors ("PMSRs") and acquired by Obligors since the Current SR
Appraisal Date, determined by multiplying the aggregate outstanding
principal balances of the Serviced Mortgages that are the subject of
such recently-acquired PMSRs by the same factor (the "Applicable PMSR
Valuation Factor") that was applied in the Current SR Appraisal to the
principal balances of the Mortgage Loans that were the subject of the
PMSRs appraised to determine their appraised value;
plus (c) that portion of Subordinated Debt that is not due within
one (1) year of that day.
"Affected Pool" is defined in Section 3.7.
"Affiliate" means and includes, with respect to a specified Person,
any other Person:
(a) that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the specified
Person;
(b) that is a director, trustee, general partner or executive
officer of the specified Person or serves in a similar capacity in respect of
the specified Person;
3
<PAGE> 16
(c) that, directly or indirectly through one or more
intermediaries, is the beneficial owner of ten percent (10%) or more of any
class of equity securities of the specified Person; or
(d) of which the specified Person is directly or indirectly the
owner of ten percent (10%) or more of any class of equity securities.
"Agent, et al" is defined in Section 11.4.
"Applicable Margin" means:
(a) for Servicing Acquisition Loans, two and one-fourth percent
(2.25%);
(b) for outstanding Warehouse Loans that are not Wet Warehousing
Loans, one and three-eighths percent (1.375%);
(c) for outstanding Wet Warehousing Loans, one and five-eighths
percent (1.625%);
(d) for outstanding Subprime Warehouse Loans, one and five-eighths
percent (1.625%);
(e) for Swing Loans, one and five-eighths percent (1.625%);
(f) for Second-Lien Loans, one and five-eighths percent (1.625%);
(g) for P&I Loans, one and five-eighths percent (1.625%);
(h) for T&I Loans, one and five-eighths percent (1.625%);
(i) for VA/FHA/PMI Foreclosure Receivables Loans, one and
five-eighths percent (1.625%);
(j) for Repurchased Defaulted Mortgages Loans, one and
five-eighths percent (1.625%);
(k) for Foreclosed Properties Loans, one and five-eighths percent
(1.625%); and
(l) for purchases under the Mortgage Pools Purchase Agreement,
three-fourths percent (0.75%).
"Applicable Repurchase Amount" is defined in Section 3.7.
"Bailee Letter" is defined in Section 11.2.
"Business Day" means any day other than Saturday, Sunday or a day (a)
which is a legal holiday in Houston, Texas, (b) on which the Agent or any of
the Banks is authorized or obligated by
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<PAGE> 17
Law or executive order to close or (c) when dealings in dollar deposits are not
carried out in the relevant interbank dollar market.
"Ceiling Rate" means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas law
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that applicable Texas law establishes the Ceiling Rate, the Ceiling Rate
shall be the "weekly ceiling" (as defined in Section 303 of the Texas Finance
Code -- the "Texas Finance Code" -- and Chapter 1D of Title 79, Texas Rev. Civ.
Stats. 1925 -- "Chapter 1D", as amended, respectively) for that day. The
Banks may from time to time, as to current and future balances, implement any
other ceiling under the Texas Finance Code or Chapter 1D by the Agent's giving
notice to the Company if and to the extent permitted by the Texas Finance Code
or Chapter 1D.
"Chapter 1D" is defined in the definition of "Ceiling Rate".
"Change of Control" means and includes:
(a) in respect of the Company:
(1) a sale of the Company's stock or a sale of
substantially all of the Company's assets to any Person or related group of
Persons;
(2) without the Agent's and the Majority Banks' prior
written consent, any merger or consolidation of the Company with or into (A)
another Person with the effect that the Guarantor holds less than one hundred
percent (100%) of the total voting power entitled to vote in the election of
directors, managers or trustees of the survivor of such merger or consolidation
or (B) the Guarantor;
(3) the occurrence of any event after which the Guarantor
no longer owns at least one hundred percent (100%) of the total voting power
entitled to vote in the election of the Company's directors; or
(4) Richard J. Gillen is no longer the chief executive
officer and president of the Company; or
(5) the Company's liquidation or dissolution; and
(b) in respect of New Am Inc.:
(1) a sale of New Am Inc.'s stock or a sale of
substantially all of New Am Inc.'s assets to any Person or related group of
Persons;
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<PAGE> 18
(2) without the Agent's and the Majority Banks' prior
written consent, any merger or consolidation of New Am Inc. with or into (A)
another Person with the effect that the Company holds less than one hundred
percent (100%) of the total voting power entitled to vote in the election of
directors, managers or trustees of the survivor of such merger or consolidation
or (B) the Company;
(3) the occurrence of any event after which the Company
no longer owns at least one hundred percent (100%) of the total voting power
entitled to vote in the election of New Am Inc.'s directors; or
(4) Richard J. Gillen is no longer the chief executive
officer and chairman of the board of New Am Inc.; or
(5) New Am Inc.'s liquidation or dissolution; and
(c) in respect of the Guarantor:
(1) a sale of the Guarantor's stock or a sale of
substantially all of the Guarantor's assets to any Person or related group of
Persons;
(2) Richard J. Gillen is no longer chief executive
officer and president of the Guarantor;
(3) FirstCity Financial Corporation no longer directly or
indirectly owns and controls at least ninety percent (90%) of the total voting
power entitled to vote in the election of directors, managers or trustees of
the survivor of such merger or consolidation; or
(4) the Guarantor's liquidation or dissolution.
"Claims" is defined in Section 11.20.
"Collateral" means, on any day, the Obligors' or Guarantor's Property
deposited with or held by or for the Agent or any Bank in which the Agent, as
agent and representative of the Banks, is granted a Lien pursuant to this
Agreement or any other Facilities Papers or any guaranties of the Obligations.
"Collateral Proceeds" is defined in Section 11.16.
"Commitments Lapse Provision" is defined in Section 6.1.
"Commitments Schedule" means the dated schedule of the Banks'
respective Commitments under each of the Facilities that is so named and
attached to this Agreement, as it may be superseded
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<PAGE> 19
(or amended and restated) from time to time by a later-dated schedule approved
in writing by the Agent and the Obligors.
"Committed Sum" means the maximum amount a Bank has (a) committed to
lend to the Obligors under a particular Facility or (b) agreed to purchase
under the Mortgage Pools Purchase Agreement, pursuant to the Current Facilities
Agreement. The amount of each Bank's Committed Sum for each Facility for each
day is stated on the Commitments Schedule in effect for that day.
"Compliance Certificate" means the document in the form of Exhibit F,
to be completed from time to time by the Obligors pursuant to Section 9.3(f).
"Consolidated Fixed Charges" means payments of principal and interest
scheduled to be due during the time period being considered for either Senior
Acquisition Debt or Consolidated Servicing and Receivables Debt, as the case
may be.
"Consolidated Servicing and Receivables Debt" means the sum of the
outstanding principal balances of (a) all of the Obligors' Loans under the
Servicing Acquisition Line and (b) all of the Obligors' Loans (if any) under
the Receivables Advances Subline.
"Continuing Bank" means, with respect to the events described in
Sections 11.25 through 11.27, a Bank that is neither a Retiring Bank nor a New
Bank.
"Conventional Mortgage Loan" means a Residential Mortgage evidenced by
a Residential Mortgage Note, the payment of which is not guaranteed by VA or
insured by FHA.
"Current Ratio" means the ratio of current assets of the Obligors to
current liabilities of the Obligors, all as determined in accordance with GAAP.
"Current Servicing Acquisition Notes" means and includes each and all
of the Obligors' promissory notes (including the Current Servicing Acquisition
Notes) made payable to the order of a Servicing Acquisition Bank pursuant to
the Current Facilities Agreement and also includes all renewals, extensions,
rearrangements, modifications, increases and replacements of such promissory
notes made from time to time with the consent and approval of the respective
holders of such notes.
"Current SR Appraisal" is defined in the definition of "Adjusted
Tangible Net Worth".
"Current Warehouse Note" is defined in Section 2.5.
"Debt" means, with respect to any Person and on any day the sum
(without duplication) on that day of (a) all of that Person's debt (1) for
borrowed money, (2) for the deferred purchase price of Property or services, or
(3) that is evidenced by a bond, debenture, note or other instrument plus (b)
any debt secured by any Lien existing on any interest of that Person in
Property owned subject to such Lien whether or not that Person is liable for
the debt secured thereby, plus (c) all of that
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<PAGE> 20
Person's obligations under all capitalized leases, plus (d) all of that
Person's reimbursement obligations in respect of letters of credit issued to
others for such Person's account, plus (e) all debt of each partnership of
which that Person is a general partner, plus (f) all of that Person's
obligations under all guaranties, endorsements and other contingent obligations
in respect of, or any obligations to purchase or otherwise acquire, Debt of
others (other than Mortgage Loans).
"Default" is defined in Section 6.1.
"Defective Mortgage" is defined in Section 3.7.
"EDI" is defined in Section 2.14(d)(2)(A).
"Eligible Mortgage" means a Residential Mortgage that is:
(a) evidenced by a promissory note (the "Residential Mortgage
Note") payable (either originally or by one or more endorsements) to the order
of and owned and held by either Obligor (whichever is pledging it to the Agent
as Collateral) and duly endorsed in blank -- or if the Agent shall request it,
endorsed to be payable to the order of the Agent -- subject to no pledge,
security interest, collateral assignment, Lien, charge or claim held by any
Person other than the Agent. In addition, such promissory note must not have
been pledged to the Agent for more than one hundred eighty (180) days;
provided, that up to Five Million Dollars ($5,000,000) of Residential Mortgages
borrowed against under the Warehouse Line at any time may have been pledged to
the Agent for more than one hundred eighty (180) days but not more than three
hundred sixty (360) days;
(b) covered by each of (i) currently-effective policies of
mortgagee title insurance and casualty insurance, (ii) a sufficient and current
appraisal and (iii) an Investor Commitment that is sufficient in all respects
to constitute a secondary market purchase commitment to purchase such pledged
Residential Mortgage upon which the Warehouse Banks and the Agent may safely
rely as the primary source of repayment of the Warehouse Loan made (or
requested to be made) against the Warehouse Loan Value of such pledged
Residential Mortgage, and having all documentation, characteristics and
elements complete and packaged so as to satisfy every requirement of the issuer
- -- whether the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or another Qualified Investor -- of such Investor
Commitment, with all such documentation placed in a file (a "Residential
Mortgage File") organized so as to satisfy such issuer's (or, for Subprime
Mortgage Loans, the Agent's) requirements for file content, form and order, but
in any event including at least (1) the original executed Residential Mortgage
Note, (2) a certified copy of the Residential Mortgage and (3) an original
assignment of the Residential Mortgage Note in blank (including any applicable
intervening assignments), in recordable form; provided, that (1) up to forty
percent (40%) of the Total Warehouse Line Commitments of Residential Mortgages
borrowed against under the Warehouse Line at any time may be Jumbo Mortgage
Loans and (2) up to five percent (5%) of the Total Warehouse Line Commitments
of Residential Mortgages borrowed against under the Warehouse Line at any time
may be Super Jumbo Mortgage Loans; and provided further
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<PAGE> 21
that, notwithstanding any other provision of this Agreement, there is no
requirement that Subprime Mortgage Loans be covered by Investor Commitments;
(c) either (i) eligible for guaranty or insurance by the Veterans
Administration ("VA") or the Federal Housing Administration ("FHA"), or for
insurance (as to the portion of the Residential Mortgage that initially exceeds
an eighty percent (80%) loan-to-collateral value ratio) by private mortgage
insurance ("PMI") by an insurer rated "A" or better by a nationally recognized
rating agency, or (ii) an uninsured conventional mortgage loan conforming to
the maximum loan amount and loan-to-collateral value ratio standards for
guaranty by FNMA or FHLMC and with both an initial and a current
loan-to-collateral value ratio no greater than eighty percent (80%), provided
that, notwithstanding any other provision of this Agreement, there is no
requirement that Subprime Mortgage Loans be eligible for VA guaranty or FHA
insurance or be covered by PMI;
(d) in a face amount that, when aggregated with all of the other
warehoused Mortgage Loans -- whether warehoused with the Agent pursuant to this
Agreement or elsewhere with another lender or lenders or its or their custodian
or representative -- owned by whichever Obligor is pledging it to the Agent,
will not exceed the hedging coverage provided by Investor Commitments then
owned by such Obligor as determined by the Agent based on such Obligor's most
current weekly report to the Agent listing all Investor Commitments held by
such Obligor;
(e) accompanied by (1) a duly executed assignment (and any
intervening assignments) recordable (but not recorded) in the U.S. jurisdiction
where the real property securing such Residential Mortgage Note is located,
duly completed, signed, notarized, attested (if necessary for recording in that
jurisdiction) and otherwise adequate to be recorded and, by recording, to
perfect an assignment of that Residential Mortgage so as to receive the full
benefit of the recording Laws of that jurisdiction and (2) all other
instruments and documents, if any, required to provide the Agent with all the
information and authority it would need (assuming its qualification to the
extent, if any, required under the applicable Guide as a servicer) to service
such Residential Mortgage and collect all sums due under it when due and either
(A) unilaterally sell that Residential Mortgage to any Qualified Investor and
receive full payment for it, in accordance with such Qualified Investor's
Investor Commitment to purchase it or otherwise, or (B) by recording the
assignment, unilaterally clothe the Agent with full authority to demand and
receive all sums due under that Residential Mortgage from any obligor
(including guarantors) for its payment and from any servicer of that
Residential Mortgage, including, without limitation, transferring full record
title to the Agent; and
(f) otherwise satisfactory to the Agent in its sole reasonable
discretion in all other respects.
WITHOUT LIMITING ANY OF THE FOREGOING PROVISIONS, A RESIDENTIAL
MORTGAGE THAT OTHERWISE QUALIFIES AS AN ELIGIBLE MORTGAGE SHALL FAIL
OR CEASE TO BE SO QUALIFIED IF:
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<PAGE> 22
(1) it fails or ceases for any reason to be the subject
of a valid and enforceable Investor Commitment which is and remains
satisfactory to the Agent;
(2) an obligor on or under it has failed to perform an
obligation under such obligor's papers and such default has continued for
thirty (30) days;
(3) foreclosure proceedings have been commenced with
respect to it;
(4) it is not (A) secured by a first Lien (or a second
Lien for up to the Second-Lien Sublimit only) against the real property
originally securing it -- or that was purported to secure it -- or if the title
to the real property securing it ceases or fails for any reason to be currently
insured by a title insurer acceptable to the Agent for at least the outstanding
principal balance of such Residential Mortgage, or such insurer denies coverage
or liability in whole or in part or fails to assume defense of any attack on
such title for any reason, (B) in full force and effect or (C) (excluding only
Residential Mortgages whose servicing is transferred by the applicable Obligor
to another servicer with the Agent's express written consent) fully serviced
(including collection of all amounts due on or for such Residential Mortgage
Note, including both loan and escrow payments) by the applicable Obligor;
(5) it has been pledged to the Agent for more than one
hundred eighty (180) days (subject to the proviso in clause (a) in this
definition of "Eligible Mortgage"); or
(6) it has a cumulative loan-to-collateral-value ratio
that exceeds one hundred percent (100%), unless it is a VA-guaranteed or
FHA-insured mortgage.
"Eligible Receivables" is defined in Section 2.14(d)(1).
"Eligible Servicing Portfolio" means, on any day, all Serviced
Mortgages excluding those (i) as to which either Obligor is the subservicer,
(ii) for which any payment is delinquent for more than ninety (90) days or
(iii) for which any maker or mortgagor is the subject of a case in bankruptcy
or as to which the first step in foreclosure proceedings has been taken.
"Eligible Servicing Portfolio Balance" means the sum of the principal
balances of all Serviced Mortgages comprising the Eligible Servicing Portfolio.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
any successor statute, as amended from time to time, and all rules and
regulations promulgated under it.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, together with either Obligor, would be treated as a single
employer under Section 4001 of ERISA.
"Eurodollar Base Rate" means, for any Interest Period, the average
rate per annum, rounded upwards, if necessary, to the nearest one-sixteenth
percent (1/16%), available to The Chase
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<PAGE> 23
Manhattan Bank in accordance with the then-existing practices in the Interbank
Market selected for that purpose by The Chase Manhattan Bank at approximately
10:00 a.m. local time in that Interbank Market on the Rate Designation Date for
the offering to The Chase Manhattan Bank by leading dealers in that Interbank
Market of dollar deposits for delivery on the first day of such Interest
Period, in immediately available funds, for a term comparable to such Interest
Period and in an amount comparable to the relevant Loan.
"Eurodollar Rate" means, for any Interest Period, the rate per annum
rounded up, if necessary, to the nearest one-sixteenth percent (1/16%), that is
equal to the quotient of (a) the Eurodollar Base Rate divided by (b) 1.00 minus
the Eurodollar Reserve Requirement (if any), in each case for such Interest
Period.
"Eurodollar Rate Loan" means any Loan at the Eurodollar Rate plus the
Applicable Margin.
"Eurodollar Reserve Requirement" means, for the Interest Period for
each Eurodollar Rate Loan and for the time that each Adjusted LIBOR Rate Loan
is outstanding, respectively, the maximum rate (expressed as a decimal) for all
reserves required to be maintained by the Agent against any category of
liabilities that includes deposits by reference to which any Eurodollar Base
Rate or Adjusted LIBOR Rate is determined, adjusted automatically (and without
notice to the Obligors) on and as of the effective date of any change therein.
"Facilities Papers" means (a) this Current Facilities Agreement and
(b) any and all promissory notes, mortgages, deeds of trust, deeds to secure
debt and other real estate mortgage instruments, security agreements and all
other instruments, documents and agreements or other papers (including the
Notes, the Guaranty, the Warehouse Pledge Agreement, the Receivables Pledge
Agreement, the Servicing Rights Security Agreement, the Foreclosed Properties
Mortgages, if any, the Stock Pledge Agreement, the Float Control Agreement and
the Float Control Guaranty) executed or delivered pursuant to the terms of, to
guarantee or secure, or which otherwise relate to, this Current Facilities
Agreement, and any and all future amendments, supplements, renewals,
extensions, rearrangements or restatements of any of them.
"Facility" means credit or financial line, subline or facility
provided for in the Current Facilities Agreement (under this 12/97 A&R
Facilities Agreement, the term means and includes each of the Warehouse Line,
its five Sublines, its five Sub-sublines, the Mortgage Pools Purchase Agreement
and the Servicing Acquisition Line.)
"Failure Date" is defined in Section 3.7.
"Federal Funds Effective Rate" means, for any day, the weighted
average 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 which is a Business Day, the
average of the quotations for the day of such transactions received by the
Agent from three (3) federal funds
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<PAGE> 24
brokers of recognized standing selected by the Agent. Any rate of interest
based on the Federal Funds Effective Rate shall be adjusted as of the effective
date of each change in the Federal Funds Effective Rate.
"Fee" is defined in Section 3.4.
"FHA Loans" means Mortgage Loans evidenced by Residential Mortgage
Notes, payment of which is insured by FHA or which is covered by a current,
binding and enforceable commitment for such insurance issued by FHA or its
delegated underwriter.
"Financial Statements" means (a) balance sheets, (b) statements of
operations and (c) statements of cash flow. Whenever any of the Facilities
Papers calls for an Obligor to provide unaudited financial statements (or any
element of them), such Obligor agrees to provide them (or the element called
for) in the form and manner used for the Standard Financial Statements
(although all audited Financial Statements shall be prepared in accordance with
GAAP).
"FirstCity" means FirstCity Financial Corporation, a Delaware
corporation and owner of all of the capital stock of the Guarantor.
"Float Control Agreement" means a written agreement in form and
substance satisfactory to the Agent executed between the Agent (as agent and
representative of the Banks) and the Obligors by which the Obligors agree to
limit to $15,000,000 by December 31, 1997, to thereafter reduce monthly by
$5,000,000 per month and to eliminate entirely by March 31, 1998 the Obligors'
float on mortgage funding drafts drawn on their table funding accounts and to
indemnify the Banks and the Agent in respect of any claims, loss, cost, damage
and expense incurred on account of any such float.
"Float Control Guaranty" means the written guaranty in form and
substance satisfactory to the Agent executed by FirstCity guaranteeing payment
and performance of the Obligors' agreements and obligations under the Float
Control Agreement.
"Foreclosed Properties Loans" is defined in Section 2.3(e)(1).
"Foreclosed Properties Mortgages" is defined in Section 2.10.
"Foreclosed Properties Sub-subline" is defined in Section 2.3(e)(6).
"Foreclosed Properties Sublimit" is defined in Section 2.3(e)(6).
"Foreclosed Property" is defined in Section 2.3(e)(1).
"Free Adjusted Balances" means, for any calendar month, that month's
Adjusted Balances less the portion of them (if any) already used to reduce the
interest or fee charged by TCB on any Debt to TCB other than the Obligations.
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<PAGE> 25
"Funding Availability Termination Provisions" is defined in Section
6.2.
"Funding Share" means, for each Bank, that proportion of each Loan
under a particular Facility which bears the same ratio to the total amount of
the Loan under that Facility as the portion of that Bank's Committed Sum which
is applicable to that Facility bears to the total of the Committed Sums of all
Banks for that Facility.
"Funds from Operations" means the aggregate of (a) each Obligor's
pretax income minus (b) any cash taxes paid, minus (c) any noncash credits to
income (such as excess capitalized servicing and income from Loan Servicing
Rights to Mortgage Loans originated by either Obligor ("OMSRs")), plus (d) all
depreciation and amortization, plus (e) any interest payable on the Senior
Acquisition Debt -- cash or deferred -- that will become due during the entire
time period for which Funds from Operations are being calculated plus -- if
(and only if) the Eligible Servicing Portfolio Balance at the end of the period
for which Funds from Operations are being calculated is greater than the
Eligible Servicing Portfolio Balance at the beginning of that period -- (f) the
excess of (x) the aggregate appraised value, as reflected in the Current SR
Appraisal, of the Obligors' Owned Servicing Rights for the calendar quarter
ended December 31 of the prior calendar year over (y) the aggregate appraised
value, as reflected in the SR Appraisal immediately preceding the Current SR
Appraisal, of the Obligors' Owned Servicing Rights for the calendar quarter
ended December 31 of the previous calendar year, EACH WITHOUT DUPLICATION.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, stated in opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants or in statements of the
Financial Accounting Standards Board which are applicable in the circumstances
as of the date in question. The requirement that such principles be applied on
a consistent basis means that the accounting principles observed in a current
period shall be comparable in all material respects to those applied in an
earlier period, with the exception of changes in application to which the
applicable Obligor's independent certified public accountants shall have agreed
and which changes and their effects are summarized in the Financial Statements
following such changes.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States and any political
subdivision of any of them, and any agency, central bank, department,
commission, board, bureau, court or other tribunal.
"Guarantor" means Harbor Financial Group, Inc., a Delaware
corporation.
"Guaranty" means the Continuing Guaranty dated as of December 3, 1997
executed by Guarantor in favor of the Agent, as agent and representative of the
Banks, as the same may be amended, supplemented, modified and/or restated from
time to time.
"Guide" is defined in Section 3.3(a).
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<PAGE> 26
"HUD" is defined in Section 3.10(k).
"ICF Agreement" is defined in Section 10.3(c).
"In Default" means a default has occurred under a Residential Mortgage
Note or its related Residential Mortgage and has remained in existence for at
least thirty (30) days.
"Interbank Market" means such interbank market established by the
world's money center banks for dollar denominated interbank time deposits
issued outside the United States as the Agent shall choose from time to time,
among which markets available for such selection by the Agent is the London
interbank market for eurodollar deposits.
"Interest Period" means the period beginning on the date a Loan at the
Eurodollar Rate plus the Applicable Margin is designated to begin and ending on
the numerically corresponding day that is one (1), two (2) or three (3) months
thereafter, as the Obligors may select as provided herein; except (a) no
Interest Period shall be for less than one (1) month; (b) if an Interest Period
begins on a day for which there is no numerically corresponding day in the
appropriate subsequent calendar month, then that Interest Period shall end on
the last Business Day of such calendar month; (c) an Interest Period that would
otherwise end on a day that is not a Business Day shall end on the next
Business Day (or, if such next Business Day is in the next calendar month, on
the preceding Business Day), and (d) no Interest Period shall end after the
maturity of the applicable Note.
"Investments" is defined in Section 10.20.
"Investor Commitment" means a binding commitment from a Qualified
Investor in favor of the applicable Obligor to purchase Pledged Mortgages,
subject to no condition which cannot be reasonably anticipated to be satisfied
before its expiration, and acceptable in form and substance to the Agent.
"Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the
principal balance of which does not exceed Five Hundred Thousand Dollars
($500,000).
"Laws" means all applicable laws, statutes, codes, ordinances, orders,
rules, regulations, judgments, decrees, injunctions, franchises, permits,
certificates, licenses, authorizations or other determinations, directions or
requirements (including any of the foregoing which relate to environmental
standards or controls, energy regulations and occupational safety and health
standards or controls) of any domestic or foreign arbitrator, court or other
Governmental Authority.
"LIBOR" means, for any day, the rate of interest per annum which is
equal to the rate per annum determined by The Chase Manhattan Bank (which is an
Affiliate of TCB) to be the average of the interest rates available to it in
accordance with the then-existing practices in the Interbank Market in London,
England at approximately 11:00 a.m. London time for that day for the offering
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<PAGE> 27
to The Chase Manhattan Bank by leading dealers in such Interbank Market for
delivery on that day of U. S. Dollar deposits of One Million Dollars
($1,000,000) each for a one (1) month period. If for any reason the Agent
cannot determine that rate for any day, then LIBOR for that day shall be the
rate of interest per annum that is equal to the arithmetic mean of the rates
appearing on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on
that date for the offering by such institutions as are named therein to prime
banks in the Interbank Market in London, England, for delivery on that day of
U.S. dollar deposits of One Million Dollars ($1,000,000) each for a one (1)
month period. Any rate of interest based on LIBOR shall be (a) computed on the
basis of a year of three hundred sixty (360) days applied for the actual number
of days for which the borrowing to which it applies is outstanding and bears
interest in accordance with this Agreement at such rate of interest based on
LIBOR (i.e., on the 365/360 -- 366/360 in a leap year -- day basis) and (b)
adjusted as of the effective date of each change in LIBOR. The Agent's
determination of LIBOR for each day shall be conclusive and binding, absent
manifest error. For purposes of the Current Facilities Agreement and all Notes
and other Facilities Papers, LIBOR shall fluctuate upward and downward
automatically and concurrently with day-to-day changes in such arithmetic mean,
and in the amount of the change.
"LIBOR Rate Loan" means any Loan bearing interest at the Adjusted
LIBOR Rate plus the Applicable Margin.
"Lien" means any lien, mortgage, deed of trust, deed to secure debt,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature of
a mortgage or security agreement and any agreement to give any mortgage or
security interest).
"Linked Lines" is defined in Section 2.3(a).
"Linked Lines Limit" is defined in Section 2.2(a).
"Liquid Reserves" means, as of any date, the sum of (a) the Obligors'
cash on hand, (b) the Warehouse Loan Values of all Eligible Mortgages owned by
the Obligors and not pledged to any Person, (c) the undrawn balance, if any,
available to be borrowed by the Obligors under the Servicing Acquisition Line
and (d) the undrawn balance, if any, available to be borrowed by the Guarantor
under the Guarantor's committed line of credit for Subordinated Debt with the
Guarantor's corporate parent, FirstCity, a true and correct copy of the entire
agreement providing for which is attached as Schedule 5.
"Loan" means a sum or sums lent to an Obligor by any one or more of
the Banks pursuant to the Current Facilities Agreement in accordance with the
applicable borrowings procedures set forth in Section 2.14 or 4.9, including
readvances of funds previously advanced to or for the Obligors and repaid to
the Banks, if permitted.
"Loan Request" means an Obligor Order requesting a Loan, substantially
in the form of Exhibit B-1 for Warehouse Loans or Wet Warehousing Loans, B-2
for Second-Lien Loans, B-3 for
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P&I Loans, B-4 for T&I Loans, B-5 for VA/FHA/PMI Foreclosure Receivables Loans,
B-6 for Repurchased Defaulted Mortgages Loans, B-7 for Foreclosed Properties
Loans, B-8 for Servicing Acquisition Loans and B-9 for Subprime Mortgage Loan
Requests.
"Loan Servicing Agreement" means any contract, agreement or account,
whether or not in writing, now existing or hereafter established between either
Obligor (or any predecessor in interest) and any Person (including any
Governmental Authority) providing for or contemplating such Obligor's (or any
predecessor in interest's) collection, disbursement and other servicing or
management of any Mortgage Loans or portfolio of Mortgage Loans, irrespective
of whether such loan or loans are owned or held by or for the account of a
direct investor (or any pledgee of, or trustee or bailee for, any direct
investor) or pooled and/or pledged with other loans to directly or indirectly
secure, provide a source of funds to pay or otherwise support or back any PCs,
collateral mortgage obligation or other security (whether certificated or
book-entry), and whether or not such security is issued, guaranteed, insured or
bonded by GNMA, FNMA, FHLMC, an insurance company, a private issuer or any
other investor.
"Loan Servicing Rights" means and includes all of each Obligor's
rights under any of its Loan Servicing Agreements, including the rights to
service Serviced Mortgages and to be compensated, directly or indirectly, for
doing so.
"Majority Banks" means, for any day, the Banks (a) whose aggregate
Committed Sums for the Warehouse Line and the Servicing Line are sixty-six and
two-thirds percent (66-2/3%) or more of the sum of (x) the Total Warehouse Line
Commitments and (y) the Total Servicing Line Commitments if on that day the
Banks are committed to lend under the Current Facilities Agreement, or (b) the
aggregate sum of whose Loans are sixty-six and two-thirds percent (66-2/3%) or
more of the sum of (x) all Warehouse Loans then outstanding and (y) all
Servicing Acquisition Loans then outstanding if on or before that day the
Banks' commitments to lend under the Current Facilities Agreement have expired
or been terminated and have not been reinstated.
"Majority Servicing Acquisition Banks" means, for any day, the Banks
(a) whose aggregate Committed Sums for the Servicing Line are sixty-six and
two-thirds percent (66-2/3%) or more of the Total Servicing Line Commitments if
on that day the Banks are committed to lend under the Current Facilities
Agreement, or (b) the aggregate sum of whose Servicing Acquisition Loans are
sixty-six and two-thirds percent (66-2/3%) or more of all Servicing Acquisition
Loans then outstanding if on or before that day the Banks' commitments to lend
under the Current Facilities Agreement have expired or been terminated and have
not been reinstated.
"Majority Warehouse Banks" means, for any day, the Banks (a) whose
aggregate Committed Sums for the Warehouse Line are sixty-six and two-thirds
percent (66-2/3%) or more of the Total Warehouse Line Commitments if on that
day the Banks are committed to lend under the Current Facilities Agreement, or
(b) the aggregate sum of whose Warehouse Loans are sixty-six and two-thirds
percent (66-2/3%) or more of all Warehouse Loans then outstanding if on or
before that day
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the Warehouse' commitments to lend under the Current Facilities Agreement have
expired or been terminated and have not been reinstated.
"Make Whole Payment" is defined in Section 3.7.
"Margin Obligations to the Warehouse Banks" is defined in Section 3.9.
"Material Adverse Effect" means any material adverse effect on (a) the
validity or enforceability of this Agreement, any Note or any of the other
Facilities Papers, (b) the Guarantor's or either Obligor's ability to continue
in business as a going concern, (c) the Guarantor's or either Obligor's
operations, Property or financial condition, (d) any material item or part of
the Collateral or its value, (e) the priority or perfection of the Agent's
Liens in any material item or part of the Collateral or (f) the Guarantor's or
either Obligor's ability to timely repay any of its debt or guaranty
obligations to the Banks or timely perform any of its other material
obligations under this Agreement or any of the other Facilities Papers.
"MBS" is defined in Section 3.1.
"Mortgage-Backed Security" means and includes (a) a security issued
by FHLMC or (b) a security guaranteed by GNMA or FNMA or (c) a security issued
by any other Person acceptable to the Agent, which (1) is based on and backed
by an underlying pool of Residential Mortgage Notes and Residential Mortgages
or Qualified Mortgage Loans, as applicable and (2) provides for payment by its
issuer to its holder of specified principal installments and a fixed rate of
interest on the unpaid balance and for all prepayments to be passed through to
the holder, whether issued in certificated or book-entry form.
"Mortgage Loans" means residential Conventional Mortgage Loans,
Nonconforming Mortgage Loans, FHA Loans and VA Loans, or any combination of
them.
"Mortgage Pools Purchase Agreement" is defined in this Agreement's
preamble and refers to the mortgage pools purchase agreement set forth in
Article 3.
"Mortgages" is defined in Section 2.10.
"Mortgages Purchase Limit" is defined in Section 3.1.
"MPPA Value" means for any Qualified Mortgage Loan offered to the
Warehouse Banks pursuant to the Mortgages Purchase Agreement, ninety-nine
percent (99%) of the least of (a) the actual amount funded by the offering
Obligor on origination or purchase of such Qualified Mortgage Loans; (b) the
purchase price to be paid by the Qualified Investor pursuant to its Trade
Ticket entered into with the offering Obligor on the trade date stated in such
Trade Ticket, or (c) the face amounts of the promissory notes underlying such
Qualified Mortgage Loan.
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"Net Worth" means the excess of a Person's total assets over that
Person's total liabilities as each is determined in accordance with GAAP.
"New Bank" means, with respect to the events described in Sections
11.25 through 11.27, a bank or other lending institution that becomes a Bank
hereunder as a result of any such event.
"Nonconforming Mortgage Loan" means a Mortgage Loan which is neither
an FHA Loan nor a VA Loan and which (a) complied at origination with all
applicable requirements for purchase under the FNMA or FHLMC standard form of
conventional mortgage purchase contract and any supplement to it then in
effect, except only that the amount of the loan exceeded the maximum loan
amount under such requirements or all of another Qualified Investor's
requirements for its purchase and (b) currently complies with all applicable
requirements for purchase under a valid and binding Investor Commitment
covering it.
"Notes" means and includes each and all of the Obligors' promissory
notes (including the Current Warehouse Notes and the Current Servicing
Acquisition Notes) made payable to the order of a Bank pursuant to the Current
Facilities Agreement and also includes all renewals, extensions,
rearrangements, modifications, increases and replacements of such promissory
notes made from time to time with the consent and approval of the respective
holders of such notes.
"Obligations" means and includes all of the Obligors' present and
future debts, obligations and liabilities to the Banks and all renewals and
extensions of all or any part of them, arising pursuant to the Current
Facilities Agreement or any of the other Facilities Papers and all interest
accrued on them, regardless of whether such debts, obligations or liabilities
are direct, indirect, fixed, contingent, liquidated, unliquidated, joint,
several or joint and several.
"Obligor Order" means an Obligor's written or electronic order
(including a telegram, telex, teletype, telecopy or cablegram), signed or
presented in the Obligor's name by the Chairman or any Vice Chairman of its
Board of Directors, its President or any Senior Vice President, or by any other
Obligor officer who has been designated as authorized to execute Obligor Orders
in a writing executed by any of them and delivered to the Agent and as to whom
such designation has not subsequently been revoked by the same means. The
Persons authorized to issue Obligor Orders shall be listed in a written
schedule furnished by each Obligor to the Agent, and each Obligor shall update
such schedule from time to time so that the current schedule in the Agent's
possession at all time is a correct list of only those Persons currently
authorized to issue Obligor Orders. The schedule for the Effective Date and
for each day thereafter until the Obligors deliver a revised schedule to the
Agent is Schedule 4 to this Agreement.
"Offer" is defined in Section 3.2(a).
"OMSRs" is defined in the definition of "Funds from Operations".
"Order" is defined in Section 11.5.
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"Owned Servicing Rights" means the Obligors' rights under Loan
Servicing Agreements where an Obligor is the owner of the Loan Servicing Rights
that are the subject matter thereof and not merely a subservicer.
"P&I Loans" is defined in Section 2.3(e)(1).
"P&I Sub-subline" is defined in Section 2.3(e)(2).
"P&I Sublimit" is defined in Section 2.3(e)(2).
"Past Due Rate" means, for each Note on any day, the Stated Rate for
that Note for that day plus five percent (5%) per annum, but in no event to
exceed the Ceiling Rate for that day.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor to any or all of its functions under ERISA.
"PC" is defined in Section 3.1.
"Person" means and includes (a) any natural person, corporation,
limited partnership, general partnership, limited liability partnership or
company, joint stock company, joint venture, association, company, trust,
estate, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, (b) any Governmental Authority or (c) any other
organization or entity whatsoever.
"Plan" means an employee benefit plan of a type described in Section
3(3) of ERISA in respect of which either Obligor or the Guarantor is an
"employer" as defined in Section 3(5) of ERISA.
"Pledged Mortgages" means, for any day, all of the Obligors' Mortgage
Loans that have been -- and still are -- pledged to the Agent on that day.
"PMI" is defined in the definition of "Eligible Mortgage".
"PMSR" is defined in the definition of "Adjusted Tangible Net Worth".
"Pool" is defined in Section 2.2(a).
"Pool Purchase Price Paid" is defined in Section 3.4.
"Pools Stated Rate" is defined in Section 3.4.
"Potential Default" is defined in Section 6.1.
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"Proceeds" is defined in Section 3.6(e).
"Processing Fees" is defined in Section 2.12.
"Property" means any interest in any kind of tangible or intangible
property or asset, whether real, personal or mixed, including the Collateral.
"Qualified Investment Securities" means: (a) readily marketable
securities issued or fully guaranteed by the United States of America with
remaining maturities of not more than one (1) year; (b) commercial paper or any
other debt instrument rated P-1 by Moody's Investors Service, Inc. or A-1 by
Standard and Poor's Ratings Group with remaining maturities of not more than
two hundred seventy (270) days; (c) FNMA and FHLMC discount notes with
remaining maturities of not more than one (1) year; (d) certificates of deposit
fully insured by the FDIC -- or, if not, that are issued by financial
institutions acceptable to the Agent -- with remaining maturities of not more
than one (1) year; (e) banker's acceptances with remaining maturities of not
more than one (1) year issued by banks whose short-term credit is rated P-1 by
Moody's Investors Service, Inc. or A-1 by Standard and Poor's Ratings Group;
(f) securities received in settlement of liabilities created in the ordinary
course of business and (g) other investment quality securities with remaining
maturities of not more than one (1) year and which are specifically approved by
the Agent.
"Qualified Investor" means GNMA, FNMA, FHLMC, any of the Persons
listed on Schedule 1 or any other financially responsible Person which the
Obligors have added to a copy of a new Schedule 1 dated (to show it is new) and
sent to the Agent with that Person's name (and any other newly-added Persons'
names) highlighted or otherwise marked to clearly indicate the addition(s) and
which the Agent has not disapproved (either on its own initiative or because
the Majority Warehouse Banks have disapproved them) by notice given to the
Obligors within thirty (30) days of the Agent's receipt of such revised
Schedule 1; provided that until any such new Qualified Investor has been
approved by the Majority Warehouse Banks, either affirmatively or by their
failing to notify the Agent of their disapproval within thirty (30) days after
the Agent's receipt from the Obligors of the Obligors' addition of such new
Qualified Investor to Schedule 1 -- the Agent shall promptly notify the
Warehouse Banks of the name of each such new Qualified Investor -- the Agent
shall not ship Pledged Mortgages having aggregate Warehouse Loan Values of more
than Five Million Dollars ($5,000,000) to that Qualified Investor; and provided
further that at any time by written notice to the Agent (stating their reason
or reasons) the Majority Warehouse Banks may disapprove any Qualified Investor
because they have determined in their sole discretion and for any reason that
they are no longer comfortable with that Person's being a Qualified Investor,
whether or not that Person is named as a Qualified Investor in this definition
or on Schedule 1 or has previously been approved as a Qualified Investor by the
Majority Warehouse Banks. Upon receipt of such a notice from the Majority
Warehouse Banks, the Agent shall give written notice to the Obligors of the
Majority Warehouse Banks' disapproval of all Qualified Investors named in the
notice, whereupon the Persons named in the Agent's notice to the Obligors shall
no longer be Qualified Investors from and after the time when the Agent sends
that notice to the Obligors.
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"Qualified Mortgage Loans" is defined in Section 3.1.
"Qualified Substitute Ticket" is defined in Section 3.5(b).
"Ratably" means in accordance with the Banks' respective ownership
interests in a particular Facility. On any day, each Bank will own that
portion of each Facility, both principal and accrued interest -- and will have
an undivided interest in each guaranty of that Facility, all other Collateral
for that Facility and all rights to proceeds of all guarantees of and other
Collateral for that Facility, equal to that Bank's ownership interest in that
Facility -- or purchase interest, which bears the same ratio to the entire
advanced and unpaid principal or purchase interest of that Facility then
outstanding as that Bank's Committed Sum for that Facility bears to the total
of the Committed Sums of all Banks for that Facility, subject to this
adjustment: if at any time or times, any Bank fails or refuses to fund its
Funding Share of any Loan or purchase under a Facility when such Bank is
obligated to do so, and one or more of the other Banks elects (in the sole
discretion of each Bank and for such amount, if any, as each Bank shall itself
determine) to fund or purchase it, then:
(a) the respective ownership interests in that Facility and its
Collateral of (1) the Bank which failed or refused to fund or purchase its
Funding Share and (2) the Bank (or Banks) which funded or purchased that
Funding Share, shall be proportionately decreased and increased, respectively,
to the same extent as if their respective Committed Sums for that Facility were
changed in direct proportion to the unreimbursed principal balance of the
amount so funded or purchased that is thereafter outstanding from time to time;
(b) the nonfunding Bank's share of all future distributions of any
payments and prepayments on the Note payable to the nonfunding Bank and
evidencing the Obligations under that Facility shall be paid to the Bank (or
Banks) which funded or purchased its Funding Share until such funding or
purchasing Bank(s) have been fully repaid the amount so funded or purchased by
such funding or purchasing Bank(s); and
(c) such adjustment shall remain in effect until such time as the
Bank (or Banks) which funded or purchased the nonfunding or nonpurchasing
Bank's Funding Share have been so fully repaid.
"Rate Designation Date" means the Business Day which is in the case of
Loans (a) at the Eurodollar Rate plus the Applicable Margin, two (2) Business
Days preceding the first day of any proposed Interest Period and (b) at any
other interest rate, on the date of such Loan.
"Receivables Advances Loans" is defined in Section 2.3(e).
"Receivables Advances Sublimit" is defined in Section 2.3(e).
"Receivables Advances Subline" is defined in Section 2.3(e).
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"Receivables Loan Values" means the following percentages of the
following categories of Eligible Receivables:
(a) ninety-five percent (95%) of the value of the borrowing
Obligor's equity in accounts or general intangibles owned by such Obligor under
which such Obligor has an enforceable and liquidated claim ("Receivables
Claim") against obligors and their accounts, an insurer or another identified
Person under any Mortgage Loan serviced by such Obligor for reimbursement of
advances made by such Obligor that qualify for P&I Loans (such value being
equal to the amount of such Receivables Claim);
(b) ninety percent (90%) of the value of the borrowing Obligor's
Receivables Claim against obligors and their accounts, an insurer or another
identified Person under any Serviced Mortgage for reimbursement of advances
made by such Obligor that qualify for T&I Loans (such value being equal to the
amount of such Receivables Claim);
(c) ninety percent (90%) of the value of the borrowing Obligor's
Receivables Claim against obligors and their accounts, an insurer, a guarantor
or another identified Person under or in respect of any Repurchased Defaulted
Mortgage for reimbursement of advances made by such Obligor that qualify for
VA/FHA/PMI Foreclosure Receivables Loans (such value being equal to the amount
of such Receivables Claim);
(d) seventy-five percent (75%) of the lesser of (i) the
outstanding principal balance of the relevant Repurchased Defaulted Mortgage or
(ii) the current fair value of the real property covered by the relevant
Repurchased Defaulted Mortgage according to a reasonably current appraisal or
broker's price opinion which the borrowing Obligor is satisfied is
substantially correct, for any Repurchased Defaulted Mortgage that qualifies
for repurchase financing by a Repurchased Defaulted Mortgages Loan and that is
less than two hundred seventy (270) days old, reckoned from the date when
either Obligor (or any Affiliate) purchased such Repurchased Defaulted Mortgage
(pursuant to a right or obligation as its servicer to do so); and
(e) seventy-five percent (75%) of the current (as of the time of
borrowing) fair value of each unit of Foreclosed Property as set forth on a
current appraisal satisfactory to the Agent;
provided, that each account, general intangible or Foreclosed Properties
Mortgage that fails or ceases to qualify as an Eligible Receivable for any
reason shall automatically have a Receivables Loan Value of zero from and after
the date when the first disqualifying event occurs and for so long as it
remains disqualified.
"Receivables Pledge Agreement" means the 12/97 Receivables Pledge
Agreement dated as of December 3, 1997 by and among the Obligors and the Agent,
as agent and representative of the Banks, covering all of Obligors' rights to
reimbursement or compensation for Obligors' advancement on, or purchase of,
loans which Obligors service, as the same may be amended, supplemented,
modified and/or restated from time to time.
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"Regulation Q" means Part 217 of Title 12 of the Code of Federal
Regulations, as in effect on December 1, 1996 and as it may be amended or
modified from time to time.
"Released Persons" is defined in Section 11.4.
"Replacement Bank" means a bank or other lending institution that
replaces a bank or other lending institution that ceases to be a Bank under
this Agreement pursuant to the operation of Section 11.25.
"Reportable Event" means a reportable event described in Section 4043
of ERISA or the regulations thereunder for which the 30-day notice is not
waived by such regulations, a withdrawal from a Plan described in Section 4063
or 4064 of ERISA or a cessation of operations described in Section 4062(f) of
ERISA.
"Repurchased Defaulted Mortgage" means a defaulted Residential
Mortgage repurchased by an Obligor from a Qualified Investor or out of a GNMA,
FNMA or FHLMC Pool pursuant to such Obligor's contractual obligation as its
servicer to do so.
"Repurchased Defaulted Mortgages Loan" is defined in Section
2.3(e)(1).
"Repurchased Defaulted Mortgages Sublimit" is defined in Section
2.3(e)(5).
"Repurchased Defaulted Mortgages Sub-subline" is defined in Section
2.3(e)(5).
"Residential Mortgage" means a loan secured by a first Lien (or second
Lien for up to the Second-Lien Sublimit only) Mortgage appropriate to the U.S.
jurisdiction where the real estate securing the Mortgage Loan is located,
covering real estate improved by one single-, two-, three- or four-family
dwelling and the land on which it is located, or a single one-family
residential condominium unit and its related easements and proportionate
interests in common elements.
"Retiring Bank" means a bank or other lending institution that ceases
to be a Bank under this Agreement pursuant to the operation of Section 11.25.
"Reuters Screen LIBO Page" means the display designated as page "LIBO"
on the Reuters Monitor Money Rates Service or such other nationally recognized
money rates service as the Agent shall select from time to time, or such other
page, if any, as shall replace or be fairly comparable to the LIBO page on any
such selected service for the purpose of displaying London interbank offered
rates of major banks.
"Revolving Servicing Acquisition Facility Fee" is defined in Section
4.8.
"Revolving Servicing Acquisition Termination/Conversion Date" is
defined in Section 4.2.
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"RHS" means the Rural Housing Service of the U.S. Department of
Agriculture or such other governmental agency, if any, as shall succeed to the
Rural Housing Service's authority to administer its (or its predecessor
guarantor, the Farmers Home Administration's) guaranties of Mortgage Loans.
"Sale Price" is defined in Section 3.5.
"Second-Lien Loans" is defined in Section 2.3(d).
"Second-Lien Sublimit" is defined in Section 2.3(d).
"Second-Lien Subline" is defined in Section 2.3(d).
"Securities" is defined in Section 3.1.
"Securitized" is defined in Section 3.1.
"Senior Acquisition Debt" means Debt incurred by either Obligor to
directly or indirectly acquire Owned Servicing Rights, and excluding only any
such Debt that is Subordinated Debt.
"Serviced Mortgages" means Mortgage Loans or commercial mortgage loans
which either Obligor has the right or obligation to service under any Loan
Servicing Agreement.
"Servicing Acquisition Collateral" is defined in Section 2.10.
"Servicing Acquisition Limit" is defined in Section 4.1.
"Servicing Acquisition Line" is defined in Section 4.1.
"Servicing Acquisition Line Commitments" is defined in Section 4.8.
"Servicing Acquisition Loans" is defined in Section 4.1.
"Servicing Rights" is defined in Section 4.1.
"Servicing Rights Security Agreement" means the 12/97 Security
Agreement-Assignment (Loan Servicing Agreements) dated as of December 3, 1997
by and among the Obligors and the Agent, as agent and representative of the
Banks, covering Obligors' loan servicing agreements and all rights and
interests relating thereto, as the same may be amended, supplemented, modified
and/or restated from time to time.
"Settlement Date" is defined in Section 3.1.
"Shortfall Amount" is defined in Section 3.7.
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"SR Appraisal" is defined in the definition of "Tangible Net Worth".
"Standard Financial Statements" means financial statements
substantially in the form of the Obligors' December 31, 1996 financial
statements reproduced as Schedule 2, including each schedule and all of the
detail provided in the Obligors' November 30, 1996 financial statements
previously furnished to the Agent, including the monthly management reports,
with only such changes to format, schedules and presentation as are acceptable
to the Agent or are required by GAAP.
"Stated Rate" means, for each Loan on any day, either of the following
rates, as designated by the borrowing Obligor in the related Loan Request: (a)
the Adjusted LIBOR Rate for that day plus the Applicable Margin for that day
and for that Loan or (b) the Eurodollar Rate for that day plus the Applicable
Margin for that day and for that Loan, each computed in accordance with the
provisions of the Current Facilities Agreement; provided, that if on any day
any rate so designated for any Loan shall exceed the Ceiling Rate for that day,
then the Stated Rate for that Loan shall be fixed at the Ceiling Rate on that
day and on each day thereafter until the total amount of interest accrued at
the Stated Rate on the unpaid balance of that Loan equals the total amount of
interest that would have accrued on it if there were no Ceiling Rate; and
provided further, that the Obligors may elect as the Stated Rate to be applied
for that day to a designated portion of the then-outstanding Loans which
portion is both (1) not past due and (2) less than or equal to the Free
Adjusted Balances, a rate per annum equal to the Applicable Margin (only) for
that day and for those respective Loans; however, to the extent that the
portion so designated exceeds the TCB Balances, the Agent will pay to the Banks
other than TCB, Ratably, interest on such excess at a rate per annum equal to
the Applicable Margin plus the Federal Funds Effective Rate although if doing
so would violate Regulation Q, on demand made by the Agent, the Obligors shall
gross-up and pay to the Agent the interest on that designated portion so that
the Agent will have the funds to pay the interest due to the other Banks
without violating Regulation Q. In no event will the Agent ever be obligated
to pay any amount that would violate Regulation Q.
"Stock Pledge Agreement" means the 12/97 Security Agreement-Pledge
(Stock) dated as of December 3, 1997 by and between Guarantor and the Agent, as
agent and representative of the Banks, covering all of Guarantor's rights,
titles and interests in the stock of the Company, as the same may be amended,
supplemented, modified and/or restated from time to time.
"Sub-sublines" is defined in Section 2.1.
"Sublines" is defined in Section 2.1.
"Subordinated Debt" means Debt that is (a) is owed to Persons other
than one or more of the Banks, (b) is fully subordinated to all present and
future Obligations owing to the Banks by written subordination provisions that
are in form and substance approved by the Agent and (c) has been consented to
in a writing signed by the Agent.
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"Subprime Mortgage Loan" means a Residential Mortgage that (i) would
be an Eligible Mortgage except that it is not eligible for purchase by GNMA,
FNMA or FHLMC and (ii) satisfies the relevant Obligor's Subprime Underwriting
Standards.
"Subprime Mortgages Sublimit" is defined in Section 2.3(f).
"Subprime Mortgages Subline" is defined in Section 2.3(f).
"Subprime Underwriting Standards" means the Obligors' respective
underwriting standards for classification of Mortgage Loans as "A-", "B", "C"
or "D" credit grade Mortgage Loans.
"Subprime Warehouse Loan" means a Warehouse Loan to finance an
Obligor's origination or purchase of Subprime Mortgage Loans.
"Subsidiary" means any Person (other than a natural person) in which
any other Person (directly or through one or more other Subsidiaries or other
types of intermediaries), owns or controls:
(a) more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of its directors, managers or
trustees; or
(b) more than fifty percent (50%) of the total assets and more
than fifty percent (50%) of the total equity through the ownership of capital
stock (which may be nonvoting) or a similar device or indicia of equity
ownership.
"Substitute Mortgage" is defined in Section 3.7.
"Super Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the
principal balance of which exceeds Five Hundred Thousand Dollars ($500,000) but
is no greater than One Million Dollars ($1,000,000).
"Swing Line Note" is defined in Section 2.5.
"Swing Loans" is defined in Section 2.3(b)(1).
"Swing Sublimit" is defined in Section 2.3(b).
"Swing Subline" is defined in Section 2.3(b).
"T&I Loans" is defined in Section 2.3(e)(1).
"T&I Sub-subline" is defined in Section 2.3(e)(3).
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"T&I Sublimit" is defined in Section 2.3(e)(3).
"Tangible Net Worth" means with respect to any Person on any day:
(a) that Person's Net Worth on that day;
less (b) the sum of (1) aggregate advances to shareholders, officers or
Affiliates (other than the Guarantor or FirstCity) in excess of Five
Hundred Thousand Dollars ($500,000), (2) aggregate advances to the
Guarantor or FirstCity, (3) investments in Subsidiaries (provided that
the portion of such investment reasonably allocable to tangible assets
of Subsidiaries, as determined in accordance with GAAP, to the extent
acceptable to HUD for the purpose of calculating adjusted net worth in
accordance with its requirement in effect as of such day and as
detailed in a note to such Obligor's financial statements furnished to
the Agent, shall not be required to be deducted from Net Worth) and
other Affiliates, (4) purchased Owned Servicing Rights, (5) originated
Owned Servicing Rights, (6) intangibles and (7) capitalized excess
service fees, goodwill and all other assets that would be deemed by
HUD to be unacceptable for the purpose of calculating adjusted net
worth in accordance with its requirements in effect as of such day;
plus (c) negative goodwill (however denominated on that Person's books)
and, if and to the extent approved in writing by the Agent, deferred
taxes.
"TCB Balances" means, for any calendar month, the sum of (a) the
aggregate principal balances of all Notes held by TCB and (b) TCB's share of
the Warehouse Banks' Invested Balance under the Mortgage Pools Purchase
Agreement.
"Termination Notice" is defined in Section 6.2.
"Texas Finance Code" is defined in the definition of "Ceiling Rate".
"Total Mortgages Purchase Limit" means, for any day, the total of the
Mortgages Purchase Limits for all of the Warehouse Banks, as shown on the
Commitments Schedule in effect for that day.
"Total Servicing Acquisition Line Commitments" means, for any day, the
total of the Servicing Acquisition Line Committed Sums for all of the Servicing
Acquisition Banks, as shown on the Commitments Schedule in effect for that day.
"Total Warehouse Line Commitments" means, for any day, the total of
the Warehouse Line Committed Sums for all of the Warehouse Banks, as shown on
the Commitments Schedule in effect for that day.
"Trade Ticket" is defined in Section 3.1.
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"Transaction Claim" is defined in Section 12.15.
"UCC" means the Uniform Commercial Code of any relevant jurisdiction.
"VA/FHA/PMI Foreclosure Receivables Loans" is defined in Section
2.3(e)(1).
"VA/FHA/PMI Foreclosure Receivables Sub-subline" is defined in Section
2.3(e)(4).
"VA/FHA/PMI Foreclosure Receivables Sublimit" is defined in Section
2.3(e)(4).
"VA Loans" means Mortgage Loans evidenced by a Residential Mortgage
Note, payment of which is either partially or completely guaranteed by the VA
or which is covered by a current, binding and enforceable commitment for a
guaranty issued by the VA.
"Warehouse Banks' Invested Balance" is defined in Section 3.4.
"Warehouse Banks' Net Share" is defined in Section 3.4.
"Warehouse Collateral" is defined in Section 2.10.
"Warehouse Facility Fee" is defined in Section 2.11.
"Warehouse Final Termination Date" is defined in Section 2.11.
"Warehouse Line Commitments" is defined in Section 2.11.
"Warehouse Loan Value" means, on any day, for each Residential
Mortgage, ninety-eight percent (98%) of the lesser of (a) its "Acquisition
Cost" which is the amount the Obligor that is pledging it to the Agent paid for
it, i.e., the net amount actually funded against a Residential Mortgage
originated by the applicable Obligor or the net purchase price of an Eligible
Mortgage purchased by it (prorated according to their original principal
amounts for Residential Mortgages in any Pool purchased by it) or (b) its
"Allocated Commitment Price", which is the investor commitment price stated in
the Investor Commitment covering that Residential Mortgage (similarly
prorated); provided, that the Warehouse Loan Value of any Residential Mortgage
originated or acquired by either Obligor, whether funded as a refinancing of an
existing residential Mortgage Loan or purchased by it, for an amount or at a
premium price in excess of its "Par Value" -- which is hereby defined to mean,
(1) in the case of a residential Mortgage Loan refinanced by either Obligor, an
amount equal to the unpaid principal balance of the residential Mortgage Loan
refinanced or, (2) in the case of a purchased residential Mortgage Loan, its
unpaid principal balance on the date of purchase -- shall not exceed that
residential Mortgage Loan's Par Value, even though the applicable Obligor
funded or paid more than its Par Value for it and even if the Investor
Commitment covering it specifies a purchase price for it greater than its Par
Value; provided further, that if on any day the aggregate Warehouse Loan Values
of all Pledged Mortgages whose Mortgage Notes are dated earlier than one
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hundred eighty (180) days before that day (the "Seasoned Pledged Mortgages")
shall exceed an amount equal to five percent (5%) of the aggregate Committed
Sums for that same day of all Banks for the Warehouse Line of Residential
Mortgages (the "5% Limit"), then the Warehouse Loan Values of all such Seasoned
Pledged Mortgages shall be deemed equal to the 5% Limit; and provided further,
that each Residential Mortgage that fails or ceases to qualify as an Eligible
Mortgage for any reason shall automatically have a Warehouse Loan Value of zero
from and after the date when the first disqualifying event occurs and for so
long as it remains disqualified.
"Warehouse Loans" is defined in Section 2.2(a).
"Warehouse Pledge Agreement" means the 12/97 Security Agreement-Pledge
of Secured Notes (Warehouse) dated as of December 3, 1997 by and among the
Obligors and the Agent, as agent and representative of the Banks, covering all
of Obligors' rights, titles and interest in and to all promissory notes and all
documents and instruments securing, guaranteeing or otherwise relating to such
promissory notes, as the same may be amended, supplemented, modified and/or
restated from time to time.
"Warehouse Termination Date" is defined in Section 2.2(a).
"Wet Mortgage Loan" means a Mortgage Loan newly originated or
purchased by the Obligors:
(a) which would qualify as an Eligible Mortgage (including having
been funded and, if funded by draft, such draft has been paid) without
restriction or qualification, except that some or all of the papers evidencing,
securing or otherwise relating to it have not been delivered to the Agent;
(b) which the applicable Obligor actually and reasonably expects
to fully qualify as an Eligible Mortgage when the original Residential Mortgage
Note, Residential Mortgage and all other documents in the Residential Mortgage
File have been executed and delivered; and
(c) as to which the applicable Obligor actually and reasonably
expects that such full qualification can and will be achieved on or before five
(5) Business Days after the day when such Mortgage Loan is first submitted to
the Agent as Collateral (excluding the day on which such Wet Mortgage Loan is
so submitted.)
"Wet Warehousing Loans" is defined in Section 2.3(c).
"Wet Warehousing Sublimit" is defined in Section 2.3(c).
"Wet Warehousing Subline" is defined in Section 2.3(c).
Except where specifically otherwise provided:
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(a) Wherever the term "including" or any of its correlatives
appears in this Agreement or any other Facilities Papers, it shall be read as
if it were written, "including (by way of example and without limiting the
generality of the subject or concept referred to)", unless it is already
followed by words to that effect.
(b) Except where otherwise specified, all times of day used in the
Facilities Papers mean local time in Houston, Texas.
(c) References in any of the Facilities Papers to any property's
being pledged to the Agent or any Lien's or security interest's being granted
to or held by the Agent (or required so to be) shall mean, respectively, duly
pledged to, granted to or held by the Agent, for itself as a Warehouse Bank or
Servicing Acquisition Bank (whichever the context requires) and as agent and
representative of the other Warehouse Banks or Servicing Acquisition Banks
(also as the context requires), so that the Agent (for itself as such a Bank
and as agent and representative of such other Banks) has a duly perfected first
and prior security interest in the subject property to secure the Obligations.
References to when -- or how long -- property has been pledged to the Agent
shall be deemed to refer to -- or be reckoned from -- the day when such
property was first pledged to TCB by one of the Obligors, whether TCB was then
serving as Agent of the Banks herein, acting as others' agent or acting for its
own account.
(d) References in any of the Facilities Papers to Article or
Section numbers are references to the Articles and Sections of that Facilities
Paper.
(e) References in any of the Facilities Papers to Exhibits,
Schedules, Annexes and Appendices are references to the Exhibits, Schedules,
Annexes and Appendices to that Facilities Paper and they shall be deemed
incorporated into that Facilities Paper as if set forth verbatim at each such
reference.
(f) Wherever the word "herein" of "hereof" is used in any of the
Facilities Papers, it is a reference to that entire Facilities Paper and not
just to the Section, clause or subdivision of it in which the word is used.
(g) Words and phrases used or defined in the UCC in force in the
State of Texas on the effective date of this 12/97 A&R Facilities Agreement
that are not redefined in this Agreement have the same meanings here as there.
(h) Accounting terms not otherwise defined shall have the meanings
given them under GAAP.
(i) Defined terms may be used in the singular or the plural, as
the context requires.
ARTICLE 2. THE WAREHOUSE LINE
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Section 2.1 General Terms for the Warehouse Line and its Sublines
and Sub-sublines. This Article sets forth terms and conditions governing the
Obligors' Warehouse Line, its Swing Subline, its Wet Warehousing Subline, its
Second- Lien Subline, its Receivables Advances Subline (and its five
Sub-sublines: (a) the P&I Sub-subline; (b) the T&I Sub-subline; (c) the
VA/FHA/PMI Foreclosure Receivables Sub-subline, (d) the Repurchased Defaulted
Mortgages Sub-subline) and (e) the Foreclosed Properties Sub-subline) and its
Subprime Mortgages Subline (the Swing Subline, the Wet Warehousing Subline, the
Second-Lien Subline, the Receivables Advances Subline and the Subprime
Mortgages Subline being the "Sublines") and the P&I Sub-subline, the T&I
Sub-subline, the VA/FHA/PMI Foreclosure Receivables Sub-subline, the
Repurchased Defaulted Mortgages Sub-subline and the Foreclosed Properties
Sub-subline of the Receivables Advances Subline being the "Sub-sublines")
requested by the Obligors and approved by the Warehouse Banks. Its provisions
are subject to the other terms and conditions of the Current Facilities
Agreement.
Section 2.2 The Warehouse Line.
(a) Subject to the provisions of Section 2.13 and the other terms
and conditions of this Agreement, the Warehouse Banks agree to make and
continue loans (the "Warehouse Loans") to the Obligors under the Warehouse Line
in aggregate principal amounts outstanding on any day of up to Four Hundred
Fifty Million Dollars ($450,000,000) (the "Linked Lines Limit") for each day
until March 31, 1999 (the "Warehouse Termination Date") solely (1) to finance
each Obligor's funding of SUCH OBLIGOR'S OWN Residential Mortgages that are
Eligible Mortgages originated by such Obligor to (or for the account of) the
obligor(s) on such Eligible Mortgages, (2) to finance SUCH OBLIGOR'S OWN
purchase of Eligible Mortgages that were not originated by such Obligor and (3)
to finance Eligible Receivables, and for no other applications or purposes.
Each Obligor agrees to use the credit extended to it to carry each such
Residential Mortgage only for so long as (x) it continues to satisfy all of the
requirements to be an Eligible Mortgage and (y) the borrowing Obligor is
diligently taking all steps necessary to complete either (i) the sale of that
Residential Mortgage (if the Investor Commitment covering it contemplates its
purchase as a whole loan), or (ii) its securitization as part of a pool of
Residential Mortgages (a "Pool") and the sale of the resulting Mortgage-Backed
Securities (if the Investor Commitment covering it contemplates securitization
of a Pool that includes such Eligible Mortgage and the Qualified Investor's
purchase of the resulting Mortgaged-Backed Securities).
(b) The Warehouse Banks' commitments are several and not joint --
no Bank has any obligation under this Agreement to fund any part of any other
Bank's Warehouse Line Commitment or Mortgages Purchase Limit or otherwise --
and the respective commitments of the Warehouse Banks and the sublimits
applicable to those commitments are set forth on the Commitments Schedule.
(c) The failure of any Warehouse Bank to fund any part of its
Warehouse Line Commitment or Mortgages Purchase Limit shall not in itself
relieve any other Warehouse Bank of its obligation to fund its Warehouse Line
Commitment and Mortgages Purchase Limit; provided, that no Warehouse Bank shall
be responsible or incur any liability whatsoever for the failure of any other
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Warehouse Bank to fund any of its Funding Shares or make any Loan that such
other Warehouse Bank is obligated to fund or make.
(d) The maximum credit henceforth available on any day under the
Warehouse Line (including credit under the Sublines and Sub-sublines) is and
shall be:
(1) the Linked Lines Limit for that day;
minus (2) the sum of (i) the Warehouse Banks' Net Shares outstanding
on that day for all Pools purchased by them from the Obligors pursuant to the
Mortgage Pools Purchase Agreement and (ii) the aggregate principal amount of
Warehouse Loans outstanding.
Section 2.3 Linked Lines and Sublines and Sub-subline defined.
(a) The term "Linked Lines" means the Warehouse Line and the
Mortgage Pools Purchase Agreement. Each borrowing or purchase under either
Linked Line will automatically reduce, dollar for dollar, the principal amount
available to be borrowed or purchased under each Linked Line for so long as
that borrowing or purchase is outstanding.
(b) The "Swing Subline" is a sublimit under the Warehouse Line
under which Subline the Obligors may borrow, repay and reborrow from TCB only
up to an aggregate amount equal to fifteen percent (15%) of the Total Warehouse
Line Commitments (the "Swing Sublimit"), against Eligible Mortgages and/or Wet
Mortgage Loans and in conformity with all other applicable limits or sublimits:
(1) for the purpose of promptly funding Loans under the
Warehouse Line or its Wet Warehousing Subline which either are requested by the
Obligors after the deadline for submitting Loan Requests specified in Section
2.14 or for which the Warehouse Banks other than TCB do not receive notice of
the Loan Request by the deadline specified in Section 2.14 ("Swing Loans");
(2) so long as the Swing Sublimit is never exceeded;
(3) provided that the Loan Request deemed to be a request
for a Swing Loan is received by TCB by no later than 2:30 p.m. on the Business
Day such Swing Loan is to be made; and
(4) provided that neither the requesting Obligor nor TCB
is aware of any reason why the Swing Loan requested by the Loan Request cannot
or will not be fully funded by the Warehouse Banks within five (5) or fewer
Business Days following the Business Day on which such Loan Request is received
by TCB.
(c) The "Wet Warehousing Subline" is a sublimit under the
Warehouse Line under which Subline the Obligors may borrow, repay and reborrow,
as "Wet Warehousing Loans", up to an amount equal to, at any one time
outstanding, (i) twenty-five percent (25%) of the Total Warehouse Line
Commitments during the first five (5) Business Days and last five (5) Business
Days of any
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calendar month or (ii) fifteen percent (15%) of the Total Warehouse Line
Commitments during the remainder of each calendar month (the "Wet Warehousing
Sublimit," which term shall refer to the dollar limit for the applicable period
of each calendar month) against the Warehouse Loan Value of pledged Wet
Mortgage Loans, each of which:
(1) is originated by the borrowing Obligor, or is
purchased by the borrowing Obligor substantially concurrently with its
origination by another Person;
(2) is funded by the borrowing Obligor substantially
concurrently with the borrowing Obligor's pledging it to the Agent as
Collateral hereunder; and
(3) is set out on the list of Wet Warehousing Loans more
fully described in Section 2.14(b).
When the Residential Mortgage File, including the original promissory note for
such a Wet Mortgage Loan duly endorsed (as required by clause (a) in the
definition of "Eligible Mortgage") is actually received by the Agent --
provided, of course, that it qualifies under all other requirements of this
Agreement to constitute an Eligible Mortgage -- it will no longer be considered
a Wet Mortgage Loan under the Wet Warehousing Subline, but will instead
thenceforth be treated as an Eligible Mortgage under the Warehouse Line itself.
(d) The "Second-Lien Subline" is a sublimit under the Warehouse
Line under which Subline the Obligors may borrow, repay and reborrow up to an
aggregate amount equal to five percent (5%) of the Total Warehouse Line
Commitments (the "Second-Lien Sublimit") from time to time solely for the
acquisition or funding of SUCH OBLIGOR'S OWN second-Lien Residential Mortgages
that satisfy every requirement of GNMA, FNMA or FHLMC or another Investor
acceptable to the Agent under its Investor Commitment covering such second-Lien
Residential Mortgages ("Second-Lien Loans").
(e) The "Receivables Advances Subline" is a sublimit under the
Warehouse Line under which Subline the Obligors may borrow, repay and reborrow
up to an aggregate principal amount equal to seven and one-half percent (7.5%)
of the Total Warehouse Line Commitments (the "Receivables Advances Sublimit")
from time to time solely to finance the applicable Obligor's fundings of any of
the following ("Receivables Advances Loans"):
(1) The applicable Obligor's advances required pursuant
to the applicable Obligor's obligations as servicer under the relevant Guide
(or its equivalent where such Obligor is servicer for another Qualified
Investor) to cover (A) shortfalls between (w) principal and interest
installments collected from the obligors on serviced Residential Mortgages and
(x) the scheduled principal and interest payments due to the owners of such
Residential Mortgages or the holders of the Mortgage-Backed Securities based on
and backed by such serviced Pool ("P&I Loans"), (B) shortfalls between (y)
property tax and property insurance escrow payments collected from the obligors
on serviced Residential Mortgages and (z) the property tax and property
insurance premiums
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actually due for the real estate described in such Residential Mortgages ("T&I
Loans"); (C) (i) foreclosure expenses for defaulted Residential Mortgages
serviced by the Obligors where the Obligors are obligated by their Loan
Servicing Agreements to advance such foreclosure expenses; (ii) purchases out
of such serviced Pools of Repurchased Defaulted Mortgages that are either
guaranteed or insured by VA, FHA or such PMI companies as may be approved by
the Agent, pending payment of the guaranty or insurance claims under their VA
mortgage guaranties or their FHA insurance or PMI, or payment of the guaranty
claims by FNMA or FHLMC as to mortgages repurchased out of FNMA or FHLMC
mortgage pools for which FNMA or FHLMC accepted the default and foreclosure
risk ("VA/FHA/PMI Foreclosure Receivables Loans") or (iii) purchases out of
such serviced Pools of Repurchased Defaulted Mortgages that are not guaranteed
or insured by VA, FHA or PMI companies approved by the Agent, pending recovery
of the relevant Obligor's repurchase and realization costs incurred
("Repurchased Defaulted Mortgages Loans"), or (D) purchase of land improved by
one single-, two-, three- or four-family dwelling, or a single one-family
residential condominium unit and its related easements and proportionate
interests in common elements, acquired by the applicable Obligor through
successfully bidding for it at a proper and lawful foreclosure of the first
Lien Mortgage on that Property owned and held by the applicable Obligor in its
own investment portfolio ("Foreclosed Property") with the concurrent and
continuing intent of such Obligor to dispose of such Foreclosed Property as
promptly as is reasonable and prudent (the "Foreclosed Properties Loans").
(2) The "P&I Sub-subline" is a Sub-subline of the
Receivables Advances Subline under which the Obligors may borrow, repay and
reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%)
of the Total Warehouse Line Commitments (the "P&I Sublimit") from time to time
for P&I Loans.
(3) The "T&I Sub-subline" is a Sub-subline of the
Receivables Advances subline under which the Obligors may borrow, repay and
reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%)
of the Total Warehouse Line Commitments (the "T&I Sub-subline") from time to
time for T&I Loans.
(4) The "VA/FHA/PMI Foreclosure Receivables Sub-subline"
is a Sub-subline of the Receivables Advances Subline under which the Obligors
may borrow, repay and reborrow up to an aggregate amount equal to three percent
(3%) of the Total Warehouse Line Commitments (the "VA/FHA/PMI Foreclosure
Receivables Sublimit") from time to time for VA/FHA/PMI Foreclosure Receivables
Loans to finance purchases of Repurchased Defaulted Mortgages that are
guaranteed or insured by VA, FHA or PMI.
(5) The "Repurchased Defaulted Mortgages Sub-subline" is
a Sub-subline of the Receivables Advances Subline under which the Obligors may
borrow, repay and reborrow up to an aggregate amount equal to one percent (1%)
of the Total Warehouse Line Commitments (the "Repurchased Defaulted Mortgages
Sublimit") from time to time for Repurchased Defaulted Mortgages Loans that are
not guaranteed or insured by VA, FHA or PMI.
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(6) The "Foreclosed Properties Sub-subline" is a
Sub-subline of the Receivables Advances Subline under which the Obligors may
borrow, repay and reborrow up to an aggregate amount equal to one percent (1%)
of the Total Warehouse Line Commitments (the "Foreclosed Properties Sublimit")
from time to time for Foreclosed Properties Loans.
In no event shall the aggregate principal borrowed and outstanding under any of
such sub-sublines of the Receivables Subline exceed the Receivables Sublimit.
(f) The "Subprime Mortgages Subline" is a sublimit under the
Warehouse Line under which Subline the Obligors may borrow, repay and reborrow
up to an aggregate amount equal to twenty percent (20%) of the Total Warehouse
Line Commitments (the "Subprime Mortgages Sublimit") from time to time solely
for the acquisition or funding of Subprime Mortgage Loans; provided that no
more than ten percent (10%) of the Subprime Mortgages Sublimit may be borrowed
and outstanding at any time for the acquisition or funding of Subprime Mortgage
Loans classified as having a "D" credit grade under the relevant Obligor's
Subprime Underwriting Standards.
(g) Notwithstanding any other provision of this Agreement to the
contrary, for each day when, for any reason:
(1) the sum of the Warehouse Banks' Total Warehouse Line
Commitments and Total Mortgages Purchase Limit is less than the amount of the
Linked Lines Limit stated in Section 2.2(a), the Linked Lines Limit shall be
that lesser amount; and
(2) the sum of the Banks' Sublimit or Sub-sublimit for
any Facility, as shown on the currently-effective Commitments Schedule, is
less than the amount of the Sublimit for the relevant Subline or Sub-subline
stated in Section 2.3, 3.1 or 4.1, such Sublimit or Sub-sublimit shall be that
lesser amount.
Neither Obligor shall be entitled to receive any Loan under a Sub-subline of
the Receivables Advances Subline -- even if all other requirements and
conditions for such Loan have been satisfied -- if after giving effect to such
Loan, the total of all Loans outstanding under the Sub-sublines would exceed
the Receivables Advances Sublimit.
Section 2.4 Warehouse Line Term. Subject to the Commitments
Lapse Provisions and the Fundings Availability Termination Provisions, credit
under the Warehouse Line (including its Sublines and Sub-sublines) shall be
available to the Obligors until the Warehouse Termination Date. Upon
expiration or any earlier termination of the Warehouse Line (including its
Sublines and Sub-sublines), the Current Warehouse Notes shall automatically be
and become due and payable on demand, the Warehouse Facility Fee shall
automatically cease to accrue and any accrued but unpaid portion of it shall be
immediately due and payable to the Agent (for the accounts of the Warehouse
Banks) without notice or demand.
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Section 2.5 12/97 Master Warehouse Notes. The Obligors'
borrowings under the Warehouse Line (including in each instance its Sublines
and Sub-sublines) shall be evidenced by new promissory notes (the "12/97 Master
Warehouse Notes") dated as of the Effective Date (or by the promissory notes,
if any, from time to time in the future issued by the Obligors to renew,
extend, rearrange, increase or replace the 12/97 Master Warehouse Notes, each
of which, as well as each such future note, being called a "Current Warehouse
Note") substantially in the form of Exhibit A, executed by the Obligors, one
payable to the order of each Warehouse Bank in the face principal amount of
such Warehouse Bank's Committed Sum of the Warehouse Line; provided that all
Swing Loans outstanding from time to time shall be evidenced by a Current
Warehouse Note (the "Swing Line Note") in face principal amount equal to the
Swing Sublimit, payable to the order of TCB, with accrued interest due in
accordance with the provisions of Section 2.6 and principal due in accordance
with the provisions of Section 2.9(a). All borrowings under the Sublines and
Sub-sublines pursuant to this Agreement are and shall be evidenced by the
Current Warehouse Notes.
Section 2.6 Current Warehouse Notes' Interest Accrual and
Payment. Each Current Warehouse Note shall bear interest on its advanced and
unpaid principal balance outstanding on each day at the applicable Stated Rate
for the types of Loans outstanding under the Current Warehouse Notes; provided
that all past due amounts, both principal and accrued interest, shall bear
interest at the Past Due Rate from their due dates until paid and shall be due
and payable upon demand. Unpaid interest accrued on each Current Warehouse
Note to the end of each calendar month, as well as all unpaid interest accrued
at the Past Due Rate for which no demand has been sooner made, will be
automatically due and payable without demand on the fifteenth (15th) day of the
next succeeding calendar month, commencing with January 15, 1998; provided that
all unpaid principal and accrued interest on each Current Warehouse Note shall
be finally due and payable in full at the maturity of such Current Warehouse
Note, however such maturity may occur or be brought about. All interest
calculations under the Current Warehouse Notes shall be computed on the basis
of the actual number of days elapsed over a year of 360 days -- unless that
would produce a usurious interest rate under applicable Law, in which event
such rate shall be computed on the basis of the actual number of days elapsed
over a year of 365 days, or 366 days in a leap year, to the extent required to
prevent or minimize usury.
Section 2.7 Current Warehouse Notes' Due Date. All principal and
accrued interest on the Current Warehouse Notes will be due and payable on the
earlier of the Warehouse Termination Date or the final maturity of any of the
Current Warehouse Notes, however such maturity may occur or be brought about.
Section 2.8 Current Warehouse Notes Voluntary Prepayments. The
Obligors may elect to prepay the Current Warehouse Notes in whole or in part at
any time without notice, penalty or fee other than the payment of any breakage
costs described in the Current Warehouse Notes with respect to Loans thereunder
bearing interest at the Eurodollar Rate plus the Applicable Margin, and all
such prepayments shall be applied Ratably to the Current Warehouse Notes.
Section 2.9 Current Warehouse Notes Mandatory Payments.
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(a) The principal amount of each Swing Loan shall be due and
payable without grace, notice (other than notice from the Agent to the
Warehouse Banks) or demand on the fifth (5th) Business Day -- or, at the
Agent's election, the first (1st), second (2nd), third (3rd) or fourth (4th)
Business Day) -- next following the Business Day on which it is funded by the
Warehouse Banks' paying over to TCB, and TCB's applying against such Swing
Loan, an amount equal to the proceeds of the Loans made by all of the Warehouse
Banks on that day against the Loan Request actually requested (for the
temporary funding of which that Swing Loan was made).
(b) The principal amount of each Wet Warehousing Loan shall be due
and payable without grace, notice or demand on the fifth Business Day next
following the Business Day on which it is funded or at such earlier date as is
required to prevent the balance of outstanding Wet Warehousing Loans from at
any time exceeding the Wet Warehousing Sublimit.
(c) The principal amount of each P&I Loan shall be due and payable
without grace, notice or demand on or before the fifth (5th) Business Day of
the calendar month succeeding the calendar month in which it is made.
(d) As and when the Obligors receive recoveries or reimbursements
of any Eligible Receivables under any Guides, insurance, guaranties or
contract, or recoveries, reimbursements or compensation from any source
whatsoever for advances made by the Obligors for any such Residential Mortgages
or Pools serviced by the Obligors, the Obligors will promptly prepay to the
Agent, for application Ratably on the Current Warehouse Notes, the amount so
recovered, collected or received, as a mandatory prepayment of principal on the
Current Warehouse Notes.
(e) The borrowing Obligor agrees to pay a mandatory payment of
principal against the Current Warehouse Notes promptly after:
(1) collecting on any guaranty, insurance or deficiency
claim in respect of any Foreclosed Property or the Mortgage Loan which it
secured or (if deemed material by the Agent) collecting any rentals, any other
income or any sale, condemnation or other disposition proceeds from or in
respect of such Foreclosed Property or any casualty, claim, tax rebate or
refund of any other source of funds relative to such Foreclosed Property, in an
amount equal to one hundred percent (100%) of the amount so collected;
(2) receiving any current appraisal of any Foreclosed
Property pledged to the Agent that indicates that the Warehouse Loan Value of
that Foreclosed Property, as previously represented to the Agent, exceeds its
Warehouse Loan Value calculated using such current appraisal, in an amount
equal to the excess;
(3) receiving written or verbal notice from VA, FHA, any
private mortgage insurer or other source of payment of any Receivables Claim
that the amount to be paid on such claim for any reason is less than the
Receivables Loan Value of that Receivables Claim, as previously represented to
the Agent, in an amount equal to the deficit;
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(4) any Foreclosed Property pledged to the Agent ceases
for any reason to be an Eligible Receivable, in an amount equal to the
Warehouse Loan Value of such ineligible Foreclosed Property.
(f) If on any day, a Loan proposed to be made under the Warehouse
Line (including its Sublines and Sub- sublines) would cause all outstanding
Loans of that type (including the requested Loan) to exceed the applicable
limit(s) or sublimit(s) on such type of Loans as described in the applicable
Loan Request, then the Obligors shall immediately repay the Current Warehouse
Notes as necessary to eliminate such excess.
(g) In addition, the Obligors shall make all mandatory prepayments
required by Sections 2.15, 2.16, 2.17, 2.19 and 2.20.
Section 2.10 Warehouse Line Security. The Agent, in its capacity
as agent and representative of the Banks, holds and shall hold the pledgee's
interest and the security interests granted by the Obligors to the Agent (a)
primarily, in all of the Obligors' Mortgage Loans or Qualified Mortgage Loans,
as applicable, now or hereafter pledged to TCB, as agent and representative of
the Banks, pursuant to this Agreement (including relating to the Mortgage Pools
Purchase Agreement) and in all of the Collateral covered by (1) the Warehouse
Pledge Agreement, (2) the Receivables Pledge Agreement and (3) all mortgages,
deeds of trust, deeds to secure debt or other forms of mortgage instruments
that are intended to grant a Lien against real property ("Mortgages") now or
hereafter held by TCB, as agent and representative of the Banks, as mortgagee
(as they may have been or may be supplemented, amended or restated from time to
time, the "Foreclosed Properties Mortgages") (collectively, the "Warehouse
Collateral"); (b) secondarily, in all of the Collateral covered by the
Servicing Rights Security Agreement (the "Servicing Acquisition Collateral"),
and (c) on a pari passu basis in all other Collateral, to Ratably secure all of
the Obligors' present and future Obligations to the Warehouse Banks under this
Agreement.
Section 2.11 Warehouse Facility Fee. While the Obligors have no
obligation to borrow or to maintain any minimum balance of borrowed funds
outstanding under the Warehouse Line at any time, as compensation to the
Warehouse Banks for their agreements (the "Warehouse Line Commitments") to make
the Warehouse Line's credit available to the Obligors between the Effective
Date and the Warehouse Termination Date or the effective date of any earlier
termination of the Warehouse Line pursuant to the Fundings Availability
Termination Provisions (the "Warehouse Final Termination Date") -- and not as
compensation for the use, forbearance or detention of money -- the Obligors,
jointly and severally, hereby agree to pay to the order of the Agent for the
account of the Warehouse Banks a facility fee (the "Warehouse Facility Fee")
for each day between the Effective Date and the Warehouse Final Termination
Date equal to one-eighth percent (0.125%) per annum of the amount of all
Warehouse Line Commitments on each such day. The Warehouse Facility Fee shall
be due and payable in arrears on January 31, 1998 and on the last day of each
succeeding April, July, October and January (if any) thereafter until the
Warehouse Facility Fee has been fully paid and satisfied, provided that on the
Warehouse Final Termination Date, the entire balance of the Warehouse Facility
Fee then unpaid shall be finally due and payable without notice or demand.
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Provided further, that the amount of the Warehouse Facility Fee -- although not
itself interest -- shall be absolutely limited to that amount which, when added
to all interest contracted for, charged, reserved or received on the Warehouse
Line, will not exceed an amount equal to the maximum amount of nonusurious
interest on the advanced and unpaid balance of the Warehouse Line over its
entire actual term allowed by whichever of applicable Texas or federal Law
permits the higher nonusurious interest rate. If the amount of the Warehouse
Facility Fee payable on any day calculated in accordance with the immediately
preceding sentence would exceed that limit, then the Warehouse Facility Fee due
on that day shall automatically be reduced to the amount that will meet, but
not exceed, that limit, and if on any day the Obligors have already paid any
such excess, then the excess will be refunded to the Obligors or appropriately
credited against the Obligors' then-outstanding Current Warehouse Notes,
whichever the Warehouse Banks elect.
Section 2.12 Obligors' Processing Fees. The Obligors, jointly
and severally, also promise to pay to the order of the Agent processing fees
(the "Processing Fees") to reimburse and compensate the Agent for handling and
processing the Obligors' Mortgage Loans' or Qualified Mortgage Loans', as
applicable, papers and files under this Article and the Mortgage Pools Purchase
Agreement and for its services as documents custodian. The Processing Fees
shall be separately agreed upon between the Obligors and the Agent. The sum of
all Processing Fees accrued during each month until both (a) expiration or
termination, and (b) payment in full of all Loans, accrued interest, fees and
other amounts owing under the Warehouse Line and the Mortgage Pools Purchase
Agreement, shall be due and payable on the fifteenth (15th) day of the next
succeeding month, commencing November 15, 1997, and on the Warehouse Final
Termination Date.
Section 2.13 Amount the Obligors May Borrow Against Each Eligible
Mortgage; Investor Commitment Coverage and Weekly Reports of Coverages
Required; Warehouse Loan Value. Each of the Obligors may obtain Warehouse
Loans of up to the Warehouse Loan Value of Residential Mortgages that qualify
as Eligible Mortgages, are fully covered by Investor Commitments and are
pledged by such Obligor to the Agent so as to give the Agent a first and prior
perfected security interest in each such Eligible Mortgage and its proceeds.
Each of the Obligors agree to provide the Agent a weekly report of all Investor
Commitments held by such Obligor in a form agreed to by it and the Agent
demonstrating that all of such Obligor's warehoused Mortgage Loans -- whether
warehoused with the Agent pursuant to this Agreement or elsewhere with another
lender or lenders or its or their custodian or representative -- are fully
covered and hedged by valid and enforceable Investor Commitments that either
match such Obligor's Mortgage Loan portfolio or can be readily adjusted to
match it under market and interest rate conditions then prevailing.
Section 2.14 Borrowing Procedures. The borrowing Obligor agrees
to notify the Agent of the amount and date of each proposed Loan, and the
designated Stated Rate to apply thereto, under the Warehouse Line (including
its Sublines and Sub-sublines other than the Swing Subline), either by
telephone or in writing by no later than 12:00 noon, Houston time, on the date
(which must also be a Business Day) of the desired funding; provided that if
the Obligor is electing a Eurodollar Rate, such notification must be received
by the Agent no later than 10:00 a.m. on the Business Day which is three (3)
Business Days before the date of the desired funding. The initial request,
whether by
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telephone or in writing, shall identify the Obligor for which the Loan is being
requested, and a separate request shall be made for each Loan to each Obligor.
Neither Obligor may request funding of a P&I Loan to occur earlier than the day
upon which such Obligor is obligated to make the advance for which it is
borrowing such P&I Loan to the holders of the applicable Mortgage-Backed
Securities, or in any event earlier than the fifteenth (15th) day of the
calendar month in which such Obligor is to make such advance. The borrowing
Obligor will confirm or make the request for a Loan in writing by delivering to
the Agent a Loan Request, with all blanks appropriately completed, including
the designation of the Stated Rate on or before the applicable Rate Designation
Date -- unless the Loan Request elects a Eurodollar Rate, in which event it
must be received by the Agent by no later than the Business Day immediately
before the Rate Designation Date -- signed by the borrowing Obligor, and
accompanied by:
(a) with respect to Warehouse Loans,
(1) a list of Eligible Mortgages having aggregate current
Warehouse Loan Values at least equal to the amount of the requested Warehouse
Loan and against which no other Warehouse Loan is then pending or outstanding,
and listing the borrowing Obligor's loan numbers or Pool numbers, the names of
the obligors, the Property addresses, the dates, face amounts, Acquisition
Cost, Allocated Commitment Price and (if applicable) Par Value of the
Residential Mortgages and Residential Mortgage Notes, the interest rate on the
Residential Mortgage Note and the Warehouse Loan Value for each Eligible
Mortgage listed; and
(2) the Residential Mortgage File for each of the
Eligible Mortgages listed;
provided that whenever an Obligor requests the Agent to ship Pledged Mortgages
to Investors or to certify a GNMA Pool, then the deadline for submission of the
Files for such Mortgage Loans to be so shipped or certified, and for the pool
list of Mortgage Loans to be so certified to GNMA, is 12:00 noon of the
Business Day before such Pledged Mortgages are requested to be so shipped or
certified.
(b) with respect to Wet Warehousing Loans, a list of Wet Mortgage
Loans having aggregate current Warehouse Loan Values at least equal to the
amount of the requested Wet Warehousing Loan and against which no other Wet
Warehousing Loan is then pending or outstanding, and listing the borrowing
Obligor's loan numbers, Pool numbers (if applicable), the names of the
obligors, Property address, the dates, face amounts, Acquisition Cost,
Allocated Commitment Price and (if applicable) Par Value of the Residential
Mortgages and Residential Mortgage Notes, the interest rate on the Residential
Mortgage Note, the loan term and type and the Warehouse Loan Value for each Wet
Mortgage Loan listed.
(c) with respect to Second-Lien Loans, the documentation required
by Section 2.14(a).
(d) with respect to Receivables Advances Loans,
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(1) made under any Sub-subline, a list of the serviced
Residential Mortgage(s) or Pool(s) for which the borrowing Obligor is obligated
to make advances that qualify for Receivables Advances Loans as to which
Receivables Claims no condition exists which the borrowing Obligor cannot
satisfy timely so as not to impair or delay collection of such Receivables
Claims and in which Receivables Claims the borrowing Obligor grants or has
granted the Agent a first, prior, perfected and currently enforceable Lien
having aggregate Receivables Loan Values at least equal to the amount of the
requested Receivables Advances Loan and against which no other Receivable
Advances Loan is then pending or outstanding (the "Eligible Receivables"), as
described on the schedule of fundings to be financed with the requested
Receivables Advances Loan that is attached to the applicable Loan Request.
(2) if applicable:
(A) made under the VA/FHA/PMI Foreclosure
Receivables Sub-subline only, in respect of Repurchased Defaulted Mortgages for
which the borrowing Obligor has a valid and enforceable claim against VA on a
VA mortgage guaranty, against FHA under an FHA mortgage insurance policy or
against a private mortgage insurer approved by the Agent under a policy of PMI,
a true and correct copy of the appropriate fully completed VA form 26-1874,
"Claim Under Loan Guaranty", VA form 26-8903, "Notice for Election to Convey
and/or Invoice for Transfer of Property", HUD form HUD-27011, "Single Family
Application for Insurance Benefits", showing on such appropriate form the Agent
as (i) the "Claimant" in Box 1 of each such VA form 26-1874, (ii) the "holder
(or payee)" who the form is "from" on the top right box of each such VA form
26-8903 or (iii) the "holding mortgagee" (by the Agent's number, _________) in
Block 12 of each such form HUD-27011, or PMI claim form showing the Agent as
the loss payee, with each such form signed by such authorized officer(s) of the
borrowing Obligor and the servicer of such Repurchased Defaulted Mortgage as
such form requires (for each form that is submitted by Electronic Data
Interchange ("EDI"), the borrowing Obligor shall deliver to the Agent a copy of
the EDI file transmitted to the relevant agency on floppy diskette(s) (or by
such means of electronic transmission as the Agent shall approve) on or before
five (5) Business Days of the date of the EDI transmission); or
(B) made under the Foreclosed Properties
Sub-subline only, a copy of the recorded trustee's deed, sheriff's deed,
warranty deed or other instrument by which title to such Foreclosed Property
was conveyed to the borrowing Obligor, in form and substance acceptable to and
approved by the Agent and its legal counsel.
(3) made under the Foreclosed Properties Sub-subline
only, unless the borrowing Obligor is submitting a completed VA form 26-8903,
VA form 26-1874 or HUD form HUD-27011 for the affected Repurchased Defaulted
Mortgage pursuant to Section 2.14(d)(2)(A), if the borrowing Obligor has
foreclosed the Repurchased Defaulted Mortgage, a signed and recordable original
first Lien Foreclosed Properties Mortgage containing (or accompanied by) a
security agreement and financing statement appropriate to the jurisdiction
where the relevant Foreclosed Property is located, sufficient in all respects
to grant the Agent a first mortgage Lien and a first and prior security
interest
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or chattel mortgage (whichever is appropriate to the jurisdiction) on the
Foreclosed Property to be borrowed against and all related fixtures, equipment
and other personal property. On each occasion when the borrowing Obligor
proposes to borrow against new or additional Foreclosed Properties, all such
Foreclosed Properties in that group which are located in the same county or
parish shall themselves be grouped in a single Foreclosed Properties Mortgage
instrument. Each Foreclosed Properties Mortgage shall be in form and substance
acceptable to the Agent. A good, complete and sufficient legal description of
the relevant Foreclosed Property shall be set forth in the legally-appropriate
place in its text or an exhibit to it, and the street address of each covered
property shall also be included in the relevant Foreclosed Properties Mortgage
to assist the Agent in identifying it.
(4) made under the VA/FHA/PMI Foreclosure Receivables
Sub-subline, the Repurchased Defaulted Mortgages Sub-subline and/or the
Foreclosed Properties Sub-subline only, as applicable, a list of all
unforeclosed Repurchased Defaulted Mortgages, and a separate list of any such
Foreclosed Properties, to be borrowed against, in each case listed by the date,
amount and maker of the Repurchased Defaulted Mortgage pledged and, if the
Property securing it has been foreclosed, (A) such Property's address, (B) the
date and recording information of the recorded or registered trustee's deed (or
equivalent instrument of foreclosure conveyance to the borrowing Obligor
appropriate to the method of foreclosure and to the jurisdiction where such
Foreclosed Property is located) by which the borrowing Obligor acquired such
Foreclosed Property; (C) the purchase price paid for it; and (D) its current
appraised fair value according to a reasonably current appraisal or broker's
price opinion which the borrowing Obligor is satisfied is substantially correct
(and, by submitting a copy of it to the Agent, the borrowing Obligor will be
deemed to make that representation to the Agent and to each of the Warehouse
Banks), and a copy of an appraisal report or broker's price opinion for each
Foreclosed Property listed shall accompany each such list.
(5) made under the VA/FHA/PMI Foreclosure Receivables
Sub-subline only, a copy of the VA guaranty or FHA or PMI insurance certificate
applicable to each such Repurchased Defaulted Mortgage, whether or not yet
foreclosed.
(6) made under the Foreclosed Properties Sub-subline
only, at the borrowing Obligor's sole cost, either a current commitment for
title insurance issued in favor of the Agent or a copy of the existing title
policy with an updated title search by a reputable and substantial title
insurer in an amount at least equal to the amount of the borrowing Obligor's
requested Foreclosed Properties Loan against such Foreclosed Property and
showing no Liens against it other than the statutory Liens for ad valorem taxes
and public improvements assessments that are not delinquent Liens.
Delivery of a Loan Request may be by telecopy if confirmed by the borrowing
Obligor's mailing an originally-signed copy to the Agent on the same day. Upon
the Agent's receipt of a Loan Request before noon on a Business Day, the Agent
shall notify each of the other Warehouse Banks by no later than 2:00 p.m. on
the same Business Day; provided that if such Loan Request includes a Eurodollar
Rate election, it must be received by the Agent no later than 10:00 a.m. on the
Business Day before the relevant Rate Designation Date, and the Agent shall
notify each of the other Warehouse Banks
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thereof by no later than 1:00 p.m. on that same Business Day. Each Warehouse
Bank other than TCB shall make its Funding Share of the requested Loan
available to the Agent in immediately available funds at the Agent's main
office no later than 3:00 p.m. on the date such Loan is to be made. Upon
satisfaction of all conditions precedent to the funding of a Loan, TCB shall
make its Funding Share of the requested Loan available to the borrowing Obligor
in immediately available funds at the Agent's main office in Houston, and upon
receipt by the Agent from each other Warehouse Bank of its own Funding Share,
the Agent shall make that portion of such Loan available to the borrowing
Obligor in immediately available funds at the Agent's main office in Houston.
If, after any of the other Warehouse Banks so provides funds to the Agent, the
Agent does not fund the relevant Loan because a condition precedent is not
satisfied or for any other reason, then the Agent shall return the funds so
received to the Warehouse Bank(s) that provided them on the same Business Day
that the Agent first determines that the Loan will not be funded if the Agent
makes that determination before 2:00 p.m. on that Business Day, or on the next
succeeding Business Day if such determination is not made until 2:00 p.m. or
later. If the Agent fails to return such funds by the time specified, then the
Agent shall be obligated to pay interest on them to the Warehouse Bank to which
they are due from the day when they should have been returned to the day when
they are returned at the Federal Funds Effective Rate. By submitting a Loan
Request which is received by the Agent on any Business Day after the noon
deadline for submitting Loan Requests specified in this Section, or if for any
reason the other Warehouse Banks do not receive notice of a Loan Request by the
2:00 p.m. deadline specified in this Section, then such Loan Request shall
automatically be deemed to be a request for both (a) a Swing Loan to be made by
TCB on the Business Day TCB first received such Loan Request and (b) the Loan
actually requested by the text of such Loan Request to be made by the Warehouse
Banks on or before the fifth (5th) -- or at the Agent's election, earlier --
following Business Day. TCB shall fund each Swing Loan that is deemed
requested by operation of this Section on the same Business Day it is requested
if the requirements of (a) Section 2.3(b) and (b) the applicable Subsection of
Section 2.14 that relates to the type of Loan actually requested are satisfied
(otherwise neither TCB nor the Warehouse Banks shall have any obligation to
fund either such Swing Loan or the Loan so requested by such Loan Request's
text).
Section 2.15 Releases of Sold or Securitized Pledged Mortgages.
When the sale is settled of any Pledged Mortgage, or of any Mortgage-Backed
Securities created from a Pool that includes any Pledged Mortgage, the owning
Obligor shall cause the Qualified Investor purchasing such Pledged Mortgage,
Pool or Mortgaged-Backed Securities to pay directly to the Agent, for
application Ratably as a mandatory prepayment on the Current Warehouse Notes,
the amount the Warehouse Banks together have lent against that sold Pledged
Mortgage or against all Pledged Mortgages in that Pool, whichever the case may
be. Each of the Obligors hereby GRANTS to the Agent, as secured party for
itself and the other Banks, a security interest in all of such Obligor's
present and future right, title and interest in the Mortgage-Backed Securities
created from each Pool that includes any Pledged Mortgages and in such
Obligor's present and future rights to demand, have, receive and receipt for
them and their proceeds until the full amount of such mandatory prepayment for
the sold Pledged Mortgages in that Pool shall have been made. Each of the
Obligors agrees to take all steps necessary to cause all such Mortgaged-Backed
Securities to be duly registered in the Agent's name and to be delivered to the
Agent (meaning, in the case of uncertificated or book-entry securities,
registered as
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owned by the Agent on the books of the financial intermediary that is shown as
their record owner on the books of the fiscal agent for the issuer of such
securities) until such mandatory prepayment for that securitized Pool has been
made. Each of the Obligors hereby APPOINTS the Agent as its attorney-in-fact
to take all such steps in its name and behalf, and each such appointment shall
be deemed a power coupled with an interest and shall be irrevocable. Upon
payment in full of the amount the Warehouse Banks have lent against such sold
Pledged Mortgage(s), the Agent's security interest in such sold Pledged
Mortgage(s) only shall terminate and shall be released by the Agent upon the
owning Obligor's request and at its expense.
Section 2.16 Mandatory Prepayments or Collateral Substitutions
for Ineligible Mortgages. Each of the Obligors agrees that if at any time
after any Warehouse Loan is funded against the security of any Residential
Mortgage, that Residential Mortgage ceases to be, or is discovered by the
Obligors or any Warehouse Bank not to be, an Eligible Mortgage, then its
Warehouse Loan Value shall automatically become zero and whichever Obligor
pledged it to the Agent will promptly either:
(a) prepay to the Agent for application Ratably against the
Current Warehouse Notes, the Warehouse Loan Value used for borrowing under the
Warehouse Line against that ineligible Residential Mortgage, as a mandatory
prepayment of principal on the Current Warehouse Notes; or
(b) furnish the Agent substitute collateral having Warehouse Loan
Value, as determined by the Agent, equal to or greater than the Warehouse Loan
Value used for borrowing under the Warehouse Line against that ineligible
Residential Mortgage, of a type, and by instruments all of which are,
satisfactory to and approved by the Agent in its discretion.
Section 2.17 Mandatory Prepayments or Collateral Substitutions
for Ineligible Foreclosed Property Collateral. Each of the Obligors agrees
that if at any time any legal proceeding is instituted seeking to set aside or
otherwise attacking the trustee's sale (or other mortgage Lien foreclosure
sale) by whichever Obligor acquired any Foreclosed Property that is then
mortgaged or proposed to be mortgaged to obtain or continue any Foreclosed
Properties Loan, or if any Foreclosed Property suffers casualty damage or is
threatened with condemnation, or if for any other reason it ceases to be an
Eligible Receivable or is discovered by such Obligor or the Agent not to be an
Eligible Receivable, then and in any such event the Receivables Loan Value of
that particular Foreclosed Property shall automatically become zero,
irrespective of the merits of any such legal proceeding, the extent or
repairability of the damage or the extent, portion or configuration of the
Property threatened to be condemned. Each of the Obligors agrees that on each
occasion (if any) that such an event occurs, the applicable Obligor will notify
the Agent in writing of such proceedings, casualty damage or condemnation
threat promptly after the applicable Obligor learns of them or it, and the
applicable Obligor will promptly either:
(a) prepay to the Agent for application Ratably on the Current
Warehouse Notes the Receivables Loan Value used for borrowing under the
Foreclosed Properties Sub-subline against that ineligible Foreclosed Property,
as a mandatory prepayment of principal on the Current Warehouse Notes; or
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(b) furnish the Agent substitute collateral having Receivables
Loan Value, as determined by the Agent, equal to or greater than the
Receivables Loan Value used for borrowing under the Foreclosed Properties
Sub-subline against that ineligible Foreclosed Property, of a type, and by
instruments all of which are, satisfactory to and approved by the Agent in its
sole discretion.
Section 2.18 Title Insurance; Recording of Foreclosed Properties
Mortgages. The Obligors agree that the Agent may record or register any of the
Obligors' Foreclosed Properties Mortgages, and the Obligors agree to pay for
the fees and costs incurred in recording or registering such Foreclosed
Properties Mortgages (and if the applicable Obligor fails or refuses to do so,
then the Agent may pay such recording or registration cost, and the applicable
Obligor will reimburse the Agent all such costs and expenses so incurred). If
any Foreclosed Properties Loan made by the Warehouse Banks is not paid in full
on or before one (1) year after its funding date, the borrowing Obligor agrees
to pay for and deliver to the Agent promptly after the expiration of that one
(1) year period, without notice or demand, a mortgagee policy of title
insurance in form and substance satisfactory to the Agent covering the related
Foreclosed Property and in the amount of its appraised value as represented by
the borrowing Obligor to the Agent when the borrowing Obligor requested such
Foreclosed Properties Loan.
Section 2.19 Disposition of Foreclosed Properties. Each of the
Obligors hereby agrees to dispose of all such Foreclosed Properties mortgaged
to the Agent in the ordinary course of business as promptly as is reasonable
and prudent and to apply the net proceeds of such dispositions to reduce the
Current Warehouse Notes.
Section 2.20 Partial Releases of Foreclosed Properties.
The Foreclosed Properties shall be partially released from the
Foreclosed Properties Mortgages covering them from time to time upon the
borrowing Obligor's written request, provided that:
(a) no Default or Potential Default has occurred and is
continuing;
(b) the Current Warehouse Notes have not matured (however such
maturity may have occurred or been brought about); and
(c) the aggregate principal of all Foreclosed Properties Loans
outstanding after giving effect to the requested release would not (in the
Agent's reasonable judgment) exceed the aggregate Receivables Loan Value of all
other Foreclosed Properties then mortgaged to the Agent.
Any such request shall be in writing, shall identify each Foreclosed Property
proposed to be partially released by its address and the date of the Foreclosed
Properties Mortgage held by the Agent which covers it, and (unless all
outstanding Foreclosed Properties Loans would remain fully and adequately
secured after such release, in the Agent's judgment, and the Agent shall have
therefore waived this requirement) shall be accompanied by a principal payment
on the Current Warehouse Notes in an
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amount equal to the aggregate Receivables Loan Values of all such Foreclosed
Properties proposed to be partially released. If that Foreclosed Properties
Mortgage has not yet been registered or recorded, then the partial release, if
granted, shall be effected by the Agent's striking out the description of such
Foreclosed Property in the Foreclosed Properties Mortgage, making a marginal
notation beside such description, "partially released on [date]", initialing
the change and notifying the borrowing Obligor in writing that that action has
been taken. If such Foreclosed Properties Mortgage has been registered or
recorded, then such partial release, if granted, shall be made by written
partial release in recordable form executed by the Agent and paid for by and
made available to the borrowing Obligor. Upon both payment in full of all of
the borrowing Obligor's other Obligations under all Facilities, and expiration
or termination of the Warehouse Line, all unrecorded Foreclosed Properties
Mortgages (if any) shall be returned to the borrowing Obligor and all
registered or recorded Foreclosed Properties Mortgages shall be released at the
borrowing Obligor's expense and upon its written request.
ARTICLE 3. MORTGAGE POOLS PURCHASE AGREEMENT
Section 3.1 General Description and Certain Definitions. This
Article establishes and governs the Mortgage Pools Purchase Agreement pursuant
to which the Warehouse Banks will purchase from the Obligors from time to time
Pools of Mortgage Loans that are not Defective Mortgages ("Qualified Mortgage
Loans") whose files are ready for GNMA initial certification (or at the
equivalent stage of completion) as an eligible Pool of Qualified Mortgage Loans
which, upon GNMA final certification (or full compliance with parallel FNMA or
FHLMC requirements) will be "Securitized", i.e. GNMA- guaranteed or FNMA-issued
or guaranteed Mortgage-Backed Securities (each an "MBS") or FHLMC-issued or
guaranteed mortgage participation certificates (each a "PC") will be created,
issued and guaranteed which are based on and backed by such Pool, and which
MBSs or PCs ("Securities") will, in turn, be timely issued and have all other
characteristics necessary to satisfy all of the requirements of a written
agreement ("Trade Ticket") issued in favor of the applicable Obligor by a
Qualified Investor to purchase such MBS or PC on the settlement date
("Settlement Date") prescribed by the Trade Ticket. This is a revolving
purchase facility pursuant to which the Warehouse Banks' Invested Balance on
any day shall be as much as (but not more than) Two Hundred Million Dollars
($200,000,000) (the "Mortgages Purchase Limit"). Until the Warehouse
Termination Date or the earlier date (if any) when this Facility is terminated
by either the Obligors' or the Warehouse Banks' (or the Agent's) giving a
written termination notice to the other in accordance with Section 6.2, the
Obligors will from time to time submit Pools for purchase under this Mortgage
Pools Purchase Agreement and, upon and subject to the all of the terms and
conditions of the Current Facilities Agreement, the Warehouse Banks will
purchase them.
Section 3.2 Pool Purchases. (a) Each offer to sell a Pool to the
Warehouse Banks under this Facility shall be made by the applicable Obligor's
submitting to the Agent a written Offer to Sell Mortgage Pools form (attached
as Exhibit C to this Agreement) (an "Offer") with all required enclosures and
all blocks and blanks in it and its enclosures properly completed by no later
than 2:30 p.m. on the Business Day the proposed purchase is to be made. The
Warehouse Banks may accept any Offer covering Qualified Mortgage Loans and
thereby become owners of the Pool by paying the
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Pool purchase price stated in any Offer, which shall be equal to the aggregate
MPPA Value of all Qualified Mortgage Loans described in such Offer.
(b) If the Agent, as agent and representative of the Warehouse
Banks accepts an Offer, then each Warehouse Bank's obligation to purchase,
Ratably, such Qualified Mortgage Loans shall be several and not joint -- no
Bank has any obligation under this Mortgage Pools Purchase Agreement to
purchase any part of any other Bank's obligation to purchase, Ratably, such
Qualified Mortgage Loans or otherwise -- and the respective maximum purchase
obligations of the Warehouse Banks, as to accepted Offers only, are set forth
on the Commitments Schedule.
(c) The failure of any Warehouse Bank to purchase, Ratably, its
part of any accepted Offer shall not in itself relieve any other Warehouse Bank
of its obligation to purchase, Ratably, its part of any accepted Offer;
provided, that no Warehouse Bank shall be responsible or incur any liability
whatsoever for the failure of any other Warehouse Bank to purchase, Ratably,
its part of any accepted Offer that such other Warehouse Bank is obligated to
purchase.
(d) The maximum amount available for purchases on any day under
this Mortgage Pools Purchase Agreement -- is and shall be:
the lesser of:
(1) the positive difference, if any, between (A) the
Mortgages Purchase Limit for that day and (B) the sum of the Warehouse Banks'
Net Shares outstanding on that day for all Pools purchased by them from the
Obligors under this Mortgage Pools Purchase Agreement; and
(2) the positive difference, if any, between (A) the
Linked Lines Limit for that day and (B) the sum for that day of (i) the
Warehouse Banks' Net Shares outstanding on that day for all Pools purchased by
them from the Obligors under this Mortgage Pools Purchase Agreement plus (ii)
all outstanding Loans under the Warehouse Line (and its Sublines and
Sub-sublines).
Section 3.3 Servicing After Purchase. (a) If and for so long as
the Warehouse Banks own a Pool, the selling Obligor agrees to service the
Qualified Mortgage Loans in that Pool as the Warehouse Banks' agent and to
remit to the Agent (for disbursement to the Warehouse Banks) by the fifth (5th)
day of each month all principal payments and principal prepayments received on
such Qualified Mortgage Loans during the preceding month, and in accordance
with the same standards and requirements as if the Pool in which such Qualified
Mortgage Loan is included had already been Securitized and the related Security
guaranteed or issued by whichever of GNMA, FNMA or FHLMC that Pool was
originally designated to be assigned to, in accordance with the servicing
provisions of the applicable GNMA, FNMA or FHLMC Mortgage-Backed Securities
seller/servicer guide ("Guide"), for the account, however, of the Warehouse
Banks instead of GNMA, FNMA or FHLMC, provided that the selling Obligor shall
at all times comply with applicable Laws, FHA regulations and VA regulations
and the requirements of any PMI so that the FHA insurance, VA guarantee or any
applicable insurance or guaranty in respect of any Qualified Mortgage Loan is
not
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voided or reduced. The selling Obligor shall receive no compensation for such
servicing in addition to or other than the revenues derived by the selling
Obligor from retaining the interest earned on the Qualified Mortgage Loans in
the Pools purchased by the Warehouse Banks while no Default or Potential
Default has occurred and is continuing, to the extent (if any) that such earned
interest so collected and so retained by the selling Obligor exceeds the Fee.
(b) The Obligors agree for the benefit of the Warehouse Banks to
maintain or cause to be maintained the servicing of the Qualified Mortgage
Loans in conformity with accepted servicing practices in the industry, in
compliance with all applicable Laws, and in a manner at least equal in quality
to the servicing the Obligors provide to Qualified Mortgage Loans which they
own.
(c) The Obligors agree that the Warehouse Banks are the owners of
all servicing records, including but not limited to any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing by the Obligors of the Qualified
Mortgage Loans (the "Servicing Records"). The Obligors hereby GRANT to the
Agent a security interest in all fees and rights relating to the Qualified
Mortgage Loans and all Servicing Records to secure the obligations of the
Obligors to service, or cause to be serviced, the Qualified Mortgage Loans in
conformity with this Section 3.3 and any other Obligations of the Obligors to
the Warehouse Banks. The Obligors covenant to safeguard such Servicing Records
and to deliver them promptly at the Warehouse Banks' request to the Agent or
its designee, and the Obligors acknowledge that the Obligors are holding the
Servicing Records in trust for the Agent, as agent and representative of the
Warehouse Banks.
(d) Except as set forth in this Section, the Obligors shall not
permit the transfer of any servicing rights that the Obligors have, or other
obligations, with respect to the Qualified Mortgage Loans without the prior
written consent of the Warehouse Banks. This Section shall not grant any
additional right to the Agent or the Warehouse Banks not otherwise granted
pursuant to this Mortgage Pools Purchase Agreement.
Section 3.4 Additional Rights Purchased by Pool Purchase Price
Payment. As additional consideration for the purchase price paid by the
Warehouse Banks for each Pool they purchase, and in lieu of the Warehouse
Banks' receiving any interest from any Qualified Mortgage Loan in that Pools,
the Obligors agree:
(a) to pay the Warehouse Banks a fee (the "Fee"), due and payable
monthly in arrears on or before the fifteenth (15th) day of the next succeeding
calendar month after the month of accrual, equal to the Pools Stated Rate
applied to the average daily balance (the "Warehouse Banks' Invested Balance")
of (1) the sum of the Pool Purchase Price Paid by the Warehouse Banks for all
Pools purchased by the Warehouse Banks less (2) the sum of resale proceeds of
such Pools (or of the PCs or MBSs created from them) actually received by the
Warehouse Banks. "Pools Stated Rate" means for any day, a rate per annum equal
to the lesser of (1) the Adjusted LIBOR Rate for that day, plus the Applicable
Margin or (2) the Ceiling Rate; provided, that the Obligors may elect as the
Pools
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Stated Rate to be applied for that day to a designated portion of the
then-outstanding Warehouse Banks' Invested Balance which portion is both (x)
not past due and (y) less than or equal to the Free Adjusted Balances a rate
per annum equal to the Applicable Margin (only) for that day and for that
designated portion of the Warehouse Banks' Invested Balance; however, to the
extent that the portion so designated exceeds the TCB Balances, the Agent will
pay to the Warehouse Banks other than TCB, Ratably, a Fee on such excess at a
rate per annum equal to the Applicable Margin plus the Federal Funds Effective
Rate although if doing so would violate Regulation Q, on demand made by the
Agent, the Obligors shall gross-up and pay to the Agent the Fee on that
designated portion so that the Agent will have the funds to pay the Fee due to
the other Warehouse Banks without violating Regulation Q. In no event will the
Agent ever be obligated to pay any amount that would violate Regulation Q. All
calculations of the Pools Stated Rate and the Federal Funds Effective Rate
under this Mortgage Pools Purchase Agreement shall be computed on the basis of
the actual number of days elapsed over a year of 360 days -- unless that would
produce a rate in excess of the Ceiling Rate, in which event such rate shall be
computed on the actual number of days elapsed over a year of 365 days, or 366
days in a leap year, to the extent required to prevent such rate from exceeding
the Ceiling Rate. Although the primary source of funds to pay the Processing
Fees relating to Qualified Mortgage Loans purchased by the Warehouse Banks
under this Mortgage Pools Purchase Agreement and the Fee is anticipated to be
interest earned and collected by the Obligors on the Qualified Mortgage Loans
in each Pool, in consideration of the selling Obligor's retaining (subject to
the provisions of this Mortgage Pools Purchase Agreement) the servicing rights
and the interest earned on the Qualified Mortgage Loans in the Pools purchased
by the Warehouse Banks while no Default or Potential Default has occurred and
is continuing, the Obligors agree to pay the accrued Fee and accrued Processing
Fees relating to Qualified Mortgage Loans purchased by the Warehouse Banks
under this Mortgage Pools Purchase Agreement and agree that their continuing
obligation to pay all such Processing Fees and Fees accrued before the
Warehouse Banks have recovered the entirety of the purchase price paid by them
for each Pool they purchase under this Facility (the "Pool Purchase Price
Paid") shall not be diminished, deferred or impaired by the termination,
expiration, modification, rearrangement, breach or waiver, in whole or in part,
of this Mortgage Pools Purchase Agreement, any Commitment (as defined in
Exhibit C), any Trade Ticket or any other instrument or agreement, or by any
inadequacy of earned or collected interest on the Qualified Mortgage Loans in
any such Pool to compensate the Obligors for undertaking or performing such
absolute obligation to pay such accrued Fees and Processing Fees. For any day,
the sum of (x) the outstanding (unrecovered) balance on that day of the Pool
Purchase Price Paid by the Warehouse Banks for all Pools purchased by them
under this Facility, plus (y) the amount of accrued and unpaid Fee that would
be owed to the Warehouse Banks on that day if the Warehouse Banks were to fully
recover their outstanding investments in all Pools on that day is called the
"Warehouse Banks' Net Share" of all Pools, and the Warehouse Banks' Net Share
of any particular Pool (or Qualified Mortgage Loan) on any day is the sum of
(i) the outstanding (unrecovered) balance on that day of the Pool Purchase
Price Paid by the Warehouse Banks for that Pool (or that Qualified Mortgage
Loan) under this Facility, plus (ii) the amount of accrued and unpaid Fee that
would be owed to the Warehouse Banks on that day in respect of that Pool (or
Qualified Mortgage Loan) only if the Warehouse Banks were to recover their
outstanding investment in that Pool (or Qualified Mortgage Loan) on that day.
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(b) to maintain on deposit with the Agent (or its designee) all
escrow amounts relating to all Qualified Mortgage Loans in each Pool purchased
by the Warehouse Banks under this Facility, both before and after that Pool is
Securitized, for so long as (1) the Warehouse Banks have not recovered the Pool
Purchase Price Paid by the Warehouse Banks for that Pool and (2) the Obligors
or any of their Affiliates retains servicing rights.
Section 3.5 Qualified Mortgage Loans Lent to the Selling Obligor
for Transfer to Qualified Investors. When all Qualified Mortgage Loan
documentation for a Pool is completed, the appropriate document package is
delivered to the Qualified Investor and that Pool is ready to be Securitized
(i.e., in the instant immediately before the Securities based on and backed by
that Pool are issued or guaranteed, as the case may be, by GNMA, FNMA or
FHLMC), the Warehouse Banks, acting through the Agent, will lend the Pool to be
so Securitized to the selling Obligor solely for the purpose of enabling the
selling Obligor to create -- or arrange for the creation of, as appropriate for
the type of Securities to be created -- MBSs or PCs based on and backed by the
Qualified Mortgage Loans in that Pool with such transfer representations and
warranties as the Qualified Investor or the Law shall require or imply being
given and made by the selling Obligor for its own account (and not as any type
of agent for the Warehouse Banks or the Agent -- the selling Obligor is not and
shall not be the Warehouse Banks' or the Agent's agent except to the limited
extent required to enable the selling Obligor to properly service the Qualified
Mortgage Loans in that Pool while the Warehouse Banks own them), it being
understood and agreed that that Pool will be deemed and construed as
transferred by the Warehouse Banks to the selling Obligor (and only for the
limited purpose stated and as a loan of such Pool, ownership of which shall
remain in the Warehouse Banks) and not to the Qualified Investor, and that each
such transfer will be without recourse on the Warehouse Banks or the Agent and
without any express or implied warranty or representation about or in respect
of any of the Qualified Mortgage Loans in that Pool, their validity,
genuineness, ownership, regularity, legal compliance, value or any other
characteristic or attribute other than the representation that -- subject to
all regulatory requirements and conditions -- the Warehouse Banks have full
power and authority to own, and, acting through the Agent, to transfer their
right, title and interest in and to, that Pool and each of its Qualified
Mortgage Loans. The Warehouse Banks and the Agent reserve the right, however,
to not give physical possession of the Qualified Mortgage Loans in that Pool to
the selling Obligor or its agents at any time, and instead the Warehouse Banks
intend for the Agent to ship the Qualified Mortgage Loans being Securitized
directly to the Qualified Investor or the Qualified Investor's designated
custodian (which may, of course, be the Agent in some cases). By no later than
12:00 noon of the Business Day before the Business Day on which the Obligors
are requesting that the relevant Pool be shipped or certified as hereinafter
provided in this sentence, the selling Obligor will take all steps necessary to
(A) deliver to the Agent the Files for each Qualified Mortgage Loan that is
sold to the Buyers and is to be included in a Pool that the Agent is to either
ship to FNMA's or FHLMC's designated custodian or certify to GNMA, and (B)
deliver to the Agent the pool list of any such Pool to be certified to GNMA.
The selling Obligor will also cause (x) each Pool to be completed and
Securitized sufficiently in advance of the Settlement Date to timely comply
with all Trade Ticket requirements for settlement, (y) the resulting MBSs or
PCs to be issued and delivered to the Qualified Investor in a similarly timely
fashion and (z) the Agent (for the accounts of the Warehouse Banks) to be paid,
by no later than the Settlement Date provided under the Trade Ticket
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for each Pool, an aggregate amount (the "Sale Price") equal to the sum (without
duplication) of (i) the Pool Purchase Price Paid by the Warehouse Banks for
that Pool plus (ii) the accrued Fee allocable to that Pool and accrued for the
full time period between the date of the Warehouse Banks' purchase of that Pool
until the Warehouse Banks have recovered Pool disposition cash proceeds equal
to the Pool Purchase Price Paid by the Warehouse Banks (provided that the
selling Obligor may elect to defer payment of such accrued Fee until the
fifteenth (15th) day of the calendar month next following the month in which
such Settlement Date falls unless the selling Obligor is not then in compliance
with any of its material obligations under this Mortgage Pools Purchase
Agreement or if a Default or a Potential Default has occurred and is
continuing), less (iii) all principal payments and prepayments (if any) from
that Pool theretofore received by the Agent (for the accounts of the Warehouse
Banks). Without limitation, promptly after each Pool is purchased by the
Warehouse Banks, the selling Obligor shall (1) irrevocably direct the Qualified
Investor to pay the entire amount of the purchase consideration for each MBS or
PC created from such Pool directly to the Agent and to confirm receipt of that
direction directly to the Agent and (2) to cause every MBS or PC created or to
be created from any such Pool to be issued or registered as follows and to take
every other step necessary or appropriate to cause the entire consideration for
any sale or other disposition of such PC or MBS to be paid directly to the
Agent:
(A) The Obligors agree to cause all such MBSs or
PCs which are certificated Securities to be issued in the name of -- or, if
such certificated Securities were subscribed for or originally issued in
another name, properly endorsed and negotiated to -- C A England (a nominee
partnership established by The Chase Manhattan Bank for the sole purpose of
registering Securities) and to be delivered "free" to:
The Chase Manhattan Bank Securities Department
55 Water Street South Bldg.
Govt/STP 2nd Floor Window 8
New York, New York 10041
A/C C7-32810.
(B) The Obligors agree to cause all such MBSs
guaranteed by GNMA in uncertificated or book-entry form -- or in certificated
form but traded as if uncertificated -- to be credited "free" when issued to
The Chase Manhattan Bank's book-entry account with the Participants Trust
Company accompanied by the following wiring instructions:
Chase Manhattan Bank ABA #021000021
Chase/NYC/CCS/C7-32810
(C) The Obligors agree to cause all such
uncertificated or book-entry Securities guaranteed and/or issued by FNMA or
FHLMC to be credited "free" when issued to The Chase Manhattan Bank's
book-entry account with the Federal Reserve Bank of New York, accompanied by
the following wiring instructions:
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Chase Manhattan Bank ABA #021000021
Chase/NYC/CCS/BT-8446779;
THE OBLIGORS AGREE TO CONFIRM (BY ASKING THE AGENT TO VERIFY) THAT THE RELEVANT
DELIVERY AND WIRE INSTRUCTIONS SET FORTH IN CLAUSES (A), (B) OR (C) ABOVE ARE
CURRENTLY CORRECT BEFORE MAKING ANY SUCH DELIVERY OR WIRE TRANSFER OF
SECURITIES.
(D) The Obligors agree to instruct The Chase
Manhattan Bank, as agent and as securities intermediary designated by the Agent
for all such Securities, to deliver them to purchasers designated by the
Obligors only "against payment"; and
(E) The Obligors agree to take all other steps
requested by the Agent which the Agent deems to be necessary or appropriate to
establish and maintain uninterrupted first and prior perfection of the Agent's
security interest (as agent and representative of the Banks) in such Securities
and their proceeds and control of all securities entitlements in respect of
such securities and to cause all proceeds of their disposition to be paid
directly by their acquirers to the Agent until the full Sale Price for each
Pool so Securitized and sold has been actually and finally received by the
Agent.
To facilitate the Agent's perfecting and continuing its registration as owner
(as agent and representative of the Banks) of such Securities and the Agent's
obtaining and maintaining control of them and their related securities
entitlements, the Obligors hereby APPOINT the Agent as their attorney-in-fact
to take all such steps in the applicable Obligor's name and behalf, but only
upon a Default or Potential Default, and that appointment shall be deemed a
power coupled with an interest and shall be irrevocable until the expiration or
termination of this Mortgage Pools Purchase Agreement and for so long
thereafter as the Obligors have any outstanding Obligations to the Banks.
If for any reason (including but not limited to, any act or omission
by the Agent or any of the other Warehouse Banks), any such Trade Ticket
transaction is not completed on or before two (2) Business Days after its
specified Settlement Date, then the Obligors agree to:
(a) promptly pay any and all margin calls for the
affected Pool then or thereafter made by the Agent, as contemplated in Section
3.9; and
(b) promptly obtain and furnish the Warehouse Banks a
copy of a replacement Trade Ticket that is acceptable (and issued by a
Qualified Investor) to the Agent and all characteristics of which can be
satisfied by that Pool (a "Qualified Substitute Ticket").
Section 3.6 Security Agreement. To secure performance of all of
the Obligors' Obligations under this Mortgage Pools Purchase Agreement and
under each Offer, the Obligors hereby GRANT the Agent (as secured party for the
Warehouse Banks) a security interest in all of the Obligors' present and future
rights and interests (if any) in and to:
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(a) each Pool and all Qualified Mortgage Loans in it from time to
time offered by either Obligor to the Warehouse Banks under an accepted Offer
from (1) the earlier of (A) the date the Warehouse Banks give value for that
Pool -- the Obligors hereby declare that the Warehouse Banks' agreement to
purchase it constitutes value -- or (B) the date either Obligor acquires (or
reacquires) an interest in that Pool until (2) the earlier of (A) GNMA's or
FNMA's or FHLMC's issuance or guaranty of MBSs or PCs (as the case may be)
created from that Pool as provided in Section 3.5 or (B) complete fulfillment
of all of the Obligors' Obligations to the Warehouse Banks and the Agent under
this Mortgage Pools Purchase Agreement and under each Offer made and accepted
under this Facility;
(b) each MBS and each PC which is (or is to be) backed by or
created from any Pool purchased by the Warehouse Banks under this Facility from
the time either Obligor first acquires (or reacquires) rights in such
Securities until they are sold pursuant to a Trade Ticket approved by the Agent
(although the Agent's security interest in the proceeds of such sale shall
continue as provided in the next sentence below), in and to all commitments to
issue such MBSs and PCs, and in and to all rights to have or receive any and
all such Securities or any rights or interests in them;
(c) each Trade Ticket in respect of each Pool purchased by the
Warehouse Banks under this Facility;
(d) all accounts and general intangibles arising out of or derived
from any of the foregoing; and
(e) all proceeds of any of the foregoing.
All security interests granted hereby shall be first and prior and shall
continue in full force and effect until all of the Obligors' Obligations to the
Warehouse Banks and the Agent under this Mortgage Pools Purchase Agreement and
every accepted Offer have been fully performed and satisfied, provided that the
Agent's security interest in each Pool assigned to FNMA, GNMA or FHLMC to
create MBSs or PCs from that Pool shall be released (a) automatically effective
when that Pool is so assigned to GNMA, FNMA or FHLMC or (b) by written release
or termination statement executed by the Agent after its receipt of the Sale
Price for that Pool, although any such automatic or manual release shall not
release, affect or impair any of the Agent's or any of the other Warehouse
Banks' interests (including the Agent's security interest in all of either
Obligor's right, title and interest) in (1) the Securities created from that
Pool, (2) all cash and other proceeds of that Pool and all Securities created
from it and (3) the Trade Ticket and its proceeds, and the Agent's and the
Warehouse Banks' interests (including the Agent's security interest in all of
either Obligor's right, title and interest) in such Securities, Trade Ticket
and proceeds shall continue until the Agent has received for the Warehouse
Banks full payment of the Sale Price for that Pool. The Agent shall have all
of the rights of a secured party under the Laws of the state where such
collateral is located, and shall have the express right to transfer any
Collateral into its own name, either before or after any Default or Potential
Default. Without limiting any of the foregoing provisions, if for any reason
any court of competent jurisdiction shall construe or characterize the
Warehouse Banks' purchase of any
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Pool or Pools to be a loan or extension of credit rather than the true sale
which the selling Obligor and the Warehouse Banks and the Agent expressly
hereby declare that they intend it to be, then the provisions of this Section
shall be construed and given effect so as to create and perfect in the Agent
(as secured party for the Warehouse Banks) a first, prior and continuous
security interest in all of the selling Obligor's rights, titles and interests
in each affected Pool and all proceeds (and the term "proceeds" shall be
construed to include each MBS and PC backed by or created from such Pool, each
Trade Ticket related to it and all proceeds thereof) having its inception on
the date that the Warehouse Banks funded money to the selling Obligor or for
its account against or in respect of that Pool, and the amount of the Fee for
the transaction or transactions so construed or characterized shall be
absolutely limited to the maximum nonusurious amount of interest allowed by
whichever of applicable Texas or federal laws permit the higher amount of
interest to be contracted for, reserved, charged or received (as applicable to
the circumstances), it being the intention of the parties to comply with, and
not to evade, all usury Laws and other applicable Laws.
Section 3.7 Obligation on any Transaction Failure. If for any
reason (including any act or omission of the Agent or the Warehouse Banks
except the willful or grossly negligent act or omission of the Agent or the
Warehouse Banks) the selling Obligor has not successfully caused to be sold to
a Qualified Investor any Pool purchased by the Warehouse Banks on or before the
date (the "Failure Date") that is two (2) Business Days after that Qualified
Investor's applicable Trade Ticket expires, then the selling Obligor shall be
in default of its obligations to the Warehouse Banks with regard to such Pool
(an "Affected Pool") and shall have committed a breach of this Mortgage Pools
Purchase Agreement. Upon the occurrence of any such breach, the Warehouse
Banks and the Agent shall cease to have any obligation to deliver the Affected
Pool under any Trade Ticket, to lend the Affected Pool to the selling Obligor
pursuant to Section 3.5 or to honor any option the selling Obligor may have by
contract or operation of Law to reacquire the Affected Pool, and the Warehouse
Banks may elect then or at any time thereafter to: (a) terminate the selling
Obligor's rights and obligations to service the Qualified Mortgage Loans in the
Affected Pool as provided for in Section 3.3; (b) obtain a new commitment or
Trade Ticket from a third party to purchase the Affected Pool; (c) sell the
Affected Pool to a third party; (d) terminate this Mortgage Pools Purchase
Agreement by giving a written termination notice to the Obligors in accordance
with Section 6.2 or (e) do any combination of those things. Should the
Warehouse Banks (acting through the Agent) terminate the selling Obligor's
rights and obligations to service the Qualified Mortgage Loans in the Affected
Pool, the selling Obligor agrees to promptly deliver all files and papers
related to that Affected Pool to the Agent, the selling Obligor shall not be
entitled to receive any sums or fees related to servicing the Qualified
Mortgage Loans in the Affected Pool from or after the Failure Date, and for
purposes of calculating the Warehouse Banks' Fee in respect of the Affected
Pool from and after the Failure Date, the Pools Stated Rate shall be the
greater of (1) the Pools Stated Rate as determined in Section 3.4 that is
applicable to that Pool for the applicable time period or (2) the annual coupon
interest rate provided for in the promissory notes secured by the Qualified
Mortgage Loans in the Affected Pool divided by 360, but in no event shall the
Fee ever exceed the Ceiling Rate. Any ancillary income received by the
Warehouse Banks or the Agent related to the servicing of the Qualified Mortgage
Loans in the Affected Pool shall not be applied to or reduce the Warehouse
Banks' Net Share for the Affected Pool. If either Obligor should breach the
provisions of this Section, that shall not terminate
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or abate the Obligors' Margin Obligations to the Warehouse Banks with regard to
the Affected Pool, as provided for in Section 3.9, and the Obligors' Margin
Obligations to the Warehouse Banks with regard to the Affected Pool shall only
terminate upon (a) the sale of the Affected Pool to a third party or (b) the
selling Obligor's repurchasing the Affected Pool from the Agent if the
Warehouse Banks elect to resell it to the selling Obligor, by payment of the
"Applicable Repurchase Amount", which means payment to the Agent (for the
accounts of the Warehouse Banks) in good, collected Houston funds by either
such third party or the selling Obligor (as the case may be) of the sum of (1)
an amount equal to the Warehouse Banks' Net Share which the Warehouse Banks
would have received in respect of that Qualified Mortgage Loan if its purchase
by the Qualified Investor provided for in the Trade Ticket represented by the
selling Obligor to have most recently covered it (whether or not it was
actually so covered) were completed in strict accordance with its terms and on
its stated expiration date plus (2) (without duplication of any payment) an
amount equal to any increase in the Warehouse Banks' Net Share due to the
passage of time. Should the Agent sell any Affected Pool to a third party, in
the absence of manifest error, the purchase price obtained by the Agent shall
be conclusively presumed to be the fair market value of that Affected Pool
(which may or may not be the same as the quoted market value for comparable
mortgages as quoted on the Telerate computer quotation system which is used for
calculating the Margin Obligations to the Warehouse Banks as provided for in
Section 3.9). Upon the sale of any Affected Pool to a third party, the selling
Obligor shall promptly pay to the Agent (for the accounts of the Warehouse
Banks) an amount equal to the Warehouse Banks' Net Share as of the sale date,
less the net proceeds realized by the Warehouse Banks from the sale of the
Affected Pool (the "Make Whole Payment"). The Warehouse Banks may elect to
apply any margin previously paid by the selling Obligor with respect to the
Affected Pool, to the selling Obligor's obligation to pay the Make Whole
Payment, and if there is any excess of margin paid related to the Affected Pool
after applying the margin to pay part or all (as the case may be) of the Make
Whole Payment, the Warehouse Banks will refund such excess to the selling
Obligor, provided that no Default or Potential Default then exists. However,
application of the margin related to the Affected Pool to the Make Whole
Payment shall in no way limit or waive any rights the Warehouse Banks may
possess under or diminish any obligations of the selling Obligor with respect
to any provision of this Mortgage Pools Purchase Agreement for any Pool or
Qualified Mortgage Loan, including the Affected Pool.
Furthermore, if the Agent determines that any Qualified Mortgage Loan purchased
under or in respect of this Facility is a "Defective Mortgage" (defined as any
Qualified Mortgage Loan that (a) is not in strict compliance with the
requirements of the applicable GNMA, FNMA of FHLMC program as described in
either the GNMA Mortgage Backed Securities Guide I or II, the Fannie Mae MBS
Selling and Servicing Guide or the Freddie Mac Sellers' and Servicers' Guide or
(b) ceases to have MPPA Value) and if the selling Obligor fails to wholly cure
(to the satisfaction of the Agent) such defects in that Qualified Mortgage Loan
before the Settlement Date for the Trade Ticket that the selling Obligor has
represented to the Agent covers that Qualified Mortgage Loan, then the Agent
may demand that the selling Obligor immediately either repurchase such
Qualified Mortgage Loan or deliver a new Qualified Mortgage Loan in exchange
for the Defective Mortgage. By the close of business on the next Business Day
following receipt of any such demand, the selling Obligor shall either (a)
repurchase that Qualified Mortgage Loan from the Agent for the Applicable
Repurchase
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Amount, or (b) substitute a new Qualified Mortgage Loan (the "Substitute
Mortgage"), which is in all respects acceptable to the Agent in the Agent's
discretion. If the aggregate principal balances of all Substitute Mortgages
are less than the aggregate principal balances of all Defective Mortgages being
replaced, then the selling Obligor shall remit with such Substitute Mortgages
an amount equal to the difference (the "Shortfall Amount") between the
aggregate principal balance of the Substitute Mortgages and the Defective
Mortgages, plus any Fee that the Warehouse Banks would have earned under this
Mortgage Pools Purchase Agreement on the aggregate principal balance difference
calculated as if, on the date of such remittance, the selling Obligor were
repurchasing a Qualified Mortgage Loan in principal amount equal to the
Shortfall Amount and covered by the same Trade Ticket as the Defective
Mortgages which were only partially replaced, with the term for which the
Warehouse Banks' Invested Balance is treated as having been invested in such
hypothetical Qualified Mortgage Loan being repurchased ending on the date of
such remittance. Absent manifest error, or if the selling Obligor does not
object in writing to the Agent's calculation of a Shortfall Amount due on or
before thirty (30) days after the Agent gives the selling Obligor written
notice of the Agent's calculated value of that Shortfall Amount, the Agent's
calculation of each Shortfall Amount shall be conclusive and binding.
Section 3.8 Margin Calls by Obligor's Qualified Investor. The
Obligors agree to maintain each Trade Ticket and all of the Obligors'
obligations under it in full force and effect, not to pair off without the
Agent's consent or otherwise cause or acquiesce in the effective partial or
complete cancellation of any Trade Ticket, not to suffer or permit any default
under any Trade Ticket and to enforce performance of the relevant Qualified
Investor's obligations under each Trade Ticket. Without limitation, the
Obligors expressly agree to timely deliver all margin required by the terms of
each Trade Ticket.
Section 3.9 Margin Obligations to the Warehouse Banks. If any
Trade Ticket in respect of any accepted Offer is canceled, paired off or
revoked by any means, or if the issuer of any Trade Ticket shall at any time
have a defense to performance of its obligations under that Trade Ticket on
account of offsetting obligations, the Obligors' default or for any other
reason, or if the Securities purchase transaction contemplated by any Trade
Ticket is not completed by the Settlement Date provided for in it, then and in
any of such events, if the Securities referred to in such Trade Ticket (i.e.,
the Securities to be created from that Pool) decrease in market value below the
Pool Purchase Price Paid by the Warehouse Banks before the Agent has disposed
of such Pool (or all MBSs or PCs created from it) and fully recovered the
Warehouse Banks' Invested Balance in that Pool, the Obligors agree to pay to
the Agent (for the accounts of the Warehouse Banks) within twenty-four (24)
hours after demand (without, however, duplication of any payment) the positive
difference (if any) between (a) the sum of (1) the Purchase Price Paid by the
Warehouse Banks plus (2) the Fee allocable to such Pool or the Securities
created from it from the date of purchase to the date of payment pursuant to
such demand over (b) the sum of all such margin and Fee payments theretofore
paid by the Obligors to the Warehouse Banks (the Obligors' "Margin Obligations
to the Warehouse Banks"). Absent manifest error, the market value quoted for
any such Security, as quoted on the Telerate computer quotation system to which
the Agent subscribes (or any comparable system to
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which the Agent may hereafter subscribe and elect to use for the purposes of
determining the market value of such Securities), shall be conclusive evidence
of the market value of such Security.
Section 3.10 Representations, Warranties and Covenants. The
Obligors represent, warrant and covenant (and such representations and
warranties shall be true at the time any Pool is sold to the Warehouse Banks
under this Facility) that:
(a) The Obligors will ensure that all MBSs and PCs are initially
issued to and registered in the name and account specified in Clauses (A)-(E),
as applicable, of Section 3.5 (and, in cases of certificated Securities, if
any, actually delivered to The Chase Manhattan Bank) immediately when issued
and that the books of each financial intermediary on whose books any of such
Securities are listed show the registrant required by Section 3.5 to be named
as owner of the Security to be the only owner of any interest (including any
limited interest) in each such Security until it is sold to a Qualified
Investor pursuant to a Trade Ticket approved by the Agent.
(b) Each Qualified Investor will be irrevocably instructed to
remit directly to the Agent -- or to a financial intermediary under an accepted
irrevocable instruction to deliver them to the Agent -- and not to the selling
Obligor, all sums due with respect to such Qualified Investor's purchase of
each MBS or PC created from any Pool purchased by the Warehouse Banks (or by
the Agent on their behalf.)
(c) The assignment of such Qualified Mortgage Loan in blank from
the selling Obligor is valid and effective and the Agent and its assigns are
duly authorized to complete the blanks in each such assignment and to thereby
transfer such Qualified Mortgage Loan.
(d) All documents submitted in connection with each Offer are
genuine, the statements contained in each schedule of Qualified Mortgage Loans
submitted to the Warehouse Banks and all other statements and representations
as to each such Qualified Mortgage Loan and Pool are accurate, true and correct
in all material respects and meet each of the requirements and specifications
of this Mortgage Pools Purchase Agreement.
(e) All deliveries of all Qualified Mortgage Loans and other Pool
documents shall be at the selling Obligor's risk and (except only for
deliveries of Qualified Mortgage Loans required to be made by the Agent as
custodian under the relevant Guide) the selling Obligor's responsibility, and
the selling Obligor agrees to indemnify the Warehouse Banks and the Agent and
hold them harmless from all loss, cost or expense (including reasonable
attorneys' fees) arising out of or incurred in connection therewith INCLUDING
ANY THAT MAY RESULT FROM ANY WAREHOUSE BANK'S OR THE AGENT'S OWN SIMPLE
NEGLIGENCE, EXCEPT ONLY FOR SUCH LOSS, COST OR EXPENSE, IF ANY, THAT RESULTS
SOLELY FROM ANY WAREHOUSE BANK'S OR THE AGENT'S OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. The selling Obligor agrees to provide delivery instructions for
all such document deliveries and all delivery service fees shall be charged to
the selling Obligor and shall be its responsibility and obligation to pay.
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(f) Each Residential Mortgage in each Pool sold to the Warehouse
Banks (or to the Agent on their behalf) has been duly executed by the mortgagor
under such Residential Mortgage, acknowledged and recorded and is valid and
binding upon such mortgagor.
(g) If any Qualified Mortgage Loan in any purchased Pool shall for
any reason become ineligible or disqualified for inclusion in that Pool
pursuant to the provisions of the relevant Guide, then promptly upon demand
made by the Agent, the selling Obligor shall replace that Qualified Mortgage
Loan with another qualified and eligible Mortgage that meets such Pool's
requirements.
(h) The selling Obligor is the sole owner of each Pool sold or
offered for sale to the Warehouse Banks and every Qualified Mortgage Loan in it
and the selling Obligor has authority to sell, transfer and assign it on the
terms set forth in this Mortgage Pools Purchase Agreement and the relevant
Offer, and there has been no assignment, sale or hypothecation of it by the
selling Obligor to any Person other than the Agent (for the Warehouse Banks.)
(i) Each such Qualified Mortgage Loan that the selling Obligor
represents to be insured by FHA or PMI, or to be guaranteed by VA, is so
insured or guaranteed as represented.
(j) The full principal amount of each such Qualified Mortgage Loan
has been advanced to the mortgagor under such Qualified Mortgage Loan, either
by payment directly to the mortgagor or by payment made on the mortgagor's
request or approval; the unpaid principal balance is as stated in the relevant
schedule enclosed with the Offer; all costs, fees and expenses incurred in
making, closing and recording such Qualified Mortgage Loan have been paid; no
part of the Property covered by such Qualified Mortgage Loan has been released
from its Lien; the terms of such Qualified Mortgage Loan have in no way been
changed or modified; and such Qualified Mortgage Loan is current and not in
default.
(k) As to each Qualified Mortgage Loan in each Pool offered to
and/or purchased by the Agent (for the accounts of the Warehouse Banks), and as
to all escrow balances related to the Qualified Mortgage Loans, all applicable
Laws have been complied with, including but not limited to the Real Estate
Settlement Procedures Act (including but not limited to Regulation X
promulgated by the Federal Department of Housing and Urban Development
("HUD")), the Equal Credit Opportunity Act, the Flood Disaster Protection Act,
the Truth-in-Lending Act of 1968, the Depository Institutions Deregulatory and
Monetary Control Act of 1980, all as amended, and regulations issued pursuant
to them; and all usury Laws and limitations, all conditions within the control
of the Obligors as to the validity of the insurance or guaranty required by the
National Housing Act of 1934, as amended, and the rules and regulations
thereunder, and the Servicemen's Readjustment Act of 1944, as amended, and the
rules and regulations thereunder, and all requirements of the mortgage
insurance companies or other insurers, have been properly satisfied, and such
insurance or guaranty is valid or enforceable. All escrow balances have been
calculated in accordance with the contractual provisions of the Qualified
Mortgage Loan, or, if more restrictive, in accordance with any applicable
Guide.
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(l) There is in force a paid-up title insurance policy on such
Qualified Mortgage Loan issued by an accredited title insurer in an amount at
least equal to the outstanding principal balance of such Qualified Mortgage
Loan and showing thereon no exceptions unacceptable to the Agent.
(m) Hazard insurance policies meeting the requirements of each
such Qualified Mortgage Loan and of the relevant Guide are in force.
(n) The selling Obligor has not directly or indirectly pledged any
Loan Servicing Agreements with respect to any Pool (or any Qualified Mortgage
Loan in any Pool) acquired by the Agent (for the Warehouse Banks) under this
Facility to any party other than Agent, nor will the selling Obligor do so
without the Agent's prior written approval.
(o) The selling Obligor agrees to immediately notify the Agent in
writing upon learning of any default under any of the Qualified Mortgage Loans
in any Pool purchased (or agreed to be purchased) by the Warehouse Banks, or of
the institution of any proceeding before any court or other Governmental
Authority in respect of a claimed violation by the selling Obligor or any other
Person of Law relating to any such Qualified Mortgage Loan or a claimed defense
of offset to any Qualified Mortgage Loan.
(p) The Qualified Mortgage Loans were selected from among the
outstanding Mortgage Loans in the selling Obligor's portfolio which satisfy the
representations and warranties set forth in this Mortgage Pools Purchase
Agreement and such selection was not made in a manner so as to affect adversely
the interests of the Warehouse Banks.
(q) The consideration received by the selling Obligor upon the
sale of each Qualified Mortgage Loan will constitute reasonably equivalent
value and fair consideration for the ownership interest in that Qualified
Mortgage Loan.
(r) The selling Obligor will be solvent at all relevant times
prior to, and will not be rendered insolvent by, any sale of a Qualified
Mortgage Loan to the Warehouse Banks.
(s) The selling Obligor will not sell any Qualified Mortgage Loan
to the Warehouse Banks with any intent to hinder, delay or defraud any of the
selling Obligor's creditors.
Section 3.11 Intent.
(a) The parties recognize that each Offer is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Securities subject to
such Offer or the term of such Offer would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended.
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(b) Any party's right to liquidate Securities delivered to it in
connection with Offers hereunder or to exercise any other remedies pursuant
hereto is a contractual right to liquidate such Securities as described in
Sections 555 and 559 of Title 11 of the United States Code, as amended (to the
extent applicable thereto).
Section 3.12 Fee to Accrue and to be Paid. The Fee under this
Mortgage Pools Purchase Agreement accrued at the rate provided for in this
Mortgage Pools Purchase Agreement and on the Warehouse Banks' Invested Balance
shall continue to be paid to the Agent when due as provided in this Mortgage
Pools Purchase Agreement, and the Agent will distribute it Ratably to the
Warehouse Banks.
ARTICLE 4. SERVICING ACQUISITION LINE
Section 4.1 General Terms for the Servicing Acquisition Line.
(a) This Article sets forth terms and conditions governing the
Obligors' revolving credit facility (the "Servicing Acquisition Line")
requested by the Obligors and approved by the Servicing Acquisition Banks
solely to provide the Obligors with refinancing of existing debt incurred by
them to acquire the rights to service and to be compensated for servicing
residential Mortgage Loans from time to time and all related accounts, general
intangibles, rights, interests and proceeds pursuant to Loan Servicing
Agreements ("Servicing Rights") that are Owned Servicing Rights and financing
for the Obligors' purchases of additional Owned Servicing Rights. Loans made
under the Servicing Acquisition Line are called "Servicing Acquisition Loans".
This Article's provisions are subject to the other terms and conditions of the
Current Facilities Agreement.
(b) The Servicing Acquisition Banks' commitments are several and
not joint -- no Bank has any obligation under this Agreement to fund any part
of any other Bank's commitment for the Servicing Acquisition Line or otherwise
- -- and the respective commitments of the Servicing Acquisition Banks are set
forth on the Commitments Schedule.
(c) Failure of any Servicing Acquisition Bank to fund any part of
its commitment for the Servicing Acquisition Line shall not in itself relieve
any other Servicing Acquisition Bank of its obligation to fund its commitments
for the Servicing Acquisition Line; provided that no Servicing Acquisition Bank
shall be responsible or incur any liability whatsoever for the failure of any
other Servicing Acquisition Bank to fund any commitment or its Funding Share of
any Loan that such other Servicing Acquisition Bank is obligated to fund or
make.
(d) The maximum credit henceforth available on any day under the
Servicing Acquisition Line (including refinancing and new financing credit)
shall be Forty-Five Million Dollars ($45,000,000) (the "Servicing Acquisition
Limit") minus the aggregate principal of the Servicing Acquisition Loans
outstanding on that day.
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Section 4.2 Borrowing under the Servicing Acquisition Line.
Subject to the Commitments Lapse Provision and the Funding Availability
Termination Provisions, the Obligors may borrow, repay and reborrow from the
Servicing Acquisition Banks up to an aggregate amount outstanding on any day of
up to the Servicing Acquisition Limit for each day until December 3, 1998 (the
"Revolving Servicing Acquisition Termination/Conversion Date") solely (i) to
refinance each Obligor's own servicing acquisition debt incurred to acquire
Owned Servicing Rights outstanding on the Effective Date and the initial draws
under the Servicing Acquisition Line shall be made and applied to that purpose,
and to (ii) finance each Obligor's funding of such Obligor's own acquisitions
of additional Owned Servicing Rights, and for no other purposes.
Section 4.3 Conversion of Servicing Acquisition Loans to Term
Debt. On the Revolving Servicing Acquisition Termination/Conversion Date, the
Revolving Servicing Acquisition Facility Fee shall automatically cease to
accrue (and any accrued but unpaid portion of it shall be immediately due and
payable to the Agent, for the account of the Servicing Acquisition Banks
without notice or demand) and, unless a Default has occurred that the Agent has
not declared in writing to have been cured or waived, the then-outstanding
Servicing Acquisition Loans shall automatically convert from revolving credit
loans to a term loan and shall continue to bear interest as before the
conversion on its advanced and unpaid principal balance outstanding on each day
at the applicable Stated Rate for Current Servicing Acquisition Notes; provided
that all past due amounts, both principal and accrued interest, shall bear
interest at the Past Due Rate from their due dates until paid. Interest
accrued to the end of each calendar month shall be due and payable after the
conversion as before on the fifteenth (15th) day of the next succeeding month,
commencing January 15, 1998, and with principal due and payable in sixteen (16)
equal quarterly installments, each in an amount equal to one-sixteenth (1/16th)
of the outstanding principal balance of the Servicing Acquisition Loans on the
Revolving Servicing Acquisition Termination/Conversion Date, with the first of
such principal installments being due and payable on March 15, 1999 and a like
principal installment being due and payable on the 15th day of each succeeding
June, September, December and March thereafter until December 15, 2002, when
all principal of and accrued interest on the Servicing Acquisition Loans then
unpaid shall be finally due and payable. All interest calculations under the
Current Servicing Acquisition Notes shall be computed on the basis of the
actual number of days elapsed over a year of 360 days -- unless that would
produce a usurious interest rate under applicable Law, in which event such rate
shall be computed on the basis of the actual number of days elapsed over a year
of 365 days, or 366 days in a leap year, to the extent required to prevent or
minimize usury.
Section 4.4 12/97 Master Servicing Acquisition Notes. The
Obligors' borrowings under the Servicing Acquisition Line shall be evidenced by
new promissory notes ("12/97 Master Servicing Acquisition Notes") dated as of
the Effective Date (or by the promissory notes, if any, from time in the future
issued by the Obligors to renew, extend, rearrange, increase or replace the
12/97 Master Servicing Acquisition Notes, each of which, as well as each such
future note, being called a "Current Servicing Acquisition Note") substantially
in the form of Exhibit D, executed by the Obligors and payable to the order of
each Servicing Acquisition Bank in the face principal amount of such Servicing
Acquisition Banks' Committed Sum of the Servicing Acquisition Line.
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Section 4.5 Current Servicing Acquisition Notes' Payment
Schedule. Each Current Servicing Acquisition Note shall bear interest on its
advanced and unpaid principal balance outstanding on each day at the applicable
Stated Rate for Current Servicing Acquisition Notes; provided that all past due
amounts, both principal and accrued interest, shall bear interest at the Past
Due Rate from their due dates until paid. Interest accrued to the end of each
calendar month shall be due and payable on the fifteenth (15th) day of the next
succeeding month, commencing January 15, 1998. All principal and unpaid
interest accrued on each Current Servicing Acquisition Note shall be due and
payable on demand made at any time after either (a) the occurrence of any
default under such Current Servicing Acquisition Note, the Current Facilities
Agreement or any other Facilities Papers (unless the respective Servicing
Acquisition Bank shall have declared in writing that the default has been cured
or waived) or (b) the termination date specified in any written notice from
Agent to the Obligors, indicating the election of the Servicing Acquisition
Banks to terminate the Servicing Acquisition Line. If no such demand is sooner
made, advanced and unpaid principal of each Current Servicing Acquisition Note
shall be due and payable as provided in Section 4.3.
Section 4.6 Current Servicing Acquisition Notes Voluntary
Prepayments. The Obligors may elect to prepay the Current Servicing
Acquisition Notes in whole or in part at any time without notice, penalty or
fee other than the payment of any breakage costs described in the Current
Servicing Acquisition Notes with respect to Loans thereunder bearing interest
at the Eurodollar Rate plus the Applicable Margin, and all such prepayments
shall be applied Ratably to the Current Servicing Acquisition Notes.
Section 4.7 Servicing Acquisition Line Security. TCB, in its
capacity as agent for the Banks, holds and shall hold the pledgee's interest
and the security interests granted by the Obligors to TCB, as Agent for the
Banks, (a) primarily, in all of the Servicing Acquisition Collateral, (b)
secondarily, in all of the Warehouse Collateral and (c) on a pari passu basis
in all other Collateral, to Ratably secure all of the Obligors' present and
future Obligations to the Servicing Acquisition Banks under this Agreement.
Section 4.8 Revolving Servicing Acquisition Facility Fee. While
the Obligors have no obligation to borrow or to maintain any minimum balance of
borrowed funds outstanding under the Servicing Acquisition Line at any time, as
compensation to the Servicing Acquisition Banks for their agreements (the
"Servicing Acquisition Line Commitments") to make the Servicing Acquisition
Line's credit available to the Obligors between the Effective Date and the
Revolving Servicing Acquisition Termination/Conversion Date and not as
compensation for the use, forbearance or detention of money -- the Obligors,
jointly and severally, hereby agree to pay to the order of the Agent for the
account of the Servicing Acquisition Banks a facility fee (the "Revolving
Servicing Acquisition Facility Fee") for each day between the Effective Date
and the Revolving Servicing Acquisition Termination/Conversion Date equal to
one-eighth percent (0.125%) per annum of the amount of all Servicing
Acquisition Line Commitments on each such day. The Revolving Servicing
Acquisition Facility Fee shall be due and payable quarterly in advance on
December 31, 1997 and on the last day of each succeeding March, June, September
and December (if any) thereafter; provided that upon termination of the
Obligor's right to borrow under the Servicing Acquisition Line, however
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such termination shall occur, any unearned Revolving Servicing Acquisition
Facility Fee paid shall be credited to the Obligations due (or if all of the
Obligations have been paid, refunded to the Obligors, their successors or
assigns); provided further, that the amount of the Revolving Servicing
Acquisition Facility Fee -- although not itself interest -- shall be absolutely
limited to that amount which, when added to all interest contracted for,
charged, reserved or received on the Servicing Acquisition Line, will not
exceed an amount equal to the maximum amount of nonusurious interest on the
advanced and unpaid balance of the Servicing Acquisition Line over its entire
actual term allowed by whichever of applicable Texas or federal Law permits the
higher nonusurious interest rate. If the amount of the Revolving Servicing
Acquisition Facility Fee payable on any day calculated in accordance with the
immediately preceding sentence would exceed that limit, then the Revolving
Servicing Acquisition Facility Fee due on that day shall automatically be
reduced to the amount that will meet, but not exceed, that limit, and if on any
day the Obligors have already paid any such excess, then the excess will be
refunded to the Obligors or appropriately credited against the Obligors'
then-outstanding Current Servicing Acquisition Notes, whichever the Servicing
Acquisition Banks elect.
Section 4.9 Borrowing Procedures. The borrowing Obligor agrees
to notify the Agent of the amount and date of each proposed Loan, and the
designated Stated Rate to apply thereto, under the Servicing Acquisition Line,
either by telephone or in writing by no later than 12:00 noon, Houston time, on
the date (which must also be a Business Day) of the desired funding; provided
that if the Obligor is electing a Eurodollar Rate, such notification must be
received by the Agent no later than 10:00 a.m. on the Business Day which is
three (3) Business Days before the date of the desired funding. The initial
request, whether by telephone or in writing, shall identify the Obligor for
which the Servicing Acquisition Loan is being requested, and a separate request
shall be made for each Servicing Acquisition Loan to each Obligor. The
borrowing Obligor will confirm or make the request for a Servicing Acquisition
Loan in writing by delivering to the Agent a Loan Request, with all blanks
appropriately completed, including the designation of the Stated Rate, on or
before the applicable Rate Designation Date (or, if the Loan Request includes a
Eurodollar Rate election on or before the Business Day immediately preceding
the applicable Rate Designation Date), and simultaneously delivering to the
Agent, as agent and representative of the Banks, all Servicing Acquisition
Collateral related to such Loan and copies of all purchase and sale agreements,
if any, covering such Servicing Acquisition Collateral.
Delivery of a Loan Request may be by telecopy if confirmed by the borrowing
Obligor's mailing an originally-signed copy to the Agent on the same day. Upon
the Agent's receipt of a Loan Request and the applicable Servicing Acquisition
Collateral and purchase and sale agreements before noon on a Business Day, the
Agent shall notify each of the other Servicing Acquisition Banks by no later
than 2:00 p.m. on the same Business Day; provided that if such Loan Request
includes a Eurodollar Rate election, it must be received by the Agent no later
than 10:00 a.m. on the Business Day immediately before the relevant Rate
Designation Date, and the Agent shall notify each of the other Servicing
Acquisition Banks thereof by no later than 1:00 p.m. on that same Business Day.
Each Servicing Acquisition Bank other than TCB shall make that portion of such
Servicing Acquisition Loan that is attributable to such Servicing Acquisition
Bank's Committed Sum of such Facility available to the Agent in immediately
available funds at the Agent's main office no later than 3:00 p.m. on the date
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such Servicing Acquisition Loan is to be made. Upon satisfaction of all
conditions precedent to the funding of a Servicing Acquisition Loan, TCB shall
make that portion of such Servicing Acquisition Loan that is attributable to
its Committed Sum of such Facility available to the borrowing Obligor in
immediately available funds at the Agent's main office in Houston, and upon
receipt by the Agent from each other Servicing Acquisition Bank of that portion
of such Servicing Acquisition Loan attributable to the Committed Sum of such
Facility of such other Servicing Acquisition Bank, the Agent shall make that
portion of such Servicing Acquisition Loan available to the borrowing Obligor
in immediately available funds at the Agent's main office in Houston. If,
after any of the other Servicing Acquisition Banks so provides funds to the
Agent, the Agent does not fund the relevant Servicing Acquisition Loan because
a condition precedent is not satisfied or for any other reason, then the Agent
shall return the funds so received to the Servicing Acquisition Bank(s) that
provided them on the same Business Day that the Agent first determines that the
Servicing Acquisition Loan will not be funded if the Agent makes that
determination before 2:00 p.m. on that Business Day, or on the next succeeding
Business Day if such determination is not made until 2:00 p.m. or later. If
the Agent fails to return such funds by the time specified, then the Agent
shall be obligated to pay interest on them to the Servicing Acquisition Bank to
which they are due from the day when they should have been returned to the day
when they are returned at the Federal Funds Effective Rate.
Section 4.10 Amount the Obligors May Borrow Against the Eligible
Servicing Portfolio. Subject to the provisions of Section 10.7, Obligors may
obtain Servicing Acquisition Loans of up to sixty-five percent (65%) of the
aggregate appraised value of the Obligors' Eligible Servicing Portfolio, as
most recently determined by independent appraisal in accordance with Section
9.3(e); provided that without the Agent's written approval, the Obligors may
not obtain a Servicing Acquisition Loan to finance PMSRs with a value as
determined herein in excess of One Million Dollars ($1,000,000) for the
servicing of commercial Mortgage Loans.
ARTICLE 5. INTEREST RATE ELECTION PROVISIONS
Section 5.1 Interest Rate Elections. If no Default exists, the
Obligors may elect to have a Eurodollar Rate plus the Applicable Margin, or the
Adjusted LIBOR Rate plus the Applicable Margin, apply or continue to apply (as
the case may be) to all or a portion of the principal balance of the Warehouse
Loans or the Servicing Acquisition Loans. No such designation shall change the
outstanding principal balance of any Note. Obligors shall designate such rate
in the related Loan Request given to the Agent by no later than 10:00 a.m.,
Houston time, on the applicable Rate Designation Date (except that if the Loan
Request includes a Eurodollar Rate designation, such Loan Request must be given
to the Agent by no later than 10:00 a.m. on the Business Day immediately before
the applicable Rate Designation Date) or by a separate written notice if
Obligors desire to designate (or continue) a Eurodollar Rate Loan or an
Adjusted LIBOR Rate Loan, or to convert a Eurodollar Rate Loan to an Adjusted
LIBOR Rate Loan or vice versa. Each Eurodollar Rate Loan shall be and remain
in the amount of at least Five Million Dollars ($5,000,000), and no more than
three (3) Eurodollar Rate Loans may be outstanding at any one time. If an
Obligor elects to have a Eurodollar Rate apply to any portion of a Loan funded
as a Swing Loan, then such Obligor shall be deemed to have elected that (i) the
Adjusted LIBOR Rate plus the Applicable Margin for Swing
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Loans apply to that portion of such Loan for the time that it is outstanding as
a Swing Loan and (ii) the Eurodollar Rate plus the Applicable Margin apply
thereto for the Interest Period designated, with such Interest Period
commencing, however, on the first day that it is funded as a Loan by all of the
Warehouse Banks or Servicing Acquisition Banks (as the case may be.)
Section 5.2 Inadequacy of Pricing and Rate Determination. If (a)
the Agent is unable through its customary practices to determine any applicable
Eurodollar Base Rate; (b) by reason of circumstances affecting the Interbank
Market generally, any of the Banks is not being offered deposits in dollars in
the Interbank Market for the applicable Interest Period and in an amount equal
to the amount of any Eurodollar Rate Loan requested by Obligors or (c) the
applicable Eurodollar Base Rate will not adequately and fairly reflect the cost
to any of the Banks of making and maintaining a Eurodollar Rate Loan, then the
Agent shall give the Obligors notice thereof and thereupon (1) the Obligors'
designation of a Eurodollar Rate Loan that has not commenced as of the date of
such notice from the Agent shall be of no force and effect and (2) until the
Agent notifies the Obligors that the circumstances giving rise to the Agent's
notice no longer exist, the Obligors may not request a Eurodollar Rate Loan
(and any attempted designation thereof shall be ineffective).
Section 5.3 Funding Losses. The Obligors shall compensate the
relevant Banks on demand for any loss or expense that any Bank sustains or
incurs because of (1) Obligors' failure to borrow, continue or convert to any
Eurodollar Rate Loan after the Agent has received the applicable Loan Request
designating it; (2) any prepayment or conversion of all or any part of a
Eurodollar Rate Loan or (3) any default in the full payment of any Eurodollar
Rate Loan or any interest accrued on it when due (whether by scheduled
maturity, acceleration, irrevocable notice of prepayment or otherwise). Such
loss or expense shall include the excess, if any, of (A) the relevant Bank's
cost of obtaining the funds for the Eurodollar Rate Loan being paid, prepaid or
not borrowed, made by continuation or conversion or prepaid for the period from
the date thereof to the last day of the relevant Interest Period over (B) the
interest that would be realized by such Bank in reemploying the funds so paid,
prepaid or not borrowed for such period. The provisions of this Section shall
survive repayment of the Loans and the expiration or any termination of this
Agreement.
Section 5.4 Determinations. In determining any amount, rate,
cost, loss, expense or reserve requirement hereunder, any Bank and the Agent
may each make any reasonable assumptions and allocations and may employ any
reasonable averaging and attribution methods. The Agent's records with respect
to interest rate designations, Interest Periods and the amounts of Eurodollar
Rate Loans to which they apply, the Adjusted LIBOR Rate, any Eurodollar Rate
and all other determinations by the Agent or any Bank under this Section and
under the relevant definitions shall be binding and conclusive, absent manifest
error.
Section 5.5 Affiliates. Each Bank may make any Eurodollar Rate
Loan by causing a branch or Affiliate of such Bank to make such Eurodollar Rate
Loan and may transfer and carry such Eurodollar Rate Loan at, to or for the
account of the same; but the joint and several obligation of the Obligors to
repay such Eurodollar Rate Loan shall nevertheless be to that Bank and such
Eurodollar
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Rate Loan shall (1) be deemed to have been made by that Bank and (2) be held by
that Bank for the account of such branch or Affiliate.
Section 5.6 Funding Decision. Each Bank may fund each Eurodollar
Rate Loan in any manner it sees fit; but for the purposes of this Section all
determinations shall be made as if each such Bank funded such Eurodollar Rate
Loan through the purchase of deposits having a maturity corresponding to its
Interest Period and an interest rate equal to the relevant Eurodollar Base
Rate.
Section 5.7 Rate of Return Maintenance Covenant. If at any time
after the date of this Agreement, any Bank determines that (a) any applicable
law, rule or regulation regarding capital adequacy has been adopted or changed
since September 30, 1997 or (b) its interpretation or administration by any
Governmental Authority, central bank or comparable agency has changed since
September 30, 1997 and determines that such change or such Bank's compliance
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on that Bank's capital as a consequence of its obligations under this Agreement
or any of the other Facilities Papers to a level below that which that Bank
would have achieved but for such adoption, change or compliance (taking into
consideration that Bank's own capital adequacy policies) by an amount that Bank
deems to be material, then upon notice to the Obligors by that Bank or the
Agent summarizing the facts triggering the increase and calculations of the
increase, the interest rate on the principal of that Bank's portion of the
Warehouse Loans and Servicing Acquisition Loans funded and outstanding from
time to time shall be increased to a rate sufficient to provide that Bank with
a rate of return on its capital equal to that which would have been achieved
but for such adoption, change or compliance (taking into consideration that
Bank's own capital adequacy policies), or if no Loan is then outstanding, the
Obligors shall pay that Bank on demand an additional interest payment in an
amount sufficient to provide that rate of return, but in no event to exceed the
Ceiling Rate. In determining the increase in interest rate required to achieve
that result, each affected Bank may employ such assumptions and make such
allocations of costs and expenses fairly applicable to such Loans as that Bank
reasonably elects and may use any reasonable averaging and attribution method.
The provisions of this Section shall survive repayment of the Loans and the
expiration or any termination of this Agreement.
Section 5.8 Illegality of Eurodollar Rate Loans. If the Agent or
any Bank, acting in its sole discretion, determines (i) that maintenance of any
Eurodollar Rate Loan would violate any applicable Law or any rule, regulation,
guideline or directive of any Governmental Authority applicable to any Bank or
the Agent, whether or not having the force of law or (ii) before the
commencement of an Interest Period after exerting reasonable efforts to obtain
them, that deposits of a type and maturity appropriate to match fund a
Eurodollar Rate Loan are not available, then the Agent shall suspend the
availability of each interest rate option affected by such determination and
any Eurodollar Rate Loan outstanding under every affected interest rate option
shall automatically convert to a LIBOR Rate Loan.
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ARTICLE 6. PROVISIONS APPLICABLE TO ALL FACILITIES
Notwithstanding any other inconsistent or contrary provision of this
Agreement or any of the other Facilities Papers:
Section 6.1 Commitments Lapse Provision. The Banks' commitments
to lend or fund or purchase (and all of the Obligors' correlative rights to
borrow or receive any funding or sell) under any of the Facilities now or
hereafter existing under this Agreement for which any such commitment of any of
the Banks to lend or fund or purchase (or any such right of the Obligors to
borrow or receive funding or purchase) then exists, shall lapse immediately,
automatically and without notice upon the occurrence of (a) any default, event
of default or similar occurrence, however denominated (a "Default") under any
of the Facilities Papers the occurrence of which gives the Agent or any of the
Banks the right to exercise any remedy (regardless of whether its exercise has
been stayed or enjoined by operation of Law or governmental act) or (b) any
event ("Potential Default") that, with notice and/or the passage of time would
ripen into or become a Default, until (1) each such Potential Default (if any)
that occurred is cured before it ripens into a Default and (2) all such
Defaults that have occurred (if any) have been waived in a writing signed by a
Vice President or more senior officer of the Agent. In their sole discretion,
the Banks may elect to continue funding or purchasing on one or more occasions
under any of their Facilities notwithstanding any Default or Potential Default,
and no such election shall be construed to be a reinstatement of any lapsed or
suspended commitment, a waiver of any Default or Potential Default or a course
of dealing from which the Obligors or anyone else may infer or construe any
obligation on any Bank's or the Agent's part to defer exercising or to not
exercise any remedy or to resume, continue or initiate any additional or other
funding or purchasing beyond the specific funding(s) or purchase(s) which the
Banks have in fact already made. The provisions of this Section 6.1 are called
the "Commitments Lapse Provision".
Section 6.2 Fundings Availability Termination Provisions. Either
the Obligors or the Majority Warehouse Banks or the Majority Servicing
Acquisition Banks, as applicable, may unilaterally elect for any reason, or for
no reason, to accelerate the date of termination of availability of new
fundings and refundings or purchases under, respectively, the Linked Lines or
the Servicing Acquisition Line by written notice (a "Termination Notice") given
by the Obligors or the Agent, as agent and representative of the applicable
Banks, to the other specifying a date of termination that is no earlier than --
and if the Agent, on behalf of the applicable Banks, gives the notice, at least
ninety (90) days after -- the date of the notice. The Obligors acknowledge
that the 90-day minimum notice period for any such Termination Notice from the
Agent was expressly requested by the Obligors, and that the Obligors are
satisfied that ninety (90) days is sufficient time for the Obligors to make
alternative arrangements for alternative financial facilities if the Majority
Warehouse Banks or the Majority Servicing Acquisition Banks, as applicable,
elect to accelerate such date of termination as provided in this Section.
Accordingly, the Obligors recognize that the Warehouse Banks or the Servicing
Acquisition Banks, as applicable, will not be responsible for any loss or
expense that the Obligors may incur as a direct or indirect result of the
Majority Warehouse Banks' or the Majority Servicing Acquisition Banks', as
applicable, exercising their option set forth above to accelerate the date of
termination of availability of new fundings and refundings or purchases under
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all Facilities upon at least ninety (90) days' notice to the Obligors. The
provisions of this Section 6.2 are called the "Funding Availability Termination
Provisions".
Section 6.3 Application of Proceeds of Realization on Collateral.
All Collateral secures all Obligations held by the Banks from time to time.
HOWEVER, ANY AND ALL REALIZATIONS -- WHETHER BY THE AGENT, ANY OF THE BANKS OR
ANY PERSON ACTING ON BEHALF OF ANY OF THEM -- (a) ON ANY WAREHOUSE COLLATERAL,
SHALL BE APPLIED RATABLY TO THE CURRENT WAREHOUSE NOTES AND ALL OTHER
OBLIGATIONS RELATED TO THE LINKED LINES UNTIL THEY HAVE BEEN FULLY PAID AND
SATISFIED AND ANY FURTHER REALIZATIONS THEREON SHALL THEN BE APPLIED RATABLY TO
THE PAYMENT OF THE CURRENT SERVICING ACQUISITION NOTES AND ALL OTHER
OBLIGATIONS RELATED TO THE SERVICING ACQUISITION LINE, OR (b) ON ANY SERVICING
ACQUISITION COLLATERAL, SHALL BE APPLIED RATABLY TO THE CURRENT SERVICING
ACQUISITION NOTES AND ALL OTHER OBLIGATIONS RELATED TO THE SERVICING
ACQUISITION LINE UNTIL THEY HAVE BEEN FULLY PAID AND SATISFIED AND ANY FURTHER
REALIZATIONS THEREON SHALL THEN BE APPLIED RATABLY TO THE PAYMENT OF THE
CURRENT WAREHOUSE NOTES AND ALL OTHER OBLIGATIONS RELATED TO THE LINKED LINES,
OR (c) ON ANY OTHER COLLATERAL, SHALL BE APPLIED RATABLY TO THE PAYMENT OF ALL
OF THE NOTES AND ALL OTHER OBLIGATIONS.
Section 6.4 Right of Setoff. If Obligors shall default in the
payment when due and beyond the applicable grace period, if any, of any of the
Obligations, the Agent and the Banks shall each have the right, at any time and
from time to time, without notice, to set off and to appropriate or apply any
and all deposits of money or property or any other indebtedness at any time
held or owing by the Agent or any of the Banks to or for the credit or the
account of either Obligor against and on account of the obligations and
liabilities of the Obligors on the Obligations for the ratable benefit of all
Banks in the proportion that the advanced and unpaid principal balance at the
time of the Notes held by each bears to the sum of the outstanding principal
balances of all of the Notes at the time of the setoff, appropriation or
application, irrespective of whether or not the Agent or any Bank shall have
made any demand hereunder and whether or not said obligations and liabilities
shall have matured; provided that such right of setoff shall not apply to any
deposit of escrow monies being held on behalf of the obligors under Mortgage
Loans pledged to the Agent or on behalf of other third Persons that are not
Affiliates of the Obligors.
Section 6.5 Application of Setoff Proceeds. The proceeds of the
exercise of any right of setoff or banker's Lien that any Bank exercises
against any of the Obligors' accounts with such Bank shall be applied (a)
first, Ratably to the unpaid costs and expenses incurred and paid by the Agent
and the Warehouse Banks for which the Obligors are liable to the Agent and/or
the Warehouse Banks under this Agreement and the other Facilities Papers, in
the proportion that the outstanding balance of such costs and expenses
reimbursement of which is owed to each Warehouse Bank bears to the aggregate
outstanding balances of all such unreimbursed costs and expenses owed to all
Warehouse Banks; (b) second, Ratably to the Current Warehouse Notes and all
other Obligations related to the Linked Lines, and (c) third, Ratably to the
Current Servicing Acquisition Notes and all other Obligations related to the
Servicing Acquisition Line; provided, that proceeds of the exercise of any
right or setoff or banker's Lien that any Bank exercises against any of the
Obligors' accounts that such Bank determines are traceable as income from or
proceeds of Servicing Acquisition Collateral
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(each such determination by such Bank, absent manifest error, to be conclusive
and binding on the Obligors, all Banks and every Person claiming by, through or
under any of them) shall be applied (1) first, Ratably to the unpaid costs and
expenses incurred and paid by the Agent and the Servicing Acquisition Banks for
which the Obligors are liable to the Agent and/or the Servicing Acquisition
Banks under this Agreement and the other Facilities Papers, in the proportion
that the outstanding balance of such costs and expenses whose reimbursement is
owed to each Servicing Acquisition Bank bears to the aggregate outstanding
balances of all such unreimbursed costs and expenses owed to all Servicing
Acquisition Bank); (2) second, Ratably to the Current Servicing Acquisition
Notes and all other Obligations related to the Servicing Acquisition Line, and
(3) third, Ratably to the Current Warehouse Notes and all other Obligations
related to the Linked Lines. This provision shall not imply any obligation of
either Obligor to maintain any deposit balances with any Bank.
Section 6.6 Conditions Precedent. The Banks shall have no
obligation to make any Loan or purchase any Qualified Mortgage Loan unless and
until all of the applicable conditions precedent stated in this Section shall
have been satisfied.
(a) The relevant Banks' obligation to make the first Loan
requested to be funded after the Effective Date, or to purchase the Qualified
Mortgage Loan(s) first offered after the Effective Date, is conditioned upon
the Agent's receipt, of sufficient copies (other than the Notes) for each Bank
to receive one, of the following papers on or before the date the requested
initial Loan or purchase of the initial Qualified Mortgage Loans is to be made,
all of which must be satisfactory to the Agent in both form and content and
duly executed by all parties thereto:
(1) this 12/97 A&R Facilities Agreement;
(2) the 12/97 Master Warehouse Notes;
(3) the 12/97 Master Servicing Acquisition Notes;
(4) the Guaranty;
(5) the Warehouse Security Agreement and its Financing
Statement;
(6) the Receivables Pledge Agreement and its Financing
Statement;
(7) the Servicing Rights Security Agreement and its
Financing Statement;
(8) the Stock Pledge Agreement and its Financing
Statement;
(9) any Foreclosed Properties Mortgages;
(10) the Float Control Agreement;
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(11) the Float Control Guaranty;
(12) UCC searches for each of the Obligors and the
Guarantor, as debtor, in the office of the Secretary of State of the States of
Texas and Delaware, as applicable;
(13) Termination statements for all existing financing
statements shown on the UCC searches described in item (10) above that pertain
to financings by Persons, other than the Banks, that will be repaid with the
proceeds of any Facility;
(14) If and to the extent not previously furnished, (A)
copies of any amendments to the Guarantor's certificate of incorporation issued
by the Secretary of State of Delaware, (B) copies of any amendments to the
Guarantor's bylaws certified by its corporate secretary or assistant secretary,
(C) certificates of the Guarantor's good standing issued by the Secretary of
State of the State of Delaware, and (D) certificates of authority and good
standing issued or to be issued by the appropriate Governmental Authority in
each state in which the Guarantor does business and where either the Guarantor
is authorized to do business or where doing business without being duly
authorized would potentially subject the Guarantor to a Material Adverse
Effect, each dated no less recently than thirty (30) days prior to the
Effective Date;
(15) copies of (A) FirstCity's certificate of
incorporation issued by the Secretary of State of Delaware, (B) FirstCity's
bylaws certified by its corporate secretary or assistant secretary, (C)
certificates of FirstCity's good standing issued by the Secretary of State of
the State of Delaware, and (D) certificates of authority and good standing
issued or to be issued by the appropriate Governmental Authority in each state
in which FirstCity does business and where either FirstCity is authorized to do
business or where doing business without being duly authorized would
potentially subject FirstCity to a Material Adverse Effect, each dated no less
recently than thirty (30) days prior to the Effective Date;
(16) If and to the extent not previously furnished, (A)
copies of any amendments to each Obligor's articles of incorporation certified
by the Secretary of State of the State of Texas, (B) copies of any amendments
to each Obligor's bylaws certified by its corporate secretary or assistant
secretary, (C) a certificate of good standing issued by the Secretary of State
of the State of Texas and (D) a schedule listing, by state, all certificates of
authority, good standing and franchise taxes paid issued by the Secretary of
State of the State of Texas, the Texas Comptroller of Public Accounts and the
appropriate Governmental Authority in each state in which each Obligor does
business and where either such Obligor is authorized to do business or where
doing business without being duly authorized would potentially subject such
Obligor to a Material Adverse Effect, each with respect to such Obligor,
accompanied by all such certificates listed, each dated no less recently than
thirty (30) days prior to the Effective Date;
(17) resolutions of the board of directors of the
Guarantor, FirstCity and each Obligor, certified, in each case, by its
corporate secretary or assistant secretary, authorizing the execution, delivery
and performance of all applicable Facilities Papers and all other papers to be
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delivered by the Guarantor, FirstCity and/or each Obligor pursuant to this
12/97 A&R Facilities Agreement;
(18) a certificate of the corporate secretary or assistant
secretary of the Guarantor, FirstCity and each Obligor as to the incumbency and
authenticity of the signatures of the officers of the Guarantor, FirstCity and
each Obligor executing the applicable Facilities Papers and all other papers to
be delivered pursuant to the 12/97 A&R Facilities Agreement (the Agent shall be
entitled to rely on each such certificate until a replacement certificate has
been furnished to the Agent);
(19) the opinion of counsel to the Obligors, FirstCity and
the Guarantor, dated as of the Effective Date, addressed to the Agent and the
Banks and substantially in the form of Exhibit E;
(20) If and to the extent not previously furnished,
certificates of insurance certifying that the Obligors are in compliance with
the requirements of Section 9.11; and
(21) all fees due to the Agent or any Bank pursuant to the
Current Facilities Agreement and any other letters or agreements between the
Guarantor and/or the Obligors and any Bank or the Agent shall have been paid on
the Effective Date.
(b) The relevant Banks' obligation to make any Loan or purchase
any Qualified Mortgage Loan pursuant to the Current Facilities Agreement is
also conditioned upon satisfaction of each of the following additional
conditions precedent:
(1) the borrowing Obligor shall have delivered to the
Agent a Loan Request completed and executed by the borrowing Obligor and
otherwise conforming to the requirements of Section 2.14 or 4.9, as applicable,
or (for a mortgages purchase) an Offer with all required enclosures and all
blocks and blanks in it and its enclosures properly completed;
(2) all uncertificated Mortgage-Backed Securities in
which either Obligor has granted a Lien to the Agent as agent and
representative of the Banks shall have been recorded on the books of the
Agent's designated financial intermediary or securities intermediary as being
owned by the Agent (and on the Agent's books as being held for the Banks) and
all other Collateral in which either Obligor or the Guarantor has granted a
Lien to the Agent (including all of the capital stock -- common and (if any)
preferred of all classes and any stock warrants or other rights -- of the
Company) shall have been pledged and physically delivered to the Agent and
sufficiently in its or its designated bailee's possession to satisfy the UCC's
requirement of possession for perfection of the Agent's Lien (as agent and
representative of the Banks) against such Collateral;
(3) the Obligors' representations and warranties
contained in the Current Facilities Agreement (other than those representations
and warranties which by their express terms are confined to the date as of
which they are initially made) shall be true and correct in all material
respects on the date of such Loan or purchase as if republished and made on
that date;
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(4) on the date of such proposed Loan or purchase, no
event described in the Commitments Lapse Provision shall have occurred or would
exist if the requested Loan or purchase were made and no such Facility shall
have been terminated in accordance with the Funding Availability Termination
Provisions;
(5) if the requested Loan or purchase were made, the sum
of (A) the amount of the Loan or purchase requested to be made by each Bank,
plus (B) the sum of (i) the aggregate outstanding balance of Loans made by such
Bank and (ii) such Bank's share of the Warehouse Banks' Invested Balance (even
though it is the parties' mutual intent and purpose that the Warehouse Banks'
purchases of Qualified Mortgage Loans under the Mortgage Purchases Agreement
not be considered or treated as financings) plus (C) the total outstanding
loans and other extensions of credit by such Bank to the Obligors and to every
other Person whose loans and other extensions of credit from such Bank are
required to be combined with the Obligors for purposes of any applicable legal
lending limit, would be no greater than the lowest legal lending limit
established by any Governmental Authority and applicable to such Bank's loans
and extensions of credit to the Obligors and to all other Persons whose loans
and extensions of credit from that Bank are required to be combined with the
Obligors' for purposes of any such legal lending limit; provided, that each
Bank, by executing the Current Facilities Agreement, represents to each of the
other parties to the Current Facilities Agreement that (i) to the best of the
current actual knowledge of that Bank's officers who are responsible for that
Bank's participation in the Facilities provided for in the Current Facilities
Agreement and (ii) in reliance upon information furnished to such Bank by the
Obligors and their respective officers and representatives concerning
relationships between the Obligors and other credit customers of such Bank, the
total of that Bank's Committed Sums hereunder does not exceed any such legal
lending limit;
(6) at the time such Loan is requested or such purchase
is made, each of the Banks and the Agent shall have received all fees due and
owing to it pursuant to the Facilities Papers; and
(7) the Company is a wholly-owned Subsidiary of the
Guarantor.
Each Loan Request shall be deemed to constitute a representation and warranty
by the borrowing Obligor on the date of the requested Loan that the conditions
specified in Subsections 6.6(b)(3), 6.6(b)(4) and 6.6(b)(7) are then currently
satisfied.
ARTICLE 6. THE OBLIGORS' WARRANTIES AND REPRESENTATIONS
Each of the Obligors warrants and represents, to the extent
applicable, to the Banks and the Agent today, and all such warranties and
representations shall be deemed republished and reconfirmed as currently true
by the applicable Obligor each time the applicable Obligor requests funding or
offers to sell, as applicable, under any of the Facilities, as follows:
Section 7.1 Organization. Each of the Obligors is a corporation
duly organized, legally existing and in good standing under the laws of the
State of Texas, it -- and, for the representations
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made in each of clauses (i) and (ii) below, each of its Subsidiaries -- has all
requisite power and authority and all necessary licenses, permits, franchises
and other authorizations to (i) own and operate its Property and (ii) carry on
its business as now conducted, (iii) execute and deliver this Agreement, all
other Facilities Papers, each Loan Request, each Offer and all other
instruments referred to or mentioned herein or therein to which each such
Obligor is a party, (iv) carry out and comply with the terms of this Agreement,
each other Facilities Paper, each Loan Request, each Offer made and all other
instruments referred to or mentioned herein or therein to which it is a party
and (iv) consummate the transactions contemplated thereby; and each of the
Obligors and each of its Subsidiaries is duly qualified and authorized to do
business and is in good standing as a foreign corporation in all jurisdictions
wherein the Property owned or the business transacted by it makes such
qualification necessary or appropriate.
Section 7.2 Corporate Action. All corporate action on each
Obligor's part requisite for the due execution, delivery and performance of,
and compliance with, this Agreement, all other Facilities Papers, each Loan
Request, each Offer and any instruments referred to or mentioned herein or
therein to which each of the Obligors is a party, or requisite for the
consummation of the transactions contemplated thereby, has been duly and
effectively taken. This Agreement, each Loan Request, each Offer and each
other Facilities Paper each constitutes the legal and binding obligation of the
applicable Obligor, enforceable against such Obligor in accordance with its
terms.
Section 7.3 No Violations. Neither the execution and delivery of
this Agreement, any other Facilities Papers, any Loan Request or any Offer
made, nor the consummation of the transactions contemplated by any of them, nor
compliance with the provisions of any of them will conflict with, or result in
a breach of, or a default under, any of the terms, conditions or provisions of
any Law or of any contract, regulation, order, writ, injunction, judgment or
decree of any court or Governmental Authority, domestic or foreign to which
either Obligor is subject, or either Obligor's articles of incorporation or
bylaws, or of any indenture, mortgage, deed of trust, promissory note, loan
agreement or any other agreement or undertaking to which either Obligor is a
party or by which such Obligor or any of its property may be bound or subject,
or will result in the creation or imposition of any Lien upon such Obligor's
Property, or will require any action, consent or approval of, or declaration of
filing with, any Governmental Authority, and neither Obligor is otherwise in
material violation of any of the foregoing.
Section 7.4 Approved Lender, Seller and Servicer. The Company is
an FHA- and VA-approved lender and mortgagee and a GNMA-, FNMA- and
FHLMC-approved issuer and servicer, in each case in good standing, and the
Company currently satisfies and will continuously satisfy all applicable GNMA,
FNMA and FHLMC net worth requirements. New Am Inc. is an FHA-approved lender
and mortgagee and a FNMA-approved issuer and servicer, in each case, in good
standing, and New Am Inc. currently satisfies and will continuously satisfy all
applicable FNMA net worth requirements.
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Section 7.5 Obligors Are Not Investment Companies or Controlled
by One. Neither Obligor is an "investment company" or "controlled by" an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.6 Obligors and Affiliates Are Not Public Utility
Companies, Etc. Neither Obligor, the Guarantor nor FirstCity is a "public
utility holding company" or an "affiliate" or a "subsidiary company" of a
"public utility company", or a "holding company" or an "affiliate" or a
"subsidiary company" of a "holding company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
Section 7.7 Obligors' Legal Compliance. The Obligors are in
compliance, and will continue to observe and comply, in all material respects
with all Laws, including ERISA and all environmental Laws.
Section 7.8 Financial Statements Accurate. The Company's
consolidated balance sheet of itself and its Subsidiaries (including New Am
Inc.), as of December 31, 1996 and the consolidated statement of operations and
cash flows of the Company as of December 31, 1996, heretofore furnished to the
Banks, fairly present the consolidated financial condition and cash flows of
the Company and its Subsidiaries (including New Am Inc.) as of September 30,
1997 and for the fiscal year then ended, all in conformity with GAAP
consistently applied, and subsequent to the date of those Financial Statements,
there has not been any Material Adverse Effect.
Section 7.9 Representations Are True and Not Misleading. No
representation or warranty by either Obligor, the Guarantor or FirstCity in
this Agreement, the Guaranty or any other Facilities Papers contains, or will
contain, any untrue statement of a material fact, or omits, or will omit, to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not false or misleading.
Section 7.10 Litigation. There is no litigation pending, or to
the Obligors' knowledge, threatened, that, if determined adversely to the
Obligors, would adversely affect the execution, delivery or enforceability of
this Agreement, any other Facilities Papers, any Loan Request, any Offer, any
sale or conveyance of any Pool or Qualified Mortgage Loan pursuant to the
provisions of Exhibit C, any relevant custodial agreement, the pledge, transfer
or assignment of any Pool or Qualified Mortgage Loans to the Agent (as agent
for the Warehouse Banks) pursuant to this Agreement, or the Obligors' ability
to service the Qualified Mortgage Loans sold to the Warehouse Banks hereunder
in accordance with the terms of Section 3.3, or that would have a Material
Adverse Effect.
Section 7.11 Payment of Taxes. Each of the Obligors has filed (or
caused to be filed) all required federal, state and local income, excise,
property and other tax returns with respect to its and its Subsidiaries'
operations, all of such returns are true and correct and each of the Obligors
has paid or caused to be paid all taxes which are due and owing under
applicable Law or as shown on such returns or on any assessment to the extent
such taxes have become due, including all applicable FICA payments and
withholding taxes. The amounts reserved as a liability for income taxes and
other taxes
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payable in the Financial Statements heretofore furnished to the Banks are
sufficient for payment of all unpaid federal, state and local income, excise,
property and other taxes -- whether or not disputed -- of each of the Obligors,
and its respective Subsidiaries, accrued for or applicable to the period and on
the dates of such Financial Statements and all prior years and periods, and for
which each of the Obligors and its respective Subsidiaries may be liable in
their own right or as transferee of the assets of other Persons or as successor
to any other Person.
Section 7.12 Title to Properties. Each of the Obligors and its
Subsidiaries has good, valid, insurable (in the case of real property) and
marketable title to all of its Properties and assets (whether real or personal,
tangible or intangible) reflected or referred to in the Financial Statements
described in Section 9.3, except for such Properties and assets as have been
disposed of since the date of such Financial Statements either in the ordinary
course of business or because they were no longer used or useful in the conduct
of its respective business, and all such Properties and assets are free and
clear of all Liens, except as disclosed in such Financial Statements.
ARTICLE 8. DEFAULTS AND REMEDIES
If:
Section 8.1 Note Payment Default. the Obligors shall fail to pay
as and when due -- or to make a mandatory prepayment, if, as and when required
by this Agreement or any other Facilities Paper, of -- any principal of or
interest on any Note held by any of the Banks and all other amounts including
the Warehouse Facility Fee, the Revolving Servicing Acquisition Facility Fee,
the Processing Fees or the Fee, now or hereafter owing under this Agreement or
any of the other Facilities Papers; or
Section 8.2 Covenant Default. default shall occur in the
punctual and complete performance of any covenant of either Obligor, the
Guarantor or any other Person contained in this Agreement or any other
Facilities Papers, except that the Obligors shall have fifteen (15) days after
Default in the performance of the covenants set out in Sections 9.3(a) through
9.3(k), Section 9.8, Section 10.5, Section 10.6, and Sections 10.8 through
10.14, to cure any such Default before the Banks' remedies as set forth in this
Article shall apply; or
Section 8.3 Default on Other Obligation. either Obligor or the
Guarantor shall fail to pay at maturity, or within any applicable period of
grace, any principal of or interest on any other obligation to any Person or
shall default under, or fail to observe or perform any term, covenant or
agreement contained in, any agreement or obligation by which it is bound for
such period of time as would accelerate, or would permit its holder -- or the
holder of any obligation issued under it -- to accelerate, the maturity of that
or any other obligation; or
Section 8.4 Violation of Law. either Obligor or the Guarantor
shall be in default under, or in violation of, any Law of any Governmental
Authority having jurisdiction over either Obligor or the Guarantor or its
assets or Property; or
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Section 8.5 False Representation or Warranty. any representation
or warranty made or deemed made in or in connection with the execution and
delivery of this Agreement or any of the other Facilities Papers shall prove to
have been materially incorrect, false or misleading on the date as of which
made or deemed made; or
Section 8.6 Undischarged Final Judgment. final judgment or
judgments in the aggregate for the payment of money in excess of Fifty Thousand
Dollars ($50,000), and which is uninsured, shall be rendered against either
Obligor, the Guarantor or any of their respective Subsidiaries and remain
undischarged for a period of thirty (30) days during which execution shall not
be effectively stayed; or
Section 8.7 Lien Claimed or Held Invalid. either Obligor or the
Guarantor (or anyone claiming by, through or under either Obligor or the
Guarantor) shall claim, or any court shall find or rule, that the Agent does
not have a valid Lien on any security that may have been provided by either
Obligor, the Guarantor or such other Person for any obligation under this
Agreement or any of the other Facilities Papers; or
Section 8.8 Disposition, Encumbrance or Loss of Collateral.
there is a sale, encumbrance or abandonment of any Property now or hereafter
covered by this Agreement (except as contemplated by the Facilities Papers) or
any other mortgage, security agreement or other papers now or hereafter
securing or guaranteeing any part of any obligation under this Agreement or any
of the other Facilities Papers, or the making of any levy on any of such
Property or any seizure or attachment of it, or the loss, theft, substantial
damage or destruction of any such Property; or
Section 8.9 Liquidation, Etc. Order. any order shall be entered
in any proceeding against either Obligor, the Guarantor or any of their
respective Subsidiaries decreeing the dissolution, liquidation or split-up of
either Obligor, the Guarantor or any of their respective Subsidiaries, and such
order shall remain in effect for thirty (30) days; or
Section 8.10 Default under Other Facilities Papers. any default
occurs under any other instrument now or hereafter securing or guaranteeing any
part of any obligation under this Agreement or any of the other Facilities
Papers; or
Section 8.11 Assignment for the Benefit of Creditors, Voluntary
Bankruptcy. either Obligor, the Guarantor or any of their respective
Subsidiaries shall make a general assignment for the benefit of creditors or
shall petition or apply to any tribunal for the appointment of a trustee,
custodian, receiver or liquidator of all or any substantial part of its
business, estate or assets or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation Law of any jurisdiction, whether now or hereafter in
effect; or
Section 8.12 Involuntary Proceedings. any such petition or
application shall be filed or any such proceeding shall be commenced against
either Obligor, the Guarantor or any of their respective
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Subsidiaries, and either Obligor, the Guarantor or any such Subsidiary by any
act or omission shall indicate approval of it, consent to it or acquiescence in
it, or an order shall be entered appointing a trustee, custodian, receiver or
liquidator of all or any substantial part of the assets of either Obligor, the
Guarantor or any of their respective Subsidiaries, or granting relief to either
Obligor, the Guarantor or any of their respective Subsidiaries, or approving
the petition in any such proceeding, and that order shall remain in effect for
more than thirty (30) days, or in any event (i) any such petition or
application shall not have been dismissed on or before sixty (60) days after
its filing, or (ii) any such proceeding shall not have been dismissed on or
before sixty (60) days after its commencement; or
Section 8.13 General Failures, Writ of Attachment, Etc. either
Obligor, the Guarantor or any of their respective Subsidiaries shall fail
generally to pay its debts as they become due, or suffer any writ of attachment
or execution or any similar process to be issued or levied against it or any
substantial part or all of its Property which is not released, stayed, bonded
or vacated within thirty (30) days after its issue or levy; or
Section 8.14 Fraudulent Concealment or Removal. the Obligors, the
Guarantor or any of their respective Subsidiaries shall have concealed,
removed, or permitted to be concealed or removed, any part of its Property,
with intent to hinder, delay or defraud its creditors or any of them, or made
or suffered a transfer of any of its Property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar Law, or shall have made any
transfer of its Property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid or shall have suffered or
permitted, while insolvent, any creditor to obtain a Lien upon any of its
Property through legal proceedings or distraint which is not vacated within
thirty (30) days from its effective date; or
Section 8.15 Dissolution, Etc. there is a dissolution,
liquidation or termination of existence of either Obligor, the Guarantor or any
of their respective Subsidiaries, or the conveyance, lease or other disposition
of a substantial part of either Obligor's, the Guarantor's or any of their
respective Subsidiaries' assets; or
Section 8.16 Environmental Claim Made. any Governmental Authority
shall file any petition or application, or commence or intervene in any
proceeding, in any court of competent jurisdiction claiming that either
Obligor, the Guarantor or any of their respective Subsidiaries is in violation
of any environmental Law, and such claim shall not be dismissed on or before
ninety (90) days after it is first so made; or
Section 8.17 ERISA Claim Made. any Governmental Authority shall
file any petition or application, or commence or intervene in any proceeding,
in any court of competent jurisdiction claiming that either Obligor, the
Guarantor or any of their respective Subsidiaries is in violation of ERISA, and
such claim shall not be dismissed on or before ninety (90) days after it is
first so made; or
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Section 8.18 RICO Claim Made. any Governmental Authority shall
file any petition or application, or commence or intervene in any proceeding,
in any court of competent jurisdiction claiming that either Obligor, the
Guarantor or any of their respective Subsidiaries is in violation of the
Racketeer Influenced and Corrupt Organizations Act of 1970, and such claim
shall not be dismissed on or before ninety (90) days after it is first so made;
or
Section 8.19 Change of Control. any Change of Control occurs; or
Section 8.20 Subordinated Line of Credit Commitment Change.
without the Agent's prior written consent, the committed line of credit from
Guarantor's corporate parent, FirstCity to the Guarantor that is set forth in
Schedule 5 shall be amended, canceled or terminated, or FirstCity shall disavow
any of its material obligations thereunder; or
Section 8.21 Material Adverse Change. any event shall occur that
would have a Material Adverse Effect;
then default shall have occurred under this Agreement, every one of the Notes
described or referred to in it and all other Facilities Papers, including all
renewals, extensions, rearrangements, increases or substitutions of them, all
of the Banks' obligations (if any are then outstanding) to fund any advance or
payment to or for the account of either Obligor shall automatically and
immediately lapse and the Agent at its option may -- and at the direction of
the Majority Banks shall -- (a) without notice declare any or all of the Notes
and all of the Obligors' Obligations to each of the Banks to be, and thereupon
they shall all forthwith become, immediately due and payable, together with all
accrued interest on them and all unpaid Facility Fees or other fees theretofore
incurred by the Obligors, without notice of any kind, notice of acceleration or
of intention to accelerate, presentment, demand or protest, all of which each
of the Obligors hereby expressly waives (provided, that such acceleration shall
occur automatically and immediately upon the occurrence of any of the events
described in either of Sections 8.11 or 8.12), or (b) proceed to protect and
enforce the Banks' rights under this Agreement and any other Facilities Papers,
by any appropriate proceedings, and all Liens securing any and all Obligations
of the Obligors to the Banks, the Agent or any of them shall be subject to
foreclosure in any manner provided for therein or provided for by applicable
Law, as the Agent may elect. The Banks or the Agent may also elect to
specifically enforce any covenant or agreement contained in this Agreement or
in any of the Notes or other Facilities Papers, or to enforce any other legal
or equitable right provided under this Agreement or in any of the Notes or any
other Facilities Papers, or otherwise existing under any Law. No remedy, and
no right or power, of the Agent or the Banks, or any of them, is intended to be
exclusive of any other remedy, right or power, and each and every remedy, right
and power shall be cumulative and in addition to every other remedy, right and
power given hereunder or now or hereafter existing at Law or in equity, or by
statute or otherwise, and the Agent's or any Bank's pursuit of any remedy or
remedies shall not be construed as an election to waive or relinquish any other
available remedy.
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ARTICLE 9. AFFIRMATIVE COVENANTS
Until each of the Obligors has fully paid and performed all of its
Obligations to the Banks under the Current Facilities Agreement and the Banks
are no longer committed to make Loans or purchases under the Current Facilities
Agreement, each of the Obligors agrees to keep, observe and perform the
following affirmative covenants, to the extent applicable:
Section 9.1 Use of Proceeds. Each of the Obligors agrees to use
the proceeds of all Loans for proper corporate purposes in the ordinary course
of such Obligor's business as it is presently being conducted, as represented
and warranted in this Agreement, and for no purpose other than the respective
purposes permitted for each of the Facilities as stated in this Agreement.
Section 9.2 Promptly Correct Escrow Imbalances. By no later than
seven (7) Business Days after learning (from any source) of any material
imbalance in any escrow account(s) maintained by either Obligor, the applicable
Obligor will fully and completely correct and eliminate such imbalance.
Section 9.3 Financial Statements and Other Reports. Each of the
Obligors agrees to deliver to the Agent and -- except for the weekly Investor
Commitment and Trade Ticket reports required by clause (a) and the weekly
schedule of Eligible Receivables required by clause (j) of this Section which
are to be furnished only to the Agent -- to each of the other Banks:
(a) by no later than Wednesday of each week, such Obligor's weekly
Investor Commitment (described in Section 2.13) and Trade Ticket reports for
the preceding week in form substantially similar to those heretofore furnished
to the Agent, sufficient in detail to allow the Agent to reconcile such reports
with Investor Commitments or Trade Tickets held in trust by the Obligors for
the Agent;
(b) promptly -- and in any event within thirty (30) days -- after
the end of each calendar month, a management report substantially in the form
of Schedule 3 regarding such Obligor's commitment position, pipeline position
and hedging position, prepared as of the end of such month;
(c) within thirty (30) days after the end of each calendar month,
the Obligors' and the Guarantor's monthly Financial Statements, including all
notes to them, including a balance sheet as of the end of such month and an
income statement for such month and for the fiscal year to date, prepared
substantially in accordance with GAAP subject to normal year-end adjustments,
and also including copies in forms substantially similar to those heretofore
furnished to the Agent of each of the Obligors' portfolio delinquency reports
for such month;
(d) as soon as available and in any event within ninety (90) days
after the last day of each fiscal year of each of the Obligors and the
Guarantor (or longer if and -- for the same period that -- GNMA, FNMA, FHLMC
and HUD extend the time for such Obligor to file audited Financial Statements
with them, but in no event beyond one hundred twenty (120) days after such
fiscal year
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end), each Obligor's and the Guarantor's annual Financial Statements, and
including a balance sheet and a statement of income, retained earnings and cash
flows for such fiscal year and the immediately preceding fiscal year in
comparative form and in reasonable detail, and all notes to them, all prepared
in conformity with GAAP and accompanied by a report and opinion, without
material disclaimer or qualification, of KPMG Peat, Marwick or another firm of
certified public accountants reasonably acceptable to and approved by the
Agent, stating that such accountants have conducted audits of such Financial
Statements in accordance with generally accepted auditing standards and that,
in their opinion, such Financial Statements present fairly, in all material
respects, the financial position of the applicable Obligor or the Guarantor as
of the date thereof and the results of its operations and cash flows for the
periods covered thereby in conformity with GAAP -- each such annual auditor's
report and opinion shall either include or be accompanied by (1) such
accountants' statement that their examination included tests relating to
Mortgage Loans serviced for others in accordance with the requirements of the
"Uniform Single Audit Program for Mortgage Bankers" and (2) such accountants'
report made in accordance with the requirements of such program of exceptions
or errors, if any, in such Obligor's or the Guarantor's records;
(e) as soon as available and in any event within forty-five (45)
days after the end of (1) each month, a current written appraisal by the
management of each Obligor, and (2) each fiscal quarter of each fiscal year of
each Obligor, a current written appraisal by an independent appraiser
(nationally known as expert in the evaluation of Loan Servicing Rights and
acceptable to the Agent in the exercise of its sole discretion), in each case
appraising the fair market value of the Owned Servicing Rights of such Obligor
as of the end of such month or fiscal quarter; such appraisal shall be
addressed to the Agent and shall be in a form reasonably acceptable to the
Agent, and if the opinion of value in any such appraisal is expressed as a
range of values, then for purposes of this Agreement, the appraised value shall
be deemed the midpoint (the average of the limits) of the range; provided, that
the Agent (at the discretion of the Majority Servicing Acquisition Banks) has
the right to request an independent appraisal more frequently than quarterly;
and provided further that for purposes of this Agreement, the value of the
Obligors' commercial mortgage loan Servicing Rights shall in no event exceed
the least of (i) their appraised value, (ii) twenty basis points (0.020%) of
the aggregate principal sum of the Obligors' commercial mortgage loan servicing
portfolio on any day or (iii) Two Million Dollars ($2,000,000) in the aggregate
in excess of the value of commercial mortgage loan Servicing Rights pledged to
any Person other than to Agent pursuant to this Agreement;
(f) together with each delivery of Financial Statements pursuant
to Sections 9.3(c) and 9.3(d), a Compliance Certificate, properly completed
which, among other things required by such form:
a. sets forth in reasonable detail all calculations
necessary to show that the Obligors are in compliance with the requirements of
this Agreement, or if the Obligors are not in compliance, showing the extent of
noncompliance, stating the period of noncompliance and specifying what actions
the Obligors have taken and propose to take with respect to it; and
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(2) sets forth in sufficient detail satisfactory to the
Agent the delinquency status of all Serviced Mortgages (calculated as described
in Section 10.14); and
(3) sets forth in sufficient detail satisfactory to the
Agent, the aggregate principal amount of each Obligor's Debt as of the end of
the time period to which the accompanying Financial Statements relate;
(g) together with each delivery of monthly Financial Statements
pursuant to Section 9.3(c), a copy of the Obligors' current mortgage criteria
and rate sheets distributed to Subprime Mortgage loan brokers;
(h) all other delinquency reports maintained by the Obligors and
such other reports in respect of the Collateral deposited with or held by or
for the Agent pursuant to this Agreement or any other Facilities Paper, in such
detail and when and as the Agent may reasonably request from time to time;
(i) within thirty (30) days after such Obligor's receipt of such
Obligor's annual HUD report, a copy of such HUD report and such Obligors'
response to it;
(j) within thirty (30) days after such Obligor's receipt of such
Obligor's GNMA, FNMA or FHLMC audit, a copy of such GNMA, FNMA or FHLMC audit
and such Obligor's response to it;
(k) by no later than Wednesday of each week, such Obligor's
weekly, detailed computer generated schedule of all Eligible Receivables;
(l) copies of all other regular or periodic financial and other
reports, if any (including any warranty or indemnity claim reports), that
either Obligor or the Guarantor shall file with GNMA, FNMA, FHLMC, HUD or VA or
any other Governmental Authority, in such detail and when and as the Agent may
reasonably request from time to time; and
(m) From time to time, with reasonable promptness, such further
information regarding each Obligor's or the Guarantor's business, operations,
properties or financial condition as the Agent or any Bank may reasonably
request.
Section 9.4 Maintenance of Existence and Properties; Conduct of
Business. Each of the Obligors agrees to (a) preserve and maintain its
corporate existence in good standing and preserve and maintain all of its
material rights, privileges, licenses and franchises, and all its real and
personal property, necessary or desirable in the normal conduct of its
business, including its eligibility as mortgagee, seller/servicer or issuer as
described in Section 7.4, and (b) make no material change in the nature or
character of its business.
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Section 9.5 Compliance with Applicable Laws. Each of the
Obligors agrees to comply with the requirements of all applicable Laws which if
breached by such Obligor could reasonably be expected to result in a Material
Adverse Effect, except only where such Obligor is diligently contesting such
Laws in good faith and by appropriate proceedings with appropriate reserves for
any potential associated liabilities which reserves are both (a) established in
accordance with GAAP and (b) reasonably determined to be adequate by such
Obligor's Board of Directors.
Section 9.6 Perform Agreements. Each of the Obligors will do and
perform every act and discharge every obligation under the Facilities Papers
and each Offer made and in the manner herein and therein specified.
Section 9.7 Books. At any reasonable time, upon the Agent's or
any Bank's request, each of the Obligors will permit the Agent or any Bank or
their respective agents or representatives to examine such Obligor's books of
account, records, reports and other papers and make copies and extracts from
them, inspect such Obligor's Property and discuss such Obligor's business,
finances, accounts and affairs with its chief executive or chief operating
officer and independent certified public accountants and hereby consents to and
approves of any such discussions and examinations previously held. Each of the
Obligors agrees to provide its accountants with a copy of this Agreement
(including each supplement, amendment or restatement of it made, and each from
time to time hereafter made promptly after its execution) and will instruct its
accountants to answer candidly any and all questions that the officers or any
authorized representatives of the Agent or any Bank may address to them in
reference to such Obligor's financial affairs or condition. Each of the
Obligors may have its representatives in attendance at any meetings between the
officers or other representatives of the Agent or any Bank and such Obligor's
accountants held in accordance with this Section.
Section 9.8 Investor Commitments. With respect to Eligible
Mortgages, at all times maintain in effect Investor Commitments in an aggregate
amount of at least one hundred percent (100%) of the aggregate unpaid principal
balances or amounts of such Eligible Mortgages.
Section 9.9 Notice. Each of the Obligors agrees to give written
notice to the Agent and the Banks of any of the following that may occur
immediately after such Obligor first learns of it:
(a) the occurrence of a Potential Default or a Default.
(b) the institution or threat of any action, suit or proceeding by
or against either Obligor in or before any Governmental Authority (excluding
routine HUD or VA audits not undertaken for cause).
(c) the filing, recording or assessment of any federal, state or
local tax Lien against such Obligor which could reasonably be expected to have
a Material Adverse Effect.
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(d) such Obligor's failure for any reason to continuously satisfy
all requirements for maintaining its eligibility as an approved mortgagee,
seller/servicer or issuer as described in Section 7.4, or the suspension,
revocation or termination of such eligibility for any reason.
(e) any event or condition that either currently has a Material
Adverse Effect or (either by itself or in combination with other existing or
reasonably anticipated circumstances) if adversely determined, could have a
Material Adverse Effect.
Section 9.10 Pay Debt, Taxes, etc. Each of the Obligors agrees to
pay when due and before delinquency (a) all taxes and other governmental
charges or levies imposed on such Obligor, its income or profits or any of its
Property, (b) all lawful claims for labor, materials and supplies which, if
unpaid, might become a Lien upon any of its Property and (c) all Debts,
accounts, liabilities, debts and charges now or hereafter owing by such
Obligor. Each of the Obligors agrees to maintain appropriate accruals and
reserves for all Debts and all other liabilities, debts and charges in a timely
fashion in accordance with GAAP. Provided, that each Obligor may delay paying
any such taxes, levies, claims, accounts, Debts or other liabilities, debts and
charges (excluding those owing to the Banks, all of which must be paid when
due) if, to the extent that and for so long as (1) such Obligor is contesting
their validity diligently, in good faith and by appropriate proceedings, (2)
such Obligor has posted such bond or other security as shall be fully effective
to prevent or stay any attachment, garnishment, sequestration or seizure of any
of such Obligor's Property during the pendency of such proceedings, (3) such
Obligor has set aside on its books adequate reserves in accordance with GAAP
and (4) such Obligor pays such taxes, etc. before any of such Obligor's
Property can lawfully and effectively be garnisheed, attached or sold to secure
or satisfy them and before any judgment in respect of them against such Obligor
or any of its Property becomes final.
Section 9.11 Insurance. Each of the Obligors agrees to maintain
(a) errors and omissions insurance or mortgage impairment insurance and blanket
bond coverage with such companies and in such amounts as satisfy prevailing
GNMA, FNMA, FHLMC, FHA and VA requirements and (b) liability insurance and fire
and other hazard insurance on its Properties with responsible insurance
companies, in such amounts and against such risks as is customarily carried by
similar businesses operating in the same vicinity. Each of the Obligors agrees
to furnish evidence of such insurance to the Agent upon request without charge
promptly after a request made from time to time by the Agent.
Section 9.12 Other Loan Obligations. Each of the Obligors agrees
to perform all obligations under the terms of each loan, credit or similar
agreement, promissory note, mortgage, security agreement, indenture or other
debt or security instrument by which such Obligor is bound or to which it or
any of its Property is subject, if the failure to perform such obligations
could have a Material Adverse Effect (either by itself or in combination with
other existing or reasonably anticipated circumstances).
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Section 9.13 Covenants Concerning Collateral. Each of the Obligors
agrees to:
(a) Service (or cause to be serviced) all Mortgage Loans included
in the Collateral which such Obligor has the right or obligation to service, in
accordance with standard industry requirements and all applicable GNMA, FNMA,
FHLMC, FHA and VA requirements, including taking all actions necessary to
enforce the obligations of the obligors under such Mortgage Loans.
(b) Service (or cause to be serviced) in accordance with all
applicable contractual and other requirements all Mortgage Loans and commercial
mortgage loans which (1) back Mortgage-Backed Securities included in the
Collateral and (2) such Obligor has the right or obligation to service.
(c) Timely comply in all respects with all terms and conditions of
all Investor Commitments or Trade Tickets covering Collateral (and any
renewals, extensions or modifications of them or substitutions for them), and
cause the Collateral covered by and intended to be sold under each Investor
Commitment or Trade Ticket to be delivered to the Qualified Investor who issued
the Investor Commitment or Trade Ticket before its expiration in the manner and
order contemplated by the Investor Commitment or Trade Ticket.
(d) Maintain -- at such Obligor's principal office -- in trust,
for the benefit of the Agent and the Banks, the originals (or copies in any
case where the original has been delivered to the Agent) of all Residential
Mortgage Notes, recorded Residential Mortgages and Qualified Mortgage Loans
included in Collateral and Investor Commitments or Trade Tickets related to
them, all insurance policies and all related papers, as well as all files,
surveys, certificates, correspondence, appraisals (to the extent required by
the policies of any Qualified Investor), computer programs, tapes, disks,
cards, accounting records and other information and data relating to the
Collateral. Upon the Agent's reasonable request, such Obligor will promptly
make them conveniently available to the Agent.
(e) Warrant and forever defend to the Agent, the Banks and their
respective successors and assigns, (1) title to the Collateral and (2) the
Liens granted by this Agreement and the other Facilities Papers.
(f) Promptly discharge and perform all of such Obligor's
obligations with respect to any of the Collateral and all Investor Commitments
or Trade Tickets relating to it.
(g) Upon request by the Agent from time to time, expeditiously
apply for and -- if such counterparties are willing to make such agreements
with an Obligor (each of the Obligors agrees in good faith to urge them to do
so) -- to execute such acknowledgment agreements and related agreements with
GNMA (if any such agreements with GNMA are both available and deemed by the
Agent to be necessary), FNMA, FHLMC and other counterparties to Loan Servicing
Agreements as are necessary or appropriate, in the Agent's opinion, to achieve,
maintain or improve establishment and perfection of the Agent's security
interest in collateral intended to be covered by the Servicing
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Rights Security Agreement as security for all of such Obligor's present and
future Obligations to the Banks.
Section 9.14 Employee Benefit Plans. Each of the Obligors agrees
to promptly furnish to the Agent:
(a) Within ten (10) Business Days after the occurrence of a
Reportable Event with respect to any Plan, a copy of any materials required to
be filed with the PBGC with respect to such Reportable Event.
(b) A copy of any notice of intent to terminate a Plan, no later
than the date such notice is required to be provided to participants of such
Plan under Section 4041(a)(2) of ERISA and copies of any notices of
noncompliance received from the PBGC under Section 4041(b)(2)(C) of ERISA,
within ten (10) Business Days after such Obligor's receipt of such notice.
(c) Not later than ten (10) Business Days after its receipt by
such Obligor, any ERISA Affiliate of such Obligor or the administrator of any
Plan, a copy of any notice to such Obligor or such ERISA Affiliate that the
PBGC has instituted proceedings to terminate such Plan or to appoint a trustee
to administer such Plan.
(d) A statement from a vice president or more senior officer of
such Obligor describing any event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of any Plan or for the
appointment of a trustee to administer any Plan, within ten (10) Business Days
after such Obligor knows or has reason to know such event or condition exists.
(e) Within ten (10) Business Days after its receipt by such
Obligor or any ERISA Affiliate of such Obligor, a copy of any notice concerning
the imposition of any withdrawal liability under Section 4202 of ERISA.
Section 9.15 Benefit Plan Obligations. Each of the Obligors
agrees to reduce future contributions or benefits to each Plan to the extent
(if any) (a) necessary to avoid the occurrence of a Default and (b) that such
reduction may be effected without (1) causing a "partial termination" as that
term is used in Section 411(d)(3) of the Internal Revenue Code of 1986, as
amended, and its related regulations and (2) causing the Plan to become
disqualified or violating ERISA.
Section 9.16 Further Assurances. Each of the Obligors agrees to
promptly cure any defects in the execution and delivery of any of the
Facilities Papers. Each of the Obligors agrees to do, execute, acknowledge and
deliver (or cause to be done, executed, acknowledged and delivered) at its own
cost and expense, all such further acts, documents and assurances as the Agent
in its discretion shall request or require to more fully, completely or
effectively (a) state the obligations intended to be stated in the Facilities
Papers, (b) effect the pledge and assignment to the Agent of the Collateral
intended by the Facilities Papers to be pledged and assigned or which such
Obligor may be (or may hereafter become) bound to pledge or assign to the
Agent, (c) perfect any transfer,
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conveyance or security interest created or intended to be created under the
Facilities Papers, or (d) carry out the intention or facilitate the performance
of the terms of this Agreement and the other Facilities Papers. Without
limitation, each of the Obligors agrees to immediately execute and deliver to
the Agent (or its designee) upon written request all such other and further
security agreements, financing statements and other papers in compliance with,
or accomplishment of, such Obligor's promises and obligations in the Facilities
Papers, as the Agent shall request from time to time, and to furnish favorable
written opinions of counsel as to the validity and enforceability of this
Agreement and the other Facilities Papers and the validity, enforceability,
perfection and priority of any Lien against the Collateral intended by the
Facilities Papers to be pledged and assigned -- or that such Obligor may be (or
may hereafter become) bound to pledge or assign -- to the Agent, containing
only such exceptions and qualifications as such counsel requires and as are
reasonably acceptable to the Agent and its legal counsel.
ARTICLE 10. NEGATIVE COVENANTS
Until each of the Obligors has fully paid and performed all of its
Obligations to the Banks under the Current Facilities Agreement and the Banks
are no longer committed to make Loans or purchases under this Agreement, each
of the Obligors agrees to keep, observe and perform the following negative
covenants, to the extent applicable:
Section 10.1 No Change of Business. Each of the Obligors agrees
not to engage to any material extent in any line of business other than the
lines of business in which such Obligor and its Subsidiaries are regularly
engaged on the Effective Date, and the Obligors have disclosed all of such
lines of business to the Banks.
Section 10.2 No Other Investments. Each of the Obligors agrees
not to make Investments other than in the normal course of such Obligor's
business, as presently conducted or as changed in accordance with this
Agreement.
Section 10.3 No Other Debt. Without first obtaining the Agent's
specific written consent, each of the Obligors agrees to neither directly nor
indirectly create, or permit any of its Subsidiaries to create, any Debt (or
suffer any Debt to exist) except (a) to the Banks under this Agreement, (b) the
Company's existing separate warehouse revolving credit facility from Coastal
Banc Savings Association, a Texas savings and loan association, in an aggregate
amount not to exceed Thirty-six Million Dollars ($36,000,000), (c) Debt of the
Company to certain financial institutions described in that certain 3/96 Senior
ICF Credit Agreement dated as of March 31, 1996 by and between the Company,
TCB, as Agent, and the financial institutions parties thereto from time to
time, as such agreement may be amended, restated, modified or supplemented from
time to time (but not increased) (the "ICF Agreement"); (d) Subordinated Debt to
Affiliates (including the Guarantor); (e) Debt under additional warehouse
facilities, which may be made available by TCB or a syndicate of lenders for
which TCB is agent not including (b) above of up to an aggregate of Fifty
Million Dollars ($50,000,000) (the Agent agrees to give notice to the Banks if
and when TCB or such a syndicate from time to time agrees to extend new credit
to the Obligors that would result in Debt permitted by
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this clause (e)), (f) Debt under FHA/VA/RHS receivables financing facilities
which may be made available by TCB or a syndicate of lenders for which TCB is
agent of up to an aggregate of Two Hundred Million Dollars ($200,000,000) (the
Agent agrees to give notice to the Banks if and when TCB or such a syndicate
from time to time agrees to extend new credit to the Obligors that would result
in Debt permitted by this clause (f)), (g) Debt of less than an aggregate One
Million Dollars ($1,000,000) incurred in the ordinary course of business and
(h) Debt under mortgage gestation repurchase agreements pursuant to the express
provisions of which the relevant purchaser(s) has no recourse to the Company.
Section 10.4 Limitation on Dividends. Each of the Obligors agrees
to take no action that would result in such Obligor's declaring dividends,
distributions or stock redemptions in any fiscal year except that if (and only
if):
(a) no Potential Default has occurred that has not been cured
before it has become a Default;
(b) no Default has occurred that has not been declared in writing
by the Agent to have been cured or waived;
(c) the Obligors' GAAP net income for such year is at least One
Dollar ($1); and
(d) after giving effect to such dividend payment (1) the Obligors'
cash remaining on hand after such payments plus (2) the Warehouse Loan Values
of all Eligible Mortgages owned by the Obligors and that have not been pledged
or borrowed against, totals at least Two Million Dollars ($2,000,000);
then such Obligor may declare and pay the following dividends to the Guarantor:
(1) such dividend (if any) as is reasonably required to
pay the cash federal income tax amount due and payable by the Obligors' and the
Guarantor's consolidated corporate group (not to exceed, however, the cash tax
amount that would be due if such Obligor were to file and pay its own tax
return and taxes taking into account the tax benefit of the Obligors' and the
Guarantor's filing consolidated tax returns, including the Guarantor's interest
expense deductions);
(2) if either Obligor shall have incurred Subordinated
Debt, then no dividend shall thereafter be declared or paid until such
Subordinated Debt shall have repaid or until there shall have been a conversion
of that Subordinated Debt into common stock of the applicable Obligor, after
which a dividend of up to twenty-five percent (25%) per annum of the Obligors'
after-tax net income may be declared and paid; and
(3) such other dividend, if any, as shall hereafter be
specifically approved in writing by the Agent.
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Section 10.5 Minimum Net Worth. Each of the Obligors agrees to
neither suffer nor permit its Net Worth -- measured at the end of each month on
or after the Effective Date -- to be or become less than the net value of
acceptable assets less liabilities as is from time to time required by each of
GNMA, FNMA, FHLMC, VA and FHA, as applicable, for such Obligor to continuously
maintain its status as an approved mortgagee, seller/servicer and issuer as
described in Section 7.4.
Section 10.6 Minimum Servicing Portfolio Size. The Obligors agree
to neither suffer nor permit the Eligible Servicing Portfolio Balance to be
less than Three Billion Five Hundred Million Dollars ($3,500,000,000) at any
time.
Section 10.7 Maximum Debt to Servicing Portfolio Ratios. The
Obligors agree to neither suffer nor permit the ratio -- measured at the end of
each month on or after the Effective Date -- of (a) their aggregate Senior
Acquisition Debt or (b) their Consolidated Servicing and Receivables Debt, to
the aggregate appraised value of the Obligors' Eligible Servicing Portfolio, as
most recently determined by independent appraisal in accordance with Section
9.3(e), to exceed the following percentages:
(a) Senior Acquisition Debt (b) Consolidated Servicing
and Receivables Debt
65% 90%
Section 10.8 Minimum Fixed Charge Coverage Ratio.
(a) As of December 31, 1997, and as of each December 31 thereafter,
the Obligors agree to neither suffer nor permit the ratio of (1) their Funds
from Operations for the four quarters (12 months) then ended to (2) their
aggregate Consolidated Fixed Charges for Consolidated Servicing and Receivables
Debt for the same four-quarter (12 month) period (specifically excluding from
the calculation any principal amounts which may have been paid prior to the
Effective Date and paid in connection with Debt incurred prior to the Effective
Date), to be less than the ratio of 1.25 to 1.00; and
(b) Commencing with March 31, 1997, and as at each June 30th,
September 30th, and March 31st thereafter, the Obligors (at their election)
will either:
(1) neither suffer nor permit the ratio of (x) their
Funds from Operations for the four quarters (12 months) then ended to (y) their
aggregate Consolidated Fixed Charges for Consolidated Servicing and Receivables
Debt for that same four-quarter (12 month) period (specifically excluding from
the calculation any principal amounts which may have been paid prior to the
Effective Date and paid in connection with Debt incurred prior to the Effective
Date) to be less than the ratio of 1.25 to 1.00; or
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(2) maintain Liquid Reserves of not less than Six Million
Dollars ($6,000,000), with at least Four Million Dollars ($4,000,000) comprised
of Liquid Reserves other than the undrawn balance described in clause (d) of
the definition of "Liquid Reserves."
Section 10.9 Minimum Current Ratio. The Obligors agree to neither
suffer nor permit their Current Ratio -- measured at the end of each month on
or after the Effective Date -- to be or become less than the ratio of 0.97 to
1.00.
Section 10.10 Minimum Adjusted Tangible Net Worth. The Obligors
agree to neither suffer nor permit their Adjusted Tangible Net Worth at any
time to be or become less than Twenty-five Million Dollars ($25,000,000) plus,
from and after January 1, 1999, fifty percent (50%) of the Obligors' GAAP net
income at the end of the Obligors' fiscal year last ended.
Section 10.11 Maximum Adjusted Debt to Adjusted Tangible Net Worth.
The Obligors agree to neither suffer nor permit the ratio -- measured at the
end of each month on or after the Effective Date -- of (a) aggregate Adjusted
Debt for the month just ended to (b) the Obligors' Adjusted Tangible Net Worth
for the month just ended to be greater than the ratio of 12.00 to 1.00.
Section 10.12 Maximum Adjusted Debt Less Warehouse Debt to Adjusted
Tangible Net Worth. The Obligors agree to neither suffer nor permit the ratio
- -- measured at the end of each month on or after the Effective Date -- of (a)
the Obligors' aggregate Adjusted Debt minus the aggregate principal balance of
all Loans outstanding under the Warehouse Line and all Debt under any and all
other mortgage warehouse facilities to (b) Adjusted Tangible Net Worth to
exceed the ratio of 2.5 to 1.
Section 10.13 Maximum Servicing Acquisition Debt to Adjusted
Tangible Net Worth. The Obligors agree to neither suffer nor permit the ratio
- -- measured at the end of each month on or after the Effective Date -- of (a)
the Obligors' aggregate Servicing Acquisition Debt to (b) Adjusted Tangible Net
Worth to exceed the ratio of 1.5 to 1.
Section 10.14 Maximum Serviced Mortgages Delinquency Ratio. The
Obligors agree to neither suffer nor permit the aggregate number of Serviced
Mortgages that are In Default to exceed ten percent (10%) of their total
aggregate number of Serviced Mortgages in the portfolio, calculated on the
basis of a three (3) month rolling average, as reflected in a mortgage
servicing portfolio delinquency report which the Obligors agree to prepare and
furnish to each of the Banks monthly within thirty (30) days after the end of
each month.
Section 10.15 Limitations on Transactions with Affiliates.
(a) The Obligors agree to neither amend, modify nor change, in any
respect that would have a Material Adverse Effect (either by itself or in
combination with other existing or reasonably anticipated circumstances), any
material agreement or instrument, whether now or hereafter existing, pursuant
to which the Obligors may incur Debt to an Affiliate (the Obligors acknowledge
that they
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may do so only with the Agent's consent), or to take, suffer or permit any act
or omission in respect of any such Debt to any Affiliate that would have that
effect. For purposes of this Section, any of the following will constitute a
Material Adverse Effect per se and without regard to any other conditions,
circumstances or considerations:
(1) any increase in the effective interest rate
applicable to any of the Obligors' Debt to an Affiliate.
(2) any direct or indirect increase in the amount or
frequency of any principal payments on such Debt, including any voluntary or
involuntary prepayment of such Debt.
(3) any acceleration of the maturity of any part of such
Debt.
(4) any prepayment of or agreement to accelerate, the
maturity of any part of such Debt.
(b) The Obligors agree not to incur any Debt to any Affiliate or
otherwise undertake or engage in any other transaction with an Affiliate except
Debt (i) incurred upon fair and reasonable terms no less favorable than the
Obligors could obtain in a comparable arm's-length transaction with a Person
who is not an Affiliate, (ii) that does not violate or result in a violation of
any of Sections 10.3, 10.5, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12 or 10.13 and
(iii) after giving effect to which no Potential Default or Default will exist.
(c) The Obligors agree neither to directly or indirectly guarantee
any Debt of the Guarantor or any Debt of any other Affiliate except for (1) the
Guaranty and (2) guarantees of recourse Loan Servicing Rights in an amount not
to exceed five percent (5%) of the aggregate principal amount of the Obligors'
and their Affiliates' Serviced Mortgages portfolio.
(d) Except for commissions and bonuses paid to officers and
employees in the ordinary course of business, the Obligors agree to make no
advances, loans or distributions in excess of an aggregate One Hundred Thousand
Dollars ($100,000) to its officers, employees or shareholders without the
Agent's prior written consent.
(e) The Company agrees to issue no additional capital stock
without the Agent's prior written consent and unless it is pledged and
delivered when issued to the Agent as Collateral.
Section 10.16 Limitation on Unmarketable Loans. The Obligors agree
not to own at any time more than Four Million Five Hundred Thousand Dollars
($4,500,000) in aggregate principal amounts of Mortgage Loans that, for any
reason, are not eligible for sale in the regular secondary market for
Residential Mortgage Loans; provided that, for this Section's purposes,
Mortgage Loans whose purchase by the Obligors is financed under the VA/FHA/PMI
Foreclosure Receivables Sub-subline or the Repurchased Defaulted Mortgages
Sub-subline shall not be considered ineligible for sale as aforesaid.
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Section 10.17 No Uncovered Commercial Loans and No ADC, Etc. Loans.
Except as otherwise provided in this Section or as approved in writing by the
Agent on a case-by-case basis, the Obligors agree not to make or acquire after
the Effective Date any direct outright ownership interest, participation
interest or other creditor's interest in any commercial real estate loan
(except only for commercial real estate loans which FNMA or another Qualified
Investor approved by the Agent for that purpose has issued a valid and
enforceable commitment to purchase from either Obligor after completing its
underwriting of such loans), personal property loan, oil and gas loan,
commercial loan, wrap-around real estate loan not subject to a valid Investor
Commitment, unsecured loan, acquisition loan, development loan, construction
loan (except only for construction loans that (a) are participated in by
another reputable financial institution at the time of their initial funding to
the extent of at least ninety-nine percent (99%) of the amount committed to be
lent and (b) FNMA or another Qualified Investor approved by the Agent for that
purpose has issued a valid and enforceable commitment to purchase after the
construction financed has been completed or (c) made pursuant to the ICF
Agreement) or unimproved real estate loans except for such loans made pursuant
to the ICF Agreement.
Section 10.18 Loss of Eligibility. Each of the Obligors agrees not
to take or omit to take any act that would result in the suspension or loss of
any of its status with any of GNMA, FNMA, FHLMC, VA or FHA as an eligible
mortgagee, seller/servicer and issuer as described in Section 7.4.
Section 10.19 Fiscal Year Accounting. Neither Obligor will change
its fiscal year or method of accounting unless and until required or
recommended by GAAP and then only after giving notice and a written explanation
of each such change and the reasons for it to the Agent at least thirty (30)
days before the change becomes effective.
Section 10.20 Loans, Advances and Investments. Each of the
Obligors agrees (a) to neither make nor hold any loan, advance or capital
contribution to any Person (or for the account or benefit of any Person) or any
investment in any Person (including any investment in excess of One Million
Dollars ($1,000,000) in all Subsidiaries), (b) to neither purchase nor
otherwise acquire any Person's capital stock, securities or evidence of debt
(collectively, "Investments") and (c) to not otherwise acquire any interest in
any Person or control of any Person, except (if and only if the making of an
Investment described below would not violate any other provision of this
Agreement or have a Material Adverse Effect) the following:
(1) Mortgage Loans.
(2) Investments in Qualified Investment Securities.
(3) Any acquisition of securities or evidence of debt of
others when acquired by such Obligor in settlement of accounts receivable or
other debts arising in the ordinary course of business, if the aggregate amount
of any such securities or evidence of debt is not material to such Obligor's
financial condition according to GAAP.
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(4) Any acquisition in the ordinary course of such
Obligor's business of (A) servicing portfolios and related assets, (B)
Mortgage-Backed Securities, (C) Mortgage Loans or (D) businesses for the
purpose of increasing Mortgage Loan production, and related transactions.
Section 10.21 Actions with Respect to Pledged Mortgages.
(a) Each of the Obligors agrees to neither compromise, extend nor
(except in accordance with the provisions of the Pledged Mortgages or to
correct an error) adjust payments on any Pledged Mortgage, accept a conveyance
of mortgaged Property in full or partial satisfaction of any Pledged Mortgage
or -- except against full repayment of the affected Residential Mortgage --
release any Residential Mortgage securing or underlying any Pledged Mortgage.
(b) Neither Obligor will agree to the amendment, termination or
pairing off of any Investor Commitment or to the substitution of a different
Investor Commitment for an Investor Commitment, if such amendment, termination,
pairing off or substitution may reasonably be expected (as determined by the
Agent) to have a Material Adverse Effect (either by itself or in combination
with other existing or reasonably anticipated circumstances).
(c) Neither Obligor will transfer, sell, assign or deliver to any
Person other than the Agent any Pledged Mortgage other than pursuant to
Investor Commitments.
(d) Neither Obligor will grant, create, incur or assume, or permit
or suffer to exist, any Lien upon any Pledged Mortgage except for (1) Liens
granted to the Agent or (2) such non-consensual Liens (if any) as may be deemed
to arise by operation of law pursuant to any Investor Commitment.
Section 10.22 Cancellation of Loan Servicing Rights. Each of the
Obligors agrees to neither suffer nor permit the cancellation for cause of
Twenty-five Million Dollars ($25,000,000) or more of Owned Servicing Rights.
Section 10.23 Change of Underwriting Standards for "C" or "D" Grade
Mortgage Loans. Without the Agent's consent, the Obligors will not change the
Subprime Underwriting Standards insofar as they define "C" and "D" credit grade
Mortgage Loans from the standards therefor set forth in the Obligors' current
credit grade matrix, a copy of which is attached as Schedule 6.
Section 10.24 Continuous Compliance. Notwithstanding that the
Obligors' compliance with most of the financial covenants set forth in Sections
10.5 through 10.14 is provided in such Sections to be measured periodically,
the Obligors agree to use their best good faith efforts to comply with each of
those financial covenants at all times and continuously for so long as this
Agreement is in force.
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ARTICLE 11. AGREEMENTS CONCERNING THE AGENT AND THE BANKS
Section 11.1 Authorization and Action. Each of the Banks hereby
irrevocably appoints TCB as the Agent under this Agreement and the other
Facilities Papers and authorizes the Agent to act on such appointing Bank's
behalf and to exercise such powers under this Agreement and all other
Facilities Papers as are specifically delegated to or required of the Agent by
their terms, together with all reasonably incidental powers. If the Agent (in
such capacity) (a) receives any material writing from either Obligor (including
any report or statement required by any of the Facilities Papers), (b) receives
any default notice from any Bank alleging or relating to any Default by either
Obligor or (c) gives any Default notice to either Obligor pursuant to the terms
of any Facilities Paper, then in each such instance, the Agent shall promptly
forward copies of such material writing or Default notice to the other Banks.
As to any matter not expressly provided for by this Agreement and all other
Facilities Papers (including enforcement or collection of any Note and
foreclosure on any Collateral for any or all of either Obligor's present or
future Obligations under the Facilities Papers), the Agent shall not be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the joint instructions of all of the affected
Banks, and such instructions shall be binding upon all Banks; provided, that
the Agent shall not be required to take any action that it reasonably believes
may (1) expose it to personal liability or (2) be contrary to this Agreement,
any other Facilities Papers or applicable requirements of Law. The Agent may
(but shall not be under any obligation to) propose to take action or actions
under this Agreement and the other Facilities Papers in a notice to the other
affected Banks; unless otherwise directed by the other affected Banks within
ten (10) Business Days after the date of such notice, the Agent may (but shall
not be obligated to) take the action or actions proposed in such notice and the
Agent shall be fully protected in so acting as if it had received instructions
to take such action or actions from the other affected Banks; provided that
without the Majority Banks' approval, the Agent shall not (A) declare in
writing that a Default that has occurred has been waived or cured (provided
that without all Banks' approval the Agent shall not declare in writing that a
payment Default that has occurred has been waived), (B) consent to any merger
or consolidation of either Obligor with or into another Person that would have
the effect described in clause (a)(2) or (b)(2), as applicable, of this
Agreement's definition of "Change of Control", (C) consent to either Obligor's
obtaining a Servicing Acquisition Loan to finance PMSRs to service any
commercial Mortgage Loan whose outstanding principal balance exceeds One
Million Dollars ($1,000,000), or (C) declare the maturity of any Note
accelerated, foreclose on any Collateral or exercise any of the Banks' other
material remedies after the occurrence of any Default unless such actions set
forth in this clause (C) are (i) reasonably susceptible of being rescinded
without materially and adversely affecting the other Banks or any of the
Collateral if the other affected Banks should elect to have the Agent rescind
them or (ii) actions that the Agent, acting reasonably in light of the
circumstances then prevailing and known to the Agent, shall deem necessary or
appropriate to take on an urgent basis in order to protect or preserve
Collateral or to protect the rights or interests of the Banks.
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Section 11.2 Agent Will Ship Mortgage Loans with Bailee Letters.
The Agent will ship Mortgage Loans to Qualified Investors with a bailee letter
(a "Bailee Letter") in substantially the form of Exhibit G.
Section 11.3 Employment of Others by the Agent. The Agent may
execute and perform any of its duties under the Facilities Papers by or through
agents other than (a) either Obligor or (b) any of such Obligor's Affiliates or
(c) any of such Obligor's attorneys, and shall be entitled to rely (and shall
be protected in reasonably relying) on the advice of such agents and attorneys
concerning all matters pertaining to its duties under the Facilities Papers,
and, except as otherwise provided in Section 11.4, the Agent shall not be
responsible for the negligence or misconduct of any such agents and attorneys
selected by it with reasonable care. Each Bank recognizes and understands that
if, after the occurrence of any Default, the Agent services any Collateral
consisting of loans secured by mortgages and the Agent does not have adequate
facilities (and the Agent shall have no obligation to develop adequate
facilities) to service such Collateral, it will be necessary for the Agent to
contract with a third party to service such Collateral and the fees to be paid
for such services will be treated as expenses payable out of the income and
proceeds realized from such Collateral having priority over other applications
of such income and proceeds pursuant to the Facilities Papers. The Agent will
identify any such servicing agent selected by the Agent for such purpose by
written notice to the Banks, and may engage and continue to employ such
servicing agent unless and until the Majority Banks notify the Agent in writing
that they disapprove of such servicing agent so selected, in which event the
Agent shall promptly engage such other servicing agent as shall be approved in
writing by all of the Banks (including TCB) and replace the servicing agent so
originally selected.
Section 11.4 No Liability. Except in the case of its, his or her
own (or own agent's) fraud, gross negligence or willful misconduct, IT BEING
SPECIFICALLY INTENDED THAT THE RELEASED PERSONS BE HEREBY RELEASED FROM
LIABILITY FOR THEIR OWN SIMPLE NEGLIGENCE, the "Agent, et al." (meaning the
Agent, its Affiliates and its -- and each of its Affiliates' -- officers,
shareholders, directors, employees and agents), the Banks and their respective
shareholders, directors, officers, employees, attorneys and agents
(collectively, the "Released Persons") shall not be (a) liable for any action
taken or omitted to be taken by such Released Person (1) under the Facilities
Papers in good faith and believed by such Released Person to be within the
discretion or power conferred upon such Released Person by the Facilities
Papers or (2) with the consent or at the request of the Banks or (b)
responsible for consequences of any error of judgment. The Agent, et al.,
shall not be responsible in any manner to anyone for (1) the effectiveness,
enforceability, legality, genuineness, sufficiency, validity, due execution,
filing, registration or recording of any of the Facilities Papers, (2) any
representation, warranty, document, certificate, report or statement made or
furnished in, under or in connection with the Facilities Papers other than its
own representation, warranty, certificate, report or statement furnished to one
or more Banks in or pursuant to any Facilities Paper, whether deemed given
pursuant to another provision of this Agreement or given in a separate writing
(and no certificate, report or statement so furnished that is prepared in
reliance upon information furnished by either Obligor or any source other than
the Agent itself shall be construed to be a certification, confirmation,
guaranty or undertaking of any kind by the Agent of the correctness or
completeness of any of the information so relied upon by the Agent), (3) the
value of any of the Collateral, (4)
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except to the extent the Agent is required to hold Collateral or take or
perform any other action with respect to it in accordance with this Agreement
and all other Facilities Papers and which action is required for such
perfection, the perfection of any Lien on any Collateral or (5) any delay,
error, omission or default of any third party mail, telegraph, telecopy,
electronic mail, cable or wireless agency or operator. Except for its
obligations to make the examinations and determinations required to enable the
Agent to make the statements which the Agent will be deemed to make to the
Banks from time to time pursuant to Section 11.14 by giving notices to Banks of
Loan Requests or Offers, the Agent, et al. shall not be under any obligation to
anyone to (a) ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any of the Facilities Papers on
the part of either Obligor or any other Person or (b) inspect the Property
(including the books and records) of either Obligor. Also, the Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default unless a
Vice President or more senior officer of the Agent's Corporate Mortgage Finance
Group has actual knowledge of it or such an officer shall have received notice
from either Obligor or a Bank referring to this Agreement, describing such
Default and stating that such notice is a "notice of default". Subject to the
foregoing limitations and to any direction from the Banks to take action
pursuant to this Article, the Agent shall perform the duties imposed upon it
under the Facilities Papers with respect to the Collateral with the same amount
of diligence and using the same amount of judgment and discretion as if it were
acting solely for its own account and, in connection therewith, the Agent is
hereby authorized to (a) settle, compromise and release claims against the
makers of any Collateral and any other Person obligated with respect to any
Collateral; (b) foreclose on and enforce security interests in any Collateral
or Property securing any Collateral; (c) sell Collateral and Property acquired
as a result of foreclosure on or under the Collateral, and (d) do all other
acts and things as the Agent, in its sole discretion, may deem necessary or
appropriate to protect the rights and interest of the Agent and the Banks and
to realize the benefits of the Collateral. Notwithstanding the foregoing, the
Agent shall not knowingly take any action that would materially jeopardize or
otherwise materially impair any private mortgage insurance, FHA insurance, VA
guaranty (including any repurchase guaranty), FHLMC guaranty, FNMA guaranty or
GNMA guaranty benefits applicable to the Collateral unless in the Agent's
judgment it is in the best interests of the Banks to take such action.
Section 11.5 Reliance. The Agent, et al. shall be entitled to
rely -- and shall be fully protected in reasonably relying -- upon any writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telex or teletype message, statement, order or other document or
conversation believed by it, him or her to be genuine and correct and to have
been signed or made by the proper Person. The Agent shall not be required in
any way to determine the identity or authority of any Person delivering or
executing the same. If any order, writ, judgment or decree (an "Order") shall
be made or entered by any court affecting the rights, duties and obligations of
the Agent under the Facilities Papers, then and in any of such events the Agent
is authorized, in its sole discretion, to rely upon and comply with such Order;
and if the Agent complies with any such Order, then the Agent, et al. shall not
be liable to any Bank or to any other Person by reason of such compliance, even
though such Order may be subsequently reversed, modified, annulled, set aside,
held inapplicable or vacated.
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Section 11.6 Qualifications of the Agent. The Agent shall at all
times be a commercial bank or trust company organized and doing business under
the Laws of the United States of America or any state, district or territory of
it authorized under such Laws to exercise corporate trust powers, having a
combined capital and unimpaired surplus of at least Fifty Million Dollars
($50,000,000), having -- or if owned by a bank holding company, such bank
holding company having -- a rating of C or better by Thomson Bank Watch, Inc.
and subject to supervision or examination by Federal, state, district or
territorial authority, and the aggregate of whose Committed Sums -- or if the
Banks' commitments to lend under this Agreement have expired or been terminated
and have not been reinstated, the aggregate of whose Loans then outstanding --
is at least Forty Million Dollars ($40,000,000). The Agent shall have an
office and place of business in Houston, Texas, if there is such a commercial
bank or trust company willing and able to act as the Agent on reasonable and
customary terms. If such commercial bank or trust company publishes reports of
conditions at least annually, pursuant to applicable Law or to the requirements
of the aforesaid supervising or examination authority, then for the purposes of
this Section, the combined capital and unimpaired surplus of such commercial
bank or trust company shall be deemed to be its combined capital and unimpaired
surplus as set forth in its most recent report of condition so published. In
case the Agent shall cease at any time to be eligible in accordance with the
provisions of this Section, the Agent shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
Section 11.7 Resignation of the Agent. The Agent, or any agent or
agents hereafter appointed, at any time may resign by giving written notice of
resignation to the Obligors and the Banks and complying with the applicable
provisions of this Section. The Agent may be removed in accordance with the
applicable provisions of Section 11.8 and with written notice to the Obligors.
Upon receiving such notice of resignation or removal, a successor Agent shall
be promptly appointed by unanimous action of the Banks (including TCB) by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Agent and one copy to the successor Agent. If no
successor Agent shall have been so appointed and have accepted the appointment
within thirty (30) days after such notice of resignation, then the resigning
Agent may appoint a successor Agent, which shall itself be subject, however, to
removal by the Banks (other than any Bank which is then the Agent) without
cause (i.e., notwithstanding the conditions to removal of the Agent stated in
Section 11.8) upon thirty (30) days' written notice, provided that the removing
Banks designate another successor Agent in such notice -- or in a separate
written notice given on or before five (5) days thereafter -- to the Agent
being removed. If the resigning Agent does not appoint a successor Agent as
provided in the preceding sentence, then the resigning Agent or the Banks
(other than any Bank which is then the Agent) may petition any appropriate
court for the appointment of a successor Agent. After such notices, if any, as
it may deem proper and prescribe, such court may appoint a successor Agent.
Section 11.8 Removal of the Agent. If (a) the Agent shall cease
to be eligible in accordance with the provisions of Section 11.6 and shall fail
to resign after written request therefor by the Banks (other than any Bank
which is then the Agent), or (b) a receiver of it or of its Property shall be
appointed by any Governmental Authority of competent jurisdiction and shall
take charge or control of it or of its Property or affairs for the purpose of
rehabilitation, conservation or liquidation, or (c)
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the Agent shall be grossly negligent in the performance of its material duties
and obligations under this Agreement or other Facilities Papers or engage in
willful misconduct concerning any such material duties and obligations, then,
in any such case, the other Banks may remove the Agent and appoint a successor
by written instrument, in duplicate, one copy of which shall be delivered to
the Agent so removed and one copy to the successor Agent; or the Banks may
petition any court of competent jurisdiction for the removal of the Agent and
the appointment of a successor Agent. After such notice, if any, as it may
deem proper and prescribe, such court may remove the Agent and appoint a
successor Agent.
Section 11.9 Effective Date of Resignation or Removal. No
resignation or removal of the Agent shall be effective until (a) a successor
Agent is appointed pursuant to the provisions of this Agreement and has
accepted the appointment as provided in this Agreement, with a copy of such
acceptance to be provided by the successor Agent to the predecessor Agent, the
Obligors and the Banks (but no notice to any other Person shall be required),
and (b) the resigning or removed Agent has taken such actions (including the
delivery to the successor Agent of Collateral and the execution and delivery to
the successor Agent of assignments) as may be necessary or appropriate to cause
the successor Agent to have a perfected Lien in the Collateral as agent and
representative of the Banks (provided, that the Banks may elect to waive the
requirements of this clause (b) to facilitate succession, although no such
waiver shall excuse the resigning or removed Agent from its obligations under
this clause (b) or otherwise), and the resigning or removed Agent agrees to
take any and all such actions as the successor Agent may reasonably request.
Each Bank shall be responsible, Ratably, for its share of all reasonable
expenses of the resigning or removed Agent and of the successor Agent incurred
in connection with the actions to be taken in accordance with the provisions of
this Section. No successor Agent shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Agent shall be
eligible under the provisions of Section 11.6.
Section 11.10 Successor Agent. Any successor Agent appointed as
provided in this Article shall execute and deliver to the Obligors and to its
predecessor Agent an instrument accepting such appointment, and thereupon the
resignation or removal of the predecessor Agent shall become effective and such
successor Agent, without any further act, deed or conveyance, shall become
vested with all the rights and obligations of its predecessor, with like effect
as if originally named as the Agent; provided that upon the written request of
the Obligors or the successor Agent, the Agent ceasing to act shall execute and
deliver (a) an instrument transferring to such successor Agent all of the
rights of the Agent so ceasing to act and (b) to such successor Agent such
instruments as are necessary to transfer the Collateral to such successor Agent
(including assignments of all Collateral or Collateral documents). Upon the
request of any such successor Agent made from time to time, the Obligors shall
execute any and all papers which the successor Agent shall request or require
to more fully and certainly vest in and confirm to such successor Agent all
such rights. No successor Agent shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Agent shall be
eligible under the provisions of Section 11.6.
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Section 11.11 Merger of the Agent. Any Person into which the Agent
may be merged or converted or with which it may be consolidated, or any Person
surviving or resulting from any merger, conversion or consolidation to which
the Agent shall be a party or any Person succeeding to the commercial banking
business of the Agent, shall be the successor Agent without the execution or
filing of any paper or any further act on the part of any of the parties.
Section 11.12 Agent and Affiliates. With respect to its own Notes
and its own interests under the Mortgage Pools Purchase Agreement, the Agent
shall have the same rights and powers under the Facilities Papers as any other
Bank and may exercise the same as though it were not the Agent. Unless
otherwise expressly indicated, each of the terms "Warehouse Bank", "Servicing
Acquisition Bank" and "Bank" includes the Agent in its individual capacity.
Each of the Agent and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, and generally engage in any kind of
business with either Obligor, the Guarantor, any of their respective Affiliates
and any Person who may do business with or own securities of any of them, all
as if it were not the Agent and without any duty to account therefor to the
Banks.
Section 11.13 Participation; Assignment.
(a) Each Bank reserves the rights (1) with notice to the Obligors,
the Agent and the other Banks, to sell to any bank, savings and loan, savings
bank, credit union, other deposit-taking financial institution or commercial
lending institution, participations in all or any part of such Bank's Loans,
Notes, Warehouse Line Commitment, Servicing Acquisition Line Commitment or
interests under the Mortgage Pools Purchase Agreement and (2) with or without
notice to the Obligors to pledge any or all of its interests under any or all
of the Facilities to a Federal Reserve Bank. Participants shall have no rights
under the Facilities Papers other than certain voting rights as provided below.
Each Bank shall be entitled to obtain (on behalf of its participants) the
benefits of this Agreement with respect to all participants in its Loans
outstanding from time to time and in the interests allocated to it as a
Warehouse Bank in the Mortgage Pools Purchase Agreement and in the Qualified
Mortgage Loans and other Property owned by the Warehouse Banks under the
Mortgage Pools Purchase Agreement from time to time; provided, that the
Obligors shall not be obligated to pay any amount in excess of the amount that
would be due to such Bank calculated as though no participation had been made.
No Bank shall sell any participating interest under which the participant shall
have any rights to approve any amendment, modification or waiver of any
Facilities Papers, except to the extent such amendment, modification or waiver
(1) extends the due date for payment of any amount in respect of principal,
interest or fees due under the Facilities Papers or (2) reduces the interest
rate or the amount of principal or fees applicable to any Loan or purchase
under the Mortgage Pools Purchase Agreement (except only for such reductions,
if any, as are contemplated by this Agreement). In those cases (if any) where
a Bank grants rights to any of its participants to approve amendments,
modifications or waivers of any Facilities Papers pursuant to the immediately
preceding sentence, such Bank must include a voting mechanism as to all such
approval rights in the relevant participation agreement(s) whereby a
readily-determinable fraction of such Bank's portion of the Facilities under
this Agreement (whether held by such Bank or participated) shall control the
vote for all of such Bank's portion of such Facilities; provided, that if no
such voting mechanism is provided for or is
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fully and immediately effective, then the vote of such Bank itself shall be the
vote for all of such Bank's portion of such Facilities. Except in the case of
the sale of a participating interest to a Bank, the relevant participation
agreement shall not permit the participant to transfer, pledge, assign, sell
any subparticipation in or otherwise alienate or encumber its participation
interest in such Facilities.
(b) No Bank may assign any or all of its rights and obligations
under the Facilities Papers to any assignee other than a Federal Reserve Bank
without the written consent of the Agent and the Obligors (unless a Default has
occurred and is continuing, in which event the Obligors' consent shall not be
required), which consent the Agent and the Obligors agree not to unreasonably
withhold, condition or delay.
(c) If any interest in any of the Facilities is transferred to any
Person that is organized under the Laws of any jurisdiction other than the
United States of America or any State, the transferor Bank shall cause such
Person, concurrently with the effectiveness of such transfer, (1) to represent
to the transferor Bank (for the benefit of the transferor Bank, the Agent, the
other Banks and the Obligors) that under applicable Laws no taxes will be
required to be withheld by the Agent, the Obligors or the transferor Bank with
respect to any payments to be made to such Person in respect of such
Facilities, (2) to furnish to each of the transferor Bank, the Agent and the
Obligors two duly completed copies of either U.S. Internal Revenue Service Form
4224 or U. S. Internal Revenue Service Form 1001 (wherein such Person claims
entitlement to complete exemption from U. S. federal withholding tax on all
interest payments hereunder) and (3) to agree (for the benefit of the
transferor Bank, the other Banks, the Agent and the Obligors) to provide the
transferor Bank, the Agent and the Obligors a new Form 4224 or Form 1001 upon
the obsolescence of any previously delivered form and comparable statements in
accordance with applicable United States Laws and amendments duly executed and
completed by such Person and to comply from time to time with all applicable
Laws with regard to such withholding tax exemption.
Section 11.14 Loan Requests; Payments. By giving notice to the
applicable Banks of a Loan Request or Offer, the Agent shall be deemed to state
to them that (a) the Agent has examined such Loan Request or Offer and its
attachments, including any listing provided of any Collateral proposed to be
borrowed against under such Loan Request or any Pool proposed to be sold to the
applicable Banks under such Offer (as the case may be), and has determined that
such Loan Request or Offer and its attachments appear to comply with the
requirements of this Agreement for the form and content of such Loan Request or
Offer and any required attachments (including requirements for the Obligors'
representations concerning (1) in the case of a Loan Request, the Warehouse
Loan Value or Receivables Loan Value (whichever is applicable) of Collateral
furnished to induce and support the Loan requested and the borrowing Obligor's
representations and calculations concerning mathematical relationships between
Loan amounts and Warehouse Loan Value or Receivables Loan Value (whichever is
applicable) or (2) in the case of an Offer, the characteristics of the Pool
offered and the Investor Commitment and Trade Ticket applicable to it) and (b)
the Agent has examined such Collateral and such Collateral appears regular and
to have Warehouse Loan Value or Receivables Loan Value sufficient to induce and
support the Loan requested or the Pool purchase proposed in accordance with the
requirements of this Agreement and (except in respect only of Warehouse Loans
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funded under the Wet Warehousing Subline) to create a perfected security
interest in favor of the Agent in the Collateral. In conjunction with the
performance of its duties under the Facilities Papers, the Agent shall collect
all principal and interest payments on the Notes, the Warehouse Facility Fee,
the Revolving Servicing Acquisition Facility Fee, all Fee, Pool sales, proceeds
(including proceeds of sales of MBSs created from Pools) and Make Whole
Payments in respect of Pools purchased under the Mortgage Pools Purchase
Agreement, plus all other amounts due to the Banks on account of this Agreement
and all other Facilities Papers. Upon receipt of any payment due under the
Warehouse Line, the Servicing Acquisition Line or the Mortgage Pools Purchase
Agreement, the Agent shall transfer each other applicable Bank's share to it by
federal funds wire transfer (or by such other method as may be agreed upon
between the Agent and such other Bank) as soon as practicable. If the Agent
receives such sums at or before 12:00 noon on a Business Day and the Agent
fails without a valid excuse to initiate a wire transfer (or to initiate such
other method of transferring such funds as the Agent and such other Bank have
agreed upon) on the same Business Day to any Bank of its portion of such
payment received, then the Agent shall be obligated to pay interest on them to
the Bank to which they are due from the day when they should have been
transferred to the day when they are transferred at the Federal Funds Effective
Rate. Each of the Banks (if any) which shall from time to time elect to charge
a lower interest rate on any Note held by such Bank than the Stated Rate
elected by the borrowing Obligor for such Note (or charge a specific lesser
interest amount) shall promptly advise the Agent of the rate of interest (or
amount of interest) such Bank is charging the Obligors on such Note. To the
extent any such Bank contracts for, charges, reserves or receives interest in
excess of the Ceiling Rate, such Bank hereby indemnifies the Agent, et al. and
the other Banks, and agrees to hold each harmless, from and against any and all
liabilities, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind or nature whatsoever that may be imposed
on, asserted against or incurred by the Agent, et al. or the other Banks in
any way relating thereto, including reasonable attorneys' fees.
Section 11.15 Lenders' Sharing Arrangement. Each of the Banks
agrees that if it should receive any amount (whether by voluntary payment,
realization upon security, the exercise of the right of set-off, or otherwise)
which is applicable to the payment of the principal of, or interest on, the
Loans, or fees of an amount that with respect to the related sum or sums
received (or receivable) by the other Banks is in greater proportion than that
Bank's ownership of the Loans, then such Bank receiving such excess amount
shall purchase from the other Banks an interest in the obligations of the
Obligors under this Agreement or any of the other Facilities Papers in such
amount as shall result in a proportional participation by all of the Banks in
such excess amount; provided that if all or any portion of such excess amount
is thereafter recovered from such Bank, such purchase shall be rescinded and
the purchase price restored to the extent of such recovery; and provided
further that the provisions of this Section 11.15 shall not apply to the
Processing Fees or any other fees due to the Agent pursuant to any letter
agreement or other agreement between the Guarantor and/or the Obligors and the
Agent.
Section 11.16 Application of Collateral Proceeds. All realizations
and proceeds of Collateral ("Collateral Proceeds") for the Facilities shall be
applied (a) first, to the costs (including attorneys' fees, appraisal costs and
other expenses related to the preparation of the Collateral for sale) incurred
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by the Agent in obtaining such Collateral Proceeds, or otherwise owing to the
Agent under the Facilities Papers; (b) second, in accordance with Section 6.3
or 6.5, as applicable; (c) third, to the payment of all other unreimbursed
expenses of the Agent and the Banks under the Facilities Papers, Ratably, in
accordance with such expenses and (d) fourth, to the Obligors or another
Person, as their interest may appear. The Agent shall not be permitted to
credit bid with respect to any foreclosure sale of the Collateral without the
consent of all of the Banks. No Bank bidding at a foreclosure of the
Collateral for any Facility may include in the amount of its bid an amount to
be applied as a credit to such Bank's Note; instead, each Bank may bid (if it
elects to bid) in cash only.
Section 11.17 Credit Decision. Each Bank acknowledges and agrees
that it has, independently and without reliance upon the Agent or any other
Bank and based upon the Financial Statements of the Obligors and such other
documents and information as it has deemed appropriate (and such Bank
represents and agrees that it has received and reviewed all of the information
which it requested and that it requested all information which it considered
material to its credit decision), made its own credit analysis and decision to
enter into this Agreement and the other Facilities Papers to which it is
becoming a party. Each Bank also acknowledges and agrees that it will,
independently and without reliance upon the Agent, et al. or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Facilities Papers.
Section 11.18 Information Concerning Other Banks. From time to
time, at the request of any Bank, the Agent will advise the requesting Bank of
(a) the identity of each Bank under this Agreement as of the date of such
request, (b) the amount of each Bank's Warehouse Line Commitment, Servicing
Acquisition Line Commitment and the amounts funded by any such Bank under such
commitments and under the Mortgage Pools Purchase Agreement (if applicable) and
(c) any default by such Bank of any of its obligations under this Agreement or
the other Facilities Papers and the nature of such default.
Section 11.19 Expense Reimbursement. If the Obligors shall fail to
reimburse the Agent within thirty (30) days of a request therefor, as provided
in any Facilities Paper, for any expenses incurred by the Agent in connection
therewith that the Obligors are required to reimburse, then each of the Banks
shall pay, Ratably, its share of such expenses, plus interest at the Federal
Funds Effective Rate from the date of expenditure until paid. Any Bank's
failure to pay, Ratably, to the Agent that Bank's share of any expenses shall
not in itself relieve any other Bank of its obligation to pay, Ratably, the
Agent that other Bank's share of those (or any other) expenses, although no
Bank shall be responsible or liable for any other Bank's failure to pay. If
the Agent shall subsequently recover any such reimbursement from the Obligors,
the Agent shall refund the amount recovered, including any interest recovery,
to the paying Banks (including itself) in the proportion that the amount paid
by each such paying Bank bears to the amount paid by all such paying Banks.
Section 11.20 Indemnification. THE BANKS AGREE TO INDEMNIFY THE
AGENT, ET AL. (TO THE EXTENT NOT REIMBURSED BY THE OBLIGORS), RATABLY, FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, FEES, CLAIMS
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OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (COLLECTIVELY, "CLAIMS")
WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT, ET AL., IN
ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT AND ALL OTHER FACILITIES
PAPERS OR ANY ACTION TAKEN OR OMITTED BY THE AGENT UNDER ANY OF THIS AGREEMENT
AND ALL OTHER FACILITIES PAPERS; PROVIDED, THAT, FOR ANY PORTION OF SUCH CLAIMS
RESULTING FROM THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUDULENT CONDUCT
OF THE AGENT, NO BANK SHALL BE LIABLE TO THE AGENT. (EACH BANK AGREES,
HOWEVER, THAT IT EXPRESSLY INTENDS UNDER THIS SECTION TO INDEMNIFY THE AGENT,
RATABLY, FOR ALL CLAIMS ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY SIMPLE NEGLIGENCE OF THE AGENT.) SUCH AMOUNTS SHALL BE PAYABLE
UPON DEMAND AND SHALL BEAR INTEREST AT THE FEDERAL FUNDS EFFECTIVE RATE FROM
THE DATE OF THE AGENT'S EXPENDITURE UNTIL THE DATE OF REIMBURSEMENT. THE
PROVISIONS OF THIS SECTION AND SECTION 11.19 SHALL SURVIVE THE RETIREMENT OR
WITHDRAWAL OF ANY BANK, THE TERMINATION OF THIS AGREEMENT, THE PAYMENT OF THE
NOTES AND THE TERMINATION OF ALL OF THE OTHER FACILITIES PAPERS.
Section 11.21 Rights of Individual Banks. No Bank other than the
Agent shall have any right by virtue -- or by availing itself -- of any
provision of the Facilities Papers to institute any action or proceedings at
Law or in equity or otherwise (excluding any actions in bankruptcy) upon or
under or with respect to the Facilities Papers or for the appointment of a
receiver or for any other remedy without the prior written approval of the
other Banks. Further, no Bank or Person other than the Agent shall take any
such action unless and until, after a Default has occurred and before the Agent
has declared in writing that it has been cured or waived (the Agent's authority
to make such a declaration being subject to the final proviso of Section 11.1):
the Banks (other than the Agent) have:
given a written direction to the Agent that the Agent
institute such action or proceedings in its own name as agent under this
Agreement;
not subsequently revoked such written direction or given any
other or further direction inconsistent with such direction; and
offered to the Agent such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby; and
the Agent, after its receipt of such request and offer of indemnity and after
having been given a reasonable opportunity to do so, shall have failed to so
institute such action or proceedings or stated that it refuses to do so. In
addition, the parties to this Agreement intend and mutually covenant that no
one or more Banks or other holders of Notes shall have any right in any manner
whatever to affect, disturb or prejudice the rights of any other Bank or holder
of any other Note or to obtain or seek to obtain priority over or preference to
any other such Bank or holder, or to enforce any right under this Agreement and
all other Facilities Papers, except (a) in the manner provided in this
Agreement and (b) Ratably, for the common benefit of all Banks under this
Agreement. For the
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protection and enforcement of the provisions of this Section, each and every
Bank and the Agent shall be entitled to such relief as can be given either at
Law or in equity.
Section 11.22 Notice to the Agent. Should any Potential Default or
Default occur and be continuing, any Bank that becomes aware of it shall
promptly notify the Agent of its existence.
Section 11.23 No Partnership. Neither the execution and delivery
of this Agreement or any of the other Facilities Papers nor any interest that
the Banks, the Agent or any of them may now or hereafter have in all or any
part of the Collateral shall create or be construed as creating a partnership,
joint venture or other joint enterprise between the Banks or among any of the
Banks and the Agent. The relationship between the Banks, on the one hand, and
the Agent on the other, is and shall be that of principals and agent only, and
nothing in this Agreement or any of the other Facilities Papers shall be
construed to constitute the Agent, et al. as trustee or other fiduciary for any
Bank or to impose on the Agent, et al. any duty, responsibility or obligation
other than those expressly provided for herein and therein.
Section 11.24 Amendments, Modifications and Consents. Without the
written consent of all of the Banks, including TCB, the Agent shall not agree
to any amendments or modifications to the Facilities Papers, or grant a written
waiver of any provision of them, the effect of which would be to (a) change the
amount or the due date of any required payment of principal or accrued interest
or any fees, (b) extend the maturity date of any Note, (c) change any sharing
ratio applicable to the Banks under this Agreement, (d) change the several
nature of the Banks' respective obligations to make Loans or consider making
purchases under this Agreement, (e) change the conditions precedent to any
Facility, (f) release the Guaranty or release Collateral other than pursuant to
the express provisions of this Agreement, (g) amend this Section or the
definitions of "Majority Banks", "Majority Servicing Acquisition Banks" or
"Majority Warehouse Banks", (h) amend, or waive any violation of, the
provisions of Section 10.11; (i) amend the definition of "Eligible Mortgage" or
"Defective Mortgage" or amend any defined term used within the definition of
"Eligible Mortgage" or "Defective Mortgage" (provided that, with the approval
of the Majority Banks, the Agent may temporarily waive or suspend one or more
of this Agreement's eligibility requirements or conditions for a particular
grouping of Mortgage Loans to qualify as Eligible Mortgage Loans where their
failure to so qualify is beyond the Company's reasonable control and if the
Agent believes at the time of such temporary waiver or suspension that the
factors which apparently caused such disqualification will be eliminated in a
reasonably short time), (j) consent to a change in the Obligors' underwriting
guidelines for "C" or "D" credit grade Mortgage Loans (as contemplated in
Section 10.23) -- the Banks agree to consent to any such proposed change that
is demonstrably consistent with prevailing credit grading practices in the
subprime mortgage lending industry -- or (k) permit either (1) Loans to be made
or continued that are secured by Collateral that does not comply with the
definition of "Eligible Mortgage" as of the Effective Date or (2) purchases of
Defective Mortgages, in an aggregate amount that exceeds the Agent's
discretionary authority to permit such Loans and purchases in an aggregate
amount of up to Five Million Dollars ($5,000,000). Without the consent of the
Majority Banks, the Agent shall not agree to any other amendments or
modifications to the Facilities Papers, grant consent to either Obligor's
incurring Subordinated Debt, grant consent to
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either Obligor's incurring debt to an Affiliate, or grant a written waiver of
any other material provision of the Facilities Papers; provided that any such
amendment or waiver proposed by Agent or either Obligor shall be submitted to
all Banks concurrently, even though the consent or approval of all Banks may
not be required, and the Agent may proceed to make any such amendment or waiver
that requires only the Majority Banks' approval when the Agent has obtained
that approval even if not all Banks have yet responded to the Agent's proposal;
and provided further that any provision of this Agreement that requires the
consent or approval of all Banks shall prevail and control in the event of any
apparent conflict with the provisions of this Section.
Section 11.25 Replacement of Retiring Bank. If (i) any Bank has
demanded compensation or indemnification, or if the Obligors otherwise have
been required to make any payment to any Person, pursuant to Section 5.7, or
(ii) any Bank has failed to make available all or any portion of its Funding
Share of any Loan (and has not cured such failure), (iii) any Bank has notified
the Agent or the Obligors that such Bank does not intend to comply with its
obligations under any or all of Section 2.2 or Articles 3 or 4 following the
appointment of a receiver or conservator with respect to such Bank at the
direction or request of any regulatory agency or authority or (iv) any Bank has
failed to consent to a proposed amendment, waiver, discharge or termination or
which, pursuant to the terms of Section 11.24 or any other provision of any
Facilities Papers, requires the consent of all Banks and with respect to which
the Majority Banks have consented, the Obligors shall have the right, if no
Potential Default has occurred that has not been cured and if no Default has
occurred that the Agent has not declared in writing to have been cured or
waived, to replace such Bank with a Replacement Bank. The replacement of a
Retiring Bank pursuant to this Section 11.25 shall be effective on the tenth
(10th) Business Day (the "Replacement Date") following the date of notice of
such replacement to the Retiring Bank and each Continuing Bank through the
Agent, subject to satisfaction of the following conditions:
(a) the Retiring Bank and the Replacement Bank shall have
satisfied the conditions to assignment and assumption set forth in Section
11.13 and, in connection therewith, the Replacement Bank(s) shall pay to the
Retiring Bank an amount equal in the aggregate to the sum of (x) the principal
of all of the Retiring Bank's outstanding Loans, together with all accrued
interest thereon and (y) the Retiring Bank's share of any accrued fees under
this Agreement; and
(b) the Obligors shall have paid to the Agent for the
account of the Retiring Bank an amount equal to all obligations owing to the
Retiring Bank by the Obligors (other than those obligations of the Obligors
owing but not yet due that are referred to in Section 11.25(a)).
Section 11.26 Replacement Banks Replace Retiring Banks. On the
Replacement Date, each Replacement Bank that is a New Bank shall become a Bank
and the Retiring Bank shall cease to be a Bank; provided that this Agreement
shall continue to govern the rights and obligations of a Retiring Bank with
respect to any Loans made or any other actions taken by such Retiring Bank
while it was a Bank and such Retiring Bank shall continue to have the benefit
of each of the provisions of this Agreement that are intended to survive its
termination or expiration, including Sections 5.3, 5.7, 12.7, 12.8 and 12.9.
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Section 11.27 Termination of Retiring Bank's Commitments. In lieu
of the foregoing, upon the express written consent of Continuing Banks who are
the holders of at least sixty-six and two-thirds percent (66 2/3%) of that
portion of the outstanding principal of the Loans held by Continuing Banks, the
Obligors shall have the right to terminate the commitments of a Retiring Bank
hereunder in full. Upon payment by the Obligors to the Agent for the account
of the Retiring Bank of an amount equal to the sum of (i) the aggregate
principal amount of all Loans held by the Retiring Bank and (ii) all accrued
interest, fees and other amounts owing to the Retiring Bank pursuant to this
Agreement and the other Facilities Papers, such Retiring Bank shall cease to be
a Warehouse Bank, a Servicing Acquisition Bank and a Bank hereunder; provided
that the provisions of this Agreement shall continue to govern the rights and
obligations of a Retiring Bank with respect to any Advances made or any other
actions taken by such Bank while it was a Bank and such Retiring Bank shall
continue to have the benefit of each of the provisions of this Agreement that
are intended to survive its termination or expiration, including Sections 5.3,
5.7, 12.7, 12.8 and 12.9.
ARTICLE 12. MISCELLANEOUS
Section 12.1 No Waiver. No waiver of any Default or Potential
Default shall be deemed to be a waiver of any other Default or Potential
Default. No failure to exercise or delay in exercising any power or right
under any Facilities Papers shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No
course of dealing between (a) the Obligors and (b) the Agent or any Bank, shall
operate as a waiver of any rights of any of the Banks. Except for amendments,
modifications and waivers made pursuant to Section 11.24, no amendment,
modification or waiver of any provision of this Agreement, any Note or any
other Facilities Papers nor consent to any departure therefrom shall be
effective against any affected Bank unless it is in writing and signed by that
affected Bank (or, unless prohibited by this Agreement, by the Agent acting on
behalf of that affected Bank), and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Obligors or any other Person shall
entitle the Obligors or any other Person to any other or further notice or
demand in similar or other circumstances.
Section 12.2 Notices. Notices under the Facilities Papers shall
be in writing and either (a) delivered against a receipt therefor; (b) mailed
by registered or certified mail, return receipt requested, postage prepaid, or
(c) sent by telefax, telex or telegram, in each case addressed as follows:
105
<PAGE> 118
(1) If to either Obligor, to:
[New America Financial, Inc. c/o]
Harbor Financial Mortgage Corporation
340 North Sam Houston Parkway East, Suite 100
Houston, Texas 77060
Attention: Mr. Richard J. Gillen, President
Telephone: (281) 931-1771
Telecopy: (281) 448-4098
(2) If to the Agent or TCB, to:
Texas Commerce Bank National Association [as Agent]
P. O. Box 2558
Houston, Texas 77252
Attention: Managing Director, Corporate Mortgage
Finance Group
Telephone: (713) 216-5367
Telecopy: (713) 216-2082
(3) If to another Bank, as provided in the Commitments
Schedule.
or to such other address as a party may by notice hereunder designate. Notices
given by postage prepaid certified or registered U.S. mail shall be deemed to
have been given two (2) Business Days after being mailed; notices given by
other means shall be effective only when actually received (in the case of
notices to either Obligor) in such Obligor's offices or (in the case of notices
to the Agent or TCB) by the Managing Director of TCB's Corporate Mortgage
Finance Group or another officer in that group or (in the case of notices to
any other Bank) by the officer of that Bank named on the Commitments Schedule
or another officer in the named officer's group at that Bank.
Section 12.3 Governing Law; Jurisdiction and Venue. Except as
otherwise stated therein or required by applicable Law, each of the Facilities
Papers shall be deemed to be a contract under the Laws of the State of Texas
and of the United States of America and shall be construed and enforced in
accordance with such Laws. Each of the Obligors hereby irrevocably submits to
the nonexclusive jurisdiction of the state and federal courts of the State of
Texas and agrees and consents that service of process may be made upon it in
any proceeding arising out of this Agreement or any of the other Facilities
Papers by service of process as provided by Texas Law. Each of the Obligors
hereby irrevocably waives, to the fullest extent permitted by Law, 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 the this Agreement or
any of the other Facilities Papers brought in the District Court of Harris
County, State of Texas, or in the United States District Court for the Southern
District of Texas, Houston Division, and hereby further irrevocably waives any
claims that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Each of the Obligors further (a) agrees
to designate and maintain an agent for service of process in the City of
106
<PAGE> 119
Houston in connection with any such suit, action or proceeding and to deliver
to the Agent evidence thereof and (b) irrevocably consents to the service of
process out of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to each of the Obligors at its address set forth
herein. Nothing herein shall affect the right of the Agent or any Bank to
commence legal proceedings or otherwise proceed against either Obligor in any
jurisdiction or to serve process in any manner permitted by applicable Law.
Each of the Obligors hereby irrevocably agrees that any proceeding against the
Agent or any Bank arising out of or in connection with this Agreement or the
other Facilities Papers shall be brought in the district courts of Harris
County, Texas, or in the United States District Court for the Southern District
of Texas, Houston Division if such relevant court has jurisdiction.
Section 12.4 Waiver of Jury Trial. Each of the Obligors, the
Agent and the Banks hereby (i) covenants and agrees not to elect a trial by
jury of any issue triable of right by a jury, and (ii) waives any right to
trial by jury fully to the extent that any such right shall now or hereafter
exist. This waiver of right to trial by jury is separately given, knowingly
and voluntarily, by each Obligor, the Agent and each Bank, and this waiver is
intended to encompass individually each instance and each issue as to which the
right of a jury trial would otherwise accrue. The Agent is hereby authorized
and requested to submit this Agreement to any court having jurisdiction over
the subject matter and the parties hereto, so as to serve as conclusive
evidence of the foregoing waiver of the right to jury trial. Further, the
Obligors hereby certify that no representative or agent of any of the Banks or
the Agent has represented, expressly or otherwise, to any shareholder,
director, officer, agent or representative of either of them that the Agent or
the Banks will not seek to enforce this waiver of right to jury trial
provision.
Section 12.5 Survival; Successors and Assigns; Term. All
representations, warranties, covenants and agreements made by either Obligor in
connection herewith shall survive the execution and delivery of the Facilities
Papers, shall not be affected by any investigation made by any Person and shall
bind each of the Obligors and its successors, trustees, receivers and assigns
and shall benefit the Agent, the Banks and their respective participants and
other holders of any of the Obligors' Obligations under the Facilities Papers
and their respective successors and assigns; provided, that the undertaking of
the Banks under this Agreement or any of the other Facilities Papers to make
loans and extend other benefits of the Facilities to the Obligors shall not
inure to the benefit of any successor, trustee, receiver or assign of any such
Obligor. Subject to such proviso, all references in the Facilities Papers to
either Obligor, the Agent or any Bank shall include the successors, trustees,
receivers and assigns of such party. In the event any Bank sells
participations or other rights or interests in any Note or other indebtedness
or obligation incurred pursuant to this Agreement or any of the other
Facilities Papers to other lenders, each of such other lenders shall have the
rights to set off against such indebtedness and similar rights or Liens to the
same extent as may be available to that Bank. The term of this Current
Facilities Agreement shall be until the final payment in full of all Notes and
the payment of all other amounts due under the Facilities Papers.
Section 12.6 Counterparts. This Agreement may be executed in
several counterparts, and by the parties hereto on separate counterparts, and
each counterpart, when so executed and delivered,
107
<PAGE> 120
shall constitute an original instrument, and all such separate counterpart,
shall constitute one and the same agreement.
Section 12.7 Usury Not Intended; Credit or Refund of Any Excess
Payments. It is the intent of each of the Obligors, the Agent and the Banks in
the execution and performance of this Agreement and the other Facilities Papers
to contract in strict compliance with the applicable usury laws of the State of
Texas and the United States of America from time to time in effect. In
furtherance of that purpose, each of the Obligors, the Agent and the Banks
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Facilities Papers shall ever be construed to create a
contract to pay for the use, forbearance or detention of money with interest at
a rate in excess of the Ceiling Rate and that for purposes hereof "interest"
shall include the aggregate of all charges which constitute interest under such
laws that are contracted for, charged, taken, reserved or received under this
Agreement or any of the other Facilities Papers. In the event that the
maturity of any Note is accelerated by reason of any election of its holder
resulting from any Default, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the maximum nonusurious amount permitted by applicable Law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited on such note (or, if such note shall
have been paid in full, refunded to the payor of such interest). The
provisions of this Section shall control over all other provisions of this
Agreement, the Notes and the other Facilities Papers which may be in apparent
conflict herewith. In the event any Bank or other holder of any of such Notes
shall collect monies which are deemed to constitute interest at a rate in
excess of the Ceiling Rate then in effect, all such sums deemed to constitute
interest in excess of the Ceiling Rate shall be immediately returned to their
payor (or, at the option of the holder of the Notes, credited against the
unpaid principal of the Notes) upon such determination. The provisions of this
Section shall survive the expiration or termination of this Agreement.
Section 12.8 Expenses. Whether or not the transactions
contemplated by this Agreement shall be consummated, the Obligors, jointly and
severally, agree to pay (a) up to $5,000 of the legal fees incurred by the
Agent in connection with the preparation, negotiation and execution of this
12/97 A&R Facilities Agreement, the Notes and the other Facilities Papers; (b)
up to $1,000 of the legal fees actually incurred by each Bank (other than TCB)
in reviewing this 12/97 A&R Facilities Agreement and the other Facilities
Papers; (c) all out-of-pocket expenses of the Banks (including the reasonable
fees and expenses of counsel for the Banks) in connection with the filing,
recording, refiling and rerecording of this Agreement and the other Facilities
Papers and in establishing, making, servicing, administering and collecting any
of the Facilities, fundings and loans or purchases hereunder; (d) any and all
stamp, mortgage and recording taxes; (e) all other expenses incurred in the
recording, filing, rerecording and refiling of any of the Facilities Papers and
all other documents or instruments of further assurance required or appropriate
to be recorded, rerecorded, filed or refiled in appropriate recording or filing
offices; (f) the costs of any title insurance or lien insurance in connection
therewith; (g) all costs of preparation, execution and delivery of any and all
amendments, modifications, supplements, consents, waivers or other documents or
writings relating to the transactions contemplated by this Agreement; and (h)
all costs (including reasonable attorneys' fees)
108
<PAGE> 121
of the review of title opinions, security opinions and other legal opinions
relating to the transactions contemplated in this Agreement or any of the other
Facilities Papers. Upon request, the Obligors, jointly and severally, agree to
promptly reimburse the Agent or any Bank for all amounts expended by them,
respectively, to satisfy any obligation of either Obligor under this Agreement
or any other Facilities Papers or to protect the Property or business of either
Obligor or any of its Subsidiaries or to collect any of the Notes, or to
enforce the rights of any or all of the Agent or any Bank under this Agreement
or any other Facilities Papers, which amounts will include all court costs,
attorneys' fees, fees of auditors and accountants and investigation expenses
incurred by any of the Agent or any Bank in connection with any such matters,
together with interest at the Past Due Rate on each such amount from the date
that the same is expended, advanced or incurred by any of the Agent or any Bank
until the date of reimbursement to the Agent or that Bank. The obligations of
the Obligors under this Section shall survive the expiration or termination of
this Agreement.
SECTION 12.9 INDEMNIFICATION. THE OBLIGORS, JOINTLY AND
SEVERALLY, AGREE TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE BANKS, THEIR
PARTICIPANTS AND FUTURE HOLDERS OF THE OBLIGORS' OBLIGATIONS HEREUNDER AND
THEIR OFFICERS, AGENTS, DIRECTORS, EMPLOYEES AND COUNSEL (AND TO CAUSE THE
GUARANTOR TO GIVE A LIKE INDEMNITY TO THE BANKS) FROM AND AGAINST ANY AND ALL
CLAIMS (INCLUDING INTEREST BOTH BEFORE AND AFTER ANY BANKRUPTCY, COURT COSTS,
PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS AND AMOUNTS PAID IN SETTLEMENT) TO
WHICH ANY SUCH PERSON MAY BECOME SUBJECT ARISING OUT OF OR BY REASON OF ANY
INVESTIGATION, LITIGATION OR OTHER PROCEEDINGS BROUGHT OR THREATENED, ARISING
OUT OF OR BASED ON THIS AGREEMENT, ANY OF THE OTHER FACILITIES PAPERS OR THE
TRANSACTIONS CONTEMPLATED THEREBY; PROVIDED, THAT, FOR ANY PORTION OF SUCH
CLAIMS RESULTING FROM THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUDULENT
CONDUCT OF ANY BANK, NO OBLIGOR SHALL BE LIABLE TO SUCH BANK. (EACH OF THE
OBLIGORS AGREES, HOWEVER, THAT IT, JOINTLY AND SEVERALLY, EXPRESSLY INTENDS
UNDER THIS SECTION TO INDEMNIFY EACH BANK FOR ALL CLAIMS ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY ORDINARY NEGLIGENCE OF SUCH BANK.) ALL
OF THE OBLIGORS' INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER
FACILITIES PAPERS SHALL SURVIVE ITS AND THEIR TERMINATION OR EXPIRATION.
Section 12.10 Entire Agreement. This Agreement and the other
Facilities Papers embody the entire agreement and understanding between (a) the
Obligors and (b) the Agent and the Banks, relating to the subject matter hereof
and thereof and supersede all prior proposals, agreements and understandings
relating to such subject matter. The other Facilities Papers are incorporated
herein by reference; however, in the event and to the extent of any conflict or
inconsistency, the provisions of this Agreement shall control.
Section 12.11 Accounting Terms. All determinations of financial
amounts on a consolidated basis shall make due allowance for minority
interests.
Section 12.12 Severability. Whenever possible, each provision of
the Facilities Papers shall be interpreted in such manner as to be effective
and valid under applicable Law. If any provision of any Facilities Paper shall
be invalid, illegal or unenforceable in any respect under any applicable Law,
109
<PAGE> 122
the validity, legality and enforceability of the remaining provisions of such
Facilities Paper shall not be affected or impaired thereby.
Section 12.13 Domicile of Loans. The Banks may transfer and carry
all or any part of the Loans at, to or for the account of any branch office or
Affiliate.
Section 12.14 Disclosures. Every reference in this Agreement and
the other Facilities Papers to disclosures of either Obligor to the Banks or
the Agent in writing, to the extent that such references refer to disclosures
at or prior to the execution of this Agreement, shall be deemed to refer only
to written disclosures made in an orderly manner.
SECTION 12.15 RELEASE OF TRANSACTION CLAIMS. EACH OBLIGOR HEREBY
RELEASES, DISCHARGES AND ACQUITS FOREVER THE AGENT AND EACH BANK AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, TRUSTEES, AGENTS, EMPLOYEES AND COUNSEL (IN
EACH CASE, PAST, PRESENT OR FUTURE) FROM ANY AND ALL TRANSACTION CLAIMS
EXISTING AS OF THE EFFECTIVE DATE (OR THE DATE OF ACTUAL EXECUTION HEREOF BY
SUCH OBLIGOR, IF LATER). THE TERM "TRANSACTION CLAIM" SHALL MEAN ANY AND ALL
CLAIMS (INCLUDING COURT COSTS, PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS,
AND AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER WHATSOEVER, INCLUDING
CLAIMS FOR USURY, BREACH OF CONTRACT, BREACH OF COMMITMENT, NEGLIGENT
MISREPRESENTATION OR FAILURE TO ACT IN GOOD FAITH, IN EACH CASE WHETHER NOW
KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED OR PRIMARY
OR CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN
UNDERTAKINGS, COURSE OF CONDUCT, TORT, VIOLATIONS OF LAWS OR REGULATIONS OR
OTHERWISE.
Section 12.16 Notice Pursuant to Section 26.02 of the Tex. Bus. &
Comm. Code. THE OBLIGORS, THE AGENT AND THE BANKS HEREBY AGREE THAT THE
CURRENT A&R FACILITIES AGREEMENT AND THE OTHER FACILITIES PAPERS TOGETHER
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
110
<PAGE> 123
EXECUTED as of the date first above written.
HARBOR FINANCIAL MORTGAGE CORPORATION
By: /s/ Richard J. Gillen
------------------------------------
Richard J. Gillen, President
NEW AMERICA FINANCIAL, INC.
By: /s/ Richard J. Gillen
------------------------------------
Richard J. Gillen,
Chairman of the Board
Guarantor Consent and Agreements. Guarantor hereby joins in this
12/97 A&R Facilities Agreement to evidence Guarantor's consent to execution by
the Obligors of this 12/97 A&R Facilities Agreement and the other Facilities
Papers contemplated by it and performance of their obligations under it, to
confirm that the Guaranty and the Stock Pledge Agreement each applies and shall
continue to apply to the Notes and this 12/97 Facilities Agreement, to agree to
do whatever is required to enable the Obligors to comply with the provisions of
its Sections 9.3(c), 9.3(d), 9.3(l), 6.6(a), 6.6(a) and 9.3(m) and to
acknowledge that without such consent, confirmation and agreement, neither the
Banks nor the Agent would enter into this 12/97 A&R Facilities Agreement with
the Obligors.
HARBOR FINANCIAL GROUP, INC.
By: /s/ Richard J. Gillen
-------------------------------
Name: Richard J. Gillen
-------------------------------
Title: President
------------------------------
[intentionally unnumbered signature page]
<PAGE> 124
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as the Agent and a Bank
By: /s/ Cynthia E. Crites
--------------------------------
Name: Cynthia E. Crites
Title: Vice President
[intentionally unnumbered Bank signature page]
<PAGE> 125
BANK ONE, TEXAS, N.A.
By: /s/ Brian J. Hilberth
--------------------------------
Name: Brian J. Hilberth
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 126
BANK OF SCOTLAND
By: /s/ Annie Chin Tat
--------------------------------
Name: Annie Chin Tat
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 127
THE BANK OF NEW YORK
By: /s/ Robet A. Tweed
--------------------------------
Name: Robet A. Tweed
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 128
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ Gregory W. Jackson
--------------------------------
Name: Gregory W. Jackson
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 129
HIBERNIA NATIONAL BANK
By: /s/ Stephanie M. Freeman
--------------------------------
Name: Stephanie M. Freeman
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 130
PNC BANK KENTUCKY, INC.
By: /s/ Sloane Graff
--------------------------------
Name: Sloane Graff
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 131
COMERICA BANK
By: /s/ N. Donald Heath
--------------------------------
Name: N. Donald Heath
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 132
BANK UNITED
By: /s/ Deborah A. Borque
--------------------------------
Name: Deborah A. Borque
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 133
FLEET BANK N.A.
By: /s/ Kevin J. Batterton
--------------------------------
Name: Kevin J. Batterton
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 134
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Gary Sieveking
--------------------------------
Name: Gary Sieveking
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 135
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Ann H. Chudacoff
--------------------------------
Name: Ann H. Chudacoff
-------------------------------
Title: Vice President
------------------------------
[intentionally unnumbered Bank signature page]
<PAGE> 136
ATTACHED:
Commitments Schedule
Exhibit A - form of Current Warehouse Note
Exhibit B-1 - [Wet Warehousing] [Warehouse] Loan Request form
Exhibit B-2 - Second-Lien Loan Request form
Exhibit B-3 - P&I Loan Request form
Exhibit B-4 - T&I Loan Request form
Exhibit B-5 - VA/FHA/PMI Foreclosure Receivables Loan Request form
Exhibit B-6 - Repurchased Defaulted Mortgages Loan Request form
Exhibit B-7 - Foreclosed Properties Loan Request form
Exhibit B-8 - Servicing Acquisition Loan Request form
Exhibit B-9 - Subprime Mortgage Loan Request
Exhibit C - Offer to Sell Mortgage Pools
Exhibit D - form of Current Servicing Acquisition Note
Exhibit E - form of Opinion of Counsel
Exhibit F - form of Compliance Certificate
Exhibit G - forms of Bailee Letters
Schedule 1 - List of Qualified Investors
Schedule 2 - form of Standard Financial Statements
Schedule 3 - form of management report
Schedule 4 - Persons authorized to issue Obligor Orders
Schedule 5 - FirstCity Financial Corporation's subordinated line of credit
agreement
Schedule 6 - Obligors' current credit grade matrix
<PAGE> 137
COMMITMENTS SCHEDULE TO 12/97 A&R FACILITIES AGREEMENT
The Banks' Commitments from and after the effective date of this
Commitments Schedule and until it shall have been superseded (or amended and
restated) by a more recent Commitments Schedule in accordance with the 12/97
Amended and Restated Facilities Agreement (as it may have been supplemented,
amended or restated) of which this Commitments Schedule is a part, each
Facility and the sums of such Commitments, by Bank, are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
WAREHOUSE WET WET RECEIVABLES
WAREHOUSE BANK LINE SWING WAREHOUSING WAREHOUSING SECOND LIEN ADVANCES
COMMITTED SUBLIMIT SUBLIMIT(1) SUBLIMIT(2) SUBLIMIT SUBLIMIT
SUMS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas Commerce Bank $60,000,000 $67,500,000 $15,000,000 $9,000,000 $3,000,000 $4,500,000
National Association
- ------------------------------------------------------------------------------------------------------------------------------
Bank One, Texas, N.A. $50,000,000 $ 0 $12,500,000 $7,500,000 $2,500,000 $3,750,000
- ------------------------------------------------------------------------------------------------------------------------------
Bank of Scotland $45,000,000 $ 0 $11,250,000 $6,750,000 $2,250,000 $3,375,000
- ------------------------------------------------------------------------------------------------------------------------------
The Bank of New York $40,000,000 $ 0 $10,000,000 $6,000,000 $2,000,000 $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Guaranty Federal Bank, $40,000,000 $ 0 $10,000,000 $6,000,000 $2,000,000 $3,000,000
F.S.B.
- ------------------------------------------------------------------------------------------------------------------------------
Hibernia National Bank $40,000,000 $ 0 $10,000,000 $6,000,000 $2,000,000 $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------
PNC Bank Kentucky, Inc. $40,000,000 $ 0 $10,000,000 $6,000,000 $2,000,000 $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Comerica Bank $40,000,000 $ 0 $10,000,000 $6,000,000 $2,000,000 $3,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Bank United $30,000,000 $ 0 $7,500,000 $4,500,000 $1,500,000 $2,250,000
- ------------------------------------------------------------------------------------------------------------------------------
Fleet Bank N.A. $25,000,000 $ 0 $6,250,000 $3,750,000 $1,250,000 $1,875,000
- ------------------------------------------------------------------------------------------------------------------------------
National City Bank of $20,000,000 $ 0 $5,000,000 $3,000,000 $1,000,000 $1,500,000
Kentucky
- ------------------------------------------------------------------------------------------------------------------------------
The First National Bank $20,000,000 $ 0 $5,000,000 $3,000,000 $1,000,000 $1,500,000
of Chicago
- ------------------------------------------------------------------------------------------------------------------------------
TOTALS $450,000,000 $67,500,000 $112,500,000 $67,500,000 $22,500,000 $33,750,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) during first and last 5 Business Days
(2) during remainder of calendar month
<PAGE> 138
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
VA/FHA/PMI REPURCHASED
FORECLOSURE DEFAULTED FORECLOSED SUBPRIME
WAREHOUSE BANK P&I SUB- T&I SUB- RECEIVABLES MORTGAGES PROPERTIES MORTGAGES
SUBLIMIT SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUBLIMIT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas Commerce Bank $1,500,000 $1,500,000 $1,800,000 $600,000 $600,000 $12,000,000
National Association
- ------------------------------------------------------------------------------------------------------------------------------
Bank One, Texas, N.A. $1,250,000 $1,250,000 $1,500,000 $500,000 $500,000 $10,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Bank of Scotland $1,125,000 $1,125,000 $1,350,000 $450,000 $450,000 $9,000,000
- ------------------------------------------------------------------------------------------------------------------------------
The Bank of New York $1,000,000 $1,000,000 $1,200,000 $400,000 $400,000 $8,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Guaranty Federal Bank, $1,000,000 $1,000,000 $1,200,000 $400,000 $400,000 $8,000,000
F.S.B.
- ------------------------------------------------------------------------------------------------------------------------------
Hibernia National Bank $1,000,000 $1,000,000 $1,200,000 $400,000 $400,000 $8,000,000
- ------------------------------------------------------------------------------------------------------------------------------
PNC Bank Kentucky, Inc. $1,000,000 $1,000,000 $1,200,000 $400,000 $400,000 $8,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Comerica Bank $1,000,000 $1,000,000 $1,200,000 $400,000 $400,000 $8,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Bank United $750,000 $750,000 $900,000 $300,000 $300,000 $6,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Fleet Bank N.A. $625,000 $625,000 $750,000 $250,000 $250,000 $5,000,000
- ------------------------------------------------------------------------------------------------------------------------------
National City Bank of $500,000 $500,000 $600,000 $200,000 $200,000 $4,000,000
Kentucky
- ------------------------------------------------------------------------------------------------------------------------------
The First National Bank $500,000 $500,000 $600,000 $200,000 $200,000 $4,000,000
of Chicago
- ------------------------------------------------------------------------------------------------------------------------------
TOTALS $11,250,000 $11,250,000 $13,500,000 $4,500,000 $4,500,000 $90,000,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Warehouse Bank Mortgages
Purchase Limit
------------------------------------------------------------------------------
<S> <C>
Texas Commerce Bank National Association $26,666,667
------------------------------------------------------------------------------
Bank One, Texas, N.A. $22,222,222
------------------------------------------------------------------------------
Bank of Scotland $20,000,000
------------------------------------------------------------------------------
The Bank of New York $17,777,778
------------------------------------------------------------------------------
Guaranty Federal Bank, F.S.B. $17,777,778
------------------------------------------------------------------------------
Hibernia National Bank $17,777,778
------------------------------------------------------------------------------
PNC Bank Kentucky, Inc. $17,777,778
------------------------------------------------------------------------------
Comerica Bank $17,777,778
------------------------------------------------------------------------------
Bank United $13,333,333
------------------------------------------------------------------------------
Fleet Bank N.A. $11,111,111
------------------------------------------------------------------------------
National City Bank of Kentucky $8,888,889
------------------------------------------------------------------------------
The First National Bank of Chicago $8,888,889
------------------------------------------------------------------------------
TOTAL $200,000,000
------------------------------------------------------------------------------
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Servicing Acquisition Bank Servicing
Acquisition Line
Committed Sums
-----------------------------------------------------------------------
<S> <C>
Texas Commerce Bank National Association $6,000,000
-----------------------------------------------------------------------
Bank One, Texas, N.A. $5,000,000
-----------------------------------------------------------------------
Bank of Scotland $4,500,000
-----------------------------------------------------------------------
The Bank of New York $4,000,000
-----------------------------------------------------------------------
Guaranty Federal Bank, F.S.B. $4,000,000
-----------------------------------------------------------------------
Hibernia National Bank $4,000,000
-----------------------------------------------------------------------
PNC Bank Kentucky, Inc. $4,000,000
-----------------------------------------------------------------------
Comerica Bank $4,000,000
-----------------------------------------------------------------------
Bank United $3,000,000
-----------------------------------------------------------------------
Fleet Bank N.A. $2,500,000
-----------------------------------------------------------------------
National City Bank of Kentucky $2,000,000
-----------------------------------------------------------------------
The First National Bank of Chicago $2,000,000
-----------------------------------------------------------------------
TOTAL $45,000,000
-----------------------------------------------------------------------
</TABLE>
Effective date of this Commitments Schedule: December 3, 1997
<PAGE> 141
This Commitments Schedule is executed (in counterparts) by the
undersigned Banks, who are currently all of the Banks under the Current
Facilities Agreement, to be effective as of the date last above written.
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
as the Agent and a Bank
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 142
BANK ONE, TEXAS, N.A.
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 143
BANK OF SCOTLAND
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 144
THE BANK OF NEW YORK
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 145
GUARANTY FEDERAL BANK, F.S.B.
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 146
HIBERNIA NATIONAL BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 147
PNC BANK KENTUCKY, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 148
COMERICA BANK
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 149
BANK UNITED
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 150
FLEET BANK N.A.
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 151
NATIONAL CITY BANK OF KENTUCKY
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 152
THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________________
Name:___________________________________
Title:__________________________________
[intentionally unnumbered Bank signature page
for December 3, 1997 Commitments Schedule]
<PAGE> 153
The Banks' respective addresses for notices and their telephone and
telecopy numbers are as shown on the attached Addresses Annex to this
Commitments Schedule.
<PAGE> 154
ADDRESSES ANNEX TO COMMITMENTS SCHEDULE
DATED DECEMBER 3, 1997
<TABLE>
<S> <C>
Bank One, Texas N.A. PNC Bank Kentucky, Inc.
1717 Main Street, 3rd Floor 500 West Jefferson St., Suite 1200
Dallas, Texas 75201 Louisville, Kentucky 40202
Attn: Mr. Brian Hilberth Attn: Mr. Sloane Graff
Telephone: (214) 290-3162 Telephone: (502) 581-4607
Telecopy: (214) 290-2054 Telecopy: (502) 581-3844
Bank of Scotland Comerica Bank
1200 Smith Street One Detroit Center
1750 Two Allen Center 500 Woodward
Houston, Texas 77002 Detroit, Michigan 48226-3256
Attn: Mr. Richard Butler Attn: Mr. N. Donald Heath
Telephone: (713) 651-1870 Telephone: (313) 222-5740
Telecopy: (713) 651-9714 Telecopy: (313) 222-9295
The Bank of New York Bank United
One Wall Street, 17th Floor 3200 Southwest Freeway, Suite 1325
New York, New York 10286 Houston, Texas 77027
Attn: Mr. Robert A. Tweed Attn: Ms. Debbie Bourque
Telephone: (212) 635-6465 Telephone: (713) 543-6397
Telecopy: (212) 635-6468 Telecopy: (713) 543-6022
Guaranty Federal Bank, F.S.B. Fleet Bank N.A.
8333 Douglas Avenue Mortgage Banking Dept. 16th Floor
Dallas, Texas 75225 1185 Avenue of the Americas
Attn: Mr. Chad Patton New York, New York 10036
Telephone: (214) 360-1675 Attn: Mr. Bob Klein
Telecopy: (214) 360-1660 Telephone: (212) 819-6079
Telecopy: (212) 819-6207
Hibernia National Bank
313 Carondelet Street National City Bank
New Orleans, Louisiana 70130 421 West Market Street
Attn: Ms. Stephanie Freeman Louisville, Kentucky 40202
Telephone: (504) 533-3345 Attn: Mr. Gary W. Sieveking
Telecopy: (504) 533-5344 Telephone: (502) 581-7660
Telecopy: (502) 581-4154
</TABLE>
<PAGE> 155
The First National Bank of Chicago
One First National Plaza, Suite 0098
Chicago, Illinois 60670
Attn: Mr. Bill Sholten
Telephone: (312) 732-4600
Telecopy: (312) 732-6222
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Ms. Cynthia Crites
Telephone: (713) 216-7702
Telecopy: (713) 216-2082
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Ms. Audrey Mather
Telephone: (713) 216-4476
Telecopy: (713) 216-2082
Texas Commerce Bank National Association
Mortgage Warehouse Operations - Houston
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Ms. Kristen Sebright
Telephone: (281) 775-5391
Telecopy: (281) 775-5449
Mr. Richard A. Gillen, President
Harbor Financial Mortgage Corp.
340 Sam Houston Parkway East, Suite 100
Houston, Texas 77060
Telephone: (713) 931-1771
Telecopy: (713) 931-7013
<PAGE> 156
EXHIBIT A TO 12/97 A&R FACILITIES AGREEMENT
(The "12/97 Master Warehouse Note")
$_________________________ HOUSTON, TEXAS DECEMBER 3, 1997
FOR VALUE RECEIVED, HARBOR FINANCIAL MORTGAGE CORPORATION (a Texas
corporation) and NEW AMERICA FINANCIAL, INC. (a Texas corporation)
(collectively, "Makers"), jointly and severally, promise to pay to the order of
___________________ _____________________________________________________
("Payee"), a _____________________________________________, at the 712 Main
Street branch of Texas Commerce Bank National Association ("TCB"), a national
banking association, in the City of Houston, Harris County, Texas, or at such
other place in Harris County, Texas, as the holder ("Holder", whether or not
Payee is such holder) of this note may hereafter designate in writing, in
immediately available funds and in lawful money of the United States of
America, the principal sum of
_____________________________________________________________
______________________ Dollars ($________________________) (or the unpaid
balance of all principal advanced against this note, if that amount is less),
together with interest on the unpaid principal balance of this note from time
to time outstanding until maturity at the applicable Stated Rate or at such
lesser rate, if any, as Holder shall from time to time elect to be applicable
in Holder's sole and absolute discretion, and interest on all past due amounts,
both principal and accrued interest, at the Past Due Rate; provided, that for
the full term of this note the interest rate produced by the aggregate of all
sums paid or agreed to be paid to Holder for the use, forbearance or detention
of the debt evidenced hereby shall not exceed the Ceiling Rate.
1. Definitions. All capitalized terms used in this note that are
defined in the Current Facilities Agreement (defined below) and not defined
differently in this note have the same meanings herein as therein.
2. Rates Change Automatically and Without Notice. Without notice
to Makers or any other Person and to the full extent allowed by applicable Law
from time to time in effect, the Adjusted LIBOR Rate, (only if there is a
change in an applicable Eurodollar Reserve Requirement) the Eurodollar Rate and
the Ceiling Rate shall each automatically fluctuate upward and downward as and
in the amount by which the Adjusted LIBOR Rate, (only if there is a change in
an applicable Eurodollar Reserve Requirement) the Eurodollar Rate and such
maximum nonusurious rate of interest permitted by applicable Law, respectively,
fluctuate.
3. Calculation of Interest. Interest on the amount of each
advance against this note shall be computed as provided in Section 2.6 of the
Current Facilities Agreement.
4. Excess Interest Will be Refunded or Credited. If, for any
reason whatever, the interest paid or received on this note during its full
term produces a rate which exceeds the Ceiling Rate, Holder shall refund to the
payor or, at Holder's option, credit against the principal of this note such
Page 1 of 5 Pages
<PAGE> 157
portion of said interest as shall be necessary to cause the interest paid on
this note to produce a rate equal to the Ceiling Rate.
5. Interest Will be Spread. All sums paid or agreed to be paid
to Holder for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of this
note, so that the interest rate is uniform throughout the full term of this
note.
6. Payment Schedule. All principal of this note and all accrued
interest then unpaid shall be due and payable on demand made at any time after
either (a) the occurrence of any Default under this note, the Current
Facilities Agreement or any other Facilities Papers (unless the Agent shall
have declared in writing that such Default has been cured or waived) or (b) the
termination date specified in any written notice (the "Termination Notice")
from the Agent to Makers, indicating the election of the Warehouse Banks to
terminate the Warehouse Line, borrowings under which from Payee are evidenced
by this note and specifying a termination date at least ninety (90) days after
the date of such Termination Notice. If no such demand is sooner made, then
all principal shall be payable as provided in Sections 2.9 and 2.16 of the
Current Facilities Agreement and all advanced and unpaid principal and all
accrued and unpaid interest shall be finally due and payable as provided in
Section 2.7 of the Current Facilities Agreement. Before maturity of this note,
unpaid interest accrued on this note shall be payable as provided in Section
2.6 of the Current Facilities Agreement. All such scheduled payments shall be
applied first to accrued interest and the balance (if any) shall be applied to
principal.
7. Prepayment. Makers may at any time pay the full amount or any
part of this note as provided in Section 2.8 of the Current Facilities
Agreement. All prepayments shall be applied first to accrued interest, the
balance to principal. Any prepayment identified in a writing delivered to
Payee concurrently with it as relating to any particular mortgage note (a
"Mortgage Note") pledged to secure the Current Warehouse Notes shall be applied
first on the Loans advanced by the Warehouse Banks to a Maker for that Maker to
use to fund or to purchase such Mortgage Note.
8. Revolving Credit. Upon and subject to the terms and
conditions of the Current Facilities Agreement, Makers may borrow, repay and
reborrow at any time unless and until a Default has occurred under this note,
the Current Facilities Agreement or any other Facilities Papers, which the
Agent has not declared to have been fully cured or waived. The unpaid
principal balance of this note at any time shall be the total of all principal
lent or advanced against this note less the sum of all principal payments and
permitted or required prepayments made on this note by or for the account of
Makers. Absent manifest error, Holder's computer records shall on any day
conclusively evidence the unpaid balance of this note and its advances and
payments history posted up to that day. All Warehouse Loans and all payments
and permitted or required prepayments made hereon may be (but are not required
to be) endorsed by Holder on the schedule that is attached hereto (which is
hereby made a part hereof for all purposes) or otherwise recorded in Holder's
computer or manual records; provided, that any failure to make notation of (a)
any principal advance or accrual of interest shall not cancel, limit or
otherwise affect Makers' obligations or Holder's rights with respect to that
advance or accrual, or (b) any payment or permitted or required prepayment of
principal or interest shall not
Page 2 of 5 Pages
<PAGE> 158
cancel, limit or otherwise affect Makers' entitlement to credit for that
payment as of the date of its receipt by Holder. Makers and Payee expressly
agree, pursuant to Chapter 346 ("Chapter 346") of the Texas Finance Code, that
Chapter 346 (which relates to open-end line of credit revolving loan accounts)
shall not apply to this note or to any loan evidenced by this note and that
neither this note nor any such loan shall be governed by Chapter 346 or subject
to its provisions in any manner whatsoever.
9. The Current Facilities Agreement, this Note and its Security.
This note is one of the "12/97 Master Warehouse Notes" referred to and that
have been issued pursuant to the terms of the 12/97 Amended and Restated
Facilities Agreement dated effective as of December 3, 1997, among Makers,
Texas Commerce Bank National Association as a "Bank," a "Warehouse Bank," a
"Servicing Acquisition Bank" and as agent (the "Agent") for Payee and the other
Warehouse Banks and Servicing Acquisition Banks, and they renew, extend,
increase, extend and rearrange (but do not extinguish) the 1/97 Warehouse Notes
dated January 31, 1997 previously issued pursuant to, and that are described or
referred to in, the 1/97 Amended and Restated Facilities Agreement dated as of
January 31, 1997 (as heretofore amended) among Makers, Texas Commerce Bank
National Association and the other Banks party thereto. As the 12/97 Amended
and Restated Facilities Agreement has been and may hereafter be amended,
restated, modified or supplemented from time to time, it is called the "Current
Facilities Agreement". Reference to the Current Facilities Agreement is here
made for all purposes. Loans against this note by Payee or any other Holder
shall be governed by the Current Facilities Agreement. Holder is entitled to
the benefits of and security provided for or referred to in the Current
Facilities Agreement or the other Facilities Papers. Such security includes,
among other security, (a) a first lien security interest in all of Maker's
Mortgage Loans or Qualified Mortgage Loans, as applicable, now or hereafter
pledged to Agent, as agent and representative of the Banks, pursuant to the
Current Facilities Agreement (including relating to the Mortgage Pools Purchase
Agreement) and in all of the Collateral covered by (1) the Warehouse Pledge
Agreement, (2) the Receivables Pledge Agreement and (3) all mortgages, deeds of
trust, deeds to secure debt or other forms of mortgage instruments that are
intended to grant a Lien against real property now or hereafter held by Agent,
as agent and representative of the Banks, as mortgagee; (b) a second lien
security interest (second only to the first lien security interest granted to
the Servicing Acquisition Banks) in all of the Collateral covered by the
Servicing Rights Security Agreement, and (c) on a pari passu basis, a security
interest in all other Collateral, to Ratably secure all of the Makers' present
and future Obligations to the Warehouse Banks under the Current Facilities
Agreement. All debt now or hereafter evidenced by this note, as well as all of
Makers' other debt or other obligations now or hereafter owned or held by
Holder, is intended to be secured by all security for any such debt, whether or
not the security instrument covering and affecting such security refers to this
or any other note evidencing or to evidence such debt.
10. Defaults and Remedies. Any Default shall constitute default
under this note, whereupon the Agent may elect to exercise any or all rights,
powers and remedies afforded (a) under the Current Facilities Agreement and all
other Facilities Papers and (b) by Law, including the right to accelerate the
maturity of this entire note.
Page 3 of 5 Pages
<PAGE> 159
11. Legal Costs. If any Holder retains an attorney in connection
with any such default or to collect, enforce or defend this note or any other
Facilities Papers in any lawsuit or in any probate, reorganization, bankruptcy
or other proceeding, or if Makers sue any Holder in connection with this note
or any such Facilities Papers and do not prevail, then Makers agree to pay to
each such Holder, in addition to principal and interest, all reasonable costs
and expenses incurred by such Holder in trying to collect this note or in any
such suit or proceeding, including reasonable attorneys' fees. An amount equal
to ten percent (10%) of the unpaid principal and accrued interest owing on this
note when and if this note is placed in the hands of an attorney for collection
after default is stipulated to be reasonable attorneys' fees unless a Holder or
any Maker of this note timely pleads otherwise to a court of competent
jurisdiction.
12. Waivers. Makers and any and all co-makers, endorsers,
guarantors and sureties severally waive notice (including, but not limited to,
notice of intent to accelerate and notice of acceleration, notice of protest
and notice of dishonor), demand, presentment for payment, protest, diligence in
collecting and the filing of suit for the purpose of fixing liability and
consent that the time of payment hereof may be extended and re-extended from
time to time without notice to any of them. Each such Person agrees that his,
her or its liability on or with respect to this note shall not be affected by
any release of or change in any guaranty or security at any time existing or by
any failure to perfect or maintain perfection of any Lien against or security
interest in any such security or the partial or complete unenforceability of
any guaranty or other surety obligation, in each case in whole or in part, with
or without notice and before or after maturity.
13. Not Purpose Credit. None of the proceeds of this note shall
ever be used, directly or indirectly, for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System or for the purpose of reducing or retiring any debt
which was originally incurred to purchase or carry any "margin stock" or to
extend credit to others for the purpose of purchasing or carrying any "margin
stock" or which would constitute this transaction a "purpose credit" within the
meaning of Regulation U, as now or hereafter in effect.
14. Governing Law, Jurisdiction and Venue. This note shall be
governed by and construed in accordance with the laws of the State of Texas and
the United States of America from time to time in effect. Makers and all
co-makers, endorsers, guarantors and sureties each hereby irrevocably submits
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of Texas and the state district courts of Harris County,
Texas, for purposes of all legal proceedings arising out of or relating to this
note, the debt evidenced hereby or any loan agreement, security agreement,
guaranty or other papers or agreements relating to this note. To the fullest
extent permitted by law, Makers and all co-makers, endorsers, guarantors and
sureties each irrevocably waives any objection which he, she or it may now or
hereafter have to the laying of venue for any such proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum and agrees that service of process may be made
upon him, her or it in any such proceeding by registered or certified mail.
Harris County, Texas shall be a proper place of venue for suit hereon.
Page 4 of 5 Pages
<PAGE> 160
15. General Purpose of Loan. Makers warrant and represent to
Payee and all other Holders that all Loans evidenced by this note are and will
be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter 1D or in the Texas Finance Code.
16. Participations. Payee and each other Holder reserves the
right, exercisable in his, her or its sole discretion and without notice to any
of Makers or any other Person, to sell participations in all or any part of
this note or the debt evidenced by this note.
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Richard J. Gillen
President
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Richard J. Gillen
Chairman of the Board
Page 5 of 5 Pages
<PAGE> 161
ANNEX 1
to $_____________________
Harbor Financial Mortgage Corporation
and New America Financial, Inc.
12/97 Master Warehouse Note
to ____________________________________________________________
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Payment Applied
Date of Payment on (or advance vs.) Payment Applied Name of Person
or Advance Principal on Interest Principal Balance Interest Paid to Making Notation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 162
EXHIBIT B-1 TO 12/97 A&R FACILITIES AGREEMENT
[WET WAREHOUSING] [WAREHOUSE] LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a [WET
WAREHOUSING] [WAREHOUSE] Loan in the amount of $_____________________ to be
made on ________________________, 19___ (or, if that is not a Business Day, on
the next day that is). [USE THIS NEXT SENTENCE IN A REQUEST FOR A WET
WAREHOUSING LOAN:] The amount of the Wet Warehousing Loan is (a) not more than
the aggregate Warehouse Loan Values of the Wet Mortgage Loans (the "Subject
Eligible Mortgages") that are described on the Schedule of Wet Mortgage Loans
Pledged attached to this Loan Request, (b) not more than the difference between
(i) the Wet Warehousing Sublimit and (ii) the outstanding amount of all
existing Wet Warehousing Loans, and (c) not more than the difference between
(i) the maximum credit available under the Warehouse Line (including its Wet
Warehousing Subline) as specified in the Current Facilities Agreement and (ii)
the aggregate outstanding principal balance of the Current Warehouse Notes.
[USE THE NEXT SENTENCE IN A REQUEST FOR A WAREHOUSE LOAN.] The amount of the
Warehouse Loan is (a) not more than the aggregate Warehouse Loan Values of the
Eligible Mortgages (the "Subject Eligible Mortgages") that are described on the
Schedule of Eligible Mortgages Pledged attached to this Loan Request and (b)
not more than the difference between (i) the maximum credit available under the
Warehouse Line as specified in the Current Facilities Agreement and (ii) the
outstanding aggregate principal balance of the Current Warehouse Notes. If the
requested [WET WAREHOUSING] [WAREHOUSE] Loan is funded,
<PAGE> 163
[NEITHER THE WET WAREHOUSING SUBLIMIT NOR THE LINKED LINES LIMIT WILL
BE EXCEEDED][THE LINKED LINES LIMIT WILL NOT BE EXCEEDED].
The Subject Eligible Mortgages are intended to be pledged to the
Agent, the Agent is hereby GRANTED a security interest in them and they are
hereby made subject to the Warehouse Pledge Agreement, effective immediately.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested [WET WAREHOUSING][WAREHOUSE] Loan:
A. Current [WET WAREHOUSING][WAREHOUSE] Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option:
___________________, ______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the [WET WAREHOUSING] [WAREHOUSE] Loan should be deposited in the Company's
account number __________________ with TCB.
2
<PAGE> 164
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the [WET WAREHOUSING] [WAREHOUSE] Loan should be deposited in the New Am
Inc.'s account number __________________ with TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested [WET WAREHOUSING] [WAREHOUSE]
Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of [WET MORTGAGE LOANS][ELIGIBLE MORTGAGES] Pledged
3
<PAGE> 165
EXHIBIT B-2 TO 12/97 A&R FACILITIES AGREEMENT
SECOND-LIEN LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a
Second-Lien Loan in the amount of $_____________________ to be made on
________________________, 19___ (or, if that is not a Business Day, on the next
day that is). The amount of the Second-Lien Loan is (a) not more than the
aggregate Warehouse Loan Values of the Eligible Mortgages (the "Subject
Eligible Mortgages") that are described on the Schedule of Eligible Mortgages
Pledged attached to this Loan Request, (b) not more than the difference between
(i) the Second-Lien Sublimit and (ii) the outstanding amount of all existing
Second-Lien Loans, and (c) not more than the difference between (i) the maximum
credit available under the Warehouse Line (including its Second-Lien Subline)
as specified in the Current Facilities Agreement and (ii) the aggregate
outstanding principal balance of the Current Warehouse Notes. If the requested
Second-Lien Loan is funded, neither the Second-Lien Sublimit nor the Linked
Lines Limit will be exceeded.
The Subject Eligible Mortgages are intended to be pledged to the
Agent, the Agent is hereby GRANTED a security interest in them and they are
hereby made subject to the Warehouse Pledge Agreement, effective immediately.
1
<PAGE> 166
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested Second-Lien Loan:
A. Current Second-Lien Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option:
___________________, ______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the Second-Lien Loan should be deposited in the Company's account number
__________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the Second-Lien Loan should be deposited in the New Am Inc.'s account number
__________________ with TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
2
<PAGE> 167
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested Second-Lien Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Mortgages Pledged
3
<PAGE> 168
EXHIBIT B-3 TO 12/97 A&R FACILITIES AGREEMENT
P&I LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a P&I Loan
in the amount of $_____________________ to be made on ________________________,
19___ (or, if that is not a Business Day, on the next day that is). The amount
of the P&I Loan is (a) not more than the aggregate Receivables Loan Values of
the Eligible Receivables (the "Subject Eligible Receivables") that are
described on the Schedule of Eligible Receivables Pledged attached to this Loan
Request, (b) not more than the difference between (i) the P&I Sublimit and (ii)
the outstanding amount of all existing P&I Loans, (c) not more than the
difference between (i) the maximum credit available under the Receivables
Advances Subline (including its P&I Sub-subline) as specified in the Current
Facilities Agreement and (ii) the outstanding amount of all existing
Receivables Advances Loans, and (d) not more than the difference between (i)
the maximum credit available under the Warehouse Line (including its
Receivables Advances Subline) as specified in the Current Facilities Agreement
and (ii) the aggregate outstanding principal balance of the Current Warehouse
Notes. If the requested P&I Loan is funded, none of the P&I Sublimit, the
Receivables Advances Sublimit or the Linked Lines Limit will be exceeded.
1
<PAGE> 169
The Subject Eligible Receivables are intended to be pledged to the
Agent, the Agent is hereby GRANTED a security interest in them and they are
hereby made subject to the Receivables Pledge Agreement, effective immediately.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested P&I Loan:
A. Current P&I Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option:
___________________, ______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the P&I Loan should be deposited in the Company's account number
__________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the P&I Loan should be deposited in the New Am Inc.'s account number
__________________ with TCB.
2
<PAGE> 170
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested P&I Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Receivables Pledged
3
<PAGE> 171
EXHIBIT B-4 TO 12/97 A&R FACILITIES AGREEMENT
T&I LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a T&I Loan
in the amount of $_____________________ to be made on ________________________,
19___ (or, if that is not a Business Day, on the next day that is). The amount
of the T&I Loan is (a) not more than the aggregate Receivables Loan Values of
the Eligible Receivables (the "Subject Eligible Receivables") that are
described on the Schedule of Eligible Receivables Pledged attached to this Loan
Request, (b) not more than the difference between (i) the T&I Sublimit and (ii)
the outstanding amount of all existing T&I Loans, (c) not more than the
difference between (i) the maximum credit available under the Receivables
Advances Subline (including its T&I Sub-subline) as specified in the Current
Facilities Agreement and (ii) the outstanding amount of all existing
Receivables Advances Loans, and (d) not more than the difference between (i)
the maximum credit available under the Warehouse Line (including its
Receivables Advances Subline) as specified in the Current Facilities Agreement
and (ii) the aggregate outstanding principal balance of the Current Warehouse
Notes. If the requested T&I Loan is funded, none of the T&I Sublimit, the
Receivables Advances Sublimit or the Linked Lines Limit will be exceeded.
1
<PAGE> 172
The Subject Eligible Receivables are intended to be pledged to the
Agent, the Agent is hereby GRANTED a security interest in them and they are
hereby made subject to the Receivables Pledge Agreement, effective immediately.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested T&I Loan:
A. Current T&I Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option:
___________________, ______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the T&I Loan should be deposited in the Company's account number
__________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the T&I Loan should be deposited in the New Am Inc.'s account number
__________________ with TCB.
2
<PAGE> 173
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested T&I Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Receivables Pledged
3
<PAGE> 174
EXHIBIT B-5 TO 12/97 A&R FACILITIES AGREEMENT
VA/FHA/PMI FORECLOSURE RECEIVABLES LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a
VA/FHA/PMI Foreclosure Receivables Loan in the amount of $_____________________
to be made on ________________________, 19___ (or, if that is not a Business
Day, on the next day that is). The amount of the VA/FHA/PMI Foreclosure
Receivables Loan is (a) not more than the aggregate Receivables Loan Values of
the Eligible Receivables (the "Subject Eligible VA/FHA/PMI Foreclosure
Receivables") that are described on the Schedule of Eligible VA/FHA/PMI
Foreclosure Receivables attached to this Loan Request, (b) not more than the
difference between (i) the VA/FHA/PMI Foreclosure Receivables Sublimit and (ii)
the outstanding amount of all existing VA/FHA/PMI Foreclosure Receivables
Loans, (c) not more than the difference between (i) the maximum credit
available under the Receivables Advances Subline (including its VA/FHA/PMI
Foreclosure Receivables Sub-subline) as specified in the Current Facilities
Agreement and (ii) the outstanding amount of all existing Receivables Advances
Loans, and (d) not more than the difference between (i) the maximum credit
available under the Warehouse Line (including its Receivables Advances Subline)
as specified in the Current Facilities Agreement and (ii) the aggregate
outstanding principal balance of the Current Warehouse Notes. If the requested
VA/FHA/PMI Foreclosure Receivables Loan is funded, none of the VA/FHA/PMI
Foreclosure Receivables Sublimit, the Receivables Advances Sublimit or the
Linked Lines Limit will be exceeded.
1
<PAGE> 175
The Subject Eligible VA/FHA/PMI Foreclosure Receivables are intended
to be mortgaged to the Agent, the Agent is hereby GRANTED a security interest
in them and they are hereby made subject to the Receivables Pledge Agreement,
effective immediately.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested VA/FHA/PMI Foreclosure Receivables Loan:
A. Current VA/FHA/PMI Foreclosure Receivables Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option: ____________________,
______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the VA/FHA/PMI Foreclosure Receivables Loan should be deposited in the
Company's account number __________________ with TCB.
2
<PAGE> 176
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the VA/FHA/PMI Foreclosure Receivables Loan should be deposited in the New
Am Inc.'s account number __________________ with TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested VA/FHA/PMI Foreclosure
Receivables Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible VA/FHA/PMI Foreclosure Receivables
and documents required by Section 2.14
of the Current Facilities Agreement
3
<PAGE> 177
EXHIBIT B-6 TO 12/97 A&R FACILITIES AGREEMENT
REPURCHASED DEFAULTED MORTGAGES LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a
Repurchased Defaulted Mortgages Loan in the amount of $_____________________ to
be made on ________________________, 19___ (or, if that is not a Business Day,
on the next day that is). The amount of the Repurchased Defaulted Mortgages
Loan is (a) not more than the aggregate Receivables Loan Values of the Eligible
Repurchased Defaulted Mortgages (the "Subject Eligible Repurchased Defaulted
Mortgages") that are described on the Schedule of Eligible Repurchased
Defaulted Mortgages attached to this Loan Request, (b) not more than the
difference between (i) the Repurchased Defaulted Mortgages Sublimit and (ii)
the outstanding amount of all existing Repurchased Defaulted Mortgages Loans,
(c) not more than the difference between (i) the maximum credit available under
the Repurchased Defaulted Mortgages Sub-subline as specified in the Current
Facilities Agreement and (ii) the outstanding amount of all existing
Repurchased Defaulted Mortgages Loans, and (d) not more than the difference
between (i) the maximum credit available under the Warehouse Line (including
its Receivables Advances Subline) as specified in the Current Facilities
Agreement and (ii) the aggregate outstanding principal balance of the Current
Warehouse Notes. If the requested Repurchased Defaulted Mortgages Loan is
funded, none of the Repurchased Defaulted Mortgages Sublimit, the Receivables
Advances Sublimit or the Linked Lines Limit will be exceeded.
1
<PAGE> 178
The Subject Eligible Repurchased Defaulted Mortgages are intended to
be mortgaged to the Agent, the Agent is hereby GRANTED a security interest in
them and they are hereby made subject to the Receivables Pledge Agreement,
effective immediately.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested Repurchased Defaulted Mortgages Loan:
A. Current Repurchased Defaulted Mortgages Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option: ____________________,
______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the Repurchased Defaulted Mortgages Loan should be deposited in the
Company's account number __________________ with TCB.
2
<PAGE> 179
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The
proceeds of the Repurchased Defaulted Mortgages Loan should be
deposited in the New Am Inc.'s account number __________________ with
TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested Repurchased Defaulted
Mortgages Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Repurchased Defaulted Mortgages
and documents required by Section 2.14
of the Current Facilities Agreement
3
<PAGE> 180
EXHIBIT B-7 TO 12/97 A&R FACILITIES AGREEMENT
FORECLOSED PROPERTIES LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it may have been supplemented, amended and
restated, is called the "Current Facilities Agreement"). Any term defined in
the Current Facilities Agreement and used (but not redefined) in this Loan
Request shall have the meaning given to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a
Foreclosed Properties Loan in the amount of $_____________________ to be made
on ________________________, 19___ (or, if that is not a Business Day, on the
next day that is). The amount of the Foreclosed Properties Loan is (a) not
more than the aggregate Receivables Loan Values of the Eligible Receivables
(the "Subject Eligible Foreclosed Properties") that are described on the
Schedule of Eligible Foreclosed Properties attached to this Loan Request, (b)
not more than the difference between (i) the Foreclosed Properties Sublimit and
(ii) the outstanding amount of all existing Foreclosed Properties Loans, (c)
not more than the difference between (i) the maximum credit available under the
Receivables Advances Subline (including its Foreclosed Properties Sub-subline)
as specified in the Current Facilities Agreement and (ii) the outstanding
amount of all existing Receivables Advances Loans, and (d) not more than the
difference between (i) the maximum credit available under the Warehouse Line
(including its Receivables Advances Subline) as specified in the Current
Facilities Agreement and (ii) the aggregate outstanding principal balance of
the Current Warehouse Notes. If the requested Foreclosed Properties Loan is
funded, none of the Foreclosed Properties Sublimit, the Receivables Advances
Sublimit or the Linked Lines Limit will be exceeded.
1
<PAGE> 181
The Subject Eligible Foreclosed Properties are intended to be
mortgaged to the Agent, and they are hereby GRANTED to Stephen H. Field,
Trustee for the Agent's use and benefit, in trust to secure payment of all of
the Obligors' present and future debts and obligations to the Warehouse Banks
and the Agent.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested Foreclosed Properties Loan:
A. Current Foreclosed Properties Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option: ____________________,
______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the Foreclosed Properties Loan should be deposited in the Company's account
number __________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the Foreclosed Properties Loan should be deposited in the New Am Inc.'s
account number __________________ with TCB.
2
<PAGE> 182
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested Foreclosed Properties Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Foreclosed Properties
and documents required by Section 2.14
of the Current Facilities Agreement
3
<PAGE> 183
EXHIBIT B-8 TO 12/97 A&R FACILITIES AGREEMENT
SERVICING ACQUISITION LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Servicing Acquisition Bank" and "Agent" (the "Agent"),
executed with the other Servicing Acquisition Banks named in it a 12/97 Amended
and Restated Facilities Agreement (the "12/97 A&R Facilities Agreement") dated
effective as of December 3, 1997 (which, as it may have been supplemented,
amended and restated, is called the "Current Facilities Agreement"). Any term
defined in the Current Facilities Agreement and used (but not redefined) in
this Loan Request shall have the meaning given to it in the Current Facilities
Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a
Servicing Acquisition Loan in the amount of $_____________________ to be made
on ________________________, 19___ (or, if that is not a Business Day, on the
next day that is). The amount of the Servicing Acquisition Loan is (a) not
more than the difference between (i) the Servicing Acquisition Limit and (ii)
the outstanding amount of all existing Servicing Acquisition Loans, and (b) not
more than the difference between (i) the maximum credit available under the
Servicing Acquisition Line as specified in the Current Facilities Agreement and
(ii) the aggregate outstanding principal balance of the Current Servicing
Acquisition Notes. If the requested Servicing Acquisition Loan is funded, the
Servicing Acquisition Limit will not be exceeded.
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested Servicing Acquisition Loan:
A. Current Servicing Acquisition Loan:
1. Current Type:
1
<PAGE> 184
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option: ____________________,
______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the Servicing Acquisition Loan should be deposited in the Company's account
number __________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the Servicing Acquisition Loan should be deposited in New Am Inc.'s account
number __________________ with TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers, including those covenants contained in
Sections 9.7 and 9.8 of the Current Facilities Agreement.
2
<PAGE> 185
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that
the Servicing Acquisition Banks and the Agent will rely on the truth
of each statement in this Loan Request in making and funding the
requested Servicing Acquisition Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
3
<PAGE> 186
EXHIBIT B-9 TO 12/97 A&R FACILITIES AGREEMENT
SUBPRIME MORTGAGES LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Texas Commerce Bank National Association, Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.") and Texas Commerce Bank National Association
("TCB"), as a "Bank", a "Warehouse Bank" and "Agent" (the "Agent"), executed
with the other Warehouse Banks named in it a 12/97 Amended and Restated
Facilities Agreement (the "12/97 A&R Facilities Agreement") dated effective as
of December 3, 1997 (which, as it has been amended and as it may be
supplemented, amended or restated from time to time, is called the "Current
Facilities Agreement"). Any term defined in the Current Facilities Agreement
and used (but not redefined) in this Loan Request shall have the meaning given
to it in the Current Facilities Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a Subprime
Mortgages Loan in the amount of $_____________________ to be made on
________________________, 19___ (or, if that is not a Business Day, on the next
day that is). The amount of the Subprime Mortgages Loan is (a) not more than
the aggregate Warehouse Loan Values of the Eligible Mortgages (the "Subject
Eligible Mortgages") that are described on the Schedule of Eligible Mortgages
Pledged attached to this Loan Request, (b) not more than the difference between
(i) the Subprime Mortgages Sublimit and (ii) the outstanding amount of all
existing Subprime Mortgage Loans, and (c) not more than the difference between
(i) the maximum credit available under the Warehouse Line (including its
Subprime Mortgages Subline) as specified in the Current Facilities Agreement
and (ii) the aggregate outstanding principal balance of the Current Warehouse
Notes. If the requested Subprime Mortgages Loan is funded, neither the
Subprime Mortgages Sublimit nor the Linked Lines Limit will be exceeded.
The Subject Eligible Mortgages are intended to be pledged to the
Agent, the Agent is hereby GRANTED a security interest in them and they are
hereby made subject to the Warehouse Pledge Agreement, effective immediately.
1
<PAGE> 187
In accordance with the Current Facilities Agreement, the undersigned
hereby notifies the Agent of the designation of an interest rate option for the
requested Subprime Mortgages Loan:
A. Current Subprime Mortgages Loan:
1. Current Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Expiration of current Interest Period, if applicable:
___________________________, ____________
B. Proposed Interest Rate Option:
1. Type:
[ ] Adjusted LIBOR Rate plus the Applicable Margin
[ ] Eurodollar Rate plus the Applicable Margin
2. Interest Period, if applicable
[ ] one month
[ ] two months
[ ] three months
3. Effective Date of Interest Rate Option: ____________________,
______
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the Subprime Mortgages Loan should be deposited in the Company's account
number __________________ with TCB.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the Subprime Mortgages Loan should be deposited in the New Am Inc.'s account
number __________________ with TCB.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Current
Facilities Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
2
<PAGE> 188
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that the
Warehouse Banks and the Agent will rely on the truth of each statement in this
Loan Request in making and funding the requested Subprime Mortgages Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments:
Schedule of Eligible Mortgages Pledged
3
<PAGE> 189
EXHIBIT C TO 12/97 A&R FACILITIES AGREEMENT
OFFER TO SELL MORTGAGE POOLS
Texas Commerce Bank National Association, Trade No.:__________________________
as Agent for the Warehouse Banks Pool No.:_____________________________
712 Main Street Pool Amount:____________________
Houston, Texas 77002
Attention: __________________________________________
Gentlemen:
Pursuant to the Mortgage Pools Purchase Agreement described in that
certain 12/97 Amended and Restated Facilities Agreement dated effective as of
December 3, 1997, (as supplemented, amended or restated from time to time, the
"Agreement") among Harbor Financial Mortgage Corporation (the "Company"), New
America Financial, Inc. ("New Am Inc.", and together with the Company,
collectively, the "Obligors" and either one of them, "Obligor"), Texas Commerce
Bank National Association, as one of the "Warehouse Banks" and "Servicing
Acquisition Banks" and as Agent for all of them (the "Agent") and the other
Warehouse Banks and Servicing Acquisition Banks named in the Agreement, the
Obligor executing this Offer to Sell Mortgage Pools letters (the "Offering
Obligor") hereby offers to sell to the Warehouse Banks the Pool of Qualified
Mortgage Loans described in the enclosed and (except for the Agent's
certification and signature blocks) completed:
[ ] GNMA Schedule of Pooled Mortgages (for a "GNMA")
[ ] FNMA Schedule of Mortgages (for an "FNMA Pool"),
[ ] FHLMC Mortgage Submission Schedule or Voucher and Warehouse
Delivery Form (for an "FHLMC Pool")
for a cash purchase price of $_______________, which is equal to ninety-nine
percent (99%) of the least of (i) the $_____________ actual amount funded by
the Offering Obligor on origination or purchase of such Qualified Mortgage
Loans; (ii) the $____________ purchase price to be paid by
_____________________ (the "Qualified Investor") pursuant to its confirmation
("Trade Ticket") entered into with the Offering Obligor on the ___________,
19___ trade date stated in the Trade Ticket, or (iii) the $__________ face
amounts of the promissory notes underlying such Qualified Mortgage Loan on such
schedule,
[ ] GNMA mortgage-backed securities ("MBS")
[ ] FNMA mortgage-backed securities ("MBS")
[ ] FHLMC mortgage Participation Certificates ("PC")
1
<PAGE> 190
on the ___________________, 19___ Settlement Date in the amount of
$_____________________ at the _______ % coupon and _____________________ price,
all as stated in that Trade Ticket. Also attached is a true copy of a
[ ] GNMA Commitment to Guarantee Mortgage-Backed Securities
[ ] FNMA
[ ] Mandatory Delivery Commitment for
[ ] FHA/VA fixed-rate first mortgages
[ ] FHA/VA graduated payment first mortgages
[ ] Conventional fixed-rate whole first mortgages
[ ] ARMs
[ ] Rate Lock Standby Commitment for
[ ] Fixed Rate Mortgages
[ ] ARM Mortgages
[ ] FHLMC Summary Agreement to Purchase Mortgages and to Sell
Mortgage Participation Certificates
(the "Commitment") under which the Offering Obligor hereby warrants to the
Agent that the Offering Obligor has and will reserve for this Offer an unused
commitment amount adequate to cover this Pool and under which, by providing
this Pool, the Offering Obligor has authority to acquire MBSs or PCs that will
satisfy the requirements of the Trade Ticket. Concurrently with this Offer,
the Offering Obligor is delivering to the Agent the documents, with all
necessary endorsements, required to qualify the Pool for GNMA initial
certification (or its FNMA MBS or FHLMC PC program equivalent, as appropriate).
The Agent is hereby designated custodian of the Pool documents if the Pool is a
GNMA Pool or FNMA Pool and is hereby authorized to send the documents to FHLMC
if the Pool is an FHLMC Pool. The Offering Obligor agrees to timely provide
all remaining documents required for unqualified GNMA final certification, FNMA
custodian certification or FHLMC settlement, as the case may be, and to timely
complete all other steps necessary to securitize the Pool, obtain the
GNMA-guaranteed MBSs, FNMA-guaranteed MBSs or the FHLMC-guaranteed PCs
(whichever the Trade Ticket describes), to timely satisfy all margin calls made
on the Offering Obligor under the Trade Ticket, to timely complete sale of such
MBSs or PCs to the Qualified Investor on the Settlement Date stated in the
Trade Ticket and to require of the Qualified Investor, and ensure, that the
entire proceeds of their sale are paid directly to the Agent (or to a financial
intermediary with accepted irrevocable instructions to deliver them to the
Agent immediately) by the Qualified Investor on the Settlement Date. This
Offer is made upon and subject to the terms of the Agreement, which is hereby
incorporated herein, and the Offering Obligor hereby reaffirms its covenants
under the
2
<PAGE> 191
Agreement and reconfirm all of its representations and warranties stated in the
agreement as being current, true and correct in all material respects and
hereby republishes all of them.
[COMPLETE APPLICABLE SIGNATURE BLOCK BELOW]
Very truly yours,
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Attachments: Commitment
3
<PAGE> 192
Separately submitted:
Mortgage files
________ The Agent accepts the Offering Obligor's Offer and on
________________________, 19_______, the Agent has credited
the purchase price of $___________________ to such Offering
Obligor's account #__________________ with the Agent.
________ The Agent does not accept the Offering Obligor's Offer and the
Agent is returning to such Offering Obligor the documents it
provided the Agent pursuant to the Offer.
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent for the Warehouse
Banks
By:_____________________________________
Name:___________________________________
Title:__________________________________
4
<PAGE> 193
EXHIBIT D TO 12/97 A&R FACILITIES AGREEMENT
(The "12/97 Master Servicing Acquisition Note")
$_________________________ HOUSTON, TEXAS DECEMBER 3, 1997
FOR VALUE RECEIVED, HARBOR FINANCIAL MORTGAGE CORPORATION (a Texas
corporation) and NEW AMERICA FINANCIAL, INC. (a Texas corporation)
(collectively, "Makers"), jointly and severally, promise to pay to the order of
___________________ ______________________________________________________
("Payee"), a ______________________________________________, at the 712 Main
Street branch of Texas Commerce Bank National Association ("TCB"), a national
banking association, in the City of Houston, Harris County, Texas, or at such
other place in Harris County, Texas, as the holder ("Holder", whether or not
Payee is such holder) of this note may hereafter designate in writing, in
immediately available funds and in lawful money of the United States of
America, the principal sum of
______________________________________________________
_____________________________________ Dollars ($____________________________)
(or the unpaid balance of all principal advanced against this note, if that
amount is less), together with interest on the unpaid principal balance of this
note from time to time outstanding until maturity at the applicable Stated Rate
or at such lesser rate, if any, as Holder shall from time to time elect to be
applicable in Holder's sole and absolute discretion, and interest on all past
due amounts, both principal and accrued interest, at the Past Due Rate;
provided, that for the full term of this note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to Holder for the use,
forbearance or detention of the debt evidenced hereby shall not exceed the
Ceiling Rate.
1. Definitions. All capitalized terms used in this note that are
defined in the Current Facilities Agreement (defined below) and not defined
differently in this note have the same meanings herein as therein.
2. Rates Change Automatically and Without Notice. Without notice
to Makers or any other Person and to the full extent allowed by applicable Law
from time to time in effect, the Adjusted LIBOR Rate, (only if there is a
change in an applicable Eurodollar Reserve Requirement) the Eurodollar Rate and
the Ceiling Rate shall each automatically fluctuate upward and downward as and
in the amount by which the Adjusted LIBOR Rate, (only if there is a change in
an applicable Eurodollar Reserve Requirement) the Eurodollar Rate and such
maximum nonusurious rate of interest permitted by applicable Law, respectively,
fluctuate.
3. Calculation of Interest. Interest on the amount of each
advance against this note shall be computed as provided in Section 4.5 of the
Current Facilities Agreement.
4. Excess Interest Will be Refunded or Credited. If, for any
reason whatever, the interest paid or received on this note during its full
term produces a rate which exceeds the Ceiling Rate, Holder shall refund to the
payor or, at Holder's option, credit against the principal of this note such
Page 1 of 5 Pages
<PAGE> 194
portion of said interest as shall be necessary to cause the interest paid on
this note to produce a rate equal to the Ceiling Rate.
5. Interest Will be Spread. All sums paid or agreed to be paid
to Holder for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of this
note, so that the interest rate is uniform throughout the full term of this
note.
6. Payment Schedule. All principal of this note and all accrued
interest then unpaid shall be due and payable on demand made at any time after
either (a) the occurrence of any default under this note, the Current
Facilities Agreement or any other Facilities Papers (unless the Agent shall
have declared in writing that such default has been cured or waived) or (b) the
termination date specified in any written notice (the "Termination Notice")
from the Agent to Makers, indicating the election of the Servicing Acquisition
Banks to terminate the Servicing Acquisition Line, borrowings under which from
Payee are evidenced by this note and specifying a termination date at least
ninety (90) days after the date of such Termination Notice. If no such demand
is sooner made, then advanced and unpaid principal and accrued interest on this
note shall be due and payable as provided in Section 4.3 of the Current
Facilities Agreement. All such scheduled payments shall be applied first to
accrued interest and the balance (if any) shall be applied to principal.
7. Prepayment. Makers may at any time pay the full amount or any
part of this note as provided in Section 4.6 of the Current Facilities
Agreement. All prepayments shall be applied first to accrued interest, the
balance to the principal installments in inverse order of their maturity.
8. Revolving Credit. Upon and subject to the terms and
conditions of the Current Facilities Agreement, Makers may borrow, repay and
reborrow at any time before the Revolving Servicing Acquisition
Termination/Conversion Date unless and until a Default has occurred under this
note, the Current Facilities Agreement or any other Facilities Papers, which
the Agent has not declared to have been fully cured or waived. The unpaid
principal balance of this note at any time shall be the total of all principal
lent or advanced against this note less the sum of all principal payments and
permitted or required prepayments made on this note by or for the account of
Makers. Absent manifest error, Holder's computer records shall on any day
conclusively evidence the unpaid balance of this note and its advances and
payments history posted up to that day. All Servicing Acquisition Loans and
all payments and permitted or required prepayments made hereon may be (but are
not required to be) endorsed by Holder on the schedule that is attached hereto
(which is hereby made a part hereof for all purposes) or otherwise recorded in
Holder's computer or manual records; provided, that any failure to make
notation of (a) any principal advance or accrual of interest shall not cancel,
limit or otherwise affect Makers' obligations or Holder's rights with respect
to that advance or accrual, or (b) any payment or permitted or required
prepayment of principal or interest shall not cancel, limit or otherwise affect
Makers' entitlement to credit for that payment as of the date of its receipt by
Holder. Makers and Payee expressly agree, pursuant to Chapter 346 ("Chapter
346") of the Texas Finance Code, that Chapter 346 (which relates to open-end
line of credit revolving loan accounts) shall not apply to this note or to any
loan evidenced by this note and that neither this note
Page 2 of 5 Pages
<PAGE> 195
nor any such loan shall be governed by Chapter 346 or subject to its provisions
in any manner whatsoever.
9 The Current Facilities Agreement, this Note and its Security.
This note is one of the 12/97 Master Servicing Acquisition Notes" referred to
and that have been issued pursuant to the terms of the 12/97 Amended and
Restated Facilities Agreement dated effective as of December 3, 1997, among
Makers, Texas Commerce Bank National Association as a "Bank," a "Warehouse
Bank," a "Servicing Acquisition Bank" and as agent (the "Agent") for Payee and
the other Warehouse Banks and Servicing Acquisition Banks, and they renew,
extend, increase, extend and rearrange (but do not extinguish) the 1/97
Servicing Acquisition Notes dated January 31, 1997 previously issued pursuant
to, and that are described or referred to in, the 1/97 Amended and Restated
Facilities Agreement dated as of January 31, 1997 (as heretofore amended) among
Makers, Texas Commerce Bank National Association and the other Banks party
thereto. As the 12/97 Amended and Restated Facilities Agreement has been and
may hereafter be amended, restated, modified or supplemented from time to time,
it is called the "Current Facilities Agreement". Reference to the Current
Facilities Agreement is here made for all purposes. Loans against this note by
Payee or any other Holder shall be governed by the Current Facilities
Agreement. Holder is entitled to the benefits of and security provided for or
referred to in the Current Facilities Agreement or the other Facilities Papers.
Such security includes, among other security, (a) a first lien security
interest in all of the Servicing Acquisition Collateral; (b) a second lien
security interest (second only to the first lien security interest granted to
the Warehouse Banks) in all of the Warehouse Collateral, and (c) on a pari
passu basis, a security interest in all other Collateral, to Ratably secure all
of the Makers' present and future Obligations to the Servicing Acquisition
Banks under the Current Facilities Agreement. All debt now or hereafter
evidenced by this note, as well as all of Makers' other debt or other
obligations now or hereafter owned or held by Holder, is intended to be secured
by all security for any such debt, whether or not the security instrument
covering and affecting such security refers to this or any other note
evidencing or to evidence such debt.
10. Defaults and Remedies. Any Default shall constitute default
under this note, whereupon the Agent may elect to exercise any or all rights,
powers and remedies afforded (a) under the Current Facilities Agreement and all
other Facilities Papers and (b) by Law, including the right to accelerate the
maturity of this entire note.
11. Legal Costs. If any Holder retains an attorney in connection
with any such default or to collect, enforce or defend this note or any other
Facilities Papers in any lawsuit or in any probate, reorganization, bankruptcy
or other proceeding, or if Makers sue any Holder in connection with this note
or any such Facilities Papers and do not prevail, then Makers agree to pay to
each such Holder, in addition to principal and interest, all reasonable costs
and expenses incurred by such Holder in trying to collect this note or in any
such suit or proceeding, including reasonable attorneys' fees. An amount equal
to ten percent (10%) of the unpaid principal and accrued interest owing on this
note when and if this note is placed in the hands of an attorney for collection
after default is stipulated to be reasonable attorneys' fees unless a Holder or
any Maker of this note timely pleads otherwise to a court of competent
jurisdiction.
Page 3 of 5 Pages
<PAGE> 196
12. Waivers. Makers and any and all co-makers, endorsers,
guarantors and sureties severally waive notice (including, but not limited to,
notice of intent to accelerate and notice of acceleration, notice of protest
and notice of dishonor), demand, presentment for payment, protest, diligence in
collecting and the filing of suit for the purpose of fixing liability and
consent that the time of payment hereof may be extended and re-extended from
time to time without notice to any of them. Each such Person agrees that his,
her or its liability on or with respect to this note shall not be affected by
any release of or change in any guaranty or security at any time existing or by
any failure to perfect or maintain perfection of any Lien against or security
interest in any such security or the partial or complete unenforceability of
any guaranty or other surety obligation, in each case in whole or in part, with
or without notice and before or after maturity.
13. Not Purpose Credit. None of the proceeds of this note shall
ever be used, directly or indirectly, for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System or for the purpose of reducing or retiring any debt
which was originally incurred to purchase or carry any "margin stock" or to
extend credit to others for the purpose of purchasing or carrying any "margin
stock" or which would constitute this transaction a "purpose credit" within the
meaning of Regulation U, as now or hereafter in effect.
14. Governing Law, Jurisdiction and Venue. This note shall be
governed by and construed in accordance with the laws of the State of Texas and
the United States of America from time to time in effect. Makers and all
co-makers, endorsers, guarantors and sureties each hereby irrevocably submits
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of Texas and the state district courts of Harris County,
Texas, for purposes of all legal proceedings arising out of or relating to this
note, the debt evidenced hereby or any loan agreement, security agreement,
guaranty or other papers or agreements relating to this note. To the fullest
extent permitted by law, Makers and all co-makers, endorsers, guarantors and
sureties each irrevocably waives any objection which he, she or it may now or
hereafter have to the laying of venue for any such proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum and agrees that service of process may be made
upon him, her or it in any such proceeding by registered or certified mail.
Harris County, Texas shall be a proper place of venue for suit hereon.
15. General Purpose of Loan. Makers warrant and represent to
Payee and all other Holders that all Loans evidenced by this note are and will
be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter 1D or in the Texas Finance Code.
Page 4 of 5 Pages
<PAGE> 197
16. Participations. Payee and each other Holder reserves the
right, exercisable in his, her or its sole discretion and without notice to any
of Makers or any other Person, to sell participations in all or any part of
this note or the debt evidenced by this note.
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Richard J. Gillen
President
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Richard J. Gillen
Chairman of the Board
Page 5 of 5 Pages
<PAGE> 198
ANNEX 1
to $_____________________
Harbor Financial Mortgage Corporation
and New America Financial, Inc.
12/97 Master Servicing Acquisition Note
to ____________________________________________________________
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Payment Applied
Date of Payment on (or advance vs.) Payment Applied Name of Person
or Advance Principal on Interest Principal Balance Interest Paid to Making Notation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 199
EXHIBIT E TO 12/97 A&R FACILITIES AGREEMENT
HARBOR FINANCIAL MORTGAGE CORPORATION'S
NEW AMERICA FINANCIAL, INC.'S
AND HARBOR FINANCIAL GROUP, INC.'S
LEGAL COUNSEL'S OPINION
(Basic Form of Opinion of Counsel for 12/97 A&R Facilities Agreement)
December 3, 1997
Texas Commerce Bank
National Association, Agent
Texas Commerce Bank National Association
Bank One, Texas, N.A.
Bank of Scotland
The Bank of New York
Guaranty Federal Bank, F.S.B.
Hibernia National Bank
PNC Bank Kentucky, Inc.
Comerica Bank
Bank United
Fleet Bank N.A.
National City Bank of Kentucky
The First National Bank of Chicago
c/o Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Re: 12/97 Amended and Restated Facilities Agreement (as it may be
supplemented, amended or restated from time to time, the "Current
Facilities Agreement") dated effective as of December 3, 1997 by and
among HARBOR FINANCIAL MORTGAGE CORPORATION ("Company"), a Texas
corporation; NEW AMERICA FINANCIAL, INC. ("New Am Inc."), a Texas
corporation (Company and New Am Inc. each being referred to as an
"Obligor" and collectively as the "Obligors"); TEXAS COMMERCE BANK
NATIONAL ASSOCIATION ("TCB"), a national banking association, in its
capacity as one of the Banks, a Warehouse Bank, a Servicing
Acquisition Bank and as agent for the other Banks (the "Agent"); Bank
One, Texas, N.A., Bank of Scotland, The Bank of New York, Guaranty
Federal Bank, F.S.B., Hibernia National Bank, PNC Bank Kentucky, Inc.,
Comerica Bank, Bank United, Fleet Bank N.A., National City Bank of
Kentucky and The First National Bank of Chicago (such eleven (11)
Banks, together with TCB, being the "Banks")
<PAGE> 200
Texas Commerce Bank National Association, Agent
December 3, 1997
Page 2
Ladies and Gentlemen:
We have acted as special counsel for each Obligor, Harbor Financial
Group, Inc., a Delaware corporation (the "Guarantor"), and FirstCity Financial
Corporation ("FirstCity") in connection with the captioned 12/97 Amended and
Restated Facilities Agreement (the "12/97 A&R Facilities Agreement"). This
opinion is rendered to you pursuant to your request in connection with the
execution and delivery of the 12/97 A&R Facilities Agreement.
Unless otherwise defined in this opinion, or unless the context
requires a different meaning, each capitalized term that is defined in the
12/97 A&R Facilities Agreement, and is used in this opinion has the same
meaning herein as therein.
In our capacity as such counsel, we have examined the 12/97 A&R
Facilities Agreement, the 12/97 Master Warehouse Notes, the 12/97 Master
Servicing Acquisition Notes, the Float Control Agreement and the Float Control
Guaranty (collectively, the "12/97 Facilities Papers") and such other papers
and matters as we have deemed necessary in rendering the opinions set forth
below. We have been furnished with -- and, with your consent, have relied on
- -- certificates of the Company's, New Am Inc.'s, the Guarantor's and
FirstCity's officers (copies of which certificates have been provided to you)
and other information supplied by them with respect to certain factual matters.
In addition, we have obtained and relied upon such certificates and assurances
from public officials as we have deemed necessary. We have also assumed the
authenticity of all materials so examined and the genuineness of signatures on
them. For purposes of our opinions we have assumed the Banks' (and the
Agent's) due authorization, execution, delivery and performance of the 12/97
Facilities Papers to which each such Person is a party.
Based on the foregoing, and subject to the qualifications set forth
later in this letter, it is our opinion that:
1. Each Obligor (1) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, (2) has the
full legal power and authority and all necessary licenses, permits, franchises
and other authorizations to own and operate its Property and carry on its
business as currently conducted and (3) is duly qualified to transact business
as a foreign corporation and licensed to operate as a mortgage company in each
jurisdiction where the nature of the business it transacts or Property it owns
requires such qualification or licensing, except in such jurisdictions where
the failure to be in good standing or be licensed (as the case may be) would
have no Material Adverse Effect.
<PAGE> 201
Texas Commerce Bank National Association, Agent
December 3, 1997
Page 3
2. The Guarantor (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, (b) has
the full legal power and authority and all necessary licenses, permits,
franchises and other authorizations to own and operate its Property and carry
on its business as currently conducted and (c) is duly qualified to transact
business as a foreign corporation and licensed to operate as a mortgage company
in each jurisdiction where the nature of the business it transacts or Property
it owns requires such qualification or licensing, except in such jurisdictions
where the failure to be in good standing or be licensed (as the case may be)
would have no Material Adverse Effect.
3. FirstCity (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, (b) has
the full legal power and authority and all necessary licenses, permits,
franchises and other authorizations to own and operate its Property and carry
on its business as currently conducted and (c) is duly qualified to transact
business as a foreign corporation and licensed to operate as a mortgage company
in each jurisdiction where the nature of the business it transacts or Property
it owns requires such qualification or licensing, except in such jurisdictions
where the failure to be in good standing or be licensed (as the case may be)
would have no Material Adverse Effect.
4. Each of the Obligors, the Guarantor and FirstCity has the
requisite corporate power and authority to execute, deliver and comply with the
terms of the 12/97 Facilities Papers to which it is a party.
5. Each of the Obligors', the Guarantor's and FirstCity's
execution, delivery and performance of the 12/97 Facilities Papers to which it
is a party have been duly authorized by all necessary corporate action on the
part of such Person, do not conflict with such Person's Articles (or
Certificate, as applicable) of Incorporation or bylaws, do not conflict with
any law, regulation, order, writ, injunction, judgment or decree of any court
or Governmental Authority, and, to the best of our knowledge, do not conflict
with any agreement or instrument ("Papers") to which either Obligor, the
Guarantor or FirstCity is a party or by which any of either Obligor's, the
Guarantor's or FirstCity's Property is bound or affected, result in a breach
of any Papers, constitute a default under any Papers, require any consent
under any Papers, result in the creation of any lien or security interest upon
either any Obligor's, the Guarantor's or FirstCity's Property or assets (except
for the security interests created by the Warehouse Pledge Agreement, the
Servicing Rights Security Agreement, the Receivables Pledge Agreement and the
Stock Pledge Agreement), or result in acceleration of any of either Obligor's,
the Guarantor's or FirstCity's debt under any of the Papers or trigger any
right of any such acceleration.
<PAGE> 202
Texas Commerce Bank National Association, Agent
December 3, 1997
Page 4
6. The 12/97 Facilities Papers to which it is a party constitute
the legal, valid and binding obligation of each of the Obligors, the Guarantor
and FirstCity enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or other such laws in effect affecting the enforcement
of creditors' rights generally and the application of equitable principles.
7. The execution and delivery of the 12/97 Facilities Papers to
which it is a party and the performance of each of the Obligors', the
Guarantor's and FirstCity's obligations under them, do not require any license,
consent, approval or other action of any governmental or public regulatory body
or authority other than those which have been obtained and remain in full force
and effect.
8. None of the Company, New Am Inc., the Guarantor or FirstCity
is an "investment company" or "controlled by" an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
9. None of the Company, New Am Inc., the Guarantor or FirstCity
is a "public utility holding company" or an "affiliate" or a "subsidiary
company" of a "public utility company", or a "holding company" or an
"affiliate" or a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
10. There is no litigation pending, or to our knowledge,
threatened, that, if determined adversely to the Company, New Am Inc., the
Guarantor or FirstCity would have a Material Adverse Effect.
Please also recognize that (a) the foregoing opinions relate only to
the laws of the State of Texas, the corporate laws of the State of Delaware and
applicable federal law and (b) no opinion is to be inferred beyond the opinion
stated in this letter.
This opinion is rendered to the Agent and the Banks for their benefit
and the benefit of their participants and assignees of any of either Obligor's,
the Guarantor or FirstCity's obligations under the 12/97 Facilities Papers and
legal counsel for the Agent and the Banks in connection with the above
transaction, and may not be relied upon by any other Person or for any other
purpose without our prior written consent. This opinion is rendered as of its
date and we hereby disclaim any obligation to advise the Agent and the Banks or
any other Person entitled to rely on this opinion of any change in any matter
set forth in it.
Very truly yours,
<PAGE> 203
EXHIBIT F TO 12/97 A&R FACILITIES AGREEMENT
Form of Compliance Certificate with computations
to show compliance or non-compliance with
Sections 9.5, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.14
COMPLIANCE CERTIFICATE
COLLATERAL AGENT: Texas Commerce Bank National Association
COMPANY: Harbor Financial Mortgage
Corporation
NEW AM INC.: New America Financial, Inc.
SUBJECT PERIOD: ___________________ended _________________, 199__
DATE: ___________________, 19__
________________________________________________________________________________
This certificate is delivered to the Agent under the 12/97 Amended and
Restated Facilities Agreement (as supplemented, amended or restated from time
to time, the "Current Facilities Agreement") dated effective as of December 3,
1997, among the Company, New Am Inc., the Agent and the financial institutions
now or hereafter parties thereto (the "Banks"). Unless they are otherwise
defined in this request, terms defined in the Current Facilities Agreement have
the same meanings here as there.
The undersigned officers of each of the Company and New Am Inc.
certifies to the Agent and the Banks that on the date of this certificate that:
1. Each undersigned is an incumbent officer of the Company or New
Am Inc., as applicable, holding the title stated below the undersigned's
signature below.
2. The Company's and New Am Inc.'s consolidated financial
statements that are attached to this certificate were prepared in accordance
with GAAP and present fairly the Company's and New Am Inc.'s consolidated
financial position and results of operations as of ___________________ and for
the (check, as applicable) [ ] ____ month [ ] one, [ ] two or [ ] three
quarter(s) of Company's and New Am Inc.'s fiscal year, as the case may be,
ending on the last day of the Subject Period.
3. The undersigned officer of the Company or New Am Inc., as
applicable, supervised a review of the Company's or New Am Inc.'s, as
applicable, activities during the Subject Period in
<PAGE> 204
Texas Commerce Bank National Association, Agent
[date]
Page 2
respect of the following matters and has determined the following: (a) to
undersigned officer's best knowledge, except to the extent that (i) a
representation or warranty speaks to a specific date or (ii) the facts on which
a representation or warranty is based have changed by transactions or
conditions contemplated or expressly permitted by the Facilities Papers, the
representations and warranties of the Company or New Am Inc., as applicable, in
Section 6 of the Current Facilities Agreement are true and correct in all
material respects, other than for the changes, if any, described on the
attached Annex A; (b) the Company or New Am Inc., as applicable, has complied
with all of its obligations under the Facilities Papers, other than for the
deviations, if any, described on the attached Annex A; (c) no Potential Default
has occurred that has not been declared by the Agent in writing to have been
cured or waived, and no Default has occurred that has not been cured before it
became a Potential Default, other than those Potential Defaults and/or
Defaults, if any, described on the attached Annex A; (d) compliance by the
Company or New Am Inc., as applicable, with certain financial covenants in
Section 9 of the Current Facilities Agreement is accurately calculated on the
attached Annex A and (e) the aggregate number of Serviced Mortgages that are In
Default is less than ten percent (10%) of the total aggregate number of
Serviced Mortgages in the servicing portfolio, other than as described on the
attached Annex A.
HARBOR FINANCIAL MORTGAGE CORPORATION
By: _________________________________
Name: _______________________________
Title: _______________________________
NEW AMERICA FINANCIAL, INC.
By: _________________________________
Name: _______________________________
Title: _______________________________
<PAGE> 205
ANNEX A TO COMPLIANCE CERTIFICATE
(a) Describe deviations from compliance with obligations, if any
- -- clause 3(b) of attached Compliance Certificate -- if none, so state:
(b) Describe Defaults or Potential Defaults, if any -- clause 3(c)
of attached Compliance Certificate -- if none, so state:
(c) Calculate compliance with covenants in Section 9 (on a
consolidated basis) -- clause 3(d) of attached Compliance Certificate.
(d) Describe delinquency status of all Serviced Mortgages, if any
- -- clause 3(e) of attached Compliance Certificate -- if none, so state:
<PAGE> 206
EXHIBIT G TO 12/97 A&R FACILITIES AGREEMENT
[FORM OF BAILEE LETTER FOR SHIPMENTS
OF LOANS TO INVESTORS FOR PURCHASE]
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
P. O. BOX 2558
HOUSTON, TEXAS 77252-8041
[date]
[Investor's name and address]
Re: [Harbor Financial Mortgage Corporation's][New America
Financial, Inc.'s] Loan(s) shipped herewith for your
inspection and purchase
Ladies and Gentlemen:
Pursuant to the request of [Harbor Financial Mortgage Corporation][New
America Financial, Inc.] (the "MORTGAGE COMPANY"), Texas Commerce Bank National
Association (the "AGENT/CUSTODIAN") as agent and documents custodian for a
syndicate of Lenders (the "LENDERS") to the Mortgage Company, hereby delivers
to you with this letter the promissory notes evidencing the loans ("LOANS")
described on the attached schedule and related loan documents (collectively,
the "LOAN PAPERS").
To secure the Mortgage Company's debt and other obligations to the
Lenders, the Mortgage Company has pledged (among other collateral) the Loans to
the Lenders, and has collaterally assigned to the Agent/Custodian and granted
the Agent/Custodian (as secured party for the Lenders) a security interest in,
(i) the Loan Papers, (ii) the Loans that they evidence and (iii) all related
security and rights.
The Lenders and the Agent/Custodian expressly retain and reserve all
of their rights in the Loans and the Loan Papers until you have purchased and
actually made payment to the Agent for them in accordance with this letter.
During the period from your receipt of Loans until you have either so
purchased and paid for them or you have returned them to our possession, you
are and will be bailee for the Lenders and the Agent/Custodian as their agent
and secured party on behalf of the Lenders, for the purpose of perfecting and
maintaining perfection of the security interest that the Mortgage Company has
granted to the Lenders and the Agent/Custodian in (or pursuant to) the 12/97
Amended and Restated Facilities Agreement dated as of December 3, 1997 among
the Mortgage Company, the Lenders and the Agent/Custodian, as supplemented,
amended or restated from time to time (the "CREDIT AGREEMENT").
When you have paid the Agent/Custodian for the Loans, the Lenders' and
the Agent/Custodian's security interest in the Loans, and in their Loan Papers
that are delivered to you herewith, shall automatically terminate. If (but
only if) the payment of the "PAY-OFF PRICE", which is an amount equal to the
greater of (i) the $___________ sum required to obtain the release of the
security interest in favor of the Lenders, or (ii) the purchase price you and
the Mortgage Company have agreed that you will pay for the Loans, has already
been made to the Agent/Custodian, these Loan Papers are being delivered to you
free of such security interest or any trust, bailment or any other claim by the
Lenders and the Agent/Custodian.
<PAGE> 207
[Investor's name]
[date]
Page 2
Unless the Agent/Custodian has already received the Pay-Off Price for
each of the Loans, we are delivering the enclosed Loan Papers to you IN TRUST
and on the express condition that you will promptly:
(a) examine them; and
(b) decide whether you will purchase any or all of the Loans;
and that, with respect to each Loan, you will promptly either:
(c) remit by federal funds immediately available to the
Agent/Custodian directed to Texas Commerce Bank National
Association, ABA No. 1130-0060-9 Attention: Becky Smith,
Corporate Mortgage Finance Group (713) 750-2028, Re:
Harbor/New America Account No. ____________________________)
the Pay-off Price for that Loan (if the Agent/Custodian
receives less than the full Pay-off Price, the Agent/Custodian
will not release its and the Lenders' security interest in
that Loan until it has received the full Pay-off Price); or
(d) return the promissory note and all of the other papers
relating to that Loan to us.
It is very important that you promptly notify us in writing of your
decision with respect to each Loan so that we will know at all times which
specific Loans will remain as part of the Lenders' collateral and which will
not. Accordingly, YOU AGREE TO GIVE THE AGENT/CUSTODIAN WRITTEN NOTICE ON OR
BEFORE FORTY-FIVE (45) DAYS AFTER THE DATE OF THIS LETTER THAT IDENTIFIES WHICH
(IF ANY) OF THE ENCLOSED LOANS YOU ELECT NOT TO PURCHASE, AND YOU AGREE TO
PURCHASE ALL OF THE ENCLOSED LOANS THAT YOU DO NOT LIST IN THAT NOTICE.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS LETTER, UNLESS THE
AGENT/CUSTODIAN HAS ALREADY RECEIVED THE PAY-OFF PRICE FOR EACH OF THE LOANS,
THE ENCLOSED LOAN PAPERS ARE DELIVERED TO YOU UPON THE EXPRESS AND CONTROLLING
CONDITION THAT YOU WILL RETURN ANY OR ALL OF THEM TO US, AS AGENT/CUSTODIAN,
PROMPTLY UPON YOUR RECEIPT OF OUR WRITTEN DIRECTION TO DO SO, REGARDLESS OF
WHETHER OR NOT YOU HAVE DECIDED TO PURCHASE THE LOAN OR LOANS TO WHICH THE LOAN
PAPERS REQUIRED TO BE RETURNED TO US RELATE, EXCLUDING ONLY THOSE LOANS (IF
ANY) FOR WHICH YOU HAVE ALREADY PAID US THE PAY-OFF PRICE.
You agree to keep all of the enclosed Loan Papers safe from fire,
loss, theft and other casualty and agree to bear any loss, cost or expense we
or the Lenders may incur as a result of any such event.
Please immediately indicate your receipt of this letter and the
enclosed Loan Papers, and your acceptance of and agreement to the trust and the
terms and conditions stated above, by dating and signing the enclosed copy of
this
<PAGE> 208
[Investor's name]
[date]
Page 3
letter and returning it to us (although your doing so will not be necessary to
the effectiveness of any of this letter's terms, provisions or conditions).
Very truly yours,
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Agent/Custodian
By:_____________________________________
Name:___________________________________
Title:__________________________________
RECEIPT ACKNOWLEDGED AND TRUST, TERMS AND CONDITIONS ACCEPTED AND AGREED TO ON
________________________________, 19____:
________________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE> 209
[FORM OF BAILEE LETTER FOR SHIPMENTS
OF LOANS TO STRUCTURED SECURITIES
CUSTODIAN FOR SECURITIZATION]
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
P. O. BOX 2558
HOUSTON, TEXAS 77252-8041
[date]
[Structured Securities issuer's custodian's name and address]
Re: [Harbor Financial Mortgage Corporation's][New America
Financial, Inc.'s] Loan(s) shipped herewith for inspection
and securitization
Ladies and Gentlemen:
Pursuant to the request of [Harbor Financial Mortgage Corporation][New
America Financial, Inc.](the "MORTGAGE COMPANY"), Texas Commerce Bank National
Association (the "AGENT/CUSTODIAN") as agent and documents custodian for a
syndicate of Lenders (the "LENDERS") to the Mortgage Company, hereby delivers
to you with this letter the promissory notes evidencing the loans ("LOANS")
described on the attached schedule and related loan documents (collectively,
the "LOAN PAPERS").
To secure the Mortgage Company's debt and other obligations to the
Lenders, the Mortgage Company has pledged (among other collateral) the Loans to
the Lenders, and has collaterally assigned to the Agent/Custodian and granted
the Agent/Custodian (as secured party for the Lenders) a security interest in,
(i) the Loan Papers, (ii) the Loans that they evidence and (iii) all related
security and rights.
The Lenders and the Agent/Custodian expressly retain and reserve all
of their rights in the Loans and the Loan Papers until the issuer of structured
securities for whom you are custodian (the "ISSUER") has accepted them for
securitization and actually issued the structured security to be created from a
loan pool that includes these Loans (the "SUBJECT SECURITY").
During the period from your receipt of Loans until the Subject
Security has been issued or you have returned them to our possession, you are
and will be bailee for the Lenders and the Agent/Custodian as their agent and
secured party on behalf of the Lenders, for the purpose of perfecting and
maintaining perfection of the security interest that the Mortgage Company has
granted to the Lenders and the Agent/Custodian in (or pursuant to) the 12/97
Amended and Restated Facilities Agreement dated as of December 3, 1997 among
the Mortgage Company, the Lenders and the Agent/Custodian, as supplemented,
amended or restated from time to time (the "CREDIT AGREEMENT").
If and when the Subject Security is issued, the Lenders' and the
Agent/Custodian's security interest in the Loans and in their Loan Papers that
are delivered to you herewith shall automatically terminate; provided that the
Lenders' and the Agent/Custodian's security interest in the Loans' proceeds
shall NOT terminate, and shall automatically attach to and continue in all of
the Mortgage Company's right, title and interest in and to the Subject Security
when issued, and in and to the Subject Security's proceeds, until such time as
the full amount owing to the Lenders in respect of such Loans shall have been
paid to the Agent.
We are delivering the enclosed Loan Papers to you IN TRUST and on the
express condition that:
<PAGE> 210
[Securities issuer s custodian's name]
[date]
Page 2
(a) you will promptly examine them; and
(b) the Issuer will promptly decide whether to accept the Loans
into the pool of loans from which the Subject Security will be
created;
and that, with respect to each Loan, you will promptly either:
(c) advise the Agent immediately when the Subject Security based
on a pool that includes it has been issued; or
(d) return the promissory note and all of the other papers
relating to that Loan to us.
It is very important that you promptly notify us in writing of the
Issuer's decision with respect to each Loan so that we will know at all times
which specific Loans will remain as part of the Lenders' collateral and which
will not. Accordingly, YOU AGREE TO GIVE THE AGENT/CUSTODIAN WRITTEN NOTICE ON
OR BEFORE FORTY-FIVE (45) DAYS AFTER THE DATE OF THIS LETTER THAT IDENTIFIES
WHICH (IF ANY) OF THE ENCLOSED LOANS THAT THE ISSUER ELECTS NOT TO INCLUDE IN
THE POOL OF LOANS ON WHICH THE SUBJECT SECURITY WILL BE BASED, AND THE ISSUER
WILL INCLUDE THEREIN ALL OF THE ENCLOSED LOANS THAT YOU DO NOT LIST IN THAT
NOTICE.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS LETTER, THE ENCLOSED LOAN
PAPERS ARE DELIVERED TO YOU UPON THE EXPRESS AND CONTROLLING CONDITION THAT YOU
WILL RETURN ANY OR ALL OF THEM TO US, AS AGENT/CUSTODIAN, PROMPTLY UPON YOUR
RECEIPT OF OUR WRITTEN DIRECTION TO DO SO, REGARDLESS OF WHETHER OR NOT THE
ISSUER HAS DECIDED TO INCLUDE THEM IN A POOL UPON WHICH A STRUCTURED SECURITY
WILL BE BASED, EXCLUDING ONLY THOSE LOANS (IF ANY) INCLUDED IN ANY SUCH POOL
BASED UPON WHICH A STRUCTURED SECURITY HAS BEEN ISSUED.
You agree to keep all of the enclosed Loan Papers safe from fire,
loss, theft and other casualty and agree to bear any loss, cost or expense we
or the Lenders may incur as a result of any such event.
Please immediately indicate your receipt of this letter and the
enclosed Loan Papers, and your acceptance of and agreement to the trust and the
terms and conditions stated above, by dating and signing the enclosed copy of
this letter and returning it to us (although your doing so will not be
necessary to the effectiveness of any of this letter's terms, provisions or
conditions).
Very truly yours,
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Agent/Custodian
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE> 211
[Securities issuer s custodian's name]
[date]
Page 3
RECEIPT ACKNOWLEDGED AND TRUST, TERMS AND CONDITIONS ACCEPTED AND AGREED TO ON
________________________________, 19____:
_______________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE> 212
SCHEDULE 1 TO 12/97 A&R FACILITIES AGREEMENT
LIST OF QUALIFIED INVESTORS
<TABLE>
<S> <C>
Aames Home Mortgage Money Store
Access National Home Mortgage
Advanta Nomura
Anavan Portfolio North Western Savings
Banc of East Texas Norwest
Bay View Federal Ohio Savings Bank
Big Apple Mortgage Prudential
CenterBank RFC
Chase/Chemical Resource Bank Shares
CitiCorp Riggs
Coastal Banc Saxon
Comnet Security Pacific
Continental Mortgage Sovereign
Countrywide Statewide
Crestar
Discover Financial
Fannie Mae
First Federal of Rochester
First Nationwide
Fleet Mortgage
Ford Consumer Credit
Freddie Mac
Ft. Worth Mortgage
GE Capital
Ginnie Mae
Greentree Mortgage
Guaranty Federal
Harris Bank
Homeside
Household Financial
ICI
IMS First Franklin
Independent National
InterFirst
John Hancock
LaSalle Talman
Life Savings Bank
Mellon Mortgage
Merchantile Mtg. St. Louis
</TABLE>
<PAGE> 213
SCHEDULE 2 TO 12/97 A&R FACILITIES AGREEMENT
HARBOR FINANCIAL MORTGAGE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATING SCHEDULES
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
[Company to provide and to insert here]
<PAGE> 214
SCHEDULE 3 TO 12/97 A&R FACILITIES AGREEMENT
HARBOR FINANCIAL MORTGAGE CORPORATION AND
NEW AMERICA FINANCIAL, INC., AS APPLICABLE
MANAGEMENT REPORT
FOR THE PERIOD FROM _____________, 199__ TO ________________, 199__.
To: Texas Commerce Bank National Association, the "Agent" under the
below-referenced Current Facilities Agreement
Re: 12/97 Amended and Restated Facilities Agreement dated effective as of
December 3, 1997 as amended (the "Current Facilities Agreement") among
Harbor Financial Mortgage Corporation and New America Financial, Inc.
(collectively, the "Obligors" and each an "Obligor"), Texas Commerce
Bank National Association ("TCB"), as a "Bank", a "Warehouse Bank", a
"Servicing Acquisition Bank", as "Agent" for the other Banks, and the
other Banks that are parties thereto
Ladies and Gentlemen:
This Certificate is delivered to TCB pursuant to Section 8.3(b) of the
Current Facilities Agreement. All terms defined in the Current Facilities
Agreement have the same respective meanings here as there. The Obligor
executing this Management Report is the "Reporting Obligor".
I hereby certify to you as follows:
1. I am and at all times mentioned herein have been, the duly
elected, qualified and acting _______________ of the Reporting Obligor.
2. A review of the Reporting Obligor's activities during the
period from _______________, 19___ to _________________, 19___ (the "Subject
Period") has been made under my supervision with a view toward detailing this
Reporting Obligor's commitment position, pipeline position and hedging
position.
3. Attached hereto as Exhibit A is a true, accurate and complete
schedule of this Reporting Obligor's commitment position, pipeline position and
hedging position with the following detail:
a. As to commitment position: investor, type, original
principal amount, rate, yield, future contracts, hedged positions,
repurchase agreements and profit and loss;
<PAGE> 215
b. as to pipeline position: amount and rate of price
committed loans in pipeline and profit and loss; and
c. as to hedging position: amount, rate, term, yield.
EXECUTED and delivered on _______________, 199__.
[SIGNATURE BLOCK AS APPLICABLE:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:_____________________________________
Name:___________________________________
Title:__________________________________
NEW AMERICA FINANCIAL, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
Exhibit A - Schedule of Reporting Obligor's commitment position, pipeline
position and hedging position
2
<PAGE> 216
SCHEDULE 4 TO 12/97 A&R FACILITIES AGREEMENT
PERSONS AUTHORIZED TO ISSUE OBLIGOR ORDERS
AS OF _____________________, 199__
(AND THEREAFTER UNTIL A REVISION OF THIS SCHEDULE SHALL HAVE BEEN
DELIVERED TO THE AGENT)
FOR HARBOR FINANCIAL MORTGAGE CORPORATION:
o FOR ANY PURPOSE:
o ONLY TO BORROW OR DIRECT APPLICATIONS, PAYMENTS, DEPOSITS OR TRANSFERS
OF FUNDS:
o ONLY TO WITHDRAW COLLATERAL DOCUMENTS FOR SERVICING, CORRECTION,
RELEASE AFTER PAYOFF OR COLLECTION OR TO DIRECT SHIPMENT OF MORTGAGE
LOANS TO INVESTORS:
FOR NEW AMERICA FINANCIAL, INC.:
o FOR ANY PURPOSE:
o ONLY TO BORROW OR DIRECT APPLICATIONS, PAYMENTS, DEPOSITS OR TRANSFERS
OF FUNDS:
o ONLY TO WITHDRAW COLLATERAL DOCUMENTS FOR SERVICING, CORRECTION,
RELEASE AFTER PAYOFF OR COLLECTION OR TO DIRECT SHIPMENT OF MORTGAGE
LOANS TO INVESTORS:
<PAGE> 217
SCHEDULE 5 TO 12/97 A&R FACILITIES AGREEMENT
(ATTACH COPY OF FIRSTCITY FINANCIAL CORPORATION'S COMMITTED
LINE OF CREDIT AGREEMENT -- TO BE PROVIDED BY THE COMPANY -- HERE.)
<PAGE> 218
SCHEDULE 6 TO 12/97 A&R FACILITIES AGREEMENT
(ATTACH COPY OF OBLIGORS' CURRENT CREDIT GRADE MATRIX FOR
(AMONG OTHERS) "C" AND "D" MORTGAGE LOANS HERE)
<PAGE>
EXHIBIT 10.7
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
712 MAIN STREET
HOUSTON, TEXAS 77002
January 26, 1998
Harbor Financial Mortgage Corporation
New America Financial, Inc.
340 North Sam Houston Parkway, Suite 100
Houston, Texas 77060
Re: 1/98 Modification of 12/97 Amended and Restated Facilities Agreement
dated as of December 3, 1997 (the "12/97 A&R Facilities Agreement"),
among Harbor Financial Mortgage Corporation and New America Financial,
Inc. (the "Obligors"), Chase Bank of Texas, National Association
("Chase Texas" which before January 20, 1998 was named "Texas Commerce
Bank National Association"), as a lender and as agent (in that
capacity, the "Agent") for the other lenders party thereto and such
other lenders (together with Chase Texas, the "Banks"
Ladies and Gentlemen:
Please refer to the 12/97 A&R Facilities Agreement. All capitalized
terms used in this letter agreement (the "1/98 Modification Agreement" or,
within itself, this "Agreement") that are defined in the 12/97 A&R Facilities
Agreement have the same meanings here as there.
The parties to the 12/97 A&R Facilities Agreement (the Banks being
represented herein by the Agent) hereby agree to modify the 12/97 A&R
Facilities Agreement as set forth below.
The definition of "Eligible Mortgage" is hereby amended by adding the
following new clause (5) immediately following the existing clause (4) in that
definition and renumbering the succeeding clauses therein currently numbered
(5) and (6) as (6) and (7), respectively:
(5) the Residential Mortgage Note evidencing it, or the
Residential Mortgage securing it, was sent to an Obligor or its
designee for correction, collection or other action and has not been
returned to the Agent on or before twenty-one (21) days after being so
sent to such Obligor or its designee;
The definition of "Wet Mortgage Loan" is hereby amended by
substituting "seven (7) Business Days" for "five (5) Business Days" in such
definition's clause (c), so that henceforth that clause shall read as follows:
<PAGE> 2
January 26, 1998
Page 2
(c) as to which the applicable Obligor actually and
reasonably expects that such full qualification can and will be
achieved on or before seven (7) Business Days after the day when such
Mortgage Loan is first submitted to the Agent as Collateral (excluding
the day on which such Wet Mortgage Loan is so submitted.)
This Agreement may be executed in two or more counterparts, each of
which shall be enforceable against the party executing it without the necessity
of accounting for or producing any other counterpart and shall be fully
effective to modify the 12/97 A&R Facilities Agreement from and after the date
of this Agreement, whether or not (as the parties intend be done) the
modifications made by this Agreement are ultimately incorporated into the next
future formal amendment of the 12/97 A&R Facilities Agreement.
Very truly yours,
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as a Bank and as Agent
and representative of the other Banks
By: /s/ CYNTHIA CRITES
---------------------------------
Cynthia Crites
Vice President
Accepted and agreed to:
HARBOR FINANCIAL MORTGAGE NEW AMERICA FINANCIAL, INC.
CORPORATION
By: /s/ RICHARD J. GILLEN By: /s/ RICHARD J. GILLEN
---------------------------- -------------------------------
Name: Richard J. Gillen Name: Richard J. Gillen
-------------------------- -----------------------------
Title President and CEO Title: Chairman
-------------------------- ----------------------------
<PAGE> 3
January 26, 1998
Page 3
GUARANTORS' CONSENT AND RATIFICATION
HARBOR FINANCIAL GROUP, INC., a Delaware corporation, the Guarantor, and
FIRSTCITY FINANCIAL CORPORATION, the Float Control Guarantor, each hereby
consents to the foregoing modifications, ratifies and confirms the Guaranty and
the Float Control Guaranty and that each such guaranty remains in full force
and effect, and agrees that the Guarantor's and the Float Control Guarantors'
respective obligations under and in respect of the Guaranty and the Float
Control Guaranty are not diminished, impaired or otherwise affected by the
foregoing 1/98 Modification Agreement.
HARBOR FINANCIAL GROUP, INC. FIRSTCITY FINANCIAL CORPORATION
By: /s/ RICHARD J. GILLEN By: /s/ RICHARD J. GILLEN
--------------------------- -------------------------------
Name: Richard J. Gillen Name: Richard J. Gillen
------------------------- -----------------------------
Title President and Chairman Title: Managing Director
------------------------- Mortgage Finance
-----------------------------
<PAGE>
EXHIBIT 10.8
(THE "3/98 CHASE TEXAS TEMPORARY ADDITIONAL
WAREHOUSE NOTE")
$50,000,000 HOUSTON, TEXAS MARCH 17, 1998
FOR VALUE RECEIVED, HARBOR FINANCIAL MORTGAGE CORPORATION (a Texas
corporation) and NEW AMERICA FINANCIAL, INC. (a Texas corporation)
(collectively, "Makers"), jointly and severally, promise to pay to the order of
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Chase Texas" or "Payee"), a
national banking association, at its 712 Main Street branch, in the City of
Houston, Harris County, Texas, or at such other place in Harris County, Texas,
as the holder ("Holder", whether or not Payee is such holder) of this note may
hereafter designate in writing, in immediately available funds and in lawful
money of the United States of America, the principal sum of Fifty Million
Dollars ($50,000,000) (or the unpaid balance of all principal advanced against
this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding until maturity at
the Stated Rate provided for in the Special Warehouse Credit Agreement (defined
in Paragraph 9 of this note) or at such lesser rate, if any, as Holder shall
from time to time elect to be applicable in Holder's sole and absolute
discretion, and interest on all past due amounts, both principal and accrued
interest, at the Past Due Rate; provided, that for the full term of this note
the interest rate produced by the aggregate of all sums paid or agreed to be
paid to Holder for the use, forbearance or detention of the debt evidenced
hereby shall not exceed the Ceiling Rate.
1. Definitions. In addition to the definitions given above, the
definitions given in the Special Warehouse Credit Agreement (defined in
Paragraph 9 of this note) for capitalized terms that are used (but not
italicized) in this note and not defined differently in this note have the same
meanings here as there; provided that (as more fully explained in Paragraph 9
of this note) -- although italicized terms in this note have the meanings given
them in the Syndicated Facilities Agreement (defined below) -- this note is
NOT issued pursuant to the 12/97 Amended and Restated Facilities Agreement
dated effective as of December 3, 1997, as it may be supplemented, amended or
restated from time to time (the "Syndicated Facilities Agreement") among
Makers, Texas Commerce Bank National Association (as Chase Texas was named
until January 20, 1998) as a Bank, a Warehouse Bank, a Servicing Acquisition
Bank and as Agent (for the Warehouse Banks and Servicing Acquisition Banks
parties thereto, and such Warehouse Banks and Servicing Acquisition Banks), as
such italicized terms are defined in the Syndicated Facilities Agreement, and
the other Lender(s) party thereto, and this note is NOT one of the Notes or the
Current Warehouse Notes (although this note does evidence senior obligations of
the Makers to Holder which obligations are not -- and will not be --
subordinate in right of payment to any of Makers' present or future
obligations to any of the Banks or any other Person, except only such other
obligations, if any, as are preferred by operation of law.)
INITIALED FOR
IDENTIFICATION: ____ ____
Page 1 of 8 Pages
<PAGE> 2
2. Rates Change Automatically and Without Notice. Without notice
to Makers or any other Person and to the full extent allowed by applicable Laws
from time to time in effect, the Adjusted LIBOR Rate and the Ceiling Rate shall
each automatically fluctuate upward and downward as and in the amount by which
the Adjusted LIBOR Rate and such maximum nonusurious rate of interest permitted
by applicable Laws, respectively, fluctuate.
3. Calculation of Interest. Interest on the amount of each
advance against this note shall be computed as on the amount of that advance
and from the date it is made. All interest rate determinations and
calculations by Holder, absent manifest error, shall be conclusive.
4. Excess Interest Will be Refunded or Credited. If, for any
reason whatever, the interest paid or received on this note during its full
term produces a rate which exceeds the Ceiling Rate, Holder shall refund to the
payor or, at Holder's option, credit against the principal of this note such
portion of said interest as shall be necessary to cause the interest paid on
this note to produce a rate equal to the Ceiling Rate.
5. Interest Will be Spread. To the extent (if any) necessary to
avoid violation of applicable usury laws (or to minimize the extent of the
violation if complete avoidance is impossible for any reason, it being the
intent and purpose of Makers and all Holders to comply strictly with all
applicable usury and other laws), all sums paid or agreed to be paid to Holder
for the use, forbearance or detention of the indebtedness evidenced hereby
shall, to the extent permitted by applicable Laws, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of this note.
6. Payment Schedule. All principal of this note and all accrued
interest then unpaid shall be due and payable on the "Special Warehouse
Termination Date", which means the earliest of (i) May 17, 1998, (ii) the
renewal, amendment, modification or termination (however such termination may
occur) of the Special Warehouse Credit Agreement or (ii) the effective date of
a new loan agreement providing for a revolving mortgage warehouse line of
credit of up to $50 million (or more) of principal that may from time to time
be borrowed and outstanding, to be provided to Makers by a syndicate of lenders
for which Chase Texas is agent and representative. Before maturity of this
note, interest on this note shall accrue, and unpaid accrued interest shall be
due and payable, as provided in Section 2.6 of the Special Warehouse Credit
Agreement. All such scheduled payments shall be applied first to accrued
interest and the balance (if any) shall be applied to principal.
7. Prepayment. Makers may at any time pay the full amount or any
part of this note as provided in Section 2.8 of the Special Warehouse Credit
Agreement. All prepayments shall be applied first to accrued interest, the
balance to principal.
INITIALED FOR
IDENTIFICATION: ____ ____
Page 2 of 8 Pages
<PAGE> 3
8. Revolving Credit. Makers may borrow, repay and reborrow at
any time solely (1) to finance each Obligor's funding of SUCH OBLIGOR'S OWN
Residential Mortgages that are Eligible Mortgages originated by such Obligor to
(or for the account of) the obligor(s) on such Eligible Mortgages and (2) to
finance SUCH OBLIGOR'S OWN purchase of Eligible Mortgages that were not
originated by such Obligor, and for no other applications or purposes. Each
Obligor agrees to use the credit extended to it to carry each such Residential
Mortgage only for so long as (x) it continues to satisfy all of the
requirements to be an Eligible Mortgage and (y) the borrowing Obligor is
diligently taking all steps necessary to complete either (i) the sale of that
Residential Mortgage (if the Investor Commitment covering it contemplates its
purchase as a whole loan), or (ii) its securitization as part of a pool of
Residential Mortgages (a "Pool") and the sale of the resulting Mortgage-Backed
Securities (if the Investor Commitment covering it contemplates securitization
of a Pool that includes such Eligible Mortgage and the Qualified Investor's
purchase of the resulting Mortgaged-Backed Securities). Makers may so borrow
and reborrow hereunder only if:
(1) all conditions to and qualifications for the
requested Warehouse Loan under the Special Warehouse Credit Agreement are
satisfied;
(2) the Obligors would be able to borrow the requested
amount as a Warehouse Loan from all of the Warehouse Lenders under (and as
those two-- and the other -- italicized terms in this note are defined in) the
Syndicated Facilities Agreement but for the fact that the aggregate amount of
the Warehouse Loans outstanding thereunder then currently equals (or exceeds)
the Total Warehouse Line Commitments, as shown on the currently-effective
Commitments Schedule to the Syndicated Facilities Agreement (such amount being
Four Hundred Fifty Million Dollars ($450,000,000) on the date of this note);
(3) after giving effect to a requested Borrowing, the
outstanding principal of this note will not exceed Fifty Million Dollars
($50,000,000);
(4) no Potential Default has occurred under this note,
the Special Warehouse Credit Agreement or any other Facilities Papers which has
not been cured, and no Default has occurred under this note, the Special
Warehouse Credit Agreement or any other Facilities Papers that Payee has not
declared in writing to have been fully cured or waived; and
(5) no Potential Default has occurred under the
Syndicated Facilities Agreement, any Current Warehouse Note or any other
Facilities Papers, which has not been cured, and no Default has occurred under
the Syndicated Facilities Agreement or any other Facilities Papers that the
Agent has not declared in writing to have been fully cured or waived.
INITIALED FOR
IDENTIFICATION: ____ ____
Page 3 of 8 Pages
<PAGE> 4
The unpaid principal balance of this note at any time shall be the total of all
principal lent or advanced against this note less the sum of all principal
payments and permitted or required prepayments made on this note by or for the
account of Makers. Absent manifest error, Holder's computer records shall on
any day conclusively evidence the unpaid balance of this note and its advances
and payments history posted up to that day. All Loans and all payments and
permitted or required prepayments made hereon may be (but are not required to
be) endorsed by Holder on the schedule that is attached hereto (which is hereby
made a part hereof for all purposes) or otherwise recorded in Holder's computer
or manual records; provided, that any failure to make notation of (a) any
principal advance or accrual of interest shall not cancel, limit or otherwise
affect Makers' obligations or Holder's rights with respect to that advance or
accrual, or (b) any payment or permitted or required prepayment of principal or
interest shall not cancel, limit or otherwise affect Makers' entitlement to
credit for that payment as of the date of its receipt by Holder. Makers and
Payee expressly agree, pursuant to Chapter 346 ("Chapter 346") of the Texas
Finance Code, that Chapter 346 (which relates to open-end line of credit
revolving loan accounts) shall not apply to this note or to any loan evidenced
by this note and that neither this note nor any such loan shall be governed by
Chapter 346 or subject to its provisions in any manner whatsoever.
9. This Note, the Special Warehouse Credit Agreement and this
Note's Security. This note is issued separately from and in addition to the
Warehouse Notes (and the other Notes) issued pursuant to the Syndicated
Facilities Agreement. This note evidences and shall evidence advances made to
(or for the account of) the Obligors by Chase Texas (only) to finance up to
Fifty Million Dollars ($50,000,000) in revolving credit principal from time to
time outstanding for warehousing the Obligors' Residential Mortgages that have
been duly pledged to Chase Texas for that purpose (as opposed to being pledged
to the Agent as security for the Obligations under the Syndicated Facilities
Agreement), as provided in Paragraph 8 of this note. Maker and Payee hereby
irrevocably agree that this note shall conclusively be deemed to have been
issued by Maker and accepted by Payee upon and subject to all of the terms,
conditions and provisions of a credit agreement (the "Special Warehouse Credit
Agreement") hereby created that is identical to the Syndicated Facilities
Agreement (and for that purpose the entire text of the Syndicated Facilities
Agreement and its schedules and exhibits is hereby incorporated herein as if
set forth here verbatim and modified as follows) except that (i) it is between
the Obligors and Chase Texas, as the only Warehouse Bank and Bank (and the
Agent), and all references to "Bank", "Warehouse Bank", "Agent", "Majority
Banks" and "Majority Warehouse Banks" in the Special Warehouse Credit Agreement
are hereby changed to refer to Chase Texas; (ii) it is dated concurrently with
this note; (iii) it has no Swing Subline, Second-lien Subline, Receivables
Subline, P&I Sub-subline, T&I Sub-subline, VA/FHA/PMI Foreclosure Receivables
Sub-subline, Repurchased Defaulted Mortgages Sub-subline, Foreclosed Properties
Sub-subline or Subprime Mortgages Subline or Mortgage Pools Purchase
Agreement, (iv) the form of Loan Request required for use thereunder is set
forth in Exhibit A to this note; (v) all of the Special Warehouse Credit
Agreement's internal references to its relating to a $450,000,000 line of
credit are hereby changed to refer to a $50,000,000 line of credit; (vi) the
references
INITIALED FOR
IDENTIFICATION: ____ ____
Page 4 of 8 Pages
<PAGE> 5
in the definitions of "Facilities Papers" and in other definitions in the
Special Warehouse Credit Agreement to the "Current Facilities Agreement" are
changed to refer to the Special Warehouse Credit Agreement and references to
other papers in the definition of "Facilities Papers" are changed to refer only
to this note (the "3/98 Chase Texas Temporary Additional Warehouse Note"), the
Special Warehouse Guaranty (defined in Exhibit B hereto), the Special Warehouse
Credit Agreement, the Special Warehouse Pledge Agreement (defined in Exhibit B
hereto) and any and all other promissory notes, mortgages, deeds of trust,
deeds to secure debt and other real estate mortgage instruments, security
agreements and all instruments, documents and agreements or other papers
executed and delivered pursuant to the terms of, to guarantee or secure or that
otherwise relate to this note, the Special Warehouse Credit Agreement and any
and all future amendments, supplements, renewals, extensions, rearrangements or
restatements of any of them; (vii) the "Warehouse Termination Date" shall be
the Special Warehouse Termination Date (as defined in Paragraph 6 of this note)
instead of March 31, 1999; (viii) the Warehouse Facility Fee in respect of the
Warehouse Line Commitment of Chase Texas to make the Special Warehouse Credit
Agreement's credit available for the period referred to in Section 2.11 thereof
shall be $10,274, which is fully earned, due and payable on the date when this
note is executed and delivered, (ix) the Obligors may not elect any Eurodollar
Rate and accordingly on each day the outstanding principal balance of this note
shall bear interest at the Adjusted LIBOR Rate for that day; provided that if
for any day the Company has duly selected as the Stated Rate to be applied for
that day to a designated portion of the then-outstanding Loans which portion is
both (1) not past due and (2) less than or equal to the Free Adjusted Balances,
a rate per annum equal to the Applicable Margin (only) for that day and for
those respective Loans the Balance Adjusted Rate Option, the portion of such
principal to which such selection applies pursuant to the provisions of the
definition of Stated Rate in the Special Warehouse Credit Agreement shall bear
interest on that day at that rate; and provided further that from and after the
date of occurrence of any Event of Default and until it and its material
consequences (if any) have been wholly cured, this note shall bear interest on
its entire unpaid principal balance at the Past Due Rate; (ix) the list of
papers required to be furnished to Chase Texas in Section 6.6.(a) of the
Special Warehouse Credit Agreement is changed to those listed on Exhibit B to
this note and (x) the table in the Special Warehouse Credit Agreement's
Commitments Schedule is changed to be as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Warehouse Wet Wet
Warehouse Bank Line Warehousing Warehousing
Committed Sublimit(1) Sublimit(2)
Sums
-------------------------------------------------------------------------
<S> <C> <C> <C>
Texas Commerce Bank $50,000,000 $12,500,000 $7,500,000
National Association
-------------------------------------------------------------------------
Totals $50,000,000 $12,500,000 $7,500,000
-------------------------------------------------------------------------
</TABLE>
(1) during first and last 5 Business Days
(2) during remainder of calendar month
INITIALED FOR
IDENTIFICATION: ____ ____
Page 5 of 8 Pages
<PAGE> 6
By execution and delivery of this note, Makers execute and deliver the Special
Warehouse Credit Agreement which is described and effectively set forth above.
BY INCORPORATING THE SYNDICATED FACILITIES AGREEMENT BY REFERENCE AND THEN
AMENDING IT, THIS PARAGRAPH 9 COMPRISES THE SPECIAL WAREHOUSE LOAN AGREEMENT IN
ITS ENTIRETY -- THERE IS NO SEPARATE DOCUMENT FOR IT.
Makers also hereby GRANT Chase Texas a first priority security interest in all
of each Obligor's present and future estate, right, title and interest in and
to all Pledged Mortgages that are concurrently or hereafter pledged to Payee
pursuant to the Special Warehouse Credit Agreement created by the immediately
preceding sentence, all accounts and general intangibles arising therefrom and
all of their proceeds thereof. Holder is entitled to the benefits of and
security provided for in the Special Warehouse Credit Agreement. Such security
includes, among other security, the security interests granted by Obligors (as
debtors) in the Special Warehouse Pledge Agreement.
10. Defaults and Remedies. Any failure by Makers to pay any
principal or interest on this note when due or any default under the Special
Warehouse Credit Agreement, the Special Warehouse Pledge Agreement or any other
Facilities Papers shall constitute default under this note, whereupon Holder
may elect to exercise any or all rights, powers and remedies afforded to the
Agent and/or the Warehouse Banks (a) under the Special Warehouse Credit
Agreement and all other Facilities Papers and (b) by law, including the right
to accelerate the maturity of this entire note.
11. Legal Costs. If any Holder retains an attorney in connection
with any such default or to collect, enforce or defend this note or any
Facilities Papers in any lawsuit or in any probate, reorganization, bankruptcy
or other proceeding, or if Makers sue any Holder in connection with this note
or any such Facilities Papers and do not prevail, then Makers agree to pay to
each such Holder, in addition to principal and interest, all reasonable costs
and expenses incurred by such Holder in trying to collect this note or in any
such suit or proceeding, including reasonable attorneys' fees. An amount equal
to ten percent (10%) of the unpaid principal and accrued interest owing on this
note when and if this note is placed in the hands of an attorney for collection
after default is stipulated to be reasonable attorneys' fees unless a Holder or
any Maker of this note timely pleads otherwise to a court of competent
jurisdiction.
12. Waivers. Makers and any and all co-makers, endorsers,
guarantors and sureties severally waive notice (including, but not limited to,
notice of intent to accelerate and notice of acceleration, notice of protest
and notice of dishonor), demand, presentment for payment, protest, diligence in
collecting and the filing of suit for the purpose of fixing liability and
consent that the time of payment hereof may be extended and re-extended from
time to time without notice to any of them. Each such Person agrees that his,
her or its liability on or with respect to this note shall not be affected by
any release of or change in any guaranty or security at any time existing or by
any failure to perfect or maintain perfection of any Lien against or security
interest in any such security or the partial
INITIALED FOR
IDENTIFICATION: ____ ____
Page 6 of 8 Pages
<PAGE> 7
or complete unenforceability of any guaranty or other surety obligation, in
each case in whole or in part, with or without notice and before or after
maturity.
13. Not Purpose Credit. None of the proceeds of this note shall
ever be used, directly or indirectly, for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System or for the purpose of reducing or retiring any debt
which was originally incurred to purchase or carry any "margin stock" or to
extend credit to others for the purpose of purchasing or carrying any "margin
stock" or which would constitute this transaction a "purpose credit" within the
meaning of Regulation U, as now or hereafter in effect.
14. Governing Law, Jurisdiction and Venue. This note shall be
governed by and construed in accordance with the laws of the State of Texas and
the United States of America from time to time in effect. Makers and all
co-makers, endorsers, guarantors and sureties each hereby irrevocably submits
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of Texas and the state district courts of Harris County,
Texas, for purposes of all legal proceedings arising out of or relating to this
note, the debt evidenced hereby or any loan agreement, security agreement,
guaranty or other papers or agreements relating to this note. To the fullest
extent permitted by law, Makers and all co-makers, endorsers, guarantors and
sureties each irrevocably waives any objection which he, she or it may now or
hereafter have to the laying of venue for any such proceeding brought in such a
court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum and agrees that service of process may be made
upon him, her or it in any such proceeding by registered or certified mail.
Harris County, Texas shall be a proper place of venue for suit hereon.
15. General Purpose of Loan. Makers warrant and represent to
Payee and all other Holders that all Loans evidenced by this note are and will
be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925, as amended,
or in the Texas Finance Code.
16. Participations. Payee and each other Holder reserves the
right, exercisable in his, her or its sole discretion and without notice to any
of Makers or any other Person, to sell participations in all or any part of
this note or the debt evidenced by this note.
INITIALED FOR
IDENTIFICATION: ____ ____
Page 7 of 8 Pages
<PAGE> 8
HARBOR FINANCIAL MORTGAGE
CORPORATION
By: /s/ RICHARD J. GILLEN
-------------------------------
Richard J. Gillen
President
NEW AMERICA FINANCIAL, INC.
By: /s/ RICHARD J. GILLEN
-------------------------------
Richard J. Gillen
Chairman of the Board
JOINDER BY CHASE TEXAS
Chase Bank of Texas, National Association executes this note solely
for the purpose of joining Makers in executing the Special Warehouse Credit
Agreement created hereby.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ CYNTHIA CRITES
---------------------------------
Cynthia Crites
Vice President
INITIALED FOR
IDENTIFICATION: ____ ____
Page 8 of 8 Pages
<PAGE> 9
ANNEX 1
to $50,000,000
Harbor Financial Mortgage Corporation
and New America Financial, Inc.
3/98 Chase Texas Temporary Additional Warehouse Note
to Chase Bank of Texas, National Association
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Payment Applied on
Date of Payment (or advance vs.) Payment Applied Name of Person
or Advance Principal on Interest Principal Balance Interest Paid to Making Notation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
EXHIBIT A TO
CHASE TEXAS TEMPORARY ADDITIONAL
WAREHOUSE NOTE
[WET WAREHOUSING] [WAREHOUSE] LOAN REQUEST
[LETTERHEAD OF HARBOR FINANCIAL MORTGAGE CORPORATION
OR NEW AMERICA FINANCIAL, INC., AS APPLICABLE]
________________, 19___
Chase Bank of Texas National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Mortgage Warehouse Division
Ladies and Gentlemen:
Harbor Financial Mortgage Corporation (the "Company"), New America
Financial, Inc. ("New Am Inc.", and collectively with the Company, the
"Obligors") and Chase Bank of Texas, National Association ("Chase Texas"),
entered into a Special Warehouse Credit Agreement by jointly executing the
Obligors' promissory note (the "3/98 Chase Texas Special Warehouse Note" dated
March 17, 1998 that created such credit agreement (which, as it may have been
supplemented, amended and restated, is called the "Special Warehouse Credit
Facilities Agreement"). Any term defined in the Special Warehouse Credit
Agreement and used (but not redefined) in this Loan Request shall have the
meaning given to it in the Special Warehouse Credit Agreement.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] hereby requests a [WET
WAREHOUSING] [WAREHOUSE] Loan in the amount of $_____________________ to be
made on ________________________, 19___ (or, if that is not a Business Day, on
the next day that is). [USE THIS NEXT SENTENCE IN A REQUEST FOR A WET
WAREHOUSING LOAN:] The amount of the Wet Warehousing Loan is (a) not more than
the aggregate Warehouse Loan Values of the Wet Mortgage Loans (the "Subject
Eligible Mortgages") that are described on the Schedule of Wet Mortgage Loans
Pledged attached to this Loan Request, (b) not more than the difference between
(i) the Wet Warehousing Sublimit and (ii) the outstanding amount of all
existing Wet Warehousing Loans, and (c) not more than the difference between
(i) the maximum credit available under the Warehouse Line (including its Wet
Warehousing Subline) as specified in the Special Warehouse Credit Agreement and
(ii) the aggregate outstanding principal balance of the Current Warehouse
Notes. [USE THE NEXT SENTENCE IN A REQUEST FOR A WAREHOUSE LOAN.] The amount
of the Warehouse Loan is (a) not more than the aggregate Warehouse Loan Values
of the Eligible Mortgages (the "Subject Eligible Mortgages") that are described
on the Schedule of Eligible Mortgages Pledged attached to this Loan Request and
(b) not more than the difference between (i) the maximum credit available under
the
<PAGE> 11
Warehouse Line as specified in the Special Warehouse Credit Agreement and (ii)
the outstanding aggregate principal balance of the Current Warehouse Notes. If
the requested [WET WAREHOUSING] [WAREHOUSE] Loan is funded, [THE WET
WAREHOUSING SUBLIMIT WILL NOT BE EXCEEDED AND] the aggregate of all principal
outstanding under the 3/98 Chase Texas Special Warehouse Note will not exceed
Fifty Million Dollars ($50,000,000).
The Subject Eligible Mortgages are intended to be pledged to Chase
Texas, Chase Texas is hereby GRANTED a security interest in them and they are
hereby made subject to the Special Warehouse Pledge Agreement, effective
immediately.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY THE COMPANY:] The proceeds
of the [WET WAREHOUSING] [WAREHOUSE] Loan should be deposited in the Company's
account number __________________ with Chase Texas.
[USE THIS PARAGRAPH ONLY IN A REQUEST BY NEW AM INC.:] The proceeds
of the [WET WAREHOUSING] [WAREHOUSE] Loan should be deposited in the New Am
Inc.'s account number __________________ with Chase Texas.
The undersigned hereby certifies that all of the Company's and New Am
Inc.'s representations and warranties in this Loan Request, the Special
Warehouse Credit Agreement and all of the other Facilities Papers are true and
correct as of this date, that no Potential Default or Default exists and that
[THE COMPANY] [NEW AM INC.] is in full compliance with the requirements of
those and all other Facilities Papers.
[THE COMPANY OR NEW AM INC., AS APPLICABLE] acknowledges that Chase
Texas will rely on the truth of each statement in this Loan Request in making
and funding the requested [WET WAREHOUSING] [WAREHOUSE] Loan.
[USE THE APPROPRIATE SIGNATURE BLOCK BELOW:]
HARBOR FINANCIAL MORTGAGE
CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
NEW AMERICA FINANCIAL, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Attachments:
Schedule of [WET MORTGAGE LOANS][ELIGIBLE MORTGAGES] Pledged
2
<PAGE> 12
EXHIBIT B TO
CHASE TEXAS TEMPORARY ADDITIONAL
WAREHOUSE NOTE
The list of papers required to be received by Chase Texas pursuant to
Section 6.6(a) of the Special Warehouse Credit Agreement is as follows:
(1) the 3/98 Chase Texas Temporary
Additional Warehouse Note;
(2) a written continuing guaranty of
payment executed by the Guarantor unconditionally and irrevocably guaranteeing
to Chase Texas payment when due of the Obligations (the "Special Warehouse
Guaranty");
(3) a written Security Agreement-Pledge
of Secured Notes (Special Warehouse) dated the same date as the 3/98 Chase
Temporary Additional Warehouse Note by and between the Obligors, as debtors,
and Chase Texas, as secured party, covering all of Obligors' rights, titles and
interest in and to all promissory notes pledged to secure the Obligations under
the Special Warehouse Credit Agreement, the 3/98 Chase Temporary Additional
Warehouse Note and the other Facilities Papers, and all documents and
instruments securing, guaranteeing or otherwise relating to such promissory
note, as the same may be amended, supplemented, modified and/or restated from
time to time.(the "Special Warehouse Pledge Agreement" and its Financing
Statement;
(4) (If and to the extent not previously
furnished to Chase Texas) by no later than April 1, 1998, (A) copies of any
amendments to the Guarantor's certificate of incorporation issued by the
Secretary of State of Delaware, (B) copies of any amendments to the Guarantor's
bylaws certified by its corporate secretary or assistant secretary, (C)
certificates of the Guarantor's good standing issued by the Secretary of State
of the State of Delaware, and (D) certificates of authority and good standing
issued or to be issued by the appropriate Governmental Authority in each state
in which the Guarantor does business and where either the Guarantor is
authorized to do business or where doing business without being duly authorized
would potentially subject the Guarantor to a Material Adverse Effect;
(5) (If and to the extent not previously
furnished to Chase Texas) by no later than April 1, 1998, copies of (A)
FirstCity's certificate of incorporation issued by the Secretary of State of
Delaware, (B) FirstCity's bylaws certified by its corporate secretary or
assistant secretary, (C) certificates of FirstCity's good standing issued by
the Secretary of State of the State of Delaware, and (D) certificates of
authority and good standing issued or to be issued by the appropriate
Governmental Authority in each state in which FirstCity does business and where
either FirstCity is authorized to do business or where doing business without
being duly authorized would potentially subject FirstCity to a Material Adverse
Effect;
1
<PAGE> 13
(6) (If and to the extent not previously
furnished to Chase Texas) by no later than April 1, 1998, (A) copies of any
amendments to each Obligor's articles of incorporation certified by the
Secretary of State of the State of Texas, (B) copies of any amendments to each
Obligor's bylaws certified by its corporate secretary or assistant secretary,
(C) a certificate of good standing issued by the Secretary of State of the
State of Texas and (D) a schedule listing, by state, all certificates of
authority, good standing and franchise taxes paid issued by the Secretary of
State of the State of Texas, the Texas Comptroller of Public Accounts and the
appropriate Governmental Authority in each state in which each Obligor does
business and where either such Obligor is authorized to do business or where
doing business without being duly authorized would potentially subject such
Obligor to a Material Adverse Effect, each with respect to such Obligor,
accompanied by all such certificates listed;
(7) By no later than April 1, 1998,
resolutions of the board of directors of the Guarantor, FirstCity and each
Obligor, certified, in each case, by its corporate secretary or assistant
secretary, authorizing the execution, delivery and performance of the 3/98
Chase Texas Temporary Additional Warehouse Note and all applicable Facilities
Papers and all other papers to be delivered by the Guarantor, FirstCity and/or
each Obligor pursuant to the Special Warehouse Credit Agreement;
(8) a certificate of the corporate
secretary or assistant secretary of the Guarantor, FirstCity and each Obligor
as to the incumbency and authenticity of the signatures of the officers of the
Guarantor, FirstCity and each Obligor executing the applicable Facilities
Papers and all other papers to be delivered pursuant to the Special Warehouse
Credit Agreement (Chase Texas shall be entitled to rely on each such
certificate until a replacement certificate has been furnished to Chase Texas);
(9) If and to the extent not previously
furnished, certificates of insurance certifying that the Obligors are in
compliance with the requirements of Section 9.11 of the Special Warehouse
Credit Agreement; and
(10) all fees due to Chase Texas pursuant
to the Special Warehouse Credit Agreement and any other letters or agreements
between the Guarantor and/or the Obligors and Chase Texas shall have been paid
on or before execution and delivery of the 3/98 Chase Texas Temporary
Additional Warehouse Note.
2
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of JULY 1,
1997, by and between HARBOR FINANCIAL MORTGAGE CORPORATION, a Texas corporation
(the "Employer"), and RICHARD J. GILLEN, an individual (the "Executive").
RECITALS:
Concurrently with the execution and delivery of this Agreement,
FirstCity Financial Corporation, a Delaware corporation ("FirstCity"), is
acquiring from the Executive and other Persons all of the issued and
outstanding shares of stock of Harbor Financial Group, Inc. ("HFGI"), the
parent of the Employer, pursuant to an Agreement and Plan of Merger dated as of
March 26, 1997, by and among FirstCity, HFGI Acquisition Corp. and the Employer
(the "Merger Agreement"). FirstCity and the Employer desire the Executive's
continued employment with the Employer, and the Executive wishes to accept such
continued employment, upon the terms and conditions set forth in this
Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement, as amended from time to time.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer; and
(b) information concerning the business and affairs of the
Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital
spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials) however
documented; and
(C) notes, analyses, compilations, studies, summaries, and other
material prepared by or for the Employer containing or based, in whole
or in part, on any information included in the foregoing.
EMPLOYMENT AGREEMENT PAGE 1
<PAGE> 2
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION"--any idea, invention, technique, modification,
process, or improvement (whether patentable or not) and any work of authorship
(whether or not copyright protection may be obtained for it) created,
conceived, or developed by the Executive, either solely or in conjunction with
others, during the Employment Period, or a period that includes a portion of
the Employment Period, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer, and any such item created by the Executive, either solely or in
conjunction with others, following termination of the Executive's employment
with the Employer, that is based upon or uses Confidential Information.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD REASON"--as defined in Section 6.4.
"INCENTIVE BONUS"--as defined in Section 3.2.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be three (3) years, beginning
on the Effective Date and ending on the third anniversary of the Effective
Date.
EMPLOYMENT AGREEMENT PAGE 2
<PAGE> 3
2.3 DUTIES. The Executive will have such duties as are assigned
or delegated to the Executive by the Board of Directors, and will initially
serve as President and Chief Executive Officer of the Employer and a member of
the Executive Committee of FirstCity. The Executive will devote his entire
business time, attention, skill, and energy exclusively to the business of the
Employer, will use his best efforts to promote the success of the Employer's
and FirstCity's business, and will cooperate fully with the Board of Directors
in the advancement of the best interests of the Employer and FirstCity.
Nothing in this Section 2.3, however, will prevent the Executive from engaging
in additional activities in connection with personal investments and community
affairs that are not inconsistent with the Executive's duties under this
Agreement.
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual salary of
$300,000.00, subject to adjustment as provided below (the "Salary"),
which will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than
monthly. The Salary will be reviewed by the Compensation Committee of
the Board of Directors of FirstCity not less frequently than annually,
and may be adjusted upward or downward in the sole discretion of the
Board of Directors of FirstCity; provided, however, the Executive's
Salary will be comparable to the salaries of the members of the
Executive Committee of the Board of Directors of FirstCity.
(b) BENEFITS. The Executive will, during the Employment Period,
be permitted to participate in such pension, profit sharing, bonus,
stock option, life insurance, hospitalization, major medical, and
other employee benefit plans of the Employer and FirstCity that may be
in effect from time to time, to the extent the Executive is eligible
under the terms of those plans (collectively, the "Benefits");
provided, however, the Executive's employee benefits will be
comparable to the employee benefits of the members of the Executive
Committee of the Board of Directors of FirstCity.
3.2 INCENTIVE BONUS. As additional compensation (the "Incentive
Bonus") for the services to be rendered by the Executive pursuant to this
Agreement, the Employer will pay to the Executive with respect to each Fiscal
Year during the Employment Period, commencing on or after the Effective Date
(prorated for the remainder of the Fiscal Year of FirstCity ending December 31,
1997), an incentive bonus based on the profits of FirstCity. The amount of the
Incentive Bonus and the terms and conditions of payment of the Incentive Bonus
will be comparable to the incentive bonuses of the members of the Executive
Committee of the Board of Directors of FirstCity.
EMPLOYMENT AGREEMENT PAGE 3
<PAGE> 4
4. FACILITIES AND EXPENSES
4.1 GENERAL. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay on behalf of the Executive
(or reimburse the Executive for) reasonable expenses incurred by the Executive
at the request of, or on behalf of, the Employer in the performance of the
Executive's duties pursuant to this Agreement, and in accordance with the
Employer's employment policies, including reasonable expenses incurred by the
Executive in attending conventions, seminars, and other business meetings, in
appropriate business entertainment activities, and for promotional expenses.
The Executive must file expense reports with respect to such expenses in
accordance with the Employer's policies.
4.2 AUTOMOBILE. The Employer will include the Executive in
FirstCity's automobile allowance policy. The Executive must file expense
reports with respect to such automobile in accordance with FirstCity's and the
Employer's policies.
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in
accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. The Executive will also be entitled to
the paid holidays and other paid leave set forth in the Employer's policies.
6. TERMINATION
6.1 EVENTS OF TERMINATION. The Employment Period, the Executive's
Basic Compensation and Incentive Bonus, and any and all other rights of the
Executive under this Agreement or otherwise as an employee of the Employer will
terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice
from the Employer to the Executive, or at such later time as such
notice may specify; or
(d) for good reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF "DISABILITY". For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days, or 180 days during any twelve (12) month
period, as determined in accordance with this Section 6.2. The disability of
EMPLOYMENT AGREEMENT PAGE 4
<PAGE> 5
the Executive will be determined by a medical doctor selected by written
agreement of the Employer and the Executive upon the request of either party by
notice to the other. If the Employer and the Executive cannot agree on the
selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical
doctor selected under this Section 6.2 will be binding on both parties. The
Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section 6.2, and the
Executive hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6.2, for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE". For purposes of Section 6.1, the
phrase "for cause" means: (a) the Executive's material breach of this
Agreement; (b) the Executive's failure to adhere to any written policy of the
Employer or FirstCity if the Executive has been given a reasonable opportunity
to comply with such policy or cure his failure to comply (which reasonable
opportunity must be granted during the ten-day period preceding termination of
this Agreement); (c) the appropriation (or attempted appropriation) of a
material business opportunity of the Employer or FirstCity, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer or FirstCity; (d) the
misappropriation (or attempted misappropriation) of any of the Employer's or
FirstCity's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON". For purposes of Section 6.1,
the phrase "for good reason" means any of the following: (a) the Employer's
material breach of this Agreement; or (b) the assignment of the Executive
without his consent to a position, responsibilities, or duties of a materially
lesser status or degree of responsibility than his position, responsibilities,
or duties at the Effective Date.
6.5 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer or FirstCity. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or
trust, located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such a beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer and FirstCity will have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of
any trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
EMPLOYMENT AGREEMENT PAGE 5
<PAGE> 6
(a) SALARY. Upon the termination of this Agreement, the Executive
will be entitled to receive his Salary only through the date such
termination is effective.
(b) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of
the termination of this Agreement, and the Executive will be entitled
to accrued Benefits pursuant to such plans only as provided in such
plans.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that (a) during the Employment Period and as a part of his employment, the
Executive will be afforded access to Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) because the Executive possesses substantial
technical expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee Invention, and
the Employer will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (d) FirstCity has
required that the Executive make the covenants in this Section 7 as a condition
to its purchase of the Employer's stock of HFGI; and (e) the provisions of this
Section 7 are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment Period, the
Executive will hold in confidence the Confidential Information
and will not disclose it to any person except with the
specific prior written consent of the Employer or except as
otherwise expressly permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under applicable law. If
any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such information
will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any
requirement that the Employer submit proof of the economic
value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
EMPLOYMENT AGREEMENT PAGE 6
<PAGE> 7
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code, whether
embodied in a disk or in any other form (collectively, the
"Proprietary Items"). The Executive recognizes that, as
between the Employer and the Executive, all of the Proprietary
Items, whether or not developed by the Executive, are the
exclusive property of the Employer. Upon termination of this
Agreement by either party, or upon the request of the Employer
during the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the
Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. If it is determined that any such works
are not works made for hire, the Executive hereby assigns to the
Employer all of the Executive's right, title, and interest, including
all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants
that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer
may request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance but
without expense to the Executive in support of the Employer's
rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
EMPLOYMENT AGREEMENT PAGE 7
<PAGE> 8
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that: (a) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character; (b) the
Employer's business is national in scope and its products and services are
marketed throughout the United States; (c) the Employer competes with other
businesses that are or could be located in any part of the United States; (d)
FirstCity has required that the Executive make the covenants set forth in this
Section 8 as a condition to FirstCity's acquisition of the Executive's stock of
HFGI; and (e) the provisions of this Section 8 are reasonable and necessary to
protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post- Employment Period, engage
or invest in, own, manage, operate, finance, control, or participate
in the ownership, management, operation, financing, or control of, be
employed by, associated with, or in any manner connected with, lend
the Executive's name or any similar name to, lend Executive's credit
to or render services or advice to, any business whose products,
services or activities compete in whole or in part with the products
or activities of the Employer or FirstCity anywhere within the United
States where the Employer or FirstCity conducts or markets its
business, products or services; provided, however, that the Executive
may purchase or otherwise acquire up to (but not more than) one
percent of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such
securities are listed on any national or regional securities exchange
or have been registered under Section 12(g) of the Securities Exchange
Act of 1934;
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the
Executive to be a customer of the Employer or FirstCity, whether or
not the Executive had personal contact with such person during and by
reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person (i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as an
employee, independent contractor, or otherwise, any person who is or
was an employee of the Employer at any time during the Employment
Period or in any manner induce or attempt to induce any employee of
the Employer to terminate his employment with the Employer; or (ii) at
any time during the Employment Period and for three years thereafter,
interfere with the Employer's relationship with any person, including
any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
EMPLOYMENT AGREEMENT PAGE 8
<PAGE> 9
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the three (3) year period beginning on the date of termination of the
Executive's employment with the Employer.
For purposes of this Section 8.2, the term "FirstCity" means FirstCity
Financial Corporation, a Delaware corporation, and/or any of its subsidiaries
or affiliates.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten (10) days after accepting any
other employment, of the identity of the Executive's employer. FirstCity or
the Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a copy of
this Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary damages
to the Employer for such a breach would be an inadequate remedy. Consequently,
the Employer will have the right, in addition to any other rights it may have,
to obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any
other remedies of the Employer, if the Executive breaches any of the provisions
of Section 7 or 8, the Employer will have the right to cease making any
payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS. The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply
with such covenants, FirstCity would not have acquired the Executive's stock of
HFGI under the Merger Agreement and the Employer would not have entered into
this Agreement or employed or continued the employment of the Executive. The
Employer and the Executive have independently consulted their respective
counsel and have been advised in all respects concerning the
EMPLOYMENT AGREEMENT PAGE 9
<PAGE> 10
reasonableness and propriety of such covenants, with specific regard to the
nature of the business conducted by the Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against FirstCity, will not excuse the
Executive's breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement does not, and the performance by
the Executive of the Executive's obligations hereunder will not, with or
without the giving of notice or the passage of time, or both: (a) violate any
judgment, writ, injunction, or order of any court, arbitrator, or governmental
agency applicable to the Executive; or (b) conflict with, result in the breach
of any provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by
EMPLOYMENT AGREEMENT PAGE 10
<PAGE> 11
hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below
(or to such other addresses and facsimile numbers as a party may designate by
notice to the other parties):
If to Employer: Harbor Financial Mortgage Corporation
340 North Sam Houston Parkway East, Suite 100
Houston, Texas 77060
Attention:
-----------------------
Facsimile No.: 713-448-4098
With a copy to: FirstCity Financial Corporation
P.O. Box 8216
Waco, Texas 76714-8216
Attention: Matt Landry, Jr.
Facsimile No.: 817-751-1208
If to the Executive: Richard J. Gillen
---------------------------------
---------------------------------
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Merger
Agreement, and the documents executed in connection with the Merger Agreement,
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
9.10 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to be
of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
9.11 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
9.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of
EMPLOYMENT AGREEMENT PAGE 11
<PAGE> 12
which, when taken together, will be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER:
HARBOR FINANCIAL MORTGAGE CORPORATION
By: /s/ RONALD E. HAMES
--------------------------------
Name: Ronald E. Hames
--------------------------------
Title: Sr. Vice President
--------------------------------
EXECUTIVE:
/s/ RICHARD J. GILLEN
--------------------------------------
RICHARD J. GILLEN
EMPLOYMENT AGREEMENT PAGE 12
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of SEPTEMBER
8, 1997, by and between FIRSTCITY FUNDING CORPORATION, a Texas corporation (the
"Employer"), and THOMAS R. BROWER, an individual (the "Executive"). The
parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" means this Employment Agreement, as amended from time to
time.
"BASIC COMPENSATION" means Salary and Benefits.
"BENEFITS" has the meaning as defined in Section 3.1(b).
"BOARD OF DIRECTORS" means the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" means any and all of the following, but
only to the extent such information or documents were created, learned and/or
obtained during the Employment Period (defined below): (a) trade secrets
concerning the business and affairs of the Employer; (b) information concerning
the business and affairs of the Employer (which includes historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel,
personnel training and techniques and materials) however documented; and (c)
notes, analysis, compilations, studies, summaries, and other material prepared
by or for the Employer containing or based, in whole or in part, on any
information included in the foregoing.
"DISABILITY" has the meaning as defined in Section 6.2.
"EFFECTIVE DATE" means the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION" means any invention, technique, modification,
process, or improvement (whether patentable or not) and any work of authorship
(whether or not copyright protection may be obtained for it) created,
conceived, or developed by the Executive, either solely or in conjunction with
others, during the Employment Period, or a period that includes a portion of
the Employment Period, that relates in any way to, the business then being
conducted by the Employer.
"EMPLOYMENT PERIOD" means the term of the Executive's employment under
this Agreement.
"FIRSTCITY" means FirstCity Financial Corporation, a Delaware
corporation.
EMPLOYMENT AGREEMENT PAGE 1
<PAGE> 2
"FISCAL YEAR" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE" has the meaning as defined in Section 6.3.
"FOR GOOD REASON" has the meaning as defined in Section 6.4.
"INCENTIVE BONUS" has the meaning as defined in Section 3.2.
"OPERATING AGREEMENT" means the Operating Agreement of even date
herewith between the Employer and FirstCity.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"POST-EMPLOYMENT PERIOD" has the meaning as defined in Section 8.2.
"PROPRIETARY ITEMS" has the meaning as defined in Section 7.2(a)(iv).
"SALARY" has the meaning as defined in Section 3.1(a).
"SHAREHOLDER AGREEMENT" means the Shareholder Agreement of even date
herewith among FirstCity, Thomas R. Brower, Scot A. Foith, Thomas G. Dundon,
R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent and Blake P. Bozman, as
amended from time to time.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and
the Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be five (5) years, beginning
on the Effective Date and ending on the fifth (5th) anniversary of the
Effective Date.
2.3 DUTIES. The Executive will have such duties as are assigned
or delegated to the Executive by the Board of Directors, and will initially
serve as President of the Employer. The Executive will devote his entire
business time, attention, skill, and energy exclusively to the business of the
Employer, will use his best efforts to promote the success of the Employer's
business, and will cooperate fully with the Board of Directors in the
advancement of the best interests of the Employer. Nothing in this Section
2.3, however, will prevent the Executive from engaging in additional activities
in connection with personal investments and community affairs that are not
inconsistent with the Executive's duties under this Agreement.
EMPLOYMENT AGREEMENT PAGE 2
<PAGE> 3
3. COMPENSATION
3.1 BASIC COMPENSATION.
(a) SALARY. The Executive will be paid an annual salary of
$144,000.00, subject to adjustment as provided below (the "Salary"),
which will be payable in equal periodic installments according to the
Employer's customary payroll practices, but no less frequently than
monthly. The Salary will be reviewed by the Board of Directors not
less frequently than annually, and may be adjusted upward in the sole
discretion of the Board of Directors.
(b) BENEFITS. The Executive will, during the Employment Period,
be permitted to participate in such pension, profit sharing, bonus,
stock option, life insurance, hospitalization, major medical, and
other employee benefit plans of the Employer that may be in effect
from time to time, to the extent the Executive is eligible under the
terms of those plans (collectively, the "Benefits").
3.2 INCENTIVE BONUS. As additional compensation (the "Incentive
Bonus") for the services to be rendered by the Executive pursuant to this
Agreement, the Employer will pay to the Executive and to Senior Management with
respect to each Fiscal Year during the Employment Period, commencing with the
Fiscal Year ending December 31, 1997, an incentive bonus based on the profits
of the Employer. The amount of the Incentive Bonus and the terms and
conditions of payment of the Incentive Bonus will be determined in accordance
with the Bonus Calculation attached hereto as Exhibit A. The Executive and the
Senior Management cumulatively shall be entitled to receive the entirety of the
Bonus Pool pursuant to the terms of the Bonus Calculation. A reasonable
allocation of the Bonus Pool between the Executive and the Senior Management
shall be determined by the majority decision of the Executive, Scot A. Foith
and one member of Employer's Senior Management (the "Bonus Committee"). The
Bonus Committee shall submit the allocation to the Board of Directors for
review. The Executive and the Senior Management shall have the option, in a
manner similar to that provided in FirstCity's Incentive Bonus Plan, to take
all or any portion of their portion of the Bonus Pool, including the deferred
portion thereof, in cash or in registered and readily marketable stock of
FirstCity at a price per share determined in accordance with FirstCity's
Incentive Bonus Plan. For purposes hereof, Senior Management is defined to be,
in addition to Executive, Scot A. Foith, Thomas G. Dundon, R. Tyler Whann,
Bradley C. Reeves, Stephen H. Trent and Blake P. Bozman; provided, however,
that the Bonus Committee may modify the term Senior Management by adding or
removing persons to be included in Senior Management.
4. FACILITIES AND EXPENSES
4.1 GENERAL. The Employer will furnish the Executive office
space, equipment, supplies, and such other facilities and personnel as the
Employer deems necessary or appropriate for the performance of the Executive's
duties under this Agreement. The Employer will pay on behalf of the Executive
(or reimburse the Executive for) reasonable expenses incurred by the Executive
at the request of, or on behalf of, the Employer in the performance of the
Executive's duties pursuant to this Agreement, and in accordance with the
Employer's employment policies, including reasonable expenses incurred by the
Executive in attending conventions, seminars, and other business meetings, in
appropriate business entertainment activities, and for promotional expenses.
The Executive must file expense reports with respect to such expenses in
accordance with the Employer's policies.
EMPLOYMENT AGREEMENT PAGE 3
<PAGE> 4
5. VACATIONS AND HOLIDAYS
The Executive will be entitled to paid vacation each Fiscal Year in
accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. The Executive will also be entitled to
the paid holidays and other paid leave set forth in the Employer's policies.
6. TERMINATION
6.1 EVENTS OF TERMINATION. The Employment Period, the Executive's
Basic Compensation and Incentive Bonus, and any and all other rights of the
Executive under this Agreement or otherwise as an employee of the Employer will
terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section
6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon notice
from the Employer to the Executive, or at such later time as such
notice may specify; or
(d) for good reason (as defined in Section 6.4) upon not less than
thirty days' prior notice from the Executive to the Employer. In the
event Executive exercises his right to terminate the Agreement under
this subparagraph, all rights of the Employer under this Agreement,
including those set forth in paragraphs 7 and 8 and all subparagraphs
thereof, will terminate and will not be enforceable against Executive.
6.2 DEFINITION OF "DISABILITY". For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days, or 180 days during any twelve (12) month
period, as determined in accordance with this Section 6.2. The disability of
the Executive will be determined by a medical doctor selected by written
agreement of the Employer and the Executive upon the request of either party by
notice to the other. If the Employer and the Executive cannot agree on the
selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical
doctor selected under this Section 6.2 will be binding on both parties. The
Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section 6.2, and the
Executive hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6.2, for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 6.2.
EMPLOYMENT AGREEMENT PAGE 4
<PAGE> 5
6.3 DEFINITION OF "FOR CAUSE". For purposes of Section 6.1, the
phrase "for cause" means: (a) the Executive's material breach of this Agreement
or the Shareholder Agreement; (b) the Executive's failure to adhere to any
written Employer policy if the Executive has been given a reasonable
opportunity to comply with such policy or cure his failure to comply (which
reasonable opportunity must be granted during the ten-day period preceding
termination of this Agreement); (c) the Executive's appropriation (or attempted
appropriation) of a material business opportunity of the Employer, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer; (d) the Executive's
misappropriation (or attempted misappropriation) of any of the Employer's funds
or property; (e) the Executive's conviction of, the indictment for (or its
procedural equivalent), or the entering of a guilty plea or plea of no contest
with respect to, a felony, the equivalent thereof, or any other crime with
respect to which imprisonment is a possible punishment; or (f) the Executive's
failure to own and control at least 25,000 shares of the common stock, par
value $0.01 per share, of the Employer.
6.4 DEFINITION OF "FOR GOOD REASON". For purposes of Section 6.1,
the phrase "for good reason" means any of the following: (a) the Employer's
material breach of this Agreement; or (b) the assignment of the Executive
without his consent to a position, responsibilities, or duties of a materially
lesser status or degree of responsibility than his position, responsibilities,
or duties at the Effective Date.
6.5 TERMINATION PAY. Effective upon the termination of this
Agreement, the Employer will be obligated to pay the Executive (or, in the
event of his death, his designated beneficiary as defined below) only such
compensation as is provided in this Section 6.5, and in lieu of all other
amounts and in settlement and complete release of all claims the Executive may
have against the Employer. For purposes of this Section 6.5, the Executive's
designated beneficiary will be such individual beneficiary or trust, located at
such address, as the Executive may designate by notice to the Employer from
time to time or, if the Executive fails to give notice to the Employer of such
a beneficiary, the Executive's estate. Notwithstanding the preceding sentence,
the Employer will have no duty, in any circumstances, to attempt to open an
estate on behalf of the Executive, to determine whether any beneficiary
designated by the Executive is alive or to ascertain the address of any such
beneficiary, to determine the existence of any trust, to determine whether any
person or entity purporting to act as the Executive's personal representative
(or the trustee of a trust established by the Executive) is duly authorized to
act in that capacity, or to locate or attempt to locate any beneficiary,
personal representative, or trustee. Executive's rights under the Shareholder
Agreement and his ownership of shares in the Employer, will not be affected by
the termination of this Agreement.
(a) SALARY. Upon the termination of this Agreement, the Executive
will be entitled to receive his Salary only through the date such
termination is effective.
(b) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of
the termination of this Agreement, and the Executive will be entitled
to accrued Benefits pursuant to such plans only as provided in such
plans.
EMPLOYMENT AGREEMENT PAGE 5
<PAGE> 6
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that (a) during the Employment Period and as a part of his employment, the
Executive will be afforded access to Confidential Information; (b) public
disclosure of such Confidential Information could have an adverse effect on the
Employer and its business; (c) because the Executive possesses substantial
technical expertise and skill with respect to the Employer's business, the
Employer desires to obtain exclusive ownership of each Employee Invention, and
the Employer will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (d) FirstCity and the
Employer have required that the Executive make the covenants in this Section 7
as a condition to entering into the Operating Agreement; and (e) the provisions
of this Section 7 are reasonable and necessary to prevent the improper use or
disclosure of Confidential Information and to provide the Employer with
exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the
compensation and benefits to be paid or provided to the Executive by the
Employer under this Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During the Employment Period and the Post-Employment
Period (as defined below), the Executive will hold in
confidence the Confidential Information and will not disclose
it to any person except with the specific prior written
consent of the Employer or except as otherwise expressly
permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under applicable law. If
any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such information
will, nevertheless, be considered Confidential Information for
purposes of this Agreement.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes of
the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code owned by the
Employer, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Employer and the Executive,
all of the Proprietary Items, whether or not developed by the
Executive, are the exclusive property of the Employer. Upon
termination of this Agreement by either party, or upon the
request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary
Items in the Executive's possession or subject to the
EMPLOYMENT AGREEMENT PAGE 6
<PAGE> 7
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. If it is determined that any such works
are not works made for hire, the Executive hereby assigns to the
Employer all of the Executive's right, title, and interest, including
all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants
that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated by
the Employer, at the Employer's request and without additional
compensation, all of the Executive's right to the Employee
Invention for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments, and other documents as the Employer
may request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance but
without expense to the Executive in support of the Employer's
rights to any Employee Invention.
(c) PUBLISHING RIGHTS. Notwithstanding any obligations or
agreements of Executive set forth herein, including, without
limitation, those set forth in Paragraphs 7 and 8 herein, Executive
shall have the right to write and publish one or more books regarding
sales, management, motivation, and/or leadership, applicable to the
general public and not industry specific, and such works and any
proceeds therefrom shall be the property of the Executive. Executive
shall also have the right to any audio and video productions regarding
sales, management, motivation, and/or leadership, applicable to the
general public and not industry specific, and such works and any
proceeds therefrom shall be the property of the Executive.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of Confidential Information may be
jeopardized. In the event any arbitration or court proceeding is instigated
relating to this Agreement, the parties to this Agreement agree to make good
faith efforts to preserve the secrecy of any Confidential Information.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges
that: (a) the services to be performed by him under this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character; (b) the
Employer's business may be, in
EMPLOYMENT AGREEMENT PAGE 7
<PAGE> 8
the future, national in scope and its products may be, in the future, marketed
throughout the United States; (c) the Employer competes with other businesses
that are or could be located in any part of the United States; (d) FirstCity
and the Employer have required that the Executive make the covenants set forth
in this Section 8 as a condition to entering into the Operating Agreement; and
(e) the provisions of this Section 8 are reasonable and necessary to protect
the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post- Employment Period, engage
or invest in, own, manage, operate, finance, control, or participate
in the ownership, management, operation, financing, or control of, be
employed by, associated with, or in any manner connected with, lend
the Executive's name or any similar name to, lend Executive's credit
to or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities
of the Employer anywhere within the United States where the Employer
conducts or markets its business or products; provided, however, that
the Executive may purchase or otherwise acquire up to (but not more
than) one percent of any class of securities of any enterprise (but
without otherwise participating in the activities of such enterprise)
if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities
Exchange Act of 1934;
(b) whether for the Executive's own account or for the account of
any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type
being carried on by the Employer, from any person known by the
Executive to be a customer of the Employer, whether or not the
Executive had personal contact with such person during and by reason
of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of any
other person (i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as an
employee, independent contractor, or otherwise, any person who is or
was an employee of the Employer at any time during the Employment
Period or in any manner induce or attempt to induce any employee of
the Employer to terminate his employment with the Employer; or (ii) at
any time during the Employment Period and for three years thereafter,
interfere with the Employer's relationship with any person, including
any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period, disparage
the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period"
means the two (2) year period beginning on the date of termination of the
Executive's employment with the Employer.
EMPLOYMENT AGREEMENT PAGE 8
<PAGE> 9
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten (10) days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or
the Employer may notify such employer that the Executive is bound by this
Agreement and, at the Employer's election, furnish such employer with a copy of
this Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary damages
to the Employer for such a breach would be an inadequate remedy. Consequently,
the Employer will have the right, in addition to any other rights it may have,
to obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any
other remedies of the Employer, if the Executive breaches any of the provisions
of Section 7 or 8, the Employer will have the right to cease making any
payments otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS. The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply
with such covenants, the Employer would not have entered into this Agreement or
employed or continued the employment of the Executive. The Employer and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8 unless the Agreement is
terminated pursuant to paragraph 6.1(d) hereof.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8
unless the Agreement is terminated pursuant to paragraph 6.1(d) hereof.
EMPLOYMENT AGREEMENT PAGE 9
<PAGE> 10
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The
Executive represents and warrants to the Employer that the execution and
delivery by the Executive of this Agreement do not, and the performance by the
Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE. The obligations of the
Employer hereunder, including its obligation to pay the compensation provided
for herein, are contingent upon the Executive's performance of the Executive's
obligations hereunder.
9.5 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by either party in exercising any right, power, or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will preclude
any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This
Agreement shall inure to the benefit of, and shall be binding upon, the parties
hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nation-ally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and facsimile numbers set forth below (or to such other addresses and
facsimile numbers as a party may designate by notice to the other parties):
If to Employer: FirstCity Funding Corporation
7929 Brookriver Drive, Suite 170
Dallas, Texas 75247
Attention: Board of Directors
Facsimile: 214-688-0686
EMPLOYMENT AGREEMENT PAGE 10
<PAGE> 11
With a copy to: FirstCity Financial Corporation
P.O. Box 8216
Waco, Texas 76714-8216
Attention: Rick R. Hagelstein
Facsimile No.: 254-751-1208
If to the Executive: Thomas R. Brower
7929 Brookriver Drive, Suite 170
Dallas, Texas 75247
9.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Merger
Agreement, and the documents executed in connection with the Merger Agreement,
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, between the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended orally, but only by an agreement in writing
signed by the parties hereto.
9.9 GOVERNING LAW. This Agreement will be governed by the laws of
the State of Texas without regard to conflicts of laws principles.
9.10 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement unless
otherwise specified. All words used in this Agreement will be construed to be
of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
9.11 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
9.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[END OF PAGE - SIGNATURE PAGE TO FOLLOW]
EMPLOYMENT AGREEMENT PAGE 11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER:
FIRSTCITY FUNDING CORPORATION
By: /s/ SCOT A. FOITH
-------------------------------
Scot A. Foith, Executive Vice
President
EXECUTIVE:
/s/ THOMAS R. BROWER
-----------------------------------
Thomas R. Brower
EMPLOYMENT AGREEMENT PAGE 12
<PAGE> 13
EXHIBIT A
BONUS CALCULATION FOR SENIOR MANAGEMENT
ANNUAL BONUS DOLLAR THRESHOLD will be determined by multiplying the sum of (the
month end average total equity, the daily average balance of the Capital Note,
and the month end average balance of any bonus accruals, such sum referred to
as "Equity") by the Target Return.
BONUS POOL: 50% x the sum of (net income before taxes plus interest on the
Capital Note plus year to date bonus accrual minus the Annual Bonus Dollar
Threshold).
CURRENT BONUS (which will be paid in March of the following year) will be 50%
of the Bonus Pool.
ONE-YEAR DEFERRED BONUS (which will be paid in March of the year following when
the Current Bonus is paid) will be 25% of the Bonus Pool, subject to achieving
Bonus Threshold for corresponding current year.
TWO-YEAR DEFERRED BONUS (which will be paid in March of the 2nd year following
when the Current Bonus is paid) will be 25% of the Bonus Pool, subject to
achieving Bonus Threshold for corresponding current year.
TARGET RETURN:
Bonus Threshold Percentages
<TABLE>
<CAPTION>
Leverage Ratio Target Return
<S> <C>
0.00 - 5.0 25.00%
5.01 - 5.49 26.25%
5.50 - 5.99 27.50%
6.00 - 6.49 28.75%
6.50 - 6.99 30.00%
7.00 - 7.49 31.25%
7.50 - 7.99 32.50%
8.00 - 8.49 33.75%
8.50 - 8.99 35.00%
9.00 - 9.49 36.25%
9.50 - 10.00 37.50%
</TABLE>
EXHIBIT A TO EMPLOYMENT AGREEMENT PAGE i
<PAGE>
EXHIBIT 10.11
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is made and entered into as
of SEPTEMBER 8, 1997, by and among FIRSTCITY FUNDING CORPORATION, a Delaware
corporation (the "Corporation"), and FIRSTCITY CONSUMER LENDING CORPORATION, a
Delaware corporation ("FirstCity"), THOMAS R. BROWER, SCOT A. FOITH, THOMAS G.
DUNDON, R. TYLER WHANN, BRADLEY C. REEVES, STEPHEN H. TRENT, and BLAKE P.
BOZMAN (each of the foregoing shareholders being referred to individually as a
"Shareholder" and collectively as the "Shareholders") with respect to all of
the now or hereafter issued and outstanding shares of common or preferred stock
or other issued and outstanding securities of the Corporation (including
options, warrants and convertible instruments), presently or hereafter owned by
each of the Shareholders (the "Stock"). Any reference to Stock owned by a
Shareholder shall mean all of the Stock registered in that Shareholder's name
and including, but not limited to, any community property interest of the
Shareholder's spouse in such Stock.
WHEREAS, the Shareholders are presently the holders of record of all
of the issued and outstanding shares of the Stock of the Corporation; and
WHEREAS, the Shareholders believe that it would be in the best
interest of the Shareholders and the Corporation to place certain restrictions
upon the right of any Owner of Stock to transfer any Stock owned by such Owner;
and
WHEREAS, the directors of the Corporation, having considered the
provisions of this Agreement, have resolved that in their opinions the
restrictions upon the transfer of the Stock of the Corporation and the
provisions for the purchase of the Stock, all as hereinafter set forth, are in
the best interest of the Corporation.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS OF CERTAIN AGREEMENT TERMS. For purposes
of this Agreement, the terms hereinafter set forth shall have the following
definitions unless otherwise specifically stated.
"BUSINESS DAYS" shall mean days that are not Saturdays, Sundays, or
legal holidays in the United States or the State of Texas.
"MINORITY SHAREHOLDERS" shall mean all Shareholders other than
FirstCity.
"OWNED" shall mean Stock referred to as being "owned" by any persons
shall include all Stock owned (whether acquired before or after this date) as
the separate property of such person, all Stock owned as the community property
of such person and his or her spouse that is registered in the name of such
person, all Stock acquired by gift, partition or other transfer of community
property Stock, and any shares into which any such Stock, or any portion
thereof, may be converted. A person who owns Stock is sometimes referred to as
an "Owner." While a spouse of a
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 1
<PAGE> 2
Shareholder may own an interest in Stock that is deemed to be "owned" by such
Shareholder under this definition, the term "Shareholder" as used in this
Agreement does not apply to the spouse of any such named party to this
Agreement unless such spouse also owns Stock.
"SHAREHOLDER" shall include all of the persons who own Stock in the
Corporation who are parties to this Agreement, and any persons who subsequently
shall become parties to this Agreement.
"STOCK" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"TRANSFER" shall have the meaning set forth in Section 2.01 of this
Agreement.
ARTICLE II
RESTRICTIONS AGAINST TRANSFER BY MINORITY SHAREHOLDERS
SECTION 2.01. TRANSFER OF STOCK RESTRICTED BY MINORITY
SHAREHOLDERS. Each of the Minority Shareholders agrees that he or she will not
in any way Transfer (as defined herein) any of his or her Stock, or any right
or interest therein, without the prior written consent of the Corporation and
the other Shareholders, except for a Transfer that meets the requirements of
this Agreement. "Transfer" shall, herein, mean the sale, exchange, assignment,
pledge, gift, hypothecation, transfer or other disposition (whether voluntary
or involuntary) by a Minority Shareholder of his or her Stock, either directly
or indirectly, to any third party or any offer or attempt to accomplish any of
the foregoing. Any purported Transfer in violation of any provisions of this
Agreement will be void and will not operate to transfer any right, title, or
interest in the Stock to the purported Transferee.
ARTICLE III
PUT AND CALL OPTIONS
SECTION 3.01. PUT OPTION OF MINORITY SHAREHOLDERS. At any time
during the period commencing with the fifth (5th) and ending on the seventh
(7th) anniversary of the date of this Agreement (the "Put Period"), the
Minority Shareholders as a group shall the right to put (the "Put") 100% of
their Stock to FirstCity for a price per share to be mutually agreed upon (the
"Purchase Price"). The Put shall be in writing and the date the Put is made
shall be referred to in this Section as the "Put Date." The Purchase Price may
be payable in cash, or at FirstCity's option, may be payable in whole or in
part in shares of FirstCity's common stock valued at the then fair market value
of such stock. FirstCity shall make a decision whether or not to purchase the
Minority Shareholders Stock within 60 days of the Put Date. In the event
FirstCity does not elect to purchase the Minority Shareholders Stock, the
Minority Shareholders shall have the right at any time during the period
commencing 61 days and ending 120 days after the Put Date to either purchase
FirstCity's Stock for cash at the same price per share as set forth in the Put
or to sell their Stock to a third party who is reasonably acceptable to
FirstCity. The Minority Shareholders may only make one Put during the Put
Period.
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 2
<PAGE> 3
SECTION 3.02. CALL OPTION OF FIRSTCITY. At any time after the
seventh (7th) anniversary of the date of this Agreement (the "Call Period"),
FirstCity shall the right to call (the "Call") 100% of the Stock Owned by the
Minority Shareholders for a price per share to be mutually agreed upon (the
"Call Price"). The Call shall be in writing and the date the Call is made
shall be referred to in this Section as the "Call Date." The Call Price may be
payable in cash, or at FirstCity's option, may be payable in whole or in part
in Shares of FirstCity Common Stock valued at the then fair market value of
such stock. The Minority Shareholders must within 90 days of the Call Date
either sell their Stock to FirstCity on the terms set forth in the Call or
obtain a cash offer (the "Market Price") from a third party reasonably
acceptable to FirstCity to purchase their Stock. If the Minority Shareholders
obtain a cash offer from a third party to purchase their Stock, then FirstCity
may within 120 days of the Call Date purchase the Minority Shareholders Stock
for the Market Price. If FirstCity does not elect to purchase the Minority
Shareholders Stock for the Market Price, then the Minority Shareholders must
within 150 days of the Call Date either sell their Stock to the third party for
the Market Price or sell their Stock to FirstCity for the Call Price.
ARTICLE IV
RIGHT TO ELECT DIRECTOR
SECTION 4.01. RIGHT TO ELECT DIRECTOR. At any meeting of the
shareholders of the Corporation at which directors are elected to the
Corporation's Board of Directors, the Minority Shareholders shall have the
right, voting separately as a class, to elect one director to the Board of
Directors. Such election by the Minority Shareholders shall be effected by the
vote of a majority of the Minority Shareholders. FirstCity and the Minority
Shareholders agree to include this right in the Corporation's Bylaws which
right may not be removed from said Bylaws without the consent of the Minority
Shareholders.
ARTICLE V
NOTICES
SECTION 5.01. NOTICE PROCEDURE. All notices required to be given
hereunder will be deemed to be duly given on the date of delivery if delivered
in person or three (3) Business Days after the date of mailing if mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation at the Corporation's principal office and to the
Shareholders at the addresses indicated on the signature page of this
Agreement. The address of any Shareholder may be changed only by giving
written notice of such change of address to all of the other parties hereto in
the manner provided herein for giving notices.
ARTICLE VI
STOCK LEGEND
SECTION 6.01. LEGEND REQUIRED BY THIS AGREEMENT. The Corporation
and each Shareholder hereby agrees that all certificates representing shares of
Stock of the Corporation that at any time are subject to the provisions of this
Agreement will have endorsed upon them, in addition to any legend required by
the Corporation's Bylaws, in boldface type a legend in substantially the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A SHAREHOLDERS' AGREEMENT ("AGREEMENT"),
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 3
<PAGE> 4
DATED SEPTEMBER 8, 1997, AMONG THE SHAREHOLDERS WHICH INCLUDES A
VOTING AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE CORPORATION, AND SAID SHARES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT IN
STRICT ACCORDANCE WITH THE TERMS OF THE AGREEMENT. A COPY OF THE
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS
CERTIFICATE UPON RECEIPT BY THE CORPORATION AT ITS PRINCIPAL PLACE OF
BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE HOLDER
REQUESTING SUCH A COPY.
SECTION 6.02. EXECUTION OF AGREEMENT BY TRANSFEREE. Under no
circumstances will any sale or other Transfer of any shares of Stock subject to
this Agreement be valid until the proposed transferee has executed and become a
party to an Agreement substantially similar to this Agreement and thereby
becomes subject to all of its provisions, unless this requirement is waived by
written consent of the parties; notwithstanding any other provisions of this
Agreement, no such sale or other Transfer of any kind will in any event result
in the nonapplicability of the provisions of this Agreement at any time to any
of the shares of Stock subject to this Agreement.
ARTICLE VII
TERM
SECTION 7.01. TERMINATION OF AGREEMENT. This Agreement will
terminate upon the earlier of: (A) the agreement of all parties hereto to
terminate this Agreement, (B) the purchase by the Corporation of all the shares
of Stock of all but one Shareholder, (C) the purchase by any one Shareholder of
all of the issued and outstanding shares of Stock of the Corporation, (D)
twenty-one (21) years after the death of the last survivor of the Shareholders
named herein and their now living lineal descendants, or (E) upon the
dissolution of the Corporation, or upon the filing of a voluntary or
involuntary petition by or against the Corporation under Chapter 7 or Chapter
11 of the Bankruptcy Code upon the appointment of a receiver for the
Corporation.
SECTION 7.02. TERMINATION AS TO SPECIFIC SHAREHOLDER. This
Agreement shall terminate as to any specific Shareholder upon the date such
Shareholder ceases to own any Stock. Such Shareholder also shall cease to be a
party to this Agreement as of the date that he ceases to own, directly or
beneficially, any Stock.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. FURTHER ASSURANCES. Each party to this Agreement
agrees to perform all further acts and to execute and deliver all further
documents which may be reasonably necessary to carry out the provisions of this
Agreement.
SECTION 8.02. SEVERABILITY. In the event that any of the
provisions, or portions thereof, of this Agreement are held to be unenforceable
or invalid by any court of competent jurisdiction, the validity and
enforceability of the remaining provisions, or portions thereof, will not be
affected, and in lieu of such unenforceable provision there shall be added
automatically as part of this Agreement a provision as similar in terms as may
be valid and enforceable.
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 4
<PAGE> 5
SECTION 8.03. CONSTRUCTION. Whenever used in this Agreement, the
singular number will include the plural, and the plural number will include the
singular; pronouns in the masculine, feminine, or neuter gender will include
each other gender.
SECTION 8.04. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED IN
AND WILL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
SECTION 8.05. SUCCESSORS. Subject to the restrictions against
Transfer or assignment as contained in this Agreement, the provisions of this
Agreement will benefit and will be binding on the assigns, successors in
interest, personal representatives, estates, heirs and legatees of each of the
parties hereto. Each of the Minority Shareholders agrees that he or she will
not create or permit to exist any lien, claim or encumbrance at any time on any
of his or her shares of stock subject to this Agreement.
SECTION 8.06. AMENDMENT. This Agreement may only be amended by the
written consent of all of the parties to this Agreement at the time of such
amendment.
SECTION 8.07. HEADINGS. The section headings contained in this
Agreement are for convenience only and shall in no manner by construed as part
of this Agreement.
SECTION 8.08. ENTIRE AGREEMENT; COUNTERPARTS. This Agreement
contains the entire understanding between the parties concerning the subject
matter contained in this Agreement. There are no representations, agreements,
arrangements or understandings, oral or written, between or among the parties
hereto, relating to the subject matter of this Agreement, which are not fully
expressed herein. This Agreement may be signed in one or more counterparts,
all of which shall be considered one and the same agreement.
SECTION 8.09. WAIVER. The waiver by any party hereto of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any party.
SECTION 8.10. SPECIFIC PERFORMANCE. The right to own and vote
Stock and to restrict the transfer of the Stock is hereby declared by the
parties hereto to be a unique right, the loss of which is not readily
susceptible to monetary quantification. Consequently, the parties hereto agree
that an action for specific performance of the purchase and sale obligations
created by this Agreement or an action brought to enjoin the unauthorized
transfer of Stock are remedies for the breach of the provisions of this
Agreement. If the parties to this Agreement are forced to institute legal
proceedings to enforce their rights in accordance with the provisions of this
Agreement, they shall be entitled to recover their reasonable attorneys' fees
and court costs incurred in enforcing such rights.
[END OF PAGE - SIGNATURE PAGE(S) TO FOLLOW]
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement to be effective as of the date first written above.
THE CORPORATION:
FIRSTCITY FUNDING CORPORATION
By: /s/ THOMAS R. BROWER
----------------------------------------------
Thomas R. Brower, President
Address: 7929 Brookriver Drive, Suite 170
Dallas, Texas 75247
SHAREHOLDERS:
/s/ THOMAS R. BROWER
-------------------------------------------------
Owner of 25,000 Shares
Address: 3342 Whitehall Drive
Dallas, Texas 75229
/s/ SCOT A. FOITH
-------------------------------------------------
Scot A. Foith
Owner of 13,750 Shares
Address: 2512 Centenary Drive
Flower Mound, Texas 75028
/s/ THOMAS G. DUNDON
-------------------------------------------------
Thomas G. Dundon
Owner of 12,250 Shares
Address: 5134 Vanderbilt
Dallas, Texas 75206
/s/ R. TYLER WHANN
-------------------------------------------------
R. Tyler Whann
Owner of 12,250 Shares
Address: 3021 Fairmount
Dallas, Texas 75201
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 6
<PAGE> 7
/s/ BRADLEY C. REEVES
-------------------------------------------------
Bradley C. Reeves
Owner of 12,250 Shares
Address: 6262 Woodcrest Lane
Dallas, Texas 75214
/s/ STEPHEN H. TRENT
-------------------------------------------------
Stephen H. Trent
Owner of 12,250 Shares
Address: 6837 Merrilee
Dallas, Texas 75214
/s/ BLAKE P. BOZMAN
-------------------------------------------------
Blake P. Bozman
Owner of 12,250 Shares
Address: 4510 Druid #304
Dallas, Texas 75205
FIRSTCITY CONSUMER LENDING CORPORATION
By: /s/ JIM W. MOORE
----------------------------------------------
Jim W. Moore, President
Owner of 400,000 Shares
Address: P.O. Box 8216
Waco, Texas 76714-8216
FIRSTCITY FUNDING CORPORATION
SHAREHOLDER AGREEMENT PAGE 7
<PAGE>
EXHIBIT 10.12
REVOLVING CREDIT LOAN AGREEMENT
BY AND AMONG
FC PROPERTIES, LTD.
AS BORROWER,
AND
NOMURA ASSET CAPITAL CORPORATION,
AS LENDER.
$100,000,000
DATED AS OF MARCH 20, 1998
PREPARED BY HAYNES AND BOONE, L.L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2 THE REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.01. Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.02. Manner of Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.03. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3 NOTE AND NOTE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.01. Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.02. Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.03. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.04. Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.05. Calculation of Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.06. Lockbox Account; Distributions of Net Collections;
Distributions of Excess Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.07. Manner and Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.08. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.09. Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4 SPECIAL PROVISIONS FOR LIBOR RATE ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.01. Inadequacy of LIBOR Rate Loan Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.02. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.03. Duration of Alternative Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.04. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.01. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.02. Authorization and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.03. No Conflicts or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.04. Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.05. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.06. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.07. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.08. No Default; Potential Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.09. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.11. Burdensome Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.13. Principal Office, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.14. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.17. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.18. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.19. Ownership of Borrower, Servicer and REO Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.20. Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.21. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.22. Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01. Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.02. All Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 7 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.01. Financial Statements, Reports and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.02. Additional Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.03. Payment of Taxes, Impositions and Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 27
7.04. Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.05 Maintenance of Existence and Rights; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 27
7.06. Notice of Default; Notice of Collateral Impairment Event . . . . . . . . . . . . . . . . . . . . . . 27
7.07. Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.08. Compliance with Loan Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.09. Compliance with Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.10. Operations and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.11. Books and Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.12. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.13. Authorizations and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14. Experienced Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.15. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.16. Collection Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.17. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.18. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.20. Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.21. General Indemnity; Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.01. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.02. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.03. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.04. Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.05. Alteration of Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.06. Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.07. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.08. Limitation on Sale of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.09. Name, Fiscal Year and Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.10. Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets . . . . . . . . . . . . 31
8.11. Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.12. No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.13. Purchase of Substantial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.14. New Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.15. Fictitious Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.16. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.17. Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.18. Disposition of Collateral Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.19. Modification of Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.20. Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9 COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.01. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.02. Lien on REO Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03. Assignment of Liens; Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.04. Insurance of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.05. Delivery of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.06. Possession of Collateral Loan Documents; Sale of Collateral . . . . . . . . . . . . . . . . . . . . 35
9.07. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.08. Appointment of Collateral Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.09. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 10 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.02. Remedies Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.03. Performance by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 11 SECURITIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.01 Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.02 Borrower Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.03 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.04 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.01. Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.02. Accounting Terms and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.03. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.04. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.06. Choice of Law; Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 40
12.07. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.08. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.09. Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.10. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.11. Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.13. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.14. Successors and Assigns; Participations by the Lenders . . . . . . . . . . . . . . . . . . . . . . . 41
12.15. Senior Debt; Borrower Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.16. No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.17. Oral Agreements Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
SCHEDULES AND EXHIBITS
Exhibit A - Form of Note
Exhibit B - Discount Factors
Exhibit C - Permitted Liens
Exhibit D - Borrowing Request
Exhibit E - Affiliate Loan Agreements
Schedule 5.09 Material Agreements
Schedule 5.10 Litigation
Schedule 7.16 Locations of Books and Records
iii
<PAGE> 5
REVOLVING CREDIT LOAN AGREEMENT
This Revolving Credit Loan Agreement (the "AGREEMENT") is entered into
as of this 20th day of March, 1998, by and among FC PROPERTIES, LTD., a Texas
limited partnership, ("BORROWER") and NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation ("LENDER").
RECITALS:
Borrower has requested that Lender provide it with a secured loan
facility to be used by Borrower to finance owned Asset Portfolios and
acquisitions of Asset Portfolios and Lender is willing to provide such a
facility to Borrower, upon the terms and subject to the conditions hereinafter
set forth. Accordingly, in consideration of the mutual promises herein
contained and for other valuable consideration, the parties hereto do hereby
agree as follows:
SECTION 1
DEFINITION OF TERMS
1.01. Defined Terms. For purposes of this Agreement, unless the
context otherwise requires the following terms shall have the respective
meanings assigned to them below or in the Section referred to therein.
"ACCOUNT DEBTOR" means, collectively, the "borrower" and each other
obligor, guarantor, or other liable party under a Collateral Loan.
"ADVANCE": Section 2.01(a).
"ADVANCE PERCENTAGE" means, with respect to any Asset Portfolio, the
percentage obtained by dividing (a) the amount of the Advance funded by Lender
to finance such Asset Portfolio by (b) the aggregate Net Present Values of the
Assets constituting such Asset Portfolio or, if an Advance is made hereunder to
acquire an Asset Portfolio, the Net Purchase Price for such Asset Portfolio.
"ADVANCE RATIO" means, as of any date of calculation, a ratio
determined by dividing (a) the aggregate amount of all Advances hereunder by
(b) the sum of (i) the aggregate Net Purchase Prices for all Asset Portfolios
acquired with such Advances plus (ii) the aggregate Net Present Values for all
Owned Asset Portfolios as of the date of the Advance with respect to each Owned
Asset Portfolio.
"AFFILIATE" means, as to any Person, any Subsidiary of such Person, or
any Person which, directly or indirectly, controls, is controlled by, or is
under common control with such Person. For the purposes of this definition,
"control," means the possession of the power to direct or cause the direction
of management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise.
"AFFILIATE LOAN AGREEMENTS" means those certain Loan Agreements
referenced on Exhibit "E", attached hereto, each entered into by and between
Lender and an Affiliate of Borrower.
"AFFILIATE LOAN BALANCE" means the aggregate outstanding balance of
all loans, including all accrued and unpaid interest thereon, extended pursuant
to the Affiliate Loan Agreements.
"AGREEMENT" means this revolving credit loan agreement, as it may be
amended, renewed, or extended from time to time.
"ALLOCATED PURCHASE PRICE" means for each Asset in an Asset Portfolio
(including each REO Property owned by Borrower or an REO Affiliate) the amounts
set forth for each such Asset in the Borrowing
<PAGE> 6
Request submitted in connection with the Advance used to finance such Asset
Portfolio and agreed to by Borrower and Lender.
"ALLONGE" shall mean an endorsement on a separate sheet of paper
accompanying a promissory note and signed by the Borrower, endorsing the note
to the Lender or in blank.
"ALTERNATIVE RATE ADVANCES": Section 4.01.
"APPLICABLE ENVIRONMENTAL LAWS": Section 7.21(b).
"APPROVED BUDGET": Section 7.01(f).
"ASSET" means each individual loan, REO Note, or property comprising
an Asset Portfolio.
"ASSET FILE" means all Collateral Loans and Collateral Loan Documents
assigned to Lender as Collateral for the Obligation, together with all other
documents relating to such Asset to be delivered to the Collateral Custodian,
the Servicer, or Borrower.
"ASSET PORTFOLIO REPORT" means a report, in form and substance
reasonably acceptable to Lender, showing various information concerning each
Asset Portfolio and each Asset included therein, as of the end of the month
preceding delivery of such report, including without limitation, monthly Net
Collections, the outstanding balances of each Collateral Loan, the Net Present
Value of each Asset, settlement information, default status, a calculation
showing the Advance Ratio and the NPV Ratio for each Asset Portfolio and
reflecting that a Collateral Impairment Event has not occurred, and such other
information as the Lender may otherwise request, including any additional
information in the asset status reports routinely prepared by Borrower related
to such Assets.
"ASSET PORTFOLIOS" means one or more pools of:
(a) performing, non-performing, or under-performing
consumer, residential, or commercial loans, and/or
(b) real estate or other assets, including judgments,
acquired in connection with the collection,
foreclosure, restructure, or settlement of
non-performing or under-performing loans, together
with all documents, instruments, certificates, and
other information related thereto.
"ASSET THRESHOLD AMOUNT" means, for each Asset Portfolio, the amount
set forth in the relevant Borrowing Request and approved by Lender.
"ASSIGNMENT AND ACCEPTANCE": Section 12.14(c).
"AUTHORIZED OFFICER" means any of the Chairman, President, Vice
President, Chief Financial Officer, Treasurer, or Assistant Treasurer of any
General Partner, authorized by the Board of Directors of such General Partner
to execute the Loan Papers and to borrow hereunder, on behalf of Borrower and
each REO Affiliate, as applicable.
"BORROWER" means FC Properties, Ltd., a Texas limited partnership.
"BORROWING REQUEST" means a written request for an Advance,
substantially in the form attached hereto as Exhibit "D", which shall (a)
specify (i) the date of such Advance, which shall be a Business Day, (ii) the
aggregate amount of such Advance, (iii) a complete description of the Asset
Portfolio to be acquired with, or financed with, the proceeds of the Advance,
including the net present value of the Original Estimated Value of such Asset
Portfolio and the Allocated Purchase Price for each Asset a part thereof and
(iv) such other information as may be requested by Lender from time to time;
and (b) contain a certification of an
2
<PAGE> 7
Authorized Officer as of the date of such Advance certifying as to the matters
set forth in Section 6.02 and certain other matters. Each Borrowing Request
shall be irrevocable and binding on Borrower.
"BUSINESS DAY" means a day on which Lender is open for business in New
York, New York, national banks are not closed in Dallas, Texas and which is a
day for trading by and between banks for dollar deposits in the London
interbank market.
"CAPITALIZED LEASE OBLIGATIONS" means the amount of the obligations of
Borrower under Financing Leases which would be shown as a liability on a
balance sheet of Borrower, prepared in accordance with Generally Accepted
Accounting Principles.
"COLLATERAL" means at any time all Assets and all property then
subject to any Security Agreement in favor of Lender, securing the Obligation,
including, without limitation, all Collateral Loan Documents and accounts and
the proceeds thereof and all the rights and remedies of Borrower or any REO
Affiliate under any Sale Agreement.
"COLLATERAL ASSIGNMENT" means an Assignment of Notes and Liens, and
collectively, all Assignments of Notes and Liens, executed by Borrower in
favor of Lender, as security for the Obligation, each of which Collateral
Assignment is intended to cover all of the Collateral Loans being a part of an
Asset Portfolio and all renewals, modifications, amendments, supplements, and
restatements thereof, which collateral assignment shall be in the form and
substance acceptable to Lender and which Collateral Assignments shall be duly
signed and notarized in accordance with applicable state law and in proper form
for recording, in order to confirm and perfect Lender's Liens in the
Collateral.
"COLLATERAL CUSTODIAN" means Fleet Bank, N.A., a national banking
association, or its successor or other Person agreed upon by Borrower and
Lender.
"COLLATERAL IMPAIRMENT EVENT" means as of any date of calculation,
that the NPV Ratio exceeds the Advance Ratio.
"COLLATERAL LOAN" means each loan included in any Asset Portfolio
financed under this Agreement and which has not been disposed of by Borrower
and each loan evidenced by an REO Note and each and every other loan (or
interest therein) now or at any time hereafter owned by Borrower .
"COLLATERAL LOAN DOCUMENTS" means all promissory notes evidencing
Collateral Loans (including all REO Notes), all mortgages, deeds of trust, and
other documents securing Collateral Loans (including all REO Security
Documents) and all loan agreements and other documents executed by Account
Debtors in connection with Collateral Loans including, without limitation, the
documents listed in Section 9.05 herein.
"COMPLIANCE LETTER" means a letter from KPMG Peat Marwick LLP, or
other independent public accountants of recognized national standing selected
by Borrower and satisfactory to Lender, stating that (a) such firm has reviewed
the calculation of the then current Advance Ratio and NPV Ratio, (b) such
calculations are accurate and comply with the requirements of this Agreement,
and (c) no Collateral Impairment Event exists, and containing such other
information Lender may reasonably request.
"CUSTODIAL AGREEMENT" means the Custodial Agreement in form approved
by Lender by and between the Collateral Custodian, Borrower, Servicer, and
Lender whereby Custodian agrees to act as bailee for the documents evidencing
certain of the Collateral Loans, as such Custodial Agreement may be amended or
supplemented from time to time, together with any replacement or substitution
therefor.
"DEFAULT RATE" means a rate per annum equal to the rate which is four
percent 4% in excess of the rate then borne by the most recent Advance.
"DEFERRED INTEREST": Section 3.04.
3
<PAGE> 8
"DISCRETIONARY PERIOD": Section 2.01.
"DOLLARS" and the "$" symbol shall refer to lawful currency of the
United States of America.
"DUE DILIGENCE REPORTS" means the various written reports,
information, and other materials that Borrower prepared or assembled containing
descriptions and evaluations of the Collateral Loans and Mortgaged Properties
included in a particular Asset Portfolio, and Borrower's assessments and
projections regarding same, or other information regarding such Assets,
including copies of purchase agreements, copies of any appraisals or
environmental site assessments, and the due diligence reports for each such
Asset Portfolio summarizing Borrower's due diligence regarding such Assets and
any Mortgaged Properties.
"EFFECTIVE DATE" means any Business Day designated by Borrower in a
Borrowing Request as the date such Advance is made.
"ENVIRONMENTAL SITE ASSESSMENT" shall mean an environmental site
assessment report conforming to the standards for Phase I Environmental Site
Assessments in ASTM Standard Procedures for Environmental Site Assessments, E
1527-93 or other standards reasonable satisfactory to Lender (either of which
is herein called the "ACCEPTABLE STANDARDS"), which is in all respects
satisfactory to Lender and which has been prepared by a qualified environmental
firm reasonably satisfactory to Lender or, if applicable, other persons allowed
under the Acceptable Standards (a) indicating that, on the basis of an
investigation conducted in accordance with the Acceptable Standards, (i) the
firm found no Hazardous Substance present on or in the property that is the
subject of its report at levels that require reporting or remediation, or both,
pursuant to any Applicable Environmental Laws that are applicable to such
property ("PROHIBITED HAZARDOUS SUBSTANCES"), (ii) it did not learn of any
conditions on or in the land adjacent to the property that is the subject of
its report that would cause it to believe that there might be Prohibited
Hazardous Substances present on or in the property that is the subject of its
report, and (iii) no notice of violation of any of the Applicable Environmental
Laws, or other claim or order issued pursuant to any of the Applicable
Environmental Laws, has been duly filed against such property by any
governmental authority; or (b) if any Prohibited Hazardous Substance is present
on such property or if any such notice of violation, claim, or order has been
filed, providing evidence satisfactory to Lender as to the extent and nature of
the environmental problem caused thereby and the likely costs and duration of
any recommended remediation. Notwithstanding anything to the contrary above
the Acceptable Standards for conducting an Environmental Site Assessment for a
single family residence or multifamily residential property with four (4) or
less units ("Residential 1-4's") shall, absent any known, suspected or
observable environmental risks (other than the potential presence of radon,
lead paint and/or asbestos containing materials), not require the Borrower to
obtain an Environmental Site Assessment which conforms to the ASTM Standard
Procedures for Environmental Site Assessments, E 1527- 93. Unless a known,
suspected, or observable environmental risk exists, the Acceptable Standards
for Residential 1-4's shall be complied with by the Borrower's preparing, or
causing the Servicer to prepare or direct the preparation of, a preliminary
environmental evaluation using a standard evaluation form.
"EQUITY CONTRIBUTION" means, with respect to the acquisition of an
Asset Portfolio, an amount equal to the product of (a) the Net Purchase Price
for such Asset Portfolio, multiplied by (b) a percentage equal to one hundred
percent (100%) less the Advance Percentage for such Asset Portfolio.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
"EVENT OF DEFAULT": Section 10.01.
"EXCESS CASH FLOW": Section 3.06(c).
"FINANCING LEASE" means any lease of property which would be
capitalized on a balance sheet of Borrower or a Subsidiary prepared in
accordance with Generally Accepted Accounting Principles.
4
<PAGE> 9
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means those generally
accepted accounting principles and practices which are recognized as such by
the American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date hereof so as to properly
reflect the financial condition, and the results of operations and changes in
financial position, of Borrower, except that any accounting principle or
practice required to be changed by the said Accounting Principles Board or
Financial Accounting Standards Board (or other appropriate board or committee
of the said Boards) in order to continue as a generally accepted accounting
principle or practice may so be changed.
"GENERAL PARTNERS": Section 5.19.
"GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency, or other
governmental authority having jurisdiction over Borrower or any REO Affiliate
or any of its business, operations, or properties.
"GUARANTORS" means Properties One, Properties Three, Properties Five,
and Properties Six, and any other Affiliate or Subsidiary which may be at any
time, or from time to time, an REO Affiliate hereunder.
"GUARANTY" means any contract, agreement, or understanding by which
Borrower or any REO Affiliate assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
liable upon, the obligation of any other Person, or agrees to maintain the net
worth or working capital or other financial condition of any other Person or
otherwise insures any creditor of such other Person against loss, and shall
include, without limitation, the contingent liability of Borrower under any
letter of credit or similar document or instrument.
"HAZARDOUS SUBSTANCE": Section 7.21(b).
"IMPOSITIONS" means all real estate and personal property taxes;
charges for any easement, license or agreement maintained for the benefit of
any of the real property of Borrower or any REO Affiliate, or any part thereof;
and all other taxes, charges, and assessments and any interest, costs, or
penalties with respect thereto, general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever,
which at any time prior to or after the execution hereof may be assessed,
levied, or imposed upon any of the real property of Borrower or any REO
Affiliate, or any part thereof, or the ownership, use, sale, occupancy, or
enjoyment thereof, in each case which, if not timely paid or otherwise
discharged, would materially and adversely affect (a) such ownership, use,
sale, occupancy, or enjoyment, (b) the financial condition of Borrower, or any
REO Affiliate or (c) Lender's Lien on any such property.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness,
obligations, and liabilities of such Person, including without limitation: (a)
all "liabilities" which would be reflected on a balance sheet of such Person,
prepared in accordance with Generally Accepted Accounting Principles; (b) all
obligations of such Person in respect of any Guaranty; and (c) all obligations
of such Person in respect of any Capital Lease.
"INDEMNIFIED LIABILITIES": Section 7.21(a).
"INDEMNIFIED PARTIES": Section 7.21(a).
"INITIAL ADVANCE": Section 2.01.
"INITIAL ADVANCE DATE" means March 20, 1998.
"INITIAL COMMITMENT" means $25,158,949.90.
5
<PAGE> 10
"INTEREST DETERMINATION DATE" means the day the LIBOR Rate is
redetermined for all Advances and shall be the first Business Day of each
Month.
"INTEREST PAYMENT DATE": Section 3.04.
"INVESTMENT" in any Person means any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution, or
otherwise, in or to such Person, the guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"LEASE-UP EXPENSES" means as to any REO Property, (i) all reasonable
and customary leasing commissions, (ii) all reasonable tenant improvement costs
actually paid by Borrower or any REO Affiliate in question with respect to the
leasing of space in such REO Property pursuant to a written lease and (iii) all
capital expenditures actually paid by Borrower or any REO Affiliate in question
with respect to other improvements to such REO Property, provided that such
capital expenditures are expended in accordance with a budget for such REO
Property which has been approved in writing by Lender; all as evidenced by
invoices and such other back-up information as Lender may require.
"LENDER" means Nomura Asset Capital Corporation.
"LIBOR RATE" shall mean, with respect to any Advance hereunder, the
rate of interest determined by Lender at which deposits in dollars for a
one-month period are offered based on information presented on the Telerate
Screen as of 11:00 A.M. (London time) on the day which is two (2) Business Days
prior to the Effective Date of such Advance; provided, that if at least two
such offered rates appear on the Telerate Screen in respect of such one-month
period, the arithmetic mean of all such rates (as determined by Lender) will be
the rate used; provided, further, that if Telerate ceases to provide LIBOR
quotations, such rate shall be the average rate of interest determined by
Lender at which deposits in Dollars are offered for a one-month period by
Citibank, N.A. (or its successor) to Lender in the London interbank market as
of 11:00 A.M. (London time) on the applicable Effective Date. The LIBOR Rate
for each Advance shall be initially established as of the Effective Date of
such Advance and such Advance shall bear interest at such rate through the date
preceding the next succeeding Interest Determination Date. On such Interest
Determination Date, and on each Interest Determination Date thereafter, the
LIBOR Rate shall be recalculated as of such Interest Determination Date as
provided above and the Advance shall bear interest at such LIBOR Rate from such
Interest Determination Date through the day preceding the next succeeding
Interest Determination Date.
"LIBOR RATE ADVANCE" shall mean any principal amount under a Note with
respect to which the interest rate is calculated by reference to the LIBOR
Rate.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale, or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"LOAN PAPERS" means this Agreement, the Note, each Guaranty executed
by an REO Affiliate, the Mortgages, the Collateral Assignments and Allonges for
each Collateral Loan, the Lockbox Agreement, the Custodial Agreement, the
Security Agreements, the Power of Attorney, the Servicing Agreement (including
any renewals, extensions and refundings thereof of all such documents and
agreements), and any agreements, certificates or documents, including UCC-1
financing statements (and with respect to this Agreement, and such other
agreements and documents, any amendments or supplements thereto or
modifications thereof) executed or delivered pursuant to the terms of this
Agreement.
"LOCKBOX" means a post office box, or, collectively, post office
boxes, established by Borrower and Lockbox Bank pursuant to the provisions of
Section 3.06 and the Lockbox Agreement for the receipt of payments from an
Asset Portfolio.
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"LOCKBOX ACCOUNT(S)" means a segregated cash collateral account or
accounts maintained with Lockbox Bank and styled "FC Properties, Ltd. Lockbox
Account for the benefit and under the control of Nomura Asset Capital
Corporation, as Lender", which account shall be (a) subject to the provisions
of Section 3.06, and (b) pledged and assigned to Lender as additional security
for the payment, performance and observance of the Obligations.
"LOCKBOX AGREEMENT" means a Lockbox Agreement, executed by and among
Borrower, Lender, Servicer, and Lockbox Bank, in form and substance acceptable
to Lender, and all amendments, modifications, and replacements thereof.
"LOCKBOX BANK" means NationsBank of Texas, Inc., a national banking
association and its successors, in its capacity as a Lockbox Bank under the
Lockbox Agreement or any other national banking association approved by Lender
and party to a lockbox agreement substantially similar to the Lockbox
Agreement. Lender has approved Fleet Bank, N.A., and/or its Affiliates as a
Lockbox Bank.
"LOST NOTE AFFIDAVIT": Section 6.02(g).
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (a)
could have any adverse effect whatsoever upon the validity, performance or
enforceability of any Loan Papers, (b) is or might be material and adverse to
the financial condition or business operations of Borrower, or (c) could impair
the ability of Borrower to fulfill its obligations under the Loan Papers.
"MATURITY DATE" means the earlier of: (a) the day on which Borrower
satisfies in full all of its obligations hereunder and Lender so acknowledges
in writing or (b) June 21, 1999, or such later date as may be agreed upon by
Borrower and Lender pursuant to Section 2.01(b) herein.
"MAXIMUM ADVANCE AMOUNT" means with regard to any Asset Portfolio, an
amount requested by Borrower in a Borrowing Request; provided that such amount
shall be in an amount not more than seventy percent (70%) of (a) in the case of
an Owned Asset Portfolio, the sum of the Net Present Values of the Assets
contained in such Asset Portfolio and (b) in the case of an Asset Portfolio
being acquired, the Net Purchase Price for such Asset Portfolio.
"MAXIMUM RATE" means, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day.
"MINIMUM RELEASE PRICE" means, with respect to any Asset having an
Allocated Purchase Price of greater than the Asset Threshold Amount, as of any
date of calculation, the greater of (a) the Allocated Purchase Price for such
Asset minus the aggregate Net Collections attributable to date for such Asset
or (b) ninety percent (90%) of the Net Present Value of such Asset; provided,
however, that the Minimum Release Price (i) for any Tract for which Borrower
has established a separate Net Present Value shall be ninety percent (90%) of
such Net Present Value, and (ii) for each other Tract shall be calculated as
the product of (a) the Minimum Release Price for the Asset multiplied by (b) a
percentage obtained by dividing either (A) the acreage or number of lots of the
Tract to be released by (B) the total acreage or number of lots of the
applicable Mortgaged Property. The Minimum Release Price for any Asset having
an Allocated Purchase Price of less than the Asset Threshold Amount for such
Asset Portfolio will be zero.
"MORTGAGE" means any deed of trust or mortgage, (duly acknowledged and
in recordable form) covering a Mortgaged Property executed by Borrower or an
REO Affiliate, as appropriate, granted to Lender to secure repayment of the
Obligation substantially in the form approved by Lender, and all renewals,
extensions, modifications, amendments, or supplements thereto, and all
mortgages or deeds of trust given in renewal, extension, modification,
restatement, or replacement thereof.
"MORTGAGED PROPERTY OR MORTGAGED PROPERTIES" means any and all lots or
parcels of land which Borrower or any REO Affiliate owns on the Closing Date or
which it may hereafter acquire as part of an Asset Portfolio or any Underlying
Real Estate which Borrower or any REO Affiliate may hereafter own as
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a result of a foreclosure or deed-in-lieu of foreclosure or otherwise, and
improvements, fixtures, and personal property located thereon and all other
property referenced in and subject to the Mortgages. The Mortgaged Property is
intended to include all of the above-described real property whether or not a
Mortgage is actually granted or filed.
"NET COLLECTION PROCEEDS" means, with respect to the settlement of an
Asset, all collection proceeds received by Borrower in connection with such
settlement, less all reasonable and customary collection costs actually paid to
unrelated third parties in connection with such settlement.
"NET COLLECTIONS" for any calendar month means an amount equal to (a)
any and all cash proceeds received by Borrower, each REO Affiliate, or the
Servicer with respect to Borrower's ownership, management, and disposition of
any and all Assets in any Asset Portfolio, including, without limitation, (i)
all interest, principal, and other payments on Collateral Loans from any
source, (ii) all Net Operating Income from REO Properties, (iii) loan
settlement payments, any restructure or commitment or other loan fees, payments
on any judgments or settlement of litigation with respect to Collateral Loans,
(iv) Net Sales Proceeds from the sale of REO Properties, Collateral Loans,
Mortgaged Property, and other items of Collateral, (v) income from any
Mortgaged Property, (vi) all insurance proceeds and condemnation proceeds,
(vii) all payments received by Borrower from any seller of an Asset Portfolio
pursuant to the applicable Sale Agreement, including all proceeds of Assets
"put back" to such seller, and (viii) all interest, dividends, and other
earnings directly or indirectly paid to Borrower on funds, accounts, and
investments of Borrower, but excluding any escrow deposits paid to Borrower for
tax or insurance escrows under the Collateral Loans. Notwithstanding anything
to the contrary contained in this Agreement, all Net Operating Income from any
REO Property with respect to any calender month shall not be deemed to be a
part of Net Collections received by Borrower until the first to occur of (i)
the payment of such Net Operating Income by the respective Property Manager to
Borrower, the REO Affiliate in question or the Servicer, or (ii) the fifteenth
(15th) day of the next following calendar month.
"NET OPERATING INCOME" shall mean, with respect to each REO Property,
for each Interest Period, the excess of (a) all of Borrower's or the REO
Affiliate's cash receipts related to such REO Property (including all rents and
other revenues but excluding security deposits) over (b) all reasonable and
customary expenses actually paid during such period which, in accordance with
Generally Accepted Accounting Principles, would be classified as operating
expenses for a property similar to such REO Property (including utility-related
expenses, taxes, insurance expenses, repair and maintenance expenses, and
janitorial and property-management fees actually paid by Borrower or the REO
Affiliate to an unrelated third party) and all Lease-Up Expenses paid for such
REO Property during such period.
"NET PRESENT VALUE" means, with respect to any Asset or Tract as of
any day of calculation, the Projected Net Collections for such Asset or Tract
discounted on a monthly basis to arrive at a current time value of all such Net
Collections utilizing the appropriate discount factor for such Asset or Tract
as set forth in Exhibit "B" attached hereto as such Exhibit "B" may be modified
from time to time.
"NET PURCHASE PRICE" means the actual purchase price paid by Borrower
for an Asset Portfolio, excluding any costs or adjustments for legal fees,
travel, due diligence expenses, or other "soft" costs.
"NET SALES PROCEEDS" means, with respect to the sale of any REO
Property, Collateral Loan, or other Collateral, the gross proceeds received
from such sale, less the reasonable and customary closing costs actually paid
to unrelated third parties.
"NOTE" means the Revolving Credit Note executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions, or modifications thereof.
"NPV RATIO" means a percentage determined by dividing (a) the
outstanding principal balance, as of any date of calculation, of all Advances
hereunder by (b) the current Net Present Value, provided, however, that the Net
Present Value of any Asset held by Lender as collateral hereunder for more than
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days shall be zero as of any such date of calculation, of all Assets
constituting Collateral as of such calculation date.
"OBLIGATION" means all present and future indebtedness, obligations,
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to the Loans and this Agreement or
represented by the Note, and all interest accruing thereon, and attorneys' fees
incurred in the enforcement or collection thereof, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several, or joint and several; together with all
indebtedness, obligations, and liabilities of Borrower to Lender evidenced or
arising pursuant to any of the other Loan Papers, and all renewals and
extensions thereof, or part thereof.
"OPERATING RESERVE ACCOUNT" means, with respect to each Asset
Portfolio, an interest bearing checking account established by Borrower with
Lockbox Bank, which account shall be (a) funded and disbursed in accordance
with Section 3.06(b)(vii) and Section 3.09 of this Agreement and (b) pledged
and assigned to Lender, for the benefit of Lender, as additional security for
the payment, performance, and observance of the Obligations. Funds on deposit
in the Operating Reserve Account may only be invested in Temporary Cash
Investments.
"ORIGINAL ESTIMATED VALUE" means Borrower's estimate of the gross
proceeds reasonably expected by Borrower to be realized by Borrower from each
Collateral Loan and each other Asset contained in an Asset Portfolio (including
Mortgaged Property) set forth on a Schedule attached to the Borrowing Request
submitted by Borrower in connection with the acquisition of the Asset
Portfolio. The Original Estimated Value is Borrower's best estimate of the
value of such Collateral Loan or other Asset derived after applying Borrower's
ordinary and customary underwriting standards to such Asset Portfolio.
"OTHER TAXES": Section 3.08(b).
"OWNED ASSET PORTFOLIO" means an Asset Portfolio financed hereunder,
the Assets of which are owned by the Borrower prior to the time of the related
Advance.
"PERMITTED LEASE-UP EXPENSES" means all Lease-Up Expenses with respect
to any REO Property which do not exceed, in the aggregate and on a cumulative
basis, the lesser of (a) $100,000 or (b) ten percent (10%) of the Allocated
Purchase Price of the REO Property in question, or such other limit as may be
agreed to in writing by Lender.
"PERMITTED LIENS" means: (a) Liens (if any) granted to the Lender for
the benefit of the Lender to secure Borrower's Obligation hereunder or the
obligations of an REO Affiliate under its Guaranty in favor of Lender; (b)
Liens described on Exhibit C attached hereto; (c) pledges or deposits made to
secure payment of Worker's Compensation (or to participate in any fund in
connection with Worker's Compensation), unemployment insurance, pensions or
social security programs; (d) Liens imposed by mandatory provisions of law such
as for materialmen's, mechanics, warehousemen's, and other like Liens arising
in the ordinary course of business, securing Indebtedness whose payment is not
yet due; (e) Liens for taxes, assessments, and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or property, if
the same are not yet due and payable, if the same are being contested in good
faith and as to which adequate reserves have been provided or if the same are
otherwise permitted by Section 7.03 hereunder; (f) good faith deposits in
connection with tenders, leases, real estate bids or contracts (other than
contracts involving the Advance of money), pledges or deposits to secure public
or statutory obligations, deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds, and deposits to secure the payment of taxes,
assessments, customs duties, or other similar charges; (g) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the use
of real property, provided that such do not impair the use of such property for
the uses intended, and none of which is violated by existing or proposed
structures or land use; (h) exceptions affecting title which are shown in an
attorney's title opinion or in a Title Policy included in Borrower's files or
are described with respect to a particular Collateral Loan, Mortgaged Property
or parcel of the Underlying Real Estate in the due diligence reports; (i)
Permitted Prior Liens; or (j) any Liens securing any subordinated indebtedness
of Borrower permitted hereunder.
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"PERMITTED PRIOR LIENS" means Liens upon any Asset (including any REO
Property and Underlying Real Estate) securing payment of a Collateral Loan
existing on the date the Collateral Loan was purchased by Borrower, only to the
extent that such prior Liens are disclosed by Borrower to Lender in the
Borrowing Request.
"PERSON" shall include an individual, a corporation, a joint venture,
a partnership, a trust, an unincorporated organization, or a government or any
agency or political subdivision thereof.
"PLAN" means an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or its Subsidiaries and covered by Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the Internal Revenue Code of 1954, as amended.
"PLEDGE OF ACCOUNTS" means the Security Agreement, Assignment of
Deposits and Money Market Instruments in form and substance acceptable to
Lender, executed by Borrower in favor of Lender.
"POOL COLLATERAL IMPAIRMENT EVENT" means as of any date of
calculation, with respect to any specific Asset Portfolio, that the percentage
obtained by dividing (i) the outstanding principal balance of the Advance made
to acquire or finance such Asset Portfolio, including all outstanding Deferred
Interest on such Advance, by (ii) the Net Present Value of the Assets remaining
in such Asset Portfolio, exceeds the Advance Percentage of such Asset
Portfolio.
"POTENTIAL DEFAULT" means an event or condition which but for the
lapse of time or the giving of notice, or both, would constitute a Event of
Default.
"PROJECTED NET COLLECTIONS" means the Net Collections which Borrower
and Servicer reasonably expect to receive from an Asset Portfolio which has
been determined in a manner consistent with Borrower's and Servicer's past
practices taking into consideration Borrower's and Servicer's historical
performance in collecting assets similar to the Collateral.
"PROPERTY ACCOUNT" means the demand deposit bank account established
by a Property Manager, upon the direction of Servicer, in connection with the
operation and management of an REO Property.
"PROPERTY MANAGER" means any Person hired by Servicer to manage an REO
Property.
"PROTECTIVE ADVANCE" shall mean a payment of expenses by Borrower,
Servicer, or any Property Manager which in the reasonable determination of
Borrower, Servicer, or any Property Manager shall be necessary to maintain the
value of any asset securing payment of a Collateral Loan (such expenses shall
include, without limitation, Permitted Lease-Up Expenses, ad valorem taxes,
environmental assessments or inspections, environmental remediation expenses,
insurance expenses, security, deferred maintenance, litigation expenses,
expenses to enforce remedies, and payments on Permitted Liens).
"RCRA": Section 7.21(b).
"REGISTER": Section 12.14(d).
"REGULATORY CHANGE" means the adoption of any applicable law, rule or
regulation, of any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority charged with the administration thereof.
"RELEASED ASSET" shall mean any Collateral, any REO Property, or any
Mortgaged Property or other real property which after the Closing Date is sold,
transferred, reconveyed to a seller under a sale agreement, or otherwise
disposed of by Borrower or an REO Affiliate (whether in the ordinary course of
business or through foreclosure, condemnation or otherwise) to an unrelated
third party or returned to a seller pursuant to and in accordance with the
related sale agreement.
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"RELEASE PRICE" means, with respect to each Asset, an amount equal to
the greater of (a) the Net Sales Proceeds or Net Collection Proceeds received
by Borrower in connection with such Asset or (b) the Minimum Release Price for
such Asset.
"RENTALS" of any Person means, as of any date, the aggregate amount of
the obligations and liabilities (including future obligations and liabilities
not yet due and payable) of such Person to make payments under all leases,
subleases, and similar arrangements for the use of real, personal, or mixed
property, other than leases which are Capital Leases.
"REO AFFILIATES" shall mean (a) Properties One, Properties Three,
Properties Five, and Properties Six, each a Texas limited partnership having as
general partners those entities described in Section 5.19, and (b) any other
entity that is controlled, directly or indirectly, by Borrower, any Affiliate
of Borrower, or any combination thereof and owns or acquires title to any real
property securing a Collateral Loan, and "REO AFFILIATE" shall mean any one of
them.
"REO NOTE" shall mean, as to each REO Property, a demand promissory
note to be delivered by the REO Affiliate which owns the REO Property in
question to Borrower that shall (a) be in a principal amount equal to
ninety-six percent (96%) of the Allocated Purchase Price of the REO Property in
question, (b) require principal and interest payments due thereunder to be paid
not less frequently than the last day of each Interest Period, (c) require
principal and interest payments to be in an amount equal to all Net Operating
Income received by such REO Affiliate with respect to the underlying REO
Property each calendar month, (d) provide that an Event of Default (as such
term is defined in this Agreement) shall constitute an event of default
thereunder permitting the acceleration of all amounts owing thereunder and (e)
in all other respects be in form and substance satisfactory to Lender.
"REO PROPERTY" shall mean any and all real property (together with any
fixtures appurtenant thereto and any improvements thereon) or interest in real
property now or hereafter owned by any REO Affiliate including (a) as of the
Effective Date of any Advance, the real property specifically described on a
schedule attached to the related Borrowing Request and (b) in general, any real
property that has been, or shall be, (i) foreclosed upon by a seller, Borrower,
or any REO Affiliate or (ii) conveyed to any REO Affiliate by a deed in lieu of
foreclosure, all of which shall be deemed to constitute proceeds of the
Collateral.
"REO PROPERTY MORTGAGE" shall mean a Mortgage, in form and substance
acceptable to Lender, pursuant to which a REO Affiliate shall grant to Borrower
a first-priority security interest in the REO Property.
"REO SECURITY DOCUMENTS" shall mean those certain mortgages or deeds
of trust, assignments of leases and rents, security agreements, and appropriate
UCC financing statements, all in form and substance satisfactory to the Lender,
as required by the Lender, for each REO Property, to be executed by each REO
Affiliate in favor of Borrower and pursuant to the terms of which, as security
for the applicable REO Note (and, at Lender's option, the Note), there shall be
(a) granted and conveyed to Borrower Liens upon each REO Property (including,
all personal property associated therewith) owned by such REO Affiliate from
time to time as is described therein and (b) assigned to Borrower all leases
and rents with respect thereto; as the same may be amended, renewed, modified,
extended, or restated from time to time with the prior written consent of
Lender.
"REPORTABLE EVENT" has the meaning assigned to that term in Title IV
of ERISA.
"SALE AGREEMENT" means any purchase and sale agreement entered into
(a) by Borrower pursuant to which Borrower acquires an Asset Portfolio or (b)
by an REO Affiliate pursuant to which the REO Affiliate acquires REO Property.
"SECURITIZATION AGENT" means Nomura Securities International, Inc.
"SECURITIZATION TRANSACTION" means the creation and issuance of
securities evidencing beneficial interests in, or secured by, one or more pools
of mortgage loans.
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"SECURITY AGREEMENT" means a Security Agreement in form and substance
acceptable to Lender, as the same may be modified or amended from time to time,
whereby Borrower grants to Lender, for the benefit of Lender, a security
interest in the Collateral.
"SECURITY DOCUMENTS" means the Collateral Assignments, the Security
Agreement, the Pledge Agreements, the Lockbox Agreement, all Mortgages, and all
other documents or instruments granting a Lien in favor of the Lender as
collateral for the Obligations, and all financing statements related thereto,
and all modifications, renewals, or extensions thereof and any documents
executed in modification, renewal, extension, or replacement thereof.
"SERVICER" shall mean FirstCity Servicing Corporation, a Texas
corporation, or any replacement therefor designated pursuant to the terms of
any Servicing Agreement and approved in writing by Lender.
"SERVICING AGREEMENT" shall mean the Servicing Agreement entered into
by Borrower, Servicer, and Lender with respect to servicing the Collateral,
together with all amendments and modifications thereto.
"SETTLEMENT" means, with respect to any Collateral Loan, the
satisfaction of Borrower's claims against the respective Account Debtor in
connection with such Collateral Loan, whether pursuant to a full or discounted
payment.
"STANDARD INDUSTRY PRACTICES" means such due diligence, collateral
control, and collection procedures that are customarily followed by Persons
actively engaged in the business of acquiring distressed assets in a bulk
transaction and managing and disposing of such assets, provided such due
diligence and collateral control and collection procedures shall be at least as
rigorous as Borrower and the REO Affiliates apply in managing and disposing of
their assets.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the Voting Shares is owned, directly or indirectly, by Borrower.
"TAXES": Section 3.08(a).
"TAX ESCROW ACCOUNT" means a non-interest bearing account established
by Borrower with Lockbox Bank into which the Tax Escrow Payments are to be
deposited.
"TAX ESCROW PAYMENTS" mean all payments made by Account Debtors
(including REO Tax Escrow Payments) for a specified purpose (such as real
estate tax payments, insurance payments, etc.) other than payments of
principal, interest, fees, and other amounts owed to Borrower with respect to
the Collateral Loans and all net insurance and condemnation proceeds received
by Borrower which are not available to be applied to the outstanding balance
under the Collateral Loan in question but, rather, are required by the
Collateral Loan Documents to be used for purposes of repairing or rebuilding
the real property in question.
"TELERATE SCREEN" means the display designated as Screen 3750 on the
Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars.
"TEMPORARY CASH INVESTMENT" means any Investment (a) in obligations of
the United States of America and agencies thereof and obligations guaranteed by
the United States of America maturing within one year from the date of
acquisition; (b) demand deposits and interest bearing time deposits evidenced
by certificates of deposit issued by NationsBank of Texas, N.A. or Fleet Bank,
N.A., which are fully insured by the Federal Deposit Insurance Corporation or
are issued by commercial banks organized under the Laws of the United States of
America or any state thereof and having combined capital, surplus, and
undivided profits of not less than $100,000,000 (as shown on such Person's most
recently published statement of condition), and which certificates of deposit
have one of the two highest ratings from Moody's Investors Service, Inc., or
Standard & Poor's Rating Group; (c) commercial paper which has one of the two
highest ratings from Moody's Investors Service, Inc., or Standard & Poor's
Rating Group; (d) eurodollar investments
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<PAGE> 17
with demand deposits and interest bearing time deposits evidenced by financial
institutions having combined capital, surplus, and undivided profits of not
less than $100,000,000 (as shown on such Person's most recently published
statement of condition), and whose certificates of deposit have one of the two
highest ratings from Moody's Investors Service, Inc., or Standard & Poor's
Rating Group, respectively, or, if such institution does not have a commercial
paper rating, a comparable bond rating; (e) any obligations secured by a
pooling of one or more of the foregoing, including repurchase agreements with
NationsBank of Texas, N.A., Fleet Bank, N.A., or other banks which are members
of the Federal Reserve System or a government securities dealers recognized as
primary dealers by the Federal Reserve; and (f) money market funds comprised of
money market instruments rated at least P-1 by Moody's Investor Service or at
least A-1 by Standard & Poor's Corporation.
"TERMINATION DATE" means the earliest date on which any of the
following events occurs: (a) March 19, 1999, which date may be extended one or
more times by mutual agreement of Lender and Borrower; (b) the date that Lender
terminates Lender's commitment to lend hereunder, after the occurrence of an
Event of Default; or (c) such earlier date as may be agreed upon in writing by
Borrower and Lender.
"TITLE COMPANY" means a title company or title companies selected by
Borrower and not disapproved by Lender, together with any issuing Lender that
issues all or any part of a Title Policy.
"TITLE POLICY" means a Mortgagee or Loan Policy of Title Insurance
issued and underwritten by a Title Borrower for the benefit of (a) Lender
covering that portion of the Mortgaged Property therein described and insuring
the lien of the Mortgage which covers such portion of the Mortgaged Property,
or (b) Borrower insuring a lien on Underlying Real Estate securing a Collateral
Loan.
"TOTAL COMMITMENT": Section 2.01(a).
"TRACT": means any portion of a Mortgaged Property which is separately
identifiable from other portions of the Mortgaged Property.
"UNDERLYING REAL ESTATE" means the real property, together with all
improvements thereon, which secures any of the Collateral Loans, or any one of
such parcels of real property.
"UTILIZED ADVANCES": Section 2.01(c).
"VOTING SHARES" of any corporation means shares of any class or
classes (however designated) having ordinary voting power for the election of
at least a majority of the members of the Board of Directors (or other
governing bodies) of such corporation, other than shares having such power only
by reason of the happening of a contingency.
1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in the Note or any Loan Papers,
certificate, report or other document made or delivered pursuant to
this Agreement, unless otherwise defined in the Loan Papers or the
context therein shall otherwise require.
(b) Defined terms used herein in the singular shall
import the plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
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SECTION 2
THE REVOLVING CREDIT LOANS
2.01. Revolving Loan Commitments.
(a) Subject to the terms and conditions of this
Agreement, Lender agrees to extend to Borrower (i) on the Initial
Advance Date, credit in an amount not not to exceed the Initial
Commitment (the "INITIAL ADVANCE"), and (ii) for the time period
beginning on the day following the Initial Advance Date through the
Termination Date (the "DISCRETIONARY PERIOD") a revolving line of
credit equal to the difference between the Total Commitment and the
Initial Commitment; provided, however, that any Advance requested
during the Discretionary Period will be made at Lenders sole
discretion; and provided further, that any Advance made during the
Discretionary Period may not cause the aggregate of outstanding
Advances to exceed the Total Commitment. "TOTAL COMMITMENT" means as
of any date of determination the amount of $100,000,000 less the
Affiliate Loan Balance as of such date. The amounts advanced
hereunder shall constitute one general obligation of Borrower to
Lender and shall be secured by Lender's security interests and Liens
upon all of the Collateral on a pari passu basis and by a Guaranty
from each REO Affiliate.
Within the limits of this Section 2.01, and during the
Availability Period, Borrower may borrow, prepay, pursuant to Section
3.03 hereof, and reborrow under this Section 2.01. Each advance
(including the Initial Advance) made by Lender hereunder is referred
to herein as an "ADVANCE." The Initial Advance shall be made in an
amount not to exceed the Initial Commitment, and each Advance
thereafter shall be in an amount not to exceed the Maximum Advance
Amount. A portion of any Advance may be used to make loans to REO
Affiliates, each such loan to be evidenced by an REO Note, for the
purpose of acquiring REO Property included in such Asset Portfolio.
All Advances shall be used by Borrower for the purpose of
financing the acquisitions by Borrower or its REO Affiliates of Asset
Portfolios unless otherwise agreed in writing by Lender.
(b) Termination Date; Maturity Date. Lender and Borrower
may mutually agree to extend the Termination Date of the revolving
line of credit for an additional twelve- (12) month period; provided,
however, that Lender shall have no obligation to extend the
Termination Date, such decision being at Lender's sole discretion, and
provided further, that any such agreement to extend shall be in
writing and signed by Lender and Borrower. Borrower must request such
an extension in writing at least ninety (90) days prior to the
Termination Date and Lender shall respond to such request within five
(5) business days of receipt thereof. In the event Lender notifies
Borrower that the Facility will not be extended, the Obligation shall
be due and payable in full ninety (90) days following the Termination
Date (the "MATURITY DATE").
(c) Non-Utilization Fee. In addition to the payments
provided for in Section 3 hereof, Borrower shall pay to Lender on
September 19, 1998, a non-utilization fee in the amount of one-half of
one percent (.5%) of an amount equal to (i) $100,000,000 less (ii) the
aggregate amount of all Advances made hereunder and under the
Affiliate Loan Agreements through September 19, 1998 (the "UTILIZED
ADVANCES"), provided, however, that such non-utilization fee shall not
be due and payable in the event that either (i) the amount of the
Utilized Advances exceeds $50,000,000 or (ii) no Advance is made
hereunder.
(d) Records of Loans and Payments. Lender is hereby
authorized, but is not required, to record the date and principal
amount of each Advance and each repayment of an Advance on the
schedule attached to the Note.
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2.02. Manner of Advance.
(a) Borrowing Request. Each request by Borrower to
Lender for an Advance under Section 2.01 hereof (a "BORROWING
REQUEST") shall specify, among other information, the aggregate amount
of such requested Advance, the requested date of such Advance, and the
wiring instructions pursuant to which the Advance should be disbursed.
Borrower shall furnish to Lender the Borrowing Request at least three
(3) Business Days prior to the Effective Date for such Advance (which
must be a Business Day). Any such Borrowing Request shall be in the
form attached hereto as Exhibit "D". Each requested Advance shall be
in an aggregate principal amount of at least $1,000,000 or any greater
integral multiple of $1,000.
Each Borrowing Request shall be irrevocable and binding on
Borrower and, in respect of the Advance specified in such Borrowing
Request, Borrower shall indemnify Lender against any cost, loss or
expense incurred by Lender as a result of any failure to fulfill, on
or before the date specified for such Advance, the conditions to such
Advance set forth herein.
(b) Funding. On the Effective Date of an Advance
specified in the Borrowing Request, subject to satisfaction of the
applicable conditions precedent set forth herein, Lender shall
initiate a wire or other transfer of immediately available funds in
the manner set forth in the Borrowing Request and subject to the terms
and conditions hereof. Lender may deduct from the amount of the
Advance so transferred the amount of fees and expenses to be paid to
Lender as provided for in this Agreement. If Lender chooses not to
withhold such fees and expenses from the funding amount, Borrower
shall pay the amount of such fees and expenses immediately upon
presentation of an invoice by Lender.
2.03. Interest Rate. The unpaid principal of each Advance shall
bear interest from the Effective Date of such Advance until paid at a rate per
annum which shall be equal to the lesser of (a) the Maximum Rate or (b) either
(i) for each day during which the outstanding balance of the Utilized Advances
is less than $50,000,000, the sum of the LIBOR Rate in effect from time to
time, plus two and one-half percent (2.5%) or (ii) for each day during which
the outstanding balance of the Utilized Advances is greater than or equal to
$50,000,000, the sum of the LIBOR Rate in effect from time to time, plus two
and one-quarter percent (2.25%). All past due principal of, and to the extent
permitted by applicable law, interest on, the Note shall bear interest until
paid at the lesser of (a) the Default Rate or (b) the Maximum Rate.
SECTION 3
NOTE AND NOTE PAYMENTS
3.01. Revolving Credit Note. The Advances made by Lender shall be
evidenced by a revolving credit note (the "NOTE") of Borrower, which Note shall
(a) be dated the date hereof, (b) be in an amount equal to $100,000,000, (c) be
payable to the order of Lender at the office of Lender, (d) bear interest in
accordance with Section 2.03 hereof, and (e) be in the form of Exhibit "A"
attached hereto with blanks appropriately completed in conformity herewith.
Notwithstanding the principal amount of the Note as stated on the face thereof,
the amount of principal actually owing on the Note at any given time shall be
the aggregate of all Advances theretofore made to Borrower hereunder, less all
payments of principal theretofore actually received hereunder, by Lender.
Lender is authorized, but not required, to endorse on the schedule attached to
the Note appropriate notations evidencing the date and amount of each Advance
as well as the amount of each payment made by Borrower hereunder.
3.02. Principal Payments. The unpaid principal amount of the Note
shall be due and payable from distributions of Net Collections and Excess Cash
Flow, as set forth in Section 3.06 herein. All unpaid principal, together with
accrued-but-unpaid interest on the Note, shall be due and payable in full on
the Maturity Date notwithstanding the amount of Net Collections and Excess Cash
Flow collected and distributed theretofore.
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3.03. Prepayments.
(a) Optional Prepayments. Borrower may, without premium
or penalty, upon three (3) Business Days prior written notice to
Lender, prepay the principal of the Note then outstanding, in whole or
in part, at any time or from time to time; provided, however, that
each prepayment of less than the full outstanding principal balance of
the Note shall be in an amount not less than $1,000,000 or an integral
multiple thereof.
(b) Mandatory Prepayments Upon the Occurrence of
Collateral Impairment Event. Upon the occurrence of a Collateral
Impairment Event, Borrower shall immediately pay to Lender, as a
prepayment on the Note, an amount such that, after giving effect to
such payment, the Advance Ratio exceeds the NPV Ratio.
(c) Mandatory Prepayments from Net Collections. In
addition to the foregoing, Borrower shall make payments on the
outstanding principal balance of the Note from distributions of Net
Collections and Excess Cash Flow, required by Sections 3.06(b) and
3.06(c) hereunder.
(d) General Prepayment Provisions. Any prepayment of the
Note hereunder shall be (i) made together with interest accrued
(through the date of such prepayment) on the principal amount prepaid,
and (ii) applied first to accrued interest and then to principal.
3.04. Interest Payments Interest on the unpaid principal amount of
each Advance shall be payable monthly as it accrues on the tenth (10th) day of
each month hereafter, commencing April 10, 1998, and at the Maturity Date (each
such date an "INTEREST PAYMENT DATE"). Interest payable on each Interest
Payment Date shall be all interest accrued and unpaid through the last day of
the month preceding the Interest Payment Date. In the event that the amount of
accrued and unpaid interest on the Loan payable on any Interest Payment Date
exceeds the Net Collections available on such Interest Payment Date, payment of
such excess amount of interest (the "DEFERRED INTEREST") may be deferred for a
period of up to three months; provided, however, that the outstanding principal
balance of the Loan plus the amount of Deferred Interest hereunder shall never
exceed the Total Commitment and; provided further, that the Deferred Interest
shall not be permitted if, after giving effect to such Deferred Interest, a
Collateral Impairment Event exists. All such Deferred Interest shall bear
interest at the rate provided for herein, to the extent permitted by applicable
law, and shall not be deemed past-due until the Interest Payment Date three
months following the Interest Payment Date such Deferred Interest was
originally due.
3.05. Calculation of Interest Rates. Interest on the unpaid
principal outstanding under the Note shall be calculated on the basis of the
actual days elapsed in a year consisting of 360 days.
3.06. Lockbox Account; Distributions of Net Collections;
Distributions of Excess Cash Flow.
(a) Lockbox Account. All Net Collections shall be
directed to and deposited into the Lockbox Account and shall be
accounted for and tracked on an Asset Portfolio basis. Any payments
or other proceeds of Collateral received by Borrower shall be deemed
received by Borrower in trust for the owner or beneficiary of the
Lockbox Account and shall be forthwith deposited by Borrower,
immediately upon receipt, into the Lockbox Account in the form
received, duly endorsed by Borrower for deposit into the Lockbox
Account.
(b) Distributions of Net Collections. On each Interest
Payment Date, the Net Collections with respect to an Asset Portfolio
will be withdrawn from the Lockbox Account and applied in the
following priorities:
(i) First, (A) to transfer out of the Lockbox
Account any funds that do not constitute Net Collections and
that were erroneously deposited to the Lockbox Account and (B)
to transfer any Tax Escrow Payments related to such Asset
Portfolio received from Account Debtors to the appropriate Tax
Escrow Account in an amount requested by the
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Servicer, which amount shall represent the total amount of Tax
Escrow Payments related to such Asset Portfolio paid into the
Lockbox Account prior to such Interest Payment Date to the
extent not previously deposited in the Tax Escrow Account;
(ii) Second, to the payment to Lender of all
accrued and unpaid interest on the Advance made to acquire
such Asset Portfolio;
(iii) Third, to the payment to Lender of any
Deferred Interest existing as of such Interest Payment Date,
including any Deferred Interest arising after giving effect to
distributions of Net Collections attributable to all Asset
Portfolios on such Interest Payment Date;
(iv) Fourth, to the payment of any fees and
expenses then due and payable to Lender under this Agreement
or any of the other Loan Papers, and to payment of fees and
expenses due to the Lockbox Bank and the Collateral Custodian;
(v) Fifth, to the payment to the Servicer of any
servicing fees then due to the Servicer with respect to such
Asset Portfolio pursuant to the terms of the Servicing
Agreement;
(vi) Sixth, to the payment of any Protective
Advances made by Borrower, or Servicer with respect to such
Asset Portfolio, provided such payment is not otherwise
prohibited hereunder or subject to Lender's approval;
(vii) Seventh, unless such payment is prohibited
hereunder, to the payment to NationsBank of Texas, N.A., for
deposit into the Operating Reserve Account maintained for such
Asset Portfolio, of such amount as may be requested by
Borrower in connection with such Asset Portfolio, provided
such payment shall not exceed (A) three percent (3%) of the
Net Purchase Price of such Asset Portfolio until expense
budgets for such Asset Portfolio are agreed upon by Borrower
and Lender and (B) thereafter, the budgeted expenses for such
Asset Portfolio; and
(viii) Eighth, the balance to be paid to Lender, to
be applied as principal payments on the Loan; provided,
however, that if, on such Interest Payment Date, no Pool
Collateral Impairment Event exists, such portion of the
balance shall be paid to Lender until the NPV Ratio for such
Asset Portfolio, is less than seventy percent (70%).
(c) Distributions of Excess Cash Flow. Any Net
Collections with respect to an Asset Portfolio remaining after making
all of the foregoing disbursements shall constitute "EXCESS CASH FLOW"
and shall be distributed on each Interest Payment Date as follows:
(i) First, to the payment to Lender, (as a
principal payment) in an amount equal to the greater of: (A)
seventy percent (70%) of Excess Cash Flow; and (B) the product
of multiplying (1) the Excess Cash Flow and (2) a percentage
obtained by adding (a) the NPV Ratio calculated for such Asset
Portfolio, and (b) ten percent (10%); and
(ii) Second, provided no Event of Default,
Potential Default, or Collateral Impairment Event has occurred
and is continuing, to Borrower in the amount of the remaining
balance of Excess Cash Flow with such distribution limited
such that the NPV Ratio will not be higher than the ratio
existing after the prior month's distributions.
Notwithstanding the foregoing, if an Event of Default or a material Potential
Default shall have occurred and be continuing, or if a Collateral Impairment
Event exists, all Net Collections shall be distributed as Lender
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shall direct, and Lender shall be entitled to withdraw and apply all Net
Collections and all amounts on deposit in the Lockbox Account, the Operating
Reserve Account and the Property Accounts to pay down amounts outstanding
hereunder and under the Note.
3.07. Manner and Application of Payments. All payments of principal
of, and interest on, the Note to or for the account of Lender shall be made by
Borrower to Lender before 12:00 noon (New York Time), by wire transfer in
Dollars at Lender's principal lending office in New York. Should the principal
of, or any installment of the principal or interest on, the Note, or any
Non-Utilization Fee, become due and payable on a day other than a Business Day,
the maturity thereof shall be extended to the next succeeding Business Day and
interest shall be payable with respect to such extension. All payments made on
the Note shall be credited, to the extent to the amount thereof, in the
following manner: (a) first, against the amount of interest accrued and unpaid
on the Note as of the date of such payment; and (b) second, as a prepayment of
outstanding Advances under the Note.
3.08. Taxes.
(a) Any and all payments by Borrower hereunder or under
the Note shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges,
or withholdings, and all liabilities with respect thereto (hereinafter
referred to as "TAXES"), excluding, in the case of Lender, taxes
imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which Lender is organized or is or
should be qualified to do business, or any political subdivision
thereof and, in the case of Lender, taxes imposed on its income, and
franchise taxes imposed on it by the jurisdiction of Lender's lending
office or any political subdivision thereof. If Borrower shall be
required by law to deduct any taxes (i.e., such taxes, liens, imposts,
deductions, charges, withholdings, and liabilities for which Borrower
is responsible under the preceding sentence) from or in respect of any
sum payable hereunder or under the Note to Lender, (i) the sum payable
shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional
sums payable under this Section 3.08), Lender receives an amount equal
to the sum it would have received had no such deductions been made,
(ii) Borrower shall make such deductions and (iii) Borrower shall pay
the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made
hereunder or under the Loan Papers or from the execution, delivery, or
registration of, or otherwise with respect to, this Agreement or the
other Loan Papers (hereinafter referred to as "OTHER TAXES").
(c) Borrower will indemnify Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.08) paid by Lender or any liability (including penalties and
interest) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date Lender
makes written demand therefor.
(d) Within 30 days after the date of any payment of
Taxes, Borrower will furnish to Lender, at its address referred to
herein, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 3.08 shall survive the payment in
full of principal and interest hereunder and under the other Loan
Papers.
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3.09. Reserve Funds. Borrower shall establish an account with the
Lockbox Bank (the "OPERATING RESERVE ACCOUNT") to deposit cash available for
distribution under Section 3.06(b)(vii) for the sole purposes of (a) making
Protective Advances, (b) funding property improvement expenses, and (c) funding
Permitted Lease-Up Expenses with respect to REO Property. The Operating
Reserve Account will be established for Borrower and pledged to Lender pursuant
to a Security Agreement, Assignment of Deposits and Money Market Instruments in
form and substance acceptable to Lender (the "PLEDGE OF ACCOUNTS").
SECTION 4
SPECIAL PROVISIONS FOR LIBOR RATE ADVANCES
4.01. Inadequacy of LIBOR Rate Loan Pricing. If with respect to any
LIBOR Rate Advance, Lender determines that, by reason of circumstances
affecting the interbank eurodollar market generally, deposits in Dollars (in
the applicable amounts) are not being offered to Lender in the interbank
eurodollar market then Lender shall forthwith give notice thereof to Borrower,
whereupon until Lender notifies Borrower that the circumstances giving rise to
such suspension no longer exist, (a) the obligation of Lender to make LIBOR
Rate Advances shall be suspended and (b) Borrower shall either (i) repay in
full the then-outstanding principal amount of the LIBOR Rate Advances, together
with accrued interest thereon, or (ii) convert such LIBOR Rate Advances to
Advances bearing a comparable alternative interest rate as reasonably
determined by Lender (the "ALTERNATIVE RATE ADVANCES").
4.02. Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation
or administration thereof, or compliance by Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for
Lender to make, maintain, or fund LIBOR Rate Advances, and Lender is so
notified, Lender shall give notice thereof to Borrower. Upon receipt of such
notice, Borrower shall immediately either (a) repay in full the then
outstanding principal amount of the LIBOR Rate Advances, together with accrued
interest thereon, or (b) convert such LIBOR Rate Advances to Alternative Rate
Advances.
4.03. Duration of Alternative Rate Advances. If notice has been
given pursuant to Section 4.02 requiring the LIBOR Rate Advances to be repaid
or converted, then unless and until Lender notifies Borrower that the
circumstances giving rise to such repayment no longer apply, all Advances shall
be Alternative Rate Advances. If Lender notifies Borrower that the
circumstances giving rise to such repayment no longer apply, Borrower may
thereafter select Advances to be LIBOR Rate Advances in accordance with Section
2.03 of this Agreement.
4.04. Increased Costs. If any Governmental Authority, central bank,
or other comparable authority, shall at any time impose, modify, or deem
applicable any requirement or any other condition affecting Lender's Advances
hereunder, the Note or its obligation to make LIBOR Rate Advances, and the
result of any of the foregoing is to increase the cost to Lender of making or
maintaining its LIBOR Rate Advances, or to reduce the amount of any sum
received or receivable by Lender under this Agreement, or under the Note, by an
amount deemed by Lender to be material, then, within five (5) days after demand
by Lender, Borrower shall pay to Lender such additional amount or amounts as
will compensate Lender for such increased cost or reduction. Lender will
promptly notify Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle Lender to compensation pursuant to
this Section 4. A certificate of Lender claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. If Lender
demands compensation under this Section, then Borrower may at any time upon
notice to Lender, either (i) repay in full the then outstanding LIBOR Rate
Advances, together with accrued interest thereon to the date of prepayment or
(ii) convert such LIBOR Rate Advances to Alternative Rate Advances in
accordance with the provisions of this Loan Agreement.
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SECTION 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans hereunder, Borrower represents and
warrants to Lender that:
5.01. Organization and Good Standing. Borrower (i) is a limited
partnership duly organized and validly existing under the laws of the State of
Texas, (ii) has duly qualified and is authorized to do business and is in good
standing in all states and jurisdictions where the character of its assets or
the nature of its activities make such qualification necessary, where the
failure to qualify could have a Material Adverse Effect, (iii) has the power
and authority to own its properties and assets and to transact the business in
which it is engaged, (iv) is or will be qualified in those states wherein it
proposes to transact business in the future where the failure to qualify could
have a Material Adverse Effect, and (v) has not been known as or used any
corporate, fictitious, or trade names in the past. Each REO Affiliate (i) is a
limited partnership duly organized and validly existing under the laws of the
State of Texas, (ii) has duly qualified and is authorized to do business and is
in good standing in all states and jurisdictions where the character of its
assets or the nature of its activities make such qualification necessary where
the failure to qualify could have a Material Adverse Effect, (iii) has the
power and authority to own its properties and assets and to transact the
business in which it is engaged, (iv) is or will be qualified in those states
wherein it proposes to transact business in the future where the failure to
qualify could have a Material Adverse Effect, and (v) has not been known as or
used any corporate, fictitious, or trade names in the past. The chief
executive office and principal place of business of the Borrower and each REO
Affiliate is at the address identified as Borrower's address in Section 12.05.
5.02. Authorization and Power. Borrower, Servicer, and each REO
Affiliate have the power and requisite authority to execute, deliver, and
perform this Agreement, the Note, and the other Loan Papers to which they are a
party; Borrower, Servicer and each REO Affiliate are duly authorized to and all
necessary action has been taken to authorize Borrower, Servicer, and each REO
Affiliate to execute, deliver, and perform such Loan Papers and such Persons
are and will continue to be duly authorized to perform this Agreement, the
Note, and such other Loan Papers to which they are a party.
5.03. No Conflicts or Consents. Neither the execution and delivery
of this Agreement, the Note, or the other Loan Papers, nor the consummation of
any of the transactions herein or therein contemplated, nor compliance with the
terms and provisions hereof or with the terms and provisions thereof, will
contravene or materially conflict with any provision of law, statute, or
regulation to which Borrower or any REO Affiliate is subject or any judgment,
license, order, or permit applicable to Borrower or any REO Affiliate, or any
indenture, loan agreement, mortgage, deed of trust, or other agreement or
instrument to which Borrower or any REO Affiliate is a party or by which
Borrower or any REO Affiliate may be bound, or to which Borrower or any REO
Affiliate may be subject, or violate any provision of the partnership agreement
of Borrower or any REO Affiliate. No consent, approval, authorization, or
order of any court or Governmental Authority or third party is required in
connection with the execution and delivery by Borrower or any REO Affiliate of
the Loan Papers to which it is a party or to consummate the transactions
contemplated hereby or thereby.
5.04. Enforceable Obligations. This Agreement, the Note, and the
other Loan Papers are the legal and binding obligations of Borrower and each
REO Affiliate, as applicable, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency, or other laws of general
application relating to the enforcement of creditors' rights and general equity
principles.
5.05. No Liens. Except for Permitted Liens, all of the properties
and assets of Borrower and each REO Affiliate are free and clear of all
mortgages, liens, encumbrances, and other adverse claims of any nature and
Borrower and each REO Affiliate have and will have good and indefeasible title
to their respective properties and assets.
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5.06. Financial Condition. Borrower has delivered to Lender copies
of the most recent consolidated balance sheet of Borrower, if any, and the
related consolidated statements of income, stockholders' equity and changes in
financial position for the year ended on such date, certified by KPMG Peat
Marwick L.L.P., independent certified public accountants; such financial
statements are true and correct, fairly present the financial condition of
Borrower as of such date, and have been prepared in accordance with Generally
Accepted Accounting Principles applied on a basis consistent with that of prior
periods; as of the date hereof, there are no obligations, liabilities or
indebtedness (including contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) of Borrower which are (separately or
in the aggregate) material and are not reflected in such financial statements;
no changes having a Material Adverse Effect have occurred in the financial
condition or business of Borrower since December 31, 1997.
5.07. Full Disclosure. There is no material fact that Borrower has
not disclosed to Lender which could have a Material Adverse Effect on the
properties, business, prospects, or condition (financial or otherwise) of
Borrower, Servicer, or each REO Affiliate. Neither the financial statements
referred in Section 5.06 hereof, nor any certificate or statement delivered
herewith or heretofore by Borrower to Lender in connection with negotiations of
this Agreement, nor any statements, reports, or other documents or information
delivered to Lender pursuant to this Agreement, the Loan Papers, or the
Servicing Agreement, contains any untrue statement of a material fact or omits
to state any material fact necessary to keep the statements contained herein or
therein from being misleading, inaccurate, incomplete, or incorrect.
5.08. No Default; Potential Default. No event has occurred and is
continuing which constitutes an Event of Default or Potential Default.
5.09. Material Agreements. Schedule 5.09 attached hereto contains a
list of all material agreements (including without limitation all agreements
which, if breached, could directly or indirectly result in a Material Adverse
Effect but excluding the Loan Papers) of Borrower and each REO Affiliate.
Neither Borrower nor any REO Affiliate is in default in any material respect
under any loan agreement, indenture, mortgage, security agreement, or other
material agreement or obligation to which it is a party or by which any of its
properties is bound.
5.10. No Litigation. Except as described on Schedule 5.10, there
are no actions, suits or legal, equitable, arbitration, or administrative
proceedings pending, or to the knowledge of Borrower threatened, against
Borrower or any REO Affiliate or any of their respective assets that would, if
adversely determined, result in a Material Adverse Effect.
5.11. Burdensome Contracts. Neither Borrower nor any Subsidiary is
a party to, or bound by, any contract which has a Material Adverse Effect on
the business, operations, or financial condition of Borrower or any Subsidiary.
5.12. Taxes. All tax returns required to be filed by Borrower and
each REO Affiliate in any jurisdiction have been filed and all taxes (including
mortgage recording taxes), assessments, fees, and other governmental charges
upon Borrower or any REO Affiliate or upon any of their properties, income, or
franchises have been paid prior to the time that such taxes could give rise to
a lien thereon, except for Permitted Liens. There is no proposed tax
assessment against Borrower or any REO Affiliate and there is no basis for such
assessment.
5.13. Principal Office, Etc. The principal office, chief executive
office and principal place of business of Borrower is at 6400 Imperial Drive,
P.O. Box 8216, Waco, Texas, 76714-8216. Borrower maintains its principal
records and books at such address.
5.14. ERISA. No Plan exists.
5.15. Compliance with Law. Each of Borrower, Servicer, and each REO
Affiliate has duly complied with, and its assets, business operations, and
leaseholds are in compliance in all material respects
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with, the provisions of all federal, state, and local laws, rules, regulations,
and orders (including, without limitation, Applicable Environmental Laws)
applicable to Borrower, Servicer, or any REO Affiliate, as the case may be, and
their respective assets or the conduct of their respective businesses and they
each possess all required licenses, permits, authorizations, and approvals for
the conduct of their business, the ownership of their properties, and their
execution, delivery, and performance of the Loan Papers. Neither Borrower nor
any of the REO Property or the Underlying Real Estate is in material violation
of any Applicable Environmental Law or subject to any existing, pending or
overtly threatened investigation by any Governmental Authority under any
Applicable Environmental Law. To the best knowledge of Borrower, no Hazardous
Substance (a) has been disposed of or released on any of REO Property or the
Underlying Real Estate or (b) is located thereon. No REO Property, Underlying
Real Estate, or any property adjoining any REO Property or Underlying Real
Estate is being used, or, to Borrower's best knowledge, has been used at any
time, for the generation, disposal, storage, treatment, processing, or other
handling of any Hazardous Substance, and no environmental permits are required
for the operation of the businesses or other activities being conducted on any
REO Property or Underlying Real Estate. The foregoing provisions of this
Section 5.15 are subject to the following qualifications: (a) the use by the
owners of any Underlying Real Estate of limited quantities of Hazardous
Substances in the ordinary conduct of their business and in accordance with
industry customs and all Applicable Environmental Laws shall not be a breach of
the representations of this Section 5.15 and (b) such representations are
subject to the exception of (i) with respect to Borrower, all matters disclosed
to Lender in writing before the date of this Agreement and (ii) with respect to
any Assets, all matters disclosed to Lender in writing before the date of
acquisition of such Asset.
5.16. Government Regulation. Borrower is not subject to regulation
under the Public Utility Holding Borrower Act of 1935, the Federal Power Act,
the Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other law (other than Regulation X)
which regulates the incurring by Borrower of Indebtedness, including but not
limited to laws relating to common contract carriers or the sale of
electricity, gas, steam, water, or other public utility services.
5.17. No Subsidiaries. Borrower has not formed or acquired any
Subsidiary.
5.18. Solvency. As of the date hereof, and after giving effect to
each transaction contemplated in a Borrowing Request, (a) the aggregate fair
market value of Borrower's assets exceed, and will exceed, its liabilities
(whether contingent, subordinated, unmatured, unliquidated, or otherwise), (b)
Borrower has, and will have, sufficient cash flow to enable it to pay its debts
as they mature, and (c) Borrower has, and will have, a reasonable amount of
capital to conduct its business as presently contemplated.
5.19. Ownership of Borrower, Servicer and REO Affiliate. FirstCity
Commercial Corporation, a Texas corporation ("FIRSTCITY") and CFSC Capital
Corp. II, a Delaware corporation ("CFSC"), own a 49.5% and 50% limited
partnership interest in Borrower respectively. FC Assets Corp., a Texas
Corporation ("FC CORP") owns 0.5% general partnership interest in Borrower. FC
Corp is the wholly-owned subsidiary of FirstCity. Borrower owns or will own a
99.5% limited partnership interest in FC Properties One, Ltd., a Texas limited
partnership ("PROPERTIES ONE"), FC Properties Three, Ltd., a Texas limited
partnership ("PROPERTIES THREE"), FC Properties Five, Ltd., a Texas limited
partnership ("PROPERTIES FIVE"), and FC Properties Six, Ltd., a Texas limited
partnership ("PROPERTIES SIX"). FC Assets One Corp., a Texas corporation
("ASSETS ONE"), owns a 0.5% general partnership interest in Properties One. FC
Assets Three Corp., a Texas corporation ("ASSETS THREE"), owns a 0.5% general
partnership interest in Properties Three. FC Assets Five Corp., a Texas
corporation ("ASSETS FIVE"), owns a 0.5% general partnership interest in
Properties Five. FC Assets Six Corp., a Texas corporation ("ASSETS SIX"), owns
a 0.5% general partnership interest in Properties Six. Each of Assets One,
Assets Three, Assets Five, and Assets Six are the wholly-owned subsidiaries of
FC Assets.
5.20. Service of Process. Borrower has appointed CT Corporation
System to be its agent for service of process in New York and CT Corporation
System has accepted such appointment.
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5.21. Representations and Warranties. Each Borrowing Request shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrower that no Event of Default
exists and that all representations and warranties contained in this Section 5
or in any other Loan Paper are true and correct at and as of the date of such
Borrowing Request and as of the date the Advance is to be made.
5.22. Survival of Representations, Etc. All representations and
warranties by Borrower herein shall survive delivery of the Note and the making
of the Loans, and any investigation at any time made by Lender shall not
diminish Lender's right to rely on such representations and warranties.
SECTION 6
CONDITIONS PRECEDENT
6.01. Initial Advances. The obligation of Lender to make its
initial Advance hereunder is subject to the condition precedent that, on or
before the date of such Advance, Lender shall have received the following, each
dated as of the date of such Advance, in form and substance satisfactory to
Lender:
(a) Revolving Credit Note; Loan Papers. A duly executed
Note, drawn to the order of Lender, in the form of Exhibit "A"
attached hereto with appropriate insertions, together with the other
Loan Papers, duly executed and delivered by the parties thereto and,
where applicable, duly acknowledged and in recordable form;
(b) Opinion of Counsel. The favorable, written opinions
of (i) counsel to Borrower, each General Partner, each REO Affiliate,
and the Servicer regarding Borrower, each General Partner, each REO
Affiliate, the Servicer, the Loan Papers, and the transactions
contemplated by the Loan Papers; (ii) counsel satisfactory to Lender
qualified in such jurisdiction(s) as Lender deems appropriate to the
effect that Lender's security interest in the Collateral Loans
acquired with the proceeds of the initial Advance is perfected by
possession of the notes held by Lender or the Collateral Custodian and
that the recording of an assignment of mortgage is not necessary to
perfect such security interest; and (iii) such other opinions as
Lender may reasonably request;
(c) Officer's Certificate. A certificate signed by a
duly authorized officer of FC Assets on behalf of the Borrower, in
form and substance reasonably satisfactory to Lender stating that (to
the best knowledge and belief of such officer, after reasonable and
due investigation and review of matters pertinent to the subject
matter of such certificate): (i) all of the representations and
warranties contained in Section 5 hereof, and the other Loan Papers
are true and correct as of the Effective Date of such Advance; and
(ii) no event has occurred and is continuing, or would result from the
Advance, which constitutes an Event of Default or Potential Default;
(d) Organizational Documents. True, correct, and
complete copies of the following in form and substance reasonably
satisfactory to Lender: the partnership certificates of Borrower and
each REO Affiliate; a copy of the partnership agreements of Borrower
and each REO Affiliate; articles of incorporation and bylaws of each
General Partner; all such documents to be certified as of the Closing
Date by the appropriate general partner or corporate officer, as
applicable, together with appropriate partnership and corporate
resolutions on behalf of the partners of Borrower and each REO
Affiliate and the boards of directors of the General partners; and
certificates of existence and good standing from the Secretary of
State of the State of Texas or Delaware, as applicable, relating to
the continuing existence of Borrower, any such REO Affiliate and the
General Partner;
(e) Resolutions of General Partners. Resolutions of each
General Partner approving the execution, delivery, and performance of
this Agreement, the Note, and the other Loan Papers and the
transactions contemplated herein and therein, on behalf of Borrower
and each REO Affiliate, as applicable, duly adopted by such General
Partner's board of directors and accompanied by a certificate of the
secretary of each such General Partner that such resolutions are true
and
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correct, have not been altered or repealed, and are in full force and
effect all in form and substance reasonably satisfactory to Lender;
(f) Incumbency Certificate. A signed certificate of the
secretary of each General Partner which shall certify the names of the
officers of Borrower and each REO Affiliate, as applicable, authorized
to sign each of the Loan Papers and the other documents or
certificates to be delivered pursuant to the Loan Papers by Borrower
or any REO Affiliate, together with the true signatures of each such
officer. Lender may conclusively rely on such certificate until it
shall receive a further certificate of the secretary of any General
Partner canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate;
(g) Certificates. Certificates of existence and good
standing for Borrower, each General Partner, and each REO Affiliate,
issued by the Texas Secretary of State, and certificates of
qualification and good standing (or other similar instruments) for
Borrower, each General Partner, and each REO Affiliate, issued by the
Secretary of State of each State wherein Borrower, each General
Partner, and each REO Affiliate, as applicable, is qualified to do
business as a foreign corporation, each dated within ten (10) days of
the initial Advance;
(h) Recordable Documents. UCC financing statements and
other filings or recordings required by Lender;
(i) Lien Searches. Current lien searches evidencing that
the liens of Lender, upon the Collateral are first and prior Liens,
subject only to Permitted Liens;
(j) Insurance. If available, evidence of insurance and
loss payee endorsements required hereunder or other Loan Papers and
certificates or binders of insurance policies evidencing the insurance
required by Section 9.04 hereof and/or endorsements naming Lender as
loss payee, all at Borrower's cost and expense;
(k) Additional Information. Such other information and
documents as may reasonably be required by Lender and Lender's
counsel.
6.02. All Advances. The obligation of Lender to make any Advance
under this Agreement to acquire an Asset Portfolio (including the initial
Advance) shall be subject to the following additional conditions precedent:
(a) No Defaults; No Potential Defaults; No Collateral
Impairment Event; Maximum Advance Amount. As of the date of such
Advance there exists no Potential Default, Event of Default, or
Collateral Impairment Event, and the Advance does not exceed the
Maximum Advance Amount;
(b) Compliance with Loan Agreement. Borrower, each REO
Affiliate, and Servicer shall have performed and complied with all
agreements and conditions contained herein or in any Loan Paper which
are required to be performed or complied with by Borrower, each REO
Affiliate, or Servicer before or at the date of such Advance;
(c) No Material Adverse Effect. As of the Effective Date
of such Advance, no Material Adverse Effect has occurred in the
business or financial condition of Borrower or Servicer;
(d) Borrowing Request. In the case of any Advance,
Lender shall have received from FC Assets, a Borrowing Request three
(3) Business Days prior to the Effective Date of such Advance, signed
by an Authorized Officer of FC Assets, all of the statements of which
shall be true and correct, certifying that, as of the date thereof,
(i) the amount of the requested Advance does not exceed the Maximum
Advance Amount for the Asset Portfolio to be acquired with the
proceeds of such Advance, (ii) all of the representations and
warranties of Borrower and Servicer contained in
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this Agreement and each of the Loan Papers (including all computations
of Net Present Values based on the Projected Net Collections figures
set forth on the most recent Asset Portfolio Report delivered to
Lender) executed by Borrower are true and correct, (iii) no event has
occurred and is continuing, or would result from the Advance, which
constitutes an Event of Default or Potential Default, (iv) no
Collateral Impairment Event has occurred and is continuing, nor will
the Advance result in a Collateral Impairment Event or Pool Collateral
Impairment Event, (v) the purchase of the Assets included in the Asset
Portfolio being financed with the Advance was underwritten by Borrower
in accordance with its established underwriting requirements, (vi) the
Assets included in the Asset Portfolio being financed with the Advance
are of a type previously financed by Borrower, or an Affiliate of
Borrower, with Lender or, if not, are assets which have been
specifically approved by Lender for inclusion in the Asset Portfolio,
and (vii) such other facts as Lender may reasonably request;
(e) Representations and Warranties. The representations
and warranties contained in Section 5 hereof shall be true in all
respects on the date hereof, on the date of each Borrowing Request and
on the date of making of such Advance, with the same force and effect
as though made on and as of such dates;
(f) Bankruptcy Proceedings. No proceeding or case under
the United States Bankruptcy Code shall have been commenced by or
against Borrower or any REO Affiliate;
(g) Collateral. With respect to the Asset Portfolio to
be acquired with such Advance, Lender or the Collateral Custodian
shall have confirmation of the existence and possession by Borrower of
each note evidencing a Collateral Loan (or in the case of a lost note,
a "LOST NOTE AFFIDAVIT" (herein so called) provided to Borrower
pursuant to the terms of a Sale Agreement by the sellers), it being
understood that Borrower shall deliver to Lender or the Collateral
Custodian, (i) within one (1) Business Day of the Effective Date
related to such Asset Portfolio, (A) the originally executed REO Notes
and promissory notes evidencing each of the Account Debtor's
obligations to repay the Collateral Loans, endorsed in blank by
Allonge, or on the face of the notes themselves, as such notes may
have been amended, supplemented, or otherwise modified as of the date
of delivery or (B) Lost Note Affidavits, if appropriate, (ii) within
fourteen (14) days after the Effective Date related to such Asset
Portfolio, fully and originally executed copies of Collateral
Assignments of the Collateral Loan Documents, and (iii) within
twenty-one (21) days after the Effective Date related to such Asset
Portfolio, fully and originally executed copies of all other
Collateral Loan Documents related to such Asset Portfolio, all of the
statements set forth in any Borrowing Request are true and correct as
of the date the same is received by Lender and as of the date of
Advance;
(h) Equity Investments/Subordinated Loan. Lender shall
have received evidence that, upon the funding of the Advance
requested, the Equity Contribution, if applicable, shall have been
paid in full (as a result of equity investments in Borrower). At the
sole discretion of Lender, the equity investment related to the
acquisition of an Asset Portfolio may be funded, in whole or in part,
by additional Indebtedness of Borrower or an Affiliate of Borrower,
subordinated in right of payment to the payment of the Obligation
pursuant to a subordination agreement executed in favor of Lender, and
in form and substance acceptable to Lender in its sole discretion;
(i) Consents. All consents, waivers, acknowledgments,
releases, terminations, and other agreements and documents from third
persons which Lender may reasonably deem necessary or desirable in
order to permit, protect and perfect its security interest in and
liens upon the Assets being acquired or to effectuate the provisions
or purposes of this Agreement and the other Loan Papers, including,
without limitation, all bailee notifications and acknowledgments of
security interests, shall have been properly received;
(j) Due Diligence Reports. Lender or the Collateral
Custodian shall have received with respect to each Asset being
acquired by Borrower with the proceeds of the Advance, copies of the
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Due Diligence Reports and any additional information, report, or
documentation that may be reasonably requested by Lender or its
counsel.
(k) Purchase Documentation. Unless the Asset Portfolio
being financed with the Advance is an Owned Asset Portfolio, Lender
shall have received certified copies of all documentation related to
Borrower's acquisition of the Asset Portfolio (including the Sale
Agreement, any assignments to Borrower related thereto and the related
closing statement) and the REO Affiliate's acquisition of title to REO
Property together with evidence that all such documents (including the
applicable Sale Agreement) have been duly authorized, executed, and
delivered by the parties thereto, provided that to the extent any such
documents are being executed and delivered on the Effective Date,
Borrower shall deliver forms of all such documents on or prior to the
Effective Date with the original documents to be delivered within
three Business Days following the Effective Date; and
(l) Security Documents. Lender shall have received such
additional Security Documents as Lender may reasonably require to
ensure that Lender receives valid liens in all of the Assets in such
Asset Portfolio.
SECTION 7
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Note and the performance of the Obligation,
Borrower agrees that (unless Lender shall otherwise consent in writing):
7.01. Financial Statements, Reports and Documents. Borrower shall
deliver, or as appropriate shall ensure Servicer delivers, to Lender each of
the following:
(a) Quarterly Statements. As soon as available, and in
any event within forty-five (45) days after the end of each quarterly
fiscal period of each fiscal year of Borrower, copies of the balance
sheet of Borrower (reflecting REO Property as inventory), as of the
end of such fiscal period, and statements of income and retained
earnings and changes in financial position of Borrower for that
quarterly fiscal period and for the portion of the Fiscal Year ending
with such period, in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all
in reasonable detail, and certified by the chief financial officer of
FC Assets as being true and correct and as having been prepared in
accordance with Generally Accepted Accounting Principles, subject to
year-end audit and adjustments;
(b) Annual Statements. As soon as available and in any
event within one-hundred and twenty (120) days after the close of each
fiscal year of Borrower, copies of the balance sheet of Borrower
(reflecting REO Property as inventory) as of the close of such fiscal
year and statements of income and retained earnings and changes in
financial position of Borrower for such fiscal year, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon
(which shall not be qualified by reason of any limitation imposed by
Borrower) of KPMG Peat Marwick L.L.P., or of other independent public
accountants of recognized national standing selected by Borrower and
satisfactory to Lender, to the effect that such financial statements
have been prepared in accordance with Generally Accepted Accounting
Principles consistently maintained and applied (except for changes in
which such accountants concur) and that the examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances. A Compliance Letter signed by such accountants shall
accompany each such opinion;
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(c) Audit Reports. Promptly upon receipt thereof, one
copy of each written report submitted to Borrower by independent
accountants in any annual, quarterly or special audit made, it being
understood and agreed that all audit reports which are furnished to
Lender pursuant to this Section 7.01 shall be treated as confidential,
but nothing herein contained shall limit or impair Lender's right to
disclose such reports to any appropriate Governmental Authority or to
use such information to the extent pertinent to an evaluation of the
Obligation or to enforce compliance with the terms and conditions of
this Agreement, or to take any lawful action which Lender deems
necessary to protect its interests under this Agreement;
(d) Compliance Certificate. Within thirty (30) days
after the end of each fiscal quarter of Borrower hereafter, a
certificate executed by the chief financial officer or chief executive
officer of each General Partner, stating that a review of the
activities of Borrower and each REO Affiliate, as applicable, during
such fiscal quarter has been made under his supervision and that
Borrower and each REO Affiliate has observed, performed, and fulfilled
each and every obligation and covenant contained herein and is not in
default under any of the same or, if any such default shall have
occurred, specifying the nature and status thereof;
(e) Asset Portfolio Report. As soon as practicable, and
in any event within twenty-five (25) calendar days after the end of
each month, an Asset Portfolio Report calculated as of the close of
such month for all Assets;
(f) Budgets. Borrower will deliver to Lender, within
ninety (90) days of the acquisition of any Asset Portfolio, as part of
an Asset Portfolio Report, a budget for each Asset comprising such
Asset Portfolio, reflecting the Projected Net Collections for each
such Asset. Lender shall have the right to review and approve each
such budget and each such "APPROVED BUDGET" (herein so called), as
modified and updated from time to time as provided for herein, shall
be the basis for calculating the Net Present Value of such Asset for
purposes of determining the occurrence of a Collateral Impairment
Event or Pool Collateral Impairment Event. Thereafter, Borrower shall
deliver to Lender, with each Asset Portfolio Report, a revised budget
and revised Net Present Value for each Asset with (i) an Allocated
Purchase Price equal to or greater than $100,000.00, and (ii) a
revised Net Present Value less than ninety percent (90%) or greater
than one hundred and ten percent (110%) of the previously budgeted Net
Present Value of such Asset. Lender will have ten (10) days to
approve the revised budget. If Lender has not responded within ten
(10) Business Days after receipt of the modified Net Present Values,
the modified Net Present Values and revised budgets will be deemed to
be approved by Lender. If Lender does not approve any revised budget,
Borrower and Lender shall attempt to agree upon an acceptable revised
budget. If no such agreement is reached within twenty (20) days after
receipt of the modified Net Present Value and revised budget, the Net
Present Value of such Asset shall be adjusted as Lender, in its sole
discretion, shall reasonably deem appropriate. Prior to Lender
accepting Borrower's initial budget for each Collateral Loan and each
REO Property, the present value of the Original Estimated Value
attached to the related Borrowing Request, discounted at the related
discount rate for such Asset, will be used as the Net Present Value.
7.02. Additional Reports. Furnish to Lender, as soon as
practicable, such other information concerning the Assets, business,
properties, or financial condition of Borrower as Lender shall reasonably
request in form reasonably satisfactory to Lender. The delivery of any
reports, statements, and other information by Borrower or Servicer shall be
deemed a representation and warranty that the same is true, accurate, and
complete except to the extent such reports or statements relate to estimates or
projections of future collections or cashflows related to the Assets.
7.03. Payment of Taxes, Impositions and Other Indebtedness.
Borrower will pay and discharge and will cause each REO Affiliate to pay and
discharge (a) all taxes, assessments, and governmental charges or levies
imposed upon it or upon its income or profits, or upon any property belonging
to it, and all Impositions in accordance with its normal and customary
standards, and in any event before any foreclosure action may be completed with
respect to any of Borrower's assets, (b) all lawful claims (including claims
for
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labor, materials, and supplies), which, if unpaid, might become a Lien upon any
of its property and (c) all of its other Indebtedness, except as prohibited
hereunder.
7.04. Filings. Borrower will file all federal, state, and local tax
returns and other reports that Borrower is required by law to file and maintain
adequate reserves for the payment of all taxes, assessments, governmental
charges, and levies imposed upon it, its income, or its profits, or upon any
assets belonging to it; and will cause each REO Affiliate to file all federal,
state, and local tax returns and other reports that such REO Affiliate is
required by law to file and to maintain adequate reserves for the payment of
all taxes, assessments, governmental charges, and levies imposed upon it, its
income, or its profits, or upon any assets belonging to it.
7.05 Maintenance of Existence and Rights; Conduct of Business.
Borrower will preserve and maintain its corporate existence and all of its
rights, privileges, and franchises necessary or desirable in the normal conduct
of its business, and conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all applicable
laws, rules, regulations, and orders of any Governmental Authority.
7.06. Notice of Default; Notice of Collateral Impairment Event.
Borrower will furnish to Lender, immediately upon becoming aware of the
existence of any condition or event which constitutes an Event of Default or
Potential Default, a written notice specifying the nature and period of
existence thereof and the action which Borrower is taking or proposes to take
with respect thereto. Borrower will furnish to Lender, immediately upon
becoming aware of the existence of a Collateral Impairment Event or a Pool
Collateral Impairment Event, a written notice of such Collateral Impairment
Event or Pool Collateral Impairment Event, as applicable, showing the
calculations related thereto.
7.07. Other Notices. Borrower will promptly notify Lender of (a)
any Material Adverse Effect, (b) any material default under any material
agreement, contract, or other instrument to which it, or any REO Affiliate, is
a party or by which any of its properties are bound, or any acceleration of the
maturity of any Indebtedness owing by Borrower or the REO Affiliate, (c) any
material adverse claim against or affecting Borrower or any of its properties
or the REO Affiliate or any of the REO Properties, and (d) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any Governmental Authority affecting Borrower or the REO
Affiliate.
7.08. Compliance with Loan Papers. Borrower will promptly comply,
and will cause Servicer and each REO Affiliate to promptly comply, with any and
all covenants and provisions of this Agreement, the Note and all other of the
Loan Papers and other reasonable requests by Lender related to the Loan.
7.09. Compliance with Material Agreements. Borrower will comply,
and will cause Servicer and each REO Affiliate to comply, in all material
respects with all material agreements, indentures, mortgages, or documents
binding on it or affecting its properties or business.
7.10. Operations and Properties. Borrower and each REO Affiliate
will act prudently and in accordance with Standard Industry Practices and the
applicable rules and standards of the local Governmental Authority in managing
and operating its assets, properties, business, and investments, and in making
improvements to, or undertaking construction thereon. Borrower will keep, and
with respect to REO Property will ensure each REO Affiliate keeps, in good
working order and condition, ordinary wear and tear excepted, all of its assets
and properties which are necessary to the conduct of its business and cause the
Underlying Real Estate and REO Property to be maintained in at least as good a
condition as they existed on the date of acquisition of the Collateral Loan or
REO Property by Borrower or REO Affiliate, ordinary wear and tear excepted, and
will make, or ensure Servicer makes, such Protective Advances as may be
required to do so.
7.11. Books and Records; Access. Borrower and each REO Affiliate
will give any representative of Lender access during all business hours to, and
permit such representative to examine, copy, or make excerpts from, any and all
books, records and documents in the possession of Borrower or any REO Affiliate
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and relating to its affairs, and to inspect any of the properties of Borrower.
Borrower and each REO Affiliate will maintain complete and accurate books and
records of its transactions in accordance with good accounting practices.
7.12. Compliance with Law. Borrower will comply with, and will
cause each REO Affiliate to comply with, all applicable laws, rules,
regulations, and all orders of any Governmental Authority applicable to it or
any of its property, business operations, or transactions, a breach of which
could have a Material Adverse Effect on Borrower's or any REO Affiliate's
financial condition, business, or credit. Borrower will keep and maintain its
assets and any REO Property in material compliance with, and shall not cause or
permit any of the same to be in violation of, any Applicable Environmental
Laws.
7.13. Authorizations and Approvals. Borrower will promptly obtain,
from time to time at its own expense, and will ensure each REO Affiliate
obtains, all such governmental licenses, authorizations, consents, permits, and
approvals as may be required to enable it to comply with its obligations
hereunder and under the other Loan Papers.
7.14. Experienced Management. Borrower will at all times hire and
retain management and supervisory personnel adequate for the proper management,
supervision and conduct of its properties, business and operation.
7.15. Further Assurances. Borrower will, and will ensure each REO
Affiliate will, make, execute or endorse, and acknowledge and deliver or file
or cause the same to be done, all such vouchers, invoices, notices,
certifications and additional agreements, undertakings, conveyances, deeds of
trust, mortgages, transfers, assignments, financing statements, or other
assurances, and take any and all such other action, as Lender may, from time to
time, deem reasonably necessary or proper in connection with this Agreement or
any of the other Loan Papers, the obligations of Borrower hereunder or
thereunder, or for better assuring and confirming unto Lender all or any part
of the security for any of such obligations, or for granting to Lender any
security for the Obligation which Lender may request from time to time, or for
facilitating collection of the Collateral hereunder.
7.16. Collection Efforts. Borrower will exercise collection efforts
with respect to the Collateral Loans as is consistent with sound business
practice. Borrower will at all times comply with Standard Industry Practices
and Borrower's past procedures related to due diligence, collateral control,
collection, and reporting procedures with respect to all Collateral Loans.
Borrower's principal office shall at all times be maintained at 6400 Imperial
Drive, P.O. Box 8216, Waco, Texas, 76714-8216 and Borrower's books, records,
and files related to the Collateral Loans (including, without limitation, the
Due Diligence Reports) shall at all times be maintained at the Servicer's
offices set forth on Schedule 7.16 attached hereto. Borrower shall maintain
all files related to the Collateral Loans in a reasonably prudent manner.
7.17. Management. Borrower will give Lender prompt notice of (a)
all senior management changes and (b) any substantial material change in
Borrower's management structure or personnel contemplated by Borrower.
7.18. Records. Borrower will maintain complete and accurate
records and files pertaining to each Collateral Loan delivered to Lender or the
Collateral Custodian, and retain such records and files together with all
Collateral Loan Documents, in the possession of Borrower, in restricted access
secure facilities reasonably safe from loss or destruction.
7.19. Grant of Specific Liens. Borrower will, at any time
Underlying Real Estate is foreclosed upon by Borrower, grant to Lender a Lien
upon such Underlying Real Estate, subject only to Permitted Liens and, if the
foreclosed Underlying Real Estate or the note secured by the Underlying Real
Estate being foreclosed upon has been conveyed to an REO Affiliate, Borrower
will obtain an REO Note following the assignment to the REO Affiliate, and will
ensure the REO Affiliate grants (a) to Lender, a second priority lien, securing
its Guaranty obligations and (b) to Borrower a first priority lien securing the
REO Note, in such Underlying Real Estate, following the foreclosure; provided,
however, that with respect to any such Underlying Real
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Estate located in New York or Florida, the deeds of trust or mortgages granting
such liens shall only be filed of record upon the request of Lender.
7.20. Ancillary Agreements. Borrower will fully comply with, and
perform (or cause Servicer to perform, as the case may be), all of the terms of
the Lockbox Agreement, the Servicing Agreement, and the other Loan Papers.
7.21. General Indemnity; Environmental Indemnity
(a) Borrower hereby agrees to indemnify, protect, and
hold Lender and its parent, subsidiaries, directors, officers,
employees, representatives, agents, successors, assigns, affiliates,
and attorneys (collectively, with their successors and assigns, the
"INDEMNIFIED PARTIES") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses (including, without
limitation, attorneys' fees and legal expenses whether or not suit is
brought and settlement costs), and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against
any of the Indemnified Parties, in any way relating to or arising out
of the Loan Papers or any of the transactions contemplated therein or
the performance or exercise of any rights or remedies thereunder
(collectively, the "INDEMNIFIED LIABILITIES") to the extent that any
of the Indemnified Liabilities results, directly or indirectly, from
any claim made (whether or not in connection with any legal action,
suit, or proceeding) by or on behalf of any person or entity,INCLUDING
MATTERS ARISING OUT OF THE ORDINARY NEGLIGENCE OF THE INDEMNIFIED
PARTIES, BUT EXCLUDING MATTERS ARISING OT OF THE FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTIES; provided,
however, that Lender shall not be indemnified against any claim
resulting from any action taken by Lender with respect to any
Collateral subsequent to the foreclosure upon such Collateral by
Lender or for any material breach of Lender's obligations hereunder.
The provisions of and undertakings and indemnification set forth in
this paragraph shall survive the satisfaction and payment of the
Obligation and termination of this Agreement.
(b) Borrower agrees to promptly pay and discharge when
due all debts, claims, liabilities, and obligations with respect to
any clean-up measures necessary for Borrower to comply with Applicable
Environmental Laws affecting Borrower, the Mortgaged Property, the REO
Property, and the Underlying Real Estate, provided that, with respect
to any single tract or parcel of real property, Borrower shall not be
required to take such action if failure to take such action would not
have a Material Adverse Effect on the financial condition of Borrower
or any REO Affiliate or would not, in the reasonable opinion of
Lender, have the potential for creating any liability or claim against
Lender. Borrower hereby agrees to indemnify, protect, and hold each of
the Indemnified Parties harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, proceedings, costs, expenses (including,
without limitation, all reasonable attorneys' fees and legal expenses
whether or not suit is brought), and disbursements of any kind or
nature whatsoever which may at any time be imposed on, incurred by, or
asserted against Indemnified Parties, with respect to or as a direct
or indirect result of any violation, or claimed violation of, any
Applicable Environmental Laws by Borrower; or with respect to or as a
direct or indirect result of Borrower's generation, manufacture,
production, storage, release, threatened release, discharge, disposal
of a Hazardous Substance at, on or about any REO Property, Mortgaged
Property, Underlying Real Estate or any property of Borrower or which
secures any indebtedness owed to Borrower, including, without
limitation, (a) all damages related to any such use, generation,
manufacture, production, storage, release, threatened release,
discharge, disposal, or presence, or (b) the costs of any required or
necessary environmental investigation, monitoring, repair, cleanup, or
detoxification and the preparation and implementation of any closure,
remedial, or other plans; provided, however, that Lender shall not be
indemnified against any claim resulting from any action taken by
Lender with respect to any Collateral or REO Property subsequent to
the foreclosure upon such Collateral or REO Property by Lender. The
provisions of and undertakings and indemnification set forth in this
paragraph shall survive the satisfaction and payment of the Obligation
and termination of this Agreement. It shall not be a defense to the
covenant of Borrower
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to indemnify that the act, omission, event or circumstance did not
constitute a violation of any Applicable Environmental Law at the time
of its existence or occurrence. The terms "HAZARDOUS SUBSTANCE" and
"RELEASE" shall have the meanings specified in the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), and the terms
"SOLID WASTE" and "DISPOSED" shall have the meanings specified in the
Resource Conservation and Recovery Act of 1976 ("RCRA"); provided,
however, to the extent that any other applicable laws of the United
States of America or political subdivision thereof establish a meaning
for "hazardous substance," "release," "solid waste," or "disposed"
which is broader than that specified in either SARA or RCRA, such
broader meaning shall apply. As used in this Agreement, "APPLICABLE
ENVIRONMENTAL LAW", shall mean and include the singular, and
"APPLICABLE ENVIRONMENTAL LAWS" shall mean and include the collective
aggregate of the following: Any law, statute, ordinance, rule,
regulation, order or determination of any Governmental Authority
affecting Borrower or any REO Affiliate pertaining to hazardous
substances or the environment, including, without limitation, all
applicable flood disaster laws and health, safety and environmental
laws and regulations pertaining to health, safety or the environment,
including without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), the
Resource Conservation and Recovery Act of 1976, the Superfund
Amendments and Reauthorization Act of 1986, the Occupational Safety
and Health Act, the Texas Water Code, the Texas Solid Waste Disposal
Act, and any federal, state or municipal laws, ordinances,
regulations, or law which may now or hereafter require removal of
asbestos or other hazardous wastes from any property of Borrower or
any REO Affiliate or impose any liability on Lender related to
asbestos or other hazardous wastes in any property of Borrower or any
REO Affiliate. The provisions of this Section 7.21 shall survive the
repayment of the Note. In the event of the transfer of the Note or
any portion thereof, Lender or any subsequent holder of the Note and
any participants shall continue to be benefited by this indemnity
agreement with respect to the period of such holding of the Note.
Borrower will reimburse each Indemnified Party for all expenses
(including reasonable fees and disbursements of counsel) as they are incurred
by such Indemnified Party in connection with investigating, preparing for, or
defending any action (or enforcing this Agreement, or any of the other Loan
Papers). Borrower agrees that it will not settle or compromise or consent to
the entry of any judgment in any pending or threatened action in respect of
which indemnification has been sought hereunder (whether or not an Indemnified
Party is a party therein) unless Borrower has given Lender reasonable or prior
written notice thereof and obtained an unconditional release of each
Indemnified Party from all liability arising therefrom.
SECTION 8
NEGATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Note and the performance of the Obligation,
Borrower agrees that (unless Lender shall otherwise consent in writing):
8.01. Limitation on Indebtedness. Borrower will not, and will
ensure each REO Affiliate does not, incur, create, contract, waive, assume,
have outstanding, guarantee or otherwise be or become, directly or indirectly,
responsible for any Indebtedness, except (a) Indebtedness arising out of this
Agreement, (b) liabilities for taxes and assessments incurred in the ordinary
course of business, (c) obligations under the Servicing Agreement, (d) current
amounts payable or accrued of other claims (other than for borrowed funds or
purchase money obligations or transactions which are equivalent thereto)
incurred in the ordinary course of business, provided that all such
liabilities, accounts, and claims shall be promptly paid and discharged when
due or in conformity with customary trade terms, (e) contingent liabilities
arising out of endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business, (f) Indebtedness of
Borrower or each REO Affiliate as reflected in the most recent financial
statements of Borrower delivered to Lender; (g) subordinated indebtedness
approved by Lender in accordance with Section 6.02(h) herein and (h) the REO
Notes.
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8.02. Negative Pledge. Borrower will not, and will ensure each REO
Affiliate does not, create or suffer to exist any mortgage, pledge, security
interest, conditional sale, Lien, or other title retention agreement, charge,
encumbrance, or other Lien (whether such interest is based on common law,
statute, other law or contract) upon any of its property or assets, now owned
or hereafter acquired, except for Permitted Liens or Permitted Prior Liens.
8.03. Prepayments. Borrower will not, and will ensure each REO
Affiliate does not, directly or indirectly pay any subordinated indebtedness
permitted hereunder prior to the date on which such subordinated indebtedness
is due and payable in accordance with the terms thereof and will not directly
or indirectly make any payment of any subordinated indebtedness which would
violate the terms of the subordination agreement applicable to such
subordinated indebtedness.
8.04. Limitation on Investments. Borrower will not, and will ensure
each REO Affiliate does not, make or have outstanding any Investments in any
Person, except for Borrower's ownership of REO Affiliates, Temporary Cash
Investments, and such other "cash equivalent" investments as Lender may from
time to time approve.
8.05. Alteration of Material Agreements. Borrower will not, and
will ensure each REO Affiliate does not, consent to or permit any alterations,
amendments, modifications, releases, waivers, or terminations of any material
agreement to which it is a party which could result in a Material Adverse
Effect.
8.06. Certain Transactions. Borrower will not, and will ensure each
REO Affiliate does not, enter into any transaction with, or pay any management
fees to, any Affiliate; provided, however, that Borrower or any REO Affiliate
may enter into the Servicing Agreement and transactions evidenced by the REO
Notes and may enter into any other transaction with Affiliates provided
payments to such Affiliates under such transaction is limited to Borrower's pro
rata share of Excess Cash Flow received pursuant to Section 3.06(c).
8.07. Issuance of Shares. Borrower will not, and will ensure each
REO Affiliate does not, issue, sell, or otherwise dispose of, any shares of its
capital stock or other securities, or rights, warrants, or options to purchase
or acquire any shares or securities.
8.08. Limitation on Sale of Properties. Borrower will not, and will
ensure each REO Affiliate does not, sell, assign, convey, exchange, lease, or
otherwise dispose of any of its properties, rights, assets, or business,
whether now owned or hereafter acquired, except in the ordinary course of its
business and for a fair consideration, and in such event shall immediately pay
such proceeds into the Lockbox Account to be applied pursuant to Section 3.06.
8.09. Name, Fiscal Year and Accounting Method. Borrower will not,
and will ensure each REO Affiliate does not, change its name, fiscal year, or
method of accounting.
8.10. Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets. Borrower will not, and will ensure each REO Affiliate does
not, dissolve or liquidate, or become a party to any merger or consolidation
unless Borrower or the REO Affiliate, as applicable, shall be the surviving
entity of its property or assets or business; provided, however, that the
foregoing shall not operate to prevent a merger of any Person into the
Borrower; provided, however, that Borrower shall be the surviving or continuing
corporation and, after giving effect to such merger or consolidation: (a)
Borrower or shall be in full compliance with the terms of this Agreement; and
(b) the management of Borrower shall be substantially unchanged.
8.11. Lines of Business. Borrower will not, and will ensure each
REO Affiliate does not, directly or indirectly, engage in any business other
than those in which it is presently engaged, or discontinue any of its existing
lines of business or substantially alter its method of doing business.
8.12. No Amendments. Borrower will not and will ensure each REO
Affiliate does not, amend its partnership agreement.
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8.13. Purchase of Substantial Assets. Borrower will not, and will
ensure each REO Affiliate does not, purchase, lease, or otherwise acquire all
or substantially all of the assets of any other Person except for the
acquisition of the Asset Portfolios and foreclosure of Underlying Real Estate
and other Collateral securing the Collateral Loans.
8.14. New Places of Business. Borrower will not, and will ensure
each REO Affiliate does not, transfer its principal place of business or chief
executive office, except upon at least sixty (60) days prior written notice to
Lender and after the delivery to Lender of financing statements in form
satisfactory to Lender to perfect or continue the perfection of the Lender's
Liens and security interests contemplated hereby.
8.15. Fictitious Names. Borrower will not, and will ensure each REO
Affiliate does not, use any fictitious name or "d/b/a".
8.16. Margin Stock. Borrower will not own, purchase, or acquire (or
enter into any contract to purchase or acquire) any "margin security" as
defined by any regulation of the Federal Reserve Board as now in effect or as
the same may hereafter be in effect unless, prior to any such purchase or
acquisition or entering into any such contract, Lender shall have received an
opinion of counsel satisfactory to Lender to the effect that such purchase or
acquisition will not cause this Agreement to violate Regulations G, T, U, or X
or any other regulation of the Federal Reserve Board then in effect.
8.17. Compliance with Environmental Laws. Except in material
compliance with applicable laws (including all Applicable Environmental Laws),
Borrower will not, and with respect to the REO Property will ensure that each
REO Affiliate will not, use, generate, manufacture, produce, store, release,
discharge, or dispose of on, under, or about any of its real property or
transport to or from any of its real property any Hazardous Substance, or allow
any other Person or entity to do so.
8.18. Disposition of Collateral Loans. Company will not dispose of,
or permit Servicer to dispose of, a Collateral Loan or otherwise settle the
amount owed on any Collateral Loan, or permit any REO Affiliate to dispose of
any REO Property, for an amount which is less than the Minimum Release Price.
8.19. Modification of Ancillary Agreements. Borrower will not, and
will ensure each REO Affiliate does not, attempt to amend, modify, or terminate
any of the Loan Papers without Lender's written consent.
8.20. Certain Payments. Borrower will not make any payment under
the Servicing Agreement at any time any Event of Default exists hereunder or if
such payment would cause an Event of Default hereunder.
SECTION 9
COLLATERAL
9.01. Security. Borrower agrees to secure the Obligation to Lender
by the pledge of, and the granting of a first priority perfected security
interest in the Collateral more fully described in the Security Documents,
including, without limitation (a) the Collateral Loans and Collateral Loan
Documents (including, as a result of a Collateral Assignment, the REO Notes and
REO Property) which shall come into the possession, custody, or control of the
Collateral Custodian, Borrower, or Servicer, (b) the Mortgaged Property, (c)
all cash, securities, notes, or other instruments deposited by Borrower in any
cash collateral account securing Borrower's obligations hereunder, including
without limitation the Tax Escrow Accounts and the Property Accounts for each
Asset Portfolio, the Lockbox Account, and the Operating Reserve Account, (d)
all interest of Borrower in any documents relating to the acquisition and
ownership of the Asset Portfolios, including without limitation all related
purchase agreements, to the extent such rights are assignable, and (e) cash and
non-cash proceeds of the foregoing. Payment of the Obligation will be
unconditionally guaranteed by each Guarantor and each Guarantor will secure the
guaranteed obligations by a second priority lien in REO Property owned by such
Guarantor.
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9.02. Lien on REO Properties. Each REO Property shall be owned by
an REO Affiliate, it being understood that Borrower shall not take title to any
REO Property. Immediately upon the acquisition of title to an REO Property by
an REO Affiliate, Borrower (a) will cause such REO Affiliate to execute and
deliver to Borrower an REO Note (which shall be endorsed by Borrower to Lender,
and delivered to the Collateral Custodian), security instruments granting to
Lender a second priority Lien on such REO Property or, in cases where such REO
Property shall then be subject to Permitted Prior Liens, a Lien subject only to
such Permitted Prior Liens and REO Security Documents granting to Borrower a
first priority Lien on such REO Property subject only to Permitted Prior Liens,
and (b) will execute and deliver to Lender a Collateral Assignment which shall
be in form and substance satisfactory to Lender, pursuant to which Borrower
shall collaterally assign to Lender, as security for the Obligation, all of
Borrower's rights under such REO Note and REO Security Documents. Borrower (at
its own expense) shall record such security instruments, REO Security
Documents, and any related assignment(s) of lien with such filing offices as
may be required by Lender to perfect and record Borrower's and Lender's
respective interests in such REO Property. Prior to the taking of title to any
REO Property by an REO Affiliate, Borrower shall provide Lender with an
Environmental Site Assessment with respect to such REO Property or an update of
the Environmental Site Assessment which was delivered to Lender in connection
with the closing of the loan, and Borrower shall have received Lender's written
acknowledgment that the results thereof are acceptable to Lender. In addition,
for any REO Property with an Allocated Purchase Price in excess of $250,000,
upon Lender's request, Borrower shall be obligated, at Borrower's expense, to
provide for Lender's benefit such additional documentation as Lender would
ordinarily require in connection with real estate collateral, including,
without limitation, the following: an MAI appraisal performed in accordance
with applicable law and sound banking practices, a title certificate or, if
requested by the Lender, a Title Policy in an amount and issued by an insurer
reasonably satisfactory to Lender, a current survey, and policies of liability,
hazard, and casualty insurance naming Lender as an additional insured,
mortgagee, and loss payee, all in amounts and issued by insurers reasonably
satisfactory to Lender.
9.03. Assignment of Liens; Mortgages.
(a) To secure the prompt payment and performance to
Lender of the Obligation, Borrower shall execute the Collateral
Assignments, collaterally assigning to Lender all of the Liens
securing the repayment of the Asset Portfolios and the obligations
secured thereby, to the extent that such Liens exist with respect to
an Asset in an Asset Portfolio.
(b) If Borrower or any REO Affiliate shall foreclose upon
any Underlying Real Estate, Borrower or such REO Affiliate, as
appropriate, shall execute and deliver to Lender a Mortgage (duly
acknowledged and in recordable form) granting to Lender a
first-priority Lien upon such Underlying Real Estate, subject only to
Permitted Liens. In order to evidence the Lien on such real property,
such documents shall be recorded, at the expense of Borrower, with
such filing offices as may be required by Lender.
9.04. Insurance of Collateral. Borrower agrees to maintain and
pay for, or cause to be maintained and paid for, insurance upon all Collateral
(other than Collateral Loans or property securing any Collateral Loan, except
as provided in the last sentence of this Section 9.04) covering casualty,
hazard, public liability, and such other risks and in such amounts and with
such insurance companies as shall be reasonably satisfactory to Lender;
provided, however, that Borrower shall not be required to maintain casualty or
hazard coverage in excess of an amount equal to 110% of the Allocated Purchase
Price with respect to each Asset (or such greater amount as may be required by
Lender, from time to time, at the end of any calendar quarter but in no event
for an amount in excess of the replacement cost of such item of Collateral).
Notwithstanding any of the foregoing, Borrower may elect to maintain and pay
for one or more multi-property policies in lieu of individual insurance
policies for each property. Any such multi-property policy (a) will be, for
each property covered thereby, in the amount required for such property
hereunder; (b) shall be in a total amount in all respects satisfactory to
Lender and (c) shall provide coverage for public liability in an amount not
less than $5,000,000; provided, however, that Lender shall have the right to
require a separate insurance policy on any REO Property owned by an REO
Affiliate for more than six months. Borrower shall deliver the certified
copies of any policies maintained pursuant to this Section 9.04 to Lender
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with satisfactory endorsements naming Lender as loss payee and as mortgagee
pursuant to a standard mortgagee clause. Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give not less than
30 days prior written notice to Lender in the event of cancellation of the
policy for any reason whatsoever. If Borrower fails to provide and pay for
such insurance, Lender may, at Borrower's expense, procure the same, but shall
not be required to do so. Borrower agrees to deliver to Lender, promptly as
rendered, true copies of all reports made in any reporting forms to insurance
companies. Without limiting Borrower's obligation under this Section 9.04 to
purchase and maintain additional or different insurance coverages in the
future, Lender shall notify Borrower, within ten (10) Business Days of receipt
of all copies of insurance policies maintained by Borrower, whether the
coverages represented by such policies are satisfactory to Lender for purposes
of this Section 9.04. Borrower or Servicer (a) shall promptly notify Lender of
the failure of any Account Debtor under a Collateral Loan to maintain the
insurance coverage required under such Collateral Loan and (b) if requested by
Lender, shall make or shall ensure Servicer makes, a Protective Advance to
procure the required coverage.
9.05. Delivery of Collateral.
(a) Borrower shall deliver to Collateral Custodian within
the time frame specified in Section 6.02, the following instruments
and documents, to the extent that such instruments and documents exist
with respect to the Assets in each Asset Portfolio, in which Borrower
has granted and in which it hereafter grants to Lender a security
interest, all of which shall be in form and substance acceptable to
and approved by Lender:
(i) the original mortgage note evidencing each
Collateral Loan (properly endorsed to Borrower), duly endorsed in
blank which endorsement may be on the original mortgage note or by
Allonge or, when the original mortgage note is unavailable, a Lost
Note Affidavit together with a certified copy of each such note;
(ii) the recorded original mortgage securing each
Collateral Loan, together with a duly executed assignment in
recordable form thereof;
(iii) the original guaranties, assignments of
rents, to the extent existing with respect to any Asset in any Asset
Portfolio, and other instruments and documents, including any
possessory documents, relating to security for and payment of each
Collateral Loan, together with duly executed assignments thereof;
(iv) a policy of mortgage title insurance on
American Land Title Association's standard policy form (revised
coverage, most recent form) or on other policy forms as may be
required by applicable laws, statutes, rules, or regulations from a
national title insurance company, in favor of Borrower insuring the
lien of the mortgage securing the mortgage note as a first and prior
lien (subject only to such liens and encumbrances as are generally
acceptable to reputable lending institutions, mortgage investors and
securities dealers and to Permitted Prior Liens) to the extent such
policy is provided by a seller under a Sale Agreement or Borrower,
exercising reasonable judgment, determines to purchase such a title
policy;
(v) a transmittal letter listing all documents
being delivered to Collateral Custodian;
(b) Borrower shall deliver to the Servicer all other
documents related to the Collateral Loans, including without
limitation the following:
(i) evidence satisfactory to Lender that any
premises covered by any mortgage securing such Collateral Loan is
insured against fire and other perils for extended coverage for an
amount at least equal to the full insurable value of such premises
(Lender reserves the right to obtain (or require Borrower to obtain) a
loss payable endorsement in its favor if it so desires);
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(ii) upon request of Lender, if any, original
copies, or photocopies of surveys and all other instruments,
documents, and other papers pertaining to the Collateral Loan; and
(iii) other documentation as Lender may reasonably
deem proper, including without limitation, all disclosures required by
applicable Truth-in-Lending and other consumer credit regulations
promulgated by a Governmental Authority.
The documents listed in Section 9.05(a)(i) through (v) and Section 9.05(b)(i)
through (iii) are now collectively referred to herein as the "COLLATERAL LOAN
DOCUMENTS."
9.06. Possession of Collateral Loan Documents; Sale of Collateral.
Notwithstanding the foregoing, Collateral Loans which have subsequently been
delivered to Collateral Custodian shall continue to be valued subject to the
conditions and during the time periods described below, and so long as the
Collateral Loan Documents are in existence, notwithstanding the fact that such
Collateral Loan Documents have been subsequently delivered by Lender or
Collateral Custodian to Borrower or Servicer:
(a) Prior to the occurrence of an Event of Default or
Potential Default, Lender may agree to permit, from time to time, the
temporary withdrawal by Borrower, pursuant to a trust receipt executed
by Borrower, of specified notes evidencing Collateral Loans, pledged
to Lender as collateral security for the Obligation, for a period not
to exceed eighteen (18) days from the date of such withdrawal, which
withdrawal shall be for the sole purpose of permitting Borrower to
amend and/or correct errors in such notes and thereby enhance the
ultimate sale value of such notes and for other purposes more
particularly described in the Collateral Custodian Agreement.
(b) Notwithstanding anything to the contrary contained
herein, Lender shall continue to have a valid, perfected, first
priority security interest and lien in each Collateral Loan and
related note delivered to Borrower or any qualified investor, until
payment of the full purchase price therefor has been made to Lender as
described in this Section 9.06. If such mortgage note is not returned
to the Lender or Lender's agent or bailee, within eighteen (18) days
after Lender's release of possession thereof, then such Asset shall be
deemed to have no Net Present Value for purposes of calculating a Pool
Collateral Impairment Event.
For purposes of this Section 9.06, calculation of the eighteen
(18) day period shall include the initial date of release of such
Collateral Loan by Lender.
9.07. Power of Attorney. Without limiting any other rights and
remedies available to Lender hereunder, Borrower hereby appoints Lender as
Borrower's attorney-in-fact, with full power of substitution, for the purpose
of carrying out the provisions of this Agreement or any Loan Paper and taking
any action and executing in the name of Borrower, without recourse to Borrower,
any document or instrument, which Lender may deem necessary or advisable to
accomplish the purposes hereof and of any Loan Paper (including, without
limitation, perfecting, or protecting the liens on and security interests in
any Collateral) which appointment is coupled with an interest and is
irrevocable. Upon the occurrence of a Potential Default or an Event of
Default, Borrower hereby authorizes Lender in its discretion at any time and
from time to time to exercise such Power of Attorney, including without
limitation (a) completing any Collateral Assignment which heretofore was, or
hereafter at any time may be, executed and delivered by Borrower to Lender so
that such assignment describes a mortgage which is security for any Collateral
Loan now or hereafter at any time constituting Collateral and recording the
same, and (b) completing any other assignment or endorsement that was delivered
in blank hereunder or pursuant to the terms hereof.
9.08. Appointment of Collateral Custodian. Contemporaneously
herewith, Lender has appointed Fleet National Bank as a collateral custodian
(the "COLLATERAL CUSTODIAN") pursuant to the Custodial Agreement entered into
by and among such Collateral Custodian, Borrower, Servicer, and Lender for the
purpose of exercising any rights, and performing any duties, of Lender with
respect to Collateral hereunder, including without limitation, the rights and
duties described in this Section 9, to the extent set forth in the Custodial
Agreement. Borrower shall deliver to such Collateral Custodian all Collateral
and all requests for
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release of Collateral shall be made by Borrower to the Collateral Custodian
(with a copy of each such request being simultaneously delivered to Lender).
9.09. Releases. Lender shall release the Liens and security
interests related to each Released Asset upon payment into the Lockbox Account
of the applicable Release Price for such Released Asset. In the event of a
sale of REO Property or a specific tract, the Minimum Release Price for such
REO Property or tract will, notwithstanding the principal amount of the REO
Note delivered by each REO Affiliate to Borrower in connection with such REO
Property or tract, be equal to the greater of (a) all Net Sales Proceeds
received by any REO Affiliate with respect to such REO Property or tract or (b)
the Minimum Release Price for such REO Property or tract, calculated as if
Borrower owned the REO Property or tract and no REO Note existed.
SECTION 10
EVENTS OF DEFAULT
10.01. Events of Default. An "EVENT OF DEFAULT" shall exist if any
one or more of the following events (herein collectively called "EVENTS OF
DEFAULT") shall occur and be continuing:
(a) Borrower shall (i) fail to pay when due any principal
of, or interest on, the Note or (ii) fail to pay when due any fee,
expense, or other payment required hereunder (other than any payments
required by Section 3.03(b) herein) and such fee, expense, or other
payment shall remain unpaid for three (3) days following delivery by
Lender to Borrower of written notice of such failure;
(b) Borrower shall fail to make payments required by
Section 3.03(b) herein and
(i) shall fail to provide Lender with a written
plan detailing the actions Borrower proposes to take
to remedy the Collateral Impairment Event within
seventy-two (72) hours after receipt by Borrower of
written notice of the occurrence of a Collateral
Impairment Event; or
(ii) in the event Lender, in its sole discretion,
rejects Borrowers' plans for remedying the Collateral
Impairment Event, such failure shall continue for
fourteen (14) days following receipt by Borrower of
written notice of the Collateral Impairment Event; or
(iii) such failure shall continue for thirty (30)
days following receipt by Borrower of written notice
of the occurrence of a Collateral Impairment Event.
(c) any representation or warranty made under this
Agreement, or any of the other Loan Papers, or in any certificate or
statement furnished or made to Lender pursuant hereto or in connection
herewith or with the Loans hereunder, shall prove to be untrue or
inaccurate in any material respect as of the date on which such
representation or warranty is made;
(d) default shall occur in the performance of any of the
covenants or agreements of Borrower contained in Section 6.02(g) or
Section 8 herein;
(e) default shall occur in the performance of any of the
other covenants or agreements of Borrower or any REO Affiliate
contained herein or any of the other Loan Papers and such default is
not remedied within thirty (30) days after the occurrence thereof;
(f) default shall occur in the payment of any material
Indebtedness of Borrower or default shall occur in respect of any
note, loan agreement or credit agreement relating to any such
Indebtedness and such default shall continue for more than the period
of grace, if any, specified
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therein; or any such Indebtedness shall become due before its stated
maturity by acceleration of the maturity thereof or shall become due
by its terms and shall not be promptly paid or extended;
(g) any of the Loan Papers shall cease to be legal,
valid, and binding agreements, enforceable against any party executing
the same in accordance with the respective terms thereof, or shall in
any way be terminated or become or be declared ineffective or
inoperative or shall in any way whatsoever cease to give or provide
the respective liens, security interest, rights, titles, interest,
remedies, powers, or privileges intended to be created thereby;
(h) Borrower, any General Partner, or any REO Affiliate
shall (i) apply for or consent to the appointment of a receiver,
trustee, custodian, intervenor, or liquidator of itself or of all or a
substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as
they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations
of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization, or insolvency proceeding, or
(vi) take corporate action for the purpose of effecting any of the
foregoing;
(i) an involuntary petition or complaint shall be filed
against Borrower, any General Partner, or any REO Affiliate seeking
bankruptcy or reorganization of Borrower, any General Partner, or any
REO Affiliate or the appointment of a receiver, custodian, trustee,
intervenor, or liquidator of Borrower, any General Partner, or any REO
Affiliate, or all or substantially all of its respective assets, and
such petition or complaint shall not have been dismissed within 60
days of the filing thereof; or an order, order for relief, judgment,
or decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of Borrower, any General Partner, or any REO Affiliate
or appointing a receiver, custodian, trustee, intervenor, or
liquidator of Borrower, any General Partner, or any REO Affiliate, or
of all or substantially all of its respective assets, and such order,
judgment, or decree shall continue unstayed and in effect for a period
of thirty (30) days;
(j) any final judgment(s) for the payment of money in
excess of the sum of $500,000 in the aggregate shall be rendered
against Borrower or any REO Affiliate and such judgment or judgments
shall not be satisfied or discharged at least ten (10) days prior to
the date on which any of its assets could be lawfully sold to satisfy
such judgment;
(k) Borrower creates a Plan;
(l) there shall occur any change in the condition
(financial or otherwise) of Borrower or any REO Affiliate or its
assets which, in the reasonable opinion of Lender, has a Material
Adverse Effect;
(m) Borrower or any REO Affiliate shall breach any of its
obligations under any Sale Agreement which, in the reasonable opinion
of Lender, has a Material Adverse Effect;
(n) any note (or replacement note) evidencing a
Collateral Loan delivered to Borrower or any Investor under Section
9.06 herein shall fail to be returned to Collateral Custodian within
the time limits provided for in Section 9.06 unless such Collateral
Loan has been released as provided for herein and payment of the
Release Price has been received by Lender;
(o) Servicer defaults in the performance of its
obligations under any servicing agreement, including, without
limitation, the Servicing Agreement, and such default is not cured on
or before the earlier of ten (10) days following (i) knowledge by
Borrower of such default or (ii) receipt by Borrower of notice of such
default; or
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(p) there shall occur any change in the ownership of
Borrower, Servicer, or any REO Affiliate.
10.02. Remedies Upon Event of Default. If an Event of Default shall
have occurred and be continuing, then Lender may exercise any one or more of
the following rights and remedies, and any other rights or remedies provided in
any of the Loan Papers or otherwise available at law or equity, as Lender in
its sole discretion may deem necessary or appropriate: (a) terminate Lender's
commitment to lend hereunder, (b) declare the principal of, and all interest
then accrued on, the Note and any other liabilities hereunder (together with
any costs, liabilities or expenses of exercising its rights and remedies
hereunder or under any Loan Paper) to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, notice of default, notice of acceleration, or of intention to
accelerate or other notice of any kind all of which Borrower hereby expressly
waives, anything contained herein or in the Note to the contrary
notwithstanding, (c) reduce any claim to judgment, and/or (d) without notice of
default or demand, pursue, and enforce any of Lender's rights and remedies
under the Loan Papers, or otherwise provided under or pursuant to any
applicable law or agreement, including, without limitation, all of the rights
and remedies of a secured party under the Security Documents or under the
Uniform Commercial Code adopted in the State of New York, all of which rights
and remedies shall be cumulative, and none of which shall be exclusive;
provided, however, that if any Event of Default specified in Sections 10.01(h)
and (i) shall occur, the principal of, and all interest on, the Note and other
liabilities hereunder shall thereupon become due and payable concurrently
therewith, and Lender's obligations to lend shall immediately terminate
hereunder, without any further action by Lender and without presentment,
demand, protest, notice of default, notice of acceleration, or of intention to
accelerate or other notice of any kind, all of which Borrower hereby expressly
waives.
10.03. Performance by Lender. Should Borrower fail to perform any
covenant, duty, or agreement contained herein or in any of the Loan Papers,
Lender may, at its option, after reasonable notice to Borrower of such failure,
perform or attempt to perform such covenant, duty or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly
pay any amount expended by Lender in such performance or attempted performance
to Lender at its principal office in New York, New York, together with interest
thereon at the highest lawful rate from the date of such expenditure until
paid. Notwithstanding the foregoing, it is expressly understood that Lender
shall not assume any liability or responsibility for the performance of any
duties of Borrower hereunder or under any of the Loan Papers or other control
over the management and affairs of Borrower.
SECTION 11
SECURITIZATION
11.01 OPTION. From time to time, Borrower, or an Affiliate of
Borrower reasonably acceptable to Lender, may securitize and/or sell the Assets
in one or more Securitization Transactions upon terms and conditions reasonably
acceptable to Borrower or such Affiliate. Borrower hereby grants to
Securitization Agent the option and the right, but not the obligation, pursuant
to underwriting agreements and/or placement agency agreements in form and
substance reasonably satisfactory to Securitization Agent or its designee and
Borrower and its designee, for the Securitization Agent or its designee to act
as lead underwriter on a rotational basis or as co-underwriter or placement
agent with respect to each such Securitization Transaction. In no event shall
the Securitization Agent or any such designee be obligated to purchase
Securities sold through such Securitization Transactions.
11.02 BORROWER COOPERATION. In connection with any Securitization
Transaction, Borrower agrees that (i) the Assets which are the subject of such
Securitization Transaction shall conform to the historical underwriting
procedures used by Borrower and Borrower's Affiliates and (ii) Borrower shall
cooperate with all reasonable requirements and due diligence requests of the
Securitization Agent or its designee, any rating agencies, credit enhancers,
and master and special servicers necessary to facilitate the issuance of the
related Securities, including, if Borrower is using the Securitization Agent's
Shelf
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Registration Statement, the entering into of a mortgage loan purchase and sale
agreement in form and substance reasonably satisfactory to the Lender.
11.03 FEES. In the event Securitization Agent or its designee acts
as underwriter and/or placement agent in connection with any Securitization
Transaction, Borrower shall pay, or cause to be paid to Securitization Agent a
percentage (to be mutually agreed upon by Securitization Agent or such designee
and Borrower based upon the then prevailing competitive market rates) of the
initial principal amount of each Security issued pursuant to such
Securitization Transactions.
11.04 INFORMATION. Borrower hereby covenants and agrees that it
will represent and warrant that all information to be provided by it or any of
its Affiliates in connection with any Securitization Transaction shall be true,
correct and complete. Borrower shall enter into such agreements and provide
such certificates, opinions and other documents as Securitization Agent or its
designee may reasonably deem necessary or appropriate in connection with any
such Securitization Transaction, including without limitation, an
indemnification agreement satisfactory to Lender or its designee pursuant to
which Securitization Agent, such designee, Securitization Agent's Affiliates,
and their respective officers, directors, agents, and employees shall be
indemnified for all liabilities, losses, damages, judgments, costs, and
expenses resulting from a breach of the representation, warranty, and agreement
set forth in the immediately preceding sentence.
SECTION 12
MISCELLANEOUS
12.01. Modification. All modifications, consents, amendments, or
waivers of any provision of any Loan Paper, or consent to any departure by
Borrower therefrom, shall be effective only if the same shall be in writing and
concurred in by Lender and then shall be effective only in the specific
instance and for the purpose for which given.
12.02. Accounting Terms and Reports. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
Generally Accepted Accounting Principles consistently applied on the basis used
by Borrower in prior years. All financial reports furnished by Borrower to
Lender pursuant to this Agreement shall be prepared on the same basis as those
prepared by Borrower in prior years and shall be the same financial reports as
those furnished to Borrower's officers and directors. All financial
projections furnished by Borrower to Lender pursuant to this Agreement shall be
prepared in such form and such detail as shall be satisfactory to Lender and
shall be prepared on the same basis as the financial reports furnished by
Borrower to Lender.
12.03. Waiver. No failure to exercise, and no delay in exercising,
on the part of Lender, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder and under the Loan Papers shall be in addition to all other rights
provided by law. No modification or waiver of any provision of this Agreement,
the Note, or any Loan Papers, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
12.04. Payment of Expenses. Borrower agrees to pay all costs and
expenses of Lender (including, without limitation, the reasonable attorneys'
fees of legal counsel) incurred by Lender in connection with (a) the
preservation and enforcement of Lender's rights under this Agreement, the Note,
and/or the other Loan Papers, (b) the negotiation, preparation, execution, and
delivery of this Agreement, the Note, and the other Loan Papers and any and all
amendments, modifications, and supplements thereof or thereto, (c) Lender's due
diligence related hereto, and (d) appraisals related to REO Properties procured
by Lender acting in a commercially reasonable manner, whether or not any of the
transactions contemplated hereby are consummated; provided that all such
expenses are properly documented, and provided further, that, solely
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for the purposes of subsection (b) above, the fees and expenses of Lender in
connection with (i) the closing of this Agreement shall not exceed $25,000, and
(ii) each subsequent Advance hereunder shall not exceed $5,000.
12.05. Notices. Except as otherwise expressly provided herein, all
notices, requests, and demands to or upon a party hereto shall be in writing,
and shall be deemed to have been validly served, given, or delivered (a) if
sent by certified or registered mail against receipt, three (3) Business Days
after deposit in the mail, postage prepaid, or, if earlier, when delivered
against receipt, (b) if sent by telecopier, when transmitted with sender's
confirmation of successful transmission, or (c) if sent by any other method,
upon actual delivery, in each case addressed as follows: (i) if to Lender, at
its address shown below its name on the signature pages hereof, (ii) if to
Borrower, at:
6400 Imperial Drive
P. O. Box 8216
Waco, Texas 76714-8216
ATTN: James C. Holmes
Telecopier: (254) 751-1757
with courtesy
copies to: FIRSTCITY SERVICING CORPORATION
6400 Imperial Drive
P.0. Box 8216
Waco, Texas 76714-8216
ATTN: G. Stephen Fillip
Telecopier: (254) 751-1757
and FIRSTCITY FINANCIAL CORPORATION
Law Department
P.O. Box 8216
Waco, Texas 76714-8216
ATTN: Richard J. Vander Woude
Telecopier: (254) 751-7725
and CARGILL FINANCIAL SERVICES CORPORATION
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
ATTN: E. Gerald O'Brien II
Telecopier: (612) 984-3905
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.05; provided, however, that any
notice, request or demand to or upon Lender pursuant to Section 2 and Section 3
shall not be effective until received by the Lender; and provided, further,
that any notice received by Lender after 3:00 P.M. (New York time) on any day
from Borrower pursuant to Section 2 shall be deemed for the purposes of such
section to have been given by Borrower on the next succeeding Business Day.
12.06. Choice of Law; Submission to Jurisdiction; Waiver of Jury
Trial. The Loan Papers are being delivered and consummated, and Borrower's
duties hereunder are performable in the State of New York. The Loan Papers
(other than those containing a contrary express choice of law provision) shall
be construed in accordance with the laws of New York applicable to contracts
made and performed in New York. Any suit, action, or proceeding against
Borrower with respect to this Agreement, the Note, or any judgment entered by
any court in respect thereof, may be brought in the courts of the State of New
York, County of New York, or in the United States courts located in the State
of New York as Lender in its sole discretion may elect and Borrower hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. Borrower hereby irrevocably and
unconditionally waives (a)
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any objections 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, the
Note, or any other Loan Paper brought in the courts located in the State of New
York and hereby further irrevocably waives any claim that any such suit,
action, or proceeding brought in any such court has been brought in any
inconvenient forum, and (b) to the maximum extent not prohibited by law, any
right it may have to claim or recover on any legal action or proceeding related
hereto, any special, exemplary, punitive or consequential damages. BORROWER
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN PAPERS AND THE RIGHT TO BRING ANY ACTION IN COURTS LOCATED IN
ANY STATE OTHER THAN NEW YORK.
12.07. Invalid Provisions. If any provision of any Loan Paper is
held to be illegal, invalid, or unenforceable under present or future laws
during the term of this Agreement, such provision shall be fully severable;
such Loan Paper shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of such Loan Paper; and the
remaining provisions of such Loan Paper shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance from such Loan Paper. Furthermore, in lieu of each such
illegal, invalid, or unenforceable provision shall be added as part of such
Loan Paper a provision mutually agreeable to Borrower and Lender as similar in
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid and enforceable. In the event Borrower and Lender are
unable to agree upon a provision to be added to the Loan Paper within a period
of ten (10) Business Days after a provision of the Loan Paper is held to be
illegal, invalid, or unenforceable, then a provision acceptable to Lender as
similar in terms to the illegal, invalid or unenforceable provision as is
possible and be legal, valid, and enforceable shall be added automatically to
such Loan Paper. In either case, the effective date of the added provision
shall be the date upon which the prior provision was held to be illegal,
invalid, or unenforceable.
12.08. Maximum Interest Rate. Regardless of any provision
contained in any of the Loan Papers, Lender shall never be entitled to receive,
collect or apply as interest on the Note any amount in excess of the Maximum
Rate.
12.09. Offset. Borrower hereby grants to Lender the right of
offset, to secure repayment of the Note, upon any and all moneys, securities,
or other property of Borrower and the proceeds therefrom, now or hereafter held
or received by or in transit to Lender, from or for the account of Borrower,
whether for safekeeping, custody, pledge, transmission, collection, or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing.
12.10. Multiple Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
and the same agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart.
12.11. Entirety. The Loan Papers embody the entire agreement
between the parties and supersede all prior agreements and understandings, if
any, relating to the subject matter hereof and thereof.
12.12. Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
12.13. Survival. All representations and warranties made by
Borrower herein shall survive delivery of the Note and the making of the Loans.
12.14. Successors and Assigns; Participations by the Lenders.
(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; provided, however, that (i)
Borrower shall not, directly or indirectly, assign or transfer, or
attempt to assign or transfer, any of its rights, duties, or
obligations under this Agreement or any of the Loan Papers without the
express
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prior written consent of Lender, and (ii) Lender may not assign or
transfer any of its rights or interests in this Agreement, the Note,
the other Loan Documents or the Loan, other than to an Affiliate of
Lender, except in accordance with this Section 12.14.
(b) Lender shall have the right, at any time and from
time to time, to sell or transfer to any Person (other than AMRESCO,
Inc., Ocwen Financial Corporation or Wilshire Funding Corp.) a
participation interest in Lender's portion of the Loans provided in
the case of any such participation, Lender shall remain the "LENDER"
for all purposes under the Loan Papers (including without limitation
any votes, elections or other decisions of the Lender hereunder) and
shall remain fully liable for its obligations hereunder, included but
not limited to funding all Advances hereunder, and Borrower shall
continue to deal directly and solely with Lender under the Loan Papers
and shall have no duty or obligation to deal with any participant in
any manner (including without limitation, delivery of information or
distribution of any funds to any participant).
(c) Lender shall have the right, at any time and from
time to time to assign all or a part of its rights, interests, and
obligations under this Agreement subject to and in accordance with the
following provisions:
(i) Borrower shall have given its prior
written consent for any assignment; provided that Borrower's
consent shall not be unreasonably withheld or delayed, and
shall not be required during the continuation of an Event of
Default or Potential Default.
(ii) Each assignment shall be of a constant,
and not a varying, percentage of all of the assigning
Lender's rights and obligations under this Agreement.
(iii) Any assignment hereunder must also
include an assignment of an equal interest in such Lender's
rights and obligations under the Affiliate Loan Agreements.
(iv) The parties to any assignment shall
execute and deliver to Lender, for recording in the
Register, with a copy thereof to Borrower, an Assignment and
Acceptance, in form and substance acceptable to Lender (an
"ASSIGNMENT AND ACCEPTANCE"), together with new Notes
subject to such assignment.
Upon execution of an Assignment and Acceptance, delivery by the
transferor Lender of an executed copy thereof to Borrower and Lender
(together with notice that payment of the purchase price, as
hereinafter provided, shall have been made), and payment by such
purchaser to such transferor Lender of an amount equal to the purchase
price agreed between such transferor Lender and such purchaser, from
and after the effective date specified in such Assignment and
Acceptance (which effective date shall be at least (5) five Business
Days after the execution thereof), (A) the assignee thereunder shall
be a party to this Agreement as a "LENDER" hereunder and, to the
extent provided in such Assignment and Acceptance, shall have the
rights and obligations of a Lender hereunder, and (B) the assigning
Lender shall, to the extent provided in such assignment, be released
from its obligations under this Agreement, except for any such
obligations which by their nature should survive any such assignment.
(d) Lender shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the
"REGISTER") for the recordation of the names and addresses of each
Lender and the Loan percentages of, and principal amount of the Loan
owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower,
and each Lender may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement.
The Register shall be available for inspection by Borrower and the
Lenders at any reasonable time and from time to time upon reasonable
prior notice.
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(e) Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note
subject to such assignment, Lender shall (i) record the information
contained therein in the Register, and (ii) give prompt notice thereof
to Borrower and Lender (other than the assigning Lender), and this
Agreement shall automatically be deemed revised to reflect the name,
address, Commitment and Loan Percentage of the new Lender and the
deletion of or changed information for the assigning Lender. Within
five (5) Business Days after receipt of such notice, Borrower, at the
Lenders' expense, shall execute and deliver to the Lender, in exchange
for each surrendered Note, a new Note payable to the order of such new
Lender in an amount equal to the amount assigned to such new Lender
pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained some portion of its obligations hereunder, a new
Note payable to the order of the assigning Lender in an amount equal
to the amount retained by it hereunder. Such new Note shall provide
that they are replacements for the surrendered Note, shall be in an
aggregate principal amount equal to the aggregate principal amount of
the surrendered Note, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the
form of the assigned Note. The surrendered Note shall be canceled and
returned to Borrower.
12.15. Senior Debt; Borrower Subordination. The Indebtedness of
Borrower hereunder and under the Note and all of the Obligation is intended to
be and shall be senior to any subordinated indebtedness of Borrower or any
other Indebtedness of Borrower secured by a Lien on any portion of the
Collateral (the foregoing shall not in any way imply Lender's consent to any
such subordinate debt or Liens which is not otherwise permitted by this
Agreement). The Note and any other amounts advanced to or on behalf of
Borrower or any other Person pursuant to the terms of this Agreement or any
other Loan Paper shall never be in a position subordinate to any Indebtedness
of Borrower owing to any other Person, except with the knowledge and written
consent of Lender.
12.16. No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser, or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Note, or in any
other Loan Paper, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Agreement or any of the other Loan
Papers neither this Agreement nor any other Loan Paper shall be construed as
creating any right, claim, or cause of action against Lender, or any of their
officers, directors, agents, or employees, in favor of any materialman,
supplier, contractor, subcontractor, purchaser, or lessee of any property owned
by Borrower, nor to any other person or entity other than Borrower.
12.17. Oral Agreements Ineffective. THE LOAN PAPERS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
FC PROPERTIES, LTD. FC PROPERTIES, LTD.,
P.O. Box 8216 as Borrower
Waco, Texas 76714-8216
Telecopy No. 254/756-7032 By: FC ASSETS CORP.,
Attention: Terry R. DeWitt as general partner
By: /s/ JAMES C. HOLMES
-----------------------------
James C. Holmes,
Senior Vice President
NOMURA ASSET CAPITAL NOMURA ASSET CAPITAL CORPORATION
CORPORATION
2 World Financial Center
Building B
New York, New York 10281-1198 By: /s/ HELAINE FISHER HEBBLE
-----------------------------------
Helaine Fisher Hebble, Director
SIGNATURE PAGE TO CREDIT AGREEMENT
<PAGE> 50
EXHIBIT "A"
FORM OF NOTE
$30,000,000 March 20, 1998
FOR VALUE RECEIVED, FC PROPERTIES, LTD., a Texas limited corporation
("BORROWER"), promises to pay to the order of NOMURA ASSET CAPITAL CORPORATION
("LENDER") that portion of the principal amount of $30,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is the "Note" under the Revolving Credit Loan Agreement (as
renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
March 20, 1998, between Borrower and Lender. All of the defined terms in the
Loan Agreement have the same meanings when used, unless otherwise defined, in
this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity, which is the stated Maturity Date. Principal and interest are
payable to the holder of this note through Lender at either (a) its offices at
2 World Financial Center, Building B, New York, New York 10281-1198, or (b) at
any other address so designated by Lender in written notice to Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable interest rates before and after an Event of Default,
voluntary and mandatory prepayments, acceleration of maturity, exercise of
rights and remedies, payment of attorneys' fees, court costs, and other costs
of collection, certain waivers by Borrower and other obligors, assurances and
security, choice of New York and United States federal Law, usury savings, and
other matters applicable to Loan Papers under the Loan Agreement.
FC PROPERTIES, LTD.,
as Borrower
By: FC ASSETS CORP.,
as general partner
By:
---------------------------------
James C. Holmes,
Senior Vice President
<PAGE> 51
EXHIBIT "B"
DISCOUNT FACTORS
<TABLE>
<CAPTION>
=====================================================================================================
COLL NPV DISCOUNT FACTOR (%)
CODES DAYS DELINQUENT BASED ON ORIGINAL NOTE TERMS COLLATERAL
---------------------------------------------------------------- DESCRIPTION
0-30 31-60 61-90 >90
=====================================================================================================
<S> <C> <C> <C> <C> <C>
1 INDEX + 4 INDEX + 4 INDEX + 5 INDEX + 6 RESIDENTIAL 1-4
-----------------------------------------------------------------------------------------------------
7 INDEX + 4 INDEX + 5 INDEX + 7 INDEX + 8 RESIDENTIAL MOBILE HOME
-----------------------------------------------------------------------------------------------------
9 INDEX + 4 INDEX + 5 INDEX + 6 INDEX + 7 RESIDENTIAL MOBILE HOME &
LOT
-----------------------------------------------------------------------------------------------------
10 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 19 UNSECURED
-----------------------------------------------------------------------------------------------------
11 INDEX + 3 INDEX + 3 INDEX + 3 INDEX + 3 NEGOTIABLE INSTRUMENTS
-----------------------------------------------------------------------------------------------------
15 INDEX + 3 INDEX + 3 INDEX + 3 INDEX + 3 CASH VALUE - LIFE INSURANCE
-----------------------------------------------------------------------------------------------------
16 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 COSIGNER/GUARANTOR
-----------------------------------------------------------------------------------------------------
20 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 MECHANICS LIEN
-----------------------------------------------------------------------------------------------------
21 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 HOME IMPROVEMENT
-----------------------------------------------------------------------------------------------------
22 INDEX + 5 INDEX + 5 INDEX + 6 INDEX + 9 CONTRACT FOR DEED
-----------------------------------------------------------------------------------------------------
23 INDEX + 6 INDEX + 6 INDEX + 8 INDEX + 10 PROMISSORY NOTES/NOTES
RECEIVABLE
-----------------------------------------------------------------------------------------------------
30 INDEX + 6 INDEX + 6 INDEX + 9 INDEX + 14 ACCOUNTS
RECEIVABLE/INVENTORY
-----------------------------------------------------------------------------------------------------
31 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 CONSUMER GOODS
-----------------------------------------------------------------------------------------------------
32 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 VEHICLE
-----------------------------------------------------------------------------------------------------
33 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 AIRPLANE
-----------------------------------------------------------------------------------------------------
34 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 CROPS & LIVESTOCK
-----------------------------------------------------------------------------------------------------
35 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 BOATS OR SHIPS
-----------------------------------------------------------------------------------------------------
37 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 MISCELLANEOUS
-----------------------------------------------------------------------------------------------------
38 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 14 FURNITURE, FIXTURES,
EQUIPMENT
-----------------------------------------------------------------------------------------------------
45 INDEX + 6 INDEX + 8 INDEX + 11 INDEX + 15 LAND COMMERCIAL
-----------------------------------------------------------------------------------------------------
46 INDEX + 5 INDEX + 7 INDEX + 9 INDEX + 11 LAND - RESIDENTIAL
-----------------------------------------------------------------------------------------------------
47 INDEX + 5 INDEX + 7 INDEX + 9 INDEX + 11 LAND - AGRICULTURAL
-----------------------------------------------------------------------------------------------------
52 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 8 MULTIFAMILY DWELLING
-----------------------------------------------------------------------------------------------------
18 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 OFFICE
-----------------------------------------------------------------------------------------------------
19 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 OFFICE/WAREHOUSE
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
24 INDEX + 5 INDEX + 5 INDEX + 7 INDEX + 9 RETAIL
-----------------------------------------------------------------------------------------------------
12 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 HOTEL/MOTEL
-----------------------------------------------------------------------------------------------------
13 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 12 SPECIALTY
-----------------------------------------------------------------------------------------------------
36 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 INDUSTRIAL/WAREHOUSE
-----------------------------------------------------------------------------------------------------
25 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 12 CONVALESCENT
-----------------------------------------------------------------------------------------------------
64 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 MIXED USE
=====================================================================================================
</TABLE>
The Index Equals: The yields on actively traded government issues
adjusted to constant maturity of three years quoted on a bond equivalent basis
as published by the Federal Reserve Board in its H.15 Publication.
A possible increase (adjustment) to the discount rates shown above is
the Credit Risk Adjustment ("CRA"). The CRA applies only to loans less than 60
days delinquent. The CRA is an amount added to the discount rates shown above
for purposes of increasing the discount factors used in the Net Present Value
calculation.
<TABLE>
<CAPTION>
Credit Risk Adjustment: CRA Amount Credit Risk Category
- ---------------------- ---------- --------------------
<S> <C> <C>
Minimal Risk of Default 0.0% 1
Mild Risk of Default 0.5% 2
Moderate Risk of Default 1.0% 3
Significant Risk of Default 2.0% 4
Other Variable up to 2.0% 5
</TABLE>
The "Other" category (shown above) will be applicable only to those assets with
special circumstances and will be subject to the judgment of the Servicer and
mutually agreed to by the Lender. In some instances, the variable may be
negative. In other words, circumstances may dictate that the CRA should serve
to reduce the risk in a particular Asset.
<PAGE> 53
EXHIBIT "C"
PERMITTED LIENS
None
<PAGE> 54
EXHIBIT "D"
BORROWING REQUEST
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, NY 10281-1198
Re: Loan Agreement dated March 20, 1998 between you and FC
PROPERTIES, LTD., (the "Loan Agreement")
Dear Sirs:
We refer to the above Loan Agreement between Nomura Asset Capital
Corporation ("LENDER") and FC PROPERTIES, LTD., as borrower ("BORROWER").
Terms defined in the Loan Agreement have the same meaning in this Borrowing
Request. This represents Borrower's request to borrow $___________________
under the Loan Agreement on _____________, 19_______, from Lender.
The Borrowing Request is one of the Borrowing Requests referred to in,
and shall be interpreted in accordance with and subject to the conditions of,
the Loan Agreement. Pursuant to the Loan Agreement, this Borrowing Request
constitutes Company's request to have Lender finance, on the terms and
conditions of the Loan Agreement, ______% of the Net Present Value of the Asset
Portfolio, subject to Company's purchase of such Asset Portfolio, as such Asset
Portfolio is more fully described in the Asset Portfolio Report which is
attached hereto as ATTACHMENT I.
1. DESCRIPTION OF ASSET PORTFOLIO:
A. ACQUISITION ID:
----------------- ----------------------
B. SELLER NAME:
----------------------
C. SELLER PORTFOLIO:
----------------------
D. ADVANCE/SETTLEMENT DATE:
----------------------
E. NUMBER OF ASSETS:
----------------------
F. TOTAL PRINCIPAL BALANCE OF ASSETS:
----------------------
G. PURCHASE PRICE (%):
----------------------
H. PURCHASE PRICE ($):
----------------------
I. GENERAL CHARACTERISTICS OF ASSETS:
----------------------
J. CASHFLOW PROJECTION ("ROLLUP," with
detail attached):
----------------------
K. COLLECTION FEE PERCENTAGE
ON ASSET PORTFOLIO:
----------------------
L. PROPOSED CAPITAL STRUCTURE:
----------------------
M. ADVANCE PERCENTAGE:
----------------------
N. SERVICER FirstCity Servicing Corporation
O. ASSET THRESHOLD AMOUNT
----------------------
2. WIRE INSTRUCTIONS:
Attached hereto as ATTACHMENT II are complete payment and wiring
instructions with respect to the purchase price of the Asset Portfolio to be
paid to the Asset Seller.
<PAGE> 55
3. NO ADVERSE SELECTION:
The Company represents to the Lender that it has not used any
selection procedures which result in the Asset Portfolio being less desirable
or valuable than other comparable pools of assets similar to the Assets.
4. REPRESENTATIONS AND WARRANTIES:
In delivering this Borrowing Request, the undersigned officer, to the
best of such officer's knowledge, on behalf of Borrower, but not individually,
certifies and confirms that (i) no Potential Default, Event of Default or
Collateral Impairment Event has occurred and is continuing or will occur as a
result of this proposed financing or Borrower's purchase of the loans, (ii) the
Loan Agreement, the Security Documents and all related agreements are in full
force and effect and constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their terms, subject to bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditor's
rights generally and the effects, if any, of general principles of equity,
(iii) the representations and warranties in SECTION 5 of the Loan Agreement and
the other Loan Papers are true, correct and complete in all material respects
on and as of the date hereof to the same extent as though made on and as of the
date hereof, except for any representation or warranty limited by its terms to
a specific date and taking into account any amendments to the Schedules or
Exhibits or waivers as a result of any disclosures made by Borrower to Lender
after the Effective Date of the Initial Advance under the Loan Agreement and
approved in writing by Lender; (iv) the amount of the Advance requested herein
does not exceed the Maximum Advance Amount for the Asset Portfolio being
acquired with the proceeds of the proposed Advance; (v) the purchase of the
Asset Portfolio has been underwritten by Borrower in accordance with Borrower's
established underwriting requirements; (vi) the Assets included in the Asset
Portfolio being financed with the Advance are of a type previously financed by
Borrower, or an Affiliate of Borrower, with Lender or, if not, are assets which
have been specifically approved by Lender for inclusion in the Asset Portfolio;
(vii) all other conditions to the making of the Advance requested under the
Loan Agreement will be satisfied as of the applicable Effective Date; and
(viii) on the Effective Date of the requested Advance Borrower will possess the
originals of the promissory notes (or Lost Notes Affidavits, with copies of
each Lost Note) and mortgages evidencing the Collateral Loans included in the
Asset Portfolio being acquired with this Advance and Borrower will deliver such
promissory notes, mortgages and other Collateral loan documents to the
Collateral Custodian within the time periods set forth in the Loan Agreement.
5. ADDITIONAL DOCUMENTATION:
Submitted with the Borrowing Request or prior hereto are the following
documents:
a. Offering materials of the Seller;
b. Form of purchase agreement with Seller, to be followed by
executed copy;
c. Letter from Asset Seller confirming sale to Borrower;
d. UCC-1 executed by Company for county and state filings with
asset schedule attached; and
e. FirstCity due diligence materials.
f. A Trial Balance for the Asset Portfolio setting forth for each
Asset, the Allocated Purchase Price and
any Permitted Prior Liens.
6. INFORMATION ON DISKETTE:
Submitted with the Advance Request is an electromagnetic disk or hard
copy (whichever the Seller provides) containing the information set forth as
"monthly data request" in the Loan Agreement, to the extent available, with
respect to each asset (or Asset Seller's due diligence information or
electromagnetic disk with respect to the purchased assets).
<PAGE> 56
Date: ,
------------------------- -----
FC PROPERTIES, LTD.,
as Borrower
By: FC ASSETS CORP.,
as general partner
By:
------------------------------
James C. Holmes,
Senior Vice President
Approved and Accepted by Lender on this day of , .
--- ----------------- --------
NOMURA ASSET CAPITAL CORPORATION
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 57
EXHIBIT "E"
AFFILIATE LOAN AGREEMENTS
1. Revolving Credit Loan Agreement dated February 27, 1998, by and among
FH Partners, L.P., and Nomura Assets Capital Corporation, providing
for extensions of credit on a revolving basis up to a maximum
outstanding principal amount of $100,000,000.
<PAGE> 58
SCHEDULE 5.09
Material Agreements
(1) Each Partnership Agreement forming each REO Affiliate.
(2) Each Purchase and Sale Agreement related to each Owned Asset
Portfolio.
<PAGE> 59
SCHEDULE 5.10
Litigation
None
<PAGE> 60
SCHEDULE 7.16
Locations of Books and Records
FIRSTCITY SERVICING CORPORATION
P.O. Box 8216
Waco, Texas 76714-8216
6400 Imperial Drive
Waco, Texas 76712
(254) 751-1750
(800) 247-4274
(254) 751-1757 (FAX)
FIRSTCITY SERVICING CORPORATION
P.O. Box 105
Houston, Texas 77001
1021 Main Street, Suite 2625
Houston, Texas 77002
(713) 652-1810
(713) 652-1812 (FAX)
FIRSTCITY SERVICING CORPORATION
577-A Southlake Blvd.
Southport Office Park
Richmond, Virginia 23236
(804) 378-7080
(804) 378-7088 (FAX)
FIRSTCITY SERVICING CORPORATION
625 Ridge Pike
Building A, Suite 103
Conshohocken, Pennsylvania 19428
(610) 825-3762
(610) 825-3798 (FAX)
FIRSTCITY SERVICING CORPORATION
38 Pond Street
Suite 105
Franklin, MA. 02038
(508) 528-0116
(800) 925-0116
(508) 520-4713 (FAX)
FIRSTCITY SERVICING CORPORATION
4711 Rupp Dr.
Suite 209
Ft. Wayne, Indiana 46815
(219) 484-5245
(219) 482-2439 (FAX)
<PAGE>
EXHIBIT 10.13
================================================================================
REVOLVING CREDIT LOAN AGREEMENT
BY AND AMONG
FH PARTNERS, L.P.,
AS BORROWER,
AND
NOMURA ASSET CAPITAL CORPORATION,
AS LENDER
$100,000,000
DATED AS OF FEBRUARY 27, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITION OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2 THE REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.01. Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.02. Manner of Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.03. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3 NOTE AND NOTE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.01. Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.02. Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.03. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.04. Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.05. Calculation of Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.06. Lockbox Account; Distributions of Net Collections; Distributions of
Excess Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.07. Manner and Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.08. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.09. Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4 SPECIAL PROVISIONS FOR LIBOR RATE ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.01. Inadequacy of LIBOR Rate Loan Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.02. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.03. Duration of Alternative Rate Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.04. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.01. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.02. Authorization and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.03. No Conflicts or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.04. Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.05. No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.06. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.07. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.08. No Default; Potential Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.09. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.10. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.11. Burdensome Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.13. Principal Office, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.14. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.17. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.18. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.19. Ownership of Borrower, Servicer and REO Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.20. Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.21. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.22. Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 6 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01. Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.02. All Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 7 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.01. Financial Statements, Reports and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.02. Additional Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.03. Payment of Taxes, Impositions and Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 27
7.04. Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.05 Maintenance of Existence and Rights; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 27
7.06. Notice of Default; Notice of Collateral Impairment Event . . . . . . . . . . . . . . . . . . . . . . 28
7.07. Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.08. Compliance with Loan Papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.09. Compliance with Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.10. Operations and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.11. Books and Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.12. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.13. Authorizations and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14. Experienced Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.15. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.16. Collection Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.17. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.18. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.20. Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.21. General Indemnity; Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.01. Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.02. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.03. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.04. Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.05. Alteration of Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.06. Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.07. Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.08. Limitation on Sale of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.09. Name, Fiscal Year and Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.10. Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets . . . . . . . . . . . . 32
8.11. Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.12. No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.13. Purchase of Substantial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.14. New Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.15. Fictitious Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.16. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.17. Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.18. Disposition of Collateral Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.19. Modification of Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.20. Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9 COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.01. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.02. Lien on REO Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03. Assignment of Liens; Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
9.04. Insurance of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.05. Delivery of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.06. Possession of Collateral Loan Documents; Sale of Collateral . . . . . . . . . . . . . . . . . . . . 35
9.07. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.08. Appointment of Collateral Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.09. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 10 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.02. Remedies Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.03. Performance by Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11 SECURITIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.01. Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.02. Borrower Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.04. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.01. Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.02. Accounting Terms and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.03. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.04. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.06. Choice of Law; Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 41
12.07. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.08. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.09. Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.10. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.11. Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.13. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.14. Successors and Assigns; Participations by the Lenders . . . . . . . . . . . . . . . . . . . . . . . 42
12.15. Senior Debt; Borrower Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.16. No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.17. Oral Agreements Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
Exhibit A - Form of Note
Exhibit B - Discount Factors
Exhibit C - Permitted Liens
Exhibit D - Borrowing Request
Exhibit E - Affiliate Loan Agreements
Schedule 5.09 Material Agreements
Schedule 5.10 Litigation
Schedule 7.16 Locations of Books and Records
iii
<PAGE> 5
REVOLVING CREDIT LOAN AGREEMENT
Dated as of February 27, 1998
This Revolving Credit Loan Agreement (the "AGREEMENT") is entered into
as of this 27th day of February, 1998, by and among FH PARTNERS, L.P., a Texas
limited partnership, ("BORROWER") and NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation ("LENDER").
RECITALS:
Borrower has requested that Lender provide it with a secured loan
facility to be used by Borrower to finance owned Asset Portfolios and
acquisitions of Asset Portfolios and Lender is willing to provide such a
facility to Borrower, upon the terms and subject to the conditions hereinafter
set forth. Accordingly, in consideration of the mutual promises herein
contained and for other valuable consideration, the parties hereto do hereby
agree as follows:
SECTION 1
DEFINITION OF TERMS
1.01. Defined Terms. For purposes of this Agreement, unless the
context otherwise requires the following terms shall have the respective
meanings assigned to them below or in the Section referred to therein.
"ACCOUNT DEBTOR" means, collectively, the "borrower" and each other
obligor, guarantor or other liable party under a Collateral Loan.
"ADVANCE": Section 2.01(a).
"ADVANCE PERCENTAGE" means, with respect to any Asset Portfolio, the
percentage obtained by dividing (a) the amount of the Advance funded by Lender
to finance such Asset Portfolio by (b) the aggregate Net Present Values of the
Assets constituting such Asset Portfolio or, if an Advance is made hereunder to
acquire an Asset Portfolio, the Net Purchase Price for such Asset Portfolio.
"ADVANCE RATIO" means, as of any date of calculation, a ratio
determined by dividing (a) the aggregate amount of all Advances hereunder by
(b) the sum of (i) the aggregate Net Purchase Prices for all Asset Portfolios
acquired with such Advances plus (ii) the aggregate Net Present Values for all
Owned Asset Portfolios as of the date of the Advance with respect to each Owned
Asset Portfolio.
"AFFILIATE" means, as to any Person, any Subsidiary of such Person, or
any Person which, directly or indirectly, controls, is controlled by, or is
under common control with such Person. For the purposes of this definition,
"control, means the possession of the power to direct or cause the direction of
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AFFILIATE LOAN AGREEMENTS" means those certain Loan Agreements
referenced on Exhibit "E", attached hereto, each entered into by and between
Lender and an Affiliate of Borrower.
"AFFILIATE LOAN BALANCE" means the aggregate outstanding balance of
all loans, including all accrued and unpaid interest thereon, extended pursuant
to the Affiliate Loan Agreements.
"AGREEMENT" means this revolving credit loan agreement, as it may be
amended, renewed or extended from time to time.
<PAGE> 6
"ALLOCATED PURCHASE PRICE" means for each Asset in an Asset Portfolio
(including each REO Property owned by Borrower or an REO Affiliate) the amounts
set forth for each such Asset in the Borrowing Request submitted in connection
with the Advance used to finance such Asset Portfolio and agreed to by Borrower
and Lender.
"ALLONGE" shall mean an endorsement on a separate sheet of paper
accompanying a promissory note and signed by the Borrower, endorsing the note
to the Lender or in blank.
"ALTERNATIVE RATE ADVANCES": Section 4.01.
"APPLICABLE ENVIRONMENTAL LAWS" has the meaning set forth in Section
7.21(b).
"APPROVED BUDGET": Section 7.01(f).
"ASSET" means each individual loan, REO Note or property comprising an
Asset Portfolio.
"ASSET FILE" means all Collateral Loans and Collateral Loan Documents
assigned to Lender as Collateral for the Obligation, together with all other
documents relating to such Asset to be delivered to the Collateral Custodian,
the Servicer or Borrower.
"ASSET PORTFOLIO REPORT" means a report, in form and substance
reasonably acceptable to Lender, showing various information concerning each
Asset Portfolio and each Asset included therein, as of the end of the month
preceding delivery of such report, including without limitation, monthly Net
Collections, the outstanding balances of each Collateral Loan, the Net Present
Value of each Asset, settlement information, default status, a calculation
showing the Advance Ratio and the NPV Ratio for each Asset Portfolio and
reflecting that a Collateral Impairment Event has not occurred, and such other
information as the Lender may otherwise request, including any additional
information in the asset status reports routinely prepared by Borrower related
to such Assets.
"ASSET PORTFOLIOS" means one or more pools of:
(a) performing, non-performing or under-performing
consumer, residential or commercial loans, and/or
(b) real estate or other assets, including judgements,
acquired in connection with the collection,
foreclosure, restructure or settlement of
non-performing or under-performing loans, together
with all documents, instruments, certificates and
other information related thereto.
"ASSET THRESHOLD AMOUNT" means, for each Asset Portfolio, the amount
set forth in the relevant Borrowing Request and approved by Lender.
"ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in Section
12.14(c).
"AUTHORIZED OFFICER" means any of the Chairman, President, Vice
President, Chief Financial Officer, Treasurer or Assistant Treasurer of any
General Partner, authorized by the Board of Directors of such General Partner
to execute the Loan Papers and to borrow hereunder, on behalf of Borrower and
each REO Affiliate, as applicable.
"AVAILABILITY PERIOD": Section 2.01(a).
"BORROWER" means FH Partners, L.P., a Texas limited partnership.
2
<PAGE> 7
"BORROWING REQUEST" means a written request for an Advance,
substantially in the form attached hereto as Exhibit "D", which shall (a)
specify (i) the date of such Advance, which shall be a Business Day, (ii) the
aggregate amount of such Advance, (iii) a complete description of the Asset
Portfolio to be acquired with, or financed with, the proceeds of the Advance,
including the net present value of the Original Estimated Value of such Asset
Portfolio and the Allocated Purchase Price for each Asset a part thereof and
(iv) such other information as may be requested by Lender from time to time;
and (b) contain a certification of an Authorized Officer as of the date of such
Advance certifying as to the matters set forth in Section 6.02) and certain
other matters. Each Borrowing Request shall be irrevocable and binding on
Borrower.
"BUSINESS DAY" means a day on which Lender is open for business in New
York, New York, national banks are not closed in Dallas, Texas and which is a
day for trading by and between banks for dollar deposits in the London
interbank market.
"CAPITALIZED LEASE OBLIGATIONS" means the amount of the obligations of
Borrower under Financing Leases which would be shown as a liability on a
balance sheet of Borrower, prepared in accordance with Generally Accepted
Accounting Principles.
"COLLATERAL" means at any time all Assets and all property then
subject to any Security Agreement in favor of Lender, securing the Obligation,
including, without limitation, all Collateral Loan Documents and accounts and
the proceeds thereof and all the rights and remedies of Borrower or any REO
Affiliate under any Sale Agreement.
"COLLATERAL ASSIGNMENT" means an Assignment of Notes and Liens, and
collectively, all Assignments of Notes and Liens, executed by Borrower in
favor of Lender, as security for the Obligation, each of which Collateral
Assignment is intended to cover all of the Collateral Loans being a part of an
Asset Portfolio and all renewals, modifications, amendments, supplements and
restatements thereof, which collateral assignment shall be in the form and
substance acceptable to Lender and which Collateral Assignments shall be duly
signed and notarized in accordance with applicable state law and in proper form
for recording, in order to confirm and perfect Lender's Liens in the
Collateral.
"COLLATERAL CUSTODIAN" means Fleet Bank, N.A., a national banking
association, or its successor or other Person agreed upon by Borrower and
Lender.
"COLLATERAL IMPAIRMENT EVENT" means as of any date of calculation,
that the NPV Ratio exceeds the Advance Ratio.
"COLLATERAL LOAN" means each loan included in any Asset Portfolio
financed under this Agreement and which has not been disposed of by Borrower
and each loan evidenced by an REO Note and each and every other loan (or
interest therein) now or at any time hereafter owned by Borrower .
"COLLATERAL LOAN DOCUMENTS" means all promissory notes evidencing
Collateral Loans (including all REO Notes), all mortgages, deeds of trust and
other documents securing Collateral Loans (including all REO Security
Documents) and all loan agreements and other documents executed by Account
Debtors in connection with Collateral Loans including, without limitation, the
documents listed in Section 9.05 herein.
"COMPLIANCE LETTER" means a letter from KPMG Peat Marwick LLP, or
other independent public accountants of recognized national standing selected
by Borrower and satisfactory to Lender, stating that (a) such firm has reviewed
the calculation of the then current Advance Ratio and NPV Ratio, (b) such
calculations are accurate and comply with the requirements of this Agreement,
and (c) no Collateral Impairment Event exists, and containing such other
information Lender may reasonably request.
"CUSTODIAL AGREEMENT" means the Custodial Agreement in form approved
by Lender by and between the Collateral Custodian, Borrower, Servicer and
Lender whereby Custodian agrees to act as bailee
3
<PAGE> 8
for the documents evidencing certain of the Collateral Loans, as such Custodial
Agreement may be amended or supplemented from time to time, together with any
replacement or substitution therefor.
"DEFAULT RATE" means a rate per annum equal to the rate which is four
percent 4% in excess of the rate then borne by the most recent Advance.
"DEFERRED INTEREST": Section 3.04.
"DOLLARS" and the "$" symbol shall refer to lawful currency of the
United States of America.
"DUE DILIGENCE REPORTS" means the various written reports, information
and other materials that Borrower prepared or assembled containing descriptions
and evaluations of the Collateral Loans and Mortgaged Properties included in a
particular Asset Portfolio, and Borrower's assessments and projections
regarding same, or other information regarding such Assets, including copies of
purchase agreements, copies of any appraisals or environmental site
assessments, and the due diligence reports for each such Asset Portfolio
summarizing Borrower's due diligence regarding such Assets and any Mortgaged
Properties.
"EFFECTIVE DATE" means any Business Day designated by Borrower in a
Borrowing Request as the date such Advance is made.
"ENVIRONMENTAL SITE ASSESSMENT" shall mean an environmental site
assessment report conforming to the standards for Phase I Environmental Site
Assessments in ASTM Standard Procedures for Environmental Site Assessments, E
1527-93 or other standards reasonable satisfactory to Lender (either of which
is herein called the "ACCEPTABLE STANDARDS"), which is in all respects
satisfactory to Lender and which has been prepared by a qualified environmental
firm reasonably satisfactory to Lender or, if applicable, other persons allowed
under the Acceptable Standards (a) indicating that, on the basis of an
investigation conducted in accordance with the Acceptable Standards, (i) the
firm found no Hazardous Substance present on or in the property that is the
subject of its report at levels that require reporting or remediation, or both,
pursuant to any Applicable Environmental Laws that are applicable to such
property ("PROHIBITED HAZARDOUS SUBSTANCES"), (ii) it did not learn of any
conditions on or in the land adjacent to the property that is the subject of
its report that would cause it to believe that there might be Prohibited
Hazardous Substances present on or in the property that is the subject of its
report, and (iii) no notice of violation of any of the Applicable Environmental
Laws, or other claim or order issued pursuant to any of the Applicable
Environmental Laws, has been duly filed against such property by any
governmental authority; or (b) if any Prohibited Hazardous Substance is present
on such property or if any such notice of violation, claim or order has been
filed, providing evidence satisfactory to Lender as to the extent and nature of
the environmental problem caused thereby and the likely costs and duration of
any recommended remediation. Notwithstanding anything to the contrary above
the Acceptable Standards for conducting an Environmental Site Assessment for a
single family residence or multifamily residential property with four (4) or
less units ("Residential 1-4's") shall, absent any known, suspected or
observable environmental risks (other than the potential presence of radon,
lead paint and/or asbestos containing materials), not require the Borrower to
obtain an Environmental Site Assessment which conforms to the ASTM Standard
Procedures for Environmental Site Assessments, E 1527- 93. Unless a known,
suspected or observable environmental risk exists, the Acceptable Standards for
Residential 1-4's shall be complied with by the Borrower's preparing, or
causing the Servicer to prepare or direct the preparation of, a preliminary
environmental evaluation using a standard evaluation form.
"EQUITY CONTRIBUTION" means, with respect to the acquisition of an
Asset Portfolio, an amount equal to the product of (a) the Net Purchase Price
for such Asset Portfolio, multiplied by (b) a percentage equal to one hundred
percent (100%) less the Advance Percentage for such Asset Portfolio.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
4
<PAGE> 9
"EVENT OF DEFAULT": Section 10.01.
"EXCESS CASH FLOW": Section 3.06(c).
"FINANCING LEASE" means any lease of property which would be
capitalized on a balance sheet of Borrower or a Subsidiary prepared in
accordance with Generally Accepted Accounting Principles.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means those generally
accepted accounting principles and practices which are recognized as such by
the American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date hereof so as to properly
reflect the financial condition, and the results of operations and changes in
financial position, of Borrower, except that any accounting principle or
practice required to be changed by the said Accounting Principles Board or
Financial Accounting Standards Board (or other appropriate board or committee
of the said Boards) in order to continue as a generally accepted accounting
principle or practice may so be changed.
"GENERAL PARTNERS": Section 5.19.
"GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any REO Affiliate
or any of its business, operations or properties.
"GUARANTORS" means FH Properties, L.P., a Texas limited partnership,
First X Realty, L.P., a Texas limited partnership, and each other REO
Affiliate.
"GUARANTY" means any contract, agreement or understanding by which
Borrower or any REO Affiliate assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
liable upon, the obligation of any other Person, or agrees to maintain the net
worth or working capital or other financial condition of any other Person or
otherwise insures any creditor of such other Person against loss, and shall
include, without limitation, the contingent liability of Borrower under any
letter of credit or similar document or instrument.
"HAZARDOUS SUBSTANCE": Section 7.21(b).
"IMPOSITIONS" means all real estate and personal property taxes;
charges for any easement, license or agreement maintained for the benefit of
any of the real property of Borrower or any REO Affiliate, or any part thereof;
and all other taxes, charges and assessments and any interest, costs or
penalties with respect thereto, general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever,
which at any time prior to or after the execution hereof may be assessed,
levied or imposed upon any of the real property of Borrower or any REO
Affiliate, or any part thereof, or the ownership, use, sale, occupancy or
enjoyment thereof, in each case which, if not timely paid or otherwise
discharged, would materially and adversely affect (a) such ownership, use,
sale, occupancy or enjoyment, (b) the financial condition of Borrower or any
REO Affiliate or (c) Lender's Lien on any such property.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness,
obligations and liabilities of such Person, including without limitation: (a)
all "liabilities" which would be reflected on a balance sheet of such Person,
prepared in accordance with Generally Accepted Accounting Principles; (b) all
obligations of such Person in respect of any Guaranty; and (c) all obligations
of such Person in respect of any Capital Lease.
"INDEMNIFIED LIABILITIES": Section 7.21(a).
5
<PAGE> 10
"INDEMNIFIED PARTIES": Section 7.21(a).
"INTEREST DETERMINATION DATE" means the day the LIBOR Rate is
redetermined for all Advances and shall be the first Business Day of each
Month.
"INTEREST PAYMENT DATE": Section 3.04.
"INVESTMENT" in any Person means any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person.
"LEASE-UP EXPENSES" means as to any REO Property, (i) all reasonable
and customary leasing commissions, (ii) all reasonable tenant improvement costs
actually paid by Borrower or any REO Affiliate in question with respect to the
leasing of space in such REO Property pursuant to a written lease and (iii) all
capital expenditures actually paid by Borrower or any REO Affiliate in question
with respect to other improvements to such REO Property, provided that such
capital expenditures are expended in accordance with a budget for such REO
Property which has been approved in writing by Lender; all as evidenced by
invoices and such other back-up information as Lender may require.
"LENDER" means Nomura Asset Capital Corporation.
"LIBOR RATE" shall mean, with respect to any Advance hereunder, the
rate of interest determined by Lender at which deposits in dollars for a
one-month period are offered based on information presented on the Telerate
Screen as of 11:00 A.M. (London time) on the day which is two (2) Business Days
prior to the Effective Date of such Advance; provided, that if at least two
such offered rates appear on the Telerate Screen in respect of such one-month
period, the arithmetic mean of all such rates (as determined by Lender) will be
the rate used; provided, further, that if Telerate ceases to provide LIBOR
quotations, such rate shall be the average rate of interest determined by
Lender at which deposits in Dollars are offered for a one-month period by
Citibank, N.A. (or its successor) to Lender in the London interbank market as
of 11:00 A.M. (London time) on the applicable Effective Date. The LIBOR Rate
for each Advance shall be initially established as of the Effective Date of
such Advance and such Advance shall bear interest at such rate through the date
preceding the next succeeding Interest Determination Date. On such Interest
Determination Date, and on each Interest Determination Date thereafter, the
LIBOR Rate shall be recalculated as of such Interest Determination Date as
provided above and the Advance shall bear interest at such LIBOR Rate from such
Interest Determination Date through the day preceding the next succeeding
Interest Determination Date.
"LIBOR RATE ADVANCE" shall mean any principal amount under a Note with
respect to which the interest rate is calculated by reference to the LIBOR
Rate.
"LIEN" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"LOAN PAPERS" means this Agreement, the Note, each Guaranty executed
by an REO Affiliate, the Mortgages, the Collateral Assignments and Allonges for
each Collateral Loan, the Lockbox Agreement, the Custodial Agreement, the
Security Agreements, the Power of Attorney, the Servicing Agreement (including
any renewals, extensions and refundings thereof of all such documents and
agreements), and any agreements, certificates or documents, including UCC-1
financing statements (and with respect to this Agreement, and such other
agreements and documents, any amendments or supplements thereto or
modifications thereof) executed or delivered pursuant to the terms of this
Agreement.
6
<PAGE> 11
"LOCKBOX" means a post office box, or collectively post office boxes,
established by Borrower and Lockbox Bank pursuant to the provisions of Section
3.06 and the Lockbox Agreement for the receipt of payments from an Asset
Portfolio.
"LOCKBOX ACCOUNT(S)" means a segregated cash collateral account or
accounts maintained with Lockbox Bank and styled "FH Partners, L.P. Lockbox
Account for the benefit and under the control of Nomura Asset Capital
Corporation, as Lender", which account shall be (a) subject to the provisions
of Section 3.06, and (b) pledged and assigned to Lender as additional security
for the payment, performance and observance of the Obligations.
"LOCKBOX AGREEMENT" means a Lockbox Agreement, executed by and among
Borrower, Lender, Servicer and Lockbox Bank, in form and substance acceptable
to Lender, and all amendments, modifications and replacements thereof.
"LOCKBOX BANK" means NationsBank of Texas, Inc., a national banking
association and its successors, in its capacity as a Lockbox Bank under the
Lockbox Agreement or any other national banking association approved by Lender
and party to a lockbox agreement substantially similar to the Lockbox
Agreement. Lender has approved Fleet National Bank and/or its Affiliates as a
Lockbox Bank.
"LOST NOTE AFFIDAVIT": Section 6.02(g).
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (a)
could have any adverse effect whatsoever upon the validity, performance or
enforceability of any Loan Papers, (b) is or might be material and adverse to
the financial condition or business operations of Borrower, or (c) could impair
the ability of Borrower to fulfill its obligations under the Loan Papers.
"MATURITY DATE" means the earlier of: (a) the day on which Borrower
satisfies in full all of its obligations hereunder and Lender so acknowledges
in writing or (b) May 27, 1999, or such later date as may be agreed upon by
Borrower and Lender pursuant to Section 2.01(b) herein.
"MAXIMUM ADVANCE AMOUNT" means with regard to any Asset Portfolio, an
amount requested by Borrower in a Borrowing Request; provided that such amount
shall be in an amount not more than eighty-five percent (85%) of (a) in the
case of an Owned Asset Portfolio, the sum of the Net Present Values of the
Assets contained in such Asset Portfolio and (b) in the case of an Asset
Portfolio being acquired, the Net Purchase Price for such Asset Portfolio.
"MAXIMUM RATE" means, on any day, the highest nonusurious rate of
interest (if any) permitted by applicable law on such day.
"MINIMUM RELEASE PRICE" means, with respect to any Asset having an
Allocated Purchase Price of greater than the Asset Threshold Amount, as of any
date of calculation, the greater of (a) the Allocated Purchase Price for such
Asset minus the aggregate Net Collections attributable to date for such Asset
or (b) ninety percent (90%) of the Net Present Value of such Asset. The
Minimum Release Price for any Asset having an Allocated Purchase Price of less
than the Asset Threshold Amount for such Asset Portfolio will be zero.
"MORTGAGE" means any deed of trust or mortgage, (duly acknowledged and
in recordable form) covering a Mortgaged Property executed by Borrower or an
REO Affiliate, as appropriate, granted to Lender to secure repayment of the
Obligation substantially in the form approved by Lender, and all renewals,
extensions, modifications, amendments or supplements thereto, and all mortgages
or deeds of trust given in renewal, extension, modification, restatement or
replacement thereof.
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"MORTGAGED PROPERTY OR MORTGAGED PROPERTIES" means any and all lots or
parcels of land which Borrower or any REO Affiliate owns on the Closing Date or
which it may hereafter acquire as part of an Asset Portfolio or any Underlying
Real Estate which Borrower or any REO Affiliate may hereafter own as a result
of a foreclosure or deed-in-lieu of foreclosure or otherwise, and improvements,
fixtures and personal property located thereon and all other property
referenced in and subject to the Mortgages. The Mortgaged Property is intended
to include all of the above-described real property whether or not a Mortgage
is actually granted or filed.
"NET COLLECTION PROCEEDS" means, with respect to the settlement of an
Asset, all collection proceeds received by Borrower in connection with such
settlement, less all reasonable and customary collection costs actually paid to
unrelated third parties in connection with such settlement.
"NET COLLECTIONS" for any calendar month means an amount equal to (a)
any and all cash proceeds received by Borrower, each REO Affiliate, or the
Servicer with respect to Borrower's ownership, management and disposition of
any and all Assets in any Asset Portfolio, including, without limitation, (i)
all interest, principal, and other payments on Collateral Loans from any
source, (ii) all Net Operating Income from REO Properties, (iii) loan
settlement payments, any restructure or commitment or other loan fees, payments
on any judgments or settlement of litigation with respect to Collateral Loans,
(iv) Net Sales Proceeds from the sale of REO Properties, Collateral Loans,
Mortgaged Property and other items of Collateral, (v) income from any Mortgaged
Property, (vi) all insurance proceeds and condemnation proceeds, (vii) all
payments received by Borrower from any seller of an Asset Portfolio pursuant to
the applicable Sale Agreement, including all proceeds of Assets "put back" to
such seller, and (viii) all interest, dividends and other earnings directly or
indirectly paid to Borrower on funds, accounts and investments of Borrower,
but excluding any escrow deposits paid to Borrower for tax or insurance escrows
under the Collateral Loans. Notwithstanding anything to the contrary contained
in this Agreement, all Net Operating Income from any REO Property with respect
to any calender month shall not be deemed to be a part of Net Collections
received by Borrower until the first to occur of (i) the payment of such Net
Operating Income by the respective Property Manager to Borrower, the REO
Affiliate in question or the Servicer, or (ii) the fifteenth (15th) day of the
next following calendar month.
"NET OPERATING INCOME" shall mean, with respect to each REO Property,
for each Interest Period, the excess of (a) all of Borrower's or the REO
Affiliate's cash receipts related to such REO Property (including all rents and
other revenues but excluding security deposits) over (b) all reasonable and
customary expenses actually paid during such period which, in accordance with
Generally Accepted Accounting Principles, would be classified as operating
expenses for a property similar to such REO Property (including utility-related
expenses, taxes, insurance expenses, repair and maintenance expenses, and
janitorial and property-management fees actually paid by Borrower or the REO
Affiliate to an unrelated third party) and all Lease-Up Expenses paid for such
REO Property during such period.
"NET PRESENT VALUE" means, with respect to any Asset, as of any day of
calculation, the Projected Net Collections for such Asset discounted on a
monthly basis to arrive at a current time value of all such Net Collections
utilizing the appropriate discount factor for such Asset as set forth in
Exhibit "B" attached hereto as such Exhibit "B" may be modified from time to
time.
"NET PURCHASE PRICE" means the actual purchase price paid by Borrower
for an Asset Portfolio, excluding any costs or adjustments for legal fees,
travel, due diligence expenses or other "soft" costs.
"NET SALES PROCEEDS" means, with respect to the sale of any REO
Property, Collateral Loan or other Collateral, the gross proceeds received from
such sale, less the reasonable and customary closing costs actually paid to
unrelated third parties.
"NOTE" means the Revolving Credit Note executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions or modifications thereof.
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"NPV RATIO" means a percentage determined by dividing (a) the
outstanding principal balance, as of any date of calculation, of all Advances
hereunder by (b) the current Net Present Value, provided, however, that the Net
Present Value of any Asset held by Lender as collateral hereunder for more than
270 days shall be zero as of any such date of calculation, of all Assets
constituting Collateral as of such calculation date, and in connection with
calculating the NPV Ratio for a specific Asset Portfolio, means a percentage
determined by dividing (i) the outstanding principal balance, as of any date of
calculation, of the Advance made to acquire or finance such Asset Portfolio by
(ii) the Net Present Value, as of any such date of calculation, of all Assets
remaining in such Asset Portfolio.
"OBLIGATION" means all present and future indebtedness, obligations,
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to the Loans and this Agreement or
represented by the Note, and all interest accruing thereon, and attorneys' fees
incurred in the enforcement or collection thereof, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several; together with all
indebtedness, obligations and liabilities of Borrower to Lender evidenced or
arising pursuant to any of the other Loan Papers, and all renewals and
extensions thereof, or part thereof.
"OPERATING RESERVE ACCOUNT" means, with respect to each Asset
Portfolio, an interest bearing checking account established by Borrower with
Lockbox Bank, which account shall be (a) funded and disbursed in accordance
with Section 3.06(b)(vii) and Section 3.09 of this Agreement and (b) pledged
and assigned to Lender, for the benefit of Lender, as additional security for
the payment, performance and observance of the Obligations. Funds on deposit
in the Operating Reserve Account may only be invested in Temporary Cash
Investments.
"ORIGINAL ESTIMATED VALUE" means Borrower's estimate of the gross
proceeds reasonably expected by Borrower to be realized by Borrower from each
Collateral Loan and each other Asset contained in an Asset Portfolio (including
Mortgaged Property) set forth on a Schedule attached to the Borrowing Request
submitted by Borrower in connection with the acquisition of the Asset
Portfolio. The Original Estimated Value is Borrower's best estimate of the
value of such Collateral Loan or other Asset derived after applying Borrower's
ordinary and customary underwriting standards to such Asset Portfolio.
"OTHER TAXES": Section 3.08(b).
"OWNED ASSET PORTFOLIO" means an Asset Portfolio financed hereunder,
the Assets of which are owned by the Borrower prior to the time of the related
Advance.
"PERMITTED LEASE-UP EXPENSES" means all Lease-Up Expenses with respect
to any REO Property which do not exceed, in the aggregate and on a cumulative
basis, the lesser of (a) $100,000 or (b) ten percent (10%) of the Allocated
Purchase Price of the REO Property in question, or such other limit as may be
agreed to in writing by Lender.
"PERMITTED LIENS" means: (a) Liens (if any) granted to the Lender for
the benefit of the Lender to secure Borrower's Obligation hereunder or the
obligations of an REO Affiliate under its Guaranty in favor of Lender; (b)
Liens described on Exhibit C attached hereto; (c) pledges or deposits made to
secure payment of Worker's Compensation (or to participate in any fund in
connection with Worker's Compensation), unemployment insurance, pensions or
social security programs; (d) Liens imposed by mandatory provisions of law such
as for materialmen's, mechanics, warehousemen's and other like Liens arising in
the ordinary course of business, securing Indebtedness whose payment is not yet
due; (e) Liens for taxes, assessments and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or property, if
the same are not yet due and payable, if the same are being contested in good
faith and as to which adequate reserves have been provided or if the same are
otherwise permitted by Section 7.03 hereunder; (f) good faith deposits in
connection with tenders, leases, real estate bids or contracts (other than
contracts involving the Advance of money), pledges or deposits to secure public
or
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statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal
or customs bonds and deposits to secure the payment of taxes, assessments,
customs duties or other similar charges; (g) encumbrances consisting of zoning
restrictions, easements, or other restrictions on the use of real property,
provided that such do not impair the use of such property for the uses
intended, and none of which is violated by existing or proposed structures or
land use; (h) exceptions affecting title which are shown in an attorney's title
opinion or in a Title Policy included in Borrower's files or are described with
respect to a particular Collateral Loan, Mortgaged Property or parcel of the
Underlying Real Estate in the due diligence reports; (i) Permitted Prior Liens;
or (j) any Liens securing any subordinated indebtedness of Borrower permitted
hereunder.
"PERMITTED PRIOR LIENS" means Liens upon any Asset (including any REO
Property and Underlying Real Estate) securing payment of a Collateral Loan
existing on the date the Collateral Loan was purchased by Borrower, only to the
extent that such prior Liens are disclosed by Borrower to Lender in the
Borrowing Request.
"PERSON" shall include an individual, a corporation, a joint venture,
a partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.
"PLAN" means an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or its Subsidiaries and covered by Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the Internal Revenue Code of 1954, as amended.
"PLEDGE OF ACCOUNTS" means the Security Agreement, Assignment of
Deposits and Money Market Instruments in form and substance acceptable to
Lender, executed by Borrower in favor of Lender.
"POOL COLLATERAL IMPAIRMENT EVENT" means as of any date of
calculation, with respect to any specific Asset Portfolio, the percentage
obtained by dividing (i) the outstanding principal balance of the Advance made
to acquire or finance such Asset Portfolio, including all outstanding Deferred
Interest on such Advance, by (ii) the Net Present Value of the Assets remaining
in such Asset Portfolio exceeds the Advance Percentage of such Asset Portfolio.
"POTENTIAL DEFAULT" means an event or condition which but for the
lapse of time or the giving of notice, or both, would constitute a Event of
Default.
"PROJECTED NET COLLECTIONS" means the Net Collections which Borrower
and Servicer reasonably expect to receive from an Asset Portfolio which has
been determined in a manner consistent with Borrower's and Servicer's past
practices taking into consideration Borrower's and Servicer's historical
performance in collecting assets similar to the Collateral.
"PROPERTY ACCOUNT" means the demand deposit bank account established
by a Property Manager, upon the direction of Servicer, in connection with the
operation and management of an REO Property.
"PROPERTY MANAGER" means any Person hired by Servicer to manage an REO
Property.
"PROTECTIVE ADVANCE" shall mean a payment of expenses by Borrower,
Servicer or any Property Manager which in the reasonable determination of
Borrower, Servicer or any Property Manager shall be necessary to maintain the
value of any asset securing payment of a Collateral Loan (such expenses shall
include, without limitation, Permitted Lease-Up Expenses, ad valorem taxes,
environmental assessments or inspections, environmental remediation expenses,
insurance expenses, security, deferred maintenance, litigation expenses,
expenses to enforce remedies, and payments on Permitted Liens).
"RCRA": Section 7.21(b).
"REGISTER": Section 12.14(d).
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"REGULATORY CHANGE" means the adoption of any applicable law, rule or
regulation, of any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority charged with the administration thereof.
"RELEASED ASSET" shall mean any Collateral, any REO Property or any
Mortgaged Property or other real property which after the Closing Date is sold,
transferred, reconveyed to a seller under a sale agreement or otherwise
disposed of by Borrower or an REO Affiliate (whether in the ordinary course of
business or through foreclosure, condemnation or otherwise) to an unrelated
third party or returned to a seller pursuant to and in accordance with the
related sale agreement.
"RELEASE PRICE" means, with respect to each Asset, an amount equal to
the greater of (a) the Net Sales Proceeds or Net Collection Proceeds received
by Borrower in connection with such Asset or (b) the Minimum Release Price for
such Asset.
"RENTALS" of any Person means, as of any date, the aggregate amount of
the obligations and liabilities (including future obligations and liabilities
not yet due and payable) of such Person to make payments under all leases,
subleases and similar arrangements for the use of real, personal or mixed
property, other than leases which are Capital Leases.
"REO AFFILIATES" shall mean (a) FH Properties, L.P., a Texas limited
partnership, having FH Properties of Texas, Inc., a Texas corporation, as its
sole general partner, (b) First X Realty, L.P. a Texas limited partnership,
having First X Corp., a Texas corporation, as its sole general partner, and (c)
any other entity that is controlled, directly or indirectly, by Borrower, any
Affiliate of Borrower, or any combination thereof and owns or acquires title to
any real property securing a Collateral Loan, and "REO AFFILIATE" shall mean
any one of them.
"REO NOTE" shall mean, as to each REO Property, a demand promissory
note to be delivered by the REO Affiliate which owns the REO Property in
question to Borrower that shall (a) be in a principal amount equal to
ninety-six percent (96%) of the Allocated Purchase Price of the REO Property in
question, (b) require principal and interest payments due thereunder to be paid
not less frequently than the last day of each Interest Period, (c) require
principal and interest payments to be in an amount equal to all Net Operating
Income received by such REO Affiliate with respect to the underlying REO
Property each calendar month, (d) provide that an Event of Default (as such
term is defined in this Agreement) shall constitute an event of default
thereunder permitting the acceleration of all amounts owing thereunder and (e)
in all other respects be in form and substance satisfactory to Lender.
"REO PROPERTY" shall mean any and all real property (together with any
fixtures appurtenant thereto and any improvements thereon) or interest in real
property now or hereafter owned by any REO Affiliate including (a) as of the
Effective Date of any Advance, the real property specifically described on a
Schedule attached to the related Borrowing Request and (b) in general, any real
property that has been, or shall be, (i) foreclosed upon by a seller, Borrower
or any REO Affiliate or (ii) conveyed to any REO Affiliate by a deed in lieu of
foreclosure, all of which shall be deemed to constitute proceeds of the
Collateral.
"REO PROPERTY MORTGAGE" shall mean a Mortgage, in form and substance
acceptable to Lender, pursuant to which a REO Affiliate shall grant to Borrower
a first-priority security interest in the REO Property.
"REO SECURITY DOCUMENTS" shall mean those certain mortgages or deeds
of trust, assignments of leases and rents, security agreements, and appropriate
UCC financing statements, all in form and substance satisfactory to the Lender,
as required by the Lender, for each REO Property, to be executed by each REO
Affiliate in favor of Borrower and pursuant to the terms of which, as security
for the applicable REO Note (and, at Lender's option, the Note), there shall be
(a) granted and conveyed to Borrower Liens upon each REO Property (including,
all personal property associated therewith) owned by such REO Affiliate from
time to time as is described therein and (b) assigned to Borrower all leases
and rents with respect
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thereto; as the same may be amended, renewed, modified, extended or restated
from time to time with the prior written consent of Lender.
"REPORTABLE EVENT" has the meaning assigned to that term in Title IV
of ERISA.
"SALE AGREEMENT" means any purchase and sale agreement entered into
(a) by Borrower pursuant to which Borrower acquires an Asset Portfolio or (b)
by an REO Affiliate pursuant to which the REO Affiliate acquires REO Property.
"SECURITIZATION AGENT" means Nomura Securities International, Inc.
"SECURITIZATION TRANSACTION" means the creation and issuance of
securities evidencing beneficial interests in, or secured by, one or more pools
of mortgage loans.
"SECURITY AGREEMENT" means a Security Agreement in form and substance
acceptable to Lender, as the same may be modified or amended from time to time,
whereby Borrower grants to Lender, for the benefit of Lender, a security
interest in the Collateral.
"SECURITY DOCUMENTS" means the Collateral Assignments, the Security
Agreement, the Pledge Agreements, the Lockbox Agreement, all Mortgages and all
other documents or instruments granting a Lien in favor of the Lender as
collateral for the Obligations, and all financing statements related thereto,
and all modifications, renewals or extensions thereof and any documents
executed in modification, renewal, extension or replacement thereof.
"SERVICER" shall mean FirstCity Servicing Corporation, a Texas
corporation, or any replacement therefor designated pursuant to the terms of
any Servicing Agreement and approved in writing by Lender.
"SERVICING AGREEMENT" shall mean the Servicing Agreement entered into
by Borrower, Servicer and Lender with respect to servicing the Collateral,
together with all amendments and modifications thereto.
"SETTLEMENT" means, with respect to any Collateral Loan, the
satisfaction of Borrower's claims against the respective Account Debtor in
connection with such Collateral Loan, whether pursuant to a full or discounted
payment.
"STANDARD INDUSTRY PRACTICES" means such due diligence, collateral
control and collection procedures that are customarily followed by Persons
actively engaged in the business of acquiring distressed assets in a bulk
transaction and managing and disposing of such assets, provided such due
diligence and collateral control and collection procedures shall be at least as
rigorous as Borrower and the REO Affiliates apply in managing and disposing of
their assets.
"SUBSIDIARY" means any corporation of which more than fifty percent
(50%) of the Voting Shares is owned, directly or indirectly by Borrower.
"TAXES": Section 3.08(a).
"TAX ESCROW ACCOUNT" means a non-interest bearing account established
by Borrower with Lockbox Bank into which the Tax Escrow Payments are to be
deposited.
"TAX ESCROW PAYMENTS" mean all payments made by Account Debtors
(including REO Tax Escrow Payments) for a specified purpose (such as real
estate tax payments, insurance payments, etc.) other than payments of
principal, interest, fees and other amounts owed to Borrower with respect to
the Collateral Loans and all net insurance and condemnation proceeds received
by Borrower which are not available to
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be applied to the outstanding balance under the Collateral Loan in question
but, rather, are required by the Collateral Loan Documents to be used for
purposes of repairing or rebuilding the real property in question.
"TELERATE SCREEN" means the display designated as Screen 3750 on the
Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars.
"TEMPORARY CASH INVESTMENT"means any Investment (a) in obligations of
the United States of America and agencies thereof and obligations guaranteed by
the United States of America maturing within one year from the date of
acquisition; (b) demand deposits and interest bearing time deposits evidenced
by certificates of deposit issued by NationsBank of Texas, N.A., which are
fully insured by the Federal Deposit Insurance Corporation or are issued by
commercial banks organized under the Laws of the United States of America or
any state thereof and having combined capital, surplus, and undivided profits
of not less than $100,000,000 (as shown on such Person's most recently
published statement of condition), and which certificates of deposit have one
of the two highest ratings from Moody's Investors Service, Inc., or Standard &
Poor's Rating Group; (c) commercial paper which has one of the two highest
ratings from Moody's Investors Service, Inc., or Standard & Poor's Rating
Group; (d) eurodollar investments with demand deposits and interest bearing
time deposits evidenced by financial institutions having combined capital,
surplus, and undivided profits of not less than $100,000,000 (as shown on such
Person's most recently published statement of condition), and whose
certificates of deposit have one of the two highest ratings from Moody's
Investors Service, Inc., or Standard & Poor's Rating Group, respectively, or,
if such institution does not have a commercial paper rating, a comparable bond
rating; (e) any obligations secured by a pooling of one or more of the
foregoing, including repurchase agreements with NationsBank of Texas, N.A. or
other banks which are members of the Federal Reserve System or a government
securities dealers recognized as primary dealers by the Federal Reserve; and
(f) money market funds comprised of money market instruments rated at least P-1
by Moody's Investor Service or at least A-1 by Standard & Poor's Corporation.
"TERMINATION DATE" means the earliest date on which any of the
following events occurs: (a) February 26, 1999, which date may be extended one
or more times by mutual agreement of Lender and Borrower; (b) the date that
Lender terminates Lender's commitment to lend hereunder, after the occurrence
of an Event of Default; or (c) such earlier date as may be agreed upon in
writing by Borrower and Lender.
"TITLE COMPANY" means a title company or title companies selected by
Borrower and not disapproved by Lender, together with any issuing Lender that
issues all or any part of a Title Policy.
"TITLE POLICY" means a Mortgagee or Loan Policy of Title Insurance
issued and underwritten by a Title Borrower for the benefit of (a) Lender
covering that portion of the Mortgaged Property therein described and insuring
the lien of the Mortgage which covers such portion of the Mortgaged Property,
or (b) Borrower insuring a lien on Underlying Real Estate securing an
Collateral Loan.
"TOTAL COMMITMENT": Section 2.01(a).
"UNDERLYING REAL ESTATE" means the real property, together with all
improvements thereon, which secures any of the Collateral Loans, or any one of
such parcels of real property.
"UTILIZED ADVANCES": Section 2.01(c).
"VOTING SHARES" of any corporation means shares of any class or
classes (however designated) having ordinary voting power for the election of
at least a majority of the members of the Board of Directors (or other
governing bodies) of such corporation, other than shares having such power only
by reason of the happening of a contingency.
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1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in the Note or any Loan Papers,
certificate, report or other document made or delivered pursuant to
this Agreement, unless otherwise defined in the Loan Papers or the
context therein shall otherwise require.
(b) Defined terms used herein in the singular shall
import the plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
SECTION 2
THE REVOLVING CREDIT LOANS
2.01. Revolving Loan Commitments.
(a) Subject to the terms and conditions of this
Agreement, Lender agrees to extend to Borrower from the date hereof
through the Termination Date (the "AVAILABILITY PERIOD"), a revolving
line of credit which shall not exceed at any one time outstanding the
Total Commitment; provided, however, that until such time as aggregate
outstanding Advances are greater than or equal to $20,000,000,
Advances hereunder shall be made at Lender's sole discretion.
Thereafter, Advances shall be made provided (i) the Assets being
financed with such Advance are of a type previously financed by
Borrower, or one of Borrower's Affiliates with Lender, or are of a
type approved by Lender and (ii) the cash flow projections, due
diligence reviews and other underwriting procedures used by Borrower
in connection with the Asset Portfolio being financed with such
Advance, were prepared and completed in a manner consistent with
Borrower's and Borrower's Affiliates' historical underwriting
procedures. "TOTAL COMMITMENT" means as of any date of determination
the amount of $100,000,000 less the Affiliate Loan Balance as of such
date. The amounts advanced hereunder shall constitute one general
obligation of Borrower to Lender and shall be secured by Lender's
security interests and Liens upon all of the Collateral on a pari
passu basis and by a Guaranty from each REO Affiliate.
Within the limits of this Section 2.01, and during the
Availability Period, Borrower may borrow, prepay, pursuant to Section
3.03 hereof, and reborrow under this Section 2.01. Each advance made
by Lender hereunder is herein called an "ADVANCE." Each Advance shall
be in an amount not to exceed the Maximum Advance Amount. A portion
of any Advance may be used to make loans to REO Affiliates, each such
loan to be evidenced by an REO Note, for the purpose of acquiring REO
Property included in such Asset Portfolio.
All Advances shall be used by Borrower for the purpose of
financing the acquisitions by Borrower or its REO Affiliates of Asset
Portfolios unless otherwise agreed in writing by Lender.
(b) Termination Date; Maturity Date. Lender and Borrower
may mutually agree to extend the Termination Date of the revolving
line of credit for an additional twelve- (12) month period provided,
however, that Lender shall have no obligation to extend the
Termination Date, such decision being at Lender's sole discretion,
and provided further, that any such agreement to extend shall be in
writing and signed by Lender and Borrower. Borrower must request such
an extension in writing at least ninety (90) days prior to the
Termination Date and Lender shall respond to such request within five
(5) business days of receipt thereof. In the case that Lender
notifies Borrower that the Facility will not be extended, the
Obligation shall be due and payable in full ninety days following the
Termination Date (the "MATURITY DATE").
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(c) Non-Utilization Fee. In addition to the payments
provided for in Section 3 hereof, Borrower shall pay to Lender on
August 26, 1998, a non-utilization fee in the amount of one-half of
one percent (.5%) of an amount equal to (i) $100,000,000 less (ii) the
aggregate amount of all Advances made hereunder and under the
Affiliate Loan Agreements through August 26, 1998 (the "UTILIZED
ADVANCES"), provided, however, that such non-utilization fee shall
not be due and payable in the event that either (i) the amount of the
Utilized Advances exceeds $20,000,000 or (ii) no Advance is made
hereunder.
(d) Records of Loans and Payments. Lender is hereby
authorized, but is not required, to record the date and principal
amount of each Advance and each repayment of an Advance on the
schedule attached to the Note.
2.02. Manner of Advance.
(a) Borrowing Request. Each request by Borrower to
Lender for an Advance under Section 2.01 hereof (a "BORROWING
REQUEST") shall specify, among other information, the aggregate amount
of such requested Advance, the requested date of such Advance, and the
wiring instructions pursuant to which the Advance should be disbursed.
Borrower shall furnish to Lender the Borrowing Request at least three
(3) Business Days prior to the Effective Date for such Advance (which
must be a Business Day). Any such Borrowing Request shall be in the
form attached hereto as Exhibit "D". Each requested Advance shall be
in an aggregate principal amount of at least $1,000,000 or any greater
integral multiple of $1,000.
Each Borrowing Request shall be irrevocable and binding on
Borrower and, in respect of the Advance specified in such Borrowing
Request, Borrower shall indemnify Lender against any cost, loss or
expense incurred by Lender as a result of any failure to fulfill, on
or before the date specified for such Advance, the conditions to such
Advance set forth herein.
(b) Funding. On the Effective Date of an Advance
specified in the Borrowing Request, subject to satisfaction of the
applicable conditions precedent set forth herein, Lender shall
initiate a wire or other transfer of immediately available funds in
the manner set forth in the Borrowing Request and subject to the terms
and conditions hereof. Lender may deduct from the amount of the
Advance so transferred the amount of fees and expenses to be paid to
Lender as provided for in this Agreement. If Lender chooses not to
withhold such fees and expenses from the funding amount, Borrower
shall pay the amount of such fees and expenses immediately upon
presentation of an invoice by Lender.
2.03. Interest Rate. The unpaid principal of each Advance shall
bear interest from the Effective Date of such Advance until paid at a rate per
annum which shall be equal to the lesser of (a) the Maximum Rate or (b) either
(i) for each day during which the outstanding balance of the Advances is less
than $50,000,000, the sum of the LIBOR Rate in effect from time to time, plus
two and one-half percent (2.5%) or (ii) for each day during which the
outstanding balance of the Advances is greater than or equal to $50,000,000,
the sum of the LIBOR Rate in effect from time to time, plus two and one-quarter
percent (2.25%). All past due principal of, and to the extent permitted by
applicable law, interest on, the Note shall bear interest until paid at the
lesser of (a) the Default Rate or (b) the Maximum Rate.
SECTION 3
NOTE AND NOTE PAYMENTS
3.01. Revolving Credit Note. The Advances made by Lender shall be
evidenced by a revolving credit note (the "NOTE") of Borrower, which Note shall
(a) be dated the date hereof, (b) be in an amount equal to $100,000,000, (c) be
payable to the order of Lender at the office of Lender, (d) bear interest in
accordance
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with Section 2.03 hereof, and (e) be in the form of Exhibit "A" attached hereto
with blanks appropriately completed in conformity herewith. Notwithstanding
the principal amount of the Note as stated on the face thereof, the amount of
principal actually owing on the Note at any given time shall be the aggregate
of all Advances theretofore made to Borrower hereunder, less all payments of
principal theretofore actually received hereunder, by Lender. Lender is
authorized, but is not required, to endorse on the schedule attached to the
Note appropriate notations evidencing the date and amount of each Advance as
well as the amount of each payment made by Borrower hereunder.
3.02. Principal Payments. The unpaid principal amount of the Note
shall be due and payable from distributions of Net Collections and Excess Cash
Flow, as set forth in Section 3.06 herein. All unpaid principal, together with
accrued-but-unpaid interest on the Note, shall be due and payable in full on
the Maturity Date notwithstanding the amount of Net Collections and Excess Cash
Flow collected and distributed theretofore.
3.03. Prepayments.
(a) Optional Prepayments. Borrower may, without premium
or penalty, upon three (3) Business Days prior written notice to
Lender, prepay the principal of the Note then outstanding, in whole or
in part, at any time or from time to time; provided, however, that
each prepayment of less than the full outstanding principal balance of
the Note shall be in an amount not less than $1,000,000 or an integral
multiple thereof.
(b) Mandatory Prepayments Upon the Occurrence of
Collateral Impairment Event. Upon the occurrence of a Collateral
Impairment Event, Borrower shall immediately pay to Lender, as a
prepayment on the Note, an amount such that, after giving effect to
such payment, the Advance Ratio exceeds the NPV Ratio.
(c) Mandatory Prepayments from Net Collections. In
addition to the foregoing, Borrower shall make payments on the
outstanding principal balance of the Note from distributions of Net
Collections and Excess Cash Flow, required by Sections 3.06(b) and
3.06(c) hereunder.
(d) General Prepayment Provisions. Any prepayment of the
Note hereunder shall be (i) made together with interest accrued
(through the date of such prepayment) on the principal amount prepaid,
and (ii) applied first to accrued interest and then to principal.
3.04. Interest Payments Interest on the unpaid principal amount of
each Advance shall be payable monthly as it accrues on the tenth (10th) day of
each month hereafter, commencing March 10, 1998, and at the Maturity Date (each
such date an "INTEREST PAYMENT DATE"). Interest payable on each Interest
Payment Date shall be all interest accrued and unpaid through the last day of
the month preceding the Interest Payment Date. In the event that the amount of
accrued and unpaid interest on the Loan payable on any Interest Payment Date
exceeds the Net Collections available on such Interest Payment Date, payment of
such excess amount of interest (the "DEFERRED INTEREST") may be deferred for a
period of up to three months provided, however, that the outstanding principal
balance of the Loan plus the amount of Deferred Interest shall never exceed the
Total Commitment and, provided further, that the Deferred Interest shall not be
permitted if, after giving effect to such Deferred Interest, a Collateral
Impairment Event exists. All such Deferred Interest shall bear interest at the
rate provided for herein, to the extent permitted by applicable law, and shall
not be deemed past-due until the Interest Payment Date three months following
the Interest Payment Date such Deferred Interest was originally due.
3.05. Calculation of Interest Rates. Interest on the unpaid
principal outstanding under the Note shall be calculated on the basis of the
actual days elapsed in a year consisting of 360 days.
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3.06. Lockbox Account; Distributions of Net Collections;
Distributions of Excess Cash Flow.
(a) Lockbox Account. All Net Collections shall be
directed to and deposited into the Lockbox Account and shall be
accounted for and tracked on an Asset Portfolio basis. Any payments
or other proceeds of Collateral received by Borrower shall be deemed
received by Borrower in trust for the owner or beneficiary of the
Lockbox Account and shall be forthwith deposited by Borrower,
immediately upon receipt, into the Lockbox Account in the form
received, duly endorsed by Borrower for deposit into the Lockbox
Account.
(b) Distributions of Net Collections. On each Interest
Payment Date, the Net Collections with respect to an Asset Portfolio
will be withdrawn from the Lockbox Account and applied in the
following priorities:
(i) First, (A) to transfer out of the Lockbox
Account any funds that do not constitute Net Collections and
that were erroneously deposited to the Lockbox Account and (B)
to transfer any Tax Escrow Payments related to such Asset
Portfolio received from Account Debtors to the appropriate Tax
Escrow Account in an amount requested by the Servicer, which
amount shall represent the total amount of Tax Escrow Payments
related to such Asset Portfolio paid into the Lockbox Account
prior to such Interest Payment Date to the extent not
previously deposited in the Tax Escrow Account;
(ii) Second, to the payment to Lender of all
accrued and unpaid interest on the Advance made to acquire
such Asset Portfolio;
(iii) Third, to the payment to Lender of any
Deferred Interest existing as of such Interest Payment Date,
including any Deferred Interest arising after giving effect to
distributions of Net Collections attributable to all Asset
Portfolios on such Interest Payment Date;
(iv) Fourth, to the payment of any fees and
expenses then due and payable to Lender under this Agreement
or any of the other Loan Papers, and to payment of fees and
expenses due to the Lockbox Bank and the Collateral Custodian;
(v) Fifth, to the payment to the Servicer of any
servicing fees then due to the Servicer with respect to such
Asset Portfolio pursuant to the terms of the Servicing
Agreement;
(vi) Sixth, to the payment of any Protective
Advances made by Borrower, or Servicer with respect to such
Asset Portfolio, provided such payment is not otherwise
prohibited hereunder or subject to Lender's approval;
(vii) Seventh, unless such payment is prohibited
hereunder, to the payment to NationsBank of Texas, N.A., for
deposit into the Operating Reserve Account maintained for such
Asset Portfolio, of such amount as may be requested by
Borrower in connection with such Asset Portfolio, provided
such payment shall not exceed (A) three percent (3%) of the
Net Purchase Price of such Asset Portfolio until expense
budgets for such Asset Portfolio are agreed upon by Borrower
and Lender and (B) thereafter, the budgeted expenses for such
Asset Portfolio; and
(viii) Eighth, the balance to be paid to Lender, to
be applied as principal payments on the Loan, provided
however, that if, on such Interest Payment Date, no Pool
Collateral Impairment Event exists, then such portion of the
balance shall be paid to Lender until the NPV Ratio for such
Asset Portfolio, is less than seventy percent (70%).
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(c) Distributions of Excess Cash Flow. Any Net
Collections with respect to an Asset Portfolio remaining after making
all of the foregoing disbursements shall constitute "EXCESS CASH FLOW"
and shall be distributed on each Interest Payment Date as follows:
(i) First, to the payment to Lender, (as a
principal payment) in an amount equal to the greater of: (A)
seventy percent (70%) of Excess Cash Flow; and (B) the product
of multiplying (1) the Excess Cash Flow and (2) a percentage
obtained by adding (a) the NPV Ratio calculated for such Asset
Portfolio, and (b) ten percent (10%); and
(ii) Second, provided no Event of Default,
Potential Default or Collateral Impairment Event has occurred
and is continuing, to Borrower in the amount of the remaining
balance of Excess Cash Flow with such distribution limited
such that the NPV Ratio will not be higher than the ratio
existing after the prior month's distributions.
Notwithstanding the foregoing, if an Event of Default or a material Potential
Default shall have occurred and be continuing, or if a Collateral Impairment
Event exists, all Net Collections shall be distributed as Lender shall direct,
and Lender shall be entitled to withdraw and apply all Net Collections and all
amounts on deposit in the Lockbox Account, the Operating Reserve Account and
the Property Accounts to pay down amounts outstanding hereunder and under the
Note.
3.07. Manner and Application of Payments. All payments of principal
of, and interest on, the Note to or for the account of Lender shall be made by
Borrower to Lender before 12:00 noon (New York Time), by wire transfer in
Federal or other immediately available funds at Lender's principal lending
office in New York. Should the principal of, or any installment of the
principal or interest on, the Note, or any Non-Utilization Fee, become due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day and interest shall be payable with
respect to such extension. All payments made on the Note shall be credited, to
the extent to the amount thereof, in the following manner: (a) first, against
the amount of interest accrued and unpaid on the Note as of the date of such
payment; and (b) second, as a prepayment of outstanding Advances under the
Note.
3.08. Taxes.
(a) Any and all payments by Borrower hereunder or under
the Note shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto (hereinafter
referred to as "TAXES"), excluding, in the case of Lender, taxes
imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which Lender is organized or is or
should be qualified to do business or any political subdivision
thereof and, in the case of Lender, taxes imposed on its income, and
franchise taxes imposed on it by the jurisdiction of Lender's lending
office or any political subdivision thereof. If Borrower shall be
required by law to deduct any taxes (i.e., such taxes, liens, imposts,
deductions, charges, withholdings and liabilities for which Borrower
is responsible under the preceding sentence) from or in respect of any
sum payable hereunder or under the Note to Lender, (i) the sum payable
shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional
sums payable under this Section 3.08), Lender receives an amount equal
to the sum it would have received had no such deductions been made,
(ii) Borrower shall make such deductions and (iii) Borrower shall pay
the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made
hereunder or under the Loan Papers or from the execution, delivery or
registration of, or
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otherwise with respect to, this Agreement or the other Loan Papers
(hereinafter referred to as "OTHER TAXES").
(c) Borrower will indemnify Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.08) paid by Lender or any liability (including penalties and
interest) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. This
indemnification shall be made within 30 days from the date Lender
makes written demand therefor.
(d) Within 30 days after the date of any payment of
Taxes, Borrower will furnish to Lender, at its address referred to
herein, the original or a certified copy of a receipt evidencing
payment thereof.
(e) Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section 3.08 shall survive the payment in
full of principal and interest hereunder and under the other Loan
Papers.
3.09. Reserve Funds. Borrower shall establish an account with the
Lockbox Bank (the "OPERATING RESERVE ACCOUNT") to deposit cash available for
distribution under Section 3.06(b)(vii) for the sole purposes of (a) making
Protective Advances, (b) funding property improvement expenses and (c) funding
Permitted Lease-Up Expenses with respect to REO Property. The Operating
Reserve Account will be established for Borrower and pledged to Lender pursuant
to a Security Agreement, Assignment of Deposits and Money Market Instruments in
form and substance acceptable to Lender (the "PLEDGE OF ACCOUNTS").
SECTION 4
SPECIAL PROVISIONS FOR LIBOR RATE ADVANCES
4.01. Inadequacy of LIBOR Rate Loan Pricing. If with respect to any
LIBOR Rate Advance, Lender determines that, by reason of circumstances
affecting the interbank eurodollar market generally, deposits in Dollars (in
the applicable amounts) are not being offered to Lender in the interbank
eurodollar market then Lender shall forthwith give notice thereof to Borrower,
whereupon until Lender notifies Borrower that the circumstances giving rise to
such suspension no longer exist, (a) the obligation of Lender to make LIBOR
Rate Advances shall be suspended and (b) Borrower shall either (i) repay in
full the then-outstanding principal amount of the LIBOR Rate Advances, together
with accrued interest thereon, or (ii) convert such LIBOR Rate Advances to
Advances bearing a comparable alternative interest rate as reasonably
determined by Lender (the "ALTERNATIVE RATE ADVANCES").
4.02. Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Lender with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for Lender to make,
maintain or fund LIBOR Rate Advances, and Lender is so notified, Lender shall
give notice thereof to Borrower. Upon receipt of such notice, Borrower shall
immediately either (a) repay in full the then outstanding principal amount of
the LIBOR Rate Advances, together with accrued interest thereon, or (b) convert
such LIBOR Rate Advances to Alternative Rate Advances.
4.03. Duration of Alternative Rate Advances. If notice has been
given pursuant to Section 4.02 requiring the LIBOR Rate Advances to be repaid
or converted, then unless and until Lender notifies Borrower that the
circumstances giving rise to such repayment no longer apply, all Advances shall
be
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Alternative Rate Advances. If Lender notifies Borrower that the circumstances
giving rise to such repayment no longer apply, Borrower may thereafter select
Advances to be LIBOR Rate Advances in accordance with Section 2.03 of this
Agreement.
4.04. Increased Costs. If any Governmental Authority, central bank
or other comparable authority, shall at any time impose, modify or deem
applicable any requirement or any other condition affecting Lender's Advances
hereunder, the Note or its obligation to make LIBOR Rate Advances, and the
result of any of the foregoing is to increase the cost to Lender of making or
maintaining its LIBOR Rate Advances, or to reduce the amount of any sum
received or receivable by Lender under this Agreement, or under the Note, by an
amount deemed by Lender to be material, then, within five (5) days after demand
by Lender, Borrower shall pay to Lender such additional amount or amounts as
will compensate Lender for such increased cost or reduction. Lender will
promptly notify Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle Lender to compensation pursuant to
this Section 4. A certificate of Lender claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of manifest error. If Lender
demands compensation under this Section, then Borrower may at any time upon
notice to Lender, either (i) repay in full the then outstanding LIBOR Rate
Advances, together with accrued interest thereon to the date of prepayment or
(ii) convert such LIBOR Rate Advances to Alternative Rate Advances in
accordance with the provisions of this Loan Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans hereunder, Borrower represents and
warrants to Lender that:
5.01. Organization and Good Standing. Borrower (i) is a limited
partnership duly organized and validly existing under the laws of the State of
Texas, (ii) has duly qualified and is authorized to do business and is in good
standing in all states and jurisdictions where the character of its assets or
the nature of its activities make such qualification necessary where the
failure to qualify could have a Material Adverse Effect, (iii) has the power
and authority to own its properties and assets and to transact the business in
which it is engaged, (iv) is or will be qualified in those states wherein it
proposes to transact business in the future where the failure to qualify could
have a Material Adverse Effect, and (v) has not been known as or used any
corporate, fictitious or trade names in the past.. Each REO Affiliate (i) is a
limited partnership duly organized and validly existing under the laws of the
State of Texas, (ii) has duly qualified and is authorized to do business and is
in good standing in all states and jurisdictions where the character of its
assets or the nature of its activities make such qualification necessary where
the failure to qualify could have a Material Adverse Effect, (iii) has the
power and authority to own its properties and assets and to transact the
business in which it is engaged, (iv) is or will be qualified in those states
wherein it proposes to transact business in the future where the failure to
qualify could have a Material Adverse Effect, and (v) has not been known as or
used any corporate, fictitious or trade names in the past. The chief executive
office and principal place of business of the Borrower and each REO Affiliate
is at the address identified as Borrower's address in Section 12.05.
5.02. Authorization and Power. Borrower, Servicer and each REO
Affiliate have the power and requisite authority to execute, deliver and
perform this Agreement, the Note and the other Loan Papers to which they are a
party; Borrower, Servicer and each REO Affiliate are duly authorized to and all
necessary action has been taken to authorize Borrower, Servicer and each REO
Affiliate to execute, deliver and perform such Loan Papers and such Persons are
and will continue to be duly authorized to perform this Agreement, the Note and
such other Loan Papers to which they are a party.
5.03. No Conflicts or Consents. Neither the execution and delivery
of this Agreement, the Note or the other Loan Papers, nor the consummation of
any of the transactions herein or therein contemplated,
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nor compliance with the terms and provisions hereof or with the terms and
provisions thereof, will contravene or materially conflict with any provision
of law, statute or regulation to which Borrower or any REO Affiliate is subject
or any judgment, license, order or permit applicable to Borrower or any REO
Affiliate, or any indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument to which Borrower or any REO Affiliate is a party or by
which Borrower or any REO Affiliate may be bound, or to which Borrower or any
REO Affiliate may be subject, or violate any provision of the partnership
agreement of Borrower or any REO Affiliate. No consent, approval,
authorization or order of any court or Governmental Authority or third party is
required in connection with the execution and delivery by Borrower or any REO
Affiliate of the Loan Papers to which it is a party or to consummate the
transactions contemplated hereby or thereby.
5.04. Enforceable Obligations. This Agreement, the Note and the
other Loan Papers are the legal and binding obligations of Borrower and each
REO Affiliate, as applicable, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights and general equity
principles.
5.05. No Liens. Except for Permitted Liens, all of the properties
and assets of Borrower and each REO Affiliate are free and clear of all
mortgages, liens, encumbrances and other adverse claims of any nature and
Borrower and each REO Affiliate have and will have good and indefeasible title
to their respective properties and assets.
5.06. Financial Condition. Borrower has delivered to Lender copies
of the most recent consolidated balance sheet of Borrower, if any, and the
related consolidated statements of income, stockholders' equity and changes in
financial position for the year ended on such date, certified by KPMG Peat
Marwick LLP, independent certified public accountants; such financial
statements are true and correct, fairly present the financial condition of
Borrower as of such date and have been prepared in accordance with Generally
Accepted Accounting Principles applied on a basis consistent with that of prior
periods; as of the date hereof, there are no obligations, liabilities or
indebtedness (including contingent and indirect liabilities and obligations or
unusual forward or long-term commitments) of Borrower which are (separately or
in the aggregate) material and are not reflected in such financial statements;
no changes having a Material Adverse Effect have occurred in the financial
condition or business of Borrower since December 31, 1997.
5.07. Full Disclosure. There is no material fact that Borrower has
not disclosed to Lender which could have a Material Adverse Effect on the
properties, business, prospects or condition (financial or otherwise) of
Borrower, Servicer or each REO Affiliate. Neither the financial statements
referred in Section 5.06 hereof, nor any certificate or statement delivered
herewith or heretofore by Borrower to Lender in connection with negotiations of
this Agreement, nor any statements, reports or other documents or information
delivered to Lender pursuant to this Agreement, the Loan Papers or the
Servicing Agreement, contains any untrue statement of a material fact or omits
to state any material fact necessary to keep the statements contained herein or
therein from being misleading, inaccurate, incomplete or incorrect.
5.08. No Default; Potential Default. No event has occurred and is
continuing which constitutes an Event of Default or Potential Default.
5.09. Material Agreements. Schedule 5.09 attached hereto contains a
list of all material agreements (including without limitation all agreements
which, if breached, could directly or indirectly result in a Material Adverse
Effect but excluding the Loan Papers) of Borrower and each REO Affiliate.
Neither Borrower nor any REO Affiliate is in default in any material respect
under any loan agreement, indenture, mortgage, security agreement or other
material agreement or obligation to which it is a party or by which any of its
properties is bound.
5.10. No Litigation. Except as described on Schedule 5.10, there
are no actions, suits or legal, equitable, arbitration or administrative
proceedings pending, or to the knowledge of Borrower threatened,
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against Borrower or any REO Affiliate or any of their respective assets that
would, if adversely determined, have a Material Adverse Effect.
5.11. Burdensome Contracts. Neither Borrower nor any Subsidiary is
a party to, or bound by, any contract which has a Material Adverse Effect on
the business, operations or financial condition of Borrower or any Subsidiary.
5.12. Taxes. All tax returns required to be filed by Borrower and
each REO Affiliate in any jurisdiction have been filed and all taxes (including
mortgage recording taxes), assessments, fees and other governmental charges
upon Borrower or any REO Affiliate or upon any of their properties, income or
franchises have been paid prior to the time that such taxes could give rise to
a lien thereon, except for Permitted Liens. There is no proposed tax
assessment against Borrower or any REO Affiliate and there is no basis for such
assessment.
5.13. Principal Office, Etc. The principal office, chief executive
office and principal place of business of Borrower is at 6400 Imperial Drive,
P.O. Box 8216, Waco, Texas, 76714-8216. Borrower maintains its principal
records and books at such address.
5.14. ERISA. No Plan exists.
5.15. Compliance with Law. Each of Borrower, Servicer and each REO
Affiliate has duly complied with, and its assets, business operations and
leaseholds are in compliance in all material respects with, the provisions of
all federal, state and local laws, rules, regulations and orders (including,
without limitation, Applicable Environmental Laws) applicable to Borrower,
Servicer or any REO Affiliate, as the case may be, and their respective assets
or the conduct of their respective businesses and they each possess all
required licenses, permits, authorizations and approvals for the conduct of
their business, the ownership of their properties and their execution, delivery
and performance of the Loan Papers. Neither Borrower nor any of the REO
Property or the Underlying Real Estate is in material violation of any
Applicable Environmental Law or subject to any existing, pending or overtly
threatened investigation by any Governmental Authority under any Applicable
Environmental Law. To the best knowledge of Borrower, no Hazardous Substance
(a) has been disposed of or released on any of REO Property or the Underlying
Real Estate or (b) is located thereon. No REO Property, Underlying Real Estate
or any property adjoining any REO Property or Underlying Real Estate is being
used, or, to Borrower's best knowledge, has been used at any time, for the
generation, disposal, storage, treatment, processing or other handling of any
Hazardous Substance, and no environmental permits are required for the
operation of the businesses or other activities being conducted on any REO
Property or Underlying Real Estate. The foregoing provisions of this Section
5.15 are subject to the following qualifications: (a) the use by the owners of
any Underlying Real Estate of limited quantities of Hazardous Substances in the
ordinary conduct of their business and in accordance with industry customs and
all Applicable Environmental Laws shall not be a breach of the representations
of this Section 5.15 and (b) such representations are subject to the exception
of (i) with respect to Borrower, all matters disclosed to Lender in writing
before the date of this Agreement and (ii) with respect to any Assets, all
matters disclosed to Lender in writing before the date of acquisition of such
Asset.
5.16. Government Regulation. Borrower is not subject to regulation
under the Public Utility Holding Borrower Act of 1935, the Federal Power Act,
the Investment Borrower Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other law (other than Regulation X)
which regulates the incurring by Borrower of Indebtedness, including but not
limited to laws relating to common contract carriers or the sale of
electricity, gas, steam, water, or other public utility services.
5.17. No Subsidiaries. Borrower has not formed or acquired any
Subsidiary.
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5.18. Solvency. As of the date hereof, and after giving effect to
each transaction contemplated in a Borrowing Request, (a) the aggregate fair
market value of Borrower's assets exceed, and will exceed, its liabilities
(whether contingent, subordinated, unmatured, unliquidated, or otherwise), (b)
Borrower has, and will have, sufficient cash flow to enable it to pay its debts
as they mature, and (c) Borrower has, and will have, a reasonable amount of
capital to conduct its business as presently contemplated.
5.19. Ownership of Borrower, Servicer and REO Affiliate. FirstCity
Commercial Corporation, a Delaware corporation formerly known as J-Hawk
Corporation ("FCCC") owns a 98% limited partnership interest in Borrower and
First X Realty, L.P. FH Asset Corp. ("FH CORP") owns a 2% general partnership
interest in Borrower. FCCC and Servicer are each wholly-owned subsidiaries of
FirstCity Financial Corporation, a Delaware corporation ("FCFC"). Borrower
owns or will own a 98% limited partnership interest in FH Properties, L.P. FH
Properties of Texas, Inc., a Texas corporation ("FH TEXAS"), owns a 2% general
partnership interest in FH Properties, L.P. First X Corp., a Texas corporation
("FIRST X CORP; FH Corp, FH Texas and First X Corp being each a "GENERAL
PARTNER"), owns a 2% general partnership interest in First X Realty, L.P.
Each General Partner is a wholly owned subsidiary of FCCC.
5.20. Service of Process. Borrower has appointed CT Corporation
System to be its agent for service of process in New York and CT Corporation
System has accepted such appointment.
5.21. Representations and Warranties. Each Borrowing Request shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrower that no Event of Default
exists and that all representations and warranties contained in this Section 5
or in any other Loan Paper are true and correct at and as of the date of such
Borrowing Request and as of the date the Advance is to be made.
5.22. Survival of Representations, Etc. All representations and
warranties by Borrower herein shall survive delivery of the Note and the making
of the Loans, and any investigation at any time made by Lender shall not
diminish Lender's right to rely on such representations and warranties.
SECTION 6
CONDITIONS PRECEDENT
6.01. Initial Advances. The obligation of Lender to make its
initial Advance hereunder is subject to the condition precedent that, on or
before the date of such Advance, Lender shall have received the following, each
dated as of the date of such Advance, in form and substance satisfactory to
Lender:
(a) Revolving Credit Note; Loan Papers. A duly executed
Note, drawn to the order of Lender, in the form of Exhibit "A"
attached hereto with appropriate insertions, together with the other
Loan Papers, duly executed and delivered by the parties thereto and,
where applicable, duly acknowledged and in recordable form;
(b) Opinion of Counsel. The favorable, written opinions
of (i) counsel to Borrower, each General Partner, each REO Affiliate
and the Servicer regarding Borrower, each General Partner, each REO
Affiliate, the Servicer, the Loan Papers and the transactions
contemplated by the Loan Papers; (ii) counsel satisfactory to Lender
qualified in such jurisdiction(s) as Lender deems appropriate to the
effect that Lender's security interest in the Collateral Loans
acquired with the proceeds of the initial Advance is perfected by
possession of the notes held by Lender or the Collateral Custodian and
that the recording of an assignment of mortgage is not necessary to
perfect such security interest; and (iii) such other opinions as
Lender may reasonably request;
(c) Officer's Certificate. A certificate signed by a
duly authorized officer of FH Corp on behalf of the Borrower, in form
and substance reasonably satisfactory to Lender stating that (to the
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best knowledge and belief of such officer, after reasonable and due
investigation and review of matters pertinent to the subject matter of
such certificate): (i) all of the representations and warranties
contained in Section 5 hereof, and the other Loan Papers are true and
correct as of the Effective Date of such Advance; and (ii) no event
has occurred and is continuing, or would result from the Advance,
which constitutes an Event of Default or Potential Default;
(d) Organizational Documents. True, correct and complete
copies of the following in form and substance reasonably satisfactory
to Lender: the partnership certificates of Borrower and each REO
Affiliate; a copy of the partnership agreements of Borrower and each
REO Affiliate; articles of incorporation and bylaws of each General
Partner; all such documents to be certified as of the Closing Date by
the appropriate general partner or corporate officer, as applicable,
together with appropriate partnership and corporate resolutions on
behalf of the partners of Borrower and each REO Affiliate and the
boards of directors of the General partners; and certificates of
existence and good standing from the Secretary of State of the State
of Texas or Delaware, as applicable, relating to the continuing
existence of Borrower, any such REO Affiliate and the General Partner;
(e) Resolutions of General Partners. Resolutions of each
General Partner approving the execution, delivery and performance of
this Agreement, the Note, and the other Loan Papers and the
transactions contemplated herein and therein, on behalf of Borrower
and each REO Affiliate, as applicable, duly adopted by such General
Partner's board of directors and accompanied by a certificate of the
secretary of each such General Partner that such resolutions are true
and correct, have not been altered or repealed and are in full force
and effect all in form and substance reasonably satisfactory to
Lender;
(f) Incumbency Certificate. A signed certificate of the
secretary of each General Partner which shall certify the names of the
officers of Borrower and each REO Affiliate, as applicable, authorized
to sign each of the Loan Papers and the other documents or
certificates to be delivered pursuant to the Loan Papers by Borrower
or any REO Affiliate, together with the true signatures of each such
officer. Lender may conclusively rely on such certificate until it
shall receive a further certificate of the secretary of any General
Partner canceling or amending the prior certificate and submitting the
signatures of the officers named in such further certificate;
(g) Certificates. Certificates of existence and good
standing for Borrower, each General Partner and each REO Affiliate,
issued by the Texas Secretary of State, and certificates of
qualification and good standing (or other similar instruments) for
Borrower, each General Partner and each REO Affiliate, issued by the
Secretary of State of each State wherein Borrower, each General
Partner and each REO Affiliate, as applicable, is qualified to do
business as a foreign corporation, each dated within ten (10) days of
the initial Advance;
(h) Recordable Documents. UCC financing statements and
other filings or recordings required by Lender;
(i) Lien Searches. Current lien searches evidencing that
the liens of Lender, upon the Collateral are first and prior Liens,
subject only to Permitted Liens;
(j) Insurance. If available, evidence of insurance and
loss payee endorsements required hereunder or other Loan Papers and
certificates or binders of insurance policies evidencing the
insurance required by Section 9.04 hereof and/or endorsements naming
Lender as loss payee, all at Borrower's cost and expense;
(k) Additional Information. Such other information and
documents as may reasonably be required by Lender and Lender's
counsel.
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6.02. All Advances. The obligation of Lender to make any Advance
under this Agreement to acquire an Asset Portfolio (including the initial
Advance) shall be subject to the following additional conditions precedent:
(a) No Defaults; No Potential Defaults; No Collateral
Impairment Event; Maximum Advance Amount. As of the date of the
making of such Advance there exists no Potential Default, Event of
Default or Collateral Impairment Event, and the Advance does not
exceed the Maximum Advance Amount;
(b) Compliance with Loan Agreement. Borrower, each REO
Affiliate and Servicer shall have performed and complied with all
agreements and conditions contained herein or in any Loan Paper which
are required to be performed or complied with by Borrower, each REO
Affiliate or Servicer before or at the date of such Advance;
(c) No Material Adverse Effect. As of the Effective Date
of such Advance, no Material Adverse Effect has occurred in the
business or financial condition of Borrower or Servicer;
(d) Borrowing Request. In the case of any Advance,
Lender shall have received from FH Corp, a Borrowing Request three (3)
Business Days prior to the Effective Date of such Advance, signed by
an Authorized Officer of FH Corp, all of the statements of which shall
be true and correct, certifying that, as of the date thereof, (i) the
amount of the requested Advance does not exceed the Maximum Advance
Amount for the Asset Portfolio to be acquired with the proceeds of
such Advance, (ii) all of the representations and warranties of
Borrower and Servicer contained in this Agreement and each of the Loan
Papers (including all computations of Net Present Values based on the
Projected Net Collections figures set forth on the most recent Asset
Portfolio Report delivered to Lender) executed by Borrower are true
and correct, (iii) no event has occurred and is continuing, or would
result from the Advance, which constitutes an Event of Default or
Potential Default, (iv) no Collateral Impairment Event has occurred
and is continuing, nor will the Advance result in a Collateral
Impairment Event or Pool Collateral Impairment Event, (v) the purchase
of the Assets included in the Asset Portfolio being financed with the
Advance was underwritten by Borrower in accordance with its
established underwriting requirements, (vi) the Assets included in the
Asset Portfolio being financed with the Advance are of a type
previously financed by Borrower, or an Affiliate of Borrower, with
Lender or, if not, are assets which have been specifically approved by
Lender for inclusion in the Asset Portfolio and (vii) such other facts
as Lender may reasonably request;
(e) Representations and Warranties. The representations
and warranties contained in Section 5 hereof shall be true in all
respects on the date hereof, on the date of each Borrowing Request and
on the date of making of such Advance, with the same force and effect
as though made on and as of such dates;
(f) Bankruptcy Proceedings. No proceeding or case under
the United States Bankruptcy Code shall have been commenced by or
against Borrower or any REO Affiliate;
(g) Collateral. With respect to the Asset Portfolio to
be acquired with such Advance, Lender or the Collateral Custodian
shall have confirmation of the existence and possession by Borrower of
each note evidencing a Collateral Loan (or in the case of a lost note,
a "LOST NOTE AFFIDAVIT" (herein so called) provided to Borrower
pursuant to the terms of a Sale Agreement by the sellers), it being
understood that Borrower shall deliver to Lender or the Collateral
Custodian, (i) within one Business Day of the Effective Date related
to such Asset Portfolio, (A) the originally executed REO Notes and
promissory notes evidencing each of the Account Debtor's obligations
to repay the Collateral Loans, endorsed in blank by Allonge, or on the
face of the notes themselves, as such notes may have been amended,
supplemented or otherwise modified as of the date of delivery
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or (B) Lost Note Affidavits, if appropriate, (ii) within fourteen (14)
days after the Effective Date related to such Asset Portfolio, fully
and originally executed copies of Collateral Assignments of the
Collateral Loan Documents, and (iii) within twenty-one (21) days after
the Effective Date related to such Asset Portfolio, fully and
originally executed copies of all other Collateral Loan Documents
related to such Asset Portfolio, all of the statements set forth in
any Borrowing Request are true and correct as of the date the same is
received by Lender and as of the date of Advance;
(h) Equity Investments/Subordinated Loan. Lender shall
have received evidence that, upon the funding of the Advance
requested, the Equity Contribution, if applicable, shall have been
paid in full (as a result of equity investments in Borrower). At the
sole discretion of Lender, the equity investment related to the
acquisition of an Asset Portfolio may be funded, in whole or in part,
by additional Indebtedness of Borrower or an Affiliate of Borrower,
subordinated in right of payment to the payment of the Obligation
pursuant to a subordination agreement executed in favor of Lender, and
in form and substance acceptable to Lender in its sole discretion;
(i) Consents. All consents, waivers, acknowledgments,
releases, terminations, and other agreements and documents from third
persons which Lender may reasonably deem necessary or desirable in
order to permit, protect and perfect its security interest in and
liens upon the Assets being acquired or to effectuate the provisions
or purposes of this Agreement and the other Loan Papers, including,
without limitation, all bailee notifications and acknowledgments of
security interests, shall have been properly received;
(j) Due Diligence Reports. Lender or the Collateral
Custodian shall have received with respect to each Asset being
acquired by Borrower with the proceeds of the Advance, copies of the
Due Diligence Reports and any additional information, report or
documentation that may be reasonably requested by Lender or its
counsel.
(k) Purchase Documentation. Unless the Asset Portfolio
being financed with the Advance is an Owned Asset Portfolio, Lender
shall have received certified copies of all documentation related to
Borrower's acquisition of the Asset Portfolio (including the Sale
Agreement, any assignments to Borrower related thereto and the related
closing statement) and the REO Affiliate's acquisition of title to REO
Property together with evidence that all such documents (including the
applicable Sale Agreement) have been duly authorized, executed and
delivered by the parties thereto, provided that to the extent any such
documents are being executed and delivered on the Effective Date,
Borrower shall deliver forms of all such documents on or prior to the
Effective Date with the original documents to be delivered within
three Business Days following the Effective Date; and
(l) Security Documents. Lender shall have received such
additional Security Documents as Lender may reasonably require to
ensure that Lender receives valid liens in all of the Assets in such
Asset Portfolio.
SECTION 7
AFFIRMATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Note and the performance of the Obligation,
Borrower agrees that (unless Lender shall otherwise consent in writing):
7.01. Financial Statements, Reports and Documents. Borrower shall
deliver, or as appropriate shall ensure Servicer delivers, to Lender each of
the following:
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(a) Quarterly Statements. As soon as available, and in
any event within forty-five (45) days after the end of each quarterly
fiscal period of each fiscal year of Borrower, copies of the balance
sheet of Borrower (reflecting REO Property as inventory), as of the
end of such fiscal period, and statements of income and retained
earnings and changes in financial position of Borrower for that
quarterly fiscal period and for the portion of the Fiscal Year ending
with such period, in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year, all
in reasonable detail, and certified by the chief financial officer of
FH Corp as being true and correct and as having been prepared in
accordance with Generally Accepted Accounting Principles, subject to
year-end audit and adjustments;
(b) Annual Statements. As soon as available and in any
event within one-hundred and twenty (120) days after the close of each
fiscal year of Borrower, copies of the balance sheet of Borrower
(reflecting REO Property as inventory) as of the close of such fiscal
year and statements of income and retained earnings and changes in
financial position of Borrower for such fiscal year, in each case
setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an opinion thereon
(which shall not be qualified by reason of any limitation imposed by
Borrower) of KPMG Peat Marwick LLP, or of other independent public
accountants of recognized national standing selected by Borrower and
satisfactory to Lender, to the effect that such financial statements
have been prepared in accordance with Generally Accepted Accounting
Principles consistently maintained and applied (except for changes in
which such accountants concur) and that the examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances. A Compliance Letter signed by such accountants shall
accompany each such opinion;
(c) Audit Reports. Promptly upon receipt thereof, one
copy of each written report submitted to Borrower by independent
accountants in any annual, quarterly or special audit made, it being
understood and agreed that all audit reports which are furnished to
Lender pursuant to this Section 7.01 shall be treated as confidential,
but nothing herein contained shall limit or impair Lender's right to
disclose such reports to any appropriate Governmental Authority or to
use such information to the extent pertinent to an evaluation of the
Obligation or to enforce compliance with the terms and conditions of
this Agreement, or to take any lawful action which Lender deems
necessary to protect its interests under this Agreement;
(d) Compliance Certificate. Within thirty (30) days
after the end of each fiscal quarter of Borrower hereafter, a
certificate executed by the chief financial officer or chief executive
officer of each General Partner, stating that a review of the
activities of Borrower and each REO Affiliate, as applicable, during
such fiscal quarter has been made under his supervision and that
Borrower and each REO Affiliate has observed, performed and fulfilled
each and every obligation and covenant contained herein and is not in
default under any of the same or, if any such default shall have
occurred, specifying the nature and status thereof;
(e) Asset Portfolio Report. As soon as practicable, and
in any event within twenty-five (25) calendar days after the end of
each month, an Asset Portfolio Report calculated as of the close of
such month for all Assets;
(f) Budgets. Borrower will deliver to Lender, within
ninety (90) days of the acquisition of any Asset Portfolio, as part of
an Asset Portfolio Report, a budget for each Asset comprising such
Asset Portfolio, reflecting the Projected Net Collections for each
such Asset. Lender shall have the right to review and approve each
such budget and each such "APPROVED BUDGET" (herein so called), as
modified and updated from time to time as provided for herein, shall
be the basis for calculating the Net Present Value of such Asset for
purposes of determining the occurrence of a
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Collateral Impairment Event or Pool Collateral Impairment Event.
Thereafter, Borrower shall deliver to Lender, with each Asset
Portfolio Report, a revised budget and revised Net Present Value for
each Asset with (i) an Allocated Purchase Price equal to or greater
than $100,000.00, and (ii) a revised Net Present Value less than
ninety percent (90%) or greater than one hundred and ten percent
(110%) of the previously budgeted Net Present Value of such Asset.
Lender will have ten (10) days to approve the revised budget. If
Lender has not responded within ten (10) Business Days after receipt
of the modified Net Present Values, the modified Net Present Values
and revised budgets will be deemed to be approved by Lender. If
Lender does not approve any revised budget, Borrower and Lender shall
attempt to agree upon an acceptable revised budget. If no such
agreement is reached within twenty (20) days after receipt of the
modified Net Present Value and revised budget, the Net Present Value
of such Asset shall be adjusted as Lender, in its sole discretion,
shall reasonably deem appropriate. Prior to Lender accepting
Borrower's initial budget for each Collateral Loan and each REO
Property, the present value of the Original Estimated Value attached
to the related Borrowing Request, discounted at the related discount
rate for such Asset, will be used as the Net Present Value.
7.02. Additional Reports. Furnish to Lender, as soon as
practicable, such other information concerning the Assets, business, properties
or financial condition of Borrower as Lender shall reasonably request in form
reasonably satisfactory to Lender. The delivery of any reports, statements and
other information by Borrower or Servicer shall be deemed a representation and
warranty that the same is true, accurate and complete except to the extent such
reports or statements relate to estimates or projections of future collections
or cashflows related to the Assets.
7.03. Payment of Taxes, Impositions and Other Indebtedness.
Borrower will pay and discharge and will cause each REO Affiliate to pay and
discharge (a) all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any property belonging to it,
and all Impositions in accordance with its normal and customary standards, and
in any event before any foreclosure action may be completed with respect to any
of Borrower's assets, (b) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might become a Lien upon any of its
property and (c) all of its other Indebtedness, except as prohibited hereunder.
7.04. Filings. Borrower will file all federal, state and local tax
returns and other reports that Borrower is required by law to file and maintain
adequate reserves for the payment of all taxes, assessments, governmental
charges, and levies imposed upon it, its income, or its profits, or upon any
assets belonging to it; and will cause each REO Affiliate to file all federal,
state and local tax returns and other reports that such REO Affiliate is
required by law to file and to maintain adequate reserves for the payment of
all taxes, assessments, governmental charges, and levies imposed upon it, its
income, or its profits, or upon any assets belonging to it.
7.05 Maintenance of Existence and Rights; Conduct of Business.
Borrower will preserve and maintain its corporate existence and all of its
rights, privileges and franchises necessary or desirable in the normal conduct
of its business, and conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all applicable
laws, rules, regulations and orders of any Governmental Authority.
7.06. Notice of Default; Notice of Collateral Impairment Event.
Borrower will furnish to Lender, immediately upon becoming aware of the
existence of any condition or event which constitutes an Event of Default or
Potential Default, a written notice specifying the nature and period of
existence thereof and the action which Borrower is taking or proposes to take
with respect thereto. Borrower will furnish to Lender, immediately upon
becoming aware of the existence of a Collateral Impairment Event or a Pool
Collateral Impairment Event, a written notice of such Collateral Impairment
Event or Pool Collateral Impairment Event, as applicable, showing the
calculations related thereto.
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7.07. Other Notices. Borrower will promptly notify Lender of (a)
any Material Adverse Effect, (b) any material default under any material
agreement, contract or other instrument to which it, or any REO Affiliate, is a
party or by which any of its properties are bound, or any acceleration of the
maturity of any Indebtedness owing by Borrower or the REO Affiliate, (c) any
material adverse claim against or affecting Borrower or any of its properties
or the REO Affiliate or any of the REO Properties, and (d) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any Governmental Authority affecting Borrower or the REO
Affiliate.
7.08. Compliance with Loan Papers. Borrower will promptly comply,
and will cause Servicer and each REO Affiliate to promptly comply, with any and
all covenants and provisions of this Agreement, the Note and all other of the
Loan Papers and other reasonable requests by Lender related to the Loan.
7.09. Compliance with Material Agreements. Borrower will comply,
and will cause Servicer and each REO Affiliate to comply, in all material
respects with all material agreements, indentures, mortgages or documents
binding on it or affecting its properties or business.
7.10. Operations and Properties. Borrower and each REO Affiliate
will act prudently and in accordance with Standard Industry Practices in
managing or operating its assets, properties, business and investments.
Borrower will keep, and with respect to REO Property will ensure each REO
Affiliate keeps, in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct
of its business and cause the Underlying Real Estate and REO Property to be
maintained in at least as good a condition as they existed on the date of
acquisition of the Collateral Loan or REO Property by Borrower or REO
Affiliate, ordinary wear and tear excepted, and will make, or ensure Servicer
makes, such Protective Advances as may be required to do so.
7.11. Books and Records; Access. Borrower and each REO Affiliate
will give any representative of Lender access during all business hours to, and
permit such representative to examine, copy or make excerpts from, any and all
books, records and documents in the possession of Borrower or any REO Affiliate
and relating to its affairs, and to inspect any of the properties of Borrower.
Borrower and each REO Affiliate will maintain complete and accurate books and
records of its transactions in accordance with good accounting practices.
7.12. Compliance with Law. Borrower will comply with, and will
cause each REO Affiliate to comply with, all applicable laws, rules,
regulations, and all orders of any Governmental Authority applicable to it or
any of its property, business operations or transactions, a breach of which
could have a Material Adverse Effect on Borrower's or any REO Affiliate's
financial condition, business or credit. Borrower will keep and maintain its
assets and any REO Property in material compliance with, and shall not cause or
permit any of the same to be in violation of, any Applicable Environmental
Laws.
7.13. Authorizations and Approvals. Borrower will promptly obtain,
from time to time at its own expense, and will ensure each REO Affiliate
obtains, all such governmental licenses, authorizations, consents, permits and
approvals as may be required to enable it to comply with its obligations
hereunder and under the other Loan Papers.
7.14. Experienced Management. Borrower will at all times hire and
retain management and supervisory personnel adequate for the proper management,
supervision and conduct of its properties, business and operation.
7.15. Further Assurances. Borrower will, and will ensure each REO
Affiliate will, make, execute or endorse, and acknowledge and deliver or file
or cause the same to be done, all such vouchers, invoices, notices,
certifications and additional agreements, undertakings, conveyances, deeds of
trust, mortgages, transfers, assignments, financing statements or other
assurances, and take any and all such other action, as Lender may, from time to
time, deem reasonably necessary or proper in connection with this Agreement
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or any of the other Loan Papers, the obligations of Borrower hereunder or
thereunder, or for better assuring and confirming unto Lender all or any part
of the security for any of such obligations, or for granting to Lender any
security for the Obligation which Lender may request from time to time, or for
facilitating collection of the Collateral hereunder.
7.16. Collection Efforts. Borrower will exercise collection efforts
with respect to the Collateral Loans as is consistent with sound business
practice. Borrower will at all times comply with Standard Industry Practices
and Borrower's past procedures related to due diligence, collateral control,
collection and reporting procedures with respect to all Collateral Loans.
Borrower's principal office shall at all times be maintained at 6400 Imperial
Drive, P.O. Box 8216, Waco, Texas, 76714-8216 and Borrower's books, records and
files related to the Collateral Loans (including, without limitation, the Due
Diligence Reports) shall at all times be maintained at the Servicer's offices
set forth on Schedule 7.16 attached hereto. Borrower shall maintain all files
related to the Collateral Loans in a reasonably prudent manner.
7.17. Management. Borrower will give Lender prompt notice of (a)
all senior management changes and (b) any substantial material change in
Borrower's management structure or personnel contemplated by Borrower.
7.18. Records. Borrower will maintain complete and accurate
records and files pertaining to each Collateral Loan delivered to Lender or the
Collateral Custodian, and retain such records and files together with all
Collateral Loan Documents, in the possession of Borrower, in restricted access
secure facilities reasonably safe from loss or destruction.
7.19. Grant of Specific Liens. Borrower will, at any time
Underlying Real Estate is foreclosed upon by Borrower, grant to Lender a Lien
upon such Underlying Real Estate, subject only to Permitted Liens and, if the
foreclosed Underlying Real Estate or the note secured by the Underlying Real
Estate being foreclosed upon has been conveyed to an REO Affiliate, Borrower
will obtain an REO Note following the assignment to the REO Affiliate, and will
ensure the REO Affiliate grants (a) to Lender, a second priority lien, securing
its Guaranty obligations and (b) to Borrower a first priority lien securing the
REO Note, in such Underlying Real Estate, following the foreclosure.
7.20. Ancillary Agreements. Borrower will fully comply with, and
perform (or cause Servicer to perform, as the case may be), all of the terms of
the Lockbox Agreement, the Servicing Agreement, and the other Loan Papers.
7.21. General Indemnity; Environmental Indemnity
(a) Borrower hereby agrees to indemnify, protect, and
hold Lender and its parent, subsidiaries, directors, officers,
employees, representatives, agents, successors, assigns, affiliates
and attorneys (collectively, with their successors and assigns, the
"INDEMNIFIED PARTIES") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses (including, without
limitation, attorneys' fees and legal expenses whether or not suit is
brought and settlement costs), and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by, or asserted against
any of the Indemnified Parties, in any way relating to or arising out
of the Loan Papers or any of the transactions contemplated therein or
the performance or exercise of any rights or remedies thereunder
(collectively, the "INDEMNIFIED LIABILITIES") to the extent that any
of the Indemnified Liabilities results, directly or indirectly, from
any claim made (whether or not in connection with any legal action,
suit, or proceeding) by or on behalf of any person or entity,INCLUDING
MATTERS ARISING OUT OF THE ORDINARY NEGLIGENCE OF THE INDEMNIFIED
PARTIES, BUT EXCLUDING MATTERS ARISING OT OF THE FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTIES; provided,
however, that Lender shall not be indemnified against any claim
resulting from any action taken by Lender with respect to any
Collateral subsequent to the foreclosure upon such Collateral by
Lender
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or for any material breach of Lender's obligations hereunder. The
provisions of and undertakings and indemnification set forth in this
paragraph shall survive the satisfaction and payment of the Obligation
and termination of this Agreement.
(b) Borrower agrees to promptly pay and discharge when
due all debts, claims, liabilities and obligations with respect to any
clean-up measures necessary for Borrower to comply with Applicable
Environmental Laws affecting Borrower, the Mortgaged Property, the REO
Property and the Underlying Real Estate, provided that, with respect
to any single tract or parcel of real property, Borrower shall not be
required to take such action if failure to take such action would not
have a Material Adverse Effect on the financial condition of Borrower
or any REO Affiliate or would not, in the reasonable opinion of
Lender, have the potential for creating any liability or claim against
Lender. Borrower hereby agrees to indemnify, protect, and hold each of
the Indemnified Parties harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, proceedings, costs, expenses (including,
without limitation, all reasonable attorneys' fees and legal expenses
whether or not suit is brought), and disbursements of any kind or
nature whatsoever which may at any time be imposed on, incurred by, or
asserted against Indemnified Parties, with respect to or as a direct
or indirect result of any violation, or claimed violation of, any
Applicable Environmental Laws by Borrower; or with respect to or as a
direct or indirect result of Borrower's generation, manufacture,
production, storage, release, threatened release, discharge, disposal
of a Hazardous Substance at, on or about any REO Property, Mortgaged
Property, Underlying Real Estate or any property of Borrower or which
secures any indebtedness owed to Borrower, including, without
limitation, (a) all damages related to any such use, generation,
manufacture, production, storage, release, threatened release,
discharge, disposal, or presence, or (b) the costs of any required or
necessary environmental investigation, monitoring, repair, cleanup, or
detoxification and the preparation and implementation of any closure,
remedial, or other plans; and provided, however, that Lender shall not
be indemnified against any claim resulting from any action taken by
Lender with respect to any Collateral or REO Property subsequent to
the foreclosure upon such Collateral or REO Property by Lender. The
provisions of and undertakings and indemnification set forth in this
paragraph shall survive the satisfaction and payment of the Obligation
and termination of this Agreement. It shall not be a defense to the
covenant of Borrower to indemnify that the act, omission, event or
circumstance did not constitute a violation of any Applicable
Environmental Law at the time of its existence or occurrence. The
terms "HAZARDOUS SUBSTANCE" and "RELEASE" shall have the meanings
specified in the Superfund Amendments and Reauthorization Act of 1986
("SARA"), and the terms "SOLID WASTE" and "DISPOSED" shall have the
meanings specified in the Resource Conservation and Recovery Act of
1976 ("RCRA"); provided, to the extent that any other applicable laws
of the United States of America or political subdivision thereof
establish a meaning for "hazardous substance," "release," "solid
waste," or "disposed" which is broader than that specified in either
SARA or RCRA, such broader meaning shall apply. As used in this
Agreement, "APPLICABLE ENVIRONMENTAL LAW", shall mean and include the
singular, and "APPLICABLE ENVIRONMENTAL LAWS" shall mean and include
the collective aggregate of the following: Any law, statute,
ordinance, rule, regulation, order or determination of any
Governmental Authority affecting Borrower or any REO Affiliate
pertaining to hazardous substances or the environment, including,
without limitation, all applicable flood disaster laws and health,
safety and environmental laws and regulations pertaining to health,
safety or the environment, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of
1976, the Superfund Amendments and Reauthorization Act of 1986, the
Occupational Safety and Health Act, the Texas Water Code, the Texas
Solid Waste Disposal Act, and any federal, state or municipal laws,
ordinances, regulations or law which may now or hereafter require
removal of asbestos or other hazardous wastes from any property of
Borrower or any REO Affiliate or impose any liability on Lender
related to asbestos or other hazardous wastes in any property of
Borrower or any REO Affiliate. The provisions of this Section 7.21
shall survive the repayment of the Note. In the event of the transfer
of the Note or any portion thereof, Lender or any subsequent holder of
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the Note and any participants shall continue to be benefited by this
indemnity agreement with respect to the period of such holding of the
Note.
Borrower will reimburse each Indemnified Party for all expenses
(including reasonable fees and disbursements of counsel) as they are incurred
by such Indemnified Party in connection with investigating, preparing for or
defending any action (or enforcing this Agreement, or any of the other Loan
Papers). Borrower agrees that it will not settle or compromise or consent to
the entry of any judgment in any pending or threatened action in respect of
which indemnification has been sought hereunder (whether or not an Indemnified
Party is a party therein) unless Borrower has given Lender reasonable or prior
written notice thereof and obtained an unconditional release of each
Indemnified Party from all liability arising therefrom.
SECTION 8
NEGATIVE COVENANTS
So long as Lender has any commitment to make Advances hereunder, and
until payment in full of the Note and the performance of the Obligation,
Borrower agrees that (unless Lender shall otherwise consent in writing):
8.01. Limitation on Indebtedness. Borrower will not, and will
ensure each REO Affiliate does not, incur, create, contract, waive, assume,
have outstanding, guarantee or otherwise be or become, directly or indirectly,
responsible for any Indebtedness, except (a) Indebtedness arising out of this
Agreement, (b) liabilities for taxes and assessments incurred in the ordinary
course of business, (c) obligations under the Servicing Agreement, (d) current
amounts payable or accrued of other claims (other than for borrowed funds or
purchase money obligations or transactions which are equivalent thereto)
incurred in the ordinary course of business, provided that all such
liabilities, accounts and claims shall be promptly paid and discharged when due
or in conformity with customary trade terms, (e) contingent liabilities arising
out of endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business, (f) Indebtedness of Borrower or
each REO Affiliate as reflected in the most recent financial statements of
Borrower delivered to Lender; (g) subordinated indebtedness approved by Lender
in accordance with Section 6.02(h) herein and (h) the REO Notes.
8.02. Negative Pledge. Borrower will not, and will ensure each REO
Affiliate does not, create or suffer to exist any mortgage, pledge, security
interest, conditional sale, Lien or other title retention agreement, charge,
encumbrance or other Lien (whether such interest is based on common law,
statute, other law or contract) upon any of its property or assets, now owned
or hereafter acquired, except for Permitted Liens or Permitted Prior Liens.
8.03. Prepayments. Borrower will not, and will ensure each REO
Affiliate does not, directly or indirectly pay any subordinated indebtedness
permitted hereunder prior to the date on which such subordinated indebtedness
is due and payable in accordance with the terms thereof and will not directly
or indirectly make any payment of any subordinated indebtedness which would
violate the terms of the subordination agreement applicable to such
subordinated indebtedness.
8.04. Limitation on Investments. Borrower will not, and will ensure
each REO Affiliate does not, make or have outstanding any Investments in any
Person, except for Borrower's ownership of REO Affiliates, Temporary Cash
Investments and such other "cash equivalent" investments as Lender may from
time to time approve.
8.05. Alteration of Material Agreements. Borrower will not, and
will ensure each REO Affiliate does not, consent to or permit any alterations,
amendments, modifications, releases, waivers or terminations of any material
agreement to which it is a party which could result in a Material Adverse
Effect.
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8.06. Certain Transactions. Borrower will not, and will ensure each
REO Affiliate does not, enter into any transaction with, or pay any management
fees to, any Affiliate; provided, however, that Borrower or any REO Affiliate
may enter into the Servicing Agreement and transactions evidenced by the REO
Notes and may enter into any other transaction with Affiliates provided
payments to such Affiliates under such transaction is limited to Borrower's pro
rata share of Excess Cash Flow received pursuant to Section 3.06(c).
8.07. Issuance of Shares. Borrower will not, and will ensure each
REO Affiliate does not, issue, sell or otherwise dispose of, any shares of its
capital stock or other securities, or rights, warrants or options to purchase
or acquire any shares or securities.
8.08. Limitation on Sale of Properties. Borrower will not, and will
ensure each REO Affiliate does not, sell, assign, convey, exchange, lease or
otherwise dispose of any of its properties, rights, assets or business, whether
now owned or hereafter acquired, except in the ordinary course of its business
and for a fair consideration, and in such event shall immediately pay such
proceeds into the Lockbox Account to be applied pursuant to Section 3.06.
8.09. Name, Fiscal Year and Accounting Method. Borrower will not,
and will ensure each REO Affiliate does not, change its name, fiscal year or
method of accounting.
8.10. Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets. Borrower will not, and will ensure each REO Affiliate does
not, dissolve or liquidate, or become a party to any merger or consolidation
unless Borrower or the REO Affiliate, as applicable, shall be the surviving
entity of its property or assets or business, provided, however, that the
foregoing shall not operate to prevent a merger of any Person into the
Borrower; provided, however, that Borrower shall be the surviving or continuing
corporation and, after giving effect to such merger or consolidation: (a)
Borrower or shall be in full compliance with the terms of this Agreement; and
(b) the management of Borrower shall be substantially unchanged.
8.11. Lines of Business. Borrower will not, and will ensure each
REO Affiliate does not, directly or indirectly, engage in any business other
than those in which it is presently engaged, or discontinue any of its existing
lines of business or substantially alter its method of doing business.
8.12. No Amendments. Borrower will not and will ensure each REO
Affiliate does not, amend its partnership agreement.
8.13. Purchase of Substantial Assets. Borrower will not, and will
ensure each REO Affiliate does not, purchase, lease or otherwise acquire all or
substantially all of the assets of any other Person except for the acquisition
of the Asset Portfolios and foreclosure of Underlying Real Estate and other
Collateral securing the Collateral Loans.
8.14. New Places of Business. Borrower will not, and will ensure
each REO Affiliate does not, transfer its principal place of business or chief
executive office, except upon at least 60 days prior written notice to Lender
and after the delivery to Lender of financing statements in form satisfactory
to Lender to perfect or continue the perfection of the Lender's Liens and
security interests contemplated hereby.
8.15. Fictitious Names. Borrower will not, and will ensure each REO
Affiliate does not, use any fictitious name or "d/b/a".
8.16. Margin Stock. Borrower will not own, purchase or acquire (or
enter into any contract to purchase or acquire) any "margin security" as
defined by any regulation of the Federal Reserve Board as now in effect or as
the same may hereafter be in effect unless, prior to any such purchase or
acquisition or entering into any such contract, Lender shall have received an
opinion of counsel satisfactory to Lender to the effect that such purchase or
acquisition will not cause this Agreement to violate Regulations G, T, U, or X
or any other regulation of the Federal Reserve Board then in effect.
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8.17. Compliance with Environmental Laws. Except in material
compliance with applicable laws (including all Applicable Environmental Laws),
Borrower will not, and with respect to the REO Property will ensure that each
REO Affiliate will not, use, generate, manufacture, produce, store, release,
discharge, or dispose of on, under, or about any of its real property or
transport to or from any of its real property any Hazardous Substance, or allow
any other Person or entity to do so.
8.18. Disposition of Collateral Loans. Company will not dispose of,
or permit Servicer to dispose of, a Collateral Loan or otherwise settle the
amount owed on any Collateral Loan, or permit any REO Affiliate to dispose of
any REO Property, for an amount which is less than the Minimum Release Price.
8.19. Modification of Ancillary Agreements. Borrower will not, and
will ensure each REO Affiliate does not, attempt to amend, modify or terminate
any of the Loan Papers without Lender's written consent.
8.20. Certain Payments. Borrower will not make any payment under
the Servicing Agreement at any time any Event of Default exists hereunder or if
such payment would cause an Event of Default hereunder.
SECTION 9
COLLATERAL
9.01. Security. Borrower agrees to secure the Obligation to Lender
by the pledge of, and the granting of a first priority perfected security
interest in the Collateral more fully described in the Security Documents,
including, without limitation (a) the Collateral Loans and Collateral Loan
Documents (including, as a result of a Collateral Assignment, the REO Notes and
REO Property) which shall come into the possession, custody or control of the
Collateral Custodian, Borrower or Servicer, (b) the Mortgaged Property, (c) all
cash, securities, notes or other instruments deposited by Borrower in any cash
collateral account securing Borrower's obligations hereunder, including without
limitation the Tax Escrow Accounts and the Property Accounts for each Asset
Portfolio, the Lockbox Account and the Operating Reserve Account, (d) all
interest of Borrower in any documents relating to the acquisition and ownership
of the Asset Portfolios, including without limitation all related purchase
agreements, to the extent such rights are assignable, and (e) cash and non-cash
proceeds of the foregoing. Payment of the Obligation will be unconditionally
guaranteed by each Guarantor and each Guarantor will secure the guaranteed
obligations by a second priority lien in REO Property owned by such Guarantor.
9.02. Lien on REO Properties. Each REO Property shall be owned by
an REO Affiliate, it being understood that Borrower shall not take title to any
REO Property. Immediately upon the acquisition of title to an REO Property by
an REO Affiliate, Borrower (a) will cause such REO Affiliate to execute and
deliver to Borrower an REO Note (which shall be endorsed by Borrower to Lender,
and delivered to the Collateral Custodian), security instruments granting to
Lender a second priority Lien on such REO Property or, in cases where such REO
Property shall then be subject to Permitted Prior Liens, a Lien subject only to
such Permitted Prior Liens and REO Security Documents granting to Borrower a
first priority Lien on such REO Property subject only to Permitted Prior Liens,
and (b) will execute and deliver to Lender a Collateral Assignment which shall
be in form and substance satisfactory to Lender, pursuant to which Borrower
shall collaterally assign to Lender, as security for the Obligation, all of
Borrower's rights under such REO Note and REO Security Documents. Borrower (at
its own expense) shall record such security instruments, REO Security Documents
and any related assignment(s) of lien with such filing offices as may be
required by Lender to perfect and record Borrower's and Lender's respective
interests in such REO Property. Prior to the taking of title to any REO
Property by an REO Affiliate, Borrower shall provide Lender with an
Environmental Site Assessment with respect to such REO Property or an update of
the Environmental Site Assessment which was delivered to Lender in connection
with the closing of the loan, and Borrower shall have received Lender's written
acknowledgment that the results thereof are acceptable to Lender. In
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addition, for any REO Property with an Allocated Purchase Price in excess of
$250,000, upon Lender's request, Borrower shall be obligated, at Borrower's
expense, to provide for Lender's benefit such additional documentation as
Lender would ordinarily require in connection with real estate collateral,
including, without limitation, the following: an MAI appraisal performed in
accordance with applicable law and sound banking practices, a title certificate
or, if requested by the Lender, a Title Policy in an amount and issued by an
insurer reasonably satisfactory to Lender, a current survey, and policies of
liability, hazard and casualty insurance naming Lender as an additional
insured, mortgagee and loss payee, all in amounts and issued by insurers
reasonably satisfactory to Lender.
9.03. Assignment of Liens; Mortgages.
(a) To secure the prompt payment and performance to
Lender of the Obligation, Borrower shall execute the Collateral
Assignments, collaterally assigning to Lender, all of the Liens
securing the repayment of the Asset Portfolios and the obligations
secured thereby, to the extent that such Liens exist with respect to
an Asset in an Asset Portfolio.
(b) If Borrower or any REO Affiliate shall foreclose upon
any Underlying Real Estate, Borrower or such REO Affiliate, as
appropriate, shall execute and deliver to Lender a Mortgage (duly
acknowledged and in recordable form) granting to Lender a
first-priority Lien upon such Underlying Real Estate, subject only to
Permitted Liens. In order to evidence the Lien on such real property,
such documents shall be recorded, at the expense of Borrower, with
such filing offices as may be required by Lender.
9.04. Insurance of Collateral. Borrower agrees to maintain and
pay for, or cause to be maintained and paid for, insurance upon all Collateral
(other than Collateral Loans or property securing any Collateral Loan, except
as provided in the last sentence of this Section 9.04) covering casualty,
hazard, public liability and such other risks and in such amounts and with such
insurance companies as shall be reasonably satisfactory to Lender; provided,
however, that Borrower shall not be required to maintain casualty or hazard
coverage in excess of an amount equal to 110% of the Allocated Purchase Price
with respect to each Asset (or such greater amount as may be required by
Lender, from time to time, at the end of any calendar quarter but in no event
for an amount in excess of the replacement cost of such item of Collateral).
Notwithstanding any of the foregoing, Borrower may elect to maintain and pay
for one or more multi-property policies in lieu of individual insurance
policies for each property. Any such multi-property policy (a) will be, for
each property covered thereby, in the amount required for such property
hereunder; (b) shall be in a total amount in all respects satisfactory to
Lender and (c) shall provide coverage for public liability in an amount not
less than $5,000,000.00; provided, that Lender shall have the right to require
a separate insurance policy on any REO Property owned by an REO Affiliate for
more than six months. Borrower shall deliver the certified copies of any
policies maintained pursuant to this Section 9.04 to Lender with satisfactory
endorsements naming Lender as loss payee and as mortgagee pursuant to a
standard mortgagee clause. Each policy of insurance or endorsement shall
contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever. If Borrower fails to provide and pay for such insurance,
Lender may, at Borrower's expense, procure the same, but shall not be required
to do so. Borrower agrees to deliver to Lender, promptly as rendered, true
copies of all reports made in any reporting forms to insurance companies.
Without limiting Borrower's obligation under this Section 9.04 to purchase and
maintain additional or different insurance coverages in the future, Lender
shall notify Borrower, within ten (10) Business Days of receipt of all copies
of insurance policies maintained by Borrower, whether the coverages represented
by such policies are satisfactory to Lender for purposes of this Section 9.04.
Borrower or Servicer (a) shall promptly notify Lender of the failure of any
Account Debtor under a Collateral Loan to maintain the insurance coverage
required under such Collateral Loan and (b) if requested by Lender, shall make
or shall ensure Servicer makes, a Protective Advance to procure the required
coverage.
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9.05. Delivery of Collateral.
(a) Borrower shall deliver to Collateral Custodian within
the time frame specified in Section 6.02, the following instruments
and documents, to the extent that such instruments and documents exist
with respect to the Assets in each Asset Portfolio, in which Borrower
has granted and in which it hereafter grants to Lender a security
interest, all of which shall be in form and substance acceptable to
and approved by Lender:
(i) the original mortgage note evidencing each
Collateral Loan (properly endorsed to Borrower), duly endorsed in
blank which endorsement may be on the original mortgage note or by
Allonge or, when the original mortgage note is unavailable, a Lost
Note Affidavit together with a certified copy of each such note;
(ii) the recorded original mortgage securing each
Collateral Loan, together with a duly executed assignment in
recordable form thereof;
(iii) the original guaranties, assignments of
rents, to the extent existing with respect to any Asset in any Asset
Portfolio, and other instruments and documents, including any
possessory documents, relating to security for and payment of each
Collateral Loan, together with duly executed assignments thereof;
(iv) a policy of mortgage title insurance on
American Land Title Association's standard policy form (revised
coverage, most recent form) or on other policy forms as may be
required by applicable laws, statutes, rules, or regulations from a
national title insurance company, in favor of Borrower insuring the
lien of the mortgage securing the mortgage note as a first and prior
lien (subject only to such liens and encumbrances as are generally
acceptable to reputable lending institutions, mortgage investors and
securities dealers and to Permitted Prior Liens) to the extent such
policy is provided by a seller under a Sale Agreement or Borrower,
exercising reasonable judgment, determines to purchase such a title
policy;
(v) a transmittal letter listing all documents
being delivered to Collateral Custodian;
(b) Borrower shall deliver to the Servicer all other
documents related to the Collateral Loans, including without
limitation the following:
(i) evidence satisfactory to Lender that any
premises covered by any mortgage securing such Collateral Loan is
insured against fire and other perils for extended coverage for an
amount at least equal to the full insurable value of such premises
(Lender reserves the right to obtain (or require Borrower to obtain) a
loss payable endorsement in its favor if it so desires);
(ii) upon request of Lender, if any, original
copies, or photocopies of surveys and all other instruments, documents
and other papers pertaining to the Collateral Loan; and
(iii) other documentation as Lender may reasonably
deem proper, including without limitation, all disclosures required by
applicable Truth-in-Lending and other consumer credit regulations
promulgated by a Governmental Authority.
The documents listed in Section 9.05(a)(i) through (v) and Section 9.05(b)(i)
through (iii) are now collectively referred to herein as the "COLLATERAL LOAN
DOCUMENTS."
9.06. Possession of Collateral Loan Documents; Sale of Collateral.
Notwithstanding the foregoing, Collateral Loans which have subsequently been
delivered to Collateral Custodian shall continue to be valued subject to the
conditions and during the time periods described below, and so long as the
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Collateral Loan Documents are in existence, notwithstanding the fact that such
Collateral Loan Documents have been subsequently delivered by Lender or
Collateral Custodian to Borrower or Servicer:
(a) Prior to the occurrence of an Event of Default or
Potential Default, Lender may agree to permit, from time to time, the
temporary withdrawal by Borrower, pursuant to a trust receipt executed
by Borrower, of specified notes evidencing Collateral Loans, pledged
to Lender as collateral security for the Obligation, for a period not
to exceed eighteen (18) days from the date of such withdrawal, which
withdrawal shall be for the sole purpose of permitting Borrower to
amend and/or correct errors in such notes and thereby enhance the
ultimate sale of such notes and for other purposes more particularly
described in the Collateral Custodian Agreement.
(b) Notwithstanding anything to the contrary contained
herein, Lender shall continue to have a valid, perfected, first
priority security interest and lien in each Collateral Loan and
related note delivered to Borrower or any qualified investor, until
payment of the full purchase price therefor has been made to Lender as
described in this Section 9.06. If such mortgage note is not returned
to the Lender or Lender's agent or bailee, within eighteen (18) days
after Lender's release of possession thereof, then such Asset shall be
deemed to have no Net Present Value for purposes of calculating a Pool
Collateral Impairment Event.
For purposes of this Section 9.06, calculation of the eighteen
(18) day period shall include the initial date of release of such
Collateral Loan by Lender.
9.07. Power of Attorney. Without limiting any other rights and
remedies available to Lender hereunder, Borrower hereby appoints Lender as
Borrower's attorney-in-fact, with full power of substitution, for the purpose
of carrying out the provisions of this Agreement or any Loan Paper and taking
any action and executing in the name of Borrower, without recourse to Borrower,
any document or instrument, which Lender may deem necessary or advisable to
accomplish the purposes hereof and of any Loan Paper (including, without
limitation, perfecting or protecting the liens on and security interests in any
Collateral) which appointment is coupled with an interest and is irrevocable.
Upon the occurrence of a Potential Default or an Event of Default, Borrower
hereby authorizes Lender in its discretion at any time and from time to time to
exercise such Power of Attorney, including without limitation (a) completing
any Collateral Assignment which heretofore was, or hereafter at any time may
be, executed and delivered by Borrower to Lender so that such assignment
describes a mortgage which is security for any Collateral Loan now or hereafter
at any time constituting Collateral and recording the same, and (b) completing
any other assignment or endorsement that was delivered in blank hereunder or
pursuant to the terms hereof.
9.08. Appointment of Collateral Custodian. Contemporaneously
herewith, Lender has appointed Fleet National Bank as a collateral custodian
(the "COLLATERAL CUSTODIAN") pursuant to the Custodial Agreement entered into
by and among such Collateral Custodian, Borrower, Servicer and Lender for the
purpose of exercising any rights, and performing any duties, of Lender with
respect to Collateral hereunder, including without limitation, the rights and
duties described in this Section 9, to the extent set forth in the Custodial
Agreement. Borrower shall deliver to such Collateral Custodian all Collateral
and all requests for release of Collateral shall be made by Borrower to the
Collateral Custodian (with a copy of each such request being simultaneously
delivered to Lender).
9.09. Releases. Lender shall release the Liens and security
interests related to each Released Asset upon payment into the Lockbox Account
of the applicable Release Price for such Released Asset. In the event of a
sale of REO Property, the Minimum Release Price for such REO Property will,
notwithstanding the principal amount of the REO Note delivered by each REO
Affiliate to Borrower in connection with such REO Property, be equal to the
greater of (a) all Net Sales Proceeds received by any REO Affiliate with
respect to such REO Property or (b) the Minimum Release Price for such REO
Property, calculated as if Borrower owned the REO Property and no REO Note
existed.
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SECTION 10
EVENTS OF DEFAULT
10.01. Events of Default. An "EVENT OF DEFAULT" shall exist if any
one or more of the following events (herein collectively called "EVENTS OF
DEFAULT") shall occur and be continuing:
(a) Borrower shall (i) fail to pay when due any principal
of, or interest on, the Note or (ii) fail to pay when due any fee,
expense or other payment required hereunder (other than any payments
required by Section 3.03(b) herein) and such fee, expense or other
payment shall remain unpaid for three (3) days following delivery by
Lender to Borrower of written notice of such failure;
(b) Borrower shall fail to make payments required by
Section 3.03(b) herein and
(i) shall fail to provide Lender with a written
plan detailing the actions Borrower proposes to take
to remedy the Collateral Impairment Event within
seventy-two (72) hours after receipt by Borrower of
written notice of the occurrence of a Collateral
Impairment Event; or
(ii) in the event Lender, in its sole discretion,
rejects Borrowers' plans for remedying the Collateral
Impairment Event, such failure shall continue for
fourteen (14) days following receipt by Borrower of
written notice of the Collateral Impairment Event; or
(iii) such failure shall continue for thirty (30)
days following receipt by Borrower of written notice
of the occurrence of a Collateral Impairment Event.
(c) any representation or warranty made under this
Agreement, or any of the other Loan Papers, or in any certificate or
statement furnished or made to Lender pursuant hereto or in connection
herewith or with the Loans hereunder, shall prove to be untrue or
inaccurate in any material respect as of the date on which such
representation or warranty is made;
(d) default shall occur in the performance of any of the
covenants or agreements of Borrower contained in Section 6.02(g) or
Section 8 herein;
(e) default shall occur in the performance of any of the
other covenants or agreements of Borrower or any REO Affiliate
contained herein or any of the other Loan Papers and such default is
not remedied within thirty (30) days after the occurrence thereof;
(f) default shall occur in the payment of any material
Indebtedness of Borrower or default shall occur in respect of any
note, loan agreement or credit agreement relating to any such
Indebtedness and such default shall continue for more than the period
of grace, if any, specified therein; or any such Indebtedness shall
become due before its stated maturity by acceleration of the maturity
thereof or shall become due by its terms and shall not be promptly
paid or extended;
(g) any of the Loan Papers shall cease to be legal,
valid, binding agreements enforceable against any party executing the
same in accordance with the respective terms thereof or shall in any
way be terminated or become or be declared ineffective or inoperative
or shall in any way whatsoever cease to give or provide the respective
liens, security interest, rights, titles, interest, remedies, powers
or privileges intended to be created thereby;
(h) Borrower, any General Partner or any REO Affiliate
shall (i) apply for or consent to the appointment of a receiver,
trustee, custodian, intervenor or liquidator of itself or of all or a
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substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as
they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization of an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations
of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, or (vi)
take corporate action for the purpose of effecting any of the
foregoing;
(i) an involuntary petition or complaint shall be filed
against Borrower, any General Partner or any REO Affiliate seeking
bankruptcy or reorganization of Borrower, any General Partner or any
REO Affiliate or the appointment of a receiver, custodian, trustee,
intervenor or liquidator of Borrower, any General Partner or any REO
Affiliate, or all or substantially all of its respective assets, and
such petition or complaint shall not have been dismissed within 60
days of the filing thereof; or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of Borrower, any General Partner or any REO Affiliate
or appointing a receiver, custodian, trustee, intervenor or liquidator
of Borrower, any General Partner or any REO Affiliate, or of all or
substantially all of its respective assets, and such order, judgment
or decree shall continue unstayed and in effect for a period of thirty
(30) days;
(j) any final judgment(s) for the payment of money in
excess of the sum of $500,000 in the aggregate shall be rendered
against Borrower or any REO Affiliate and such judgment or judgments
shall not be satisfied or discharged at least ten (10) days prior to
the date on which any of its assets could be lawfully sold to satisfy
such judgment;
(k) Borrower creates a Plan;
(l) there shall occur any change in the condition
(financial or otherwise) of Borrower or any REO Affiliate or its
assets which, in the reasonable opinion of Lender, has a Material
Adverse Effect;
(m) Borrower or any REO Affiliate shall breach any of its
obligations under any Sale Agreement which, in the reasonable opinion
of Lender, has a Material Adverse Effect;
(n) any note (or replacement note) evidencing a
Collateral Loan delivered to Borrower or any Investor under Section
9.06 herein shall fail to be returned to Collateral Custodian within
the time limits provided for in Section 9.06 unless such Collateral
Loan has been released as provided for herein and payment of the
Release Price has been received by Lender;
(o) Servicer defaults in the performance of its
obligations under any servicing agreement, including, without
limitation, the Servicing Agreement, and such default is not cured on
or before the earlier of ten (10) days following (i) knowledge by
Borrower of such default or (ii) receipt by Borrower of notice of such
default; or
(p) there shall occur any change in the ownership of
Borrower, Servicer, or any REO Affiliate.
10.02. Remedies Upon Event of Default. If an Event of Default shall
have occurred and be continuing, then Lender may exercise any one or more of
the following rights and remedies, and any other rights or remedies provided in
any of the Loan Papers or otherwise available at law or equity, as Lender in
its sole discretion may deem necessary or appropriate: (a) terminate Lender's
commitment to lend hereunder, (b) declare the principal of, and all interest
then accrued on, the Note and any other liabilities hereunder (together with
any costs, liabilities or expenses of exercising its rights and remedies
hereunder
39
<PAGE> 44
or under any Loan Paper) to be forthwith due and payable, whereupon the same
shall forthwith become due and payable without presentment, demand, protest,
notice of default, notice of acceleration or of intention to accelerate or
other notice of any kind all of which Borrower hereby expressly waives,
anything contained herein or in the Note to the contrary notwithstanding, (c)
reduce any claim to judgment, and/or (d) without notice of default or demand,
pursue and enforce any of Lender's rights and remedies under the Loan Papers,
or otherwise provided under or pursuant to any applicable law or agreement,
including without limitation all of the rights and remedies of a secured party
under the Security Documents or under the Uniform Commercial Code adopted in
the State of New York, all of which rights and remedies shall be cumulative,
and none of which shall be exclusive; provided, however, that if any Event of
Default specified in Sections 10.01(h) and (i) shall occur, the principal of,
and all interest on, the Note and other liabilities hereunder shall thereupon
become due and payable concurrently therewith, and Lender's obligations to lend
shall immediately terminate hereunder, without any further action by Lender and
without presentment, demand, protest, notice of default, notice of acceleration
or of intention to accelerate or other notice of any kind, all of which
Borrower hereby expressly waives.
10.03. Performance by Lender. Should Borrower fail to perform any
covenant, duty or agreement contained herein or in any of the Loan Papers,
Lender may, at its option, after reasonable notice to Borrower of such failure,
perform or attempt to perform such covenant, duty or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly
pay any amount expended by Lender in such performance or attempted performance
to Lender at its principal office in New York, New York, together with interest
thereon at the highest lawful rate from the date of such expenditure until
paid. Notwithstanding the foregoing, it is expressly understood that Lender
shall not assume any liability or responsibility for the performance of any
duties of Borrower hereunder or under any of the Loan Papers or other control
over the management and affairs of Borrower.
SECTION 11
SECURITIZATION
11.01 OPTION. From time to time, Borrower, or an Affiliate of
Borrower reasonably acceptable to Lender, may securitize and/or sell the Assets
in one or more Securitization Transactions upon terms and conditions reasonably
acceptable to Borrower or such Affiliate. Borrower hereby grants to
Securitization Agent the option and the right, but not the obligation, pursuant
to underwriting agreements and/or placement agency agreements in form and
substance reasonably satisfactory to Securitization Agent or its designee and
Borrower and its designee, for the Securitization Agent or its designee to act
as lead underwriter on a rotational basis or as co-underwriter or placement
agent with respect to each such Securitization Transaction. In no event shall
the Securitization Agent or any such designee be obligated to purchase
Securities sold through such Securitization Transactions.
11.02 BORROWER COOPERATION. In connection with any Securitization
Transaction, Borrower agrees that (i) the Assets which are the subject of such
Securitization Transaction shall conform to the historical underwriting
procedures used by Borrower and Borrower's Affiliates and (ii) Borrower shall
cooperate with all reasonable requirements and due diligence requests of the
Securitization Agent or its designee, any rating agencies, credit enhancers and
master and special servicers necessary to facilitate the issuance of the
related Securities, including, if Borrower is using the Securitization Agent's
Shelf Registration Statement, the entering into of a mortgage loan purchase and
sale agreement in form and substance reasonably satisfactory to the Lender.
11.03 FEES. In the event Securitization Agent or its designee acts
as underwriter and/or placement agent in connection with any Securitization
Transaction, Borrower shall pay, or cause to be paid to Securitization Agent a
percentage (to be mutually agreed upon by Securitization Agent or such designee
and Borrower based upon the then prevailing competitive market rates) of the
initial principal amount of each Security issued pursuant to such
Securitization Transactions.
40
<PAGE> 45
11.04 INFORMATION. Borrower hereby covenants and agrees that it
will represent and warrant that all information to be provided by it or any of
its Affiliates in connection with any Securitization Transaction shall be true,
correct and complete. Borrower shall enter into such agreements and provide
such certificates, opinions and other documents as Securitization Agent or its
designee may reasonably deem necessary or appropriate in connection with any
such Securitization Transaction, including without limitation, an
indemnification agreement satisfactory to Lender or its designee pursuant to
which Securitization Agent, such designee, Securitization Agent's Affiliates,
and their respective officers, directors, agents and employees shall be
indemnified for all liabilities, losses, damages, judgments, costs and expenses
resulting from a breach of the representation, warranty and agreement set forth
in the immediately preceding sentence.
SECTION 12
MISCELLANEOUS
12.01. Modification. All modifications, consents, amendments or
waivers of any provision of any Loan Paper, or consent to any departure by
Borrower therefrom, shall be effective only if the same shall be in writing and
concurred in by Lender and then shall be effective only in the specific
instance and for the purpose for which given.
12.02. Accounting Terms and Reports. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
Generally Accepted Accounting Principles consistently applied on the basis used
by Borrower in prior years. All financial reports furnished by Borrower to
Lender pursuant to this Agreement shall be prepared on the same basis as those
prepared by Borrower in prior years and shall be the same financial reports as
those furnished to Borrower's officers and directors. All financial
projections furnished by Borrower to Lender pursuant to this Agreement shall be
prepared in such form and such detail as shall be satisfactory to Lender and
shall be prepared on the same basis as the financial reports furnished by
Borrower to Lender.
12.03. Waiver. No failure to exercise, and no delay in exercising,
on the part of Lender, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder and under the Loan Papers shall be in addition to all other rights
provided by law. No modification or waiver of any provision of this Agreement,
the Note or any Loan Papers, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
12.04. Payment of Expenses. Borrower agrees to pay all costs and
expenses of Lender (including, without limitation, the reasonable attorneys'
fees of legal counsel) incurred by Lender in connection with (a) the
preservation and enforcement of Lender's rights under this Agreement, the Note,
and/or the other Loan Papers, (b) the negotiation, preparation, execution and
delivery of this Agreement, the Note, and the other Loan Papers and any and all
amendments, modifications and supplements thereof or thereto, (c) Lender's due
diligence related hereto, and (d) appraisals related to REO Properties procured
by Lender acting in a commercially reasonable manner, whether or not any of the
transactions contemplated hereby are consummated; provided that all such
expenses are properly documented, and provided further, that, solely for the
purposes of subsection (b) above, the fees and expenses of Lender in connection
with (i) the closing of this Agreement shall not exceed $25,000.00, and (ii)
each subsequent Advance hereunder shall not exceed $5,000.00.
12.05. Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon a party hereto shall be in writing,
and shall be deemed to have been validly served, given or delivered (a) if sent
by certified or registered mail against receipt, three (3) Business Days after
deposit in
41
<PAGE> 46
the mail, postage prepaid, or, if earlier, when delivered against receipt, (b)
if sent by telecopier, when transmitted with sender's confirmation of
successful transmission, or (c) if sent by any other method, upon actual
delivery, in each case addressed as follows: (i) if to Lender, at its address
shown below its name on the signature pages hereof, (ii) if to Borrower, at:
6400 Imperial Drive
P. O. Box 8216
Waco, Texas 76714-8216
ATTN: James C. Holmes
Telecopier: (254) 751-1757
with courtesy
copies to: FIRSTCITY SERVICING CORPORATION
6400 Imperial Drive
P.0. Box 8216
Waco, Texas 76714-8216
ATTN: G. Stephen Fillip
Telecopier: (254) 751-1757
and FIRSTCITY FINANCIAL CORPORATION
Law Department
P.O. Box 8216
Waco, Texas 76714-8216
ATTN: Richard J. Vander Woude
Telecopier: (254) 751-7725
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.05; provided, however, that any
notice, request or demand to or upon Lender pursuant to Section 2 and Section 3
shall not be effective until received by the Lender; and provided, further,
that any notice received by Lender after 3:00 P.M. New York time on any day
from Borrower pursuant to Section 2 shall be deemed for the purposes of such
section to have been given by Borrower on the next succeeding Business Day.
12.06. Choice of Law; Submission to Jurisdiction; Waiver of Jury
Trial. The Loan Papers are being delivered and consummated and Borrower's
duties hereunder are performable in the State of New York. The Loan Papers
(other than those containing a contrary express choice of law provision) shall
be construed in accordance with the laws of New York applicable to contracts
made and performed in New York. Any suit, action or proceeding against
Borrower with respect to this Agreement, the Note or any judgment entered by
any court in respect thereof, may be brought in the courts of the State of New
York, County of New York, or in the United States courts located in the State
of New York as Lender in its sole discretion may elect and Borrower hereby
submits to the non-exclusive jurisdiction of such courts for the purpose of any
such suit, action or proceeding. Borrower hereby irrevocably and
unconditionally waives (a) any objections 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, the Note or any other Loan Paper brought in the
courts located in the State of New York and hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court
has been brought in any inconvenient forum, and (b) to the maximum extent not
prohibited by law, any right it may have to claim or recover on any legal
action or proceeding related hereto, any special, exemplary, punitive or
consequential damages. BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF, OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND THE RIGHT TO
BRING ANY ACTION IN COURTS LOCATED IN ANY STATE OTHER THAN NEW YORK.
42
<PAGE> 47
12.07. Invalid Provisions. If any provision of any Loan Paper is
held to be illegal, invalid or unenforceable under present or future laws
during the term of this Agreement, such provision shall be fully severable;
such Loan Paper shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Loan Paper; and the
remaining provisions of such Loan Paper shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision
or by its severance from such Loan Paper. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision shall be added as part of such Loan
Paper a provision mutually agreeable to Borrower and Lender as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable. In the event Borrower, and Lender are unable to
agree upon a provision to be added to the Loan Paper within a period of ten
(10) Business Days after a provision of the Loan Paper is held to be illegal,
invalid or unenforceable, then a provision acceptable to Lender as similar in
terms to the illegal, invalid or unenforceable provision as is possible and be
legal, valid and enforceable shall be added automatically to such Loan Paper.
In either case, the effective date of the added provision shall be the date
upon which the prior provision was held to be illegal, invalid or
unenforceable.
12.08. Maximum Interest Rate. Regardless of any provision
contained in any of the Loan Papers, Lender shall never be entitled to receive,
collect or apply as interest on the Note any amount in excess of the Maximum
Rate.
12.09. Offset. Borrower hereby grants to Lender the right of
offset, to secure repayment of the Note, upon any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender, from or for the account of Borrower,
whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of Borrower, and any and all claims of Borrower against Lender at any time
existing.
12.10. Multiple Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
and the same agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart.
12.11. Entirety. The Loan Papers embody the entire agreement
between the parties and supersede all prior agreements and understandings, if
any, relating to the subject matter hereof and thereof.
12.12. Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
12.13. Survival. All representations and warranties made by
Borrower herein shall survive delivery of the Note and the making of the Loans.
12.14. Successors and Assigns; Participations by the Lenders.
(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; provided that (i) Borrower shall
not, directly or indirectly, assign or transfer, or attempt to assign
or transfer, any of its rights, duties or obligations under this
Agreement or any of the Loan Papers without the express prior written
consent of Lender, and (ii) Lender may not assign or transfer any of
its rights or interests in this Agreement, the Note, the other Loan
Documents or the Loan, other than to an Affiliate of Lender, except in
accordance with this Section 12.14.
(b) Lender shall have the right, at any time and from
time to time, to sell or transfer to any Person (other than AMRESCO,
Inc., Ocwen Financial Corporation or Wilshire Funding Corp.) a
participation interest in Lender's portion of the Loans provided in
the case of any such participation, Lender shall remain the "LENDER"
for all purposes under the Loan Papers (including
43
<PAGE> 48
without limitation any votes, elections or other decisions of the
Lender hereunder) and shall remain fully liable for its obligations
hereunder, included but not limited to funding all Advances hereunder,
and Borrower shall continue to deal directly and solely with Lender
under the Loan Papers and shall have no duty or obligation to deal
with any participant in any manner (including without limitation,
delivery of information or distribution of any funds to any
participant).
(c) Lender shall have the right, at any time and from
time to time to assign all or a part of its rights, interests and
obligations under this Agreement subject to and in accordance with the
following provisions:
(i) Borrower shall have given its prior
written consent for any assignment; provided that Borrower's
consent shall not be unreasonably withheld or delayed, and
shall not be required during the continuation of an Event of
Default or Potential Default.
(ii) Each assignment shall be of a constant,
and not a varying, percentage of all of the assigning
Lender's rights and obligations under this Agreement.
(iii) Any assignment hereunder must also
include an assignment of an equal interest in such Lender's
rights and obligations under the Affiliate Loan Agreements.
(iv) The parties to any assignment shall
execute and deliver to Lender, for recording in the
Register, with a copy thereof to Borrower, an Assignment and
Acceptance, in form and substance acceptable to Lender (an
"ASSIGNMENT AND ACCEPTANCE"), together with new Notes
subject to such assignment.
Upon execution of an Assignment and Acceptance, delivery by the
transferor Lender of an executed copy thereof to Borrower and Lender
(together with notice that payment of the purchase price, as
hereinafter provided, shall have been made), and payment by such
purchaser to such transferor Lender of an amount equal to the purchase
price agreed between such transferor Lender and such purchaser, from
and after the effective date specified in such Assignment and
Acceptance (which effective date shall be at least (5) five Business
Days after the execution thereof), (A) the assignee thereunder shall
be a party to this Agreement as a "LENDER" hereunder and, to the
extent provided in such Assignment and Acceptance, shall have the
rights and obligations of a Lender hereunder, and (B) the assigning
Lender shall, to the extent provided in such assignment, be released
from its obligations under this Agreement, except for any such
obligations which by their nature should survive any such assignment.
(d) Lender shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the
"REGISTER") for the recordation of the names and addresses of each
Lender and the Loan percentages of, and principal amount of the Loan
owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower,
and each Lender may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement.
The Register shall be available for inspection by Borrower and the
Lenders at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note
subject to such assignment, Lender shall (i) record the information
contained therein in the Register, and (ii) give prompt notice thereof
to Borrower and Lender (other than the assigning Lender), and this
Agreement shall automatically be deemed revised to reflect the name,
address, Commitment and Loan Percentage of the new Lender and the
deletion of or changed information for the assigning Lender. Within
five (5) Business Days after receipt of such notice, Borrower, at the
Lenders' expense, shall execute and deliver to the Lender,
44
<PAGE> 49
in exchange for each surrendered Note, a new Note payable to the order
of such new Lender in an amount equal to the amount assigned to such
new Lender pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained some portion of its obligations
hereunder, a new Note payable to the order of the assigning Lender in
an amount equal to the amount retained by it hereunder. Such new Note
shall provide that they are replacements for the surrendered Note,
shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Note, shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the assigned Note. The surrendered Note
shall be canceled and returned to Borrower.
12.15. Senior Debt; Borrower Subordination. The Indebtedness of
Borrower hereunder and under the Note and all of the Obligation is intended to
be and shall be senior to any subordinated indebtedness of Borrower or any
other Indebtedness of Borrower secured by a Lien on any portion of the
Collateral (the foregoing shall not in any way imply Lender's consent to any
such subordinate debt or Liens which is not otherwise permitted by this
Agreement). The Note and any other amounts advanced to or on behalf of
Borrower or any other Person pursuant to the terms of this Agreement or any
other Loan Paper shall never be in a position subordinate to any Indebtedness
of Borrower owing to any other Person, except with the knowledge and written
consent of Lender.
12.16. No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, or for debts or claims accruing to any such persons against
Borrower. Notwithstanding anything contained herein or in the Note, or in any
other Loan Paper, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Agreement or any of the other Loan
Papers neither this Agreement nor any other Loan Paper shall be construed as
creating any right, claim or cause of action against Lender, or any of their
officers, directors, agents or employees, in favor of any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower, nor to any other person or entity other than Borrower.
12.17. Oral Agreements Ineffective. THE LOAN PAPERS REPRESENT THE
FINAL AGREEMENT AMONG THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS
45
<PAGE> 50
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
FH PARTNERS, L.P. FH PARTNERS, L.P. as Borrower
P.O. Box 8216
Waco, Texas 76714-8216 By: FH ASSET CORP.,
Telecopy No. 254/756-7032 its general partner
Attention: Terry R. DeWitt
By: /s/ JAMES C. HOLMES
--------------------------------
James C. Holmes, Senior Vice
President
NOMURA ASSET CAPITAL NOMURA ASSET CAPITAL CORPORATION
CORPORATION
2 World Financial Center
Building B
New York, New York 10281-1198 By: /s/ HELAINE FISHER HEBBLE
--------------------------------
Helaine Fisher Hebble
Director
46
<PAGE> 51
EXHIBIT "A"
FORM OF NOTE
$100,000,000 February 27, 1998
FOR VALUE RECEIVED, FH PARTNERS, L.P.,, a Texas limited corporation
("BORROWER"), promises to pay to the order of NOMURA ASSET CAPITAL CORPORATION
("LENDER") that portion of the principal amount of $100,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is the "Note" under the Revolving Credit Loan Agreement (as
renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
February 27, 1998, between Borrower and Lender. All of the defined terms in
the Loan Agreement have the same meanings when used -- unless otherwise defined
- -- in this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity, which is the stated Maturity Date. Principal and interest are
payable to the holder of this note through Lender at either (a) its offices at
2 World Financial Center, Building B, New York, New York 10281-1198, or (b) at
any other address so designated by Lender in written notice to Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after an Event of Default,
voluntary and mandatory prepayments, acceleration of maturity, exercise of
rights and remedies, payment of attorneys' fees, court costs, and other costs
of collection, certain waivers by Borrower and other obligors, assurances and
security, choice of New York and United States federal Law, usury savings, and
other matters applicable to Loan Papers under the Loan Agreement.
FH PARTNERS, L.P.,
as Borrower
By: FH ASSET CORP, its general
partner
By:
------------------------------
James C. Holmes,
Senior Vice President
47
<PAGE> 52
EXHIBIT "B"
DISCOUNT FACTORS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
COLL NPV DISCOUNT FACTOR (%)
CODES DAYS DELINQUENT BASED ON ORIGINAL NOTE TERMS COLLATERAL
--------------------------------------------------------------- DESCRIPTION
0-30 31-60 61-90 >90
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 INDEX + 4 INDEX + 4 INDEX + 5 INDEX + 6 RESIDENTIAL 1-4
- -------------------------------------------------------------------------------------------------------
7 INDEX + 4 INDEX + 5 INDEX + 7 INDEX + 8 RESIDENTIAL MOBILE HOME
- -------------------------------------------------------------------------------------------------------
9 INDEX + 4 INDEX + 5 INDEX + 6 INDEX + 7 RESIDENTIAL MOBILE HOME &
LOT
- -------------------------------------------------------------------------------------------------------
10 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 19 UNSECURED
- -------------------------------------------------------------------------------------------------------
11 INDEX + 3 INDEX + 3 INDEX + 3 INDEX + 3 NEGOTIABLE INSTRUMENTS
- -------------------------------------------------------------------------------------------------------
15 INDEX + 3 INDEX + 3 INDEX + 3 INDEX + 3 CASH VALUE - LIFE
INSURANCE
- -------------------------------------------------------------------------------------------------------
16 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 COSIGNER/GUARANTOR
- -------------------------------------------------------------------------------------------------------
20 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 MECHANICS LIEN
- -------------------------------------------------------------------------------------------------------
21 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 HOME IMPROVEMENT
- -------------------------------------------------------------------------------------------------------
22 INDEX + 5 INDEX + 5 INDEX + 6 INDEX + 9 CONTRACT FOR DEED
- -------------------------------------------------------------------------------------------------------
23 INDEX + 6 INDEX + 6 INDEX + 8 INDEX + 10 PROMISSORY NOTES/NOTES
RECEIVABLE
- -------------------------------------------------------------------------------------------------------
30 INDEX + 6 INDEX + 6 INDEX + 9 INDEX + 14 ACCOUNTS
RECEIVABLE/INVENTORY
- -------------------------------------------------------------------------------------------------------
31 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 CONSUMER GOODS
- -------------------------------------------------------------------------------------------------------
32 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 VEHICLE
- -------------------------------------------------------------------------------------------------------
33 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 9 AIRPLANE
- -------------------------------------------------------------------------------------------------------
34 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 CROPS & LIVESTOCK
- -------------------------------------------------------------------------------------------------------
35 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 BOATS OR SHIPS
- -------------------------------------------------------------------------------------------------------
37 INDEX + 4 INDEX + 6 INDEX + 9 INDEX + 14 MISCELLANEOUS
- -------------------------------------------------------------------------------------------------------
38 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 14 FURNITURE, FIXTURES,
EQUIPMENT
- -------------------------------------------------------------------------------------------------------
45 INDEX + 6 INDEX + 8 INDEX + 11 INDEX + 15 LAND COMMERCIAL
- -------------------------------------------------------------------------------------------------------
46 INDEX + 5 INDEX + 7 INDEX + 9 INDEX + 11 LAND - RESIDENTIAL
- -------------------------------------------------------------------------------------------------------
47 INDEX + 5 INDEX + 7 INDEX + 9 INDEX + 11 LAND - AGRICULTURAL
- -------------------------------------------------------------------------------------------------------
52 INDEX + 4 INDEX + 4 INDEX + 6 INDEX + 8 MULTIFAMILY DWELLING
- -------------------------------------------------------------------------------------------------------
18 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 OFFICE
- -------------------------------------------------------------------------------------------------------
19 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 OFFICE/WAREHOUSE
- -------------------------------------------------------------------------------------------------------
24 INDEX + 5 INDEX + 5 INDEX + 7 INDEX + 9 RETAIL
- -------------------------------------------------------------------------------------------------------
12 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 HOTEL/MOTEL
- -------------------------------------------------------------------------------------------------------
13 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 12 SPECIALTY
- -------------------------------------------------------------------------------------------------------
36 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 INDUSTRIAL/WAREHOUSE
- -------------------------------------------------------------------------------------------------------
25 INDEX + 5 INDEX + 6 INDEX + 9 INDEX + 12 CONVALESCENT
- -------------------------------------------------------------------------------------------------------
64 INDEX + 5 INDEX + 5 INDEX + 8 INDEX + 10 MIXED USE
- -------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 53
The Index Equals: The yields on actively traded government issues
adjusted to constant maturity of three years quoted on a bond equivalent basis
as published by the Federal Reserve Board in its H.15 Publication.
A possible increase (adjustment) to the discount rates shown above is
the Credit Risk Adjustment ("CRA"). The CRA applies only to loans less than 60
days delinquent. The CRA is an amount added to the discount rates shown above
for purposes of increasing the discount factors used in the Net Present Value
calculation.
<TABLE>
<CAPTION>
Credit Risk Adjustment: CRA Amount Credit Risk Category
---------------------- ---------- --------------------
<S> <C> <C>
Minimal Risk of Default 0.0% 1
Mild Risk of Default 0.5% 2
Moderate Risk of Default 1.0% 3
Significant Risk of Default 2.0% 4
Other Variable up to 2.0% 5
</TABLE>
The "Other" category (shown above) will be applicable only to those assets with
special circumstances and will be subject to the judgment of the Servicer and
mutually agreed to by the Lender. In some instances, the variable may be
negative. In other words, circumstances may dictate that the CRA should serve
to reduce the risk in a particular Asset.
49
<PAGE> 54
EXHIBIT "C"
PERMITTED LIENS
None
50
<PAGE> 55
EXHIBIT "D"
BORROWING REQUEST
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, NY 10281-1198
Re: Loan Agreement dated February 27, 1998 between you and FH
PARTNERS, L.P., (the "Loan Agreement")
Dear Sirs:
We refer to the above Loan Agreement between Nomura Asset Capital
Corporation ("Lender") and FH PARTNERS, L.P., as borrower ("Borrower"). Terms
defined in the Loan Agreement have the same meaning in this Borrowing Request.
This represents Borrower's request to borrow $______________________ under the
Loan Agreement on ______________________, 19_______, from Lender.
The Borrowing Request is one of the Borrowing Requests referred to in,
and shall be interpreted in accordance with and subject to the conditions of,
the Loan Agreement. Pursuant to the Loan Agreement, this Borrowing Request
constitutes Company's request to have Lender finance, on the terms and
conditions of the Loan Agreement, ______% of the Net Present Value of the Asset
Portfolio, subject to Company's purchase of such Asset Portfolio, as such Asset
Portfolio is more fully described in the Asset Portfolio Report which is
attached hereto as ATTACHMENT I.
<TABLE>
<S> <C> <C>
1. DESCRIPTION OF ASSET PORTFOLIO:
A. ACQUISITION ID:
----------------------- -------------------------------------
B. SELLER NAME:
-------------------------------------
C. SELLER PORTFOLIO:
-------------------------------------
D. ADVANCE/SETTLEMENT DATE:
-------------------------------------
E. NUMBER OF ASSETS:
-------------------------------------
F. TOTAL PRINCIPAL BALANCE OF ASSETS:
-------------------------------------
G. PURCHASE PRICE (%):
-------------------------------------
H. PURCHASE PRICE ($):
-------------------------------------
I. GENERAL CHARACTERISTICS OF ASSETS:
-------------------------------------
J. CASHFLOW PROJECTION ("ROLLUP," with
detail attached):
-------------------------------------
K. COLLECTION FEE PERCENTAGE
ON ASSET PORTFOLIO:
-------------------------------------
L. PROPOSED CAPITAL STRUCTURE:
-------------------------------------
M. ADVANCE PERCENTAGE:
-------------------------------------
N. SERVICER FirstCity Servicing Corporation
O. ASSET THRESHOLD AMOUNT
-------------------------------------
</TABLE>
2. WIRE INSTRUCTIONS:
Attached hereto as ATTACHMENT II are complete payment and wiring
instructions with respect to the purchase price of the Asset Portfolio to be
paid to the Asset Seller.
51
<PAGE> 56
3. NO ADVERSE SELECTION:
The Company represents to the Lender that it has not used any
selection procedures which result in the Asset Portfolio being less desirable
or valuable than other comparable pools of assets similar to the Assets.
4. REPRESENTATIONS AND WARRANTIES:
In delivering this Borrowing Request, the undersigned officer, to the
best of such officer's knowledge, on behalf of Borrower, but not individually,
certifies and confirms that (i) no Potential Default, Event of Default or
Collateral Impairment Event has occurred and is continuing or will occur as a
result of this proposed financing or Borrower's purchase of the loans, (ii) the
Loan Agreement, the Security Documents and all related agreements are in full
force and effect and constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their terms, subject to bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting creditor's
rights generally and the effects, if any, of general principles of equity,
(iii) the representations and warranties in SECTION 5 of the Loan Agreement and
the other Loan Papers are true, correct and complete in all material respects
on and as of the date hereof to the same extent as though made on and as of the
date hereof, except for any representation or warranty limited by its terms to
a specific date and taking into account any amendments to the Schedules or
Exhibits or waivers as a result of any disclosures made by Borrower to Lender
after the Effective Date of the Initial Advance under the Loan Agreement and
approved in writing by Lender; (iv) the amount of the Advance requested herein
does not exceed the Maximum Advance Amount for the Asset Portfolio being
acquired with the proceeds of the proposed Advance; (v) the purchase of the
Asset Portfolio has been underwritten by Borrower in accordance with Borrower's
established underwriting requirements; (vi) the Assets included in the Asset
Portfolio being financed with the Advance are of a type previously financed by
Borrower, or an Affiliate of Borrower, with Lender or, if not, are assets which
have been specifically approved by Lender for inclusion in the Asset Portfolio;
(vii) all other conditions to the making of the Advance requested under the
Loan Agreement will be satisfied as of the applicable Effective Date; and
(viii) on the Effective Date of the requested Advance Borrower will possess the
originals of the promissory notes (or Lost Notes Affidavits, with copies of
each Lost Note) and mortgages evidencing the Collateral Loans included in the
Asset Portfolio being acquired with this Advance and Borrower will deliver such
promissory notes, mortgages and other Collateral loan documents to the
Collateral Custodian within the time periods set forth in the Loan Agreement.
5. ADDITIONAL DOCUMENTATION:
Submitted with the Borrowing Request or prior hereto are the following
documents:
a. Offering materials of the Seller;
b. Form of purchase agreement with Seller, to be followed by
executed copy;
c. Letter from Asset Seller confirming sale to Borrower;
d. UCC-1 executed by Company for county and state filings with
asset schedule attached; and
e. FirstCity due diligence materials.
f. A Trial Balance for the Asset Portfolio setting forth for each
Asset, the Allocated Purchase Price and any Permitted Prior
Liens.
6. INFORMATION ON DISKETTE:
Submitted with the Advance Request is an electromagnetic disk or hard
copy (whichever the Seller provides) containing the information set forth as
"monthly data request" in the Loan Agreement, to the extent available, with
respect to each asset (or Asset Seller's due diligence information or
electromagnetic disk with respect to the purchased assets).
52
<PAGE> 57
Date: ,
---------------------------- ------
FH PARTNERS, L.P.,
as Borrower
By: FH ASSET CORP, its general
partner
By:
-----------------------------
James C. Holmes,
Senior Vice President
Approved and Accepted by Lender on this ___ day of _________________, 199____.
NOMURA ASSET CAPITAL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
53
<PAGE> 58
EXHIBIT "E"
AFFILIATE LOAN AGREEMENTS
54
<PAGE> 59
SCHEDULE 5.09
Material Agreements
(1) Each Partnership Agreement forming each REO Affiliate
(2) Each Purchase and Sale Agreement related to each Owned Asset Portfolio
55
<PAGE> 60
SCHEDULE 5.10
Litigation
None
56
<PAGE> 61
SCHEDULE 7.16
Locations of Books and Records
FIRSTCITY SERVICING CORPORATION
P.O. Box 8216
Waco, Texas 76714-8216
6400 Imperial Drive
Waco, Texas 76712
(254) 751-1750
(800) 247-4274
(254) 751-1757 (FAX)
FIRSTCITY SERVICING CORPORATION
P.O. Box 105
Houston, Texas 77001
1021 Main Street, Suite 2625
Houston, Texas 77002
(713) 652-1810
(713) 652-1812 (FAX)
FIRSTCITY SERVICING CORPORATION
577-A Southlake Blvd.
Southport Office Park
Richmond, Virginia 23236
(804) 378-7080
(804) 378-7088 (FAX)
FIRSTCITY SERVICING CORPORATION
625 Ridge Pike
Building A, Suite 103
Conshohocken, Pennsylvania 19428
(610) 825-3762
(610) 825-3798 (FAX)
FIRSTCITY SERVICING CORPORATION
38 Pond Street
Suite 105
Franklin, MA. 02038
(508) 528-0116
(800) 925-0116
(508) 520-4713 (FAX)
FIRSTCITY SERVICING CORPORATION
4711 Rupp Dr.
Suite 209
Ft. Wayne, Indiana 46815
(219) 484-5245
(219) 482-2439 (FAX)
57
<PAGE>
EXHIBIT 10.14
================================================================================
THE NOTES TO BE OFFERED AND SOLD PURSUANT TO THIS NOTE AGREEMENT HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND ARE BEING PRIVATELY OFFERED
IN THE UNITED STATES ONLY TO INSTITUTIONS THAT ARE "ACCREDITED INVESTORS"
WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) AND (7) UNDER THE SECURITIES ACT
OR "QUALIFIED INSTITUTIONAL BUYERS" WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT. THE NOTES MAY BE REOFFERED, RESOLD OR OTHERWISE TRANSFERRED
ONLY IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND IN
COMPLIANCE WITH THE PROVISIONS OF THIS NOTE AGREEMENT.
BOSQUE ASSET CORP.
NOTE AGREEMENT
DATED AS OF JUNE 6, 1997
$93,908,994 - 7.66% ASSET-BACKED NOTES DUE JUNE 5, 2002
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3 Other References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.4 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2 NOTES AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Notes and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Interest and Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.3 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4 Interest Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Lockbox Accounts; Distributions of Portfolio Collections. . . . . . . . . . . . . . . . . . . . . . 17
2.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7 Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Authorization and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 No Conflicts or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.5 No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.7 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.8 No Default; Potential Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.9 Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.10 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.11 Burdensome Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.13 Principal Office, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.16 Government Regulation; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.17 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.18 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.19 Ownership of the Company and each Realty Company . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.20 Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.21 Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.22 Collateral Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.23 No Setoff Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.24 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.25 Ownership of the Collateral Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.26 Enforceability of Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.27 No Modification or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.28 Survival of Representations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
(i) TABLE OF CONTENTS
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1 Note Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.3 Delivery of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.4 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.5 Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.6 Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.7 Incumbency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.8 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.9 Recordable Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Lien Searches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12 Rating Agency Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.13 CUSIP Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.14 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.15 Opinion Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.16 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Financial Statements, Reports and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 Additional Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.3 Payment of Taxes, Impositions and Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.5 Maintenance of Existence and Rights; Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 29
5.6 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.7 Other Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.8 Compliance with Note Agreement Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.9 Compliance with Material Agreements and Organizational Documents . . . . . . . . . . . . . . . . . . 29
5.10 Operations and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.11 Books and Records; Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.12 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.13 Authorizations and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.15 Collection Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.16 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.17 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.18 Grant of Specific Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.19 Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.20 Disposition of Collateral Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.21 General Indemnity; Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.4 Alteration of Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.5 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(ii) TABLE OF CONTENTS
<PAGE> 4
<TABLE>
<S> <C>
6.6 Issuance of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.7 Limitation on Sale of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 Name, Fiscal Year and Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.9 Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets . . . . . . . . . . . . 33
6.10 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.11 No Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.12 Purchase of Substantial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.13 New Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.14 Fictitious Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.15 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.16 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7 COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.2 Lien on REO Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3 Insurance of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4 Possession of Collateral Documents; Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . . 35
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.6 Appointment of Collateral Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.7 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Remedies Upon Event of Default; Application of Payments . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Performance by the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Breach of Certain Representations and Warranties; Breach of Collateral Document
Delivery Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 Delegation of Duties; Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3 Limitation of Trustee's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7 Relationship of the Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.8 Benefits of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.1 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.2 Accounting Terms and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6 Choice of Law; Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 46
10.7 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.8 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.9 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
(iii) TABLE OF CONTENTS
<PAGE> 5
<TABLE>
<S> <C> <C>
10.10 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.11 Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.14 Registration; Exchange; Substitution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.15 Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.16 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
10.17 Oral Agreements Ineffective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
SCHEDULE 1 Collateral Loan Schedule
SCHEDULE 2 Location of Servicer's Offices
SCHEDULE 3 Allocated Purchase Price Schedule
SCHEDULE 4 Closing Review Procedures
EXHIBIT A Form of Note
EXHIBIT B Form of Collateral Assignment
EXHIBIT C Form of Mortgage
EXHIBIT D Form of REO Note
EXHIBIT E Form of Asset Portfolio Report
EXHIBIT F Form of Investor Letters
EXHIBIT G Form of Report to Noteholders
(iv) TABLE OF CONTENTS
<PAGE> 6
NOTE AGREEMENT
THIS NOTE AGREEMENT is entered into as of June 6, 1997, among BOSQUE
ASSET CORP., a Texas corporation (the "COMPANY"), SVD REALTY, L.P., a Texas
limited partnership ("SVD"), SOWAMCO XXII, LTD., a Texas limited partnership
("SOWAMCO"), BOSQUE INVESTMENT REALTY PARTNERS, L.P., a Texas limited
partnership ("BOSQUE REALTY"; SVD, SOWAMCO and Bosque Realty, are herein each
referred to individually as a "REALTY COMPANY" and collectively as the "REALTY
COMPANIES"), and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as the Trustee for
the Noteholders.
RECITALS:
Contemporaneously herewith, the Company is (i) acquiring a portfolio
of secured and unsecured consumer, residential and commercial loans and (ii)
issuing and selling the Notes in the aggregate principal amount of ninety-
three million, nine hundred eight thousand, nine hundred ninety-four and No/100
Dollars ($93,908,994) to be used by the Company to acquire such portfolio of
loans.
For adequate and sufficient consideration, the Company, the Realty
Companies and the Trustee agree as follows for the benefit of each other and
for the equal and ratable benefit of the Noteholders:
SECTION 1 DEFINITIONS AND TERMS
1.1 DEFINED TERMS. As used in this Agreement:
"ACCOUNT DEBTOR" means, collectively, the "borrower" and each other
obligor, guarantor or other liable party under a Collateral Loan.
"ADDITIONAL LOCKBOX BANK" means Fort Wayne National Bank, in its
capacity as Additional Lockbox Bank under the applicable Lockbox Agreement, and
any replacements and successors designated pursuant to the terms of such
Lockbox Agreement, approved in writing by the Trustee and the Determining
Noteholders, and acceptable to the Rating Agencies.
"AFFILIATE" means, as to any Person, any Subsidiary of such Person, or
any Person which, directly or indirectly, controls, is controlled by, or is
under common control with such Person. For the purposes of this definition,
"control" means the possession of the power to direct or cause the direction of
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Note Agreement, as it may be amended, renewed,
extended, or restated from time to time.
"ALLONGE" shall mean an endorsement on a separate sheet of paper
accompanying a promissory note, endorsing the note to "Bankers Trust Company of
California, N.A., as Trustee for the Noteholders" or in blank.
NOTE AGREEMENT
<PAGE> 7
"APPLICABLE ENVIRONMENTAL LAWS" mean any law, statute, ordinance,
rule, regulation, order or determination of any Governmental Authority or any
board of fire underwriters (or other body exercising similar functions),
pertaining to health, safety or the environment, including, without limitation,
all applicable flood disaster laws and health, safety and environmental laws
and regulations pertaining to health, safety or the environment, including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the
Superfund Amendments and Reauthorization Act of 1986, the Occupational Safety
and Health Act, the Texas Water Code, the Texas Solid Waste Disposal Act, the
Texas Workers' Compensation Laws, and any federal, state or municipal laws,
ordinances, regulations or laws which may now or hereafter require removal of
asbestos or other hazardous wastes from any property of the Company, the
Servicer, or the Realty Companies, or impose any liability on the Company, the
Trustee, the Servicer, the Realty Companies, or any other Person related to
asbestos or other hazardous wastes in any property of the Company, the
Servicer, or the Realty Companies.
"ASSET PORTFOLIO" means the portfolio of secured and unsecured
consumer, residential and commercial loans acquired by the Company pursuant to
the Loan Contribution Agreements on or before the Closing Date and any REO
Property now owned by any Realty Company or hereafter acquired by the REO
Affiliate in connection with the future foreclosure, restructuring, or
settlement of such loans, including, without limitation all REO Notes, together
with all documents, instruments, certificates and other information related
thereto.
"ASSET PORTFOLIO REPORT" means a report, in a form substantially
similar to the form of report attached hereto as EXHIBIT E showing various
information concerning the Asset Portfolio and each Collateral Loan included
therein, as of the end of the month preceding delivery of such report.
"AUTHORIZED OFFICER" means the Chairman, President, Vice President of
any seniority or designation, Chief Financial Officer, Treasurer, Assistant
Treasurer, or any other officer authorized by the Board of Directors of the
Company or REO General Partner, as applicable.
"BUSINESS DAY" means any day other than Saturday, Sunday, and any
other day that commercial banks are authorized by Governmental Requirements to
be closed in Texas or California.
"CLOSING DATE" means June 6, 1997.
"CLOSING REVIEW" means a review, in accordance with the procedures set
forth in SCHEDULE 4_attached hereto and incorporated herein, of the Asset
Portfolio conducted by KPMG Peat Marwick LLP or other audit firm engaged by the
Company and acceptable to the Determining Noteholders, for the benefit of the
Noteholders, to determine the accuracy of the representations made hereunder
with respect to the Collateral Loans, which review is to be completed and
delivered no later than thirty (30) days following the Closing Date and is to
be paid for by the Company.
"COLLATERAL" means, at any time, all Collateral Loans, all other
property then subject to the Security Agreement, and all REO Property.
"COLLATERAL ASSIGNMENT" means an Assignment of Notes and Liens in a
form substantially similar to EXHIBIT "B" attached hereto and incorporated
herein, and collectively, all Assignments of Notes and Liens, in favor of
Bankers Trust Company of California, N.A., as Trustee for the Noteholders, as
security
2 NOTE AGREEMENT
<PAGE> 8
for the Obligation, each of which (a) is intended to cover all of the
Collateral Loans being a part of the Asset Portfolio and all renewals,
modifications, amendments, supplements and restatements thereof, (b) shall be
duly signed and notarized in accordance with applicable state law, and (c)
shall be in proper form for recording, in order to, when filed, confirm and
perfect the Trustee's Liens in the Collateral.
"COLLATERAL CUSTODIAN" means Fleet National Bank, a national banking
association, or its successor or any other Person agreed upon in writing by the
Trustee, the Determining Noteholders, and, provided no Event of Default exists,
the Company, and being a Person acceptable to the Rating Agency.
"COLLATERAL DOCUMENTS" means all promissory notes evidencing
Collateral Loans (including all REO Notes), all mortgages, deeds of trust,
security agreements, financing statements and other documents securing
Collateral Loans (including all REO Security Documents), and all loan
agreements and other documents executed by Account Debtors in connection with
Collateral Loans including, without limitation, the documents listed in SECTION
4.3.
"COLLATERAL LOAN" means each loan included in the Asset Portfolio
which has not been sold, foreclosed upon, settled, or otherwise disposed of and
each loan evidenced by an REO Note.
"COLLATERAL LOAN SCHEDULE" means SCHEDULE 1 attached hereto and
incorporated herein listing each Collateral Loan included in the Asset
Portfolio together with the outstanding principal balance of each Collateral
Loan, the last payment or pay-to date of each such Collateral Loan, the Asset
number for each such Collateral Loan and the name and address of each Account
Debtor.
"CUSIP NUMBER" is defined in SECTION 2.1(d).
"CUSTODIAL AGREEMENT" means the Custodial Agreement among the
Collateral Custodian, the Company, the Servicer and the Trustee whereby the
Collateral Custodian agrees to act as bailee on behalf of the Trustee for the
documents evidencing the Collateral Loans, as such Custodial Agreement may be
amended or supplemented from time to time, together with any replacement or
substitution therefor.
"DEFAULT RATE" means a rate per annum equal to 12.66% for the Notes.
"DETERMINING NOTEHOLDERS" means, on any date of determination those
Noteholders who collectively hold at least 51% of the then-outstanding
aggregate principal amount of the Notes (excluding any Notes held by the
Company, any Shareholder, the Servicer, the Realty Companies, the REO General
Partner or any Affiliate of the Company, any Shareholder, the Servicer, the
Realty Companies, or the REO General Partner).
"DISBURSEMENT ACCOUNT" means a trust account established with the
Trustee and styled "Bankers Trust Company of California, N.A., as Trustee for
Noteholders" into which the Lockbox Bank shall, pursuant to SECTIONS 2.5 (b)
and (c) hereof, deposit funds for payment by the Trustee to the Noteholders of
principal, interest and Make-Whole Amounts, if any, and into which all proceeds
received by the Trustee as a result of the Trustee foreclosing upon the
Collateral or otherwise exercising any other remedies available to it under the
Note Agreement Documents following the occurrence of an Event of Default shall
be deposited.
"DISTRIBUTION DATE" is defined in SECTION 2.1(b).
3 NOTE AGREEMENT
<PAGE> 9
"DISPOSED" has the meaning specified in the Resource Conservation and
Recovery Act of 1976, provided that to the extent that any other applicable
federal, state or local Governmental Requirement establishes a meaning for
"disposed" which is broader, such broader meaning shall apply.
"ENVIRONMENTAL SITE ASSESSMENT" shall mean an environmental site
assessment report conforming to the standards for Phase I Environmental Site
Assessments in ASTM Standard Procedures for Environmental Site Assessments, E
1527-93 or other standards reasonably satisfactory to the Servicer (either of
which, if applicable, is herein called the "ACCEPTABLE STANDARDS"), which, if
applicable, is in all respects satisfactory to the Servicer and which, if
applicable, has been prepared by a qualified environmental firm reasonably
satisfactory to the Servicer (a) indicating that, on the basis of an
investigation conducted in accordance with the Acceptable Standards, (i) the
firm found no Hazardous Substance present on or in the property that is the
subject of its report at levels that require reporting or remediation, or both,
pursuant to any Applicable Environmental Laws that are applicable to such
property ("PROHIBITED HAZARDOUS SUBSTANCES"), (ii) it did not learn of any
conditions on or in the land adjacent to the property that is the subject of
its report that would cause it to believe that there might be prohibited
Hazardous Substances present on or in the property that is the subject of its
report, and (iii) no notice of violation of any of the Applicable Environmental
Laws, or other claim or order issued pursuant to any of the Applicable
Environmental Laws, has been duly filed against such property by any
Governmental Authority; or (b) if any Prohibited Hazardous Substance is present
on such property or if any such notice of violation, claim or order has been
filed, providing evidence satisfactory to the Servicer as to the extent and
nature of the environmental problem caused thereby and the likely costs and
duration of any recommended remediation.
"EQUITY PAYMENT" is defined in SECTION 2.5(c)(ii).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all regulations issued pursuant
thereto.
"EVENT OF DEFAULT" is defined in SECTION 8.1.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board, or through other appropriate boards or
committees thereof, as in effect from time to time in the United States of
America.
"GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over the Company, the Servicer, the
Realty Companies or any of their businesses, operations or properties or any
other Person.
"GOVERNMENTAL REQUIREMENTS" means all applicable statutes, laws,
treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees,
judgments, opinions, and interpretations of any Governmental Authority.
"HAZARDOUS SUBSTANCE" has the meaning specified in the Superfund
Amendments and Reauthorization Act of 1986, provided that to the extent that
any other applicable federal, state or local Governmental Requirement
establishes a meaning for "hazardous substance," "hazardous materials," "toxic
substances," or "hazardous wastes" which is broader, such broader meaning shall
apply.
4 NOTE AGREEMENT
<PAGE> 10
"IMPOSITIONS" means all real estate and personal property taxes;
charges for any easement, license or agreement maintained for the benefit of
any of the real property of the Realty Companies, or any part thereof; and all
other taxes, charges and assessments and any interest, costs or penalties with
respect thereto, general and special, ordinary and extraordinary, foreseen and
unforeseen, of any kind and nature whatsoever, which at any time prior to or
after the execution hereof may be assessed, levied or imposed upon any of the
real property of the Realty Companies, or any part thereof, or the ownership,
use, sale, occupancy or enjoyment thereof, in each case which, if not timely
paid or otherwise discharged, would materially and adversely affect (a) such
ownership, use, sale, occupancy or enjoyment, (b) the financial condition of
the Realty Company owning such property or (c) the Trustee's Lien on any such
property.
"INDEBTEDNESS" means, with respect to any Person, all indebtedness,
obligations and liabilities of such Person, including without limitation: (a)
all "liabilities" which would be reflected on a balance sheet of such Person,
prepared in accordance with GAAP; (b) all obligations of such Person in respect
of any guaranty; and (c) all obligations of such Person in respect of any
capital lease or sublease that is required by GAAP to be capitalized on a
balance sheet.
"INDEMNIFIED LIABILITIES" is defined in SECTION 5.21(a).
"INDEMNIFIED PARTIES" is defined in SECTION 5.21(a).
"INVESTMENT" in any Person means any investment, whether by means of
share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the guaranty of any Indebtedness of such
Person, or the subordination of any claim against such Person to other
Indebtedness of such Person, other than any investments permitted by Servicer
under this Agreement in the ordinary course of servicing the Asset Portfolio.
"LEASE-UP EXPENSES" means as to any REO Property, (a) all reasonable
and customary leasing commissions, (b) all reasonable tenant improvement costs
actually paid by the Company or the Realty Company with respect to the leasing
of space in such REO Property pursuant to a written lease, and (c) all capital
expenditures actually paid by the Company or the Realty Company with respect to
other improvements to such REO Property, provided that such capital
expenditures are expended in accordance with a budget for such REO Property
which has been approved in writing by the Servicer; all as evidenced by
invoices and such other back-up information as the Servicer may require.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or capital lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LIQUIDITY RESERVE ACCOUNT" means, with respect to the Asset
Portfolio, an interest bearing trust account established by the Company with
the Lockbox Bank which account shall be (a) funded and disbursed in accordance
with SECTION 2.5(b)(VII) and SECTION 2.7 and (b) pledged and assigned pursuant
to the Pledge of Accounts to the Trustee for the benefit of the Noteholders as
additional security for the payment, performance and observance of the
Obligation. Funds on deposit in the Liquidity Reserve Account may only be
invested in Temporary Cash Investments or used to make interest payments on the
Notes.
5 NOTE AGREEMENT
<PAGE> 11
"LIQUIDITY RESERVE AMOUNT" means an amount equal to the interest
payable on the Notes for a two-(2) month period calculated on the outstanding
principal balance of the Notes on each Payment Date after giving effect to
principal payments actually paid on or prior to such Payment Date and assuming
no additional principal payments are made during such two-month period.
"LOAN CONTRIBUTION AGREEMENTS" means the Loan Contribution Agreements,
dated as of the date hereof by and between one of the Shareholders, as
transferor, and the Company, as transferee.
"LOCKBOX" means each post office box, or collectively the post office
boxes, established by (i) the Company and the Lockbox Bank and (ii) the Company
and the Additional Lockbox Bank, in each case pursuant to the provisions of
SECTION 3.5 and the applicable Lockbox Agreement for the receipt of payments
from the Collateral Loans.
"LOCKBOX ACCOUNTS" means (i) a segregated trust account or accounts
established by the Company and maintained with the Lockbox Bank and styled
"Bosque Asset Corp., for the benefit of Bankers Trust Company of California,
N.A., as Trustee," and (ii) a segregated trust account or accounts established
by the Company and maintained with the Additional Lockbox Bank and styled
"Bosque Asset Corp., for the benefit of Bankers Trust Company of California,
N.A., as Trustee," which accounts shall be (a) subject to the provisions of
SECTION 2.5, and (b) pledged and assigned to the Trustee pursuant to the Pledge
of Accounts for the benefit of the Noteholders as additional security for the
payment, performance and observance of the Obligations.
"LOCKBOX AGREEMENTS" means (i) that certain Lockbox Agreement, dated
on or before the Closing Date, executed by and among the Company, the Realty
Companies, the Trustee, the Servicer and the Lockbox Bank, and all amendments,
modifications and replacements thereof and (ii) that certain Lockbox Agreement,
dated on or before the Closing Date, executed by and among the Company, the
Realty Companies, the Trustee, the Servicer and the Additional Lockbox Bank,
and any and all amendments, modifications and replacements thereof.
"LOCKBOX BANK" means NationsBank of Texas, N.A., in its capacity as
Lockbox Bank under the applicable Lockbox Agreement, and any replacements and
successors designated pursuant to the terms of such Lockbox Agreement, approved
in writing by Trustee and the Determining Noteholders, and acceptable to the
Rating Agency.
"MAKE-WHOLE AMOUNT" means, as of the date of prepayment pursuant to
SECTION 2.2(c)(i) (the "PREPAYMENT DATE"), the excess, if any, discounted as
provided for herein below, of (a) the amount of interest that would have
accrued on the Notes as provided for herein during the Premium Period
(hereinafter defined) over (b) the amount of interest that would have accrued
on the Notes during the Premium Period at a per annum rate of interest equal to
0.5% added to the yield on an interpolated United States Treasury security with
a maturity equal to the average life of the Notes. Such excess amount shall be
discounted to a present value amount to the Prepayment Date at the yield
described in CLAUSE (a) above. As used herein, the term "PREMIUM PERIOD" means
the period commencing upon the Prepayment Date through the earlier of (i) the
Maturity Date or (ii) the average life of the Notes applying the remaining
Projected Portfolio Collections in effect as of the last day of the month
preceding the Prepayment Date.
"MATERIAL ADVERSE EFFECT" means any circumstance or event which (a)
could have any adverse effect whatsoever upon the validity, performance or
enforceability of any Note Agreement Documents, (b)
6 NOTE AGREEMENT
<PAGE> 12
is or might be material and adverse to the financial condition or business
operations of the Company or any Realty Company, (c) could impair the ability
of the Company or any Realty Company to fulfill its obligations under the Note
Agreement Documents, or (d) could reasonably be expected to have a material and
adverse effect on the timely payment of interest on, or the ultimate payment of
principal of, the Notes.
"MATURITY DATE" means the earlier of (a) the day on which the Company
satisfies in full all of its Obligations hereunder and in respect of the other
Note Agreement Documents and the Trustee and the Noteholders so acknowledge in
writing or (b) June 5, 2002.
"MAXIMUM RATE" means, on any date of determination, the highest
nonusurious rate of interest (if any) permitted by applicable Governmental
Requirements on such day.
"MOODY'S" means Moody's Investors Service, Inc. and its successors.
"MORTGAGE" means any deed of trust or mortgage (duly acknowledged and
in recordable form) in a form substantially similar to EXHIBIT "C" attached
hereto, with such modifications as may be necessary to reflect legal
requirements and local practices of the jurisdiction in which the REO Property
is located, covering an REO Property, executed by a Realty Company, and granted
to the Company to secure repayment of the REO Notes, in form and substance
sufficient to grant a first priority lien on the REO Property, and all
renewals, extensions, modifications, amendments or supplements thereto, and all
mortgages or deeds of trust given in renewal, extension, modification,
restatement or replacement thereof.
"NET OPERATING INCOME" means, with respect to each REO Property and
any period, the excess of (a) all of the Company's or the Realty Company's cash
receipts related to such REO Property (including all rents and other revenues
but excluding security deposits) over (b) all reasonable and customary expenses
actually paid during such period which, in accordance with GAAP, would be
classified as operating expenses for a property similar to such REO Property
(including utility-related expenses, taxes, insurance expenses, repair and
maintenance expenses, and janitorial and property-management fees actually paid
by the Company or the Realty Company to an unrelated third party) and all
Lease- Up Expenses paid for such REO Property during such period.
"NET SALES PROCEEDS" means, with respect to the sale of any REO
Property, Collateral Loan or other Collateral, including any personal property
securing a Collateral Loan, the gross proceeds received from such sale, less
the reasonable and customary closing costs actually paid by the Company or the
applicable Realty Company to unrelated third parties.
"NOTE AGREEMENT DOCUMENTS" means this Agreement, the Notes, the REO
Security Documents, the Partnership Pledge Agreement, the Pledge of Accounts,
the Collateral Assignments and Allonges for each Collateral Loan, the Lockbox
Agreements, the Custodial Agreement, the Security Agreement, the Servicing
Agreement, the Loan Contribution Agreements (including any renewals, extensions
and refundings thereof of all such documents and agreements), and any
agreements, certificates or documents, including UCC-1 financing statements and
UCC-3 assignments of financing statements (and with respect to this Agreement,
and such other agreements and documents, any amendments or supplements thereto
or modifications thereof) executed and delivered pursuant to the terms of this
Agreement.
"NOTEHOLDER" means each holder of the Notes issued hereunder.
7 NOTE AGREEMENT
<PAGE> 13
"NOTES" means the 7.66% Notes due June 5, 2002, executed by the
Company and delivered to the Noteholders pursuant to the terms of this
Agreement, substantially in the form of EXHIBIT "A", together with any
renewals, extensions or modifications thereof, which Notes have been rated "A2"
by Moody's as of the date of issuance of the Notes.
"OBLIGATION" means all present and future indebtedness, obligations,
and liabilities of the Company to the Noteholders, and all renewals and
extensions thereof, or any part thereof, arising pursuant to this Agreement or
represented by the Notes, including, without limitation, all principal thereof,
all interest accruing thereon, all Make- Whole Amounts, and all attorneys' fees
incurred in the enforcement or collection thereof, regardless of whether such
indebtedness, obligations and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several; together with all
indebtedness, obligations and liabilities of the Company to the Trustee or the
Noteholders evidenced or arising pursuant to any of the other Note Agreement
Documents, and all renewals and extensions thereof.
"OPERATING RESERVE ACCOUNT" means, with respect to the Asset
Portfolio, an interest bearing checking account established by the Company with
the Lockbox Bank and styled "J-Hawk Servicing Corporation, as agent for Bosque
Asset Corp., for the benefit of Bankers Trust Company of California, N.A., as
Trustee for Noteholders", which account shall be (a) funded in accordance with
SECTION 2.5(b)(VI) and SECTION 2.7 of this Agreement and disbursed by the
Servicer, and (b) pledged and assigned pursuant to the Pledge of Accounts to
the Trustee for the benefit of the Noteholders as additional security for the
payment, performance and observance of the Obligation. Funds on deposit in the
Operating Reserve Account may only be invested in Temporary Cash Investments.
"OTHER TAXES" means, for any Person, all stamp or documentary taxes or
any excise or property taxes, charges or similar levies which arise from any
payment under this Agreement or the Notes or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the Notes, but
not including the Taxes.
"PARTNERSHIP PLEDGE AGREEMENTs" means each Security Agreement and
Pledge of Partnership Interest, dated on or before the Closing Date and
executed by the Realty General Partners and each other partner of each Realty
Company.
"PAYMENT DATE" is defined in SECTION 2.2(a).
"PERMITTED LEASE-UP EXPENSES" means all Lease-Up Expenses with respect
to any REO Property which do not exceed, on a cumulative basis with respect to
such REO Property, $100,000 or such other limit as may be agreed to in writing
by the Servicer.
"PERMITTED LIENS" means: (a) Liens granted to the Trustee for the
benefit of Noteholders to secure the Obligation; (b) pledges or deposits made
to secure payment of worker's compensation (or to participate in any fund in
connection with worker's compensation), unemployment insurance, pensions or
social security programs; (c) Liens imposed by mandatory provisions of law such
as for materialmen's, mechanic's, warehousemen's and other like Liens arising
in the ordinary course of business, securing Indebtedness whose payment is not
yet due; (d) Liens for Taxes, imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable, if the
same are being contested in good faith and as to which adequate reserves have
been provided or if the same are otherwise permitted by SECTION 5.3 hereunder;
(e) good faith deposits in connection with tenders, leases, real estate
8 NOTE AGREEMENT
<PAGE> 14
bids or contracts (other than contracts involving the advance of money),
pledges or deposits to secure public or statutory obligations, deposits to
secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other similar
charges; (f) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such do not
impair the use of such property for the uses intended, and none of which is
violated by existing or proposed structures or land use; (g) exceptions
affecting title which are shown in a title policy or attorney's opinion
included in the Company's files and (h) Permitted Prior Liens.
"PERMITTED PRIOR LIENS" means Liens upon any Underlying Collateral
securing payment of a Collateral Loan existing on the date the Collateral Loan
was acquired by the Company and any Liens securing an REO Note.
"PERSON" shall include an individual, a corporation, a joint venture,
a partnership, a limited liability company, a trust, an unincorporated
organization or a government or any agency or political subdivision thereof.
"PLAN" means an employee benefit plan or other plan maintained by the
Company for employees of the Company and/or the Realty Companies and covered by
Title IV of ERISA, or subject to the minimum funding standards under SECTION
412 of the Internal Revenue Code of 1986, as amended.
"PLEDGE OF ACCOUNTS" means the Security Agreement, Assignment of
Deposits and Money Market Instruments, executed by the Company in favor of the
Trustee for the benefit of the Noteholders.
"PORTFOLIO COLLECTIONS" for any calendar month (commencing May 1,
1997) means an amount equal to any and all cash proceeds received by the
Company, the Realty Companies or the Servicer or any of their Affiliates with
respect to the Company's or the Realty Companies' (or their Affiliate's)
ownership, management and disposition of any and all Collateral Loans and REO
Properties in the Asset Portfolio, including, without limitation, (i) all
interest, principal, and other payments on Collateral Loans from any source,
(ii) all Net Operating Income from REO Properties, (iii) all loan settlement
payments, any restructure or commitment or other loan fees, payments on any
judgments or settlement of litigation with respect to Collateral Loans, (iv)
all Net Sales Proceeds from the sale of REO Properties, Collateral Loans, and
other items of Collateral including any payments received by the Company from
any Shareholder or made by the Company to the Lockbox Accounts, in each case,
as required by SECTION 8.4, (v) all insurance proceeds and condemnation
proceeds, and (vi) all interest, dividends and other earnings directly or
indirectly paid to the Company on funds, accounts (including all investment
earnings on funds in the Liquidity Reserve Account, Lockbox Accounts, Operating
Reserve Account and all other general or special deposit accounts of the
Company or the Realty Companies) and investments of the Company, but excluding
any escrow deposits paid to the Company for tax or insurance escrows under the
Collateral Loans. Notwithstanding anything to the contrary contained in this
Agreement, all Net Operating Income from any REO Property with respect to any
calender month shall not be deemed to be a part of Portfolio Collections
received by the Company until the first to occur of (i) the payment of such Net
Operating Income by the respective Property Manager to the Company, the
applicable Realty Company or the Servicer, or (ii) the fifteenth (15th) day of
the next following calendar month.
"POTENTIAL DEFAULT" means an event or condition which but for the
lapse of time or the giving of notice, or both, would constitute an Event of
Default.
9 NOTE AGREEMENT
<PAGE> 15
"PROJECTED PORTFOLIO COLLECTIONS" means the Portfolio Collections
which the Company and Servicer reasonably expect to receive from the Asset
Portfolio and which have been determined in a manner consistent with the
Servicer's past practices taking into consideration the Servicer's historical
performance in collecting assets similar to the Collateral, and which are
reflected in the monthly Asset Portfolio Report.
"PROPERTY ACCOUNT" means the demand deposit bank account established
by a Property Manager, upon the direction of Servicer, in connection with the
operation and management of a REO Property.
"PROPERTY MANAGER" means any Person hired by Servicer to manage an REO
Property.
"PROTECTIVE ADVANCE" means a payment of expenses by the Company,
Servicer or any Property Manager which in the reasonable determination of the
Servicer shall be necessary to protect and maintain the value of any Collateral
Loan or REO Property (such expenses shall include, without limitation,
Permitted Lease-Up Expenses, ad valorem taxes, insurance expenses, security,
deferred maintenance, litigation expenses, expenses to enforce remedies, and
payments on Permitted Liens).
"PURCHASE PRICE" means, with respect to the purchase of a Collateral
Loan by a Shareholder or the payment by the Company into the applicable Lockbox
Account, in each case as required by SECTION 8.4, the allocated price for such
Collateral Loan as set forth on SCHEDULE 3, plus any out-of-pocket expenses
incurred by the Company in connection with such Collateral Loan during its
ownership of such Collateral Loan, minus any principal payments made on such
Collateral Loan received by the Company during its ownership of the Collateral
Loan.
"QUALIFIED INSTITUTIONAL BUYER" has the meaning ascribed to such term
in Rule 144A promulgated under the Securities Act.
"RATING AGENCY" means Moody's.
"RECORD DATE" means, for any payments on the Notes to be made on any
Payment Date, the twentieth (20th) day of each month (whether or not a Business
Day), immediately preceding such Payment Date.
"REGISTER" is defined in SECTION 10.14(b).
"RELEASE" has the meaning specified in the Superfund Amendments and
Reauthorization Act of 1986, provided that to the extent that any other
applicable federal, state or local Governmental Requirement establishes a
meaning for "release" which is broader, such broader meaning shall apply.
"REALTY COMPANIES" is defined in the Preamble to this Agreement.
"REALTY GENERAL PARTNER" means each general partner of the Realty
Companies.
"REO AFFILIATE" means Bosque Investment Realty Partners, L.P., a Texas
limited partnership.
"REO GENERAL PARTNER" means, Bosque Investment Realty Corp., a Texas
corporation and the general partner of the REO Affiliate.
10 NOTE AGREEMENT
<PAGE> 16
"REO NOTE" means, as to each REO Property, a demand promissory note
in a form substantially similar to EXHIBIT "D" attached hereto and incorporated
herein (i) previously delivered by a Realty Company to Company or (ii) to be
delivered by the REO Affiliate in connection with any foreclosure upon any
collateral securing a Collateral Loan that shall (a) be in a principal amount
equal to 96% of the Projected Portfolio Collections attributable to such REO
Property (b) require principal and interest payments due thereunder to be paid
not less frequently than on each Payment Date, (c) require principal and
interest payments to be in an amount equal to all Net Operating Income received
by the Realty Company with respect to the underlying REO Property each calendar
month, and (d) provide that an Event of Default (as such term is defined in
this Agreement) shall constitute an event of default thereunder permitting the
acceleration of all amounts owing thereunder.
"REO PROPERTY" means any and all real or personal property (together
with any fixtures appurtenant thereto and any improvements and personal
property located thereon) or interest in real or personal property now or
hereafter owned by any Realty Company including any real or personal property
that has been, or shall be acquired as a result of a foreclosure or
deed-in-lieu of foreclosure or otherwise, all of which shall be deemed to
constitute proceeds of the Collateral.
"REO SECURITY DOCUMENTS" means the Mortgages and all related
assignments of leases and rents, security agreements, and appropriate UCC
financing statements, all in form and substance sufficient to grant first
priority liens covering each REO Property (including, all personal property
associated therewith), in favor of the Company as security for the applicable
REO Note as the same may be amended, renewed, modified, extended or restated
from time to time with the prior written consent of Servicer.
"REPRESENTATIVES" means representatives, officers, directors,
trustees, employees, attorneys, accountants, and agents.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Security Agreement (as the same may be
modified or amended from time to time) whereby the Company grants to the
Trustee, for the benefit of the Noteholders, a security interest in the
Collateral.
"SECURITY DOCUMENTS" means the REO Security Documents, the Collateral
Assignments, the Security Agreement, the Pledge of Accounts, the Partnership
Pledge Agreements, the Lockbox Agreements, all Mortgages and all other
documents or instruments granting a Lien in favor of the Trustee for the
benefit of the Noteholders as collateral for the Obligation, and all financing
statements related thereto, and all modifications, renewals or extensions
thereof and any documents executed in modification, renewal, extension or
replacement thereof.
"SERVICER" shall mean J-Hawk Servicing Corporation, a Texas
corporation, or any replacement therefor designated pursuant to the terms of
the Servicing Agreement, approved in writing by the Trustee and the Determining
Noteholders, and acceptable to the Rating Agency.
"SERVICING AGREEMENT" shall mean the Servicing Agreement entered into
by the Company, the Realty Companies, the Servicer and the Trustee with respect
to servicing the Collateral, together with all amendments and modifications
thereto.
11 NOTE AGREEMENT
<PAGE> 17
"SERVICING FEE" means the fee payable on a monthly basis to the
Servicer under the Servicing Agreement in an amount equal to six and fifteen
hundredths percent (6.15 %) of the remainder of (i) Portfolio Collections for
any given month less (ii) Protective Advances to be made from such Portfolio
Collections.
"SETTLEMENT" means, with respect to any Collateral Loan, the
satisfaction of the Company's claims against the respective Account Debtor in
connection with such Collateral Loan, whether pursuant to a full or discounted
payment.
"SHAREHOLDERS" means, Diversified Financial Systems, Inc., an Indiana
corporation, Diversified Performing Assets, Inc., an Indiana corporation,
Diversified Financial Systems L.P., an Indiana limited partnership, SV Asset
Partners L.P., a Texas limited partnership, WAMCO XXII, Ltd., a Texas limited
partnership, WAMCO IX, Ltd., a Texas limited partnership and J-Hawk
Corporation, a Texas corporation.
"STANDARD & POOR'S" means Standard & Poor's, a division of the
McGraw-Hill Companies, Inc., or its successor.
"STANDARD INDUSTRY PRACTICES" means such collateral control, servicing
and collection procedures that are customarily followed by Persons actively
engaged in the business of acquiring distressed assets in a bulk transaction
and managing and disposing of such assets, provided such collateral control,
servicing and collection procedures shall be at least as rigorous as the
Servicer, the Company, and the Realty Companies apply in managing, servicing
and disposing of their own assets.
"SUBSIDIARY" of any Person means any entity of which more than 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
"TAX ESCROW ACCOUNT" means a non-interest bearing account established
by the Company with the Lockbox Bank into which the Tax Escrow Payments are to
be deposited.
"TAX ESCROW PAYMENTS" mean all payments made by or on behalf of
Account Debtors (including REO Tax Escrow Payments) for a specified purpose
(such as real estate tax payments, insurance payments, etc.) other than
payments of principal, interest, fees and other amounts owed to the Company
with respect to the Collateral Loans and all net insurance and condemnation
proceeds received by or on behalf of the Company which are not available to be
applied to the outstanding balance under the Collateral Loan in question but,
rather, are required by the Collateral Documents to be used for purposes of
repairing or rebuilding the real property in question.
"TAXES" is defined in SECTION 2.6(a).
"TEMPORARY CASH INVESTMENT" means any Investment (a) in obligations of
the United States of America and agencies thereof and obligations guaranteed by
the United States of America maturing within one year from the date of
acquisition; (b) demand deposits and interest bearing time deposits evidenced
by certificates of deposit issued by NationsBank of Texas, N.A., which are
fully insured by the Federal Deposit Insurance Corporation or are issued by
commercial banks organized under the Laws of the United States of America or
any state thereof and having combined capital, surplus, and undivided profits
of not less than $100,000,000 (as shown on such Person's most recently
published statement of condition), and which certificates of deposit have the
highest rating from Moody's; (c) commercial paper which has the
12 NOTE AGREEMENT
<PAGE> 18
highest rating from Moody's; (d) eurodollar investments with demand deposits
and interest bearing time deposits evidenced by financial institutions having
combined capital, surplus, and undivided profits of not less than $100,000,000
(as shown on such Person's most recently published statement of condition), and
which Investments have the highest rating from Moody's; or, if such
institutions do not have a commercial paper rating, a comparable bond rating;
(e) any repurchase obligations secured by a pooling of one or more of the
foregoing, including repurchase agreements with NationsBank of Texas, N.A., for
so long as the short term unsecured debt of the repurchase obligor or its
parent is rated in the highest rating category by Moody's; and (f) money market
funds comprised of money market instruments with the highest rating by Moody's.
No such Temporary Cash Investment may have a maturity which extends beyond the
Distribution Date next succeeding the date of such Temporary Cash Investment.
"TRUSTEE" means Bankers Trust Company of California, N.A. (or its
successor appointed hereunder), acting as Trustee for the Noteholders under the
Note Agreement Documents.
"UNDERLYING COLLATERAL" means the real property, together with all
improvements thereon, and any personal property which secures any of the
Collateral Loans, or any one of such parcels of real property or items of
personal property.
"UNITED STATES PERSON" means (i) a citizen or resident of the United
States, (ii) a domestic partnership, (iii) a domestic corporation, (iv) any
estate (other than a foreign estate as defined under section 7701(a)(31)(a) of
the Internal Revenue Code of 1986, as amended), and (v) any trust if (a) a
court within the United States is able to exercise primary supervision over the
administration of the trust, and (b) one or more United States fiduciaries have
the authority to control all substantial decisions of the trust
1.2 TIME REFERENCES. Unless otherwise specified, in this
Agreement (a) time references (e.g., 10:00 a.m.) are to time in New York, New
York, and (b) in calculating a period from one date to another, the word "from"
means "from and including" and the word "to" or "until" means "to but
excluding."
1.3 OTHER REFERENCES. Unless otherwise specified, in this
Agreement (a) where appropriate, the singular includes the plural and vice
versa, and words of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting provisions, (c)
monetary references are to currency of the United States of America, (d)
section, paragraph, annex, schedule, exhibit, and similar references are to the
particular document in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy
transmissions, (f) references to "including" mean including without limiting
the generality of any description preceding that word, (g) references to any
Person include that Person's heirs, personal representatives, successors,
trustees, receivers, and permitted assigns, (h) references to any Governmental
Requirement include every amendment or supplement to it, rule and regulation
adopted under it, and successor or replacement for it, and (i) references to
this Agreement or other document include every renewal and extension of it,
amendment and supplement to it, and replacement or substitution for it.
1.4 ACCOUNTING PRINCIPLES. Except as used in SECTION 3.18 herein
and unless otherwise specified, in this Agreement (a) GAAP determines all
accounting and financial terms used herein, (b) all accounting principles
applied in a current period must be comparable in all material respects to
those applied during the preceding comparable period, and (c) all accounting
and financial terms and compliance with reporting covenants must be on a
consolidated basis.
13 NOTE AGREEMENT
<PAGE> 19
SECTION 2 NOTES AND TERMS OF PAYMENT
2.1 NOTES AND PAYMENTS.
(a) NOTES; DENOMINATIONS. The Company will authorize the
issuance and sale of $93,908,994 aggregate principal amount of its
Notes. The Notes will be issued only in registered form and in
minimum denominations of $2,000,000 principal amount and in integral
multiples of $1,000 in excess thereof, except that one Note may be
issued in a principal amount not in an integral multiple of $1,000.
The Notes shall be known and designated as the "7.66% Asset Backed
Notes Due June 5, 2002" of the Company.
(b) PAYMENT. Distributions of Portfolio Collections, and
to the extent necessary, fundings from the Liquidity Reserve Account,
for payment of interest, principal and Make-Whole Amounts, if any,
shall be made by the Lockbox Bank to the Trustee by wire transfer of
immediately available funds into the Disbursement Account pursuant to
SECTION 2.5 hereof by 5:00 p.m. on the Business Day prior to each
Payment Date (each such date being a "DISTRIBUTION DATE"), upon
receipt of payment instructions from the Servicer which have been
verified by the Trustee. Each payment and prepayment on the Notes
shall be (i) paid to the Person in whose name the Note is registered
at the close of business on the Record Date (each a "HOLDER OF
RECORD") and (ii) made to each such Holder of Record in immediately
available funds by 12:00 p.m. on each Payment Date by the Trustee to
the extent of funds in the Disbursement Account. Note payments made
after 12:00 p.m. on any Payment Date shall be deemed made on the next
succeeding Business Day and such funds shall accrue interest as if
such payments were made on the next succeeding Business Day. Should
the principal of, or any installment of the principal or interest on,
the Notes become due and payable on a day other than a Business Day,
the due date thereof shall be extended to the next succeeding Business
Day and interest shall be payable on the amount of such payment, at
the respective rates set forth in the Notes, with respect to such
extension.
(c) LEGENDING OF THE NOTES; RESTRICTION ON TRANSFERS.
(i) The Notes shall not be transferable except
upon the satisfaction of the conditions specified below. Each Note
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
THIS NOTE WAS ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT") AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED
THAT THE HOLDER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THIS NOTE HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT
(a) THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE HOLDER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE
144A OR (b) TO AN INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (PROVIDED THAT
PRIOR TO
14 NOTE AGREEMENT
<PAGE> 20
SUCH TRANSFER, THE HOLDER MUST FURNISH TO THE TRUSTEE AND ISSUER AN
INVESTOR LETTER, LEGAL OPINIONS AND OTHER INFORMATION AS THE ISSUER
AND TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT) AND
(2) IN EACH CASE, (a) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION, (b) BY DELIVERY OF A SIGNED LETTER CONTAINING
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND (c) IN ACCORDANCE WITH THE PROVISIONS OF THE NOTE
AGREEMENT DATED AS OF JUNE 6, 1997 (A COPY OF WHICH WILL BE PROVIDED
BY THE ISSUER TO THE HOLDER UPON WRITTEN REQUEST AT NO CHARGE), AND
(b) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER OF THE NOTE OF THE RESALE RESTRICTIONS SET FORTH IN (a)
ABOVE.
THIS NOTE MAY NOT BE PURCHASED BY OR TRANSFERRED TO A PERSON WHICH IS
AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY
PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR A PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE") OR ANY GOVERNMENTAL
PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL,
STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, A "PLAN"), OR
A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF A
PLAN TO ACQUIRE SUCH NOTE UNLESS IT IS PURCHASING THE NOTE WITH THE
ASSETS OF AN INSURANCE COMPANY GENERAL ACCOUNT AND THE EXEMPTIVE
RELIEF AFFORDED UNDER SECTIONS I AND III OF PROHIBITED TRANSACTION
CLASS EXEMPTION 95-60 ("PTE 95-60") IS AVAILABLE FOR THE PURCHASE AND
HOLDING OF THE NOTE BY SUCH PURCHASER. EACH TRANSFEREE OF THIS NOTE
SHALL BE REQUIRED TO (i) EXECUTE AN INVESTOR LETTER IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE TRUSTEE AND ISSUER STATING
THAT (a) IT IS NOT, AND IS NOT ACTING ON BEHALF OF, A PLAN OR USING
THE ASSETS OF A PLAN TO ACQUIRE SUCH NOTE OR (b) IT IS ACQUIRING THE
NOTE WITH THE ASSETS OF AN INSURANCE COMPANY GENERAL ACCOUNT AND THAT
THE EXEMPTIVE RELIEF AFFORDED UNDER SECTIONS I AND III OF PTE 95-60 IS
AVAILABLE FOR THE PURCHASE AND HOLDING OF SUCH NOTE; OR (ii) PROVIDE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE TRUSTEE AND ISSUER THAT THE PURCHASE OR HOLDING OF THE NOTE BY OR
ON BEHALF OF SUCH PLAN WILL NOT RESULT IN THE ASSETS OF THE ASSET
PORTFOLIO BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE
PROVISIONS OF ERISA AND THE CODE OR SIMILAR LAW AND WILL NOT SUBJECT
THE ISSUER OR THE TRUSTEE TO ANY OBLIGATION IN ADDITION TO THOSE
UNDERTAKEN IN THE NOTE AGREEMENT.
(ii) Each Noteholder by acceptance of a Note
bearing the restrictive legend set forth above, agrees that (i) the
Notes have not been and will not be registered under the
15 NOTE AGREEMENT
<PAGE> 21
Securities Act or any state or foreign securities laws and (ii) the
Notes may be transferred, resold or pledged only to a Qualified
Institutional Buyer purchasing for its own account or for the account
of a Qualified Institutional Buyer to whom notice is given that the
resale, pledge or transfer is being made in reliance on Rule 144A
under the Securities Act or (y) to sophisticated institutional
investors which are "accredited investors" as such term is defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act, or, if the
Notes are to be purchased for one or more institutional accounts
("investor accounts") for which a person is acting as fiduciary or
agent (except if such person is a bank as defined in Section 3(a)(2)
of the Securities Act, or a savings and loan association or other
institution as described in Section 3(a)(5)(a) of the Securities Act,
whether acting in its individual or in a fiduciary capacity), each
such investor account is an institutional investor and an "accredited
investor" on a like basis. The Noteholder further understands that
neither the Company nor the Trustee is under any obligation to
register the Notes or make an exemption available. In the event that
such a transfer is to be made in reliance upon an exemption from the
Securities Act and from applicable state or foreign securities laws,
unless such transfer is made in reliance on Rule 144A of the
Securities Act by a person not affiliated with the Company, the
Trustee or the Company shall, if such transfer is made within two
years from the later of (a) the Closing Date and (b) the last date on
which the Company or any affiliate of the Company was the beneficial
owner of the Note which is proposed to be transferred, require an
opinion of counsel that such transfer may be made pursuant to an
exemption from the Securities Act and any applicable state and foreign
securities laws, which opinion of counsel shall not be an expense of
the Trustee or the Company. The Noteholder shall, and does hereby
agree to, indemnify the Trustee and the Company against any liability
that may result if the transfer is not so exempt or is not made in
accordance with such federal, state and foreign laws. In addition, no
transfer of a Note may be made unless the prospective transferee
provides the Company and the Trustee with an Investor's Letter
substantially in one of the forms attached as Exhibit F.
(d) CUSIP NUMBERS. The Company in issuing the Notes may
use "CUSIP PLACEMENT NUMBERS" (herein so called) issued by Standard &
Poor's CUSIP Service Bureau (if then generally in use), and the
Trustee shall use CUSIP Numbers in notices as a convenience to
Noteholders; provided that any such notice shall state that no
representation is made as to the correctness of such numbers either as
printed on the Notes or as contained in any notice and that reliance
may be placed only on the other identification numbers printed on the
Notes.
2.2 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST. Notwithstanding any cure periods available
under SECTION 8.1(a) hereof, interest on the unpaid principal amount
outstanding under the Notes shall be payable monthly on the fifth
(5th) day of each month following the Closing Date hereafter,
commencing July 5, 1997, and on the Maturity Date (each such date a
"PAYMENT DATE"). Interest payable on each Payment Date shall be all
interest accrued and unpaid through the last day of the month
preceding the Payment Date, including any additional interest required
under SECTION 2.3 hereof calculated at the Default Rate. In the event
that the amount of accrued and unpaid interest on the Notes payable on
any Payment Date exceeds the funds available to the Trustee for
distribution to the Noteholders on such Payment Date, the Company
shall remain liable for the prompt payment of such excess amount of
interest on the applicable Payment Date.
16 NOTE AGREEMENT
<PAGE> 22
(b) PRINCIPAL. The unpaid principal amount of the Notes
shall be due and payable from distributions of Portfolio Collections
pursuant to SECTION 2.5(b)(IX), provided however, that all unpaid
principal, together with accrued-but-unpaid interest on the Notes and
any Make-Whole Amount, shall be due and payable in full on the
Maturity Date.
(c) PREPAYMENTS.
(i) OPTIONAL PREPAYMENTS. The Company may upon
ten (10) Business Days prior written notice to the Trustee,
prepay the principal of the Notes then outstanding, in whole
or in part, at any time or from time to time. Until such time
as the aggregate outstanding principal balance of the Notes is
less than $9,390,900, if the Company prepays any outstanding
principal of the Notes before June 5, 1999 (other than from
distributions of Portfolio Collections pursuant to SECTION
2.5(b) hereof) the Company shall pay to each Noteholder that
Noteholder's pro rata part of the total Make-Whole Amount
related to the Notes in connection with such prepayment. In
no case shall the Company be required to pay the Make-Whole
Amount with respect to principal on the Notes prepaid on or
after June 5, 1999.
(ii) GENERAL PREPAYMENT PROVISIONS. Any
prepayment of the Notes shall be (a) made together with
interest accrued (through the date of such prepayment) on the
principal amount prepaid, and (b) applied first to accrued
interest and then to principal.
2.3 INTEREST RATE. The unpaid principal of the Notes shall bear
interest from the Closing Date until paid in full at a rate per annum which
shall be equal to the lesser of (a) the Maximum Rate and (b) 7.66%. All past
due principal, and to the extent permitted by applicable Governmental
Requirements, interest and Make-Whole Amount, if any, on the Notes shall bear
interest from the applicable Payment Date until paid at the lesser of (a) the
Default Rate or (b) the Maximum Rate.
2.4 INTEREST CALCULATIONS. Interest will be computed as if each
calendar month consisted of 30 days and each calendar year consisted of 360
days (unless the calculation would result in an interest rate greater than the
Maximum Rate). All interest rate determinations and calculations by the
Servicer or the Trustee are conclusive and binding absent manifest error.
2.5 LOCKBOX ACCOUNTS; DISTRIBUTIONS OF PORTFOLIO COLLECTIONS.
(a) LOCKBOX ACCOUNT. All Portfolio Collections shall be
directed to and deposited into one of the Lockbox Accounts. Any
payments or other proceeds of Collateral received by the Company,
Servicer, or the Realty Companies shall be deemed received by that
party in trust for the owner or beneficiary of the Lockbox Accounts
and shall be forthwith deposited by that party, immediately upon
receipt, into one of the Lockbox Accounts in the form received, duly
endorsed by that party for deposit into such Lockbox Account.
(b) DISTRIBUTIONS OF PORTFOLIO COLLECTIONS. On the
Business Day preceding each Distribution Date, the Company shall cause
funds on deposit in the Lockbox Account maintained with the Additional
Lockbox Bank to be transferred to the Lockbox Account maintained with
the Lockbox Bank. Subject to SECTION 8.2 hereof, on each Distribution
Date, the Company shall cause funds on deposit in the Lockbox Account
maintained with the Lockbox Bank, to be transferred by
17 NOTE AGREEMENT
<PAGE> 23
the Lockbox Bank, (i) upon receipt of payment instructions from the
Servicer delivered to the Lockbox Bank and the Trustee in a form
mutually agreed upon between the Trustee and the Servicer, and (ii)
following approval by the Trustee, and applied in the following
priorities:
(i) First, (a) to transfer out of such Lockbox
Account any funds that do not constitute Portfolio Collections
and that were erroneously deposited to the related Lockbox
Account and (b) to transfer any Tax Escrow Payments related to
the Asset Portfolio received from Account Debtors to the
appropriate Tax Escrow Account in an amount requested by the
Servicer, which amount shall represent the total amount of Tax
Escrow Payments related to the Asset Portfolio paid into such
Lockbox Account prior to such Payment Date to the extent not
previously deposited in the Tax Escrow Account;
(ii) Second, to the payment of any fees and
expenses then due and payable to the Trustee, the Lockbox
Bank, the Additional Lockbox Bank, and the Collateral
Custodian pursuant to this Agreement, the Lockbox Agreements
and the Custodial Agreement;
(iii) Third, to reimburse the Company or Servicer
for any Protective Advances made and not previously
reimbursed;
(iv) Fourth, to the payment to the Servicer of any
Servicing Fees then due to the Servicer pursuant to the terms
of the Servicing Agreement;
(v) Fifth, to the payment to the Trustee by
deposit in the Disbursement Account, for distribution to the
Noteholders, of all accrued and unpaid interest on the Notes
which is due and payable on the Payment Date next following
such Distribution Date;
(vi) Sixth, at the option of the Servicer, to the
deposit into the Operating Reserve Account, of such amounts as
Servicer may reasonably deem necessary to ensure adequate
funds are available when needed to pay (a) budgeted expenses
for the Asset Portfolio and (b) other operating expenses of
the Company payable to third parties which operating expenses
shall not exceed $50,000 in the aggregate for any given year,
or such expenses as are otherwise approved in writing by the
Trustee, with the consent of the Determining Noteholders,
provided, however that the amount in the Operating Reserve
Account shall never exceed three per cent (3%) of the
aggregate outstanding principal balance of the Notes at any
point in time, unless otherwise approved in writing by the
Trustee, with the consent of the Determining Noteholders;
(vii) Seventh, to the deposit, if necessary, into
the Liquidity Reserve Account, of such amounts required to
replenish such account up to the Liquidity Reserve Amount as
of the Payment Date next following such Distribution Date;
(viii) Eighth, to repay the Company (in an aggregate
amount for all Distribution Dates) the sum of $1,198,904.83,
evidencing the amount initially deposited by the Company into
the Liquidity Reserve Account on the Closing Date; and
18 NOTE AGREEMENT
<PAGE> 24
(ix) Ninth, the balance is to be paid to the
Noteholders and applied as principal payments on the Notes
until payment of the Notes in full.
2.6 TAXES.
(a) Any and all payments by the Company under this
Agreement or under the Notes shall be made free and clear of, and
without deduction for, any and all present or future taxes,
assessments, levies, imposts, deductions, charges or withholdings
imposed upon Company, its income, or any of its properties, franchises
or assets by any Governmental Authority excluding, in the case of each
Noteholder, (a) taxes imposed on its income and franchise taxes
imposed on it by the jurisdiction under the laws of which each such
Noteholder is organized or is or should be qualified to do business or
any political subdivision thereof (b) taxes, duties or other charges
imposed as a result of the failure by any Noteholder to provide any
form or certificate required under SECTION 2.6(d) and (c) any "backup
withholding" required pursuant to Section 3406 of the United States
Internal Revenue Code (all such non-excluded taxes, duties and charges
being herein called "TAXES"). If the Company shall be required by law
to deduct any Taxes from or in respect of any sum payable under this
Agreement or under the Notes, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 2.6), the Noteholders receive an amount equal to the sum they
would have received had no such deductions been made, (ii) the Company
shall make such deductions and (iii) the Company shall pay the full
amount deducted to the relevant taxation authority or other authority
in accordance with applicable Governmental Requirements.
(b) In addition, the Company agrees to pay any present or
future Other Taxes.
(c) The Company will indemnify the Noteholders for the
full amount of Taxes or Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this SECTION 2.6) paid by the Noteholders or any
liability (including penalties and interest) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made
within 30 days from the date any Noteholder makes written demand
therefor.
(d) Each Noteholder agrees to indemnify and hold harmless
(severally and not jointly, and only as to actions by that Noteholder)
the Company and the Trustee against any United States withholding
taxes (and related interest and penalties) which the Company or the
Trustee fails to withhold on payments to such Noteholder as a result
of the invalidity of any certificate or form provided by such
Noteholder pursuant to this SECTION 2.6.
(e) Within 30 days after the date of any payment of
Taxes, the Company will furnish to any Noteholder on whose account
such Taxes were paid, at its address referred to herein, the original
or a certified copy of a receipt evidencing payment thereof.
(f) Without prejudice to the survival of any other
agreement of the Company hereunder, the agreements and obligations of
the Company contained in this SECTION 2.6 shall survive the payment in
full of all principal and interest hereunder.
19 NOTE AGREEMENT
<PAGE> 25
2.7 RESERVE FUNDS.
(a) OPERATING RESERVE ACCOUNT. The Company shall
establish an account with the Lockbox Bank (the "OPERATING RESERVE
ACCOUNT") to deposit cash available for distribution on any Business
Day in accordance with SECTION 2.5(b)(vi) for the sole purposes of (a)
making Protective Advances, (b) funding property improvement expenses,
(c) funding Permitted Lease-Up Expenses with respect to REO Property
and (d) paying operating expenses of the Company provided for in this
Agreement. On the Closing Date, the Company shall deposit, out of
first month's Portfolio Collections, the sum of $500,000 into the
Operating Reserve Account and the balance of such month's Portfolio
Collections into one of the Lockbox Accounts.
(b) LIQUIDITY RESERVE ACCOUNT. The Company shall
establish an account with the Lockbox Bank (the "LIQUIDITY RESERVE
ACCOUNT") and shall deposit cash on the Closing Date in an amount
equivalent to two (2) months of projected interest on the Notes
(assuming no payments of principal on the Notes are made during such
two-month period) for the sole purpose of enabling the Lockbox Bank,
upon the directions of the Servicer and with the authorization of the
Trustee, to deposit with the Trustee required interest payments on the
Notes. In the event that the amount of funds in the Lockbox Account
maintained with Lockbox Bank for any month is insufficient for all
interest payments to be made in such month, the Servicer with the
authorization of the Trustee, shall direct the Lockbox Bank to wire
transfer in immediately available funds no later than 5:00 p.m. on
the Distribution Date amounts in the Liquidity Reserve Account as
necessary to make the payments required by SECTION 2.1(b) hereof. On
each Distribution Date, the amount by which the funds on deposit in
the Liquidity Reserve Account exceed the Liquidity Reserve Amount
(after giving effect to all payments required by SECTION 2.5 to be
made on the Payment Date next succeeding such Distribution Date),
shall be transferred by the Lockbox Bank and applied in the order set
forth in SECTION 2.5(b).
(c) PLEDGE OF RESERVE FUNDS. The Lockbox Accounts,
Operating Reserve Account and Liquidity Reserve Account will be
established for the Company and pledged to the Trustee on behalf of
the Noteholders pursuant to the Pledge of Accounts.
SECTION 3 REPRESENTATIONS AND WARRANTIES. The Company and each Realty
Company, each represents and warrants to the Trustee, for the benefit of each
Noteholder that as of the Closing Date:
3.1 ORGANIZATION AND GOOD STANDING. Each of the Company and each
Realty General Partner is a corporation, duly organized and validly existing
under the laws of the State of Texas; has duly qualified and is authorized to
do business and is in good standing in all states and jurisdictions where the
character of its assets or the nature of its activities make such qualification
necessary and where the failure to qualify could have a Material Adverse
Effect; and has not been known as or used any corporate, fictitious or trade
names in the past, except as was required to conduct business in a state other
than its state of incorporation, in which case it used a name substantially
similar to its name. Each Realty Company is a limited partnership duly
organized and validly existing under the laws of the State of Texas; has duly
qualified and is authorized to do business and is in good standing in all
states and jurisdictions where the character of its assets or the nature of its
activities make such qualification necessary and where the failure to qualify
could have a Material Adverse Effect; and has not been known as or used any
corporate, fictitious or trade names in the past, except as was required to
conduct business in a state other than its state of formation, in which case it
used a name substantially similar to its name. The chief executive office and
20 NOTE AGREEMENT
<PAGE> 26
principal place of business of the Company and each Realty Company is at the
address identified as the Company's address in SECTION 10.5.
3.2 AUTHORIZATION AND POWER. The Company and the Realty Companies
have the power and requisite authority to execute, deliver and perform this
Agreement, the Notes and the other Note Agreement Documents to which they are a
party; the Company and the Realty Companies are duly authorized to, and all
necessary action has been taken to authorize the Company and the Realty
Companies to, execute, deliver and perform this Agreement, the Notes and any
other document executed in connection therewith and such Persons are and will
continue to be duly authorized to perform under these agreements.
3.3 NO CONFLICTS OR CONSENTS. Neither the execution and delivery
of this Agreement, the Notes or the other Note Agreement Documents, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and
provisions thereof, will contravene or materially conflict with any provision
of law, statute or regulation to which the Company or any Realty Company is
subject or any judgment, license, order or permit applicable to the Company or
any Realty Company, or any indenture, loan agreement, mortgage, deed of trust,
or other agreement or instrument to which the Company or any Realty Company is
a party or by which the Company, or any Realty Company may be bound, or to
which the Company or any Realty Company may be subject, or violate any
provision of the partnership agreement of the Company or any Realty Company.
No consent, approval, authorization or order of any court or Governmental
Authority or third party is required in connection with the execution and
delivery by the Company or any Realty Company of this Agreement, the Notes, the
other Note Agreement Documents, or to consummate the transactions contemplated
hereby or thereby.
3.4 ENFORCEABLE OBLIGATIONS. This Agreement, the Notes and the
other Note Agreement Documents are the legal and binding obligations of the
Company and the Realty Companies, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and
general equity principles. Each Loan Contribution Agreement is genuine and is
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to the enforcement of creditors' rights
and general equity principles.
3.5 NO LIENS. Except for Permitted Liens, all of the properties
and assets of the Company and the Realty Companies are free and clear of all
mortgages, liens and encumbrances and the Company and the Realty Companies have
and will have good and indefeasible title to their properties and assets.
3.6 FINANCIAL CONDITION. No changes having a Material Adverse
Effect have occurred in the financial condition or business of the Company
since the date of formation of the Company.
3.7 FULL DISCLOSURE. There is no fact that the Company has not
disclosed to any Noteholder purchasing the Notes on the Closing Date, in
writing that could have a Material Adverse Effect. Neither the Note Agreement
Documents nor any financial statement, certificate, report, document or other
writing furnished by or on behalf of the Company or the Realty Companies to
any such Noteholder in connection with negotiation of the sale of the Notes and
other transactions contemplated by the Note Agreement Documents contains any
untrue statement of a material fact or omits a material fact necessary to make
the statements contained herein or therein, taken as a whole, not misleading
in light of the circumstances under which they were made.
21 NOTE AGREEMENT
<PAGE> 27
3.8 NO DEFAULT; POTENTIAL DEFAULT. No event has occurred and is
continuing which constitutes an Event of Default or Potential Default.
3.9 MATERIAL AGREEMENTS. Other than the Loan Contribution
Agreements, the documents contemplated thereby to be executed by the Company or
the Realty Companies and the Note Agreement Documents, there are no material
agreements (including, without limitation, all agreements which, if breached,
could directly or indirectly have a Material Adverse Effect) of the Company or
the Realty Companies.
3.10 NO LITIGATION. There are no actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of the Company or the Realty Companies threatened, against the
Company or the Realty Companies. There are no actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of the Company or the Realty Companies threatened, against any of
their respective assets except for any defenses or counterclaims asserted by an
Account Debtor in any pending litigation relating to collection or foreclosure
of the Collateral Loans or bankruptcy of the Account Debtor, provided that the
amount asserted in any such counterclaims, in the reasonable determination of
the Servicer, does not exceed the principal balance of the applicable
Collateral Loan.
3.11 BURDENSOME CONTRACTS. Neither the Company nor any Realty
Company is a party to, or is bound by, any contract other than those
contemplated by this Agreement.
3.12 TAXES. All tax returns required to be filed by the Company
and the Realty Companies in any jurisdiction have been filed and, subject to
SECTION 5.3 herein with respect to payment of ad valorem taxes, all taxes
(including mortgage recording taxes), assessments, fees and other governmental
charges upon the Company or the Realty Companies or upon any of their
properties, income or franchises, have been paid prior to the time that such
taxes could give rise to a lien thereon. There is no proposed tax assessment
against the Company or the Realty Companies and there is no basis for such
assessment.
3.13 PRINCIPAL OFFICE, ETC. The principal office, chief executive
office and principal place of business of the Company and the Realty Companies
is at 6400 Imperial Drive, P.O. Box 8216, Waco, Texas, 76714-8216. The Company
and the Realty Companies maintain their principal records and books at such
address.
3.14 ERISA. No Plan exists or has existed in the past.
3.15 COMPLIANCE WITH LAW. The Company and the Realty Companies
have duly complied with, and their assets, business operations and leaseholds
are in compliance in all material respects with, the provisions of all federal,
state and local laws, rules, regulations and orders (including, without
limitation, Applicable Environmental Laws) applicable to the Company or the
Realty Companies, as the case may be, and their assets or the conduct of their
business and they possess all required licenses, permits, authorizations and
approvals for the conduct of their business, the ownership of their properties
and their execution, delivery and performance of this Agreement except where
the failure to do so would not have a Material Adverse Effect on the Company or
the Realty Companies, as the case may be. To the best knowledge of the Company
and the Realty Companies, neither the Company nor the Realty Companies, nor any
of the REO Property or Underlying Collateral, is in material violation of any
Applicable Environmental Law or subject to any existing, pending or overtly
threatened investigation by
22 NOTE AGREEMENT
<PAGE> 28
any Governmental Authority under any Applicable Environmental Law. To the best
knowledge of the Company and the Realty Companies, no Hazardous Substance (a)
has been disposed of or released on any REO Property or the Underlying
Collateral or (b) is located thereon. No REO Property, Underlying Collateral
or any property adjoining any REO Property or Underlying Collateral is being
used, or, to the Company's or each Realty Company's best knowledge, has been
used at any time, for the generation, disposal, storage, treatment, processing
or other handling of any Hazardous Substance, and no environmental permits are
required for the operation of the businesses or other activities being
conducted on any REO Property or Underlying Collateral. The foregoing
provisions of this SECTION 3.15 are subject to the following qualifications:
(a) the use by the Realty Companies or the owners of any Underlying Collateral
of limited quantities of Hazardous Substances in the ordinary conduct of their
business and in accordance with industry customs and all Applicable
Environmental Laws shall not be a breach of the representations of this SECTION
3.15 and (b) such representations are subject to the exception of (i) with
respect to the Company and the Realty Companies, all matters disclosed to any
Noteholder purchasing its Notes on the Closing Date and (ii) with respect to
any Collateral Loans, all matters disclosed to or otherwise made available to
any such Noteholder in writing before the date of this Agreement.
3.16 GOVERNMENT REGULATION; MARGIN REGULATIONS. The Company is not
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce
Act (as any of the preceding acts have been amended), or any other law (other
than Regulation X) which regulates the incurring by the Company of
Indebtedness, including but not limited to laws relating to common contract
carriers or the sale of electricity, gas, steam, water, or other public utility
services. No portion of the proceeds of any Note shall be used by Company in
any manner that might cause the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System.
3.17 NO SUBSIDIARIES. The Company has not formed or acquired any
Subsidiary other than the Realty Companies.
3.18 SOLVENCY. As of the date hereof, and after giving effect to
each transaction contemplated in this Agreement, (a) the aggregate fair market
value of the Company's assets exceed, and will exceed, its liabilities (whether
contingent, subordinated, unmatured, unliquidated, or otherwise), (b) the
Company has, and will have, sufficient cash flow to enable it to pay its debts
as they mature, and (c) the Company has, and will have, a reasonable amount of
capital to conduct its business as presently contemplated. As of the date
hereof, and after giving effect to each transaction contemplated in this
Agreement, (a) the aggregate fair market value of the each Realty Company's
assets exceed, and will exceed, its liabilities (whether contingent,
subordinated, unmatured, unliquidated, or otherwise), (b) each Realty Company
has, and will have, sufficient cash flow to enable it to pay its debts as they
mature, and (c) each Realty Company has, and will have, a reasonable amount of
capital to conduct its business as presently contemplated.
3.19 OWNERSHIP OF THE COMPANY AND EACH REALTY COMPANY. Each of the
Shareholders owns the percentage of capital stock of the Company set forth
below:
23 NOTE AGREEMENT
<PAGE> 29
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Shareholder Ownership Interest
-----------------------------------------------------------------
<S> <C>
Diversified Financial Systems, Inc. 28.28%
-----------------------------------------------------------------
Diversified Performing Assets, Inc. 7.45%
-----------------------------------------------------------------
Diversified Financial Systems L.P. 0.89%
-----------------------------------------------------------------
SV Asset Partners L.P. 0.51%
-----------------------------------------------------------------
J-Hawk Corporation 12.43%
-----------------------------------------------------------------
WAMCO IX, Ltd. 3.30%
-----------------------------------------------------------------
WAMCO XXII, Ltd. 47.14%
-----------------------------------------------------------------
</TABLE>
On the Closing Date, the Shareholders and their transferees will transfer stock
of the Company such that the stock of the Company will be owned 80% by
FirstCity Financial Corporation and 20% by CFSC Capital Corp. II. The REO
General Partner owns a 2% general partnership interest in the REO Affiliate and
the Company owns a 98% limited partnership interest in the REO Affiliate and
100% of the issued and outstanding stock of the REO General Partner. SVD
Realty Asset Corp., a Texas corporation, owns a 2% general partnership interest
in SVD Realty L.P. and J-Hawk Corporation owns a 98% limited partnership
interest in SVD Realty L.P. SOWAMCO XXII of Texas, Inc., a Texas corporation,
owns a 2% general partnership interest in SOWAMCO XXII, Ltd., a Texas limited
partnership, and WAMCO XXII, Ltd., a Texas limited partnership, owns a 98%
limited partnership interest in SOWAMCO XXII, Ltd.
3.20 SERVICE OF PROCESS. The Company hereby appoints CT
Corporation System, 1633 Broadway, New York, New York 10019, to be its agent
for service of process in New York and CT Corporation System has accepted such
appointment.
3.21 SECURITIES LAWS. Neither the Company, the Servicer, the Realty
Companies nor anyone acting on behalf of any of them has offered the Notes or
any similar securities of the Company for sale to, or solicited any offer to
buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than Noteholders purchasing the Notes on the
Closing Date, each of which has been offered the Notes at a private sale for
investment. Neither the Company, Servicer, the Realty Companies nor anyone
acting on behalf of any of them has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.
3.22 COLLATERAL LOAN SCHEDULE. The information set forth on the
Collateral Loan Schedule with respect to each Collateral Loan is true and
correct.
3.23 NO SETOFF RIGHTS. To the Company's best knowledge, there are
no rights of setoff, counterclaim, recision or other defenses available to the
Account Debtor of any Collateral Loan.
3.24 COMPLIANCE WITH LAWS. To the Company's best knowledge, all
federal, state and local laws, rules and regulations applicable to each
Collateral Loan, including, without limitation those relating to usury, equal
credit opportunity, real estate settlement procedures or disclosure, have been
satisfied or complied with.
3.25 OWNERSHIP OF THE COLLATERAL LOANS. The Company has good and
indefeasible title to each Collateral Loan and is the sole owner of such
Collateral Loan, has full right and authority to pledge such
24 NOTE AGREEMENT
<PAGE> 30
Collateral Loan pursuant to the Security Agreement, and is pledging such
Collateral Loan to the Trustee, for the benefit of the Noteholders, free and
clear of any and all liens, claims, encumbrances, participation interests,
equities, pledges, charges or security interests of any nature, other than
Liens in favor of existing lenders to the Shareholders, which Liens will be
released contemporaneously with issuance of the Notes.
3.26 ENFORCEABILITY OF COLLATERAL DOCUMENTS. To the Company's best
knowledge, each promissory note evidencing a Collateral Loan and each other
related Collateral Document, is genuine and is the legal, valid and binding
obligation of the Account Debtor which is a party to such documents, except as
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors' rights and general equity principles.
3.27 NO MODIFICATION OR WAIVER. Except as evidenced by a
Collateral Document delivered to the Collateral Custodian, to the Company's
best knowledge, no Account Debtor of any Collateral Loan has been released, no
Collateral Loan has been subordinated and no Collateral Document has been
waived, modified, altered, satisfied or canceled in any respect.
3.28 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties by the Company and the Realty Companies in this Agreement shall
survive delivery of the Notes.
SECTION 4 CONDITIONS PRECEDENT. No Noteholder purchasing Notes on the
Closing Date is obligated to purchase the Notes unless such Noteholder has
received all of the following and the following other conditions have been
satisfied on or before the Closing Date.
4.1 NOTE AGREEMENT. A duly executed Note Agreement, dated on or
before the Closing Date, and all other Note Agreement Documents.
4.2 NOTES. Notes executed by the Company, substantially in the
form of EXHIBIT "A", payable to each such Noteholder in the aggregate amount of
its purchase, each dated the Closing Date.
4.3 DELIVERY OF COLLATERAL.
(a) The Company shall deliver to Collateral Custodian the
following instruments and documents in which the Company has granted
and in which it hereafter grants to the Trustee for the benefit of the
Noteholders a security interest, provided that, except for the note
evidencing each Collateral Loan, such documents and instruments shall
only be required to be delivered to the extent such instruments and
documents exist and were in the possession of a Shareholder or a
custodian for a Shareholder, and provided further, that assignments to
be recorded will be delivered to the Servicer and promptly forwarded
by the Servicer to the Collateral Custodian after having been
recorded:
(i) the original note evidencing each Collateral
Loan (endorsed, accompanied by an allonge, or otherwise assigned to
the Company), endorsed in the name of the Trustee for the benefit of
the Noteholders which endorsement may be on the original note or by
Allonge or, when the original note is unavailable, a lost note
affidavit together with a certified copy of each such note;
25 NOTE AGREEMENT
<PAGE> 31
(ii) for each Collateral Loan secured by real
property, the recorded original mortgage or deed of trust securing
such Collateral Loan, together with a duly executed and recorded
assignment (or assignment in recordable form) to each prior holder of
such Collateral Loan, including the applicable Shareholder, and a duly
executed assignment to the Company in recordable form thereof;
(iii) for each Collateral Loan secured by personal
property which can be perfected under the Uniform Commercial Code, as
adopted by the State whose laws govern perfection of such security
interests, a file-stamped copy of the UCC-1 financing statement filed
to secure such Collateral Loan, together with UCC-3 assignment to each
prior holder of such Collateral Loan, including the applicable
Shareholder, and a UCC-3 assignment to the Company in proper form for
recordation in the applicable recording office and for each Collateral
Loan secured by other personal property, appropriate evidence of the
perfection of the security interest in such collateral in favor of the
Company;
(iv) the original guaranties and assignments of
rents, if any, and other instruments and documents, including any
possessory documents, relating to security for and payment of each
Collateral Loan;
(v) for each Collateral Loan secured by real
property, an attorney's opinion or a policy of mortgage title
insurance on American Land Title Association's standard policy form
(revised coverage, most recent form) or on other policy forms as may
be required by applicable laws, statutes, rules, or regulations from a
national title insurance company, in favor of the Company, its
successors and assigns, or its predecessors in interest, insuring the
lien of the mortgage securing the note (subject only to such liens and
encumbrances as are generally acceptable to reputable lending
institutions, mortgage investors and securities dealers and to
Permitted Liens);
(vi) duly executed Collateral Assignments to the
Trustee for the benefit of the Noteholders thereof; and
(vii) a transmittal letter and computer-readable
diskette listing all documents being delivered to Collateral
Custodian.
(b) The Company shall deliver to Servicer all other
documents related to the Collateral Loans, to the extent such
instruments and documents exist and were in the possession of the
Shareholders or a custodian for any Shareholder, including without
limitation the following:
(i) evidence that the premises covered by the
mortgage, deed of trust or other documents securing such Collateral
Loan is insured against fire and other perils for extended coverage
for an amount at least equal to the amount required under SECTION 7.3;
(ii) original copies, or photocopies of surveys
and all other instruments, documents and other papers pertaining to
the Collateral Loan, if any; and
26 NOTE AGREEMENT
<PAGE> 32
(iii) other documentation as the Servicer may
reasonably deem proper, including without limitation, all disclosures
required by applicable Truth-in-Lending and other consumer credit
regulations promulgated by any Governmental Authority.
4.4 OFFICER'S CERTIFICATE. Certificates signed by duly authorized
officers of the Company and the REO General Partner stating that (to the best
knowledge and belief of such officer, after reasonable and due investigation
and review of matters pertinent to the subject matter of such certificate):
(a) all of the representations and warranties contained in SECTION 3 and the
other Note Agreement Documents are true and correct as of the Closing Date; and
(b) no event has occurred and is continuing, or would result from the
transactions contemplated herein, which constitutes an Event of Default or
Potential Default.
4.5 ORGANIZATIONAL DOCUMENTS. True, correct and complete copies
of the following: (a) the articles of incorporation of the Company, the REO
General Partner and the Servicer, each certified as of a date within ten days
of the Closing Date by the Secretary of State of Texas, (b) the bylaws of, and
appropriate corporate resolutions on behalf of, the Company, the REO General
Partner and the Servicer, each certified as of the Closing Date by the
Secretary of the Company, REO General Partner and Servicer, as applicable, and
(c) the partnership agreement documents forming the Realty Companies.
4.6 RESOLUTIONS. Resolutions of the Company, each Realty General
Partner and the Servicer approving the execution, delivery and performance of
the Note Agreement Documents to which the Company, any Realty Company or the
Servicer, as applicable, is a party and the transactions contemplated herein
and therein, duly adopted by their board's of directors, and accompanied, as
appropriate, by certificates of the secretary of each such corporation that
such resolutions are true and correct, have not been altered or repealed and
are in full force and effect.
4.7 INCUMBENCY CERTIFICATE. A signed certificate of the secretary
of the Company, the REO General Partner and the Servicer which shall certify
the names of the officers of the Company, REO General Partner and Servicer,
respectively, authorized to sign each of the Note Agreement Documents and the
other documents or certificates to be delivered pursuant to the Note Agreement
Documents, together with the true signatures of each such officer. The Trustee
and the Noteholders may conclusively rely on such certificate until it shall
receive a further certificate of the secretary of such corporation canceling or
amending the prior certificate and submitting the signatures of the officers
named in such further certificate.
4.8 CERTIFICATES. Certificates of existence and good standing for
the Company, the REO General Partner and the Servicer issued by the Texas
Secretary of State, each dated within ten (10) days of the Closing Date.
4.9 RECORDABLE DOCUMENTS. UCC financing statements and other
filings or recordings as necessary to perfect the security interest in the
Collateral Loans.
4.10 LIEN SEARCHES. Current UCC lien searches from the Secretary
of State of the State of Texas evidencing that the liens in favor of the
Noteholders upon the Collateral are first priority Liens, subject only to
Permitted Liens.
4.11 INSURANCE. If available, evidence of insurance and loss payee
endorsements required hereunder or other Note Agreement Documents and
certificates or binders of insurance policies evidencing the insurance required
by SECTION 7.3 hereof.
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<PAGE> 33
4.12 RATING AGENCY LETTER. The signed letter from the Rating
Agency confirming its proposed rating for the Notes as of the Closing Date,
which must be rated at least "A2".
4.13 CUSIP NUMBER. A CUSIP Number issued by Standard & Poor's
CUSIP Service Bureau shall have been obtained for the Notes.
4.14 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by the Note
Agreement Documents and all documents and instruments incident to such
transactions shall be satisfactory to the Noteholders purchasing Notes on the
Closing Date and their special counsel, and such Noteholders and their special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
4.15 OPINION LETTERS. Opinion letters from the Company's legal
counsel, dated the Closing Date, with respect to the issuance and sale of the
Notes, this Note Agreement, the Note Agreement Documents and other related
matters as the Trustee may reasonably request.
4.16 ADDITIONAL INFORMATION. Such other information and documents
as may reasonably be required by the Trustee or the Noteholders, including
without limitation the Asset Portfolio Report reflecting information concerning
the Asset Portfolio accurate as of May 31, 1997.
SECTION 5 AFFIRMATIVE COVENANTS. Until payment in full of the Notes and
the performance of the Obligation, the Company hereby covenants to the Trustee
for the benefit of each Noteholder, that (unless the Trustee as authorized by
Determining Noteholders shall otherwise consent in writing):
5.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. The Company
shall deliver, or (as appropriate) shall ensure the Servicer delivers, to the
Trustee, or in the case of SECTION 5.1(f), to any Noteholder or Qualified
Institutional Buyer, each of the following:
(a) ANNUAL STATEMENTS. As soon as available and in any
event within one-hundred and twenty (120) days after the close of each
fiscal year of the Company (which is currently the calendar year and
which the Company shall not change without giving thirty days prior
written notice to the Trustee), copies of the consolidated balance
sheet of the Company (reflecting REO Property as inventory) as of the
close of such fiscal year and consolidated statements of income and
retained earnings and changes in financial position of the Company for
such fiscal year, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion thereon (which shall not be qualified by
reason of any limitation imposed by the Company) of KPMG Peat Marwick
LLP, or of other independent public accountants of recognized national
standing selected by the Company, to the effect that such financial
statements have been prepared in accordance with GAAP consistently
maintained and applied (except for changes in which such accountants
concur) and that the examination of such accounts in connection with
such financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, includes such tests of
the accounting records and such other auditing procedures as were
considered necessary in the circumstances;
(b) QUARTERLY STATEMENTS. As soon as available and in
any event within thirty (30) days after the close of each fiscal
quarter of the Company, copies of the unaudited consolidated balance
sheet of the Company (reflecting REO Property as inventory) as of the
close of such fiscal
28 NOTE AGREEMENT
<PAGE> 34
quarter and the consolidated statements of income and retained
earnings and changes in position of the Company for such fiscal
quarter, all in reasonable detail;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one
copy of each written report submitted to the Company by independent
accountants in any annual, quarterly or special audit made, including
without limitation, the Closing Review, it being understood and agreed
that all audit reports which are furnished to the Trustee pursuant to
this SECTION 5.1 shall be treated as confidential, but nothing herein
contained shall limit or impair any Noteholder's right to disclose
such reports to any appropriate Governmental Authority or to use such
information to the extent pertinent to an evaluation of the Obligation
or to enforce compliance with the terms and conditions of this
Agreement, or to take any lawful action which the Noteholder deems
necessary to protect its interests under this Agreement;
(d) COMPLIANCE CERTIFICATE. Within thirty (30) days
after the end of each fiscal quarter of the Company hereafter, a
certificate executed by a Senior Vice President of the Company,
stating that a review of the activities of the Company and the Realty
Companies during such fiscal quarter has been made under his
supervision and that each of the Company and the Realty Companies has
observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in default under any of the same
or, if any such default shall have occurred, specifying the nature and
status thereof;
(e) ASSET PORTFOLIO REPORT. On or before the twentieth
(20th) calendar day of each month, an Asset Portfolio Report (in hard
copy or magnetic media) calculated as of the close of the immediately
prior month for all Collateral Loans, provided however, that the
individual asset status reports for each Collateral Loan shall only be
required to be sent to the Noteholders upon the request for such
information by any Noteholder; and
(f) ADDITIONAL FINANCIAL INFORMATION. Promptly upon
request, to any Noteholder and any Qualified Institutional Buyer to
whom any Note may be offered or sold by such Noteholder, the following
information (which shall be reasonably current): a brief statement of
the nature of the business of the Company; and the Company's most
recent balance sheet and profit and loss and retained earning
statement, and similar financial statements for such a part of the two
preceding fiscal years as the Company has been in operation (such
financial statements should be audited to the extent reasonably
available). The requirement that the information be reasonably
current will be presumed to be satisfied if (a) the balance sheet is
as of a date less than sixteen (16) months before the date of any such
resale, the statements of profit and loss and retained earnings are
for the twelve (12) months preceding the date of such balance sheet,
and if such balance sheet is not as of the date less than six (6)
months before the date of such resale, it shall be accompanied by
additional statements of profit and loss and retained earnings for the
period from the date of such balance sheet to a date less than six (6)
months before the date of such resale; or (b) the statement of the
nature of the Company's business and its products and services offered
is as of the date within twelve (12) months prior to the date of any
such resale.
5.2 ADDITIONAL REPORTS. The Company shall furnish to the Trustee,
as soon as practicable, such other information concerning the Collateral Loans,
or financial condition of the Company as the Trustee or Determining Noteholders
shall reasonably request in form reasonably satisfactory to them. The delivery
of any reports, statements and other information by the Company or Servicer
shall be deemed a
29 NOTE AGREEMENT
<PAGE> 35
representation and warranty that the same is true, accurate and complete except
to the extent such reports or statements relate to estimates or projections of
future collections or cashflows related to the Collateral Loans.
5.3 PAYMENT OF TAXES, IMPOSITIONS AND OTHER INDEBTEDNESS. The
Company and the Realty Companies will each pay and discharge (a) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any property belonging to it, and all Impositions in
accordance with its normal and customary standards, and in any event before any
foreclosure action may be completed with respect to any of its assets, (b) all
lawful claims (including claims for labor, materials and supplies), which, if
unpaid, might become a Lien upon any of its property and (c) all of its other
Indebtedness, except as prohibited hereunder.
5.4 FILINGS. The Company and the Realty Companies will each file
all federal, state and local tax returns and other reports that the Company or
any Realty Company is required by law to file and maintain adequate reserves
for the payment of all taxes, assessments, governmental charges, and levies
imposed upon it, its income, or its profits, or upon any assets belonging to
it.
5.5 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. The
Company and each Realty Company will each preserve and maintain its existence
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its business, and conduct its business in an orderly and
efficient manner consistent with good business practices and in accordance with
all applicable laws, rules, regulations and orders of any Governmental
Authority.
5.6 NOTICE OF DEFAULT. The Company and each Realty Company will
each furnish to the Trustee, immediately upon becoming aware of the existence
of any condition or event which constitutes an Event of Default or Potential
Default, a written notice specifying the nature and period of existence thereof
and the action which the Company or such Realty Company, as applicable, is
taking or proposes to take with respect thereto.
5.7 OTHER NOTICES. The Company and each Realty Company will each
promptly notify the Trustee of (i) any Material Adverse Effect, (ii) any
material default under any material agreement, contract or other instrument to
which it is a party or by which any of its properties are bound, or any
acceleration of the maturity of any Indebtedness owing by it, (iii) any
material adverse claim against or affecting it or any of its properties, and
(iv) the commencement of, and any material determination in, any litigation
with any third party or any proceeding before any Governmental Authority
affecting the Company or such Realty Company.
5.8 COMPLIANCE WITH NOTE AGREEMENT DOCUMENTS. The Company and
each Realty Company will each promptly comply, and will cause Servicer to
promptly comply, with any and all covenants and provisions of this Agreement,
the Note, and all other Note Agreement Documents and all other reasonable
requests by the Trustee or Determining Noteholders related to the Notes.
5.9 COMPLIANCE WITH MATERIAL AGREEMENTS AND ORGANIZATIONAL
DOCUMENTS. The Company and each Realty Company will each comply and will cause
Servicer to comply, in all material respects with all material agreements,
indentures, mortgages or documents binding on it or affecting its properties or
business and all corporate, partnership and other organizational documents
forming and governing the Company and the Realty Companies.
30 NOTE AGREEMENT
<PAGE> 36
5.10 OPERATIONS AND PROPERTIES. The Company and each Realty
Company will each act prudently and in accordance with Standard Industry
Practices in managing or operating its assets, properties, businesses and
investments. The Company will keep, and with respect to REO Property, each
Realty Company will keep, in good working order and condition, ordinary wear
and tear excepted, all of its assets and properties which are necessary to the
conduct of its business and cause the Underlying Collateral and REO Property to
be maintained in at least as good a condition as they existed on the Closing
Date, ordinary wear and tear excepted, and will make, or ensure Servicer makes,
such Protective Advances as may be required to do so; provided that neither
Company, Servicer, nor any Realty Company shall be required to make any such
Protective Advance where it is not in the best interest of the Company, any
Realty Company or the Noteholders to make any such repairs or payments and the
failure to do so is consistent with Standard Industry Practices.
5.11 BOOKS AND RECORDS; ACCESS. The Company and each Realty
Company will each give any Representative of the Trustee or any Noteholder
access during all business hours to, and permit such representative to examine,
copy or make excerpts from, any and all books, records and documents in the
possession of the Company and each Realty Company and relating to its affairs,
and to inspect any of the properties of the Company or each Realty Company.
The Company and each Realty Company will each maintain complete and accurate
books and records of its transactions in accordance with good accounting
practices.
5.12 COMPLIANCE WITH LAW. The Company and each Realty Company will
each comply with all applicable laws, rules, regulations, and all orders of any
Governmental Authority applicable to it or any of its property, business
operations or transactions, a breach of which could have a Material Adverse
Effect on the Company's or such Realty Company's financial condition, business
or credit. The Company and each Realty Company will each keep and maintain its
assets and any REO Property in material compliance with, and shall not cause or
permit any of the same to be in violation of, any Applicable Environmental
Laws.
5.13 AUTHORIZATIONS AND APPROVALS. The Company and each Realty
Company will each promptly obtain, from time to time at its own expense, all
such governmental licenses, authorizations, consents, permits and approvals as
may be required to enable it to comply with its obligations hereunder and under
the other Note Agreement Documents.
5.14 FURTHER ASSURANCES. The Company and each Realty Company will
make, execute or endorse, and acknowledge and deliver or file or cause the same
to be done, all such vouchers, invoices, notices, certifications and additional
agreements, undertakings, conveyances, deeds of trust, mortgages, transfers,
assignments, financing statements or other assurances, and take any and all
such other action, as the Trustee or Determining Noteholders may, from time to
time, deem reasonably necessary or proper in connection with this Agreement or
any of the other Note Agreement Documents, the obligations of the Company or
the Realty Companies hereunder or thereunder, or for better assuring and
confirming unto the Noteholders all or any part of the security for any of such
obligations, or for granting to the Trustee, for the benefit of the
Noteholders, any security for the Obligation which the Trustee or Determining
Noteholders may request from time to time, or for facilitating collection of
the Collateral hereunder.
5.15 COLLECTION EFFORTS. The Company will ensure the Servicer, on
behalf of the Company, exercises collection efforts with respect to the
Collateral Loans as is consistent with sound business practice and in
accordance with applicable law. The Company will ensure the Servicer at all
times complies with
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Standard Industry Practices and Servicer's past procedures related to
collateral control, collection and reporting procedures with respect to all
Collateral Loans. The Company's principal office shall at all times be
maintained at the location indicated in SECTION 3.13 and the Company's books,
records and files related to the Collateral Loans shall at all times be
maintained at the Servicer's offices set forth on SCHEDULE 2 attached hereto.
The Company shall maintain all files related to the Collateral Loans in a
reasonably prudent manner.
5.16 MANAGEMENT. The Company will give the Noteholders prompt
notice of (a) all senior management changes and (b) any substantial material
change in the Company's management structure or personnel contemplated by the
Company.
5.17 RECORDS. The Company and/or Servicer will maintain complete
and accurate records and files pertaining to each Collateral Loan delivered to
the Trustee or the Collateral Custodian, and retain such records and files
together with all Collateral Documents, in the possession of the Company and/or
Servicer, in restricted access secure facilities reasonably safe from loss or
destruction.
5.18 GRANT OF SPECIFIC LIENS. The REO Affiliate will (except as to
property located in New York or Florida, unless requested to by the Trustee),
at any time it acquires Underlying Collateral through a foreclosure, or
deed-in- lieu of foreclosure, execute an REO Note and Mortgage and grant to the
Company a first priority lien in such REO Property, subject only to Permitted
Liens, to secure payment of the REO Note and all other obligations of the REO
Affiliate to the Company, which REO Note and lien shall immediately be assigned
to the Trustee and delivered to the Collateral Custodian as additional
Collateral under the Security Documents.
5.19 ANCILLARY AGREEMENTS. The Company and each Realty Company
will fully comply with, and perform all of the terms of the Lockbox Agreements,
the Servicing Agreement, and the other Note Agreement Documents applicable to
it.
5.20 DISPOSITION OF COLLATERAL LOANS. The Company, Servicer, and
the Realty Companies will only dispose of Collateral Loans, or otherwise settle
the amount owed on any Collateral Loan, for amounts which constitute a
maximization of the rate of return on such Collateral Loans.
5.21 GENERAL INDEMNITY; ENVIRONMENTAL INDEMNITY
(a) The Company and each Realty Company, each hereby
agrees to indemnify, protect, and hold the Trustee and the Noteholders
and their parents, subsidiaries, directors, officers, employees,
representatives, agents, successors, assigns, affiliates and attorneys
(collectively, with their successors and assigns, the "INDEMNIFIED
PARTIES") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses (including, without limitation, attorneys'
fees and legal expenses whether or not suit is brought and settlement
costs), and disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against any of the Indemnified
Parties, in any way relating to or arising out of the Note Agreement
Documents or any of the transactions contemplated therein or the
performance or exercise of any rights or remedies thereunder
(collectively, the "INDEMNIFIED LIABILITIES") to the extent that any
of the Indemnified Liabilities results, directly or indirectly, from
any claim made (whether or not in connection with any legal action,
suit, or proceeding) by or on behalf of any person or entity other
than the Company, the
32 NOTE AGREEMENT
<PAGE> 38
Realty Companies, the partners of the Company or their affiliates,
INCLUDING MATTERS ARISING OUT OF THE ORDINARY NEGLIGENCE OF THE
INDEMNIFIED PARTIES, BUT EXCLUDING MATTERS ARISING OUT OF THE FRAUD,
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTIES;
provided, however, that the Trustee and the Noteholders shall not be
indemnified against any claim resulting from any action taken by the
Trustee and the Noteholders with respect to any Collateral subsequent
to the foreclosure upon such Collateral by the Trustee and the
Noteholders. The provisions of and undertakings and indemnification
set forth in this paragraph shall survive the satisfaction and payment
of the Obligation and termination of this Agreement.
(b) Each Realty Company agrees to promptly pay and
discharge when due all debts, claims, liabilities and obligations with
respect to any clean-up measures necessary for it to comply with
Applicable Environmental Laws affecting the REO Property it owns,
provided that, with respect to any single tract or parcel of real
property, the Realty Company owning such property shall not be
required to take such action if failure to take such action would not
have a Material Adverse Effect on its financial condition or would
not, in the reasonable opinion of the Trustee, have the potential for
creating any liability or claim against the Trustee or the
Noteholders. The Company and each Realty Company each hereby agree to
indemnify, protect, and hold each of the Indemnified Parties harmless
from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, proceedings,
costs, expenses (including, without limitation, all reasonable
attorneys' fees and legal expenses whether or not suit is brought),
and disbursements of any kind or nature whatsoever which may at any
time be imposed on, incurred by, or asserted against Indemnified
Parties, with respect to or as a direct or indirect result of any
violation, or claimed violation of, any Applicable Environmental Laws
by such Realty Company or the Company; or with respect to or as a
direct or indirect result of such Realty Company's or the Company's
generation, manufacture, production, storage, release, threatened
release, discharge, disposal of a Hazardous Substance at, on or about
any REO Property owned by such Realty Company, Underlying Collateral
or any property of the Company or such Realty Company or which secures
any indebtedness owed to the Company, including, without limitation,
(a) all damages related to any such use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal,
or presence, or (b) the costs of any required or necessary
environmental investigation, monitoring, repair, cleanup, or
detoxification and the preparation and implementation of any closure,
remedial, or other plans; and provided, however, that the Indemnified
Parties shall not be indemnified against any claim resulting from any
action taken by the Indemnified Parties with respect to any Collateral
or REO Property subsequent to the foreclosure upon such Collateral or
REO Property by the Indemnified Parties. The provisions of and
undertakings and indemnification set forth in this paragraph shall
survive the satisfaction and payment of the Obligation and termination
of this Agreement. It shall not be a defense to the covenant of the
Company or the Realty Companies to indemnify that the act, omission,
event or circumstance did not constitute a violation of any Applicable
Environmental Law at the time of its existence or occurrence. The
provisions of this SECTION 5.21 shall survive the repayment of the
Notes. In the event of the transfer of the Notes or any portion
thereof, the Noteholders shall continue to be benefited by this
indemnity agreement with respect to the period of such holding of the
Notes.
33 NOTE AGREEMENT
<PAGE> 39
The Company will reimburse each Indemnified Party for all expenses
(including reasonable fees and disbursements of counsel) as they are incurred
by such Indemnified Party in connection with investigating, preparing for or
defending any action (or enforcing this Agreement, or any of the other Note
Agreement Documents). The Company agrees that it will not settle or compromise
or consent to the entry of any judgment in any pending or threatened action in
respect of which indemnification has been sought hereunder (whether or not an
Indemnified Party is a party therein) unless the Company has given the Trustee
reasonable or prior written notice thereof and obtained an unconditional
release of each Indemnified Party from all liability arising therefrom.
SECTION 6 NEGATIVE COVENANTS. Until payment in full of the Notes and
the performance of the Obligation, the Company hereby covenants to the Trustee
for the benefit of each Noteholder, that (unless the Trustee as authorized by
Determining Noteholders shall otherwise consent in writing):
6.1 LIMITATION ON INDEBTEDNESS. Neither the Company nor any
Realty Company will incur, create, contract, waive, assume, have outstanding,
guarantee or otherwise be or become, directly or indirectly, responsible for
any Indebtedness, except (a) Indebtedness of the Company arising out of this
Agreement and Indebtedness of the Realty Companies contemplated by this
Agreement, (b) liabilities for taxes and assessments incurred in the ordinary
course of business, (c) obligations under the Servicing Agreement, (d) current
amounts payable or accrued of other claims (other than for borrowed funds or
purchase money obligations or transactions which are equivalent thereto)
incurred in the ordinary course of business, provided that all such
liabilities, accounts and claims shall be promptly paid and discharged when due
or in conformity with customary trade terms, (e) contingent liabilities arising
out of endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business, or (f) the REO Notes.
6.2 NEGATIVE PLEDGE. Neither the Company nor any Realty Company
will create or suffer to exist any mortgage, pledge, security interest,
conditional sale, Lien or other title retention agreement, charge, encumbrance
or other Lien (whether such interest is based on common law, statute, other law
or contract) upon any of its property or assets, now owned or hereafter
acquired, except for Permitted Liens.
6.3 LIMITATION ON INVESTMENTS. Neither the Company nor any Realty
Company will make or have outstanding any Investments in any Person, except for
the Company's ownership of the REO Affiliate and Temporary Cash Investments.
6.4 ALTERATION OF MATERIAL AGREEMENTS. Neither the Company nor
any Realty Company will consent to or permit any alterations, amendments,
modifications, releases, waivers or terminations of any material agreement to
which it is a party which could result in a Material Adverse Effect.
6.5 CERTAIN TRANSACTIONS. Neither the Company nor any Realty
Company will enter into any transaction with, or pay any management fees to,
any Affiliate; provided, however, that the Company or the Realty Companies may
enter into the Servicing Agreement and transactions evidenced by the REO Notes.
6.6 ISSUANCE OF SHARES. Neither the Company nor any Realty
Company will issue, sell or otherwise dispose of, any stock or partnership
interests, as applicable.
34 NOTE AGREEMENT
<PAGE> 40
6.7 LIMITATION ON SALE OF PROPERTIES. Neither the Company nor any
Realty Company will sell, assign, convey, exchange, lease or otherwise dispose
of any of its properties, rights, assets or business, whether now owned or
hereafter acquired, except in the ordinary course of its business and for a
fair consideration, and in such event shall immediately pay such proceeds into
one of the Lockbox Accounts to be applied pursuant to SECTION 2.5.
6.8 NAME, FISCAL YEAR AND ACCOUNTING METHOD. Neither the Company
nor any Realty Company will change its name, fiscal year or method of
accounting.
6.9 LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF
SUBSTANTIAL ASSETS. Neither the Company nor any Realty Company will dissolve
or liquidate, or become a party to any merger or consolidation unless the
Company shall be the surviving entity of its property or assets or business.
6.10 LINES OF BUSINESS. Neither the Company nor any Realty Company
will directly or indirectly, engage in any business other than as permitted by
Article III of the Articles of Incorporation of the Company and ARTICLE III of
each Partnership Agreement forming each Realty Company.
6.11 NO AMENDMENTS. The Company will not amend its Articles of
Incorporation and no Realty Company will amend its partnership agreement.
6.12 PURCHASE OF SUBSTANTIAL ASSETS. The Company will not
purchase, lease or otherwise acquire part or all or substantially all of the
assets of any other Person except for the acquisition of the Asset Portfolio
and the foreclosure of Underlying Collateral and other Collateral securing the
Collateral Loans.
6.13 NEW PLACES OF BUSINESS. Neither the Company nor any Realty
Company will transfer its principal place of business or chief executive
office, except upon at least 60 days prior written notice to the Trustee and
after the delivery to the Trustee of financing statements in form satisfactory
to the Trustee to perfect or continue the perfection of the Trustee's Liens and
security interests contemplated hereby.
6.14 FICTITIOUS NAMES. Neither the Company nor any Realty Company
will use any fictitious name or "d/b/a" except as may be required in any state
to conduct business within such state, in which case the Company, or such
Realty Company will use a name as similar to the Company or such Realty
Company, as possible.
6.15 MARGIN STOCK. The Company will not own, purchase or acquire
(or enter into any contract to purchase or acquire) any "margin security" as
defined by any regulation of the Federal Reserve Board as now in effect or as
the same may hereafter be in effect.
6.16 COMPLIANCE WITH ENVIRONMENTAL LAWS. Except in material
compliance with applicable Governmental Requirements (including all Applicable
Environmental Laws), neither the Company nor any Realty Company will use,
generate, manufacture, produce, store, release, discharge, or dispose of on,
under, or about any of its real property or transport to or from any of its
real property any Hazardous Substance, or allow any other Person or entity to
do so.
35 NOTE AGREEMENT
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SECTION 7 COLLATERAL
7.1 SECURITY. The Company agrees to secure the Obligation to the
Noteholders by the pledge of, and the granting of a first priority perfected
security interest in the Collateral Loans which shall come into the possession,
custody or control of the Collateral Custodian, the Company or Servicer, and a
perfected security interest in additional collateral more fully described in
the Security Documents including, without limitation, (a) all cash, securities,
notes or other instruments deposited by the Company in any cash collateral
account securing the Company's obligations hereunder, including without
limitation the Tax Escrow Accounts and the Property Accounts for the Asset
Portfolio, the Lockbox Accounts, the Liquidity Reserve Account and the
Operating Reserve Account, (b) all interest of the Company in any documents
relating to the acquisition and ownership of the Asset Portfolio, including
without limitation, the Loan Contribution Agreements and (c) cash and non-cash
proceeds of the foregoing. Payment of the Obligation will be additionally
secured by each Partner of each Realty Company granting to the Trustee, for the
benefit of the Noteholders, a security interest in its Partnership interest and
related rights under the Partnership Agreement forming such Realty Company.
Promptly after receipt, the Company shall arrange for the recordation by the
Servicer of each assignment delivered pursuant to SECTION 4.3(a)(ii) hereof.
7.2 LIEN ON REO PROPERTIES. Each REO Property shall be owned by
one of the Realty Companies, it being understood that the Company shall not
take title to any REO Property. Following the Closing Date, all new REO
Property shall be acquired by the REO Affiliate. Immediately upon the
acquisition of title to an REO Property by the REO Affiliate, the REO Affiliate
will execute and deliver to the Company an REO Note (which shall be endorsed by
the Company to Trustee for Noteholders, and delivered to the Collateral
Custodian), security instruments granting to the Company a Lien on such REO
Property, except as otherwise provided in SECTION 5.18. The Company will
execute and deliver to the Trustee, a Collateral Assignment pursuant to which
the Company shall assign to Trustee for Noteholders, as security for the
Obligation, all of the Company's rights under such REO Note and REO Security
Documents. The Company (at its own expense) shall promptly record such
security instruments, REO Security Documents and any related assignment(s) of
lien with such filing offices as may be required by the Trustee to perfect and
record the Trustee's interests in such REO Property or as may be required by
the Servicer to perfect and record the Company's interests in such REO
Property. Prior to the taking of title to any REO Property by the REO
Affiliate, the Company shall provide Servicer with an Environmental Site
Assessment with respect to such REO Property or an update of any Environmental
Site Assessment previously delivered to Servicer, and the Company shall have
received Servicer's written acknowledgment that the results thereof are
acceptable to Servicer. To secure the prompt payment and performance to the
Noteholders of the Obligation, the Company shall execute the Collateral
Assignments, assigning to the Trustee for the benefit of the Noteholders, all
of the Liens securing the repayment of the Asset Portfolio and the obligations
secured thereby.
7.3 INSURANCE OF COLLATERAL. The Company and the Realty Companies
each agrees to maintain and pay for, or cause to be maintained and paid for,
insurance upon all Collateral covering casualty, hazard, public liability and
such other risks and in such amounts and with such insurance companies as is
customary. Neither the Company nor any Realty Company shall change the type or
extent of insurance existing on the Closing Date without the written permission
of Servicer. If the Company or any Realty Company fails to provide and pay for
such insurance, the Servicer shall, at the Company's or such Realty Company's
expense, as applicable, procure the same in accordance with the Servicing
Agreement.
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7.4 POSSESSION OF COLLATERAL DOCUMENTS; SALE OF COLLATERAL. So
long as the Collateral Documents are in existence:
(a) Prior to the occurrence of an Event of Default or
Potential Default, the Servicer may agree to permit, from time to
time, the temporary withdrawal by the Servicer, pursuant to a trust
receipt executed by the Servicer, of specified notes evidencing
Collateral Loans, pledged to the Trustee for the benefit of the
Noteholders as collateral security for the Obligation, for a period
not to exceed eighteen (18) days from the date of such withdrawal
(unless such notes have been placed in the possession of an attorney,
as custodian for the Trustee, in which case such notes may be held by
such attorney in excess of such eighteen (18) day period),which
withdrawal shall be for the sole purpose of permitting the Company to
amend and/or correct errors in such notes and thereby enhance the
ultimate sale of such notes and for other purposes more particularly
described in the Custodial Agreement.
(b) Notwithstanding anything to the contrary contained
herein, the Trustee for the benefit of the Noteholders shall continue
to have a valid, perfected, first priority security interest and lien
in each Collateral Loan and related note delivered to the Company or
any qualified investor, until payment of the full purchase price
therefor has been made to the Noteholders.
7.5 POWER OF ATTORNEY. Without limiting any other rights and
remedies available to the Noteholders hereunder, each of the Company and each
Realty Company hereby appoints the Trustee as the Company's and such Realty
Company's attorney-in-fact, with full power of substitution, for the purpose of
carrying out the provisions of this Agreement or any Note Agreement Document
and taking any action and executing in the name of the Company or such Realty
Company, without recourse to the Company or such Realty Company, any document
or instrument, which the Trustee may deem necessary or advisable to accomplish
the purposes hereof and of any Note Agreement Document (including, without
limitation, perfecting or protecting the liens on and security interests in any
Collateral) which appointment is coupled with an interest and is irrevocable.
Upon the occurrence of a Potential Default or an Event of Default, each of the
Company and the Realty Companies hereby authorizes the Trustee in its
discretion at any time and from time to time to exercise such Power of
Attorney, including without limitation (a) completing any Collateral Assignment
which heretofore was, or hereafter at any time may be, executed and delivered
by the Company or the Realty Companies to the Trustee so that such assignment
describes a mortgage which is security for any Collateral Loan now or hereafter
at any time constituting Collateral and recording the same, and (b) completing
any other assignment or endorsement that was delivered in blank hereunder or
pursuant to the terms hereof.
7.6 APPOINTMENT OF COLLATERAL CUSTODIAN. Contemporaneously
herewith, the Trustee and the Noteholders have appointed Fleet National Bank,
as Collateral Custodian (the "COLLATERAL CUSTODIAN") pursuant to the Custodial
Agreement for the purpose of exercising any rights, and performing any duties,
of the Trustee with respect to Collateral hereunder, including without
limitation, the rights and duties described in this SECTION 7, to the extent
set forth in the Custodial Agreement. The Company shall deliver to the
Collateral Custodian all Collateral Loans and all requests for release of
Collateral Loans shall be made by the Servicer to the Collateral Custodian
(with a copy of each such request being simultaneously delivered to the
Servicer) and the Trustee. There shall be no change in the identity of the
Collateral Custodian without (a) 30 days prior written notice having been sent
to Trustee and (b) the Trustee having received a letter from the Rating Agency
indicating that the change will not result in the downgrading or withdrawal of
the rating then assigned to any Note.
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7.7 RELEASES. The Trustee shall release the Liens and security
interests related to each Collateral Loan upon payment into a Lockbox Account
of all Portfolio Collections with respect to the disposition, settlement or
sale of such Collateral Loan, as indicated by written notice from the Servicer
to the Trustee.
SECTION 8 EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any
one or more of the following events (herein collectively called "EVENTS OF
DEFAULT") shall occur and be continuing:
(a) the Company shall fail to pay when due, any principal
of, or interest on, or Make-Whole Amount, if any, on the Notes, and
such failure shall continue for two Business Days following the due
date, or shall fail to make any payment to a Lockbox Account required
by SECTION 8.4;
(b) the Company shall fail to pay when due any fee,
expense or other payment required hereunder and such fee, expense or
other payment shall remain unpaid for three (3) days following
delivery by the Trustee to the Company of written notice of such
failure;
(c) any representation or warranty made or deemed made by
the Company, the Realty Companies or the Servicer under this
Agreement, or any of the other Note Agreement Documents, or in any
certificate or other writing furnished to the Trustee or Noteholders
pursuant hereto or in connection herewith, other than those made
pursuant to SECTIONS 3.22 through 3.27 hereof, shall prove to be
untrue or inaccurate in any material respect as of the date on which
such representation or warranty is made;
(d) default shall occur in the performance of any of the
covenants or agreements of the Company or the Realty Companies
contained in SECTION 6 herein;
(e) default shall occur in the performance of any of the
other covenants or agreements of the Company or the Realty Companies
contained herein or any of the other Note Agreement Documents and such
default is not remedied within thirty (30) days after the occurrence
thereof;
(f) default shall occur in the payment of any
Indebtedness of the Company in excess of $100,000 or default shall
occur in respect of any note, loan agreement or credit agreement
relating to any such Indebtedness and such default shall continue for
more than the period of grace, if any, specified therein; or any such
Indebtedness shall become due before its stated maturity by
acceleration of the maturity thereof or shall become due by its terms
and shall not be promptly paid or extended;
(g) any of the Note Agreement Documents shall cease to be
legal, valid, binding agreements enforceable against any party
executing the same in accordance with the respective terms thereof or
shall in any way be terminated or become or be declared ineffective or
inoperative or shall in any way whatsoever cease to give or provide
the respective liens, security interest, rights, titles, interest,
remedies, powers or privileges intended to be created thereby;
38 NOTE AGREEMENT
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(h) the Company, any Realty General Partner or any Realty
Company shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of
all or a substantial part of its assets, (ii) file a voluntary
petition in bankruptcy or admit in writing that it is unable to pay
its debts as they become due, (iii) make a general assignment for the
benefit of creditors, (iv) file a petition or answer seeking
reorganization of an arrangement with creditors or to take advantage
of any bankruptcy or insolvency laws, (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or (vi) take corporate action for the purpose
of effecting any of the foregoing;
(i) an involuntary petition or complaint shall be filed
against the Company, any Realty General Partner or any Realty Company
seeking bankruptcy or reorganization of the Company, such Realty
General Partner or such Realty Company or the appointment of a
receiver, custodian, trustee, intervenor or liquidator of the Company,
such Realty General Partner or such Realty Company, or all or
substantially all of its respective assets, and such petition or
complaint shall not have been dismissed within 60 days of the filing
thereof; or an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of
the Company, any Realty General Partner or any Realty Company or
appointing a receiver, custodian, trustee, intervenor or liquidator of
the Company, any Realty General Partner, or any Realty Company, or of
all or substantially all of its respective assets, and such order,
judgment or decree shall continue unstayed and in effect for a period
of thirty (30) days;
(j) any final judgment(s) for the payment of money in
excess of the sum of $100,000 in the aggregate shall be rendered
against the Company or any Realty Company and such judgment or
judgments shall not be satisfied or discharged at least ten (10) days
prior to the date on which any of its assets could be lawfully sold to
satisfy such judgment;
(k) the Company or any Realty Company creates a Plan;
(l) there shall occur any change in the condition
(financial or otherwise) of the Company or any Realty Company or its
assets which, in the reasonable opinion of the Trustee, has a Material
Adverse Effect;
(m) Servicer defaults in the performance of its
obligations under the Servicing Agreement, and such default is not
cured on or before the earlier of ten (10) days following (i)
knowledge by the Company of such default, or (ii) receipt by the
Company of notice of such default or any of the events described in
SECTION 1.12(e) of the Servicing Agreement shall occur and be
continuing, even though the duties of the then- appointed Servicer may
not have been terminated; or
(n) there shall occur any change in the ownership of the
Company, Servicer, any Realty General Partner, or any Realty Company.
39 NOTE AGREEMENT
<PAGE> 45
8.2 REMEDIES UPON EVENT OF DEFAULT; APPLICATION OF PAYMENTS.
(a) If an Event of Default shall have occurred and be
continuing, then the Determining Noteholders may, and the Trustee at
the request and direction of the Determining Noteholders shall,
exercise any one or more of the following rights and remedies, and any
other rights or remedies provided in any of the Note Agreement
Documents or otherwise available at law or equity, as the Determining
Noteholders in their sole discretion may deem necessary or
appropriate: (a) declare the principal of, and all interest then
accrued on, and Make-Whole Amount, if any, on the Notes and any other
liabilities hereunder (together with any costs, liabilities or
expenses of exercising its rights and remedies hereunder or under any
Note Agreement Document) to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment,
demand, protest, notice of default, notice of acceleration or of
intention to accelerate or other notice of any kind all of which the
Company hereby expressly waives, anything contained herein or in the
Notes to the contrary notwithstanding, (b) reduce any claim to
judgment, and/or (c) without notice of default or demand, pursue and
enforce any of the Trustee's or Noteholders' rights and remedies under
the Note Agreement Documents, or otherwise provided under or pursuant
to any applicable law or agreement, including without limitation all
of the rights and remedies of a secured party under the Security
Documents or under the Uniform Commercial Code adopted in the State of
New York, all of which rights and remedies shall be cumulative, and
none of which shall be exclusive; provided, however, that if any Event
of Default specified in SECTIONS 8.1(h) and (i) shall occur, the
principal of, and all interest on, the Notes and other liabilities
hereunder shall thereupon become due and payable concurrently
therewith, without any further action by the Noteholders and without
presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any
kind, all of which the Company hereby expressly waives.
(b) Notwithstanding anything to the contrary set forth in
SECTION 2.5 hereof, in the event the Notes become due and payable in
full, whether upon maturity or upon acceleration following an Event of
Default, all amounts received by the Trustee for payment to the
Noteholders, including all Portfolio Collections and any proceeds
received from foreclosure, liquidation or other disposition of the
Collateral shall be applied in the following order of priority:
(i) first, to payment of all fees and expenses of
the Trustee and legal counsel to the Noteholders incurred in
connection with collecting payments on the Notes and enforcing
the rights of the Trustee and the Noteholders under the Note
Agreement Documents including without limitation all expenses
incurred in foreclosing upon the Collateral, provided however,
that for purposes of this clause (i) fees and expenses of
legal counsel to the Noteholders shall be limited to fees and
expenses of a single counsel appointed by the Determining
Noteholders;
(ii) second, to payment of the outstanding Notes
as follows: (a) first, to accrued unpaid interest and (b)
second to any outstanding principal;
(iii) third, to payment of the Make-Whole Amount,
if any, on all Notes:
(iv) fourth, to payment of any remaining unpaid
Obligation; and
(v) fifth, the balance, if any remaining after
the full and final payment of the Obligation, to the Company.
40 NOTE AGREEMENT
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8.3 PERFORMANCE BY THE NOTEHOLDERS. Should the Company or any
Realty Company fail to perform any covenant, duty or agreement contained herein
or in any of the Note Agreement Documents, the Trustee or Determining
Noteholders may, at their option, after reasonable notice to the Company and
the Realty Companies of such failure, perform or attempt to perform such
covenant, duty or agreement on behalf of the Company or the Realty Companies.
In such event, the Company shall, at the request of the Trustee or Determining
Noteholders, promptly pay any amount expended by the Trustee or Determining
Noteholders in such performance or attempted performance to the Trustee at its
principal office in Irvine, California, together with interest thereon at the
highest lawful rate from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that neither the
Trustee nor the Noteholders shall assume any liability or responsibility for
the performance of any duties of the Company hereunder or under any of the Note
Agreement Documents or other control over the management and affairs of the
Company.
8.4 BREACH OF CERTAIN REPRESENTATIONS AND WARRANTIES; BREACH OF
COLLATERAL DOCUMENT DELIVERY REQUIREMENTS. In the event (i) of a breach of any
of the representations and warranties made by the Company and the Realty
Companies pursuant to SECTIONS 3.22 through 3.27 hereof which has a Material
Adverse Effect or (ii) the Company fails to deliver any of the Collateral
Documents required to be delivered hereunder (other than the notes evidencing
the Collateral Loans) or the assignments or transfer documents required to be
delivered pursuant to SECTION 4.3(a), by the dates required hereunder, the
Company shall have sixty days after becoming aware of any breach to cure such
breach and 180 days after the Closing Date to deliver such Collateral
Documents, assignments or transfer documents. In the event the Company is
unable to cure such breach or deliver such Collateral documents, assignments or
transfer documents and a Shareholder has not cured the breach or repurchased
the Collateral Loan in question for the Purchase Price, the Company will be
obligated to make a payment to a Lockbox Account in the amount of the Purchase
Price for the Collateral Loan which is the subject of the breach of warranty or
for which all of the Collateral Documents, assignments or transfer documents
have not been delivered as required hereunder. The Lien on such Collateral
Loan shall be released by the Trustee as directed by the Company following any
such payment in full. Any such repurchase of a Collateral Loan by a
Shareholder or payment by the Company of the Notes as a result of any such
breach or failure to deliver Collateral Documents shall not result in payment
of a Make-Whole Amount.
SECTION 9 TRUSTEE
9.1 TRUSTEE.
(a) APPOINTMENT. Each Noteholder by purchasing its
Notes, appoints the Trustee (including, without limitation, each
successor Trustee in accordance with this SECTION 9) as its nominee
and agent to act in its name and on its behalf (and the Trustee and
each such successor accepts that appointment): (i) to take any action
that it properly requests under the Note Agreement Documents (subject
to the concurrence of the Noteholders as may be required under the
Note Agreement Documents); (ii) to be the secured party, mortgagee,
beneficiary, recipient, and similar party in respect of any collateral
for the benefit of the Noteholders; (iii) to promptly distribute to it
all information, requests, documents, and other items received from
the Company under the Note Agreement Documents; (iv) unless otherwise
provided in this Agreement, to promptly distribute to it its ratable
part of each payment or prepayment (whether voluntary, as proceeds of
collateral upon or after foreclosure, as proceeds of insurance
thereon, or otherwise) in accordance with the terms of the Note
Agreement Documents; and (v) to deliver to the appropriate Persons
requests,
41 NOTE AGREEMENT
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demands, approvals, and consents received from it. However, the
Trustee may not be required to take any action that exposes it to
personal liability or that is contrary to any Note Agreement Document
or applicable Governmental Requirement and the Trustee shall not be
required to respond to any request for approval provided for hereunder
without the consent of Determining Noteholders or Noteholders, as
appropriate.
(b) SUCCESSOR. The Trustee may assign all of its rights
and obligations as the Trustee under the Note Agreement Documents to
any of its Affiliates, with recourse, which Affiliate shall then be
the successor Trustee under the Note Agreement Documents, provided
that, unless the Determining Noteholders consent to such assignment,
the Trustee shall remain liable for all of its obligations hereunder
and under the Servicing Agreement. The Trustee may also voluntarily
resign and shall resign upon the request of Determining Noteholders
for cause (i.e., the Trustee is continuing to fail to perform its
responsibilities as the Trustee under the Note Agreement Documents).
If the initial or any successor Trustee ever ceases to be a party to
this Agreement or if the initial or any successor Trustee ever resigns
(whether voluntarily or at the request of Determining Noteholders),
then Determining Noteholders shall (which, if no Event of Default or
Potential Default exists, is subject to the Company's approval that
may not be unreasonably withheld) appoint the successor Trustee. If
Determining Noteholders fail to appoint a successor Trustee within 30
days after the resigning Trustee has given notice of resignation or
Determining Noteholders have removed the resigning Trustee, then the
resigning Trustee may, on behalf of the Noteholders, appoint a
successor Trustee, which must be a commercial bank having a combined
capital and surplus of at least $100,000,000 (as shown on its most
recently published statement of condition), and a rating of "A" or
higher by Standard & Poor's or Moody's. In either case, prior to the
successor Trustee becoming Trustee under this agreement, the existing
Trustee must have received a letter from the Rating Agency indicating
that the change will not result in the downgrading or withdrawal of
the rating then assigned to any Note. Upon its acceptance of
appointment as successor Trustee, the successor Trustee succeeds to
and becomes vested with all of the rights of the prior Trustee, and
the prior Trustee is discharged from its duties and obligations of the
Trustee under the Note Agreement Documents, and each Noteholder shall
execute the documents that any Noteholder, the resigning or removed
Trustee, or the successor Trustee reasonably request to reflect the
change. After any Trustee's resignation or removal as the Trustee
under the Note Agreement Documents, the provisions of this section
inure to its benefit as to any actions taken or not taken by it while
it was the Trustee under the Note Agreement Documents.
9.2 DELEGATION OF DUTIES; RELIANCE. The Noteholders may perform
any of their duties or exercise any of their rights under the Note Agreement
Documents by or through the Trustee, and the Noteholders and the Trustee may
perform any of their duties or exercise any of their rights under the Note
Agreement Documents by or through their respective Representatives. The
Trustee, the Noteholders, and their respective Representatives (a) are entitled
to rely upon (and shall be protected in relying upon) any written or oral
statement believed by it or them to be genuine and correct and to have been
signed or made by the proper Person and, with respect to legal matters, upon
opinion of counsel selected by the Trustee or that Noteholder (but nothing in
this CLAUSE (a) permits the Trustee to rely on (i) oral statements if a writing
is required by this agreement or (ii) any other writing if a specific writing
is required by this agreement), (b) are entitled to deem and treat each
Noteholder as the owner and holder of its portion of the Obligation for all
purposes until, written notice of the assignment or transfer is given to and
received by the Trustee (and any request, authorization, consent, or approval
of any Noteholder is conclusive and binding on each subsequent holder,
assignee, or transferee of that Noteholder's portion of the Obligation
42 NOTE AGREEMENT
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until that notice is given and received), (c) are not deemed to have notice of
the occurrence of an Event of Default unless a responsible officer of the
Trustee, who handles matters associated with the Note Agreement Documents and
transactions thereunder, has actual knowledge or the Trustee has been notified
by a Noteholder or the Company, and (d) are entitled to consult with legal
counsel (including counsel for the Company), independent accountants, and other
experts selected by the Trustee and are not liable for any action taken or not
taken in good faith by it in accordance with the advice of counsel,
accountants, or experts.
9.3 LIMITATION OF TRUSTEE'S LIABILITY.
(a) EXCULPATION. Neither the Trustee nor any of its
Affiliates or Representatives will be liable for any action taken or
omitted to be taken by it or them under the Note Agreement Documents
in good faith and believed by it or them to be within the discretion
or power conferred upon it or them by the Note Agreement Documents or
be responsible for the consequences of any error of judgment (except
for fraud, negligence, or willful misconduct).
(b) INDEMNITY. The Trustee shall be under no obligation
to exercise any of the rights or powers vested in it by this Agreement
or any of the other Note Agreement Document at the request or
direction of any of the Noteholders pursuant to this Agreement, unless
such Noteholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction. If
the Trustee requests instructions from the Noteholders, or Determining
Noteholders, as the case may be, with respect to any act or action in
connection with any Note Agreement Document, the Trustee is entitled
to refrain (without incurring any liability to any Person by so
refraining) from that act or action unless and until it has received
instructions. In no event, however, may the Trustee or any of its
Representatives be required to take any action that it or they
determine could incur for it or them criminal or onerous civil
liability. Without limiting the generality of the foregoing, no
Noteholder has any right of action against the Trustee as a result of
Trustee's acting or refraining from acting under this agreement in
accordance with instructions of Determining Noteholders.
(c) RELIANCE. The Trustee is not responsible to any
Noteholder, and each Noteholder represents and warrants that it has
not relied upon the Trustee in respect of, (i) the creditworthiness of
the Company and the risks involved to that Noteholder, (ii) the
effectiveness, enforceability, genuineness, validity, or the due
execution of any Note Agreement Document (except by the Trustee),
(iii) any representation, warranty, document, certificate, report, or
statement made therein (except by the Trustee) or furnished thereunder
or in connection therewith, (iv) the adequacy of any collateral now or
hereafter securing the Obligation or the existence, priority, or
perfection of any Lien now or hereafter granted or purported to be
granted on the collateral under any Note Agreement Document, or (v)
observation of or compliance with any of the terms, covenants, or
conditions of any Note Agreement Document on the part of the Company.
9.4 EVENT OF DEFAULT. The Trustee is entitled to refrain from
taking any action (without incurring any liability to any Person for so acting
or refraining) unless and until it has received instructions from Determining
Noteholders and may take action without the direction of Determining
Noteholders only if no Material Adverse Effect could reasonably be expected to
result from such action. In actions with respect to the Company's property,
the Trustee is acting for the ratable benefit of each Noteholder.
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9.5 COLLATERAL MATTERS.
(a) Each Noteholder authorizes and directs the Trustee to
enter into the Note Agreement Documents and agrees that any action
taken by the Trustee concerning any Collateral (with the consent or at
the request of Determining Noteholders) in accordance with any Note
Agreement Document, that Trustee's exercise (with the consent or at
the request of Determining Noteholders) of powers concerning the
Collateral in any Note Agreement Document, and that all other
reasonably incidental powers are authorized and binding upon all the
Noteholders.
(b) The Trustee is authorized on behalf of all the
Noteholders, without the necessity of any notice to or further consent
from any Noteholder, from time to time before an Event of Default or
Potential Default, to take any action with respect to any Collateral
or Note Agreement Documents related to Collateral that may be
necessary to perfect and maintain perfected the Trustee's Liens upon
the Collateral.
(c) The Trustee has no obligation whatsoever to any
Noteholder or to any other Person to assure that the Collateral exists
or is owned by the Company or is cared for, protected, or insured or
has been encumbered or that the Trustee's Liens have been properly or
sufficiently or lawfully created, perfected, protected, or enforced or
are entitled to any particular priority.
(d) If an Event of Default (of which the Trustee has
knowledge) has occurred and is continuing, the Trustee shall exercise
such of the rights and powers vested in it by the Note Agreement
Documents, and use the same degree of care in its exercise, as a
prudent person would exercise or use under the circumstances in the
conduct of its own affairs.
(e) Noteholders irrevocably authorize the Trustee, at its
option and in its discretion, to release any Noteholder Lien upon any
Collateral (i) in accordance with SECTION 7.7, (ii) constituting
property being disposed of as permitted under any Note Agreement
Document, (iii) constituting property in which the Company did not own
any interest at the time the Lien was granted or at any time after
that, (iv) consisting of an instrument evidencing Indebtedness pledged
to the Trustee (for the benefit of the Noteholders), if the underlying
Indebtedness has been paid in full, (v) if approved, authorized, or
ratified in writing by the Determining Noteholders, or (vi) upon
payment of the Obligation in full. Upon request by the Trustee at any
time, the Determining Noteholders shall confirm in writing Trustee's
authority to release particular types or items of Collateral under
this CLAUSE (e).
9.6 LIMITATION OF LIABILITY. No Noteholder will incur any
liability to any other Noteholder except for acts or omissions in bad faith,
and neither the Trustee nor any Noteholder will incur any liability to any
other Person for any act or omission of any other Noteholder.
9.7 RELATIONSHIP OF THE NOTEHOLDERS. The Note Agreement Documents
do not create a partnership or joint venture among the Trustee and the
Noteholders or among the Noteholders.
9.8 BENEFITS OF AGREEMENT. None of the provisions of this section
inure to the benefit of the Company or any other Person except the Trustee and
the Noteholders. Therefore, neither the Company nor any other Person is
responsible or liable for, entitled to rely upon, or entitled to raise as a
defense -- in any manner whatsoever -- the failure of the Trustee or any
Noteholder to comply with these provisions.
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SECTION 10 MISCELLANEOUS
10.1 MODIFICATION.
(a) REQUIREMENTS. This Agreement, the Notes and the
other Note Agreement Documents may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the
Company, the Trustee and the Determining Noteholders except that (a)
no amendment or waiver of any of the provisions of SECTION 2.1, 2.2,
2.3, 2.4, 2.5, 3, 4, 8.1(a), 8.1(b), OR 10.1(a) hereof, or any defined
term (as it is used therein), will be effective as to any Noteholder
unless consented to by such Noteholder in writing, and (b) no such
amendment or waiver may, without the written consent of the holder of
each Note at the time outstanding affected thereby, (i) subject to the
provisions of SECTION 8.2 relating to acceleration, change the amount
or time of any prepayment or payment of principal of, or reduce the
rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the
definition of "Determining Noteholders" or percentage of the principal
amount of the Notes the holders of which are required to consent to
any such amendment or waiver, or (iii) amend this SECTION 10.1(a).
(b) SOLICITATION. The Company will forward to the
Trustee, who will provide each Noteholder (irrespective of the amount
of Notes then owned by it), sufficient information, sufficiently far
in advance of the date a decision is required, as directed by the
Company, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof, or of the Notes or any other
Note Agreement Document. The Company will forward to the Trustee and,
to the extent within its possession, the Trustee will deliver executed
or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this SECTION 10 to each holder
of outstanding Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.
(c) PAYMENT. The Company will not directly or indirectly
pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any
security, to any Noteholder as consideration for or as an inducement
to the entering into by any Noteholder or any waiver or amendment of
any of the terms and provisions hereof or of any of the Note Agreement
Documents unless such remuneration is concurrently paid, or security
is concurrently granted, on the same terms, ratably to each holder of
Notes then outstanding even if such holder did not consent to such
waiver or amendment.
(d) BINDING EFFECT, ETC. Any amendment or waiver
consented to as provided in this SECTION 10.1 applies equally to all
holders of Notes and is binding upon them and upon each future holder
of any Note and upon the Company without regard to whether such Note
has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Potential Default or Event of Default not expressly amended
or waived or impair any right consequent thereon. No course of
dealing between the Company and any Noteholder nor any delay in
exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any such Noteholder.
45 NOTE AGREEMENT
<PAGE> 51
(e) NOTES HELD BY COMPANY, ETC. Solely for the purpose
of determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or
consented to any amendment, waiver or consent to be given under this
Agreement, the Notes or the other Note Agreement Documents, or have
directed the taking of any action provided herein, in the Notes or in
the other Note Agreement Documents to be taken upon the direction of
the holders of a specified percentage of the aggregate principal
amount of Notes then outstanding, Notes directly or indirectly owned
by the Company or any of its Affiliates shall be deemed not to be
outstanding.
Unless the Determining Noteholders agree in writing to waive the
condition specified in this sentence, no such modifications, consents,
amendments or waivers discussed in this SECTION 10.1 shall be deemed effective
unless the Trustee shall have received a letter from the Rating Agency
indicating that the modifications, consents, amendments, or waivers in question
will not result in the downgrading or withdrawal of the rating then assigned to
any Note.
10.2 ACCOUNTING TERMS AND REPORTS. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
GAAP. All financial reports furnished by the Company to the Noteholders
pursuant to this Agreement shall be prepared on the same basis as those
prepared by the Company in prior years and shall be the same financial reports
as those furnished to the Company's officers and directors. All financial
projections furnished by the Company to the Noteholders pursuant to this
Agreement shall be prepared in such form and such detail as shall be
satisfactory to the Determining Noteholders.
10.3 WAIVER. No failure to exercise, and no delay in exercising,
on the part of the Noteholders, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other
further exercise thereof or the exercise of any other right. The rights of the
Noteholders hereunder and under the Note Agreement Documents shall be in
addition to all other rights provided by law. No modification or waiver of any
provision of this Agreement, the Notes or any Note Agreement Documents, nor
consent to departure therefrom, shall be effective unless in writing and no
such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of
the right to take other action in the same, similar or other instances without
such notice or demand.
10.4 PAYMENT OF FEES AND EXPENSES. The Company agrees to pay all
costs and expenses (including, without limitation, the reasonable attorneys'
fees of the Noteholders' and the Trustee's legal counsel) incurred by the
Trustee and by the Noteholders in connection with (a) the preservation and
enforcement of the Noteholders' rights under this Agreement, the Notes, and the
other Note Agreement Documents, and (b) the negotiation, preparation, execution
and delivery of any and all amendments, modifications and supplements to this
Agreement, the Notes or the other Note Agreement Documents. In addition, the
Company shall pay all fees of the Trustee previously agreed to by the Company.
10.5 NOTICES.
(a) Except as otherwise expressly provided herein, all
notices, requests and demands and other communications to or upon a party
hereto shall be in writing, and shall be deemed to have been validly served,
given or delivered (a) if sent by certified or registered mail against receipt,
three (3) Business Days after deposit in the mail, postage prepaid, or, if
earlier, when delivered against receipt, (b)
46 NOTE AGREEMENT
<PAGE> 52
if sent by telecopier, when transmitted with sender's confirmation of
successful transmission, or (c) if sent by any other method, upon actual
delivery, in each case addressed as follows: (i) if to the Trustee, at Bankers
Trust Company of California, N.A., 3 Park Plaza, 16th Floor, Irvine,
California, 92614, ATTN: Bosque 7.66% Notes, Telecopier: (714) 253-7577; (ii)
if to the Noteholders, at their address shown in the Register; (iii) if to the
Company or the Realty Companies, at:
6400 Imperial Drive
P. O. Box 8216
Waco, Texas 76714-8216
ATTN: Rick R. Hagelstein
Telecopier: (817) 751-1757
with courtesy copies to:
J-HAWK CORPORATION
6400 Imperial Drive
P.O. Box 8216
Waco, Texas 76714-8216
ATTN: Rick R. Hagelstein
Telecopier: (817) 751-1757
and
CFSC Capital Corp. II
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
ATTN: Jeffrey A. Parker
Telecopier: (612) 984-3905
and (iv) if to the Rating Agency, at:
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attn: Kent Becker
Telecopier: (212) 553-0573
or to such other address as each party may designate for itself by like notice
given in accordance with this SECTION 10.5; provided, however, that any notice
received by the Noteholders after 3:00 p.m. on any day from the Company or any
other Person shall be deemed for the purposes of such section to have been
given by such Person on the next succeeding Business Day and provided further,
that the failure to deliver any courtesy copies provided for in this SECTION
10.5 shall have no effect on the validity or effectiveness of any such notice,
request, demand or other communication. Any notices or documents required to
be delivered or mailed by the Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Trustee shall have no liability for failure to deliver such notice or
document to any Rating Agency. In addition, the failure to give such notice to
any Rating
47 NOTE AGREEMENT
<PAGE> 53
Agency shall not affect any other rights or obligations created hereunder, and
shall not under any circumstances constitute an Event of Default.
(b) The Trustee shall promptly provide notice to the
Rating Agency and Noteholder with respect to each of the following of which a
responsible officer of the Trustee has actual knowledge:
(i) any material change or amendment to this
Agreement or any other Note Agreement Documents;
(ii) the occurrence of any Event of Default that
has not been cured;
(iii) the resignation or termination of the
Servicer, the Trustee, the Collateral Custodian, the Lockbox
Bank or the Additional Lockbox Bank and the appointment of any
successor thereto;
(iv) any change in the location of any Lockbox
Account, Liquidity Reserve Account or Operating Reserve
Account; and
(v) the final payment to the Noteholders.
(c) The Trustee shall promptly deliver to the Rating
Agency, at the addresses set forth above, a copy of each statement, report and
certificate received by it pursuant to SECTIONS 5.1(a), (b), (c), AND (d). The
Trustee shall also provide such other information as the Rating Agency shall
reasonably request and which the Trustee can reasonably provide, at no cost to
the Rating Agency.
(d) Notwithstanding anything to the contrary set forth
herein or in any of the Note Agreement Documents, all notices, documents or
other deliveries required to be made to the Noteholders hereunder or under any
of the other Note Agreement Documents by (i) the Company or (ii) any Affiliate
of the Company a party to any such document, shall be made to the Trustee. The
Trustee will be responsible for providing (within four (4) Business Days
following receipt thereof by the Trustee) copies of such documents, notices and
other deliveries to each Noteholder.
10.6 CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. The Note Agreement Documents are being delivered and consummated and
the Company's and the Realty Companies' duties hereunder are performable in the
State of Texas. The Note Agreement Documents (other than those containing a
contrary express choice of law provision) shall be construed in accordance with
the laws of Texas applicable to contracts made and performed in Texas. Any
suit, action or proceeding against the Company or the Realty Companies with
respect to this Agreement, the Note or any judgment entered by any court in
respect thereof, may be brought in the courts of the State of Texas, County of
Dallas, or in the United States courts located in the State of Texas as the
Trustee in its sole discretion may elect and the Company and the Realty
Companies, each hereby submits to the non-exclusive jurisdiction of such courts
for the purpose of any such suit, action or proceeding. The Company and each
Realty Company, each hereby irrevocably and unconditionally waives (a) any
objections 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, the
Notes or any other Note Agreement Document brought in the courts located in the
State of Texas and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in any
inconvenient forum, and (b) to the maximum extent not prohibited by law, any
right
48 NOTE AGREEMENT
<PAGE> 54
it may have to claim or recover on any legal action or proceeding related
hereto, any special, exemplary, punitive or consequential damages. THE COMPANY
AND EACH REALTY COMPANY, EACH HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF, OR
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER NOTE AGREEMENT DOCUMENTS AND THE
RIGHT TO BRING ANY ACTION IN COURTS LOCATED IN ANY STATE OTHER THAN TEXAS.
10.7 INVALID PROVISIONS. If any provision of any Note Agreement
Document is held to be illegal, invalid or unenforceable under present or
future Governmental Requirements during the term of this Agreement, such
provision shall be fully severable; such Note Agreement Document shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of such Note Agreement Document; and the remaining
provisions of such Note Agreement Document shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Note Agreement Document. Furthermore,
in lieu of each such illegal, invalid or unenforceable provision shall be added
as part of such Note Agreement Document a provision mutually agreeable to the
Company and the Trustee as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
In the event the Company and the Trustee are unable to agree upon a provision
to be added to the Note Agreement Document within a period of ten (10) Business
Days after a provision of the Note Agreement Document is held to be illegal,
invalid or unenforceable, then a provision acceptable to the Noteholders as
similar in terms to the illegal, invalid or unenforceable provision as is
possible and be legal, valid and enforceable shall be added automatically to
such Note Agreement Document. In either case, the effective date of the added
provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.
10.8 MAXIMUM INTEREST RATE. Regardless of any provision contained
in any of the Note Agreement Documents, the Noteholders shall never be entitled
to receive, collect or apply as interest on the Notes any amount in excess of
the Maximum Rate.
10.9 OFFSET. The Company hereby grants to the Noteholders the
right of offset, to secure repayment of the Notes, upon any and all moneys,
securities or other property of the Company and the proceeds therefrom, now or
hereafter held or received by or in transit to the Noteholders, from or for the
account of the Company, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or
special) and credits of the Company, and any and all claims of the Company
against the Noteholders at any time existing.
10.10 MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same agreement, and any of the parties hereto may execute this Agreement by
signing any such counterpart.
10.11 ENTIRETY. The Note Agreement Documents embody the entire
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof.
10.12 HEADINGS. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Agreement.
49 NOTE AGREEMENT
<PAGE> 55
10.13 SURVIVAL. All representations and warranties made by the
Company herein shall survive the closing and the delivery of this Agreement and
the Notes.
10.14 REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
(a) SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided
that (i) neither the Company, Servicer, nor any Realty Company shall,
directly or indirectly, assign or transfer, or attempt to assign or
transfer, any of its rights, duties or obligations under this
Agreement or any of the Note Agreement Documents without the express
prior written consent of the Determining Noteholders, and provided
further that no Noteholder may assign, sell or transfer all or any
portion of any Note to any Person other than to a United States
person.
(b) REGISTRATION OF NOTES. The Trustee shall keep at its
office a register (a "REGISTER") for the registration and registration
of transfers of Notes. The name and address of each holder of one or
more Notes, each transfer thereof and the name and address of each
transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as
the owner and holder thereof for all purposes hereof, and neither the
Company nor the Trustee shall be affected by any notice or knowledge
to the contrary. The Register shall be available for inspection by the
Noteholders at any reasonable time and from time to time upon
reasonable prior notice.
(c) TRANSFER AND EXCHANGE OF NOTES. Upon surrender of
any Note at the office of the Trustee for registration of transfer or
exchange (and in the case of a surrender for registration of transfer,
duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or his attorney duly
authorized in writing and accompanied by the address for notices of
each transferee of such Note or part thereof), and upon compliance
with the provisions of SECTION 2.1(c), including receipt by the
Company and the Trustee of (i) adequate assurances (by opinion of
counsel for each transferee other than a Qualified Institutional Buyer
and by a certificate in the form attached hereto as EXHIBIT F from an
authorized officer of any transferee, satisfactory to the Company and
the Trustee, that exemptions from the registration requirements of the
Securities Act and applicable state securities laws are available, and
(ii) adequate assurances (by a certificate from an authorized officer
of any transferor satisfactory to the Company and the Trustee) that
the transferor is a United States person, the Company shall execute
and deliver, at the Company's expense (except as provided below), one
or more new Notes (as requested by the holder thereof) in exchange
therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be
substantially in the form of EXHIBIT A. Each such new Note shall be
dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered
Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes.
Notes shall not be transferred in denominations of less than $100,000,
provided that if necessary to enable the registration of transfer by a
holder of its entire holding of Notes, one Note may be in a
denomination of less than $100,000.
50 NOTE AGREEMENT
<PAGE> 56
(d) REPLACEMENT OF NOTES. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of any Note, and (i) in the
case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is
a nominee for, a Noteholder purchasing Notes on the Closing Date or
another holder of a Note with a minimum net worth of at least
$100,000,000, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory), or (ii) in the case of mutilation, upon
surrender and cancellation thereof, the Company at its own expense
shall execute and deliver, in lieu thereof, a new Note, dated and
bearing interest from the date to which interest shall have been paid
on such lost, stolen, destroyed or mutilated Note or dated the date of
such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
10.15 SENIOR DEBT. The Indebtedness of the Company hereunder and
under the Notes and all of the Obligation is intended to be and shall be senior
to any subordinated indebtedness of the Company or any other Indebtedness of
the Company secured by a Lien on any portion of the Collateral (the foregoing
shall not in any way imply the Noteholders' consent to any such subordinate
debt or Liens which are not otherwise permitted by this Agreement). The Notes
and any other amounts advanced to or on behalf of the Company or any other
Person pursuant to the terms of this Agreement or any other Note Agreement
Document shall never be in a position subordinate to any Indebtedness of the
Company owing to any other Person, except with the knowledge and written
consent of the Noteholders.
10.16 NO THIRD PARTY BENEFICIARY. The parties do not intend the
benefits of this Agreement to inure to any third party other than the
Noteholders, nor shall this Agreement be construed to make or render the
Noteholders liable to any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by the Company, or for debts or
claims accruing to any such persons against the Company. Notwithstanding
anything contained herein or in the Notes, or in any other Note Agreement
Document, or any conduct or course of conduct by any or all of the parties
hereto, before or after signing this Agreement or any of the other Note
Agreement Documents, neither this Agreement nor any other Note Agreement
Document shall be construed as creating any right, claim or cause of action
against the Noteholders, or any of their officers, directors, agents or
employees, in favor of any materialman, supplier, contractor, subcontractor,
purchaser or lessee of any property owned by the Company, nor to any other
person or entity other than the Company.
10.17 ORAL AGREEMENTS INEFFECTIVE. THE NOTE AGREEMENT DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES, AND THE SAME MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.]
51 NOTE AGREEMENT
<PAGE> 57
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
Bosque Asset Corp. BOSQUE ASSET CORP.,
P.O. Box 8216 as the Company
Waco, Texas 76714-8216
Telecopy No. 817/756-7032
Attention: Rick R. Hagelstein By: /s/ RICK R. HAGELSTEIN
----------------------------------------------------------
Rick R. Hagelstein, Executive Vice President
Bosque Investment Realty Partners BOSQUE INVESTMENT REALTY PARTNERS, L.P.
P.O. Box 8216
Waco, Texas 6714-8216 By: BOSQUE INVESTMENT REALTY CORP.,
Telecopy No. 817/756-7032 its general partner
Attention: Rick R. Hagelstein
By: /s/ RICK R. HAGELSTEIN
----------------------------------------------
Rick R. Hagelstein, Executive Vice President
SOWAMCO XXII, Ltd. SOWAMCO XXII, LTD.
P.O. Box 8216
Waco, Texas 6714-8216 By: SOWAMCO XXII OF TEXAS, INC.,
Telecopy No. 817/756-7032 its general partner
Attention: Rick R. Hagelstein
By: /s/ RICK R. HAGELSTEIN
----------------------------------------------
Rick R. Hagelstein, Executive Vice President
SVD Realty, L.P. SVD REALTY, L.P.
P.O. Box 8216
Waco, Texas 6714-8216 By: SVD REALTY ASSET CORP.,
Telecopy No. 817/756-7032 its general partner
Attention: Rick R. Hagelstein
By: /s/ RICK R. HAGELSTEIN
----------------------------------------------
Rick R. Hagelstein, Executive Vice President
Bankers Trust Company of California, N.A. BANKERS TRUST COMPANY OF CALIFORNIA,
3 Park Plaza, 16th Floor N.A., as Trustee
Irvine, California 92614
By: /s/ MARY BELLISSIMO
-------------------------------------------------------
Name: Mary Bellissimo
------------------------------------------------
Title: Assistant Secretary
-----------------------------------------------
</TABLE>
SIGNATURE PAGE NOTE AGREEMENT
<PAGE>
EXHIBIT 10.15
60,000,000 French Francs Effective Date: September 25, 1997
Chicago, Illinois Maturity Date: March 31, 1998
REVOLVING PROMISSORY NOTE
FOR VALUE RECEIVED, J-Hawk International Corporation, a Texas
corporation ("BORROWER"), promises to pay to the order of Bank of Scotland
("BANK"), on or before March 31, 1998, 60,000,000 French Francs, or if less
the unpaid principal amount of all advances made by Bank to Borrower as Loans
under the terms of that certain Loan Agreement dated even date herewith by and
between Borrower and Bank (said Loan Agreement, as it may hereafter be
amended, extended, restated, supplemented or otherwise modified from time to
time, being referred to collectively herein as the "LOAN AGREEMENT"). The
capitalized terms used herein and not otherwise defined herein shall have the
meaning set forth in the Loan Agreement, which definitions are hereby
incorporated by reference.
Borrower also promises to pay principal plus interest on the unpaid
principal amount hereof, from the date hereof until paid in full, at the rates
and at the times determined in accordance with the provisions of the Loan
Agreement.
This Note is Borrower's Note issued pursuant to and entitled to the
benefits of the Loan Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Loans evidenced
hereby were made and are to be repaid.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the Republic of France in same day funds at such
place as shall be designated in writing for such purpose in accordance with the
terms of the Loan Agreement.
Upon the occurrence of any default hereunder or any Event of Default
under the terms of the Loan Agreement, and at any time thereafter, if any
default or Event of Default shall then be continuing, Bank may by written
notice to the Borrower: (i) declare the principal of and accrued interest on
the Loans to be, whereupon the same shall forthwith become, due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.
The terms of this Note are subject to amendment only in the manner
provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this
Note or the Loan Agreement shall alter or impair the obligations of Borrower,
which are absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
<PAGE> 2
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in the Loan Agreement, incurred in the
collection and enforcement of this Note. Borrower and any endorsers of this
Note hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest,
demand and notice of every kind and, to the full extent permitted by law, the
right to plead any statute of limitations as a defense to any demand hereunder.
Borrower, for itself and for its successors, transferees and assigns,
hereby irrevocably (i) waives diligence, presentment and demand for payment,
protest, notice, notice of protest and nonpayment, dishonor and notice of
dishonor and all other demands or notices of any and every kind whatsoever;
(ii) agrees that this Note and any or all payments coming due hereunder or
under any of the other Loan Documents may be extended from time to time in the
sole discretion of Bank without in any way affecting or diminishing Borrower's
liability hereunder; and (iii) waives any rights, remedies or defenses arising
at law or in equity relating to guarantees or suretyships.
Borrower hereby irrevocably appoints and designates CT Corporation
System, Inc., 208 S. LaSalle Street, Chicago, IL 60604 as its true and lawful
attorney-in-fact and duly authorized agent for service of legal process and
agrees that service of such process upon such agent and attorney-in-fact shall
constitute personal service of such process upon Borrower.
To the extent that Bank receives any payment on account of the
indebtedness evidenced hereby, or any proceeds of Collateral or other
collateral are applied on account of the indebtedness evidenced hereby, and any
such payment(s) and/or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, subordinated
and/or required to be repaid to a trustee, receiver or any other Person under
any bankruptcy act, state or federal law, common law or equitable cause, then,
to the extent of such payment(s) or proceeds received, the indebtedness
evidenced hereby or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment(s) and/or proceeds had
not been received by Agent and/or Bank and applied on account of the
indebtedness evidenced by this Note.
Any notice required or permitted to be given hereunder shall be given
and delivered in accordance with the provisions of Section 9.4 of the Loan
Agreement.
Borrower hereby represents that it has been represented by competent
counsel of its choice in the negotiation and execution of this Note, the Loan
Agreement and the other Loan Documents; that it has read and fully understood
the terms hereof; Borrower and its counsel have been afforded an opportunity to
review, negotiate and modify the terms of this Note and that it intends to be
bound hereby. In accordance with the foregoing, the general rule of
construction to the effect that any ambiguities in a contract are to be
resolved against the party drafting the contract shall not be employed in the
construction and interpretation of this Note.
2
<PAGE> 3
Except as otherwise provided in this Note, if any provision contained
in this Note is in conflict with, or inconsistent with, any provision in the
other Loan Documents, Bank shall have the right to elect, in its reasonable
discretion, which provision shall govern and control.
If any provision of this Note, the Loan Agreement or any other Loan
Document or the application thereof to any Person or circumstance is held
invalid or unenforceable, the remainder of this Note, the Loan Agreement or any
other Loan Document and the application of such provision to other Persons or
circumstances will not be affected thereby and the provisions of this Note, the
Loan Agreement or any other Loan Document shall be severable in any such
instance. In no event shall interest be due hereunder or under any other Loan
Documents at a rate in excess of the highest lawful rate. It is not the
intention of the parties hereto to make any agreement which shall violate the
applicable laws of the State of Illinois, the United States of America or any
other state thereof relating to usury. In no event shall Borrower pay or Bank
accept or charge any interest which, together with any other charges upon the
principal or any portion thereof howsoever computed, shall exceed the maximum
legal rate of interest allowable under the applicable laws of the State of
Illinois, the United States of America or any state thereof whose laws on such
subject are determined to govern such provisions of the Note or such other Loan
Documents. Should any provisions of this Note or any of the other Loan
Documents be construed to require the payment of interest which, together with
any other charges upon the principal, or any portion thereof, exceed such
maximum legal rate of interest, then any such excess shall be and is hereby
expressly waived as interest and shall be credited to the outstanding principal
balance.
THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY BANK IN CHICAGO,
ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS.
BORROWER HEREBY (a) IRREVOCABLY SUBMITS, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO,
ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS NOTE; (b) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (c) AGREES
THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED
IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW; AND (d) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AGREES NOT
TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST ANY BANK OR AGENT OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING
ANY MATTER ARISING OUT OF OR RELATING TO THIS NOTE IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR
IMPAIR BANK'S OR AGENT'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED
BY LAW OR BANK'S OR AGENT'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
3
<PAGE> 4
BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
TO THE EXTENT PERMITTED BY LAW, BORROWER, BANK AND AGENT EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS NOTE OR THE OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN
CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOAN EVIDENCED HEREBY.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered by its officer thereunto duly authorized as of the date and at
the place first written above.
J-HAWK INTERNATIONAL CORPORATION
By: /s/ JAMES C. HOLMES
----------------------------
Title: Senior Vice President
4
<PAGE>
exhibit 10.16
LOAN AGREEMENT
BANK OF SCOTLAND
LOAN TO
J-HAWK INTERNATIONAL CORPORATION
September 25, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. LOANS - GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1. REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2. MAXIMUM PRINCIPAL AMOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3. MATURITY DATE; TERMINATION OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4. AUTHORIZED DISBURSEMENT OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5. ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6. BORROWING PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.8. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.9. USURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1. LOAN ACCOUNT; METHOD OF MAKING PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2. PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3. PLACE OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4. PAYMENT ON MATURITY AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.5. ADVANCES TO CONSTITUTE ONE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.6. APPLICATION OF PAYMENTS AND COLLECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.7. MONTHLY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. ANCILLARY AGREEMENTS . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1. GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2. REFINANCE OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3. LOAN PARTY INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
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5. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2. BUSINESS PURPOSE; MARGIN STOCK; SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3. REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4. SURVIVAL OF WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6. COVENANTS AND CONTINUING AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.3. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4. REQUIRED NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5. INSPECTIONS AND AUDIT OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6. LOCATION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.7. AUDIT RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.8. COSTS OF AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.9. PAYMENT OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2. REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.3. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.4. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5. INJUNCTIVE RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.6. ADVANCES DURING UNMATURED DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7. ENFORCEMENT DURING UNMATURED DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.8. CONSENT DOES NOT CREATE CUSTOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
ii
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TABLE OF CONTENTS
(continued)
<TABLE>
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7.8. DEFENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8. CONDITIONS PRECEDENT TO DISBURSEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1. CHECKLIST ITEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.2. NECESSARY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.1. COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2. COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.3. STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5. MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.6. NO WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.8. SUCCESSORS OR ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9. INCORPORATION OF OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10. WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11. DESIGNATED PERSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.12. ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.13. KNOWLEDGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14. WAIVER BY BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.15. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.16. SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.17. REPRESENTATION BY COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.18. RELEASE OF BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.19. INVALIDATED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
iii
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TABLE OF CONTENTS
(continued)
<TABLE>
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9.20. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.21. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.22. FAX EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.23. NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.24. TEXAS LANGUAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.25. DOMICILE OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
iv
<PAGE> 6
Schedule of Exhibits
<TABLE>
<S> <C>
Exhibit "A" Permitted Liens
Exhibit "B" Cargill Indebtedness
Exhibit "C" Loan Party Indebtedness
Exhibit "D" Fictitious Names
Exhibit "E" Schedule of Affiliates
Exhibit "F" Schedule of Leases, Options
Exhibit "G" Agreements with Affiliates
Exhibit "H" Location of Records
Exhibit "I" ERISA Matters
Schedule 5.1(s) Other Indebtedness
Schedule 5.2 Owned Securities
</TABLE>
v
<PAGE> 7
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT"), dated for reference purposes
only as of September 25, 1997 by and between Bank of Scotland, acting through
its branch in New York, New York ("BANK"), a foreign banking corporation
incorporated under the laws of Scotland with its principal place of business at
565 Fifth Avenue, New York, NY 10017, and J-Hawk International Corporation, a
Texas corporation ("BORROWER"), with its principal place of business at c/o
FirstCity Financial Corporation, 6400 Imperial Drive, P.O. Box 8216, Waco,
Texas 76714.
RECITALS:
A. Borrower has requested and Bank has agreed to provide Borrower
with a revolving credit facility to be funded in French Francs.
B. Borrower is a wholly owned subsidiary of J-Hawk Corporation, a
Texas corporation and J-Hawk Corporation is a wholly owned subsidiary of
FirstCity Financial Corporation, a Delaware corporation.
C. J-Hawk Corporation and FirstCity Financial Corporation have
agreed to guaranty the liabilities and obligations of Borrower to Bank arising
under the terms of this Agreement and the other Loan Documents (hereinafter
defined).
NOW THEREFORE, in consideration of any loan, advance, extension of
credit and/or other financial accommodation at any time made by Bank to or for
the benefit of Borrower, and of the promises set forth herein, the parties
hereto agree as follows:
1 DEFINITIONS AND TERMS
1.1 The following words, terms and/or phrases shall have the
meanings set forth thereafter and such meanings shall be applicable to the
singular and plural form thereof, giving effect to the numerical difference.
(a) "ADVANCE": any loan of monies made by Bank to
Borrower upon Borrower's request pursuant to Section 2.1.
(b) "ADVANCE DATE": with respect to each Advance, the
Business Day upon which the proceeds of such Advance are to made
available to the Borrower.
(c) "AFFILIATE": any Person (i) in which Borrower, one
or more equity interest holders owning five percent (5%) or more of
the total equity interest of Borrower, any Subsidiary, and/or any
Parent, individually, jointly and/or severally, now or at any time or
times hereafter, has or have an equity or other ownership
1
<PAGE> 8
interest equal to or in excess of five percent (5%) of the total
equity of or other ownership interest in such Person; and/or (ii)
which directly or indirectly through one or more intermediaries
controls or is controlled by, or is under common control with
Borrower. For purposes of this definition, "CONTROL" shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of Stock, by contract or otherwise.
(d) "AGREEMENT": this Loan Agreement, together with all
amendments, modifications, extensions, supplements, restatements
replacements and extensions hereto or hereof.
(e) "AGREEMENTS WITH AFFILIATES": shall have the meaning
set forth in Section 6.3(j).
(f) "AND/OR": one or the other or both, or any one or
more or all, of the things or Persons in connection with which the
conjunction is used.
(g) "ASSETS": any and all real, personal and intangible
property of a Person, including, without limitation, accounts, chattel
paper, contract rights, letters of credit, instruments and documents,
equipment, general intangibles, inventory, leases, options, licenses,
and real property, whether now existing or hereafter acquired or
arising.
(h) "BANK": Bank of Scotland, a foreign banking
corporation incorporated under the laws of Scotland.
(i) "BANK DAY": any day, other than a Saturday, Sunday or
any other day on which Lending institutions located in London, England
or Paris, France are authorized or required by law or other
governmental action to close and which is also a day for trading by
and between Banks in French Franc deposits in the London InterBank
Eurodollar market.
(j) "BORROWER": J-Hawk International, Inc., a Texas
corporation, and its permitted successors and assigns.
(k) "BORROWER'S LIABILITIES": all obligations and
liabilities of Borrower to Bank (including, without limitation, all
principal, interest, charges, fees, expenses, debts, claims and
indebtedness) whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing,
due or payable, however evidenced, created, incurred, acquired or
owing and whether now contemplated or hereafter arising, whether under
this Agreement or the other Loan Documents.
(l) "BORROWER'S OBLIGATIONS": all terms, conditions,
warranties, representations, agreements, undertakings, covenants and
provisions (other than
2
<PAGE> 9
Borrower's Liabilities) to be performed, discharged, kept, observed or
complied with by Borrower to or for the benefit of Bank, whether
primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter arising, evidenced,
created, incurred, acquired or owing, whether not contemplated or
hereafter arising, whether under this Agreement or the other Loan
Documents.
(m) "BORROWING REQUEST": a request for an Advance in the
form set forth in Section 2.6(a).
(n) "BUSINESS DAY": any day, other than a Saturday,
Sunday, a day that is a legal holiday under the laws of the State of
Illinois or Texas or any other day on which Lending institutions
located in London, England, New York, New York, Chicago, Illinois,
Waco, Texas or Paris, France are authorized or required by law or
other governmental action to close and which is also a day for trading
by and between Banks in French Franc deposits in the London InterBank
Eurodollar market.
(o) "CARGILL": Cargill Financial Services Corporation, a
Delaware corporation, or a wholly owned subsidiary thereof if such
subsidiary is a lender to FirstCity.
(p) "CHARGES": all national, Federal, state, county,
city, municipal and/or other governmental (or any instrumentality,
division, agency, body or department thereof, including without
limitation the Pension Benefit Guaranty Corporation) taxes, levies,
assessments, charges, liens, claims or encumbrances upon and/or
relating to the Assets, Borrower's Liabilities, Borrower's
Obligations, Borrower's business, Borrower's ownership and/or use of
any of its assets, Borrower's income and/or gross receipts and/or
Borrower's ownership and/or use of any of its material assets.
(q) "COSTS": any and all reasonable costs and expenses
(including, without limitation, the reasonable fees and expenses of
any counsel, accountants, appraisers or other professionals) incurred
by Bank at any time, in connection with: (a) the preparation,
negotiation and execution of this Agreement and all other Loan
Documents; (b) the preparation, negotiation and execution of any
amendment or modification of this Agreement or the other Loan
Documents; (c) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Bank, Borrower or any other Person) in
any way relating to this Agreement, the other Loan Documents,
Borrower's Obligations, Borrower's affairs or any Guarantor's affairs;
(d) any attempt to enforce any rights of Bank against Borrower or any
other Person which may be obligated to Bank by virtue of this
Agreement or the other Loan Documents; and (g) performing any of the
obligations relating to or payment of any of Borrower's Obligations
hereunder in accordance with the terms hereof.
(r) "DEFAULT RATE": interest at the rate of two percent
(2%) per annum plus the Interest Rate.
3
<PAGE> 10
(s) "DESIGNATED PERSON": any Person identified as a
"DESIGNATED PERSON" on Borrower's Secretary's Certificate dated of
even date herewith, as amended or superseded from time to time.
(t) "DOLLARS": the lawful currency of the United States
of America.
(u) "DOLLAR EQUIVALENT": shall mean, with respect to an
amount of French Francs on any date, the amount of Dollars that may be
purchased with such amount of French Francs at the Spot Exchange Rate
as of the day which is three Bank Days prior to such date.
(v) "ENVIRONMENTAL LAWS": any Federal, state or local
law, rule, regulation, ordinance, order, code or statute applicable to
Borrower or its property, in each case as amended (whether now
existing or hereafter enacted or promulgated), controlling, governing
or relating to the pollution or contamination of the air, water or
land or concerning hazardous, special or toxic materials, wastes or
substances, or any judicial or administrative interpretation of such
laws, rules or regulations, including, without limitation, the Water
Pollution Control Act (33 U.S.C. Section 1251 et seq.), Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), Safe
Drinking Water Act (42 U.S.C. Section 3000(f) et seq.), Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), Clean Air
Act (42 U.S.C. Section 7401 et seq.), and Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et
seq.).
(w) "EQUIPMENT LEASES": all leases or similar agreements
pursuant to which Borrower leases equipment.
(x) "EVENT OF DEFAULT": the definition ascribed to this
term in Section 7.1.
(y) "FRENCH FRANCS": the lawful currency of France.
(z) "FINANCIALS": those financial statements of Borrower
and/or any other Loan Party, heretofore, concurrently herewith or
hereafter delivered by or on behalf of Borrower and/or any other Loan
Party to Bank, including but not limited to those financial statements
and reports delivered by Borrower to Bank pursuant to Section 6.2.
(aa) "FIRSTCITY": FirstCity Financial Corporation, a
Delaware corporation.
(bb) "GAAP": generally accepted accounting principles
applied in the preparation of the financial statements of a Person
with such changes thereto as: (i) shall be consistent with the
then-effective principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors and successors and
(ii) shall be concurred in by the independent certified public
accountants of recognized standing acceptable to Bank reviewing such
financial statements of Borrower.
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(cc) "GUARANTOR": J-Hawk Corp. and FirstCity.
(dd) "INDEBTEDNESS": with respect to any Person, at a
particular time: (i) indebtedness for borrowed money or for the
deferred purchase price of property or services in respect of which
such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise or any commitment by which such Person assures
a creditor against loss; (ii) obligations under leases which shall
have been or should be, in accordance with GAAP, recorded as capital
leases in respect of which obligations such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which obligations such Person assures a creditor against
loss; (iii) all obligations and liabilities with respect to unfunded
vested benefits under any "EMPLOYEE BENEFIT PLAN" or with respect to
withdrawal liabilities incurred under ERISA by Borrower or any ERISA
Affiliate to a "MULTIEMPLOYER PLAN", as such terms are defined under
the Employee Retirement Income Security Act of 1974; and (iv) any and
all accounts payable, accruals and other items characterized as
Indebtedness in accordance with GAAP.
(ee) "INTEREST PERIOD": with respect to any Advance, (a)
initially, the period commencing on the Advance Date and ending on the
next succeeding tenth day of the current month or the next calendar
month, as the case may be, and (b) thereafter, if the Advance is
continued, each succeeding monthly period commencing on the tenth day
of the calendar month and ending on the tenth day of the following
calendar month; provided that any Interest Period which would
otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day and further provided that any
Interest Period that would otherwise extend beyond the Maturity Date
shall end on the Maturity Date.
(ff) "INTEREST RATE": the variable rate equal to the sum
of four percent (4%) per annum plus the LIBOR Rate.
(gg) "J-HAWK CORP.": J-Hawk Corporation, a Texas
corporation.
(hh) "LIBOR BREAKAGE FEE": shall mean a fee equal to all
losses (excluding loss of anticipated profits) or expense incurred by
reason of the liquidation or reemployment of deposits or other funds
acquired by Bank to fund or maintain the requested LIBOR tranche,
when, as a result of such failure on the part of Borrower or
prepayment by Borrower (including, without limitation, any prepayment
resulting from the liabilities being declared in due and payable in
accordance with their terms hereof), interest on such LIBOR tranche is
not based on the applicable LIBOR Rate for the requested LIBOR period.
(ii) "LIBOR RATE": the London InterBank Offered Rate
relating to French Francs as quoted on page No. 3740 of the Telerate
Data Information Service, on the date which is two (2) Bank Days prior
to the first day of the Interest Period. In the event the Telerate
System page or the LIBOR Rate for the Interest Period requested is
unavailable on the date which is two (2) Bank Days prior to the first
day of the
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Interest Period for any reason, the LIBOR Rate used shall be
determined by Bank to be the arithmetic mean (rounded upwards to the
nearest whole multiple of 1/16th of 1%) of the offered rates quoted in
London, England though other verifiable sources, for deposits in
French Francs in amounts substantially equal to the principal amount
of the Loan having a maturity equal to the Borrower's selection by
major banks in the London inter-bank market at 11:00 a.m. London time,
on the date which is two (2) Bank Days prior to the first day of the
Interest Period.
(jj) "LOAN": any and all loans, advances, extensions of
credit and/or other financial accommodations of any kind or nature
made by Bank at any time to, for the benefit or at the request of
Borrower pursuant to this Agreement and/or any of the other Loan
Documents.
(kk) "LOAN DOCUMENTS": this Agreement and the Other
Agreements.
(ll) "LOAN PARTY": Borrower, FirstCity or J-Hawk Corp.
(mm) "MATURITY DATE": March 31, 1998, or such earlier
date as all of Borrower's Obligations shall be due and payable by
acceleration or otherwise.
(nn) "MAXIMUM PRINCIPAL AMOUNT": the meaning set forth in
Section 2.2.
(oo) "MONTHLY REPORT": those reports delivered to Bank in
accordance with Section 6.2(c)(iv).
(pp) "NOTE": that certain revolving promissory note dated
even date herewith in the original principal amount of $10,000,000
made by Borrower payable to the order of Bank, as said note may
hereafter be amended, restated, modified, supplemented, extended or
replaced.
(qq) "OTHER AGREEMENTS": the Note, together with all
agreements, instruments and documents evidencing or securing the Loans
or the transactions contemplated herein, including, without
limitation, bond agreements, loan agreements, security agreements,
guaranties, mortgages, deeds of trust, notes, applications and
agreements for letters of credit, letters of credit, advances of
credit, bankers acceptances, pledges, powers of attorney, consents,
assignments, collateral assignments, contracts, notices, leases,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower, any other Loan Party or any other Person and delivered to
Bank, or issued by Bank upon the application and/or other request of,
and on behalf of, Borrower.
(rr) "PARENT": any Person, now or at any time or times
hereafter, owning or controlling (alone or with Borrower, any
Subsidiary and/or any other Person) at least a majority of the issued
and outstanding Stock or other ownership interest of
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Borrower or any Subsidiary (hereinafter defined). For purposes of
this definition, "CONTROL" shall have the same meaning ascribed to
this term in Section 1.1(b).
(ss) "PAYMENT DATE": the tenth day of each month during
the term; provided that, if such day is not a Business Day, the
Payment Date shall be extended to the next succeeding Business Day.
(tt) "PERMITTED LIENS": (i) any liens created in favor of
Bank; (ii) liens for Charges which are not yet due and payable or
which are expressly permitted pursuant to the terms hereof, or claims
and unfunded liabilities under ERISA not yet due and payable or which
are being contested in good faith; (iii) liens arising in connection
with worker's compensation, unemployment insurance, old age pensions
and social security benefits which are not overdue or are being
contested in good faith by appropriate proceedings diligently pursued,
provided that in the case of any such contest any proceedings
commenced for the enforcement of such liens shall have been duly
suspended and such provision for the payment of such liens has been
made on the books of Borrower as may be required by GAAP; (iv) liens
incurred in the ordinary course of business to secure the performance
of statutory obligations arising in connection with progress payments
or advance payments due under contracts with the United States
Government or any agency thereof entered into in the ordinary course
of business; (v) additional liens expressly permitted from time to
time in writing by Bank; (vi) those liens in favor of Cargill
disclosed to Bank by Borrower in writing; (vii) any liens securing
indebtedness of Borrower to any Persons in an aggregate amount less
than $200,000; and (viii) those liens disclosed on Exhibit A.
(uu) "PERSON": any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party or government (whether national, Federal, state, county,
city, municipal or otherwise, including without limitation any
instrumentality, division, agency, body or department thereof).
(vv) "RECORDS": all books, records, computer records,
computer software, ledger cards, programs and other computer
materials, customer and supplier lists, invoices, orders and other
property and general intangibles at any time evidencing or relating to
the Assets.
(ww) "SECURITIES": shall have the meaning ascribed to
that term in the Securities Act of 1934.
(xx) "SECURITIES LAWS": all applicable Federal and state
securities laws and regulations promulgated pursuant thereto.
(yy) "SPOT EXCHANGE RATE": shall mean, on any day, (a)
with respect to any French Francs , the spot rate at which Dollars are
offered on such day by Bank of Scotland in London for such French
Francs at approximately 11:00 a.m. (London
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time), and (b) with respect to Dollars in relation to French Francs,
the spot rate at which French Francs are offered on such day by Bank
of Scotland in London for Dollars at approximately 11:00 a.m. (London
time).
(zz) "STOCK": all shares, interests, participations or
other equivalents (however designated) of or in a corporation, whether
voting or non-voting, including, but not limited to, common stock,
warrants, preferred stock, convertible debentures and all agreements,
instruments and documents convertible, in whole or in part, into any
one or more or all of the foregoing.
(aaa) "SUBSIDIARY": any Person at least a majority of
whose issued and outstanding Stock or other ownership interests now or
at any time hereafter is owned by any Guarantor or Borrower, as
applicable.
(bbb) "TANGIBLE NET WORTH": as determined at any time, the
total of shareholders' equity (including capital stock, additional
paid-in capital and retained earnings after deducting treasury stock
and subordinated indebtedness approved in writing by Bank) of a
Person, as applicable, less the sum of the total amount of any
intangible assets, which, for purposes of this definition, shall
include, without limitation, General Intangibles and, if applicable,
all accounts receivable from any Loan Party or any shareholders or
officers of any Loan Party, all prepaid expenses, any unamortized
debt, discount and expense, unamortized deferred charges and good
will, all as determined in accordance with GAAP.
(ccc) "UNMATURED DEFAULT": any event or condition which,
with the passage of time or the giving of notice or both, would
constitute an Event of Default hereunder.
(ddd) "UK TRUST" that certain Receivables Trust formed
pursuant to a Trust Deed dated December 24, 1996 by and among
Borrower, Fairmile Portfolio Management Limited, a company registered
in England and Wales, Defimo, a company registered in France, and
Credit Finance Corporation Limited, a company registered in England
and Wales.
1.2 GAAP. Except as otherwise defined in this Agreement or the
other Loan Documents, all accounting terms used herein shall have the meaning
ascribed to that term in accordance with GAAP.
1.3 Borrower. Whenever the context so requires, the use of "IT"
in reference to Borrower shall mean Borrower as defined above.
1.4 Rules of Construction. In this Agreement, unless a clear
contrary intention appears:
(a) the singular number includes the plural number and
vice versa; reference to any gender includes each other gender;
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(b) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision;
(c) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by this Agreement, and reference to a Person in
a particular capacity excludes such Person in any other capacity or
individually; provided that nothing in this clause is intended to
authorize any assignment not otherwise permitted by this Agreement;
(d) reference to any agreement, document or instrument
means such agreement, document or instrument as amended, supplemented
or modified and in effect from time to time in accordance with the
terms thereof and, if applicable, the terms hereof, and reference to
any note includes any note issued pursuant to any Loan Document in
extension or renewal thereof and in substitution or replacement
therefor;
(e) unless the context indicates otherwise, reference to
any Article, Section, Schedule or Exhibit means such Article or
Section hereof or such Schedule or Exhibit hereto:
(f) the words "INCLUDING" (and with correlative meaning
"INCLUDE") means including, without limiting the generality of any
description preceding such term:
(g) with respect to the determination of any period of
time, the word "from" means "from and including" and the word "to"
means "to but excluding;" and
(h) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time.
(i) The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
2 LOANS - GENERAL TERMS
2.1 Revolving Loan. Subject to the terms and conditions hereof,
Bank shall make available to Borrower revolving Loans from time to time in an
aggregate principal amount not to exceed at any time outstanding 60,000,000
French Francs. The Loans shall be further evidenced by the Note. The Loan
shall be funded and interest shall accrue and be paid thereon in accordance
with this Article 2. The entire unpaid principal balance plus accrued but
unpaid interest on the Loans is due and payable on the Maturity Date. The
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Maturity Date of the Note may be extended by the parties by execution of an
amended and restated revolving promissory note, without further amendment of
this Agreement; provided that, said amended and restated note shall
specifically provide that it amends and restates the Note and evidences Loans
to be made in accordance with this Section 2.1. Said amended and restated
revolving promissory note shall be deemed to be the Note as defined herein.
Nothing contained in this Section 2.1 shall be deemed to be an agreement by
Bank to extend the Maturity Date under the terms set forth herein, the terms
set forth in Section 4.2, or any other terms.
2.2 Maximum Principal Amount. Notwithstanding anything to the
contrary contained herein or in any other Loan Document, the principal portion
of Borrower's Liabilities outstanding at any one time during the term hereof
shall not exceed 60,000,000 French Francs ("MAXIMUM PRINCIPAL AMOUNT");
provided that, if at any time, the Dollar Equivalent of the Maximum Principal
Amount exceeds $10,500,000, the Maximum Principal Amount shall be reduced on
and as of the date that such excess occurs and thereafter the Maximum Principal
Amount shall be equal to that number of French Francs having a Dollar
Equivalent equal to $10,000,000. In the event that the outstanding principal
balance of the Loan exceeds the Maximum Principal Amount, Borrower shall pay
the amount of such excess to Bank, without notice or demand, and any amount not
so paid shall bear interest at the Default Rate until paid. This is an
absolute obligation to pay to Bank the amount of the unpaid principal balance
of the Loan in excess of said Maximum Principal Amount, regardless of the cause
of such excess.
2.3 Maturity Date; Termination of Loans. The Bank's obligation to
make any Advance to Borrower pursuant to the provisions hereof shall be in
effect until the Maturity Date, unless sooner terminated by Bank upon the
occurrence of an Event of Default, an Unmatured Default (in accordance with
Section 7.7), or pursuant to the terms hereof.
2.4 Authorized Disbursement of Proceeds. Borrower hereby
authorizes and directs Bank to disburse, for and on behalf of Borrower and for
Borrower's account, the proceeds of any Loan to such Person as Borrower or any
Designated Person shall direct, whether in writing or orally. In addition to
Advances of Loan proceeds made pursuant to requests for such Advances made by
Borrower from time to time, Borrower hereby irrevocably authorizes Bank to
disburse proceeds of the Loan to pay: (a) principal and interest which is
accrued but unpaid and which is due and payable pursuant to the terms hereof
and of the Note until the Loan is paid in full; and (b) for any and all Costs.
The execution of this Agreement by Borrower shall, and hereby does, constitute
an irrevocable direction and authorization to Bank so to disburse such funds
described in this Section and to treat such Advances as money loaned pursuant
to this Agreement and as indebtedness evidenced by the Note. No further
direction or authorization from Borrower shall be necessary for Bank to make
such Advances, and all such Advances shall satisfy, to the extent so disbursed,
the obligations of Borrower hereunder and shall be evidenced by the Note.
Notwithstanding anything to the contrary contained herein, Bank is under no
duty or obligation to make such Advances and failure to make such Advances
shall not be deemed to be a default by Bank or impair any of Bank's rights or
remedies hereunder.
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2.5 Advances.
(a) Advances shall be in an aggregate principal amount
which shall not be less than 1,000,000 French Francs or the remaining
available balance of the Loan, whichever is less. All Advances shall
be made in French Francs in an amount specified in the applicable
Borrowing Request or as deemed elected by Borrower pursuant to Section
2.6(b). Borrower may refinance all or any part of an Advance with
another Advance, subject to the conditions and limitations set forth
in this Agreement, including the provisions of Section 2.2. Any
Advance or part thereof so financed shall be deemed to be repaid or
prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Advance.
(b) Bank may, at its option, make any Advance by causing
any domestic or foreign branch or affiliate of Bank to make such
Advance: provided that, any exercise of such option shall not affect
the obligation of Borrower to repay such Loan in accordance with the
terms of this Agreement. Advances with more than one Interest Period
may be outstanding at the same time; provided, however, that Borrower
shall not be entitled to request any Advance which, if made, would
result in more than seven (7) separate Advances outstanding hereunder
at any time.
(c) Subject to the provisions of Section 2.6, Bank shall
make each Advance to be made by it hereunder on the proposed date
thereof by wire transfer to such account as Borrower may designate in
immediately available funds as may then be customary for the
settlement of international transactions in French Francs not later
than noon, local time, Paris time. The account designated by Borrower
shall be in the name of Borrower and shall be located in France.
(d) Notwithstanding any other provision of this
Agreement, Borrower shall not be entitled to request any Advance if
the Interest Period requested with respect thereto would end after the
Maturity Date.
2.6 Borrowing Procedure.
(a) In order to request an Advance, Borrower shall hand
deliver or telecopy to Bank a duly completed Borrowing Request not
later than 11:00 a.m. New York time, three (3) Business Days before a
proposed Advance. Each Borrowing Request shall be irrevocable and
shall specify (i) the number and location of the account to which
funds are to be disbursed (which shall be an account that complies
with the requirements of Section 2.5; (ii) the date such Advance is to
be made (which shall be a Business Day); and (iii) the amount of such
Advance (which shall be expressed in French Francs; provided that,
notwithstanding any contrary specification in any Borrowing Request,
each requested Advance shall comply with the requirements set forth in
Section 2.5.
(b) If Borrower in respect of an outstanding Advance
shall not have delivered a Borrowing Request in accordance with
Section 2.6(a) on or before three
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(3) Business Days prior to the end of the Interest Period then in
effect for such Advance and requesting that such Advance be
refinanced, then Borrower shall (unless Borrower has notified the Bank
not fewer than three (3) Business Days prior to the end of such
Interest Period, that such Advance is to be repaid at the end of such
Interest Period) be deemed to have delivered a Borrowing Request
requesting that such Advance be refinanced with a new Advance of
equivalent amount, and such new Advance shall be deemed to have a one
month's duration Interest Period.
2.7 Interest. The unpaid principal balance of each Advance shall
bear interest at the Interest Rate applicable thereto, determined by Bank in
accordance with the provisions hereof, which determination shall be binding
upon Borrower, absent manifest error. All interest and fees chargeable
hereunder shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed. After the occurrence of an Event
of Default and during the continuation thereof, all Loans hereunder shall bear
interest at the Default Rate.
2.8 Fees.
(a) Facility Fee. A maximum facility fee of $100,000
shall be payable by Borrower to Bank as follows:
(i) Concurrently with the execution hereof,
Borrower shall pay to Bank a fee equal to $50,000.
(ii) Ninety (90) days after the date hereof,
Borrower shall pay to Bank a fee equal to $25,000.
(iii) If any Borrower's Obligations remain
outstanding on April 1, 1998, Borrower shall pay to Bank a fee
equal to $25,000.
(b) Usage Fee. Borrower shall pay an unused commitment
fee in an amount equal to .25% (on annual basis) of the difference
between 60,000,000 French Francs and the daily outstanding principal
balance of the Loan. Such fee shall be payable quarterly in arrears
on the last Business Day of each calendar quarter.
(c) LIBOR Breakage Fee. In the event of any prepayment of
an Advance prior to the end of the then applicable Interest Period (by
acceleration or otherwise) or in the event any Advance is not made
after delivery of a Borrowing Request in accordance with the terms
hereof, for any reason whatsoever, Borrower shall pay to Lender an
amount equal to the LIBOR Breakage Fee.
Any fee payable under Sections 2.8(b) and (c) not paid when due shall bear
interest at the Default Rate. Any fee payable under Sections 2.8(a) not paid
when due shall bear interest at ten percent (10%).
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2.9 Usury. The provisions of this Section shall govern and
control over any irreconcilably inconsistent provision contained in this
Agreement or in any other document evidencing or securing the Loan. Bank shall
never be entitled to receive, collect, or apply as interest hereon (for
purposes of this Section, the word "INTEREST" shall be deemed to include any
sums treated as interest under applicable law governing matters of usury and
unlawful interest), any amount in excess of the Highest Lawful Rate
(hereinafter defined) and, in the event Bank ever receives, collects, or
applies as interest any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and shall be treated
hereunder as such; and, if the principal of this Agreement is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether
or not the interest paid or payable, under any specific contingency, exceeds
the Highest Lawful Rate, Borrower and Bank shall, to the maximum extent
permitted under applicable law, (i) characterize any non-principal payment as
an expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount of
interest throughout the entire contemplated term of this Agreement, provided,
that if this Agreement is paid and performed in full prior to the end of the
full contemplated term hereof, and if the interest received for the actual
period of existence hereof exceeds the Highest Lawful Rate, Bank shall refund
to Borrower the amount of such excess and, in such event, Bank shall not be
subject to any penalties provided by any laws for contracting for, charging or
receiving interest in excess of the Highest Lawful Rate. "HIGHEST LAWFUL RATE"
shall mean the maximum rate of interest which Bank is allowed to contract for,
charge, take, reserve or receive under applicable law after taking into
account, to the extent required by applicable law, any and all relevant
payments or charges hereunder.
3 PAYMENT TERMS
3.1 Loan Account; Method of Making Payments. Bank shall maintain
a Loan Account on its books in which shall be recorded: (i) all Loans made by
Bank to Borrower pursuant to this Agreement, (ii) all payments made by Borrower
on all Loans, and (iii) all other appropriate debits and credits as provided in
this Agreement, including, without limitation, all fees, charges, expenses and
interest. All entries in the Loan Account shall be made in accordance with
Bank's customary accounting practices, in effect from time to time. The
failure of Bank to record any of the foregoing shall not in any way limit
Borrower's obligations under this Agreement.
3.2 Payment Terms. Accrued interest on each Advance shall be
payable in arrears commencing October 10, 1997 and on each Payment Date
thereafter until the Maturity Date.
3.3 Place of Payment. All payments in French Francs to Bank
hereunder and under the Other Agreements shall be payable in immediately
available funds at noon Paris time at such place or places as Bank may
designate in writing to Borrower. All payments in U.S. Dollars to Bank
hereunder and under the Other Agreements shall be payable in
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immediately available funds at noon New York time at such place or places as
Bank may designate in writing to Borrower. All of such payments to Persons
other than Bank shall be payable at such place or places as Bank may designate
in writing to Borrower. Borrower's Liabilities will be payable as set forth in
the Note, this Agreement, and the Other Agreements.
3.4 Payment on Maturity and Prepayment. On the Maturity Date,
whether by acceleration or otherwise, Borrower shall pay to Bank, in full, in
cash or other immediately available funds, the outstanding amount of the Loan.
Each Advance may be prepaid on the last day of the Interest Period applicable
thereto. Prepayment of any Advance during an Interest Period is expressly
prohibited. In the event of an attempted prepayment of any Advance during any
Interest Period, Bank, at Borrower's option, shall either: (i) hold such funds
in a non-interest bearing cash collateral account to secure Borrower's
Obligations and to apply such funds to Borrower's Obligations on the last day
of the Interest Period, or (ii) apply such funds to Borrower's Obligations, in
which event Borrower shall pay to Bank a LIBOR Breakage Fee immediately upon
demand thereof, and any amount not so paid shall bear interest at the Default
Rate.
3.5 Advances to Constitute One Loan. All Advances, loans and any
other financial accommodations provided pursuant to the terms hereof by Bank to
Borrower shall constitute one loan and all indebtedness and obligations of
Borrower to Bank under this Agreement, the Other Agreements or otherwise shall
constitute one general obligation.
3.6 Application of Payments and Collections.
(a) Application of Payments. Bank shall have the right
unilaterally (and without notice to or the consent of any Person) to
allocate any and all payments which may be received by or tendered to
Bank made by the Borrower or any other Person at any time or from time
to time and which relate in any way to the Loan or any other of
Borrower's Obligations then due and payable in any order of priority
as Bank in its reasonable discretion shall elect, as follows: (i) to
the payment of any Costs; (ii) to accrued but unpaid interest,
penalties and late payment fees; and (iii) to principal; provided that
Bank shall not allocate payments in a manner which would create a
LIBOR Breakage Fee or other fee or penalty payable by Borrower which
would not otherwise be imposed. Borrower (y) irrevocably waives the
right to direct the application of payments and collections received
by Bank from or on behalf of Borrower, and (z) agrees that Bank shall
have the continuing exclusive right to apply and reapply any and all
such payments and collections against the Loan or any other Borrower's
Liabilities or Borrower's Obligations then due and payable in such
manner as Bank may deem appropriate, notwithstanding any entry by Bank
upon any of its books and records.
(b) Reapplication of Payments. To the extent that Bank
receives any payment on account of the Borrower's Liabilities or
Borrower's Obligations, and any such payment(s) and/or proceeds or any
part thereof are subsequently
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invalidated, declared to be fraudulent or preferential, set aside,
subordinated and/or required to be repaid to a trustee, receiver or
any other Person under any bankruptcy act, state or federal law,
common law or equitable cause, then, to the extent of such payment(s)
or proceeds received, the Borrower's Liabilities or Borrower's
Obligations or part thereof intended to be satisfied shall be revived
and continue in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of the
Borrower's Liabilities or Borrower's Obligations.
3.7 Monthly Statements. All Advances to Borrower and all other
debits and credits provided for in this Agreement shall be evidenced by entries
made by Bank in its internal data control systems showing the date, amount and
reason for each such debit or credit. Until such time as Bank shall have
rendered to Borrower written statements of account as provided herein, the
balance in the Loan Account, as set forth on Bank's most recent statement,
shall be rebuttably presumptive evidence of the amounts due and owing to Bank
by Borrower. At Bank's option, Bank shall render a monthly statement to
Borrower setting forth the balance of the Loan Account, including principal,
interest, costs, penalties, charges and other fees. Each such statement shall
be subject to subsequent adjustment by Bank and Bank's right to reapply
payments in accordance with Section 3.6(b), but shall, as to statements of
principal and interest then due or having been paid, absent manifest errors or
omissions, be presumed correct and binding upon Borrower and shall constitute
an account stated unless, within thirty (30) days after receipt of any
statement from Bank, Borrower shall deliver to Bank written objection thereto,
specifying the error or errors, if any, contained in such statement.
4 ANCILLARY AGREEMENTS
4.1 Guaranties. Concurrently herewith, Borrower shall cause
J-Hawk Corp. and FirstCity to execute and deliver to Bank a guaranty of payment
and performance of all of Borrower's Obligations (the "GUARANTEES").
4.2 Refinance of Facility. Borrower and Bank hereby acknowledge
that the credit facility made available to Borrower pursuant to the terms
hereof is a short-term facility which Borrower and Bank contemplate will be
refinanced with a different credit facility at the Maturity Date.
Notwithstanding the foregoing, Borrower hereby acknowledges that in the event
Borrower requests Bank to extend the credit facility evidenced hereby and Bank
elects, in its sole discretion to do so, at such time, Bank shall require that
such credit facility be secured by a pledge of and security interest in all
Assets of Borrower, FirstCity and J-Hawk Corp. Without limiting the generality
of the forgoing sentence, concurrently with any extension of the Maturity Date
hereof, to secure payment and performance of all Borrower's Liabilities and
Borrower's Obligations, Borrower shall:
(a) cause Cargill to enter into an inter-creditor
agreement, in form and substance acceptable to Bank, in Bank's sole
discretion relating to the relative priority of any liens granted to
Bank and to Cargill by Borrower or any Guarantor.
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Bank hereby acknowledges that Borrower and/or the Guarantors have
heretofore entered into financing transactions with Cargill. Attached
hereto as Exhibit B is a true, accurate and complete schedule of all
Indebtedness of Borrower and/or any Guarantor to Cargill as of the
date hereof, including a detailed description of all notes and all
security agreements evidencing or securing such Indebtedness. Bank and
Borrower hereby agree that the relative priority of the liens granted
by Borrower and/or Guarantor to Bank and Cargill shall be governed by
such inter-creditor agreement.
(b) subject to Section 4.2(a), cause each Guarantor to
grant to Bank a security interest in all of such Guarantor's Assets
(real, personal and intangible), including all partnership interests,
stock, shares or other equity interests owned by such Guarantor in all
other Persons and all after-acquired property of Guarantor.
(c) subject to Section 4.2(a), grant to Bank a security
interest in all of Borrower's Assets (real, personal and intangible),
including all interest in the UK Trust, all partnership interests,
stock, shares or other equity interests owned by Borrower in all other
Persons, and all after-acquired property of Borrower.
4.3 Loan Party Indebtedness. Attached hereto as Exhibit C is a
true, accurate, and complete schedule of all Indebtedness pursuant to which
Borrower or any other Loan Party has an obligation or liability to any other
Loan Party as of the date hereof, including a detailed description of all notes
and all security agreements evidencing or securing such Indebtedness.
5 GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS
5.1 General Representations and Warranties. Except as disclosed
in writing to Bank concurrently herewith, Borrower warrants and represents to
and covenants with Bank that:
(a) Organization.
(i) Borrower is and at all times hereafter shall
be a corporation, duly organized and existing and in good
standing under the laws of the State of Texas and qualified or
licensed to do business and in good standing in all states in
which the laws thereof require Borrower to be so qualified
and/or licensed, including without limitation the State of
Texas;
(ii) J-Hawk Corp. is and at all times hereafter
shall be a corporation, duly organized and existing and in
good standing under the laws of the State of Texas and
qualified or licensed to do business and in good standing in
all states in which the laws thereof require J-Hawk Corp. to
be so qualified and/or licensed, including without limitation
the State of Texas;
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(iii) FirstCity is and at all times hereafter shall
be a corporation, duly organized and existing and in good
standing under the laws of the State of Delaware and qualified
or licensed to do business and in good standing in all states
in which the laws thereof require FirstCity to be so qualified
and/or licensed, including without limitation the State of
Texas;
(b) Corporate Power.
(i) Borrower has the right, power and capacity
and is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and the Other Agreements,
to which it is a party;
(ii) J-Hawk Corp. has the right, power and
capacity and is duly authorized and empowered to enter into,
execute, deliver and perform those Loan Documents to which it
is a party;
(iii) FirstCity has the right, power and capacity
and is duly authorized and empowered to enter into, execute,
deliver and perform those Loan Documents to which it is a
party;
(c) Violation of Organizational Documents.
(i) The execution, delivery and/or performance by
Borrower, of this Agreement and the Other Agreements, to which
it is a party, shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable
law or a breach of any provision contained in the articles of
incorporation or by-laws of Borrower, or contained in any
agreement, instrument or document to which Borrower, is now or
hereafter a party or by which it or any of its assets is or
may become bound;
(ii) The execution, delivery and/or performance by
J-Hawk Corp. of those Loan Documents to which it is a party,
shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a
breach of any provision contained in the articles of
incorporation or by-laws of J-Hawk Corp. or contained in any
agreement, instrument or document to which J-Hawk Corp., is
now or hereafter a party or by which it or any of its assets
is or may become bound;
(iii) The execution, delivery and/or performance by
FirstCity, of those Loan Documents to which it is a party,
shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a
breach of any provision contained in the articles of
incorporation or by-laws of FirstCity, or contained in any
agreement, instrument or document to which FirstCity is now or
hereafter a party or by which it or any of its assets is or
may become bound;
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(d) Enforceability.
(i) This Agreement and the Other Agreements, to
which Borrower is a party, are and will be the legal, valid
and binding agreements of Borrower, enforceable in accordance
with their terms, except as enforcement thereof may be subject
to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, and to general principles of
equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law);
(ii) Those Loan Documents to which J-Hawk Corp. is
a party are and will be the legal, valid and binding
agreements of J-Hawk Corp., enforceable in accordance with
their terms, except as enforcement thereof may be subject to
the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
creditors' rights generally, and to general principles of
equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law);
(iii) Those Loan Documents to which FirstCity is a
party are and will be the legal, valid and binding agreements
of FirstCity, enforceable in accordance with their terms,
except as enforcement thereof may be subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, and to
general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law);
(e) Subsidiary.
(i) Borrower is, and at all times during the term
hereof shall be, a wholly-owned Subsidiary of J-Hawk Corp.
There are, and at all times during the term hereof shall be,
200 shares of issued and outstanding common stock of Borrower;
(ii) J-Hawk Corp. is, and at all times during the
term hereof shall be, a wholly-owned Subsidiary of FirstCity.
There are, and at all times during the term hereof shall be,
1,000 shares of issued and outstanding common stock of
FirstCity;
(f) Fictitious Names.
(i) Each of the fictitious names, if any, used by
Borrower during the five (5) year period preceding the date of
this Agreement is set forth on Exhibit D; Part 1 attached
hereto and none of such fictitious names are registered
trademarks or tradenames with the U.S. Patent and Trademark
Office;
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(ii) Each of the fictitious names, if any, used by
FirstCity during the five (5) year period preceding the date
of this Agreement is set forth on Exhibit D; Part 2 attached
hereto, and none of such fictitious names are registered
trademarks or tradenames with the U.S. Patent and Trademark
Office;
(iii) Each of the fictitious names, if any, used by
J-Hawk Corp. during the five (5) year period preceding the
date of this Agreement is set forth on Exhibit D; Part 3
attached hereto and none of such fictitious names are
registered trademarks or tradenames with the U.S. Patent and
Trademark Office;
(g) Title. At all times following acquisition thereof,
Borrower, FirstCity and/or J-Hawk Corp., as applicable, shall have
good, indefeasible and merchantable title to and ownership of all of
its Assets, free and clear of all liens, claims, security interests
and encumbrances, except the Permitted Liens.
(h) Solvency. Each of Borrower, FirstCity and J-Hawk
Corp. is now, and at all times hereafter shall be, solvent and
generally paying its debts as they mature and Borrower now owns, and
shall at all times hereafter own, property which, at a fair valuation,
is greater than the sum of its debt. Each of Borrower, FirstCity and
J-Hawk Corp. now has, and shall have at all times hereafter, capital
sufficient to carry on its business and transactions and all
businesses and transactions in which it is about to engage;
(i) Proceedings. There are no actions or proceedings
which are pending or threatened against Borrower, FirstCity or J-Hawk
Corp. which might result in any material and adverse change in its
financial condition or materially adversely affect its Assets or its
ability to fully pay and perform its respective obligations and
liabilities under the Loan Documents to which it is a party;
(j) Government Contracts. None of Borrower, FirstCity
nor J-Hawk Corp. have any government contracts;
(k) Adequate Licenses. Each of Borrower, FirstCity and
J-Hawk Corp. possesses adequate assets, licenses, patents, copyrights,
trademarks and tradenames to continue to conduct its business as
previously conducted by it and as contemplated in the foreseeable
future;
(l) Government Permits. Each of Borrower, FirstCity and
J-Hawk Corp. has and is in good standing with respect to all
governmental permits, certificates, consents and franchises necessary
to continue to conduct its business as previously conducted prior to
the date hereof and to own or lease and operate its properties as now
owned or leased by it. None of said permits, certificates, consents
or franchises contain any term, provision, condition or limitation
more burdensome
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than such as are generally applicable to Persons engaged in the same
or similar business as Borrower, FirstCity or J-Hawk Corp., as
applicable;
(m) Charge; Restrictions. None of Borrower, FirstCity
nor J-Hawk Corp. is a party to (nor are any of its Assets otherwise
subject to) any contract or agreement or subject to any Charge,
restriction, judgment, decree or order materially and adversely
affecting its business, property, assets, operations or condition,
financial or otherwise other than ad valorem taxes not yet due and
payable;
(n) Compliance with Laws. None of Borrower, FirstCity
nor J-Hawk Corp., is, or will be during the term hereof, in violation
of any applicable statute, regulation, order or ordinance of the
United States of America, of any state, city, town, municipality,
county or of any other jurisdiction, or of any agency thereof,
including the Federal Reserve Board, in any respect materially and
adversely affecting its business, property, Assets, operations or
condition, financial or otherwise;
(o) Compliance with Agreements. None of Borrower,
FirstCity, nor J-Hawk Corp. is in default with respect to any
indenture, loan agreement, mortgage, deed or other similar agreement
relating to the borrowing of monies to which it is a party or by which
it is bound;
(p) Financials. The Financials heretofore delivered by
Borrower, FirstCity, J-Hawk Corp. or any other Affiliate to Bank,
fairly and accurately present the assets, liabilities and financial
conditions and results of operations of Borrower, FirstCity, J-Hawk
Corp. and such other Persons described therein as of and for the
periods ending on such dates and have been prepared in accordance with
generally accepted accounting principles and such principles have been
applied on a basis consistently followed in all material respects
throughout the periods involved;
(q) Tax Returns. Each of Borrower, FirstCity and J-Hawk
Corp. has filed or caused to be filed all tax returns which are
required to be filed, and has paid all Charges shown to be due and
payable on said returns or on any assessments made against it or any
of its property, and all other Charges imposed on it or any of its
properties by any governmental authority except for ad valorem taxes
not yet due and payable;
(r) No Adverse Change. There has been no material and
adverse change in the assets, liabilities or financial condition of
Borrower, FirstCity or J-Hawk Corp. since the date of the Financials.
(s) No Indebtedness. Except as disclosed in the most
recent Financials heretofore delivered by Borrower, FirstCity and
J-Hawk Corp. to Bank and in Schedule 5.1(s) or otherwise disclosed in
writing to Bank, none of Borrower, FirstCity nor J-Hawk Corp. has any
Indebtedness (except for Indebtedness arising in the ordinary course
of its business since the dates reflected in the Financials that is
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not Indebtedness for borrowed money), has guaranteed (other than as a
result of the endorsement of any instrument of items of payment for
deposit or collection in the ordinary course of business or as
otherwise expressly permitted pursuant to the terms hereof) the
obligations of any Person, and there are no actions or proceedings
which are pending or, to the best of Borrower's, FirstCity's or J-Hawk
Corp.'s knowledge, threatened against Borrower, FirstCity or J-Hawk
Corp. which, in any of the foregoing cases, are reasonably likely to
result in any material adverse change in its financial condition or
materially adversely affect its assets or its ability to fully perform
and satisfy its obligations under the Loan Documents;
(t) No Liability on Bank. The execution, delivery and
performance by Borrower of this Agreement and/or the Other Agreements
will not, except to the extent caused by independent actions of Bank,
impose on or subject Bank to any liability, whether fixed or
contingent, in respect of any Environmental Law relating to the
operation of Borrower's business. Bank's exercise of any of the
rights or remedies described in this Agreement or in any of the Other
Agreements shall not constitute a breach of any provision contained in
any agreement, instrument or document concerning the assignment or
license of, or the payment of royalties for, any patents, patent
rights, tradenames, trademarks, trade secrets, know-how, copyrights or
any other form of intellectual property now or at any time or times
hereafter protected as such by any applicable law;
(u) Affiliates. Borrower has no wholly owned
Subsidiaries. Exhibit E attached hereto is a true, accurate and
complete schedule of Borrower's Affiliates, together with a
description of Borrower's relationship to each such Affiliate.
(v) Real Estate; Environmental Issues. Borrower does not
now own and at no time in the last five (5) years has owned, any Real
Property. Borrower has not received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission
resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment with respect to any of
such Real Property collateral. Concurrently herewith Borrower will
execute an Environmental Indemnity Agreement.
(w) Leases. Attached hereto as Exhibit F is a true,
accurate and complete schedule of all Leases and Options to which
Borrower is a party.
(x) Investment Company Act and Public Utility Holding
Company Act. Neither the Borrower nor FirstCity nor J-Hawk Corp. nor
any Affiliate nor the entering into of the Loan Documents nor the
issuance of the Notes is subject to any of the provisions of the
Investment Company Act of 1940, as amended. Neither the Borrower nor
FirstCity nor J-Hawk Corp. nor any Affiliate is a "holding company" as
defined in the Public Utility Holding Company Act of 1935, as amended,
or subject
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to any other federal or state statute or regulation limiting its
ability to insure Indebtedness for money borrowed.
(y) Disclosure. Neither this Agreement nor any Loan
Document nor any statement, list, certificate or other document or
information, nor any schedules to this Agreement or any other Loan
Document, delivered or to be delivered to Bank, contains or will
contain any untrue statement of a material fact or omits or will omit
to state a material fact necessary to make statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading.
(z) Qualification.
(i) Solely by reason of (and without regard to
any other activities of Bank in any state in which Assets are
located) the entering into, performance and enforcement of
this Agreement, the Notes and the other Loan Documents by Bank
will not constitute doing business by Bank in any of such
states or result in any liability of Bank for taxes or other
governmental charges; and qualification by Bank to do business
in such jurisdiction is not necessary in connection with, and
the failure to so qualify will not affect, the enforcement of,
or exercise of any rights or remedies under, any of such
documents.
(ii) No "business activity," "doing business" or
similar report or notice is required to be filed by the Bank
in any such jurisdiction in connection with the Loans or the
transactions contemplated by this Agreement, and the failure
to file any such report or notice will not affect the
enforcement of, or the exercise of any rights or remedies
under, this Agreement or any of the other Loan Documents.
5.2 Business Purpose; Margin Stock; Securities. Borrower warrants
and represents to Bank that Borrower shall use the proceeds of all Loans solely
for general corporate purposes, consistently with all applicable laws and
statutes. Borrower's use of the proceeds of any Advances made by Bank are
legal and proper uses (duly authorized by all requisite action of the board of
directors of Borrower), in accordance with applicable laws, rules and
regulations, as in effect from time to time. Borrower further warrants and
represents to Bank and covenants with Bank that Borrower is not in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System). Borrower's execution and delivery of this Agreement or
any of the Other Agreements does not directly or indirectly violate or result
in a violation of the Securities Exchange Act of 1934, as amended, and
Regulations U, G, T and X of the Board of Governors of the Federal Reserve
System (12 CFR 221, 207, 220 and 224, respectively), and Borrower does not own
or intend to purchase or carry any "MARGIN SECURITY," as defined in such
Regulations. As of the date hereof, Borrower does not own the securities of
any Person except as set forth in Schedule 5.2.
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5.3 Reaffirmation of Warranties and Representations. Each request
for an Advance made by Borrower pursuant to this Agreement or the Other
Agreements shall constitute (i) an automatic warranty and representation by
Borrower to Bank that there does not then exist an Event of Default or an
Unmatured Default, and (ii) a reaffirmation as of the date of said Borrowing
Request that each and every warranty and representation of Borrower contained
in this Article 5 and other sections of this Agreement and in the Other
Agreements is true and correct in all material respects, except where such
representation or warranty specifically relates to an earlier date.
5.4 Survival of Warranties and Representations. Borrower
covenants, warrants and represents to Bank that all representations and
warranties of Borrower contained in this Agreement and the Other Agreements
shall be true on the date hereof, and shall survive the execution, delivery and
acceptance hereof and thereof by the parties thereto and the closing of the
transactions described herein and therein or related hereto or thereto. Unless
expressly limited by the terms of this Article 5, each representation and
warranty shall be deemed to be remade concurrently with each Advance hereunder.
6 COVENANTS AND CONTINUING AGREEMENTS.
6.1 Financial Covenants. Borrower and Guarantors, on a
consolidated basis, shall, at all times during the term hereof, measured
quarterly.
(a) maintain a ratio of Indebtedness to Tangible Net
Worth equal to or less than 8 to 1;
(b) maintain a ratio of EBITDA to interest expense equal
to 1.5 to 1; and
(c) maintain Tangible Net Worth equal to or greater than
$75,000,000.
All covenants set forth herein shall be measured quarterly, upon receipt of the
statements delivered to Bank pursuant to Section 6.2(c)(ii) or the annual
consolidated financial statements delivered in accordance with Section
6.2(c)(i), if available.
6.2 Affirmative Covenants. Borrower warrants and represents to
and covenants with Bank that Borrower shall, unless Bank otherwise consents
thereto in writing, do all of the following during the term hereof:
(a) Representation and Warranties. To the extent any
representation or warranty contained herein refers to an event or
state of facts which exists on the date hereof and shall exist during
the term hereof or at the time of each Advance hereunder, said
representation or warranty shall be deemed to be an affirmative
covenant by Borrower to take all actions, omit to take such actions or
cause such actions to be taken which shall be necessary or desirable
to cause such representation or warranty to be true and accurate at
all times during the term hereof.
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(b) Corporate Existence. Borrower shall preserve and
maintain its corporate existence, rights, privileges and franchises in
the jurisdiction of its incorporation or organization, and qualify and
remain qualified to do business in each other jurisdiction in which
such qualification is necessary in view of its business or operations.
(c) Records; Reports. Borrower covenants with Bank that
Borrower shall keep Records and prepare financial statements and shall
cause to be furnished to Bank the following (all of the foregoing and
following which comprise financial statements are to be kept and
prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the Financials unless FirstCity's
certified public accountants concur in any changes therein and such
changes are consistent with then applicable GAAP).
(i) As soon as available but not later than
ninety (90) days after the close of each fiscal year of
FirstCity, a consolidated and consolidating balance sheet of
Borrower, J-Hawk Corp. and FirstCity as at the end of, and the
related statement of operations, including income statement,
for, such year and a reconciliation of capital for such year,
all certified on an unqualified basis by a firm of independent
certified public accountants selected by FirstCity and
acceptable to Bank, in Bank's sole and absolute discretion.
(ii) Concurrently with the delivery of the
financial statements described in Section (i) above for fiscal
years ending after December 31, 1996: (A) a certificate of
the aforesaid certified public accountants certifying to Bank
that based upon their examination of the affairs of FirstCity,
Borrower and J-Hawk Corp., performed in connection with the
preparation of said financial statements, they are not aware
of the occurrence or existence of any condition or event which
constitutes an Event of Default or Unmatured Default, or, if
they are aware thereof, the nature thereof, and (B) a reliance
letter executed by an authorized partner of the aforesaid
certified public accountants, in form and substance reasonably
acceptable to Bank, and acknowledging that Bank may rely on
such financial statements in connection with this Agreement
notwithstanding that Bank is not in privity with such
certified public accountants in connection with such financial
statements.
(iii) As soon as available, but not later than
thirty (30) days after the end of each calendar year,
financial statements of the UK Trust (which shall be prepared
in accordance with accounting principles generally accepted in
the United Kingdom), in form and substance reasonably
acceptable to Bank, including income statements and balance
sheets.
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(iv) As soon as available but not later than
thirty (30) days after the end of each calendar month
hereafter, a consolidated balance sheet of Borrower, J-Hawk
and FirstCity as at the end of, and the related statement of
operations for, the portion of such Person's fiscal year then
elapsed, all certified by the chief financial officer of such
Person's to be prepared in accordance with generally accepted
accounting principles and to present fairly the financial
position and results of operations of such Person for such
period.
(v) Concurrently with delivery to its
shareholders or any other equity owners or Affiliates of
Borrower by FirstCity, copies of all financial and other
information delivered by FirstCity to such Persons, including
without limitation, its proxy statements and annual reports to
stockholders. Concurrently with delivery to the Securities
Exchange Commission ("SEC") by FirstCity, copies of all
reports filed by FirstCity with the SEC, including without
limitation, all reports on Forms 10K, 10Q or 8K promulgated
under the Securities Exchange Act of 1934, as amended.
(vi) Such other data and information (financial
and otherwise) as Bank, from time to time, reasonably may
request bearing upon or related to the Borrower's or any
Guarantor's financial condition and/or results of operations.
(vii) Concurrently with delivery of the Financials
required pursuant to Sections 6.2(c)(i) and (iv) hereof, a
certificate executed by the President or Chief Financial
Officer of Borrower that no Event of Default or Unmatured
Default has occurred and is continuing (including but not
limited to compliance with the covenants set forth in Section
6.1) or if an Event of Default or Unmatured Default has
occurred, setting forth the details of such event and the
action which Borrower proposes to take with respect thereto.
(d) Insurance. Borrower, at its sole cost and expense,
shall keep and maintain: (i) policies of insurance against all hazards
and risks ordinarily insured against by other owners or users of
properties in similar business or as reasonably requested in writing
by Bank; and (ii) public liability insurance relating to Borrower's
ownership and use of its assets. All such policies of insurance shall
be in form, with insurers and in such amounts as may be satisfactory
to Bank. Borrower shall deliver to Bank the original (or certified)
copy of each policy of insurance, and evidence of payment of all
premiums for each such policy. Such policies of insurance (except
those of public liability) shall contain an endorsement, in form and
substance acceptable to Bank, showing loss payable to Bank. Such
endorsement or an independent instrument furnished to Bank, shall
provide that all insurance companies will give Bank at least thirty
(30) days prior written notice before any such policy or policies of
insurance shall be altered or canceled and that no act or default of
Borrower or any other Person shall affect the right of Bank to
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<PAGE> 32
recover under such policy or policies of insurance in case of loss or
damage. Borrower hereby directs all insurers under such policies of
insurance (except those of public liability) to pay all proceeds
payable thereunder directly to Bank. Borrower, irrevocably, appoints
Bank (and all officers, employees or agents designated by Bank) as
Borrower's true and lawful agent and attorney-in-fact for the purpose
of making, settling and adjusting claims under such policies of
insurance, endorsing the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies
of insurance and for making all determinations and decisions with
respect to such policies of insurance. In the event Borrower at any
time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above or to pay any premium in whole or
in part relating thereto, then Bank, without waiving or releasing any
of Borrower's Obligations or any Event of Default or Unmatured Default
hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance
and pay such premium and take any other action with respect thereto
which Bank deems advisable. All sums so disbursed by Bank, including
reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand. The Bank shall also have been named as
additional insureds with respect to Borrower's liability insurance.
(e) Payment of Charges. Borrower shall pay promptly,
when due, all Charges and Borrower shall not permit the Charges to
arise or to remain unpaid, and will promptly discharge the same. In
the event Borrower, at any time or times hereafter, shall fail to pay
the Charges or to obtain such discharges as required herein, Borrower
shall so advise Bank thereof in writing. Bank may, without waiving or
releasing any of Borrower's Obligations or any Event of Default or
Unmatured Default hereunder, in its sole and absolute discretion, at
any time or times thereafter, make such payment, or any part thereof,
or obtain such discharge and take any other action with respect
thereto which Bank deems advisable. All sums so paid by Bank and any
expenses, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be part of Borrower's
Liabilities, payable by Borrower to Bank on demand. Notwithstanding
the foregoing, Borrower may permit or suffer the Charges to attach to
Borrower's assets and may dispute, without prior payment thereof, the
Charges, on the conditions that (i) Borrower, in good faith, shall be
contesting the same in an appropriate proceeding diligently pursued,
(ii) enforcement thereof against any assets of Borrower shall be
stayed and (iii) appropriate reserves therefor shall have been
established on the Records of Borrower in accordance with GAAP. In
the event Borrower, at any time or times hereafter, shall fail to pay
the Charges required herein, Borrower shall so advise Bank thereof in
writing; Bank may, without waiving or releasing any of Borrower's
Obligations or any Event of Default or Unmatured Default hereunder, in
its sole and absolute discretion, at any time or times thereafter,
make such payment, or any part thereof, and take any other action with
respect thereto which Bank deems, in its sole and absolute discretion,
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<PAGE> 33
advisable. All sums so paid by Bank and any expenses, including
reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be part of Borrower's Obligations, payable by
Borrower to Bank on demand.
(f) Pay Debts. Borrower shall pay or discharge or
otherwise satisfy all Indebtedness at or before maturity or before the
same becomes delinquent, provided that Borrower shall not be required
to pay any Indebtedness while the same is being contested by it in
good faith and by appropriate proceedings so long as Borrower shall
have set aside on its books reserves in accordance with generally
accepted accounting principles with respect thereto and title to any
property of Borrower is not jeopardized.
(g) Compliance with Laws. Borrower shall comply with all
laws, rules, regulations and governmental orders (federal, state and
local), including all Environmental Laws, having applicability to it
or to the business or businesses at any time conducted by it, where
the failure to so comply would have a material adverse effect, either
individually or in the aggregate, on the business, condition
(financial or otherwise) and assets, operations or prospects of
Borrower.
(h) Perform Obligations. Borrower shall duly and
punctually pay and perform each of its obligations under this
Agreement and the Other Agreements in accordance with the terms
thereof.
(i) Management. As of the date hereof and at all times
during the term hereof either (i) both of James Hawkins and James
Sartain, or (ii) either James Hawkins or James Sartain and either of
Matthew Landry or Rick R. Hagelstein shall be employed full-time with
FirstCity and shall be responsible for the day to day management of
FirstCity.
6.3 Negative Covenants. Borrower warrants and represents to and
covenants with Bank that Borrower, FirstCity or J-Hawk Corp., as the case may
be, shall not, without Bank's prior written consent, which Bank may or may not
give in its sole and absolute discretion, concurrently or hereafter do any of
the following:
(a) Sell or Encumber Assets. Borrower shall not grant a
security interest in, assign, sell or transfer any of its assets to
any Person nor permit, grant, or suffer a lien, claim or encumbrance
upon any of its assets, except the Permitted Liens.
(b) Attachment. Neither Borrower nor FirstCity nor J-Hawk
Corp. shall permit or suffer any levy, attachment or restraint to be
made affecting any of its assets;
(c) Receiver. Neither Borrower nor FirstCity nor J-Hawk
Corp. shall permit or suffer any receiver, trustee or assignee for the
benefit of creditors, or any other custodian to be appointed to take
possession of all or any of its assets other
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than a custodian pursuant to a voluntary custodial agreement entered
into to perfect a security interest;
(d) Amend Organizational Documents; Business Objectives.
Borrower shall not make any change: (i) in its articles of
incorporation, by-laws or capital structure, (ii) in any of its
business objectives, purposes and operations, including by undertaking
additional business activities. The Borrower, FirstCity and J-Hawk
Corp. will not engage in any business not of the same general type as
those conducted by them on the date hereof;
(e) Merge. Borrower shall not merge or consolidate with,
acquire (or sell Borrower to) any Person, whether by sale of assets or
sale or exchange of stock or purchase, lease, or otherwise (except in
the ordinary course of business), acquire all or any substantial part
of the property or assets of any Person, or purchase, lease or
otherwise acquire property or net assets in excess of $500,000 in any
Fiscal Year.
(f) Redeem Stock. Borrower shall not redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of its
Stock or other evidence of ownership interest or any other corporation
or partnership or any subordinated debt of any Loan Party;
(g) Adverse Transactions. Borrower shall not enter into
any transaction which materially and adversely affects Borrower's
ability to repay Borrower's Liabilities or any other Indebtedness.
Neither FirstCity nor J-Hawk Corp. shall enter into any transaction
which materially and adversely affects its ability to satisfy its
obligations under any Loan Document;
(h) Investments. Borrower shall not make any investment
in the Stock or obligations of any Person, except in the ordinary
course of its business .
(i) Dividends; Payment of Fees, etc. At any time during
the term hereof, without Bank's prior written consent which may be
withheld in Bank's sole and absolute discretion, Borrower shall not:
(i) make any distributions or pay any dividends or make any
distributions of property or assets with respect to its stock; (ii)
pay any director's fees or any salaries to any director or shareholder
unless such shareholder or director is directly and actively employed
by Borrower, FirstCity or J-Hawk Corp.; or (iii) make any loans,
advances and/or extensions of credit to any Affiliate.
(j) Agreements with Affiliates. Attached hereto as
Exhibit G ("AGREEMENTS WITH AFFILIATES"), is a true, accurate and
complete schedule of all service agreements or other agreements
between Borrower and its Affiliates. Bank hereby expressly consents
to the performance by Borrower of said agreements as in effect on the
date hereof. Except in the ordinary course of business, Borrower
shall not enter into any other transactions with any Affiliate,
including, without limitation, agreements for the purchase, sale or
exchange of property or the rendering of any
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services to or by any Affiliate, or enter into, assume or suffer to
exist any employment, management, administration, advisory or
consulting contract with any Affiliate or, in each of the foregoing
cases, with any officer, director or partner of any Affiliate (or a
spouse or other relative of any of them).
(k) Indebtedness. Borrower shall not contract, create,
incur, assume or suffer to exist any Indebtedness; except for (x) the
Loans, (y) Indebtedness existing on the date hereof and reflected on
the Financials of the Borrower delivered on such date and (z)
unsecured trade payables to parties other than Affiliates incurred in
the ordinary course of business that do not exceed, in the aggregate
at any time outstanding, $100,000.
(l) Guaranty Debt. Except as contemplated herein,
Borrower shall not guaranty or otherwise, in any way, become liable
with respect to the obligations or liabilities of any other Person
except in the ordinary course of its business, including, without
limitation, by agreement to (i) maintain net worth or working capital,
(ii) purchase the obligations or property of any such Person, or to
furnish funds to any such Person, directly or indirectly, through the
purchase of goods, supplies or services, in any such case with the
intent to provide such a guaranty or otherwise become so liable, or
(iii) obtain upon its credit the issuance of any letter or letters of
credit for the obligations of any such Person, provided that the
foregoing limitations shall not apply to endorsement of instruments or
items of payment for deposit or collection in the ordinary course of
business.
(m) Pay Indebtedness. Except in the ordinary course of
business, Borrower shall not defease, prepay, repay, purchase, redeem
or otherwise acquire any of its Indebtedness for borrowed money, other
than (i) payments to Cargill or (ii) payments of Indebtedness to
Affiliates expressly permitted pursuant to a subordination agreement
applicable thereto.
(n) Issue Power of Attorney. Except pursuant to this
Agreement, the Other Agreements and the agreements, documents and
instruments evidencing the loans from Cargill to Borrower, J-Hawk
Corp. and FirstCity, Borrower shall not issue any power of attorney or
other contract or agreement giving any Person power or control over
the day-to-day operations of Borrower's business.
(o) Amendment of Credit Agreements. Except in the
ordinary course of business, neither Borrower, the UK Trust nor any of
their respective subsidiaries, shall amend, modify or extend any note,
credit agreement, security agreement or other document, instrument of
agreement evidencing or securing Indebtedness of such entity, without
in each case Bank's prior written consent.
6.4 Required Notices. In addition to those notices required
elsewhere in this Agreement, Borrower shall notify Bank promptly after
obtaining knowledge of:
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(a) except as otherwise previously disclosed, any event
or occurrence which Borrower has determined has caused a material loss
or decline in value of the Assets due to casualty or any other adverse
occurrence and the estimated (or actual, if available) amount of such
loss or decline;
(b) the institution of any suit or administrative
proceeding which, if determined adversely to Borrower, is reasonably
likely to adversely affect the operations, financial condition or
business of Borrower;
(c) Borrower's becoming subject to any Charge,
restriction, judgment, decree or order which materially and adversely
affects it business operations, property, assets or financial
condition;
(d) the commencement of any lockout, strike or walkout
relating to any labor contract to which Borrower is a party;
(e) as soon as possible and in any event within five (5)
days after Borrower shall have obtained knowledge of the occurrence of
an Event of Default or Unmatured Default, the written statement of the
chief financial officer of Borrower setting forth the details of such
event and the action which Borrower proposes to take with respect
thereto.
6.5 Inspections and Audit of Records. Bank (by any of its
officers, accountants, employees and/or agents) shall have the right, at any
time or times during normal business hours, after not less than two (2)
Business Days prior notice (unless an Unmatured Default or Event of Default
then exists, in which event no notice shall be required) to inspect the Records
and other Assets of Borrower (and the premises upon which it is located) and to
verify the amount and condition of or any other matter relating to the Records
and other Assets. In addition to the foregoing right, Bank (by any of its
officers, employees or agents) shall have the right, at any time or times
during normal business hours, after at least two (2) Business Days prior notice
(unless an Event of Default or Unmatured Default has occurred and is continuing
in which event no prior notice shall be required) to perform field audits of
Borrower's books and records, at Borrower's sole cost and expense.
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6.6 Location of Records. Borrower hereby warrants and represents
to and covenants with Bank that the offices and/or locations where Borrower
keeps the Records are at the locations specified on Exhibit H hereto. Borrower
has no other offices or locations and Borrower shall not remove such Records
therefrom and shall not keep any such Records at any other office or location
unless Borrower gives Bank notice thereof at least thirty (30) days prior
thereto and the same is within the continental United States of America.
Borrower, by written notice delivered to Bank at least thirty (30) days prior
thereto, shall advise Bank of Borrower's opening or acquisition of any new
office, place of business or place where any of the Records are to be stored or
kept, or its closing of any then existing office, place of business or place
where any of the Records are to be stored or kept and any new office or place
of business shall be within the continental United States of America.
6.7 Audit Records. In addition to the right to inspect set forth
herein, Bank (by any of its officers, accountants, employees and/or agents)
shall have the right to audit the books and Records of Borrower. Borrower will
allow Bank and its officers, directors and agents to discuss with Borrower's
outside auditors Borrower's Financials and financial condition.
6.8 Costs of Audit. All reasonable costs, fees and expenses
incurred by Bank, or for which Bank becomes obligated, in connection with any
inspection, verification or audit shall constitute part of Borrower's
Liabilities, payable by Borrower to Bank on demand therefor and any amount not
paid on demand shall bear interest at the Default Rate.
6.9 Payment of Claims. Bank, in its sole and absolute discretion,
without waiving or releasing any of the Borrower's Liabilities or Borrower's
Obligations or any Event of Default, may at any time or times hereafter, but
shall be under no obligation to, pay, acquire and/or accept an assignment of
any security interest, lien, encumbrance or claim asserted by any Person
against the Assets of Borrower. All sums paid by Bank in respect thereof and
all reasonable Costs relating thereto incurred by Bank or for which Bank
becomes obligated on account thereof shall be part of the Borrower's
Liabilities payable by Borrower to Bank on demand and any amount not paid on
demand shall bear interest at the Default Rate.
7 DEFAULT
7.1 Events of Default. The occurrence of any one of the following
events shall constitute a default ("EVENT OF DEFAULT") under this Agreement:
(a) If Borrower fails or neglects to perform, keep or
observe any of Borrower's Obligations and the same is not cured within
thirty (30) days after Lender gives Borrower notice of such Default;
provided, however, that a breach of any of the provisions, terms,
conditions or covenants contained in Sections 6.2(d), 6.2(i), 6.3 and
6.4 shall automatically be an Event of Default without any notice or
cure period.
(b) If any representation, warranty or material
statement, report or certificate made or delivered by any Loan Party,
or any of its directors, officers, authorized employees or agents, to
Bank is not true and correct;
(c) If Borrower fails to pay any of Borrower's
Liabilities, when due and payable or declared due and payable and the
same is not cured within five (5) days after Lender gives Borrower
notice of such default provided however, that Interest shall accrue at
the Default Rate commencing immediately after non-payment;
(d) If any of Borrower's Assets or the assets of any Loan
Party, or any portion thereof are attached, seized, subjected to a
writ of distress warrant, or are levied upon, or come within the
possession of any receiver, trustee, custodian or
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assignee for the benefit of creditors and the same is not terminated
or dismissed within sixty (60) days thereafter;
(e) If a petition under any section or chapter of the
United States Bankruptcy Code or any similar law or regulation shall
be filed by any Loan Party or if any Loan Party shall make an
assignment for the benefit of its creditors or if any case or
proceeding is filed by any Loan Party for its dissolution or
liquidation;
(f) If any Loan Party is enjoined, restrained or in any
way prevented by court order from conducting all or any material part
of its business affairs or if a petition under any section or chapter
of the United States Bankruptcy Code or any similar law or regulation
is filed against any Loan Party or if any case or proceeding is filed
against any Loan Party for its dissolution or liquidation and such
injunction, restraint or petition is not dismissed or stayed within
sixty (60) days after the entry or filing thereof;
(g) If an application is made by any Loan Party for the
appointment of a receiver, trustee or custodian for any of its assets
other than a custodian pursuant to a voluntary custodial agreement
entered into to perfect a security interest;
(h) If an application is made by any Person other than a
Loan Party for the appointment of a receiver, trustee, or custodian
for any of its Assets and the same is not dismissed within sixty (60)
days after the application therefor;
(i) If a notice of any Charge is filed of record with
respect to all or any of any Loan Party's assets, or if (except as
permitted in Section 6.2 (e) above) any Charge becomes a lien or
encumbrance upon any of its assets and the same is not released within
sixty (60) days after the same becomes a lien or encumbrance;
(j) If any Loan Party is in default in the payment of any
Indebtedness (other than Borrower's Liabilities) and such default is
not cured within the time, if any, specified therefor in any agreement
governing the same and such default permits any holder or holders of
such Indebtedness (or a trustee, agent or other representative on
behalf of such holder or holders) to cause any of such Indebtedness
evidenced thereby to become due prior to its stated maturity or if any
of such Indebtedness so becomes due prior to its stated maturity;
(k) The occurrence of a default or Event of Default or
Unmatured Default under any agreement, instrument and/or document
executed and delivered by any Guarantor to Bank, which is not cured
within the time, if any, specified therefor in such agreement,
instrument or document or any of the Loan Documents shall fail to
grant to Bank on behalf of the Bank the lien or other security
interest (if any) intended to be created thereby or any Loan Party
thereto shall assert that it is not liable with respect thereto; or
any Guarantor shall assert that it is not liable as a guarantor or
otherwise under its guarantee agreement executed in connection
herewith;
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(l) The occurrence of an Event of Default under any of
the Other Agreements, which is not cured within the time, if any,
specified therefor in such Other Agreement;
(m) If Borrower issues to or transfers to any Person, any
stock of Borrower, or any Person other than J-Hawk Corp. is a
shareholder of the Borrower, or any Person other than FirstCity is a
shareholder of J- Hawk Corp.;
(n) If any final non-appealable judgment for the payment
of money in excess of $250,000 (after giving effect to any amount
covered by insurance as to which the insurer shall not have defied or
questioned its obligation to pay) shall be rendered against the
Borrower or Guarantors; or final judgment for the payment of money in
excess of $250,000 shall be rendered against any Loan Party and the
same shall remain undischarged for a period of thirty (30) days during
which execution shall not be effectively stayed or diligently
contested in good faith by appropriate proceedings;
(o) If Borrower or any ERISA Affiliate (1) shall effect a
complete or partial withdrawal (as defined in ERISA Sections 4203 or
4205) from a Multiemployer Plan, if such withdrawal could subject
either the Borrower or any ERISA Affiliate to liability; (2) shall
fail to pay when due an amount that is payable by it to the PBGC or to
an Employee Benefit Plan; (3) has instituted against it by a fiduciary
of any Multiemployer Plan an action to enforce ERISA Section 515 and
such proceedings shall not have been dismissed within thirty (30) days
thereafter; (4) has imposed against it any tax under Code Section
4980B(a); (5) has assessed against it by the Secretary of Labor a
civil penalty with respect to any Employee Benefit Plan under ERISA
Section 502(c) or 502(l); (6) shall apply for a waiver of the minimum
funding standards of the Code; or (7) shall permit any other event or
condition to occur or exist with respect to an Employee Benefit Plan
that could subject either the Borrower or any ERISA Affiliate to
liability;
(p) A default by Borrower shall occur under any
agreement, document or instrument (other than this Agreement or any of
the other Loan Documents) now or hereafter existing, to which Borrower
is a party and the effect of such default is reasonably likely to have
a material adverse effect on the financial conditions or business
operations of Borrower;
(q) If any Loan Party is in default in the payment of any
Indebtedness for borrowed money in an aggregate principal amount
outstanding in excess of $25,000 under any agreement (other than the
Loan Documents), or is in breach of any agreement evidencing such
Indebtedness (other than any Loan Document) and the effect of such
default or breach, as the case may be, is to enable the holder thereof
then to accelerate the maturity of such Indebtedness, unless the same
is waived or otherwise ceases to exist; or
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(r) If any Loan Party dissolves, liquidates, or fails to
maintain its corporate existence.
7.2 Remedies Cumulative. All of Bank's rights and remedies under
this Agreement and the Other Agreements are cumulative and non-exclusive.
7.3 Acceleration. Upon the occurrence an Event of Default and the
continuation thereof, without notice by Bank to or demand by Bank to Borrower,
Bank shall have no further obligation to and may then forthwith cease advancing
monies, extending credit or issuing letters of credit to or for the benefit of
Borrower under this Agreement and the Other Agreements. Upon an Event of
Default, without notice by Bank to or demand by Bank to Borrower, Borrower's
Liabilities shall be due and payable, forthwith.
7.4 Remedies. Upon the occurrence of an Event of Default and the
continuation thereof, Bank, in its sole and absolute discretion, may exercise
any and all rights and remedies that it may have under the other Loan
Documents, at law or in equity.
7.5 Injunctive Relief. Borrower recognizes that in the event
Borrower fails to perform, observe or discharge any of Borrower's Obligations,
no remedy of law will provide adequate relief to Bank, and agrees that Bank
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
7.6 Advances During Unmatured Default. Upon the occurrence of any
Unmatured Default or Event of Default, Bank shall not be obligated to make any
Advances; provided that, nothing contained herein shall prohibit Bank from
making any Advances.
7.7 Enforcement During Unmatured Default. Upon the occurrence and
during the existence of any Unmatured Default, notwithstanding that the Loan
has not yet been accelerated, Bank, if it determines that the payment of
Borrower's Liabilities is jeopardized, may enforce such of its rights and
remedies under this Article as Bank deems necessary or proper.
7.8 Consent Does Not Create Custom. No authorization given by
Bank pursuant to this Agreement or the Other Agreements to sell any specified
portion of a Loan Party's assets or any items thereof, and no waiver by Bank in
connection therewith shall establish a custom or constitute a waiver of the
prohibition contained in this Agreement against such sales, with respect to any
portion of such Loan Party's assets or any item thereof not covered by said
authorization.
7.9 Defenses. Pursuant to the terms hereof Borrower has
covenanted and agreed to cause FirstCity, J-Hawk Corp. and other Persons to
take or to refrain from taking some action. It shall not be a defense to
Borrower's default under the terms hereof that Borrower did not have the legal
authority or capacity to cause or permit such action or occurrence.
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8 CONDITIONS PRECEDENT TO DISBURSEMENT
8.1 Checklist Items. The obligation of Bank to make the Loan to
Borrower is subject to the condition precedent that, in addition to
satisfaction of the conditions set forth in Sections 8.2 and 8.3, Bank shall
have received, prior to the first disbursement of the proceeds of any of the
Loan hereunder all documents, instruments, agreements, notes, evidences of
Borrower's authority, and all other instruments as Bank may reasonably request,
including but not limited to all items on the Documentation Checklist,
delivered by Bank to Borrower prior to the date hereof.
8.2 Necessary Actions. The obligation of Bank to make the Loan to
Borrower is subject to the further condition precedent that all proceedings
taken in connection with the transactions contemplated by this Agreement, and
all instruments, authorizations and other documents applicable thereto, shall
be reasonably satisfactory in form and substance to Bank and its counsel.
8.3 Conditions Precedent. In addition to the foregoing, prior to
Bank making of any and all Loans hereunder, all of the following shall have
been satisfied in a manner satisfactory to Bank:
(a) no change in the condition or operations, financial
or otherwise, of Borrower or any Guarantor or the UK Trust shall have
occurred which change, in the sole credit judgment of Bank, may have a
material adverse effect on Borrower or any Guarantor;
(b) no litigation shall be outstanding or have been
instituted or threatened which Bank determines to be material against
Borrower or any Guarantor;
(c) all of the representations and warranties of Borrower
set forth in this Agreement and each of the Other Agreements to which
Borrower or any Guarantor as a party shall be true and correct on the
date of the contemplated Loan to the same extent as originally made on
such date; and
(d) no Event of Default or Unmatured Default shall exist
or be continuing.
9 GENERAL
9.1 Compliance with ERISA.
(a) Representations and Warranties. Borrower hereby
represents and warrants that:
(i) Exhibit I hereto describes the Employee
Benefit Plans to which Borrower or any of its ERISA Affiliates
may have obligations;
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(ii) each Employee Benefit Plan of Borrower or any
of its ERISA Affiliates is in compliance in all material
respects with its terms and with the applicable provisions of
ERISA, the Code and all other statutes and regulations
applicable thereto and each such Employee Benefit Plan that is
intended to be qualified under Section 401(a) of the Code has
been determined by the Internal Revenue Service to be so
qualified, and each trust related to any such Employee Benefit
Plan has been determined to be exempt from federal income tax
under Section 501(a) of the Code;
(iii) neither Borrower nor any of its ERISA
Affiliates maintains or contributes to any Employee Benefit
Plan with an actuarial present value of projected benefit
obligations that exceeds the fair market value of net assets
available for such benefits, calculated on the basis of the
actuarial assumptions specified in the most recent actuarial
valuation for such Employee Benefit Plan, and no such Employee
Benefit Plan provides for subsidized early retirement benefits
that could materially adversely affect the funded status of
such Employee Benefit Plan or Employee Benefit Plans in the
event of a reduction in force or plant closing;
(iv) with respect to each Employee Benefit Plan
that is a "defined benefit plan," as defined in Section 3(35)
of ERISA, the assets of each such Employee Benefit Plan are
equal to or greater than the accrued benefits of the
participants and beneficiaries thereunder, as determined
pursuant to the actuarial methods and assumptions utilized by
the PBGC in the event of a plan termination;
(v) neither Borrower nor any of its ERISA
Affiliates sponsors, maintains, participates in or contributes
to any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA that provides benefits to employees
after termination of employment other than as required by
Section 601 of ERISA; as such, neither Borrower nor any of its
ERISA Affiliates are currently or will in the future be
subject to the accounting recognition and disclosure standards
of Statement of Financial Accounting Standards No. 106 (FASB
106);
(vi) neither Borrower nor any of its ERISA
Affiliates has breached any of the responsibilities,
obligations, or duties imposed on them by ERISA or the
regulations promulgated thereunder with respect to any
Employee Benefit Plan;
(vii) neither Borrower nor any ERISA Affiliate has
(i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made or expects to make a complete
or partial withdrawal under Sections 4203 or 4205 of ERISA
from a Multiemployer Plan;
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(viii) at the date hereof, the aggregate potential
withdrawal liability payment, as determined in accordance with
Title IV of ERISA, of the Borrower and any ERISA Affiliates
with respect to all Employee Benefit Plans that are
Multiemployer Plans does not exceed $50,000 and, to the best
of Borrower's and its ERISA Affiliate's knowledge, no
Multiemployer Plan is in reorganization or insolvent within
the meaning of Sections 4241 or 4245 of ERISA.
(ix) neither Borrower nor any ERISA Affiliate has
failed to make a required installment or any other required
payment under Section 412 of the Code on or before the due
date for such installment or other payment;
(x) neither Borrower nor any ERISA Affiliate is
required to provide security to an Employee Benefit Plan under
Section 401(a)(29) of the Code due to an Employee Benefit Plan
amendment that results in an increase in current liability for
the plan year;
(xi) no liability to the PBGC has been, or is
expected by Borrower or any ERISA Affiliate to be, incurred by
Borrower or any ERISA Affiliate, other than the payment of
premiums, and there are no premium payments that have became
due and which are unpaid;
(xii) no events have occurred in connection with
any Employee Benefit Plan that might constitute grounds for
the termination of any such Employee Benefit Plan by the PBGC
or for the appointment by any United States District Court of
a trustee to administer any such Employee Benefit Plan;
(xiii) no Reportable Event has, in the case of any
Employee Benefit Plan maintained by Borrower or an ERISA
Affiliate other than a Multiemployer Plan, occurred and is
continuing, or to the best of Borrower's knowledge, has
occurred and is continuing in the case of any such Employee
Benefit Plan that is a Multiemployer Plan;
(xiv) no Employee Benefit Plan maintained by the
Borrower or an ERISA Affiliate had an Accumulated Funding
Deficiency, whether or not waived, as of the last day of the
most recent fiscal year of such Employee Benefit Plan or, in
the case of any Multiemployer Plan, as of the most recent
fiscal year of such Multiemployer Plan for which the annual
reports of such Multiemployer Plan's actuaries and auditors
have been received; and
(xv) neither Borrower nor any ERISA Affiliate has
engaged in a Prohibited Transaction prior to the date hereof,
and the execution, delivery, and carrying out of this
Agreement will not involve any non-exempt Prohibited
Transactions (within the meaning of Part 4 of Subtitle B of
Title I
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of ERISA) or any transaction in connection with which a tax
could be imposed pursuant to Section 4975 of the Code.
(b) ERISA Reports. Borrower shall:
(i) as soon as possible, and in any event within
fifteen (15) Business Days, after Borrower or an ERISA
Affiliate knows or has reason to know that, regarding any
Employee Benefit Plan with respect to the Borrower or an ERISA
Affiliate, a Prohibited Transaction or a Reportable Event has
occurred (whether or not the requirement for notice, if
applicable, of such Reportable Event has been waived by the
PBGC), deliver to the Bank a certificate of a responsible
officer of the Borrower setting forth the details of such
Prohibited Transaction or Reportable Event, the action that
the Borrower proposes to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC;
(ii) upon request of the Bank made from time to
time, deliver to the Bank a copy of the most recent actuarial
report, funding waiver request, and annual report filed with
respect to any Employee Benefit Plan maintained by Borrower or
an ERISA Affiliate;
(iii) upon request of the Bank made from time to
time, deliver to the Bank a copy of any Employee Benefit Plan
sponsored, contributed to, participated in or maintained by
the Borrower or any ERISA Affiliate; and
(iv) as soon as possible, and in any event within
ten (10) Business Days, after it knows or has reason to know
that any of the following have occurred with respect to any
Employee Benefit Plan maintained, or contributed to, by
Borrower or an ERISA Affiliate, deliver to the Bank a
certificate of a responsible officer of Borrower setting forth
the details of the events described in (a) through (l) and the
action that the Borrower or any ERISA Affiliate proposes to
take with respect thereto, together with a copy of any notice
or filing from the PBGC or other agency of the United States
government with respect to such of the events described in (a)
through (l): (a) any Employee Benefit Plan has been
terminated; (b) the Plan Sponsor intends to terminate any
Employee Benefit Plan; (c) the PBGC has instituted or will
institute proceedings under Section 4042 of ERISA to terminate
any such Employee Benefit Plan or to appoint a trustee to
administer such Employee Benefit Plan, or the Borrower or any
ERISA Affiliate receives a notice from a Multiemployer Plan
that such action has been taken by the PBGC with respect to
such Multiemployer Plan; (d) Borrower or any ERISA Affiliate
withdraws from any Employee Benefit Plan, or notice of any
withdrawal liability is received by Borrower or any ERISA
Affiliate; (e) any Employee Benefit Plan has received an
unfavorable determination letter from
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the Internal Revenue Service regarding the qualification of
the Employee Benefit Plan under Section 401(a) of the Code;
(f) the Borrower or any ERISA Affiliate fails to make a
required installment or any other required payment under
Section 412 of the Code on or before the due date for such
installment or payment or has applied for a waiver of the
minimum funding standard under Section 412 of the Code; (g)
the imposition of any tax under Code Section 4980B(a) or the
assessment by the Secretary of Labor of a civil penalty under
Sections 502(c) or 502(l) of ERISA; (h) there is a partial or
complete withdrawal (as described in ERISA Section 4203 or
4205) by the Borrower or any ERISA Affiliate from a
Multiemployer Plan; (i) the Borrower or any ERISA Affiliate is
in "DEFAULT" as defined in ERISA Section 4219(c)(5)) with
respect to payments to a Multiemployer Plan required by reason
of its complete or partial withdrawal from such Employee
Benefit Plan; (j) a Multiemployer Plan is in "REORGANIZATION"
or is "INSOLVENT" (as described in Title IV of ERISA) or such
Multiemployer Plan intends to terminate or has terminated
under Section 4041A of ERISA; (k) the institution of a
proceeding by a fiduciary of a Multiemployer Plan against the
Borrower or any ERISA Affiliate to enforce Section 515 of
ERISA; or (1) the Borrower or any ERISA Affiliate has
increased benefits under any existing Employee Benefit Plan or
commenced contributions to an Employee Benefit Plan to which
Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, the Borrower
shall be deemed to have knowledge of all facts known by the
Plan Administrator of any Employee Benefit Plan of which
Borrower or any ERISA Affiliate is the Plan Sponsor.
(c) Compliance with ERISA. Borrower and its ERISA
Affiliates will not (i) establish, maintain, or operate any Employee
Benefit Plan that is not in compliance in all material respects with
the provisions of ERISA, the Code, and all other applicable laws, and
the regulations and interpretations thereunder; (ii) allow to exist
any Accumulated Funding Deficiency with respect to any Employee
Benefit Plan, whether or not waived; (iii) terminate any Employee
Benefit Plan or withdraw or effect a partial or complete withdrawal
(as described in ERISA Section 4203 or 4205) from any Multiemployer
Plan, if such termination or withdrawal could subject the Borrower or
any ERISA Affiliate to liability; (iv) fail to make any required
installment or any other payment required under Section 412 of the
Code on or before the due date for such installment or other payment;
(v) amend any Employee Benefit Plan so as to result in an increase in
current liability for the plan year such that Borrower or any ERISA
Affiliate is required to provide security to such Employee Benefit
Plan under Section 401(a)(29) of the Code; (vi) fail to make any
contribution or payment to any Multiemployer Plan which Borrower or
any ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan; (vii) enter into any Prohibited
Transaction for which a class exemption is not available or a private
exemption previously has not been obtained from the Department of
Labor; (viii) permit the occurrence of any Reportable Event, or any
other event or condition, which could subject either the Borrower or
any
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<PAGE> 46
ERISA Affiliate to liability; or (ix) allow or permit to exist any
other event or condition known or that reasonably should be known to
Borrower which event or condition could subject either the Borrower or
any ERISA Affiliate to liability.
(d) Definitions. For purposes of this Section 9.1, the
following definitions shall apply:
(i) "ACCUMULATED FUNDING DEFICIENCY" shall have
the meaning assigned to that term in Section 302 of ERISA.
(ii) "CODE" shall mean the Internal Revenue Code
of 1986, as amended.
(iii) "EMPLOYEE BENEFIT PLAN" shall mean an
employee benefit plan within the meaning of Section 3(3) of
ERISA that is maintained, sponsored, participated in or
contributed to by the Borrower or any ERISA Affiliate.
(iv) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time, or
any successor thereto.
(v) "ERISA AFFILIATE" shall mean any corporation,
trade or Business that is, along with Borrower, a member of a
controlled group of trades or businesses, or a member of any
group of organizations, within the meaning of Sections 414(b),
(c), (m) or (o) of the Code, and any regulations thereunder.
(vi) "MULTIEMPLOYER PLAN" shall mean any plan
described in Section 3(37) or 4001(a)(3) of ERISA to which
contributions are or have been made by the Borrower or any
ERISA Affiliate.
(vii) "PBGC" shall mean the Pension Benefit
Guaranty Corporation or any governmental body succeeding to
its functions.
(viii) "PLAN Administrator" shall have the meaning
assigned to it in Section 3(16)(A) of ERISA.
(ix) "PLAN SPONSOR" shall have the meaning
assigned to it in Section 3(16)(B) of ERISA.
(x) "PROHIBITED TRANSACTION" shall mean a
transaction that is prohibited under Code Section 4975 or
ERISA Section 406 and not exempt under Code Section 4975 or
ERISA Section 408.
(xi) "REPORTABLE EVENT" shall mean (a) an event
described in Section 4043(c), 4068(a), or 4063(a) of ERISA or
in the regulations thereunder, (b) receipt of a notice of
withdrawal liability with respect to a Multiemployer Plan
pursuant to Section 4202 of ERISA, (c) an event
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<PAGE> 47
requiring the Borrower or any ERISA Affiliate to provide
security for an Employee Benefit Plan under Code Section
401(a)(29), (d) any failure to make payments required by Code
Section 412(m), (e) the withdrawal of the Borrower or any
ERISA Affiliate from an Employee Benefit Plan in which it is a
"SUBSTANTIAL EMPLOYER" as defined in Section 4001(a)(2) of
ERISA, (f) the institution of proceedings to terminate an
Employee Benefit Plan by the PBGC, or (g) the filing of a
notice to terminate an Employee Benefit Plan or the treatment
of an amendment of an Employee Benefit Plan as a termination
under Section 4041 of ERISA.
9.2 Costs. Borrower hereby agrees that it shall reimburse Bank on
demand, as part of Borrower's Obligations, for any and all Costs and any amount
not paid on demand shall bear interest at the Default Rate.
9.3 Statement. Each statement of account by Bank delivered to
Borrower relating to Borrower's Liabilities shall be presumed correct and
accurate and shall constitute an account stated between Borrower and Bank
unless Bank subsequently corrects such statement of its own volition or, within
thirty (30) days after Borrower's receipt of said statement, Borrower delivers
to Bank, by registered or certified mail addressed to Bank at the address
specified in Section 9.4, written objection thereto specifying the error or
errors, if any, which Borrower asserts are contained in any such statement.
9.4 Notices. Any and all notices given in connection with this
Agreement shall be deemed adequately given only if in writing (which term, for
all purposes of this Agreement and the other Loan Documents, shall include
telecopy) and addressed to the party for whom such notices are intended at the
address set forth below. All notices shall be sent by personal delivery,
Federal Express or other over-night messenger service, first class registered
or certified mail, postage prepaid, return receipt requested or by other means
at least as fast and reliable as first class mail. A written notice shall be
deemed to have been given to the recipient party on the earlier of (a) the date
it shall be delivered to the address required by this Agreement; (b) the date
delivery shall have been refused at the address required by this Agreement; or
(c) with respect to notices sent by mail, the date as of which the postal
service shall have indicated such notice to be undeliverable at the address
required by this Agreement. Any and all notices referred to in this Agreement,
or which either party desires to give to the other, shall be addressed as
follows:
IF TO BORROWER: J-Hawk International Corporation
6400 Imperial Drive
P.O. Box 8216
Waco, Texas 76714
Attn: James Holmes
Telecopy: 254-751-7648
41
<PAGE> 48
WITH A COPY TO: Vander Woude & Istre, P.C.
510 N. Valley Mills Drive
Suite 308
Waco, Texas 76710
Attn: Richard Vander Woude, Esq.
Telecopy: 254-751-7725
IF TO BANK: Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Attn: Loans Administration
Telecopy: 212-557-9460
WITH A COPY TO: Sachnoff & Weaver, Ltd.
Suite 2900
30 South Wacker Drive
Chicago, Illinois 60606
Attn: Frank Ballantine, Esq.
Telecopy: 312-207-6400
and to
Bank of Scotland
Chicago Representative Office
181 West Madison Street
Suite 3525
Chicago, Illinois 60602
Attn: James Halley
Telecopy: 312-263-1143
The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.
9.5 Modification. This Agreement and the other Loan Documents may
not be modified, altered or amended except by an agreement in writing signed by
Borrower and Bank. Borrower may not sell, assign or transfer this Agreement or
the Other Agreements or any portion thereof, including, without limitation,
Borrower's rights, titles, interests, remedies, powers and/or duties hereunder
or thereunder. Borrower hereby consents to Bank's sale, assignment, transfer
or other disposition, at any time and from time to time hereafter, of this
Agreement or the Other Agreements, or of any portion thereof or participation
therein, including, without limitation, Bank's rights, titles, interests,
remedies, powers and/or duties.
9.6 No Waiver. Bank's failure at any time or times hereafter to
require strict performance by Borrower of any provision of this Agreement or
any other Loan Document shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance
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<PAGE> 49
and performance therewith. Any suspension or waiver by Bank of an Event of
Default or an Unmatured Default by Borrower or any other Loan Party under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default or Unmatured Default by Borrower or any other Loan Party under
this Agreement or the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default or
Unmatured Default by Borrower or any other Loan Party under this Agreement or
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is by an instrument in writing signed by an
officer of Bank and directed to Borrower or such applicable other Loan Party
specifying such suspension or waiver.
9.7 Severability. If any provision (in whole or in part) of this
Agreement or the other Loan Documents or the application thereof to any person
or circumstance is held invalid or unenforceable, then such provision shall be
deemed modified, restricted, or reformulated to the extend and in the manner
necessary to render the same valid and enforceable, or shall be deemed excised
from this Agreement or the other Loan Document, as the case may require, and
this Agreement and such other Loan Document shall be construed and enforced to
the maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified, restricted, or reformulated or as if such
provision had not been originally incorporated herein or therein, as the case
may be. The parties further agree to seek a lawful substitute for any
provision found to be unlawful. If such modification, restriction or
reformulation is not reasonably possible, the remainder of this Agreement and
the other Loan Documents and the application of such provision to other persons
or circumstances will not be affected thereby and the provisions of this
Agreement and the other Loan Documents shall be severable in any such instance.
9.8 Successors or Assigns. This Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of the successors and
assigns of Borrower and Bank.
9.9 Incorporation of Other Agreements. The provisions of the
Other Agreements are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in this Agreement and except as otherwise provided
in the Other Agreements by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in the Other Agreements or the other
Loan Documents, Bank shall have the right to elect, in its sole and absolute
discretion, which provision shall govern and control. Except to the extent
provided to the contrary in this Agreement and in the other Loan Documents, no
termination or cancellation (regardless of cause or procedure) of this
Agreement or the Other Agreements shall in any way affect or impair the powers,
obligations, duties, rights and liabilities of Borrower or Bank in any way or
respect relating to (a) any transaction or event occurring prior to such
termination or cancellation, and/or (b) any of the undertakings, agreements,
covenants, warranties and representations of Borrower contained in this
Agreement or the
43
<PAGE> 50
Other Agreements. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
9.10 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW,
BORROWER AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER AGREEMENTS OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. BORROWER HEREBY
EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR BANK TO
MAKE THE LOAN.
9.11 Designated Person. Until Bank is notified by Borrower to the
contrary in accordance with Section 9.4, the signature upon this Agreement or
upon any of the Other Agreements of any officer, employee or agent of Borrower,
or of any other Person designated in writing to Bank by any of the foregoing,
or of a "DESIGNATED PERSON" (as that term is defined in Borrower's Secretary's
Certificate of even date herewith, constituting one of the Other Agreements)
shall bind Borrower and be deemed to be the duly authorized act of Borrower.
9.12 Acceptance. This Agreement and the other Loan Documents are
submitted by Borrower to Bank (for Bank's acceptance or rejection thereof) at
Bank's principal place of business as an offer by Borrower to borrow monies
from Bank now and from time to time hereafter and shall not be binding upon
Bank or become effective until and unless accepted by Bank, in writing, at said
place of business. If so accepted by Bank, this Agreement and the other Loan
Documents and the other Loan Documents shall be deemed to have been made at
said place of business. This Agreement and the other Loan Documents and the
other Loan Documents shall be governed and controlled by the laws of the State
of Illinois as to interpretation, enforcement, validity, construction, effect
and in all other respects including, but not limited to, the legality of the
interest rate and other charges, but excluding choice of law provisions and
perfection of security interests which shall be governed and controlled by the
laws of the relevant jurisdiction.
9.13 Knowledge. As used herein the phrase "TO THE BEST OF
BORROWER'S KNOWLEDGE" or words of such import shall mean all knowledge,
including, actual knowledge and knowledge of matters which any reasonable
person in such position knew or should have known, of the respective officers,
directors and managers of Borrower.
9.14 Waiver by Borrower. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS
AGREEMENT OR REQUIRED BY LAW, BORROWER WAIVES (A) PRESENTMENT, DEMAND AND
PROTEST, NOTICE OF PROTEST, NOTICE OF PRESENTMENT, DEFAULT, NON-PAYMENT,
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL
PAPER AND
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<PAGE> 51
GUARANTIES AT ANY TIME HELD BY BANK ON WHICH BORROWER MAY IN ANY WAY BE LIABLE;
(B) ALL RIGHTS TO NOTICE AND A HEARING PRIOR TO BANK'S TAKING POSSESSION OR
CONTROL OF, OR TO BANK REPLEVY, ATTACHMENT OR LEVY UPON THE COLLATERAL OR ANY
BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING BANK TO
EXERCISE ANY OF BANK'S REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT, EXTENSION AND EXEMPTION LAWS.
9.15 Governing Law. THIS AGREEMENT HAS BEEN DELIVERED FOR
ACCEPTANCE BY BANK IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. TO THE EXTENT PERMITTED BY APPLICABLE
LAW BORROWER HEREBY (a) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS AGREEMENT; (b)
IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (c) AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN
ANY OTHER MANNER PROVIDED BY LAW; AND (d) AGREES NOT TO INSTITUTE ANY LEGAL
ACTION OR PROCEEDING AGAINST BANK OR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF
OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE LOCATED IN COOK
COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR BANK'S RIGHT
TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR BANK'S RIGHT TO BRING
ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS
OF ANY OTHER JURISDICTION.
9.16 Service of Process. Borrower hereby irrevocably appoints and
designates CT Corporation System, Inc., 208 S. LaSalle Street, Chicago, IL
60604 as its true and lawful attorney-in-fact and duly authorized agent for
service of legal process and agrees that service of such process upon such
agent and attorney-in- fact shall constitute personal service of such process
upon Borrower.
9.17 Representation by Counsel. Borrower hereby represents that it
has been represented by competent counsel of its choice in the negotiation and
execution of this Agreement and the other Loan Documents; that it has read and
fully understood the terms hereof; Borrower and its counsel have been afforded
an opportunity to review, negotiate and modify the terms of this Agreement, and
that it intends to be bound hereby. In accordance with the foregoing, the
general rule of construction to the effect that any ambiguities in a contract
are to be resolved against the party drafting the contract shall not be
employed in the construction and interpretation of this Agreement.
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<PAGE> 52
9.18 Release of Bank. Borrower releases Bank from any and all
causes of action or claims which Borrower may now or hereafter have for any
asserted loss or damage to Borrower claimed to be caused by or arising from any
act or omission to act on the part of Bank, its officers, agents or employees,
except for willful misconduct.
9.19 Invalidated Payments. To the extent that either Bank receives
any payment on account of Borrower's Liabilities, and any such payment(s)
and/or proceeds or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside, subordinated and/or required to be
repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or federal law, common law or equitable cause, then, to the extent of
such payment(s) or proceeds received, Borrower's Liabilities or part thereof
intended to be satisfied shall be revived and continue in full force and
effect, as if such payment(s) and/or proceeds had not been received by Bank and
applied on account of Borrower's Liabilities.
9.20 Headings. The descriptive headings of the various provisions
of this Agreement and the other Loan Documents are inserted for convenience of
reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
9.21 Counterparts. This Agreement and the other Loan Documents may
be executed in any number of counterparts, and by the different parties hereto
and thereto on the same or separate counterparts, each of which when so
executed and delivered shall be deemed to be an original; all the counterparts
for each such Loan Document shall together constitute one and the same
agreement.
9.22 Fax Execution. For purposes of negotiating and finalizing
this Agreement (including any subsequent amendments thereto), any signed
document transmitted by facsimile machine ("FAX") shall be treated in all
manner and respects as an original document. The signature of any party by FAX
shall be considered for these purposes as an original signature. Any such FAX
document shall be considered to have the same binding legal effect as an
original document, provided that an original of the faxed document was mailed
by first class U.S. Mail or personally delivered to the recipient, on the date
of its transmission with proof of the fax transmission. At the request of
either party, any FAX document subject to this Agreement shall be re-executed
by both parties in an original form. The undersigned parties hereby agree that
neither shall raise the use of the FAX or the fact that any signature or
document was transmitted or communicated through the use of a FAX as a defense
to the formation of this Agreement.
9.23 No Third Party Beneficiaries. This Agreement is solely for
the benefit of the Bank, Borrower and their respective successors and assigns
(except as otherwise expressly provided herein) and nothing contained herein
shall be deemed to confer upon any Person other than Borrower and its
successors and assigns any right to insist on or to enforce the performance or
observance of any of the obligations contained herein. All conditions to the
obligations of the Bank to make the Loans hereunder are imposed solely and
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<PAGE> 53
exclusively for the benefit of the Bank and its respective successors and
assigns and no other Person shall have standing to require satisfaction of such
conditions in accordance with their terms and no other Persons shall under any
circumstances be deemed to be a beneficiary of such conditions.
9.24 Texas Language.
(a) THIS WRITTEN AGREEMENT (TOGETHER WITH THE OTHER LOAN
DOCUMENTS ) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(b) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES HERETO.
9.25 Domicile of Loans. Bank may make, maintain or transfer any of
its Loans hereunder to, or for the account of, any branch office, subsidiary or
affiliate of Bank.
* * * * *
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<PAGE> 54
IN WITNESS WHEREOF, this Loan Agreement has been duly executed as
of the day and year specified at the beginning hereof.
BORROWER:
J-HAWK INTERNATIONAL CORPORATION
a Texas corporation
By: /s/ JAMES C. HOLMES
------------------------------------
Title: Senior Vice President
---------------------------------
BANK:
BANK OF SCOTLAND
By: /s/ ANNIE CHIN TAT
------------------------------------
Title: Vice President
---------------------------------
<PAGE>
EXHIBIT 10.17
GUARANTY AGREEMENT
J-HAWK CORPORATION
This GUARANTY AGREEMENT (this "AGREEMENT"), is made as of September
25, 1997 by J-Hawk Corporation, a corporation incorporated under the laws of
Texas (the "GUARANTOR"), in favor of Bank of Scotland ("BANK").
RECITALS
A. J-Hawk International Corporation ("BORROWER") has requested
Lender to make advances to Borrower pursuant to a revolving credit facility to
be funded in French Francs, the maximum principal amount of which shall be
60,000,000 French Francs (the "LOAN").
B. To evidence and secure the Loan, Borrower has executed and
delivered to Bank that certain Loan Agreement dated even date herewith (said
agreement, as such agreement may be extended, amended, restated, modified,
supplemented or replaced, the "LOAN AGREEMENT"). The Loan is further evidenced
by a promissory note dated even date herewith having a maximum principal amount
of 60,000,000 French Francs (said note, together with any amendments,
restatements, modifications, supplements, replacements or extensions thereof
and any notes issued in substitution or exchange therefor, being hereinafter
collectively referred to as the "NOTE"). The Note, and the Loan Agreement,
together with all other documents, agreements, instruments, notes, loan
agreements, security agreements, assignments, certificates, indemnifications,
guarantees, pledges, consents, contracts, notices, financing statements,
hypothecation agreements, collateral assignments, assignments, mortgages and
chattel mortgages given to evidence or secure the indebtedness evidenced by the
Note and all other written matter and all amendments, modifications,
supplements, extensions and restatements thereof and thereto, or delivered in
substitution therefor or in lieu thereof, whether heretofore, now or hereafter
executed by or on behalf of Borrower, Guarantor, any one or more of them, or
any other person or entity, delivered to Bank or any participant with respect
to the Loan are collectively referred to herein as the "LOAN DOCUMENTS." All
terms defined in the Loan Agreement and used herein without definition shall
have the meanings provided therefor in the Loan Agreement, except where the
context otherwise requires.
C. It is a condition precedent to Lender's obligation to make the
Loan that Guarantor enter into this guaranty of payment and performance of all
obligations and liabilities of Borrower to Bank under the Loan Documents.
D. Guarantor is the sole shareholder of Borrower.
E. Guarantor has a financial interest in Borrower and will
receive a material financial benefit if Lender makes the Loan to Borrower and
Guarantor has agreed to execute and deliver this Agreement. As used herein the
term "LOAN PARTY" shall mean any
<PAGE> 2
one or more of Borrower, Guarantor, FirstCity Financial Corporation and any
other person or entity which is a party to the Loan Documents, other than Bank.
NOW, THEREFORE, FOR VALUE RECEIVED, in consideration of the foregoing
Recitals, each of which are an integral part hereof, and this Agreement shall
be construed in light thereof, and in consideration of Bank making the Loan to
Borrower and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Guarantor agrees as follows:
1. Guaranty.
(a) Guarantor absolutely, unconditionally and irrevocably
guarantees, as a principal obligor and not as a surety, to Bank: (i) the full
and prompt payment when due, whether at stated maturity, upon acceleration or
otherwise, and at all times thereafter, of any and all debts, liabilities, and
obligations for the payment of principal, interest, penalties, fees, charges
and any other amounts due under the Note and all other Loan Documents,
including but not limited to any amounts due from Borrower to Bank in
connection with any indemnification by Borrower of Bank; (ii) the payment of
all Enforcement Costs (as hereinafter defined); and (iii) the full, complete
and punctual observance, performance and satisfaction of the obligations,
duties and agreements of Borrower under the Note and all other Loan Documents
(the "OBLIGATIONS"). All amounts due, debts, liabilities and payment
obligations described in subsections (i), (ii) and (iii) of this Section 1 are
referred to herein as the "INDEBTEDNESS".
(b) Guarantor agrees, on demand by Bank, to pay the
Indebtedness and to perform all Obligations of Borrower regardless of any
defense, right of set-off or claims which Borrower, Guarantor or any other
party under the Loan Documents may have against Bank.
(c) THIS IS AN ABSOLUTE, IRREVOCABLE, PRESENT AND
CONTINUING GUARANTY OF PAYMENT OF THE INDEBTEDNESS AND PERFORMANCE OF THE
OBLIGATIONS AND NOT OF COLLECTION.
2. Rights of Bank. Guarantor authorizes Bank at any time in its
discretion (subject only to the consent of Borrower where the relevant Loan
Document specifically provides for such consent) to alter any of the terms of
the Indebtedness, to take and hold any security for the Indebtedness and to
accept additional or substituted security, to subordinate, compromise or
release any security, to release Borrower or any other party of its liability
for all or any part of the Indebtedness, to release, substitute or add any one
or more guarantors or endorsers, and to assign this Agreement in whole or in
part. Any modifications, renewals and extensions of the Indebtedness may be
made at any time by Bank, before or after any termination of this Agreement,
and Guarantor shall be fully liable for any such modifications, renewals or
extensions. Bank may take any of the foregoing actions upon any terms and
conditions as it may elect, without giving notice to Guarantor or obtaining the
consent of Guarantor and without affecting the liability of Guarantor to Bank.
2
<PAGE> 3
3. Independent Obligations.
(a) The obligations of Guarantor hereunder are
independent of the obligations of Borrower and any other Loan Party and a
separate action or actions may be brought or prosecuted against Guarantor,
whether any action is brought against Borrower or any other Loan Party or
whether Borrower or any other Loan Party is joined in any action or actions. In
any action to enforce this Agreement, Bank, at its election, may proceed
against Guarantor, with or without: (i) joining Borrower or any other Loan
Party in any such action; (ii) commencing any action against or obtaining any
judgment against Borrower or any other Loan Party; or (iii) commencing any
proceeding to enforce the Note; provided however, nothing herein contained
shall preclude Bank from suing on the Note or foreclosing any lien granted in
any Loan Document or from exercising any other rights, remedies or power under
any Loan Document, and if such foreclosure or other rights, powers or remedies
are availed of, only the net proceeds therefrom, after deduction of all charges
and expenses of every kind and nature whatsoever, shall be applied in reduction
of the Indebtedness and the Obligations. Bank shall not be required to
institute or prosecute proceedings to recover any deficiency as a condition of
any payment hereunder or enforcement hereof. Nevertheless, in the event Bank
elects to pursue its remedies under any one or more of the other Loan Documents
and thereafter a deficiency exists, Guarantor hereby further promises and
agrees to immediately pay to Bank the amount of such deficiency.
(b) Bank's rights under this Agreement will not be
exhausted by any action or inaction by Bank until all of the Indebtedness has
been indefeasibly paid in full. Any statute of limitations which is tolled as
to Borrower by reason of any payment by Borrower or other circumstance shall
operate to toll the statute of limitations as to Guarantor.
(c) The liability of Guarantor hereunder is not affected
or impaired by any direction or application of payment by Borrower or by any
other party, or by any other guarantee or undertaking of Guarantor or any other
party as to the Indebtedness of Borrower, by any payment on, or in reduction
of, any such other guarantee or undertaking, by the termination, revocation or
release of any obligations hereunder or of any other guarantor, or by any
payment made to Bank on the Indebtedness which Bank repays to Borrower or any
other guarantor or other person or entity pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, or any other fact or circumstance which would excuse the obligation
of a guarantor or surety, and Guarantor waives any right to the deferral or
modification of Guarantor's obligations hereunder by reason of any such
proceeding, fact or circumstance. This Agreement shall continue to be
effective in accordance with its terms, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of or with respect to any of the
Indebtedness is rescinded or must otherwise be restored or returned by Bank
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or any other payor thereof, or upon or as a result of the appointment
of a receiver, intervenor or conservator
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<PAGE> 4
of, or trustee or similar officer for, Borrower or any other payor thereof or
any substantial part of its property, or otherwise, all as though such payments
had not been made.
4. Representations and Warranties. Guarantor represents,
warrants and agrees (which representations, warranties and agreements shall
survive Guarantor's execution of this Agreement) that this Agreement is in
proper legal form under the laws of Guarantor's jurisdiction of incorporation
and principal location for enforcement thereof against Guarantor.
5. Waivers of Defenses. Guarantor waives, to the fullest extent
permitted by law: (a) all statutes of limitation as to the Indebtedness, this
Agreement or otherwise as a defense to any action brought against Guarantor by
Bank; (b) any defense based upon any legal disability of Borrower or any
discharge or limitation of the liability of Borrower to Bank, whether
consensual or arising by operation of law or any bankruptcy, insolvency, or
debtor-relief proceeding, or from any other cause; (c) presentment, demand,
protest and notice of any kind; (d) any defense (other than the defense of
indefeasible payment or indefeasible satisfaction) based upon or arising out of
any defense which Borrower may have to the payment or performance of any part
of the Indebtedness; (e) any defense based upon any disbursements by Bank to
Borrower pursuant to any agreements or instruments governing or securing the
Indebtedness whether same be deemed an additional advance or be deemed to be
paid out of any special interest or other fund accounts, as constituting
unauthorized payments hereunder or amounts not guaranteed by this Agreement;
(f) all rights to participate in any security held by Bank for the
Indebtedness; (g) irregularity or unenforceability of any agreement or
instrument representing or governing or securing the Indebtedness; (h) any
request that Bank be diligent or prompt in making demands hereunder or under
any agreement or instrument representing or governing or securing the
Indebtedness; and (i) any other defense in law or equity (other than the
defense that the indebtedness has been indefeasibly paid in full), until the
Indebtedness has been indefeasibly paid in full.
6. Borrower's Authority and Financial Condition. It is not
necessary for Bank to inquire into the capacity or powers of Borrower or the
officers, directors, partners or agents acting or purporting to act on
Borrower's behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder. Guarantor
assumes full responsibility for keeping fully informed of the financial
condition of Borrower and all other circumstances affecting Borrower's ability
to perform its obligations to Bank, and agrees that Bank will have no duty to
report to Guarantor any information which Bank either receives about Borrower's
financial condition or any circumstances bearing on its ability to perform, and
expressly waives any right to receive such information and any defense based
upon failure to receive such information.
7. Waiver of Subrogation. Irrespective of any payment by
Guarantor to Bank pursuant to this Agreement, Guarantor will not be subrogated
in place of and to the claims and demands of Bank nor will Guarantor have any
right to participate in any security or lien now or hereafter held by or on
behalf of Bank against Borrower or any other guarantor
4
<PAGE> 5
or any collateral which Bank now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law (including, without limitation, the right to take or receive from Borrower,
directly or indirectly, in cash or other property or by setoff or in any other
manner, payment or security on account of such claim or other rights), until
(x) the Indebtedness has been indefeasibly paid in full and (y) final
indefeasible payment and satisfaction of all claims and demands due to Bank
hereunder. If any amount shall be paid to Guarantor in violation of the
preceding sentence and the Indebtedness shall not have been paid in full, such
amount shall be deemed to have been paid to Guarantor for the benefit of, and
held in trust for the benefit of, Bank and shall forthwith be paid to Bank to
be credited and applied against the Indebtedness, whether matured or unmatured,
in accordance with the terms of the Indebtedness. Guarantor acknowledges that
it will receive direct and indirect benefits from the financial accommodations
extended by Bank to Borrower and that the waiver set forth in this paragraph is
knowingly made in contemplation of such benefits.
8. Right of Setoff. In addition to all rights of setoff or lien
against any moneys, securities or other property of Guarantor given to Bank by
law, upon the occurrence of any default under any agreement or instrument
governing any of the Indebtedness or under this Agreement, Bank is authorized
at any time and from time to time, without notice to Guarantor or to any other
person or entity, any such notice being hereby expressly waived, to setoff and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by Bank to or for the credit or the account of Guarantor
against and on account of the obligations of Guarantor under this Agreement,
irrespective of whether or not Bank shall have made any demand hereunder or any
demand for payment of any Indebtedness and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
9. Default. Bank may declare Guarantor in default under this
Agreement, and may exercise all of its rights hereunder and demand payment of
the aggregate outstanding principal amount of all Indebtedness, if Guarantor
fails or neglects to perform, keep or observe any of its obligations under this
Agreement or any other Loan Document to which Guarantor is a party and the same
is not cured within thirty (30) days after Lender gives Borrower notice of such
default or if Guarantor becomes the subject of any bankruptcy, insolvency,
arrangement, reorganization, moratorium, or other debtor-relief proceeding
under any law, whether now existing or hereafter enacted, or upon the
appointment of a receiver for, or the attachment, restraint of or making or
levying of any order of any court or legal process affecting, the property of
Guarantor.
10. Costs and Expenses. In addition to the amounts guaranteed
hereunder, Guarantor agrees to pay Bank's reasonable out-of-pocket costs and
expenses, including but not limited to legal fees and disbursements, incurred
in any effort to collect or enforce this Agreement or any other Loan Document,
whether or not any lawsuit is filed. Until paid to Bank, such sums (and any
other amounts payable under this Agreement that are not paid when due) will
bear interest at the lesser of (i) the Highest Lawful Rate or (ii) the Default
Rate.
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<PAGE> 6
11. Delay; Cumulative Remedies. No delay or failure by Bank to
exercise any right or remedy against, or to require performance by, Borrower or
Guarantor or any other party shall be construed as a waiver of that right,
remedy or requirement, and all such powers of Bank shall remain in full force
and effect, until specifically waived or released by an instrument in writing
executed by Bank. All remedies of Bank against Borrower and Guarantor are
cumulative.
12. Subordination. Guarantor agrees that any and all indebtedness
or claims it may have against Borrower, whether such claims are in connection
with this Agreement, the Indebtedness, or are completely independent of this
Agreement and the Indebtedness, will be subordinate to the claims of Bank under
this Agreement, the Loan Documents and all Indebtedness guaranteed hereby, and
that Guarantor will not assert any such claim against Borrower until all
Indebtedness to Bank has been indefeasibly paid in full. Notwithstanding such
subordination, and without affecting or impairing in any manner the liability
of Guarantor under the other provisions of this Agreement, any Indebtedness of
Borrower to Guarantor, if Bank so requests, shall be collected, enforced and
received by Guarantor as trustee for Bank and paid over to Bank on account of
the Indebtedness of Borrower to Bank.
13. Enforcement Costs: If:
(i) this Agreement, the Note or any other Loan Document
is placed in the hands of an attorney for collection
or enforcement or is collected or enforced through
any legal proceeding;
(ii) an attorney is retained to represent Bank in any
bankruptcy, reorganization, receivership, or other
proceedings affecting creditors' rights and involving
a claim under this Agreement, the Note or any Loan
Document; or
(iii) an attorney is retained to represent Bank in any
other proceedings whatsoever in connection with a
default by Guarantor under this Agreement, or by
Borrower or any other Loan Party in connection with
the Loan or any of the other Loan Documents,;
then Guarantor shall pay to Bank upon demand all reasonable attorneys' fees,
costs and expenses, including without limitation, court costs, filing fees,
recording costs, expenses of foreclosure, title insurance premiums, minutes of
foreclosure and all other costs and expense incurred in connection therewith
(all of which are referred to herein as "ENFORCEMENT COSTS"), in addition to
all other amounts due hereunder. Any such amount not paid on demand shall bear
interest at the lesser of (i) the Highest Lawful Rate and (ii) the Default
Rate.
14. Governing Law. THIS AGREEMENT HAS BEEN DELIVERED FOR
ACCEPTANCE BY BANK IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
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<PAGE> 7
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. TO THE EXTENT PERMITTED
BY APPLICABLE LAW GUARANTOR HEREBY (a) IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
AGREEMENT; (b) IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (c) AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (d) AGREES NOT TO
INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST BANK OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR
IMPAIR BANK'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
BANK'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR GUARANTOR'S
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
15. Service of Process. Guarantor hereby irrevocably appoints and
designates CT Corporation System, Inc., 208 S. LaSalle Street, Chicago, IL
60604 as its true and lawful attorney-in-fact and duly authorized agent for
service of legal process and agrees that service of such process upon such
agent and attorney-in- fact shall constitute personal service of such process
upon Guarantor.
16. Representation by Counsel. Guarantor hereby represents that
it has been represented by competent counsel of its choice in the negotiation
and execution of this Agreement and the other Loan Documents; that it has read
and fully understood the terms hereof; Guarantor and its counsel have been
afforded an opportunity to review, negotiate and modify the terms of this
Agreement, and that it intends to be bound hereby. In accordance with the
foregoing, the general rule of construction to the effect that any ambiguities
in a contract are to be resolved against the party drafting the contract shall
not be employed in the construction and interpretation of this Agreement.
17. Release of Bank. Guarantor releases Bank from any and all
causes of action or claims which Guarantor may now or hereafter have for any
asserted loss or damage to Guarantor claimed to be caused by or arising from
any act or omission to act on the part of Bank, its officers, agents or
employees, except for Bank's willful misconduct, gross negligence or
intentional breach of any Loan Document.
18. Counterparts. This Agreement and the other Loan Documents may
be executed in any number of counterparts, and by the different parties hereto
and thereto on the same or separate counterparts, each of which when so
executed and delivered shall be deemed to be an original; all the counterparts
for each such Loan Document shall together constitute one and the same
agreement.
7
<PAGE> 8
19. Fax Execution. For purposes of negotiating and finalizing
this Agreement (including any subsequent amendments thereto), any signed
document transmitted by facsimile machine ("FAX") shall be treated in all
manner and respects as an original document. The signature of any party by FAX
shall be considered for these purposes as an original signature. Any such FAX
document shall be considered to have the same binding legal effect as an
original document, provided that an original of the faxed document was mailed
by first class U.S. Mail or personally delivered to the recipient, on the date
of its transmission with proof of the fax transmission. At the request of
either party, any FAX document subject to this Agreement shall be re-executed
by both parties in an original form. The undersigned parties hereby agree that
neither shall raise the use of the FAX or the fact that any signature or
document was transmitted or communicated through the use of a FAX as a defense
to the formation of this Agreement.
20. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the Bank, Guarantor and their respective successors and assigns
(except as otherwise expressly provided herein) and nothing contained herein
shall be deemed to confer upon any Person other than Guarantor and its
successors and assigns any right to insist on or to enforce the performance or
observance of any of the obligations contained herein. All conditions to the
obligations of the Bank are imposed solely and exclusively for the benefit of
the Bank and its respective successors and assigns and no other Person shall
have standing to require satisfaction of such conditions in accordance with
their terms and no other Persons shall under any circumstances be deemed to be
a beneficiary of such conditions.
21. Severability. If any provision (in whole or in part) of this
Agreement or the application thereof to any person or circumstance is held
invalid or unenforceable, then such provision shall be deemed modified,
restricted, or reformulated to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement
and this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
as so modified, restricted, or reformulated or as if such provision had not
been originally incorporated herein or therein, as the case may be. The
parties further agree to seek a lawful substitute for any provision found to be
unlawful. If such modification, restriction or reformulation is not reasonably
possible, the remainder of this Agreement and the application of such provision
to other persons or circumstances will not be affected thereby and the
provisions of this Agreement shall be severable in any such instance.
22. Notices. Any and all notices given in connection with this
Agreement shall be deemed adequately given only if in writing (which term, for
all purposes of this Agreement and the other Loan Documents, shall include
telecopy) and addressed to the party for whom such notices are intended at the
address set forth below. All notices shall be sent by personal delivery,
Federal Express or other over-night messenger service, first class registered
or certified mail, postage prepaid, return receipt requested or by other means
at least as fast and reliable as first class mail. A written notice shall be
deemed to have been given to the recipient party on the earlier of (a) the date
it shall be delivered to the address required by this Agreement; (b) the date
delivery shall have been refused at the
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<PAGE> 9
address required by this Agreement; or (c) with respect to notices sent by
mail, the date as of which the postal service shall have indicated such notice
to be undeliverable at the address required by this Agreement. Any and all
notices referred to in this Agreement, or which either party desires to give to
the other, shall be addressed as follows:
IF TO GUARANTOR: J-Hawk Corporation
6400 Imperial Drive
P.O. Box 8216
Waco, Texas 76714-8216
Fax: 254/751-7648
Attn: James C. Holmes
WITH A COPY TO: Vander Woude & Istre, P.C.
510 N. Valley Mills Drive
Suite 308
Waco, Texas 76710
Attn: Richard Vander Woude, Esq.
Telecopy: 254-751-7725
IF TO BANK: Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Attn: Loans Administration
Telecopy: 212-557-9460
WITH A COPY TO: Sachnoff & Weaver, Ltd.
Suite 2900
30 South Wacker Drive
Chicago, Illinois 60606
Attn: Frank Ballantine, Esq.
Telecopy: 312-207-6400
and to
Bank of Scotland
Chicago Representative Office
181 West Madison Street
Suite 3525
Chicago, Illinois 60602
Attn: James Halley
Telecopy: 312-263-1143
The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.
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<PAGE> 10
23. Waiver/Modification. No waiver of any provision of this
Agreement, nor consent to any departure by the Guarantor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Guarantor and Bank, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. This
Agreement may not be modified, altered or amended except by an agreement in
writing signed by Guarantor and Bank. Guarantor may not sell, assign or
transfer this Agreement or any portion hereof, including, without limitation,
Guarantor's rights, titles, interests, remedies, powers and/or duties
hereunder or thereunder. Guarantor hereby consents to Bank's sale, assignment,
transfer or other disposition, at any time and from time to time hereafter, of
this Agreement, or of any portion hereof or participation herein, including,
without limitation, Bank's rights, titles, interests, remedies, powers and/or
duties.
24. Incorporation of Other Agreements. The provisions of the
Other Agreements are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in this Agreement and except as otherwise provided
in the Other Agreements by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in the Other Agreements or the other
Loan Documents, Bank shall have the right to elect, in its reasonable
discretion, which provision shall govern and control. Except to the extent
provided to the contrary in this Agreement and in the other Loan Documents, no
termination or cancellation (regardless of cause or procedure) of this
Agreement or the other Loan Documents shall in any way affect or impair the
powers, obligations, duties, rights and liabilities of Borrower or Bank in any
way or respect relating to: (a) any transaction or event occurring prior to
such termination or cancellation, and/or (b) any of the undertakings,
agreements, covenants, warranties and representations of Borrower contained in
this Agreement or the other Loan Documents. All such undertakings, agreements,
covenants, warranties and representations shall survive such termination or
cancellation.
25. Successors or Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of Guarantor and Bank;
without limiting the generality of the foregoing, it is understood and agreed
that the obligations of Guarantor hereunder shall continue even if it should
transfer or otherwise dispose of any of its direct equity or other interests in
Borrower. The term "Borrower" will mean both the named Borrower and any other
person or entity at any time assuming or otherwise becoming primarily liable on
all or any part of the Indebtedness.
26. Headings. The descriptive headings used in this Agreement are
for convenience only and shall not be deemed to affect the meaning or
construction of any provision hereof.
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<PAGE> 11
27. Texas Language.
(a) THIS WRITTEN AGREEMENT (TOGETHER WITH THE OTHER LOAN
DOCUMENTS) REPRESENTS THE FINAL AGREEMENT BETWEEN AND AMONG THE PARTIES HERETO
WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
(b) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR
AMONG THE PARTIES HERETO.
28. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW,
GUARANTOR AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER AGREEMENTS OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. GUARANTOR HEREBY
EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR BANK TO
MAKE THE LOAN.
29. Domicile of Loans. Bank may make, maintain or transfer any of
its Loans under the Loan Documents to, or for the account of, any branch
office, subsidiary or affiliate of Bank.
* * * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Guaranty Agreement as of the date first above written.
J-HAWK CORPORATION
By /s/ JAMES C. HOLMES
------------------------------------
Name: James C. Holmes
Title: Senior Vice President
BANK OF SCOTLAND
By /s/ ANNIE CHIN TAT
------------------------------------
Name: Annie Chin Tat
Title: Vice President
AGREED TO:
J-HAWK INTERNATIONAL CORPORATION
By /s/ JAMES C. HOLMES
----------------------------
Name: James C. Holmes
Title: Senior Vice President
12
<PAGE>
EXHIBIT 10.18
GUARANTY AGREEMENT
FIRSTCITY FINANCIAL CORPORATION
This GUARANTY AGREEMENT (this "AGREEMENT"), is made as of September
25, 1997 by FirstCity Financial Corporation, a corporation incorporated under
the laws of Delaware (the "GUARANTOR"), in favor of Bank of Scotland ("BANK").
RECITALS
A. J-Hawk International Corporation ("BORROWER") has requested
Lender to make advances to Borrower pursuant to a revolving credit facility to
be funded in French Francs, the maximum principal amount of which shall be
60,000,000 French Francs (the "LOAN").
B. To evidence and secure the Loan, Borrower has executed and
delivered to Bank that certain Loan Agreement dated even date herewith (said
agreement, as such agreement may be extended, amended, restated, modified,
supplemented or replaced, the "LOAN AGREEMENT"). The Loan is further evidenced
by a promissory note dated even date herewith having a maximum principal amount
of 60,000,000 French Francs (said note, together with any amendments,
restatements, modifications, supplements, replacements or extensions thereof
and any notes issued in substitution or exchange therefor, being hereinafter
collectively referred to as the "NOTE"). The Note, and the Loan Agreement,
together with all other documents, agreements, instruments, notes, loan
agreements, security agreements, assignments, certificates, indemnifications,
guarantees, pledges, consents, contracts, notices, financing statements,
hypothecation agreements, collateral assignments, assignments, mortgages and
chattel mortgages given to evidence or secure the indebtedness evidenced by the
Note and all other written matter and all amendments, modifications,
supplements, extensions and restatements thereof and thereto, or delivered in
substitution therefor or in lieu thereof, whether heretofore, now or hereafter
executed by or on behalf of Borrower, Guarantor, any one or more of them, or
any other person or entity, delivered to Bank or any participant with respect
to the Loan are collectively referred to herein as the "LOAN DOCUMENTS." All
terms defined in the Loan Agreement and used herein without definition shall
have the meanings provided therefor in the Loan Agreement, except where the
context otherwise requires.
C. It is a condition precedent to Lender's obligation to make
the Loan that Guarantor enter into this guaranty of payment and performance of
all obligations and liabilities of Borrower to Bank under the Loan Documents.
D. Guarantor is the sole shareholder of J-Hawk Corporation, a
Texas corporation, which is the sole shareholder of Borrower.
E. Guarantor has a financial interest in Borrower and will
receive a material financial benefit if Lender makes the Loan to Borrower and
Guarantor has agreed to
<PAGE> 2
execute and deliver this Agreement. As used herein the term "LOAN PARTY" shall
mean any one or more of Borrower, Guarantor, J-Hawk Corporation and any other
person or entity which is a party to the Loan Documents, other than Bank.
NOW, THEREFORE, FOR VALUE RECEIVED, in consideration of the foregoing
Recitals, each of which are an integral part hereof, and this Agreement shall
be construed in light thereof, and in consideration of Bank making the Loan to
Borrower and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Guarantor agrees as follows:
1. Guaranty.
(a) Guarantor absolutely, unconditionally and irrevocably
guarantees, as a principal obligor and not as a surety, to Bank: (i) the full
and prompt payment when due, whether at stated maturity, upon acceleration or
otherwise, and at all times thereafter, of any and all debts, liabilities, and
obligations for the payment of principal, interest, penalties, fees, charges
and any other amounts due under the Note and all other Loan Documents,
including but not limited to any amounts due from Borrower to Bank in
connection with any indemnification by Borrower of Bank; (ii) the payment of
all Enforcement Costs (as hereinafter defined); and (iii) the full, complete
and punctual observance, performance and satisfaction of the obligations,
duties and agreements of Borrower under the Note and all other Loan Documents
(the "OBLIGATIONS"). All amounts due, debts, liabilities and payment
obligations described in subsections (i), (ii) and (iii) of this Section 1 are
referred to herein as the "INDEBTEDNESS".
(b) Guarantor agrees, on demand by Bank, to pay the
Indebtedness and to perform all Obligations of Borrower regardless of any
defense, right of set-off or claims which Borrower, Guarantor or any other
party under the Loan Documents may have against Bank.
(c) THIS IS AN ABSOLUTE, IRREVOCABLE, PRESENT AND
CONTINUING GUARANTY OF PAYMENT OF THE INDEBTEDNESS AND PERFORMANCE OF THE
OBLIGATIONS AND NOT OF COLLECTION.
2. Rights of Bank. Guarantor authorizes Bank at any time in its
discretion (subject only to the consent of Borrower where the relevant Loan
Document specifically provides for such consent) to alter any of the terms of
the Indebtedness, to take and hold any security for the Indebtedness and to
accept additional or substituted security, to subordinate, compromise or
release any security, to release Borrower or any other party of its liability
for all or any part of the Indebtedness, to release, substitute or add any one
or more guarantors or endorsers, and to assign this Agreement in whole or in
part. Any modifications, renewals and extensions of the Indebtedness may be
made at any time by Bank, before or after any termination of this Agreement,
and Guarantor shall be fully liable for any such modifications, renewals or
extensions. Bank may take any of the foregoing actions upon any terms and
conditions as it may elect, without giving notice to Guarantor or obtaining the
consent of Guarantor and without affecting the liability of Guarantor to Bank.
2
<PAGE> 3
3. Independent Obligations.
(a) The obligations of Guarantor hereunder are
independent of the obligations of Borrower and any other Loan Party and a
separate action or actions may be brought or prosecuted against Guarantor,
whether any action is brought against Borrower or any other Loan Party or
whether Borrower or any other Loan Party is joined in any action or actions. In
any action to enforce this Agreement, Bank, at its election, may proceed
against Guarantor, with or without: (i) joining Borrower or any other Loan
Party in any such action; (ii) commencing any action against or obtaining any
judgment against Borrower or any other Loan Party; or (iii) commencing any
proceeding to enforce the Note; provided however, nothing herein contained
shall preclude Bank from suing on the Note or foreclosing any lien granted in
any Loan Document or from exercising any other rights, remedies or power under
any Loan Document, and if such foreclosure or other rights, powers or remedies
are availed of, only the net proceeds therefrom, after deduction of all charges
and expenses of every kind and nature whatsoever, shall be applied in reduction
of the Indebtedness and the Obligations. Bank shall not be required to
institute or prosecute proceedings to recover any deficiency as a condition of
any payment hereunder or enforcement hereof. Nevertheless, in the event Bank
elects to pursue its remedies under any one or more of the other Loan Documents
and thereafter a deficiency exists, Guarantor hereby further promises and
agrees to immediately pay to Bank the amount of such deficiency.
(b) Bank's rights under this Agreement will not be
exhausted by any action or inaction by Bank until all of the Indebtedness has
been indefeasibly paid in full. Any statute of limitations which is tolled as
to Borrower by reason of any payment by Borrower or other circumstance shall
operate to toll the statute of limitations as to Guarantor.
(c) The liability of Guarantor hereunder is not affected
or impaired by any direction or application of payment by Borrower or by any
other party, or by any other guarantee or undertaking of Guarantor or any other
party as to the Indebtedness of Borrower, by any payment on, or in reduction
of, any such other guarantee or undertaking, by the termination, revocation or
release of any obligations hereunder or of any other guarantor, or by any
payment made to Bank on the Indebtedness which Bank repays to Borrower or any
other guarantor or other person or entity pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, or any other fact or circumstance which would excuse the obligation
of a guarantor or surety, and Guarantor waives any right to the deferral or
modification of Guarantor's obligations hereunder by reason of any such
proceeding, fact or circumstance. This Agreement shall continue to be
effective in accordance with its terms, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of or with respect to any of the
Indebtedness is rescinded or must otherwise be restored or returned by Bank
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or any other payor thereof, or upon or as a result of the appointment
of a receiver, intervenor or conservator
3
<PAGE> 4
of, or trustee or similar officer for, Borrower or any other payor thereof or
any substantial part of its property, or otherwise, all as though such payments
had not been made.
4. Representations and Warranties. Guarantor represents,
warrants and agrees (which representations, warranties and agreements shall
survive Guarantor's execution of this Agreement) that this Agreement is in
proper legal form under the laws of Guarantor's jurisdiction of incorporation
and principal location for enforcement thereof against Guarantor.
5. Waivers of Defenses. Guarantor waives, to the fullest extent
permitted by law: (a) all statutes of limitation as to the Indebtedness, this
Agreement or otherwise as a defense to any action brought against Guarantor by
Bank; (b) any defense based upon any legal disability of Borrower or any
discharge or limitation of the liability of Borrower to Bank, whether
consensual or arising by operation of law or any bankruptcy, insolvency, or
debtor-relief proceeding, or from any other cause; (c) presentment, demand,
protest and notice of any kind; (d) any defense (other than the defense of
indefeasible payment or indefeasible satisfaction) based upon or arising out of
any defense which Borrower may have to the payment or performance of any part
of the Indebtedness; (e) any defense based upon any disbursements by Bank to
Borrower pursuant to any agreements or instruments governing or securing the
Indebtedness whether same be deemed an additional advance or be deemed to be
paid out of any special interest or other fund accounts, as constituting
unauthorized payments hereunder or amounts not guaranteed by this Agreement;
(f) all rights to participate in any security held by Bank for the
Indebtedness; (g) irregularity or unenforceability of any agreement or
instrument representing or governing or securing the Indebtedness; (h) any
request that Bank be diligent or prompt in making demands hereunder or under
any agreement or instrument representing or governing or securing the
Indebtedness; and (i) any other defense in law or equity (other than the
defense that the indebtedness has been indefeasibly paid in full), until the
Indebtedness has been indefeasibly paid in full.
6. Borrower's Authority and Financial Condition. It is not
necessary for Bank to inquire into the capacity or powers of Borrower or the
officers, directors, partners or agents acting or purporting to act on
Borrower's behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder. Guarantor
assumes full responsibility for keeping fully informed of the financial
condition of Borrower and all other circumstances affecting Borrower's ability
to perform its obligations to Bank, and agrees that Bank will have no duty to
report to Guarantor any information which Bank either receives about Borrower's
financial condition or any circumstances bearing on its ability to perform, and
expressly waives any right to receive such information and any defense based
upon failure to receive such information.
7. Waiver of Subrogation. Irrespective of any payment by
Guarantor to Bank pursuant to this Agreement, Guarantor will not be subrogated
in place of and to the claims and demands of Bank nor will Guarantor have any
right to participate in any security or lien now or hereafter held by or on
behalf of Bank against Borrower or any other guarantor
4
<PAGE> 5
or any collateral which Bank now has or hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law (including, without limitation, the right to take or receive from Borrower,
directly or indirectly, in cash or other property or by setoff or in any other
manner, payment or security on account of such claim or other rights), until
(x) the Indebtedness has been indefeasibly paid in full and (y) final
indefeasible payment and satisfaction of all claims and demands due to Bank
hereunder. If any amount shall be paid to Guarantor in violation of the
preceding sentence and the Indebtedness shall not have been paid in full, such
amount shall be deemed to have been paid to Guarantor for the benefit of, and
held in trust for the benefit of, Bank and shall forthwith be paid to Bank to
be credited and applied against the Indebtedness, whether matured or unmatured,
in accordance with the terms of the Indebtedness. Guarantor acknowledges that
it will receive direct and indirect benefits from the financial accommodations
extended by Bank to Borrower and that the waiver set forth in this paragraph is
knowingly made in contemplation of such benefits.
8. Right of Setoff. In addition to all rights of setoff or lien
against any moneys, securities or other property of Guarantor given to Bank by
law, upon the occurrence of any default under any agreement or instrument
governing any of the Indebtedness or under this Agreement, Bank is authorized
at any time and from time to time, without notice to Guarantor or to any other
person or entity, any such notice being hereby expressly waived, to setoff and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by Bank to or for the credit or the account of Guarantor
against and on account of the obligations of Guarantor under this Agreement,
irrespective of whether or not Bank shall have made any demand hereunder or any
demand for payment of any Indebtedness and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
9. Default. Bank may declare Guarantor in default under this
Agreement, and may exercise all of its rights hereunder and demand payment of
the aggregate outstanding principal amount of all Indebtedness, if Guarantor
fails or neglects to perform, keep or observe any of its obligations under this
Agreement or any other Loan Document to which Guarantor is a party and the same
is not cured within thirty (30) days after Lender gives Borrower notice of such
default or if Guarantor becomes the subject of any bankruptcy, insolvency,
arrangement, reorganization, moratorium, or other debtor-relief proceeding
under any law, whether now existing or hereafter enacted, or upon the
appointment of a receiver for, or the attachment, restraint of or making or
levying of any order of any court or legal process affecting, the property of
Guarantor.
10. Costs and Expenses. In addition to the amounts guaranteed
hereunder, Guarantor agrees to pay Bank's reasonable out-of-pocket costs and
expenses, including but not limited to legal fees and disbursements, incurred
in any effort to collect or enforce this Agreement or any other Loan Document,
whether or not any lawsuit is filed. Until paid to Bank, such sums (and any
other amounts payable under this Agreement that are not paid when due) will
bear interest at the lesser of (i) the Highest Lawful Rate or (ii) the Default
Rate.
5
<PAGE> 6
11. Delay; Cumulative Remedies. No delay or failure by Bank to
exercise any right or remedy against, or to require performance by, Borrower or
Guarantor or any other party shall be construed as a waiver of that right,
remedy or requirement, and all such powers of Bank shall remain in full force
and effect, until specifically waived or released by an instrument in writing
executed by Bank. All remedies of Bank against Borrower and Guarantor are
cumulative.
12. Subordination. Guarantor agrees that any and all indebtedness
or claims it may have against Borrower, whether such claims are in connection
with this Agreement, the Indebtedness, or are completely independent of this
Agreement and the Indebtedness, will be subordinate to the claims of Bank under
this Agreement, the Loan Documents and all Indebtedness guaranteed hereby, and
that Guarantor will not assert any such claim against Borrower until all
Indebtedness to Bank has been indefeasibly paid in full. Notwithstanding such
subordination, and without affecting or impairing in any manner the liability
of Guarantor under the other provisions of this Agreement, any Indebtedness of
Borrower to Guarantor, if Bank so requests, shall be collected, enforced and
received by Guarantor as trustee for Bank and paid over to Bank on account of
the Indebtedness of Borrower to Bank.
13. Enforcement Costs: If:
(i) this Agreement, the Note or any other Loan Document
is placed in the hands of an attorney for collection
or enforcement or is collected or enforced through
any legal proceeding;
(ii) an attorney is retained to represent Bank in any
bankruptcy, reorganization, receivership, or other
proceedings affecting creditors' rights and involving
a claim under this Agreement, the Note or any Loan
Document; or
(iii) an attorney is retained to represent Bank in any
other proceedings whatsoever in connection with a
default by Guarantor under this Agreement, or by
Borrower or any other Loan Party in connection with
the Loan or any of the other Loan Documents,;
then Guarantor shall pay to Bank upon demand all reasonable attorneys' fees,
costs and expenses, including without limitation, court costs, filing fees,
recording costs, expenses of foreclosure, title insurance premiums, minutes of
foreclosure and all other costs and expense incurred in connection therewith
(all of which are referred to herein as "ENFORCEMENT COSTS"), in addition to
all other amounts due hereunder. Any such amount not paid on demand shall bear
interest at the lesser of (i) the Highest Lawful Rate and (ii) the Default
Rate.
14. Governing Law. THIS AGREEMENT HAS BEEN DELIVERED FOR
ACCEPTANCE BY BANK IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
6
<PAGE> 7
CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. TO THE EXTENT PERMITTED
BY APPLICABLE LAW GUARANTOR HEREBY (a) IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
AGREEMENT; (b) IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (c) AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (d) AGREES NOT TO
INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST BANK OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR
IMPAIR BANK'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR
BANK'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST GUARANTOR OR GUARANTOR'S
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
15. Service of Process. Guarantor hereby irrevocably appoints and
designates CT Corporation System, Inc., 208 S. LaSalle Street, Chicago, IL
60604 as its true and lawful attorney-in-fact and duly authorized agent for
service of legal process and agrees that service of such process upon such
agent and attorney-in- fact shall constitute personal service of such process
upon Guarantor.
16. Representation by Counsel. Guarantor hereby represents that
it has been represented by competent counsel of its choice in the negotiation
and execution of this Agreement and the other Loan Documents; that it has read
and fully understood the terms hereof; Guarantor and its counsel have been
afforded an opportunity to review, negotiate and modify the terms of this
Agreement, and that it intends to be bound hereby. In accordance with the
foregoing, the general rule of construction to the effect that any ambiguities
in a contract are to be resolved against the party drafting the contract shall
not be employed in the construction and interpretation of this Agreement.
17. Release of Bank. Guarantor releases Bank from any and all
causes of action or claims which Guarantor may now or hereafter have for any
asserted loss or damage to Guarantor claimed to be caused by or arising from
any act or omission to act on the part of Bank, its officers, agents or
employees, except for Bank's willful misconduct, gross negligence or
intentional breach of any Loan Document.
18. Counterparts. This Agreement and the other Loan Documents may
be executed in any number of counterparts, and by the different parties hereto
and thereto on the same or separate counterparts, each of which when so
executed and delivered shall be deemed to be an original; all the counterparts
for each such Loan Document shall together constitute one and the same
agreement.
7
<PAGE> 8
19. Fax Execution. For purposes of negotiating and finalizing
this Agreement (including any subsequent amendments thereto), any signed
document transmitted by facsimile machine ("FAX") shall be treated in all
manner and respects as an original document. The signature of any party by FAX
shall be considered for these purposes as an original signature. Any such FAX
document shall be considered to have the same binding legal effect as an
original document, provided that an original of the faxed document was mailed
by first class U.S. Mail or personally delivered to the recipient, on the date
of its transmission with proof of the fax transmission. At the request of
either party, any FAX document subject to this Agreement shall be re-executed
by both parties in an original form. The undersigned parties hereby agree that
neither shall raise the use of the FAX or the fact that any signature or
document was transmitted or communicated through the use of a FAX as a defense
to the formation of this Agreement.
20. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the Bank, Guarantor and their respective successors and assigns
(except as otherwise expressly provided herein) and nothing contained herein
shall be deemed to confer upon any Person other than Guarantor and its
successors and assigns any right to insist on or to enforce the performance or
observance of any of the obligations contained herein. All conditions to the
obligations of the Bank are imposed solely and exclusively for the benefit of
the Bank and its respective successors and assigns and no other Person shall
have standing to require satisfaction of such conditions in accordance with
their terms and no other Persons shall under any circumstances be deemed to be
a beneficiary of such conditions.
21. Severability. If any provision (in whole or in part) of this
Agreement or the application thereof to any person or circumstance is held
invalid or unenforceable, then such provision shall be deemed modified,
restricted, or reformulated to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement
and this Agreement shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
as so modified, restricted, or reformulated or as if such provision had not
been originally incorporated herein or therein, as the case may be. The
parties further agree to seek a lawful substitute for any provision found to be
unlawful. If such modification, restriction or reformulation is not reasonably
possible, the remainder of this Agreement and the application of such provision
to other persons or circumstances will not be affected thereby and the
provisions of this Agreement shall be severable in any such instance.
22. Notices. Any and all notices given in connection with this
Agreement shall be deemed adequately given only if in writing (which term, for
all purposes of this Agreement and the other Loan Documents, shall include
telecopy) and addressed to the party for whom such notices are intended at the
address set forth below. All notices shall be sent by personal delivery,
Federal Express or other over-night messenger service, first class registered
or certified mail, postage prepaid, return receipt requested or by other means
at least as fast and reliable as first class mail. A written notice shall be
deemed to have been given to the recipient party on the earlier of (a) the date
it shall be delivered to the address required by this Agreement; (b) the date
delivery shall have been refused at the
8
<PAGE> 9
address required by this Agreement; or (c) with respect to notices sent by
mail, the date as of which the postal service shall have indicated such notice
to be undeliverable at the address required by this Agreement. Any and all
notices referred to in this Agreement, or which either party desires to give to
the other, shall be addressed as follows:
IF TO GUARANTOR: FirstCity Financial Corporation
6400 Imperial Drive
P.O. Box 8216
Waco, Texas 76714-8216
Fax: 254/751-7648
Attn: James C. Holmes
WITH A COPY TO: Vander Woude & Istre, P.C.
510 N. Valley Mills Drive
Suite 308
Waco, Texas 76710
Attn: Richard Vander Woude, Esq.
Telecopy: 254-751-7725
IF TO BANK: Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Attn: Loans Administration
Telecopy: 212-557-9460
WITH A COPY TO: Sachnoff & Weaver, Ltd.
Suite 2900
30 South Wacker Drive
Chicago, Illinois 60606
Attn: Frank Ballantine, Esq.
Telecopy: 312-207-6400
and to
Bank of Scotland
Chicago Representative Office
181 West Madison Street
Suite 3525
Chicago, Illinois 60602
Attn: James Halley
Telecopy: 312-263-1143
The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.
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<PAGE> 10
23. Waiver/Modification. No waiver of any provision of this
Agreement, nor consent to any departure by the Guarantor herefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Guarantor and Bank, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. This
Agreement may not be modified, altered or amended except by an agreement in
writing signed by Guarantor and Bank. Guarantor may not sell, assign or
transfer this Agreement or any portion hereof, including, without limitation,
Guarantor's rights, titles, interests, remedies, powers and/or duties
hereunder or thereunder. Guarantor hereby consents to Bank's sale, assignment,
transfer or other disposition, at any time and from time to time hereafter, of
this Agreement, or of any portion hereof or participation herein, including,
without limitation, Bank's rights, titles, interests, remedies, powers and/or
duties.
24. Incorporation of Other Agreements. The provisions of the
Other Agreements are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in this Agreement and except as otherwise provided
in the Other Agreements by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in the Other Agreements or the other
Loan Documents, Bank shall have the right to elect, in its reasonable
discretion, which provision shall govern and control. Except to the extent
provided to the contrary in this Agreement and in the other Loan Documents, no
termination or cancellation (regardless of cause or procedure) of this
Agreement or the other Loan Documents shall in any way affect or impair the
powers, obligations, duties, rights and liabilities of Borrower or Bank in any
way or respect relating to: (a) any transaction or event occurring prior to
such termination or cancellation, and/or (b) any of the undertakings,
agreements, covenants, warranties and representations of Borrower contained in
this Agreement or the other Loan Documents. All such undertakings, agreements,
covenants, warranties and representations shall survive such termination or
cancellation.
25. Successors or Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of Guarantor and Bank;
without limiting the generality of the foregoing, it is understood and agreed
that the obligations of Guarantor hereunder shall continue even if it should
transfer or otherwise dispose of any of its direct equity or other interests in
Borrower. The term "Borrower" will mean both the named Borrower and any other
person or entity at any time assuming or otherwise becoming primarily liable on
all or any part of the Indebtedness.
26. Headings. The descriptive headings used in this Agreement are
for convenience only and shall not be deemed to affect the meaning or
construction of any provision hereof.
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<PAGE> 11
27. Texas Language.
(a) THIS WRITTEN AGREEMENT (TOGETHER WITH THE OTHER LOAN
DOCUMENTS) REPRESENTS THE FINAL AGREEMENT BETWEEN AND AMONG THE PARTIES HERETO
WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
(b) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR
AMONG THE PARTIES HERETO.
28. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY LAW,
GUARANTOR AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER AGREEMENTS OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. GUARANTOR HEREBY
EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR BANK TO
MAKE THE LOAN.
29. Domicile of Loans. Bank may make, maintain or transfer any of
its Loans under the Loan Documents to, or for the account of, any branch
office, subsidiary or affiliate of Bank.
* * * * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Guaranty Agreement as of the date first above written.
FIRSTCITY FINANCIAL CORPORATION
By /s/ JAMES C. HOLMES
----------------------------
Name: James C. Holmes
Title: Senior Vice President
BANK OF SCOTLAND
By /s/ ANNIE CHIN TAT
----------------------------
Name: Annie Chin Tat
Title: Vice President
AGREED TO:
J-HAWK INTERNATIONAL CORPORATION
By /s/ JAMES C. HOLMES
----------------------------
Name: James C. Holmes
Title: Senior Vice President
12
<PAGE>
EXHIBIT 10.19
================================================================================
CONTITRADE SERVICES L.L.C.
____________________
WAREHOUSE CREDIT AGREEMENT
dated as of May 17, 1996
____________________
NATIONAL AUTO FUNDING CORPORATION
N.A.F. AUTO LOAN TRUST
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. AMOUNT AND TERMS OF LENDER FUNDING COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Lender Funding Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Availability of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Principal Payments on the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Security and Collateral Agent Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Deposits to Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Representations and Warranties of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Representations and Warranties of NAF Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Conditions to Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Conditions to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5. RELEASE OF LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 Inspection of Property; Books and Records; Discussions; Audit Reports . . . . . . . . . . . . . . 19
6.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Delivery of Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<TABLE>
<S> <C>
6.10 Approval of New FIs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.12 Cooperation in Making Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.13 Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.14 Additional Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.15 Minimum Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.16 Underwriting and Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Limitation on Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Sale, Transfer or Encumbrance of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.6 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Limitation on Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8 Limitation on Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.10 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.11 Trust Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.12 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.13 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.14 Activities of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.15 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.16 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.17 Lock-Box Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.18 Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.19 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.20 No Commingling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.21 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.22 Amendment of Facility Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.23 Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.24 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 8. REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.4 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.6 Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.7 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Integration; Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.11 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13 SUBMISSION TO JURISDICTION; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.14 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.15 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
SCHEDULES
Schedule I - List of Documents
EXHIBITS
Exhibit A - Definition List
Exhibit B - Form of Promissory Note
Exhibit C - Notice of Borrowing
<PAGE> 5
WAREHOUSE CREDIT AGREEMENT
WAREHOUSE CREDIT AGREEMENT, dated as of May 17, 1996 (the
"Credit Agreement"), by and between CONTITRADE SERVICES L.L.C., a Delaware
limited liability company ("Lender"), N.A.F. Auto Loan Trust, a Delaware
business trust ("Borrower") and National Auto Funding Corporation, a Texas
corporation ("NAF Corp." and together with the Borrower, the "NAF Entities").
W I T N E S S E T H:
WHEREAS, Borrower desires to purchase certain Contracts from
time to time; and
WHEREAS, Borrower has requested that Lender make the Loans
to Borrower, the proceeds of which shall be used to purchase Contracts; and
WHEREAS, as security for its obligations under this Credit
Agreement, Borrower shall pledge the Collateral; and
WHEREAS, there is also being executed and delivered in
connection with this Agreement a Funding Commitment dated as of May 17, 1996
(the "Funding Commitment") by and between FirstCity Financial Corporation
("FirstCity") and the Lender and an Investment Banking Services Agreement dated
as of May 17, 1996 (the "IBSA") between NAF Corp. and ContiFinancial Services
Corporation ("ContiFinancial"); and
WHEREAS, subject to the terms and conditions set forth
herein, Lender is willing to make the Loans to Borrower.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. (a) As used in this Credit
Agreement, the Funding Commitment, the Promissory Note, the Servicing
Agreement, the Security and Collateral Agent Agreement, the Paying Agent
Agreement, the IBSA or any certificate or other document made or delivered
pursuant hereto or thereto (collectively, the "Facility Agreements"), the
capitalized terms used herein and therein shall, unless otherwise defined
herein or therein, have the meanings assigned to them in the Definitions List
dated as of the date hereof that refers to this Credit Agreement, which is
incorporated herein by reference and attached as Exhibit A hereto (the
"Definitions List").
(b) As used herein or in any other Facility Agreement,
accounting terms not defined in the Definitions List and accounting terms
partly defined in the Definitions List to the extent not defined shall have the
respective meanings given to them under GAAP.
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(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Credit Agreement shall refer to this
Credit Agreement as a whole and not to any particular provision of this Credit
Agreement, and Section, subsection, Schedule and Exhibit references are to this
Credit Agreement unless otherwise specified.
(d) Capitalized terms used herein or in any other
Facility Agreement shall be equally applicable to both the singular and plural
forms of such terms.
SECTION 2. AMOUNT AND TERMS OF LENDER FUNDING COMMITMENT
2.1 Lender Funding Commitment. (a) Subject to the
terms and conditions hereof, Lender agrees to make revolving credit loans
(collectively, "Advances" or the "Loan", and, individually, an "Advance") to
Borrower from time to time during the Funding Commitment Period, as requested;
provided, however, that in no event shall Lender make any Advance, (x) if,
after giving effect to such Advance the Outstanding Facility Balance would
exceed either (i) the Maximum Loan Amount or (ii) the Borrowing Base or (y) an
Event of Default or an Unmatured Event of Default shall have occurred and be
continuing and not waived by Lender. Funds may be borrowed, repaid and
reborrowed on a revolving basis subject to the terms and conditions set forth
herein. The lending arrangement described herein is referred to herein as the
"Facility".
(b) The Facility will cancel automatically on the
Funding Commitment Termination Date; provided, however, that the Borrower may
request a renewal, in writing (a "Renewal Request"), not more than 120 days
prior to the Funding Commitment Termination Date; and provided, further, that
the Lender must notify the Borrower, in writing, by the later of (x) 30 days
from receipt by the Lender of the Renewal Request or (y) at least 60 days prior
to the Funding Commitment Termination Date that it has elected to renew the
Facility.
(c) If the Facility is not renewed pursuant to Section
2.1(b), Lender shall extend the Facility 60 days if no Event of Default or
Unmatured Event of Default shall have occurred and be continuing and if the
Borrower delivers to the Lender (i) a commitment letter, acceptable to the
Lender, for a replacement warehouse loan facility from a financial institution
acceptable to the Lender or (ii) a guarantee, from a party acceptable to the
Lender, of all amounts payable under the Facility.
2.2 Promissory Note. The Borrower shall, in connection
with the Facility, execute and deliver a promissory note, substantially in the
form of Exhibit B hereto (the "Promissory Note"), payable to the order of
Lender. Borrower is obligated to make payments to Lender as provided in this
Agreement whether or not Borrower has executed the Promissory Note. The actual
amount Borrower is obligated to pay the Lender shall be determined by this
Agreement and the records of the Lender, regardless of the terms of the
Promissory Note. Any Promissory Note executed in connection with the Facility
need not be amended to reflect changes made to this Agreement. The records of
the Lender shall,
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<PAGE> 7
absent demonstrable error, be conclusive evidence at any time as to the amount
of the Loan, the interest due thereon, and all other amounts owed in connection
with this Agreement with respect to the Borrower. The Promissory Note shall
(a) be dated the Closing Date, (b) be stated to mature on the Funding
Commitment Termination Date and (c) provide for the payment of interest in
accordance with Section 2.4.
2.3 Availability of Borrowings. Borrower may request an
Advance on any Business Day during the Funding Commitment Period, subject to
the provisions contained in Section 2.1, by giving Lender prior irrevocable
notice of each borrowing in the form of Exhibit C hereto ("Notice of
Borrowing") by 11:00 A.M. (New York City time) on the second Business Day prior
to a Borrowing Date which shall specify (a) the Borrowing Date for such
borrowing, (b) the Outstanding Facility Balance on such date (prior to the
making of the requested Advance), (c) the Borrowing Base applicable to such
Advance, and (d) the Available Facility Amount; provided, however, that Lender
shall not be obligated to make more than one Loan in any single calendar week.
Subject to satisfaction of the conditions precedent set forth in Section 4
hereof, the proceeds of such Advance will be made available to Borrower by
Lender by wire transfer of immediately available funds to the Collection
Account. The amount of such Advance shall be paid out from the Collection
Account as set forth in Section 2.02(a)(i) of the Paying Agent Agreement.
2.4 Interest. Interest shall accrue on the Outstanding
Facility Balance at a fluctuating rate per annum equal to LIBOR plus three
percent (3.00%) percent. Interest accrued on the Loans shall be paid monthly
in arrears on the third day of each calendar month, or if such day is not a
Business Day the next succeeding Business Day, commencing in the first calendar
month following the Closing Date (each such date, a "Payment Date"). Upon the
occurrence, and during the continuance of, an Event of Default, the Outstanding
Facility Balance shall bear interest at the rate per annum equal to LIBOR plus
seven percent (7.00%); provided, however, that no provision of this Agreement
shall require the payment or permit the collection of interest in excess of the
maximum permitted by applicable law; and provided, further, that interest shall
not be considered paid by any distribution if at any time such distribution is
rescinded or must be returned for any reason. Interest shall accrue on the
basis of a 360-day year and the actual number of days elapsed.
2.5 Principal Payments on the Loan.
(a) Other than as set forth in Section
2.01(a)(iii) of the Paying Agent Agreement, the Borrower shall prepay the Loan
with the proceeds of a Securitization to at least an extent such that the
Outstanding Facility Balance (after such prepayment) does not exceed the
Borrowing Base (after taking into account the Contracts transferred from the
Facility to the Securitization); provided, however, after completion of
Securitizations with Lender and ContiFinancial of $600,000,000, Borrower may
thereafter prepay the Loan in whole or in part from any source of funds. Any
such prepayment shall be accompanied by payment of all accrued and unpaid
interest thereon and all fees and other amounts due to the Lender hereunder
through the date of such prepayment.
(b) Borrower shall pay the Outstanding Facility
Balance, together with any accrued and unpaid interest thereon, and any other
sums due pursuant to
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<PAGE> 8
the terms hereof as set forth in Section 2.02(a)(ix) of the Paying Agent
Agreement and otherwise on or before the Funding Commitment Termination Date.
2.6 Security and Collateral Agent Agreement. The
Facility is secured pursuant to a Security and Collateral Agent Agreement,
dated as of the date hereof (the "Security and Collateral Agent Agreement"),
among the Borrower, the Lender and Texas Commerce Bank National Association, as
Collateral Agent (together with any successors thereto, the "Collateral
Agent").
2.7 Deposits to Collection Account.
(a) Borrower shall establish on or prior to the
Closing Date, a bank account in the name of the Borrower (the "Collection
Account"), bearing an additional designation clearly indicating that the funds
deposited therein are for the benefit of the Lender. The Collection Account
shall be initially established with the Paying Agent. The Collection Account
shall at all times be an Eligible Deposit Account. All amounts held in such
account shall, to the extent permitted by applicable laws, rules and
regulations, be invested by the Collateral Agent at the written direction of
the Borrower, in Permitted Investments which mature prior to the following
Payment Date, or such earlier date as may be specified by the Borrower.
Investments in Permitted Investments shall be made in the name of the Borrower,
and such investments shall not be sold or otherwise disposed of prior to their
maturity unless (x) a Securitization or an Event of Default shall have occurred
and be continuing, (y) the Lender shall have instructed the Borrower to sell or
otherwise dispose of such investments prior to their maturity or (z) as needed
to fund the disbursements listed in Section 2.02(a) of the Paying Agent
Agreement. Should the Collection Account no longer be an Eligible Deposit
Account, then the Borrower shall within 10 Business Days (or such longer
period, not to exceed 30 calendar days, as to which the Lender shall consent),
with such bank's or trust company's assistance as necessary, cause the
Collection Account to be moved to a bank or trust company such that the
Collection Account will be an Eligible Deposit Account. Investment earnings on
funds deposited in the Collection Account shall be deposited in the Collection
Account.
(b) Borrower shall cause each Lock-Box Bank to
deposit, no later than the close of business on each Business Day, all
available Collections received by each such Lock-Box Bank into the Collection
Account.
(c) All Collections received directly by the
Borrower or the Servicer shall be held by the Borrower or the Servicer, as
applicable, in trust for the benefit of the Lender. Borrower shall remit for
deposit, and shall cause the Servicer to remit for deposit, no later than the
close of business on the day received, such Collections in the Lock-Box
Account.
(d) Borrower may, from time to time, deposit
cash and/or deliver to the Paying Agent Permitted Investments to be credited to
the Collection Account.
2.8 Proceeds. The proceeds of the Loan shall be used by
Borrower solely to finance the purchase or holding of Eligible Contracts, and
to pay other amounts
4
<PAGE> 9
expressly permitted under the terms and conditions of the Facility Agreements.
2.9 Taxes. All payments made by Borrower under this
Credit Agreement and the Promissory Note shall be made free and clear of, and
without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority having taxing authority,
excluding income taxes and franchise taxes (imposed in lieu of income taxes)
imposed on Lender, as a result of any present or former connection between the
jurisdiction of the government or taxing authority imposing such tax or any
political subdivision or taxing authority thereof or therein and Lender
(excluding a connection arising solely from Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
Credit Agreement or the Promissory Note) (all such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions and withholdings being hereinafter
called "Taxes"). If any Taxes are required to be withheld from any amounts
payable to or under the Promissory Note, the amounts so payable to Lender shall
be increased to the extent necessary to yield to Lender (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Credit Agreement and the Promissory Note.
Whenever any Taxes are payable by Borrower, as promptly as possible thereafter
Borrower shall send to Lender a certified copy of an original official receipt
received by Borrower showing payment thereof. If Borrower fails to pay any
Taxes when due to the appropriate taxing authority or fails to remit to Lender
the required receipts or other required documentary evidence, Borrower shall
indemnify Lender for any incremental Taxes, interest or penalties that Lender
is legally required to pay as a result of any such failure. The agreements in
this subsection shall survive the termination of this Credit Agreement and the
payment of the Promissory Note.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Borrower. To
induce Lender to enter into this Credit Agreement and to make the Advances,
Borrower hereby represents and warrants to Lender that:
(a) Trust Existence; Compliance with Law. Borrower (i)
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (ii) has the power and authority, and the
legal right, as a Delaware business trust, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which
it is currently engaged, (iii) is duly qualified as a foreign business trust or
unincorporated association, is in good standing and has all licenses (in full
force and effect) under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification and/or licensing and (iv) is in compliance with all Requirements
of Law.
(b) Trust Power; Authorization; Enforceable Obligations.
Borrower has the power and authority, and the legal right, as a Delaware
business trust, to make, deliver and perform this Credit Agreement and the
other Facility Agreements to which it is
5
<PAGE> 10
a party and to borrow hereunder and has taken all necessary action to authorize
the borrowings on the terms and conditions of this Credit Agreement and the
other Facility Agreements to which it is a party and to authorize the
execution, delivery and performance of this Credit Agreement and the other
Facility Agreements to which it is a party. All consents or authorizations of,
filing with or other act by or in respect of, any Governmental Authority or any
other Person required to be obtained, made or given by it in connection with
the borrowings hereunder or with the execution, delivery, performance, validity
or enforceability of this Credit Agreement or the other Facility Agreements to
which it is a party have been so obtained, made or received. This Credit
Agreement and each other Facility Agreement to which it is a party has been
duly executed and delivered on behalf of Borrower. This Credit Agreement and
each other Facility Agreement to which it is a party constitutes a legal, valid
and binding obligation of Borrower enforceable against Borrower in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(c) No Legal Bar. The execution, delivery and
performance of this Credit Agreement and the other Facility Agreements, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of Borrower and will not result
in, or require, the creation or imposition of any Lien on any of its properties
or revenues pursuant to any such Requirement of Law or Contractual Obligation
other than the Lien set forth herein.
(d) No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator, court or Governmental
Authority is pending or threatened, by or against Borrower or against any of
its properties or revenues (i) with respect to this Credit Agreement or the
other Facility Agreements or any of the transactions contemplated hereby or
thereby, or (ii) which could have a material adverse effect on the business,
prospects, properties, assets, operations or condition, financial or otherwise,
of Borrower, or the ability of Borrower to perform its obligations hereunder or
under the other Facility Agreements.
(e) No Default; No Event of Default. Borrower is not in
default under or with respect to any of its Contractual Obligations in any
respect which could have a material adverse effect on the business, operations,
properties, assets, condition or prospects, financial or otherwise, of
Borrower, or on the ability of Borrower to perform its obligations hereunder or
under the other Facility Agreements. No Event of Default or Unmatured Event of
Default has occurred or is continuing.
(f) No Burdensome Restrictions. Borrower is not a party
to or subject to any Contractual Obligation (other than the Facility
Agreements) which could have a material adverse effect on the business,
properties, assets, operations, condition or prospects, financial or otherwise,
of Borrower, or on the ability of Borrower to carry out its obligations
hereunder or under the other Facility Agreements.
(g) Taxes. Borrower has filed or caused to be filed all
federal, state and other tax returns which are required to be filed by it, or
has filed extensions with respect
6
<PAGE> 11
thereto (which extensions have not expired) and has paid all taxes shown to be
due and payable on said returns or on any federal, state and other tax
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental
Authority having taxing power; no tax Lien has been filed against it, and no
claim is being asserted by any Governmental Authority with respect to any such
tax, fee or other charge.
(h) ERISA. Neither Borrower nor any ERISA Affiliate of
Borrower has participated in any Multiemployer Plan. Neither Borrower nor any
ERISA Affiliate of Borrower has maintained any Single-Employer Plan.
(i) Investment Company Act; Other Regulations. Borrower
is not an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Borrower is not subject to regulation under any federal or state statute or
regulation which limits its ability to incur Debt.
(j) Subsidiaries. Borrower has no Subsidiaries, other
than Subsidiaries formed in connection with any Securitization.
(k) Purpose of Advances. The proceeds of the Advances
shall be used by Borrower to purchase Eligible Contracts and for other purposes
expressly permitted by the Facility Agreements.
(l) No Deduction. Borrower is not required to make any
deduction or withholding from payments to be made by it to Lender under this
Credit Agreement, and the execution and performance of this Credit Agreement
and any of the other Facility Agreements does not make Borrower liable for any
registration tax, stamp duty or similar tax or duty imposed by any authority of
or within its jurisdiction of creation, which tax or duty has not been, or will
not be, paid when due.
(m) No Other Debt. Borrower has no liability in respect
of any Debt or in respect of any guarantee by Borrower of the obligations of
another under which the lender, creditor or lessor or the Person in whose favor
such guarantee is given has any right, by operation of law or otherwise, to
have any claim in respect of such obligation or guarantee satisfied out of any
assets of Borrower, other than Subordinated Debt consented to by Lender in
writing.
(n) Title; Liens. Except for the Liens granted to the
Lender pursuant to the Facility Agreements and any Subordinate Liens consented
to by the Lender in writing, Borrower owns each item of the Collateral free and
clear of any and all Liens or claims of others. No security agreement,
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as may
have been filed in favor of the Lender pursuant to the Facility Agreements.
(o) Ownership of Contracts. Each purchase by Borrower
of Contracts constitutes a valid sale of the Contracts to Borrower and creates
in favor of Borrower a
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<PAGE> 12
perfected ownership interest in and valid, legal and equitable title to such
Contracts, which ownership interest is not subject to any Lien.
(p) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to Borrower and
Borrower is not insolvent or generally unable to pay its debts as they become
due.
(q) Eligible Contracts. Each Contract is an Eligible
Contract. With respect to each such Contract, (i) no effective financing
statement, lien notation on any certificate of title or other instrument
similar in effect covering all or any part of such Contract or the security
therefor, which would give the Person filing, named on or entitled to the
benefit of such statement or instrument priority senior to or pari passu with
the Borrower, is on file in any recording office or is otherwise effective
except such as may be filed in favor of the Dealer, the related FI or the
Borrower and collaterally assigned to Lender in accordance with the Facility
Agreements; and (ii) the Vehicle, including any equipment sold and financed in
connection with such Contract, is the subject of an application for a
certificate of title to be issued in the name of the Obligor which will
indicate a security interest therein held by the Borrower or the Collateral
Agent, in the appropriate form and in compliance with all appropriate
procedures as may be necessary under applicable law to cause a perfected and
first priority security interest to exist in favor of, or for the benefit of,
the Borrower, to secure the obligations of such Obligor under such Contract;
(iii) each of the Representations and Warranties are true and correct and (iv)
it is in compliance with the Underwriting Criteria.
(r) Tangible Net Worth Requirement. The Tangible Net
Worth Requirement is met.
(s) Representations and Warranties in Facility
Agreements. The representations and warranties of the Borrower contained in
each of the Facility Agreements to which it is a party and in any document,
certificate or instrument delivered pursuant to any such Facility Agreement are
true and correct and the Lender may rely on such representations and
warranties, if not made directly to the Lender, as if such representations and
warranties were made directly to the Lender. To the best of the Borrower's
knowledge, the representations and warranties of the FIs in each of the Loan
Origination Agreements and in any document, certificate or instrument delivered
pursuant to the Loan Origination Agreements are true and correct in all
material respects and the Lender may rely on such representations and
warranties as if such representations and warranties were made directly to the
Lender, except that no such representation or warranty is made with respect to
the Loan Origination Agreement with Farmers and Mechanics Bank.
(t) Principal Place of Business. The Borrower's
principal place of business is located at 4545 Fuller Drive, Suite 101, Irving,
Texas.
3.2 Representations and Warranties of NAF Corp. To
induce Lender to enter into this Credit Agreement and to make the Loans, NAF
Corp. hereby represents and warrants to Lender that:
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(a) Financial Condition. (i) The pro forma
consolidated balance sheet of NAF Corp. as of the Closing Date and reflecting
all Closing Date transactions is complete and correct and presents fairly the
financial condition of NAF Corp. as at such date. NAF Corp. does not have any
Debt, contingent liability or liability for taxes, or any long-term lease or
unusual forward or long-term commitments, including, without limitation, any
interest rate or foreign currency swap or exchange transaction except to the
extent reflected as a liability on the balance sheet referred to above. Such
balance sheet has been prepared in accordance with GAAP.
(b) Corporate Existence; Compliance with Law. NAF Corp.
(i) is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (ii) has the power and authority, and the
legal right, as a Texas corporation, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (iii) is duly qualified as a foreign corporation, is in good
standing and has all licenses (in full force and effect) under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification and/or licensing and (iv) is in
compliance with all Requirements of Law.
(c) Corporate Power; Authorization; Enforceable
Obligations. NAF Corp. has the power and authority, and the legal right, as a
Texas corporation, to make, deliver and perform this Credit Agreement and the
other Facility Agreements to which it is a party and to borrow hereunder and
has taken all necessary action to authorize the borrowings on the terms and
conditions of this Credit Agreement and the other Facility Agreements to which
it is a party and to authorize the execution, delivery and performance of this
Credit Agreement and the other Facility Agreements to which it is a party. All
consents or authorizations of, filing with or other act by or in respect of,
any Governmental Authority or any other Person required to be obtained, made or
given by it in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of this Credit Agreement or
the other Facility Agreements to which it is a party have been so obtained,
made or received. This Credit Agreement and each other Facility Agreement to
which it is a party has been duly executed and delivered on behalf of NAF Corp.
This Credit Agreement and each other Facility Agreement to which it is a party
constitutes a legal, valid and binding obligation of NAF Corp. enforceable
against NAF Corp. in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
(d) No Legal Bar. The execution, delivery and
performance of this Credit Agreement and the other Facility Agreements, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of NAF Corp. and will not result
in, or require, the creation or imposition of any Lien on any of its properties
or revenues pursuant to any such Requirement of Law or Contractual Obligation
other than the Lien set forth herein.
(e) No Material Litigation. No litigation,
investigation or proceeding
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of or before any arbitrator, court or Governmental Authority is pending or
threatened, by or against NAF Corp. or against any of its properties or
revenues.
(f) No Default; No Event of Default. NAF Corp. is not
in default under or with respect to any of its Contractual Obligations in any
respect which could have a material adverse effect on the business, operations,
properties, assets, condition or prospects, financial or otherwise, of NAF
Corp., or on the ability of NAF Corp. to perform its obligations hereunder or
under the other Facility Agreements. No Event of Default or Unmatured Event of
Default has occurred or is continuing.
(g) No Burdensome Restrictions. NAF Corp. is not a
party to or subject to any Contractual Obligation (other than the Facility
Agreements) which could have a material adverse effect on the business,
properties, assets, operations, condition or prospects, financial or otherwise,
of NAF Corp., or on the ability of NAF Corp. to carry out its obligations
hereunder or under the other Facility Agreements.
(h) Taxes. NAF Corp. has filed or caused to be filed
all federal, state and other tax returns which are required to be filed by it,
or has filed extensions with respect thereto (which extensions have not
expired) and has paid all taxes shown to be due and payable on said returns or
on any federal, state and other tax assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority having taxing power; no tax Lien has
been filed against it, and no claim is being asserted by any Governmental
Authority with respect to any such tax, fee or other charge.
(i) ERISA. Prior to May 17, 1996, neither NAF Corp. nor
any ERISA Affiliate of NAF Corp. has participated in any Multiemployer Plan.
Prior to May 17, 1996, neither NAF Corp. nor any ERISA Affiliate of NAF Corp.
has maintained any Single-Employer Plan. Beginning May 17, 1996, NAF Corp. and
Borrower are participants in FirstCity's employee benefit plans.
(j) Investment Company Act; Other Regulations. NAF Corp.
is not an "investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
NAF Corp. is not subject to regulation under any federal or state statute or
regulation which limits its ability to incur Debt.
(k) No Deduction. NAF Corp. is not required to make any
deduction or withholding from payments to be made by it to Lender under this
Credit Agreement, and the execution and performance of this Credit Agreement
and any of the other Facility Agreements does not make NAF Corp. liable for any
registration tax, stamp duty or similar tax or duty imposed by any authority of
or within its jurisdiction of creation, which tax or duty has not been, or will
not be, paid when due.
(l) No Priority Claim Debt. NAF Corp. has no liability
in respect of any Debt or in respect of any guarantee by NAF Corp. of the
obligations of another under which the lender, creditor or lessor or the Person
in whose favor such guarantee is given has
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any right, by operation of law or otherwise, to have any claim in respect of
such obligation or guarantee first satisfied out of the general assets of NAF
Corp. in priority to the claims of its general creditors, other than (i) a
non-recourse promissory note to Cargill Financial Services Corporation and (ii)
an indemnification agreement with High Industries, Inc. copies of which have
been supplied to the Lender.
(m) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to NAF Corp. and NAF
Corp. is not insolvent or generally unable to pay its debts as they become due.
(n) Eligible Contracts. Each Contract is an Eligible
Contract. With respect to each such Contract, (i) no effective financing
statement, lien notation on any certificate of title or other instrument
similar in effect covering all or any part of such Contract or the security
therefor, which would give the Person filing, named on or entitled to the
benefit of such statement or instrument priority senior to or pari passu with
the Borrower, is on file in any recording office or is otherwise effective
except such as may be filed in favor of the Dealer, the related FI or the
Borrower and collaterally assigned to Lender in accordance with the Facility
Agreements; and (ii) the Vehicle, including any equipment sold and financed in
connection with such Contract is the subject of an application for a
certificate of title to be issued in the name of the Obligor which will
indicate a security interest therein held by the Borrower or the Collateral
Agent, in the appropriate form and in compliance with all appropriate
procedures as may be necessary under applicable law to cause a perfected and
first priority security interest to exist in favor of, or for the benefit of,
to secure the obligations of such Obligor under such Contract; (iii) each of
the Representations and Warranties are true and correct and (iv) it is in
compliance with the Underwriting Criteria.
(o) Representations and Warranties in Facility
Agreements. The representations and warranties of NAF Corp. contained in each
of the Facility Agreements to which it is a party and in any document,
certificate or instrument delivered pursuant to any such Facility Agreement are
true and correct and the Lender may rely on such representations and
warranties, if not made directly to the Lender, as if such representations and
warranties were made directly to the Lender. To the best of NAF Corp.'s
knowledge, the representations and warranties of the FIs in each of the Loan
Origination Agreements and in any document, certificate or instrument delivered
pursuant to the Loan Origination Agreements are true and correct in all
material respects and the Lender may rely on such representations and
warranties as if such representations and warranties were made directly to the
Lender, except that no such representation or warranty is made with respect to
the Loan Origination Agreement with Farmers' and Mechanics' Bank.
(p) Principal Place of Business. NAF Corp.'s principal
place of business is located at 4545 Fuller Drive, Suite 101, Irving, Texas.
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SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Advance. The agreement of
Lender to fund the initial Advance is subject to the satisfaction, immediately
prior to or concurrently with the making of such Loan on the Closing Date, of
the following conditions precedent:
(a) Facility Agreements. Lender shall have received (i)
this Credit Agreement executed and delivered by a duly authorized
officer of Borrower, (ii) the Promissory Note executed and delivered
by a duly authorized officer of Borrower, (iii) the Security and
Collateral Agent Agreement, duly executed and delivered by the parties
thereto, (iv) the Servicing Agreement, duly executed and delivered by
the parties thereto; (v) the Paying Agent Agreement, (vi) the Funding
Commitment, duly executed by the parties thereto, (vii) the IBSA, duly
executed by the parties hereto, (viii) copies of all the other
Facility Agreements, executed by all parties thereto and in form and
substance satisfactory to Lender, and (ix) such other documents or
instruments as may be reasonably requested by Lender.
(b) Trust Documents; Incumbency. (i) Lender shall have
received copies of the certificate of trust of Borrower certified by
the Secretary of State or other appropriate official of the State of
Delaware and the Governing Instrument of Borrower certified as of the
Closing Date as complete and correct copies thereof by a Responsible
Officer, (ii) good standing certificates for Borrower issued by the
Secretary of State or other appropriate official of the State of
Delaware and each jurisdiction where the conduct of Borrower's
business activities or its ownership of properties makes qualification
necessary and (iii) a certificate of a Responsible Officer of
Borrower, certifying the names and true signatures of the officers of
Borrower authorized to sign the Facility Agreements to which it is a
party.
(c) Credit Committee Approval. Lender shall have
received the approval of its credit committee with respect to the
transactions contemplated by the Facility Agreements.
(d) No Violation. The consummation of the transactions
contemplated hereby and by the other Facility Agreements shall not
contravene, violate or conflict with, nor involve Borrower in any
violation of, any Requirement of Law except to the extent that any
such contravention, violation, conflict or involvement would not
adversely affect the transactions contemplated hereby and by the other
Facility Agreements.
(e) Legal Opinions. Lender shall have received the
executed legal opinion of counsel to Borrower, NAF Corp. and
FirstCity.
(f) Collection Account and Paying Agent Agreement.
Borrower shall have established the Collection Account, and the
financial institution at which the Collection Account is established
shall have executed and delivered the Paying
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Agent Agreement (the "Paying Agent Agreement").
(g) Lien Certificate. Lender shall have received a
certificate of a Responsible Officer of Borrower to the effect that
the Collateral is not subject to any Lien, except Liens created by the
Facility Agreements.
(h) UCC Searches. Lender shall have received lien
searches and other evidence as to the absence of any Lien on or
security interest in the Collateral in form and substance satisfactory
to Lender. Any termination statements or releases requested by Lender
to be filed with respect to the Contracts shall have been filed.
(i) Filings. Lender shall have received acknowledgment
copies of proper financing statements, duly filed under the UCC of all
jurisdictions that Lender may deem necessary or desirable in order to
perfect the security interests created by this Credit Agreement and
the other Facility Agreements and all other filings, notifications,
consents and recordings necessary to consummate the transactions
contemplated hereunder and under the other Facility Agreements shall
be accomplished and Lender shall have received evidence of such
filings, notifications, consents and recordings satisfactory in form
and substance to Lender.
(j) Lock-Boxes. Borrower shall have established or
caused to have been established Lock-Boxes in its name and the name of
the Lender and shall have received an executed Lock-Box Agreement (a
"Lock-Box Agreement") for each Lock-Box from each Lock-Box Bank. All
Obligors shall have been instructed to remit Collections to a
Lock-Box.
(k) Consents. Lender shall have received copies of all
consents, licenses and approvals, if any, required in connection with
the execution, delivery and performance by Borrower and the validity
and enforceability against it of the Facility Agreements to which it
is a party and such consents, licenses and approvals shall be in full
force and effect.
(l) Insurance. Lender shall have received evidence that
the Blanket Policy is in full force and effect.
(m) Servicer's Certificates. Lender shall have received
a certificate from EDS and the Servicer confirming the loss and
delinquency status of the portfolio immediately prior to Closing.
(n) No Default. Neither NAF Corp. nor the Borrower is
in default under any agreement to which either is a party.
(o) Due Diligence. Lender shall have had the
opportunity to conduct legal, financial, operational and key man due
diligence on the NAF Entities and FirstCity.
(p) FI Deferred Fees. Borrower shall have assigned its
rights to any
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remaining FI deferred fees to the Lender.
(q) Funding Commitment. FirstCity and Lender shall have
executed and delivered the Funding Commitment.
(r) Servicing Agreement. Borrower, the Servicer, the
Lender and the Collateral Agent shall have entered into the Servicing
Agreement.
(s) Loan Origination Agreements. NAF Corp. and the FIs
(other than Tammac Corporation and Mellon Bank) shall have entered
into amended Loan Origination Agreements satisfactory to Lender (with
executed waivers of defaults from the prior Loan Origination
Agreements), or, in the case of Farmers and Mechanics Bank, a
termination and release.
(t) Exercise of First City's Options. FirstCity shall
have exercised each of its options so as to gain control of the
Borrower and NAF Corp.; provided that up to 20% of the equity in NAF
Corp., and less than a majority of the board seats of NAF Corp., may
be controlled by parties other than FirstCity (except that Cargill
Financial Services Corporation may control not more than 15% of such
equity and not more than one board seat).
(u) IBSA. NAF Corp. and ContiFinancial shall have
executed and delivered the IBSA.
(v) Other Agreements. The Lender shall have received
executed copies of all of the documents listed on Schedule I hereto.
(w) Funding Commitment Fee. On the Closing Date, the
Borrower shall pay $125,000 to the Lender as a commitment fee.
4.2 Conditions to Each Advance. The agreement of Lender
to fund any Advance requested to be made by it on any date (including, without
limitation, the initial Advance) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by Borrower and NAF Corp. in or
pursuant to any of the Facility Agreements, and by FirstCity in the
Funding Commitment, shall be true and correct on and as of such date
as if made on and as of such date.
(b) Notice of Borrowing. Borrower shall have delivered
to Lender a Notice of Borrowing within the time period specified in
Section 2.3.
(c) Section 2.1 Requirements. After giving effect to
the Advance to be made on such day, the Outstanding Facility Balance
does not exceed either (x) the Maximum Loan Amount or (y) the
Borrowing Base.
(d) Evidence of Pledge. Prior to the release of the
proceeds of such
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Advance in consideration of the Borrower's acquisition of any
Contracts, Lender shall have received an approving (i.e., indicating
no material exceptions) Custodial Certification with respect to the
related Contracts not later than 11 A.M., New York time, on the
Business Day preceding the day on which such amounts are to be
released.
(e) Additional Documents. The Lender shall have
received each additional document, instrument, legal opinion or item
of information reasonably requested by Lender with respect of any
aspect or consequence of the transactions contemplated hereby or by
any other Facility Agreement.
(f) Additional Matters. All proceedings, documents,
instruments and legal matters specified in subsection 4.1 hereof, or
required after the Closing Date, shall be satisfactory in form and
substance to Lender.
(g) Event of Default. No Event of Default or Unmatured
Event of Default shall have occurred and be continuing to occur.
Each borrowing by Borrower hereunder shall constitute a representation and
warranty by Borrower as of the date of such Loan that the conditions contained
in this subsection 4.2 have been satisfied.
SECTION 5. RELEASE OF LIENS
In connection with any payment of principal on the Facility,
upon receipt of a written request from the Borrower to the Lender in the form
attached as Exhibit B to the Collateral Agent Agreement, the Lender shall take
such actions as are necessary to release or cause the lien of the Lender on the
related Contract to be released and to cause the related Contract Files to be
returned to the Borrower; as used in this Article 5, the "related Contracts"
shall be those Contracts, specified by Borrower to be released from this
Facility; provided that, following such release and the related payment of
principal on the Facility, the Outstanding Facility Balance does not exceed the
Borrowing Base. Upon payment in full of all Obligations, termination of all
obligations of Lender to make Advances hereunder and expiration or termination
of this Credit Agreement, the Lender shall take such actions as are necessary
to release or cause the Lien of the Lender on the Collateral to be released and
to cause the Contract Files then held by the Collateral Agent to be returned to
the Borrower. To the extent the Borrower consummates a Securitization and so
long as the proceeds thereof are applied to repay Loans hereunder, the Lender
shall take such actions as are necessary to release the Lien of the Lender on
the related Collateral and shall instruct the Collateral Agent to deliver
possession of the related Contracts and Contract Files in the Collateral
Agent's possession which will be used as collateral for such securities.
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SECTION 6. AFFIRMATIVE COVENANTS
NAF Corp. and/or the Borrower hereby agree that, so long as
this Credit Agreement remains in effect, NAF Corp. and/or the Borrower shall:
6.1 Financial Statements. (a) NAF Corp. shall furnish
to Lender, commencing with the year ending December 31, 1996:
(i) as soon as available, but in any event within 120 days
after the end of each fiscal year of NAF Corp. a copy of the unaudited
consolidated balance sheet as at the end of such year and the related
unaudited consolidated statements of income and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year and including all footnotes thereto and management
discussions and analysis contained therein, certified by a Responsible
Officer of FirstCity as being fairly stated in all respects (subject
to normal year-end audit adjustments); and
(ii) as soon as available, but in any event not later than 60
days after the end of each fiscal quarter of NAF Corp., the unaudited
balance sheet of NAF Corp. as at the end of such quarter and the
related unaudited statements of income and cash flows of NAF Corp for
such period and the portion of the fiscal year through the end of such
quarter, setting forth in each case in comparative form the figures,
for the previous year;
(b) the Borrower shall furnish to Lender, commencing with the
year ending December 31, 1996:
(i) as soon as available, but in any event within 120 days
after the end of each fiscal year of the Borrower, a copy of the
balance sheet as at the end of such year and the related statements of
income and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year and including all
footnotes thereto and management discussions and analysis contained
therein, audited by KPMG Peat Marwick or another nationally recognized
accounting firm acceptable to Lender (the "Accountants"); and
(ii) as soon as available, but in any event not later than 60
days after the end of each fiscal quarter of the Borrower, the
unaudited balance sheet of the Borrower as at the end of such quarter
and the related unaudited statements of income and cash flows of the
Borrower for such period and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative
form the figures, for the previous year, certified by a Responsible
Officer of NAF Corp. as being fairly stated in all respects (subject
to normal year-end audit adjustments);
all such financial statements to be complete and correct in all respects and to
be prepared in detail and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or Responsible Officer, as the case may be, and
disclosed therein).
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6.2 Certificates; Other Information. NAF Corp. shall
furnish to Lender:
(a) concurrently with the delivery of the financial
statements referred to in subsection 6.1(a), a certificate of the
Accountants reporting on such financial statements stating that (i)
such audit was made in accordance with GAAP and (ii) no knowledge was
obtained of any Event of Default or Unmatured Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsection 6.1, a certificate of a
Responsible Officer stating that each of NAF Corp. and the Borrower
during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition contained in this
Credit Agreement and the other Facility Agreements to be observed,
performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Unmatured Event of Default or Event of
Default, except as specified in such certificate;
(c) copies of all financial statements, reports and
other communications that NAF Corp. or the Borrower may make to, or
file or have with, the SEC or any state securities commission
contemporaneously with the filing thereof;
(d) at the time of each securitization or whole-loan
sale, a comfort letter from the Accountants covering the loss and
delinquency statistics on the Servicer's servicing portfolio of the
Borrower's contracts;
(e) copies of any written communication received from an
FI, outside of the ordinary course of business; and
(f) promptly, such additional financial and other
information as Lender may from time to time reasonably request.
6.3 [Reserved].
6.4 Payment of Obligations. The NAF Entities shall pay,
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, each of their obligations (with a balance of
$50,000 or more) of whatever nature.
6.5 Conduct of Business and Maintenance of Existence.
The NAF Entities shall continue to engage in business of the same type as now
conducted by it and preserve, renew and keep in full force and effect its
existence and take all action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business; and comply in all
material respects with all Contractual Obligations and Requirements of Law.
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<PAGE> 22
6.6 Maintenance of Property; Insurance. The NAF
Entities shall keep all property useful and necessary in its business in good
working order and condition; maintain, or cause to be maintained on its behalf,
with financially sound and reputable insurance companies, the Blanket Policy
and insurance on all its property in at least such amounts and against at least
such risks as are usually insured against in the same general area by companies
engaged in the same or a similar business; and furnish to Lender, at least
annually, and otherwise upon written request, full information as to the
insurance carried.
6.7 Inspection of Property; Books and Records;
Discussions; Audit Reports. NAF Corp. and the Borrower shall each
(a) keep proper books of records and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and permit representatives of
Lender to visit and inspect any of its properties and examine and make
abstracts from any of its books and records on prior notice during
normal business hours and to discuss the business, prospects,
operations, properties and financial and other condition of NAF Corp.
with officers and employees of NAF Corp. and the Borrower and with its
independent certified public accountants.
(b) permit all accountants and auditors employed by NAF
Corp. and the Borrower at any time to exhibit and deliver to the
Lender copies of any and all of NAF Corp.'s and the Borrower's
financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession and to disclose
to the Lender any information they may have concerning the Borrower's
financial status and business operations which the Lender may
reasonably request. NAF Corp. and the Borrower shall authorize all
federal, state and municipal authorities to furnish to the Lender
copies of reports or examinations relating to NAF Corp. or the
Borrower, whether made by NAF Corp., the Borrower or otherwise.
(c) permit the Lender to conduct at any time and from
time to time, and fully cooperate with, field examinations and audits
of the business affairs of NAF Corp. and/or the Borrower. NAF Corp.
shall reimburse the Lender for all reasonable costs and expenses in
connection with such examinations.
(d) permit the Lender to inspect the Collateral, during
normal business hours and upon reasonable notice; the Borrower shall
reimburse the Lender for the reasonable expenses of the Lender in
conducting any such inspection.
(e) deliver promptly upon receipt thereof, one copy of
each other report submitted to the Borrower by its independent
accountants, including management letters and "comment" letters, in
connection with any annual, interim or special audit report made by
them of the books of the Borrower.
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6.8 Notices. NAF Corp. shall promptly give notice to
Lender of:
(a) the occurrence of any Event of Default or Unmatured
Event of Default;
(b) any (i) default or event of default by Borrower or
NAF Corp. under any Contractual Obligation of Borrower or NAF Corp. or
(ii) litigation, investigation or proceeding which may exist at any
time affecting the Borrower or NAF Corp. and which is likely to result
in a material adverse change in the financial condition or business
prospects of the Borrower or of NAF Corp;
(c) a material adverse change in the business,
properties, assets, operations, prospects or condition (financial or
otherwise) of the Borrower or NAF Corp.; and
(d) any change in its principal place of business or
chief executive office from the address set forth in paragraph (v) of
subsection 3.1.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the NAF Entities propose to take with respect
thereto.
6.9 Delivery of Other Reports. The NAF Entities shall
furnish any reports required to be delivered by the NAF Entities pursuant to
any Facility Agreement to which any NAF Entity is a party or which any NAF
Entity has signed.
6.10 Approval of New FIs. The NAF Entities shall not
execute a Loan Origination Agreement with a new FI unless they have received
approval of the new FI and the new Loan Origination Agreement from the Lender,
which approval shall not be unreasonably withheld. This provision shall apply,
without limitation, to Tammac Corporation and to Mellon Bank.
6.11 Further Assurances. The NAF Entities shall do such
further acts and things and execute and deliver to Lender such assignments,
agreements, financing statements, powers and instruments as are required by
Lender to carry into effect the purposes of this Credit Agreement and the other
Facility Agreements or to better assure and confirm unto Lender its rights,
powers and remedies hereunder and under the other Facility Agreements,
including, without limitation, to obtain such consents and give such notices,
and to file and record all such documents, financing statements and
instruments, and renew each such consent, notice, filing and recordation, at
such time or times, in such manner and at such places, as may be necessary or
desirable to preserve and protect the position of Lender hereunder and under
the other Facility Agreements. This covenant shall survive the termination of
this Credit Agreement.
6.12 Cooperation in Making Calculations. The NAF
Entities shall cooperate with Lender at all times in the calculation of all
formulas used in any Facility Agreement, including, without limitation,
delivering in written or electronic form any and
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all data and other information as may be so required. The NAF Entities hereby
agree to provide all such information or data on or before each date, without
prior request by Lender, as required to make any such calculation, and to
provide such information and data in such form as may be immediately used by
Lender without further interpretation or purchase or license of any software.
The NAF Entities do hereby further agree that if they fail to provide any such
information or data as required in this subsection 6.12, Lender may use any
estimate of any amount or calculation that it, in its sole discretion,
determines.
6.13 Securitization. The Borrower shall use its best
efforts to effect a refinancing of the Loans through the issuance by Borrower
or an Affiliate of asset backed securities secured by Contracts (each such
refinancing a "Securitization") on a semi-annual basis. Borrower further
agrees to use its best efforts to consummate the first such Securitization on
or prior to October 31, 1996 in an amount of not less than $40,000,000.
6.14 Additional Credit Support.
(a) The NAF Entities will deliver or cause to be delivered to
the Lender any and all subordinate securities (together with
appropriate, fully-executed bond powers and assignments) received by
them or by any Affiliate of the NAF Entities pursuant to any
Securitization in order to create a first-priority, perfected security
interest therein in favor of the Lender.
(b) NAF Corp. shall cause the beneficial owner of Borrower to
deliver to the Lender the "Certificates" issued under the Trust
Agreement creating the Borrower, together with appropriate,
fully-executed bond powers and assignments, not later than ten
Business Days following the Closing Date.
(c) The Borrower shall deposit any rebated FI deferred fees
to the Collection Account.
6.15 Minimum Net Worth. For so long as there are any
Obligations to Lender, the Borrower shall maintain at all times the Tangible
Net Worth Requirement.
6.16 Underwriting and Review. (a) NAF shall review each
Contract for compliance with the Underwriting Criteria.
(b)(i) The Borrower shall cause to be furnished to
the Lender, by August 31, 1996, a report stating the conclusions of a review to
be conducted by an independent firm (such as Baker and Associates), of the
Servicer, any Sub-Servicer and of the Contracts originated after the Closing
Date. The costs of such report shall be paid as follows: the Lender shall pay
the first $10,000; the Borrower shall pay the balance of such cost, which is
not expected to exceed $18,000 in the aggregate.
(ii) In addition to the costs of such initial
review, the Borrower agrees to pay up to $20,000 per year in additional fees
and expenses of a third-party contract reviewer (such as Baker and Associates);
provided, that if any such review reveals material inconsistencies in the
application of the Underwriting Criteria, the Lender may require
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additional reviews to be performed, all at the Borrower's expense.
SECTION 7. NEGATIVE COVENANTS
Each NAF Entity hereby agrees that, so long as this Credit
Agreement remains in effect, it shall not directly or indirectly, without the
prior written consent of the Lender, in its sole discretion:
7.1 Limitation on Debt. Create, incur, assume or suffer
to exist any Debt, except (i) indebtedness in respect of the Loans, the
Promissory Note, and other obligations of the NAF Entities under the Facility
Agreements, (ii) Subordinated Debt which is subordinated to the Obligations on
terms reasonably satisfactory to Lender, (iii) a non-recourse promissory note
to Cargill Financial Services Corporation and (iv) in the case of NAF Corp.,
intercompany Debt approved by the Lender and trade Debt.
7.2 Limitation on Liens. Create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues,
including, without limitation, the Collateral, whether now owned or hereafter
acquired, except Subordinate Liens.
7.3 Limitation on Fundamental Changes. Except as
expressly permitted by the Facility Agreements, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method of
conducting business.
7.4 Sale, Transfer or Encumbrance of Assets. Sell,
lease, or otherwise dispose of, move, relocate, or transfer, whether by sale or
otherwise, any of its property, business or assets, including, without
limitation, the Collateral, (whether now owned or hereafter acquired) except
for (i) the movement of assets in the ordinary course of business to locations
disclosed in advance to Lender and where Borrower has executed and tendered to
Lender appropriate UCC-1 financing statements for filing or taken other steps
required to enable Lender to perfect its lien and (ii) Securitizations.
7.5 Contracts.
(a) Sell, assign or otherwise encumber any
Contract except as expressly permitted by the Facility Agreements; or
(b) Cancel, terminate, amend, modify or waive
any term or condition of any Contract (including the granting of rebates or
adjustments with respect thereto), or the related certificates of title except
in accordance with the Credit and Collection Policy.
7.6 Limitation on Dividends. The NAF Entities shall not
declare or pay any dividend on, or make any payment on account of, or set apart
assets for a sinking or
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other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of Capital Stock of the NAF
Entities or any warrants or options to purchase any such Capital Stock, whether
now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of NAF Corp.
7.7 Limitation on Capital Expenditures. NAF Corp. shall
not make or commit to make (by way of the acquisition of securities of a Person
or otherwise) any expenditure in respect of the purchase or other acquisition
of fixed or capital assets (including, without limitation, pursuant to an
operating lease or a lease which is required to be capitalized for financial
reporting purposes in accordance with GAAP) in excess of $250,000 in the
aggregate in any year.
7.8 Limitation on Investments, Loans and Advances. The
Borrower or NAF Corp. shall not make any advance, loan, extension of credit or
capital contribution to, or purchase any stock, bonds, notes, debentures or
other securities of or any assets constituting a business unit of, or make any
other investment in, any Person, except:
(a) purchases of Contracts;
(b) investments in Permitted Investments of funds, if
any, on deposit in the Collection Account; and
(c) capitalization of any special purpose entity formed
for the purpose of a Securitization.
7.9 Transactions with Affiliates. The Borrower shall
not enter into any transaction, including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any service, with any
Affiliate, except for transactions expressly permitted by the Facility
Agreements, and transactions in the ordinary course of Borrower's business and
which are upon fair and reasonable terms not less favorable to Borrower than it
would obtain in a comparable arm's length transaction with a person that is not
an Affiliate.
7.10 Sale and Leaseback. NAF Corp. shall not enter into
any arrangement with any Person providing for the leasing by NAF Corp. of real
or personal property which has been or is to be sold or transferred by NAF
Corp. to such Person or to any other Person to whom funds have been or are to
be advanced by such Person on the security of such property or rental
obligations of Borrower.
7.11 Trust Documents. The Borrower shall not amend its
Governing Instrument.
7.12 Fiscal Year. The Borrower shall not permit the
fiscal year of Borrower to end on a day other than December 31.
7.13 Limitation on Negative Pledge Clauses. The Borrower
shall not
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enter into any agreement with any Person other than Lender which prohibits or
limits the ability of Borrower to create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired.
7.14 Activities of Borrower. The Borrower shall not
engage in any business or activity of any kind, or enter into any transaction
or indenture, mortgage, instrument, agreement, contract, lease or other
undertaking or expend any funds (other than incidental expenses incurred in the
ordinary course of business), which are not directly related to the
transactions contemplated and authorized hereby or by the other Facility
Agreements other than an agreement or other arrangement approved in writing by
Lender to share taxes of any affiliated, consolidated, unitary, combined or
similar group including Borrower, such approval not to be unreasonably
withheld.
7.15 Agreements. The Borrower shall not, except for the
Facility Agreements, and as expressly permitted by the Facility Agreements,
become a party to, or permit any of its properties to be bound by, any
indenture, mortgage, instrument, contract, agreement, lease or other
undertaking, or issue any power of attorney except to Lender except for
instruments, contracts, agreements or leases entered into in the ordinary
course of the Borrower's business which are necessary or desirable in
furtherance of the transactions contemplated by the Facility Agreements.
7.16 Bank Accounts. The NAF Entities shall not, except
as otherwise permitted by this Credit Agreement, move the Bank Accounts from
the institution at which they are maintained on the Closing Date.
7.17 Lock-Box Banks. The NAF Entities shall not add or
terminate any bank as a Lock-Box Bank from those delivering a Lock-Box
Agreement pursuant to Section 4.1(o) hereof, or make any change in its
instructions to Obligors regarding payments to be made to any Lock-Box Bank,
unless the Lender shall have received notice of such addition of any Lock-Box
Bank and a Lock-Box Agreement executed by Borrower, the Lender and such
Lock-Box Bank shall have been delivered to the Lender; or deposit or otherwise
credit, or cause or permit to be so deposited or credited, Collections to any
lock-box account except the Lock-Boxes and the Collection Account.
7.18 Subordinated Debt. The Borrower shall not make or
take any action to authorize or effect any payment of principal on or in
respect of any part or all of any Debt that is by its terms subordinated to the
Obligations or voluntarily prepay any such Debt or otherwise repurchase, redeem
or retire any instrument evidencing any such Debt.
7.19 Margin Securities. The NAF Entities shall not own,
purchase or acquire (or enter into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereinafter be in effect.
7.20 No Commingling. The Borrower shall maintain
separate bank accounts and no funds of the Borrower shall be commingled with
funds of any other entity. The Borrower shall not maintain bank accounts other
than those which have been identified in writing to the Lender.
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7.21 Guarantees. Neither the Borrower nor NAF Corp. will
guarantee (directly or indirectly), endorse or otherwise become contingently
liable (directly or indirectly) for the obligations of, or own or purchase any
stock, obligations or securities of or any other interest in, or make any
capital contribution to, any other Person.
7.22 Amendment of Facility Agreements. The NAF Entities
will not amend the Facility Agreements without the prior written approval of
the Lender, such approval not to be unreasonably withheld.
7.23 Policies. The NAF Entities shall not amend the
Credit and Collection Policy or the Underwriting Criteria without the prior
written approval of Lender, such approval not to be unreasonably withheld.
7.24 Miscellaneous.
(i) The Borrower will at all times hold itself
out to the public under the Borrower's own name and as a separate and distinct
entity from National Auto Funding Corporation, National Auto Funding I, LP or
National Auto Funding II, LP.
(ii) The Borrower will at all times be
responsible for the payment of all its obligations and indebtedness, will at
all times maintain a business office, records, books of account, and funds
separate from any other entity and will observe all customary formalities of
independent existence.
SECTION 8. REMEDIES UPON DEFAULT
8.1 Acceleration. Upon the occurrence of one or more
Events of Default (other than pursuant to clause (e) of the definition of Event
of Default), the Lender may cease making Advances, and may immediately declare
all or any portion of the Obligations to be immediately due and payable. Upon
such declaration, the Obligations shall become immediately due and payable
without presentation, demand or further notice of any kind to the Borrower.
Upon the occurrence of an Event of Default specified in clause (e) of the
definition of Event of Default, the Lender shall immediately cease making
Advances and the Obligations shall automatically accelerate and become due and
payable, without any further action of the Lender. Upon acceleration of the
Obligations for any reason, Borrower shall thereupon be obligated to pay to
Lender the Obligations then outstanding, and Lender shall not be obligated to
make any further Advance under this Credit Agreement.
8.2 Files. Upon the occurrence of one or more Events of
Default, the Lender shall have the right to obtain physical possession of the
Collateral, on a servicing-retained or servicing-released basis, as Lender may
elect, together with all files of Borrower relating to the Collateral and all
documents relating to the Collateral which are then or may thereafter come into
the possession of Borrower or any third party acting for Borrower,
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including the Collateral Agent and the Servicer.
8.3 Collections. Upon the occurrence of one or more
Events of Default, Lender may exercise all rights and remedies under each
Contract, lease, security agreement and other contract included among the
Collateral as are afforded to the secured party thereunder or which are
otherwise afforded to Borrower thereunder; Lender may, subject to the rights of
Obligors, recover possession of any tangible personal property under any
Contract, and require that the same be assembled and delivered to a specific
location. Without limiting the foregoing, the Lender shall have the right to
give direction to the Servicer, replace or remove the Servicer, collect and
receive all further payments made on the Collateral, to instruct the Obligors
to make payments to a lock-box or other location designated by the Lender, to
control deposits to and disbursements from the Collection Account, to notify
Lock-Box Banks to follow the instructions of the Lender, and if any payments
are received by Borrower, the Borrower shall not commingle the amounts received
with other funds of the Borrower and shall promptly pay them over to the
Lender. In addition, the Lender shall have the right to dispose of all or any
part of the Collateral as provided in the other documents executed in
connection herewith, or in any commercially reasonable manner, or as provided
by law. The Lender shall be entitled to place the Contracts which it recovers
after any default in a pool for issuance of automobile loan receivable
pass-through securities and to sell such securities at the then prevailing
price for such securities in the open market as a commercially reasonable
disposition of collateral subject to the applicable requirements of the UCC.
The Lender shall also be entitled to sell (on a servicing-retained or
servicing-released basis, as Lender may elect) any or all of such Contracts
individually for the prevailing price as a commercially reasonable disposition
of collateral subject to the applicable requirements of the UCC and to retitle
in Lender's or Lender's nominee's name, the subordinate certificates referenced
in Section 6.14 hereof. Any surplus which exists after payment and performance
in full of the Loans and any other Obligations which arise hereunder shall be
promptly paid over to Borrower or otherwise disposed of in accordance with the
UCC or other applicable law. The specification in this subsection 8.3 of
manners of disposition of collateral as being commercially reasonable shall not
preclude the use of other commercially reasonable methods (as contemplated by
the UCC) at the option of the Lender.
8.4 Power of Attorney. Borrower hereby authorizes the
Lender, at Borrower's expense, to file such financing statement or statements
relating to the Collateral without Borrower's signature thereon as Lender at
its option may deem appropriate, and appoints the Lender as the Borrower's
attorney-in-fact (but without requiring the Lender to act) to execute any such
financing statement or statements in Borrower's name and to perform all other
acts which the Lender deems appropriate to perfect and continue the security
interest granted hereby and to protect, preserve and realize upon the
Collateral, including, but not limited to, the right to endorse notes and
instruments, complete blanks in documents and sign assignments on behalf of
Borrower as its attorney-in-fact and to prove and adjust any losses and to
endorse any loss drafts under applicable insurance policies. This power of
attorney is coupled with an interest and is irrevocable without the Lender's
consent. Notwithstanding the foregoing, the power of attorney hereby granted
shall only be effective during the occurrence and continuance of any Event of
Default hereunder.
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SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. None of this Credit
Agreement, the Promissory Note, any other Facility Agreement to which Lender or
Borrower is a party, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. Lender, the Collateral Agent and Borrower may, from time to time,
enter into written amendments, supplements or modifications hereto and to the
Promissory Note and the other Facility Agreements to which they are parties for
the purpose of adding any provisions to this Credit Agreement or the Promissory
Note or such other Facility Agreements or changing in any manner the rights of
Lender, the Collateral Agent or Borrower hereunder or thereunder and, in
addition, waiving, on such terms and conditions as Lender may specify in such
instrument, any of the requirements of this Credit Agreement or the Promissory
Note or such other Facility Agreements or any Unmatured Event of Default or
Event of Default and its consequences. Any such waiver and any such amendment,
supplement or modification shall be binding upon Lender and all future holders
of the Promissory Note. In the case of any waiver, Lender and Borrower shall
be restored to their former position and rights hereunder and under the
Promissory Note and any other Facility Agreements to which they are parties,
and any Unmatured Event of Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Unmatured Event of Default or Event of Default, or impair
any right consequent thereon.
9.2 Notices. Except where telephonic instructions or
notices are authorized herein to be given, all notices, demands, instructions
and other communications required or permitted to be given to or made upon any
party hereto shall be in writing and shall be personally delivered or sent by
overnight courier service, or by registered, certified or express mail, postage
prepaid, return receipt requested, or by facsimile copy (accompanied by a
telephonic confirmation or receipt thereof), or telegram (with messenger
delivery specified in the case of a telegram) and shall be deemed to be
delivered for purposes of this Credit Agreement on: (a) the second Business Day
following the day on which such notice was placed in the custody of the U.S.
Postal Service, (b) the next Business Day following the day on which such
notice was placed in the custody of any overnight courier service, including
express mail service or (c) the same Business Day on which such notice is sent
by telegram, messenger or facsimile. Unless otherwise specified in a notice
sent or delivered in accordance with the foregoing provisions of this
subsection, notices, demands, instructions and other communications in writing
shall be given to or made upon the respective parties hereto at their
respective addresses (or to their respective facsimile numbers) indicated
below, and, in the case of telephonic instructions or notices, by calling the
telephone number or numbers indicated for such party below:
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If to Borrower: N.A.F. Auto Loan Trust
4545 Fuller Drive, Suite 101
Irving, TX 75038
Attention:
Tel. No.: 214-791-1113
Telecopier No.: 214-791-0464
with a copy to: N.A.F. Auto Loan Trust
c/o Delaware Trust Company
900 Market Street, 2-M
Wilmington, Delaware 19801
Attention: Corporate Trust Administrator
Facsimile Number: 302-421-7387
Telephone Number: 302-421-7748
If to NAF Corp.: National Auto Funding Corporation
4545 Fuller Drive, Suite 101
Irving, TX 75038
Attention: Jim W. Moore, President
Tel. No.: 214-791-1113
Telecopier No.: 214-791-0464
If to Lender: ContiTrade Services L.L.C.
277 Park Avenue, 38th Floor
New York, New York 10172
Attention: Chief Counsel
Tel. No.: 212-207-2822
Telecopier No.: 212-207-2935
9.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of Lender; any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Credit Agreement and the Promissory Note.
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9.5 Payment of Expenses and Taxes. Borrower agrees, on
demand, and except as otherwise specifically set forth herein, to (a) pay or
reimburse Lender and the Collateral Agent for all out-of-pocket costs and
expenses incurred in connection with the preparation and execution of this
Credit Agreement, the Promissory Note and the other Facility Agreements and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, subject to the limitations in Section 5.2 hereof, any and
all collateral audit fees and the reasonable fees and disbursements of counsel
to Lender, (b) pay or reimburse Lender for all of its costs incurred in
connection with its due diligence review of Borrower and all of its
out-of-pocket expenses incurred in connection with the preparation, negotiation
and execution of the Facility Agreements, (c) pay or reimburse Lender and the
Collateral Agent for all out-of-pocket costs and expenses incurred in
connection with the preparation and execution of any amendment, modification or
supplement to this Credit Agreement, the Promissory Note and the other Facility
Agreements and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, any and all collateral audit fees and
the reasonable fees and disbursements of counsel to Lender, (d) pay or
reimburse Lender for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Credit Agreement, the
Promissory Note, the other Facility Agreements and any such other documents,
including, without limitation, reasonable fees and disbursements of counsel to
Lender, (e) pay, indemnify, and hold Lender, its directors, members, officers,
employees, agents and Affiliates, harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, any registration tax, stamp, duty and other similar taxes or
duties, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Credit Agreement, the Promissory Note,
the other Facility Agreements and any such other documents (other than income
taxes and franchise taxes), and (f) pay, indemnify, and hold Lender, its
directors, members, officers, employees, agents and Affiliates, harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Credit Agreement, the Promissory Note
and the other Facility Agreements (all the foregoing, collectively, the
"indemnified liabilities"), provided that Borrower has no obligation hereunder
to the Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Lender.
9.6 Successors and Assigns; Participations. (a)
This Credit Agreement shall be binding upon and inure to the benefit of
Borrower and Lender, and all future holders of the Promissory Note and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Credit Agreement and
Lender, except as set forth in paragraph (b) below, may not assign or transfer
any of its rights or obligations under this Credit Agreement without (except
following the occurrence of, and during the continuance of, an Event of
Default) the prior consent of Borrower, which consent shall not unreasonably be
withheld; provided, however, that if Lender desires to assign, transfer, sell
or otherwise dispose of all of its right, title and
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interest in the Collateral or the Obligations owed to it under the Facility
Agreements to any institutional investor pursuant to any repurchase agreement
or similar arrangement, or to a Subsidiary or Affiliate of Continental Grain
Company, the consent of Borrower shall not be required.
(b) Lender may, in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to it, the Promissory Note, the
Facility or any other interest of Lender hereunder and under the other Facility
Agreements. In the event of any such sale by Lender of participating interests
to a Participant, Lender's obligations under this Credit Agreement to the other
parties hereto shall remain unchanged, Lender shall remain solely responsible
for the performance thereof, Lender shall remain the holder of the Promissory
Note for all purposes under this Credit Agreement and the other Facility
Agreements, and Borrower shall continue to deal solely and directly with Lender
in connection with Lender rights and obligations under this Credit Agreement
and the other Facility Agreements. Borrower agrees that if amounts outstanding
under this Credit Agreement and the Promissory Note are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of the Funding Commitment Termination Date, each Participant shall
be deemed to have the right of setoff in respect of its participating interest
in amounts owing under this Credit Agreement and the Promissory Note to the
same extent as if the amount of its participating interest were owing directly
to it under this Credit Agreement or the Promissory Note. Borrower also agrees
that each Participant shall be entitled to the benefits of Subsections 2.9 and
9.5 with respect to its participation in the Facility and the Loans outstanding
from time to time; provided, that no Participant shall be entitled to receive
any greater amount pursuant to such subsections than Lender would have been
entitled to receive in respect of the amount of the participation transferred
by Lender to such Participant had no such transfer occurred.
(c) Borrower authorizes Lender to disclose to any
Participant and any prospective Participant any and all financial information
in its possession concerning the Borrower and its Affiliates which has been
delivered to it by or on behalf of such Person pursuant to this Credit
Agreement or which has been delivered to it by or on behalf of such Person in
connection with its credit evaluation of Borrower and its Affiliates prior to
becoming a party to this Credit Agreement; provided such Participant agrees to
keep such financial information confidential unless required to be disclosed by
applicable Requirements of Law.
(d) If, pursuant to this Subsection 9.6, any interest in
this Credit Agreement or the Promissory Note is transferred or assigned to any
Participant or assignee which is organized under the laws of any jurisdiction
other than the United States or any state thereof, Lender shall cause such
Participant or assignee, as a condition to the effectiveness of such transfer,
(i) to represent to Lender and Borrower that under applicable law and treaties
then in effect no taxes will be required to be withheld by Borrower or Lender
with respect to any payments to be made to such Participant or assignee, in
respect of the Loans, (ii) to furnish to Borrower either U.S. Internal Revenue
Service Form 4224 (or any successor form) or U.S. Internal Revenue Service Form
1001 (or any successor form) (wherein such Participant or assignee claims
entitlement to complete exemption from U.S.
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federal withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of Lender and Borrower) timely to provide Lender and Borrower
a new Form 4224 (or any successor form) or Form 1001 (or any successor form)
upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with and if permitted under applicable U.S.
laws and regulations and amendments then in effect duly executed and completed
by such Participant or assignee, and to comply from time to time with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption.
(e) Lender shall not grant to any Participant the right
to consent to any amendment or waiver entered into in accordance with
subsection 9.1 except for any such amendment or waiver which would increase the
Lender Funding Commitment, or reduce the amount or extend the due date of any
principal of or interest on the Promissory Note.
9.7 Termination. This Credit Agreement (except for
Sections 9.4 and 9.5) shall terminate following the Funding Commitment
Termination Date upon payment in full of all outstanding principal, interest
and other amounts due hereunder to Lender.
9.8 Counterparts. This Credit Agreement may be executed
by one or more of the parties to this Credit Agreement on any number of
separate counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
9.9 Severability. Any provision of this Credit
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
9.10 Integration; Construction. This Credit Agreement
represents the agreement of Borrower and Lender with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by Lender relative to the subject matter hereof not expressly set
forth or referred to herein or in the other Facility Agreements.
9.11 Limited Liability. No recourse under any Facility
Agreement shall be had against, and no personal liability shall attach to, any
officer, employee, director, member, affiliate, beneficial owner, trustee or
shareholder of any party hereto, as such, by the enforcement of any assessment
or by any legal or equitable proceeding, by virtue of any statute or otherwise
in respect of any of the Facility Agreements, it being expressly agreed and
understood that each Facility Agreement is solely a corporate or trust
obligation of each party hereto, and that any and all personal liability,
either at common law or in equity, or by statute or constitution, of every such
officer, employee, director, member, affiliate, beneficial owner, trustee or
shareholder for breaches by any party hereto of any obligations under any
Facility Agreement is hereby expressly waived as a condition of and in
consideration for the execution and delivery of this Agreement.
30
<PAGE> 35
9.12 GOVERNING LAW. THIS CREDIT AGREEMENT AND THE
PROMISSORY NOTE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS CREDIT
AGREEMENT AND THE PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
9.13 SUBMISSION TO JURISDICTION; WAIVERS. EACH PARTY
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS CREDIT AGREEMENT AND THE OTHER FACILITY
AGREEMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS
FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH IN SUBSECTION 9.2 OR AT SUCH OTHER ADDRESS OF WHICH ALL OF
THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING
REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
9.14 Acknowledgements. Borrower and NAF Corp. each
hereby acknowledge that:
31
<PAGE> 36
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Credit Agreement, the Promissory Note and the
other Facility Agreements;
(b) the Lender has no fiduciary relationship to Borrower
or NAF Corp., and the relationship between Lender and Borrower is solely that
of debtor and creditor; and
(c) no joint venture exists between Borrower, NAF Corp.
and Lender.
9.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS CREDIT AGREEMENT OR THE PROMISSORY NOTE OR ANY
OTHER FACILITY AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
32
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers, members or trustees as of the day and year
first above written.
N.A.F. AUTO LOAN TRUST
By: DELAWARE TRUST COMPANY, not in its
individual capacity, but solely as
Owner Trustee on behalf of N.A.F.
AUTO LOAN TRUST
By /s/ RICHARD N. SMITH
----------------------------
Name: Richard N. Smith
Title: Vice President
NATIONAL AUTO FUNDING CORPORATION
By /s/ JIM W. MOORE
----------------------------
Name: Jim W. Moore
Title: President
CONTITRADE SERVICES L.L.C.
By /s/ JEROME PEARLSON
----------------------------
Name: Jerome Pearlson
Authorized Signatory
/s/ SUSAN O'DONOVAN
----------------------------
Name: Susan O'Donovan
Authorized Signatory
33
<PAGE> 38
EXHIBIT A
DEFINITIONS LIST
Adjusted Eligible Contract Balance: On any day, the aggregate
of the Outstanding Balances of all Contracts minus the sum of (a) the aggregate
Outstanding Balance of all Defaulted Contracts on such day and (b), without
duplication of the amount described in clause (a) of this definition, the
aggregate Outstanding Balance of all Ineligible Contracts on such day;
provided, that for this purpose only a Contract shall not be an Ineligible
Contract by reason of clause (d) of the definition of the Eligible Contract.
Administration Agreement: The Administration Agreement dated
as of October 31, 1994 between the Borrower and NAF Corp.
Advance Rate: Eighty-five percent (85%).
Affiliate: As to any specified Person, any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" or
"controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, no "acquisition vehicle" (such as WAMCO XXIII, Ltd.) shall be
considered an "Affiliate" of FirstCity or any NAF Entity.
Annual Percentage Rate: The annual rate of interest
applicable to each Contract, as disclosed therein.
Available Facility Amount: On any date, the excess, if any,
of (a) the Borrowing Base, as of such date, minus (b) the Outstanding Facility
Balance.
Bank Accounts: Collectively, the Lock-Boxes and the
Collection Account.
Bankruptcy Event: With respect to a Person, (a) such Person
or any of its Affiliates (if any) shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or such Person or any of its Affiliates shall
make a general assignment for the benefit of its creditors; or (b) there shall
be commenced against such Person or any of its Affiliates any case, proceeding
or other action of a nature referred to in clause (a) above which (i) results
in the entry of an order for relief or any such adjudication or
<PAGE> 39
appointment or (ii) remains undismissed, undischarged or unbonded for a period
of 60 days; or (c) there shall be commenced against such Person or any of its
Affiliates any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (d) such Person or any
of its Affiliates shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (a), (b), or (c) above; or (e) such Person or any of its Affiliates
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due.
Blanket Policy: An Insurance Policy maintained by the
Borrower and its assignees for "vendor's single interest" coverage with respect
to each Vehicle.
Borrower: N.A.F. Auto Loan Trust, a Delaware business trust.
Borrowing Base: On any day, an amount equal to
(x) the sum of:
(i) the product of the Advance Rate times the
Adjusted Eligible Contract Balance as of the
end of the prior Collection Period (or as of
the Closing Date, with respect to the initial
period),
(ii) the product of the Advance Rate times the
Outstanding Contract Balance of all Contracts
acquired by the Borrower since the end of the
immediately preceding Collection Period,
(iii) the Eligible Amount on deposit in the
Collection Account at the end of the
immediately preceding Collection Period,
(iv) the Deposit Amount on deposit in the
Collection Account on such day, and
(v) the product of the Advance Rate and 50% of
the Outstanding Balance of each Contract
which (a) is less than 60 days past due and
(b) for which the related vehicle has been
repossessed but not sold,
minus
(y) the sum of:
(i) the Borrowing Base Adjustment Amount
as of such date; and
<PAGE> 40
(ii) from the first day of the related
Collection Period through the
related Determination Date, zero;
from the related Determination Date
through the end of the related
Collection Period, the principal
amortization amount during the prior
Collection Period, as reported on
the Servicer's Certificate; and
(iii) the excess, if any, of:
(x) the cumulative amount disbursed
from the Collection Account
pursuant to Section
2.03(a)(i) of the Paying
Agent Agreement since the
beginning of the related
Collection Period;
over
(y) the sum of:
(i) the cumulative amount
deposited to the Collection
Account pursuant to Section
2.02(a)(ii) of the Paying
Agent Agreement since the
beginning of the related
Collection Period; and
(ii) the Deposit Amount as of such
day.
Borrowing Base Adjustment Amount: means $2,000,000, until
such time as the Lender notifies the Borrower, NAF Corp., the Paying Agent and
FirstCity that the Lender has accepted FirstCity's delivery of its additional
funding commitment pursuant to Section 3.1(b) of Commitment, the Borrowing Base
Adjustment Amount shall thereafter be zero.
Borrowing Date: Any Business Day specified in a notice
pursuant to subsection 2.3 of the Credit Agreement as a date on which Borrower
requests Lender to make Loans thereunder.
Business Day: A day of the year on which banks are not
required or authorized to close in New York City, New York, Wilmington,
Delaware, Dallas, Texas and Los Angeles, California.
Capital Stock: With respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
capital stock of a corporation, any and all equivalent ownership interests in a
Person (other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
<PAGE> 41
Change of Control:
(i) Except with respect to a securitization contemplated by
the Facility Agreements, all or substantially all of either of the NAF
Entities' assets are sold, leased, transferred or otherwise disposed of as an
entirety or substantially as an entirety (in one transaction or in a series of
transactions) to any Person or Persons which are not at least 80% owned,
directly or indirectly, by FirstCity; or
(ii) the beneficial owners or trustees of either of the NAF
Entities consummate, or approve a definitive agreement or plan for:
(A) any merger, consolidation, exchange of
certificates, recapitalization, restructuring or other business combination
with or into another business trust or any sale of beneficial ownership of
either of the NAF Entities (for purposes of this definition, a "Transaction")
pursuant to which (x) either of the NAF Entities will not survive, or (y)
FirstCity, directly or indirectly, will not hold at least 80% of the beneficial
interest in either of the NAF Entities after such Transaction, or (z)
FirstCity, directly or indirectly, is entitled to receive any cash, securities
or other property, except any such Transaction as a result of which at least
80% of the beneficial ownership of the surviving Person is owned, directly or
indirectly, by FirstCity, or
(B) the liquidation or dissolution of either of
the NAF Entities.
Closing Date: the date on which all of the Facility
Agreements have been executed by all the parties thereto.
Code: The United States Internal Revenue Code of 1986,
amended.
Collateral: As defined in Section 2 of the Security and
Collateral Agent Agreement.
Collateral Agent: Texas Commerce Bank National Association,
acting in its capacity as Collateral Agent under the Security and Collateral
Agent Agreement and any successor Collateral Agent appointed pursuant to the
Security and Collateral Agent Agreement.
Collateral Agent Certification: As defined in Section
7.08(a)(i) of the Security and Collateral Agent Agreement.
Collateral Agent's Certification As defined in Section
7.08(a)(i) of the Collateral Agent Agreement.
Collection Account: The Collection Account maintained by the
Collateral Agent pursuant to the Paying Agent Agreement.
Collection Period: With respect to any Payment Date, the
calendar month (or portion of such calendar month, in the case of the first
Payment Date) immediately
<PAGE> 42
preceding such Payment Date.
Collections: All amounts (including, without limitation,
Recoveries) due and owing on, or otherwise received by Borrower in respect of
the Contracts and the Vehicles.
Commitment Period: The period from and including the date
hereof to but not including the Commitment Termination Date.
Commitment Termination Date: The date which is 360 days after
the Closing Date; or such later date to which the Commitment Termination Date
may be extended pursuant to Section 2.1(a) of the Credit Agreement.
Computer Tape: A computer tape generated by the Borrower
containing, without limitation, the information set forth on the Contract List.
ContiFinancial: ContiFinancial Services Corporation, a Delaware Corporation.
Contract: Each retail installment sale contract for a Vehicle
that was originated under a Loan Origination Agreement with an FI approved by
the Lender, any amendment, supplement or modification thereto, and all rights
and obligations thereunder.
Contract List: Each schedule of Contracts delivered by
Borrower to Lender and the Collateral Agent with respect to each Borrowing Date
identifying, in such detail as such parties may require, each Contract being
purchased by Borrower, delivered to the Lender and, for so long as the Security
and Collateral Agent Agreement is in effect, the Collateral Agent, pledged by
Borrower to the Lender, organized by the name of the Obligor and the state in
which the Obligor's billing address is located and setting forth for each such
Contract: (i) a number identifying the Contract, (ii) the original amount
financed of such Contract, (iii) Annual Percentage Rate, (iv) the original
maturity of the Contract, (v) the remaining maturity of the Contract, (vi) the
amount of the Obligor's monthly payment, (vii) the purchase price of such
Contract, (viii) the name and address of the Obligor on such Contract and (ix)
the Outstanding Balance of such Contract.
Contractual Obligation: As to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
Credit Agreement: The Warehouse Credit Agreement dated as of
May 17, 1996 between Borrower, Lender and NAF Corp.
Credit Enhancer: A monoline insurer, letter of credit bank or
other third- party supplier of credit enhancement, if any.
Dealer Assignment: Any agreement pursuant to which a Contract
or
<PAGE> 43
security interest in a Vehicle has been transferred, sold or assigned by a
Vehicle Dealer to Borrower (or to an FI and then assigned to Borrower).
Debt: Of a Person on any day, the sum on such day of (a)
indebtedness for borrowed money or for the deferred purchase price of property
or services, or evidenced by bonds, notes or other similar instruments, (b)
obligations as lessee under any operating leases and any leases which shall
have been or should be, in accordance with GAAP, recorded as capital leases,
and (c) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (a) or (b) above.
Defaulted Contract: As of any Determination Date, any
Contract that as of the end of the preceding Collection Period (a) is
classified by the Borrower, on a contractual basis, as 60 or more days past
due, or (b) with respect to which the related Vehicle has been repossessed by
Borrower.
Delinquency Ratio: With respect to the Determination Dates in
June and July of 1996, the aggregate Outstanding Contract Balances of all
Contracts which are 30 or more days past due as of the end of the preceding
Collection Period divided by the aggregate Outstanding Contract Balances of all
Contracts as of the end of such preceding Collection Period; with respect to
any subsequent Determination Date, the average, as of the last day of each of
the three preceding Collection Periods, of the aggregate Outstanding Contract
Balance of all Contracts.
Delinquent Contract: Any Contract (a) that is classified by
the Borrower, on a contractual basis, as 30 or more days past due and (b) that
is not a Defaulted Contract.
Deposit Amount: means all funds deposited in the Collection
Account (i) by the Borrower, pursuant to Section 2.01(a)(iii) of the Paying
Agent Agreement or (ii) by the Lender, pursuant to Section 2.01(a)(i) of the
Paying Agent Agreement in each case (a) since the end of the immediately
preceding Collection Period and (b) which remain on deposit in the Collection
Account at the time of the Borrowing Base calculation is being made and, thus
have not been applied to the acquisition of Contracts.
Deposited Funds: On any day, all Principal Collections on
deposit in or otherwise to the credit of the Collection Account at the close of
business on the previous Business Day.
Determination Date: With respect to a Collection Period, the
tenth day following the end of such Collection Period.
Dollars and $: Lawful money of the United States of America.
EDS: Electronic Data Systems Corporation, a Texas
corporation.
<PAGE> 44
Eligible Amount: means the amount on deposit in the
Collection Account at the end of the immediately preceding Collection Period,
less (i) the interest due to Lender on the Facility on the interest payment
date which next follows the end of the such Collection Period, (ii) the
Servicing Fees to be due to the Servicer on the 15th day of the month which
next follows the end of such Collection Period and (iii) $250,000, representing
miscellaneous amounts.
Eligible Contract: On any day, a Contract (a) that arises
from the completed delivery of a Vehicle and which has been fully performed by
Borrower and the Dealer party thereto, (b) that arises from the normal course
of the Dealer's business, (c) that is not a Defaulted Contract, (d) that is not
a Delinquent Contract; provided, that this clause (d) shall not apply to WAMCO
Contracts at the time the Advance is made against such WAMCO Contracts, (e) the
Obligor of which is a natural person residing in any state of the United States
or the District of Columbia, (f) the Obligor of which is not a government or
governmental subdivision or agency, (g) the Obligor of which has full power and
capacity to enter into such Contract and perform his or her obligations
thereunder, (h) as to which the Obligor has executed and delivered an original
note that is in full force and effect and constitutes the legal, valid and
binding obligation of the Obligor in accordance with its terms, (i) that is
denominated and payable in Dollars in the United States, (j) that is not
subject to any dispute, litigation, counterclaim or defense, or any offset or
right of offset at the time of purchase by Borrower, (k) that has an original
term to maturity of not less than 24 nor more than 60 months, (l) that provides
for equal monthly payments which will cause the Contract to fully amortize
during its term, (m) that has an Annual Percentage Rate of not less than the
lesser of (A) 700 basis points over the two-year Treasury rate in effect on the
date of origination of such Contract and (B) the maximum interest rate
permissible by law with respect to such Contract, (n) that, together with the
note applicable thereto, does not contravene any Requirements of Law applicable
thereto, (o) with respect to which all required consents, approvals and
authorizations have been obtained, (p) as to which the security interest in the
Vehicle securing such Contract has been recorded in the name of Borrower or the
Collateral Agent and which security interest is in full force and effect and
subject to no prior or equal liens, claims or encumbrances, (q) which was
originated using the Underwriting Criteria, (r) that requires the Borrower to
be named as loss payee or beneficiary (as applicable) under an insurance policy
with respect to the Vehicle financed by such Contract and entitles the Borrower
to the benefits of such insurance policy and (s) as to which the
Representations and Warranties are true and correct, (t) that, if such Contract
is a Modified Contract, the Lender has not given the Borrower notice that such
Contract is to be excluded as not being an Eligible Contract and (u) as to
which the Collateral Agent has issued a Collateral Agent's Certification
listing no exceptions.
Eligible Deposit Account: Either (i) a segregated account
with an Eligible Institution or (ii) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States of America or any one of the States thereof or the
District of Columbia (or any domestic branch of a foreign bank), having
corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the securities of such depository institution have a
credit rating acceptable to the Lender.
<PAGE> 45
Eligible Institution: A depository institution organized
under the laws of the United States of America or any one of the States thereof
or the District of Columbia (or any domestic branch of a foreign bank), (A)
which has either (1) a long-term unsecured debt rating of at least AA by S&P
and Aa by Moody's or otherwise acceptable to the Lender or (2) a short-term
unsecured debt rating or certificate of deposit rating of at least A-1 by S&P
and P-1 by Moody's or otherwise acceptable to the Lender and (B) whose deposits
are insured by the FDIC.
ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
ERISA Affiliate: With respect to any Person (a) any
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as such Person, (b) a
partnership or other trade or business (whether or not incorporated) under
common control (within the meaning of Section 414(c) of the Code) with such
Person or (c) a member of the same affiliated service group (within the meaning
of Section 414(m) of the Code) as such Person, any corporation described in
clause (a) above or any partnership or other trade or business described in
clause (b) above.
Event of Default: The occurrence of any of the following
events:
(a) Borrower fails to pay when due any amount payable under
the Credit Agreement.
(b) Any representation or warranty made or deemed made by
Borrower or NAF Corp., in any capacity which is contained in the
Facility Agreements or in any agreement, written report or written
information furnished at any time under or required by the Facility
Agreements shall prove to have been false or incorrect on or as of the
date made or deemed made, which remains uncured for five Business Days
following NAF Corp.'s receipt of notice thereof, and which is likely
to have a material, adverse effect on the financial condition or
business prospects of the Borrower or of NAF Corp.
(c)(i) Borrower (x) defaults in any payment of principal of or
interest on any Debt, beyond the period of grace, if any, provided in
the instrument or agreement under which such Debt was created or (y)
defaults in the observance or performance of any agreement or
condition contained in any instrument or agreement to which it is a
party or by which its property or assets are bound, which remains
uncured for five Business Days following the Borrower's and NAF
Corp.'s receipt of notice thereof.
(ii) NAF Corp. (x) defaults in any payment of principal of or
interest on any Debt, beyond the period of grace, if any, provided in
the instrument or agreement under which such Debt was created and
which has an outstanding principal balance of $50,000 or more or (y)
defaults in the observance or
<PAGE> 46
performance of any agreement or condition contained in any instrument
or agreement to which it is a party or by which its property or assets
are bound, which remains uncured for five Business Days following NAF
Corp.'s receipt of notice thereof, and which is likely to have a
material adverse effect on the financial condition or business
prospects of NAF Corp.
(d) For any reason, Borrower shall cease to have a valid and
perfected first priority ownership interest in the Contracts or Lender
shall cease to have a valid and perfected first priority security
interest in the Collateral or any other collateral pledged under the
Facility Agreements or any other Operative Document shall cease to be
in full force and effect or cease to be the legal, valid, binding and
enforceable obligation of any party thereto.
(e) A Bankruptcy Event shall occur with respect to Borrower,
NAF Corp. or any Affiliate of NAF Corp.
(f) One or more judgments or decrees (in the case of NAF
Corp., in an aggregate amount in excess of $50,000) shall have been
entered against any NAF Entity which is not paid, bonded, stayed or
covered by insurance, provided, that this clause shall not apply to
actions relating to individual Contracts, unless a material portion of
the Contracts is affected.
(g) Borrower or NAF Corp. becomes liable for environmental
remediation or compliance expenses or fines, penalties or other
charges related to environmental matters in excess of $50,000.
(h) Borrower or NAF Corp. or any ERISA Affiliate of Borrower,
(i) shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lender,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any ERISA Affiliate
shall, or in the reasonable opinion of Lender is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or
condition shall occur or exist, with respect to a Plan; and in each
case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could
subject Borrower or any ERISA Affiliate to any tax, penalty or other
liabilities which are materially adverse to the business, operations,
prospects, property or financial or other condition of Borrower.
(i) Any financial statement delivered pursuant to the Facility
Agreements
<PAGE> 47
and reported on by any independent certified public accountants shall
contain any qualification or exception, or qualification arising out
of the scope of the audit.
(j) A material adverse change from the date hereof in the
business, properties, operations, prospects or financial or other
condition of Borrower or NAF Corp., as determined by Lender in its
reasonable, good faith business judgment.
(k) A material adverse change from the date hereof in the
collectibility of the Contracts taken as a whole.
(l) Borrower or NAF Corp. becomes an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(m) Borrower shall fail to provide any information required to
be provided by Section 6.3 of the Credit Agreement by the time
required thereby.
(n) Borrower or NAF Corp. shall default in the observance or
performance of any other term, condition or covenant under the
Facility Agreements and such failure to observe or perform continues
for five Business Days.
(o) As of any Determination Date, the Delinquency Ratio is
greater than or equal to (i) for the Determination Dates in June and
July 1996, 30%, or, (ii) for the Determination Dates in August and
September 1996, 25% or (iii) thereafter, 15%.
(p) As of the November, 1996, Determination Date, the Net Loss
Ratio is greater than or equal to 13%; for each Determination Date
thereafter, the Net Loss Ratio is greater than or equal to 10%, in
each case, on an annualized basis.
(q) As of any Determination Date, the average of the Recovery
Percentages for the three preceding Collection Periods is less than
(i) prior to the Determination Date in September, 1996, 35%, or (ii)
thereafter, 45%.
(r) As of any date, the Outstanding Facility Balance exceeds
the Borrowing Base.
(s) A Change of Control shall occur.
(t) The aggregate principal amount of Contracts originated is
less than $20,000,000 for the first six months following the Closing
Date or $25,000,000 for any six month period thereafter.
(u) FirstCity shall default in the observance or performance
of any term, condition or covenant in the Funding Commitment and such
failure to observe or perform continues for five Business Days.
<PAGE> 48
(v) Borrower fails to observe any financial covenant set forth
in Section 6.15 of the Credit Agreement.
(w) Any two FI's cancel their Loan Origination Agreements in
any consecutive two-month period, or any FI which accounts for 10% or
more of Contract originations (by principal balance, on a rolling
six-month basis) cancels its Loan Origination Agreement.
(x) An Event of Servicing Termination occurs under the
Servicing Agreement.
(y) Any NAF Entity shall default in the observance or
performance of any term, condition or covenant in any other Facility Agreement
and such failure to observe or perform continues for five Business Days.
Facility Agreements: The collective reference to the Credit
Agreement, the Promissory Note, the Commitment, the Security and Collateral
Agent Agreement, the Servicing Agreement, the IBSA, the Loan Origination
Agreements and any other agreement or instrument related or delivered to any
party to any of the foregoing pursuant to or in connection with any of the
foregoing.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereof.
File: With respect to each Contract to be purchased by
Borrower:
(a) the original Dealer Assignment;
(b) the fully executed original of the Contract;
(c) documents evidencing or related to any Insurance Policy
with respect to a Vehicle;
(d) the original or a copy of the credit application of the
Obligor, fully executed by such Obligor, such application to be in a
form substantially similar to that included in the Credit and
Collection Policy;
(e) where permitted by law, the original certificate of title
and otherwise such documents, if any, that the Servicer keeps on file
in accordance with its customary procedures and the Credit and
Collection Policy indicating that the Vehicle is owned by the Obligor
and subject to the interest of Borrower as first lienholder or secured
party; and
(f) any and all other documents that Borrower, Cbe purchased by
Borrower:
(a) the original Dealer Assignment;
(b) the fully executed original of the Contract;
(c) documents evidencing or related to any Insurance Policy
with respeclar items with respect to Contracts.
FirstCity: FirstCity Financial Corporation, a Delaware
corporation.
FIs: The financial institutions or agencies (except for
Farmers' and Mechanics' Bank, Tammac Corporation and Mellon Bank) which have
entered into respective Loan Origination Agreements with the Borrower.
Funding Commitment: The Funding Commitment dated as of May
17, 1996 by and between FirstCity and Lender
GAAP: Generally accepted accounting principles in effect from
time to time in the United States of America.
Governing Instrument: The trust instrument which created the
Borrower and provides for the governance of its affairs and the conduct of its
business.
Governmental Authority: Any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
IBSA: The Investment Banking Services Agreement dated as of
May 17, 1996 between NAF Corp. and ContiFinancial.
Ineligible Contracts: Any Contract that, subsequent to the
date of the Borrower's acquisition of such Contract, (A) is determined not to
have conformed to the definition of "Eligible Contracts" on such date of
purchase or (B) which has become (x) a Defaulted Contract or (y) a Modified
Contract which the Lender has rejected from the Borrowing Base or (C) as to
which the Servicer has not received the related Lien Certificate by the 136th
day following the date on which the Contract was originated.
Insolvency: With respect to any Multiemployer Plan, the
condition that such plan is insolvent within the meaning of Section 4245 of
ERISA.
Interest Period: With respect to any Payment Date, the prior
calendar month.
Lender: ContiTrade Services L.L.C.
Lender Commitment: $50,000,000, or such other amount agreed
upon in writing by Borrower and Lender.
LIBOR: With respect to any Advance, (x) through the end of
the Interest Period in which such Advance is made, one-month LIBOR on the
related Borrowing Date, and (y) for subsequent Interest Periods, one-month
LIBOR on the first day of such
<PAGE> 50
Interest Period, in either case as published on such date in the Wall Street
Journal.
Lien: Any lien, mortgage, security interest, pledge,
hypothecation, charge, equity, encumbrance or right of any kind whatsoever
(except any lien, mortgage, security interest, pledge, hypothecation, charge,
equity, encumbrance or right of any kind granted under the Credit Agreement
with respect to the Contracts).
Liquidated Contract: A Contract which is a Defaulted Contract
and with respect to which the Borrower has concluded that all Recoveries to be
received in respect of such Contract have been deposited in the Lockbox
Account.
Loan: As defined in subsection 2.1 of the Credit Agreement.
Loan Origination Agreement: The Non-Standard Auto Loan
Origination Agreements, each in substantially the form attached as Exhibit K to
the Credit Agreement (or with such changes from such form as are approved by
the Lender), entered into between the Borrower and an FI pursuant to which the
Borrower agrees to acquire Eligible Contracts, each as form time to time
amended, supplemented or modified.
Lock-Box: Any lock-box or account to which Obligors remit
Collections.
Lock-Box Agreement: As defined in Section 4.1(m) of the
Credit Agreement.
Lock Box Bank: Any institution at which a Lock-Box is kept.
Maximum Loan Amount: At any time, the lesser of (a)
$50,000,000 and (b) the Borrowing Base.
Milco: Milco Loan Servicing Corporation.
Modified Contract: As defined in Section 2.2(b) of the
Servicing Agreement.
Moody's: Moody's Investors Service, Inc.
Multiemployer Plan: A "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Borrower or any of its ERISA Affiliates is
making or accruing an obligation to make contributions, or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.
NAF Corp.: National Auto Funding Corporation, a Texas
corporation.
NAF Entities: The Borrower, NAF Corp. and all subsidiaries
(including trusts) of NAF Corp.
Net Loss Ratio: As of any Determination Date, the average,
over the three
<PAGE> 51
most recent Collection Periods, of the product of (a)(i) the principal balance
of all Contracts where (A) the Vehicle has been repossessed and sold, (B) the
Vehicle has been repossessed, and more than 30 days has passed since the end of
the related redemption period, or (C) the Contract is more than 120 days
delinquent or has been written off, less all Recoveries received on each
related Contract (net of associated expenses), in each case during the
preceding Collection Period, divided by (ii) the principal balance of all
Contracts outstanding at the end of such Collection Period and (b) 12.
Notice of Borrowing: As defined in Section 2.3 of the Credit
Agreement.
Obligations: All the unpaid principal amount of, and interest
on (including interest accruing on or after any Bankruptcy Event, whether or
not a claim for post-filing or post-petition interest is allowed in a
proceeding relating thereto, and interest on overdue interest), the Promissory
Note and all other obligations and liabilities of Borrower or any Affiliate of
the NAF Entities to Lender or any Affiliate of Lender, whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Credit Agreement, the Promissory Note, the Facility Agreement and any other
document executed and delivered in connection therewith whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses (including, without limitation, all fees and disbursements of counsel
to Lender) or otherwise.
Obligor: Each Person who is indebted on a Contract.
Outstanding Contract Balance: On any day, with respect to any
Contract, the principal amount due and owing on such Contract on such day.
Outstanding Facility Balance: On any day, with respect to the
Loan, the outstanding principal amount of the Loan on such day.
Owner Trustee: Delaware Trust Company.
Paying Agent: The Collateral Agent, acting in its capacity as
paying agent under the Paying Agent Agreement.
Paying Agent Agreement: The Paying Agent Agreement dated as
of May 17, 1996 among Borrower, Lender and the Paying Agent.
Payment Date: As defined in Section 2.4 of the Credit
Agreement.
PBGC: The Pension Benefit Guaranty Corporation established
under ERISA.
Permitted Investments: Book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(i) direct obligations of, and obligations fully guaranteed as to timely
<PAGE> 52
payment by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit
of any depository institution or trust company incorporated under the
laws of the United States of America or any state thereof (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or State banking or depository institution
authorities; provided, however, that at the time of the investment or
contractual commitment to invest therein, the commercial paper or
other short-term unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a person
other than such depository institution or trust company) thereof shall
have a credit rating from each of S&P and Moody's in the highest
investment category granted thereby;
(iii) commercial paper having, at the time of the investment
or contractual commitment to invest therein, a rating from each of S&P
and Moody's in the highest investment category granted thereby;
(iv) investments in money market or common trust funds having
a rating from each of S&P and Moody's in the highest investment
category granted thereby;
(v) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC;
(vi) bankers' acceptances issued by any depository institution
or trust company referred to in clause (ii) above; and
(vii) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States
of America or any agency or instrumentality thereof, the obligations
of which are backed by the full faith and credit of the United States
of America, in either case entered into with a depository institution
or trust company (acting as principal) the deposits of which are
insured by the FDIC.
Person: An individual, a partnership, a corporation, a
limited liability company, a limited liability partnership, a business trust, a
joint stock company, a trust, an unincorporated association, a joint venture, a
Governmental Authority or other entity of whatever nature.
Pipeline Contract: Any Contract funded directly by an FI
prior to May 17, 1996, and acquired by the Borrower from such FI.
Plan: Any employee benefit plan defined in Section 3(3) of
ERISA in respect of which Borrower or any ERISA Affiliate thereof is or at any
time within the immediately preceding five years was an "employer" as defined
in Section 3(5) of ERISA or may have liability, including liability as a
substantial employer, within the meaning of Section 4063 of ERISA and as a
contributing sponsor under Section 4069 of ERISA.
<PAGE> 53
Principal Collections: Collections other than Finance
Charges.
Promissory Note: The note issued pursuant to Section 2.2 of
the Credit Agreement.
Rating Agencies: Moody's Investors Service, Standard & Poor's
Corporation, Duff & Phelps Credit Rating Service and Fitch Investors Service.
Recoveries: With respect to any Collection Period, the
aggregate amount of all cash received by Borrower during such Collection Period
in respect of any Contract which is a Defaulted Contract including, through the
sale or other disposition of the related Vehicle, proceeds of Insurance
Policies with respect to the related Vehicle, or payments made by or on behalf
of the Obligor, net of amounts that are legally required to be refunded to the
Obligor and net of the Servicer's expenses in connection with such liquidation.
Recovery Percentage: With respect to any Collection Period,
the percentage equivalent of a fraction, the numerator of which is the
aggregate amount of Recoveries deposited in the Collection Account during such
Collection Period in respect of Contracts which became Liquidated Contracts
during such Collection Period and the denominator of which is the aggregate
Outstanding Balance of such Liquidated Contracts.
Reorganization: With respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
Reportable Event: Any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder other than those events as to
which the thirty day notice period is waived under Sections .13, .14, .18, .19
or .20 of PBGC regulation Section 2615.
Representations and Warranties: With respect to any Contract,
the representations and warranties made by an FI (including, for this purpose,
Tammac Corporation, Mellon Bank and Farmers' and Mechanics' Bank) in the
related Loan Origination Agreement.
Requirements of Law: As to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of
such Person and any law, treaty, rule or regulation or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.
Responsible Officer: As to any Person, the chief executive
officer, president, vice president-operations, chief financial officer,
controller, secretary or treasurer of a corporation, provided, that (a) with
respect to any certificate to be delivered by a Responsible Officer, such
Responsible Officer shall have personal knowledge of the subject matter of such
certificate, and (b) with respect to any other matter to be
<PAGE> 54
undertaken by a Responsible Officer, such Responsible Officer shall be duly
authorized by all necessary corporate or other action with respect to such
matter.
S&P: Standard & Poor's Ratings Services, a Division of The
McGraw Hill Companies, Inc.
SEC: The Securities and Exchange Commission.
Securitization: As defined in Section 6.14 of the Credit
Agreement.
Security and Collateral Agent Agreement: The Security and
Collateral Agent Agreement dated as of May 17, 1996 among Borrower, Lender and
the Collateral Agent.
Servicer: J-Hawk Servicing Corporation, a Texas corporation.
Servicing Agreement: The servicing agreement dated as of May
17, 1996 among Borrower, the Servicer and the Collateral Agent.
Servicing Report: The report to be delivered by Borrower
pursuant to Section 6.2 of the Credit Agreement, substantially in the form of
Exhibit I thereto.
Single-Employer Plan: A single employer plan, as defined in
Section 4001(a)(15) of ERISA, which (a) is maintained for employees of Borrower
or an ERISA Affiliate thereof and no Person other than the Borrower and their
ERISA Affiliates or (b) was so maintained and in respect of which the Borrower
or any ERISA Affiliate thereof could have liability under Title IV of ERISA in
the event such plan has been or were to be terminated.
Subordinated Debt: Any Debt which (x) is by its terms
subordinated to the Obligations, and (y) provides for a non-petition covenant
against Borrower.
Subordinated Lien: A Lien approved in writing by the Lender,
and which secures any Subordinated Debt.
Subsidiary: As to any Person, any Person of which a Person
owns, directly or indirectly through one or more intermediaries, more than 50%
of the Capital Stock or beneficial interest thereof.
Tangible Assets: All assets of Borrower except: (i)
deferred assets, other than prepaid insurance and prepaid taxes, (ii) patents,
copyrights, trademarks, trade names, non-compete agreements, franchises and
similar intangibles, (iii) good will, including any amounts, however designated
on the balance sheet of Borrower, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on the books of
Borrower, (iv) unamortized debt discount and expense, and (v) accounts, notes
and other receivables due from Affiliates or employees.
<PAGE> 55
Tangible Net Worth: At any date means a sum equal to (i) the
net book value (after deducting related depreciation, amortization and other
proper reserves) at which the Tangible Assets of Borrower would be shown on a
balance sheet at such date in accordance with GAAP applied on a consistent
basis, minus (ii) the amount at which the liabilities of Borrower (excluding
Subordinated Debt) would be shown on such balance sheet in accordance with
GAAP, and including as liabilities all reserves, required in accordance with
GAAP, for contingencies and other potential liabilities.
Tangible Net Worth Requirement: The total Tangible Net Worth
of Borrower is equal to at least $4 million.
Taxes: As defined in Section 2.10 of the Credit Agreement.
UCC: The Uniform Commercial Code as in effect in the
specified jurisdiction or, if no jurisdiction is specified, as in effect in the
state whose law, by agreement of the parties, governs the document or agreement
in which the term "UCC" appears.
Underwriting Criteria: The criteria agreed upon for
underwriting Contracts between Borrower and Lender and attached to the Credit
Agreement as Exhibit K.
Unmatured Event of Default: Any of the events specified in
the definition of Event of Default, whether or not any requirement for the
giving of notice, the lapse of time, or both, or any other condition, has been
satisfied.
Vehicle: Any new or used automobile or light truck that
secures a Contract.
Vehicle Dealer: Any seller of automobile or light trucks that
originated one or more of the Contracts and transferred, sold or assigned the
respective Contract, directly or indirectly, to Borrower under a Dealer
Assignment.
WAMCO Contract: Any Contract acquired by the Borrower from
WAMCO XXIII, Ltd.
<PAGE> 56
EXHIBIT B
PROMISSORY NOTE
New York, New York
May 17, 1996
FOR VALUE RECEIVED, the undersigned, N.A.F. Auto Loan Trust, a
Delaware business trust (the "Borrower"), promises to pay to the order of
ContiTrade Services L.L.C. ("Lender"), on the date specified in Section 2.5 of
the Credit Agreement hereinafter referred to, at the office of Lender at 277
Park Avenue, New York, New York, in lawful money of the United States of
America and in immediately available funds, the principal amount of FIFTY
MILLION DOLLARS AND NO CENTS DOLLARS ($50,000,000), or if less, the aggregate
unpaid principal amount of all Advances made by Lender to Borrower pursuant to
the Credit Agreement, and to pay interest at such office, in like money, from
the date hereof on the unpaid principal amount of such Loans from time to time
outstanding at the rate and on the dates specified in Section 2.4 of the Credit
Agreement.
Lender is authorized to record, on the schedule annexed
thereto and made a part hereof or on other appropriate records of Lender, the
date and amount of each Loan made by Lender, each continuation thereof, the
interest rate from time to time on each Loan and the date and amount of each
payment or repayment of principal thereof. Any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded,
provided that the failure of Lender to make any such recordation (or any error
in such recordation) shall not affect the obligations of Borrower hereunder or
under the Credit Agreement in respect of the Loan.
This Promissory Note is the Promissory Note referred to in the
Warehouse Credit Agreement dated as of May 17, 1996 (as amended, supplemented
or otherwise modified and in effect from time to time, the "Credit Agreement")
between Borrower, Lender and NAF Corp., and is entitled to the benefits
thereof. Capitalized terms used herein without definition have the meanings
assigned to them in the Credit Agreement.
This Promissory Note is subject to original and mandatory
prepayment as provided in the Credit Agreement.
Upon the occurrence of an Event of Default, the Lender shall
have all of the remedies specified in the Credit Agreement, and Borrower hereby
waives presentment, demand, protest and all notices of any kind.
<PAGE> 57
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
N.A.F. AUTO LOAN TRUST
By: DELAWARE TRUST COMPANY, not in
its individual capacity, but
solely as Owner Trustee on
behalf of N.A.F. AUTO LOAN TRUST
By:
----------------------------
Name: Richard N. Smith
Title: Vice President
<PAGE> 58
Schedule 1 to
PROMISSORY NOTE
<TABLE>
<CAPTION>
Interest Prepayment Notation
Date Principal on Loans of Loans By
---- --------- -------- ---------- --------
<S> <C> <C> <C> <C>
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
------------ -------------- ------------ --------------- ------------
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------------ -------------- ------------ --------------- ------------
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</TABLE>
<PAGE> 59
EXHIBIT C
NOTICE OF BORROWING
N.A.F. Auto Loan Trust hereby requests that ContiTrade Services
L.L.C. make a Loan to it on [insert Borrowing Date] in the amount of [amount of
Loan requested] by crediting Texas Commerce Bank Account No. _______ by 4:00
p.m. (New York City time) on [insert Borrowing Date] (capitalized terms used
herein have the meaning assigned to them in the Warehouse Credit Agreement
dated as of May __, 1996 as amended, modified or supplemented from time to
time). N.A.F. Auto Loan Trust hereby certifies as of the date hereof that the
representations and warranties made in Section 3 of the Credit Agreement are
true and correct on and as of the Borrowing Date for such Loan, both before and
after giving effect to such Loan.
N.A.F. AUTO LOAN TRUST
By: DELAWARE TRUST COMPANY,
not in its individual
capacity, but solely as
Owner Trustee on behalf of
N.A.F. AUTO LOAN TRUST
By:
-----------------------
Name: Richard N. Smith
Title: Vice President
<PAGE> 60
Attachment A
to Notice of Borrowing
TRUSTEE'S CERTIFICATE
The undersigned, [TRUSTEE'S NAME], Trustee of N.A.F. AUTO LOAN
TRUST, a Delaware business trust ("Borrower"), hereby gives this Certificate to
induce CONTITRADE SERVICES, L.L.C. ("Lender") to consummate certain financial
accommodations with Borrower pursuant to the terms of the Warehouse Credit
Agreement (as amended, modified or supplemented from time to time and together
with the schedules and exhibits thereto, the "Credit Agreement") dated as of
May __, 1996. The undersigned, as Trustee, hereby certifies to Lender that:
1. The representations and warranties of Borrower contained
in the Credit Agreement are true and correct in all materials respects on and
as of this day.
2. Borrower is in compliance with all of the terms and
provisions set forth in the Credit Agreement required to be complied with or
performed by Borrower on or before the date hereof.
3. No Event of Default or Default (as defined in the Credit
Agreement) has occurred and is continuing as of today's date.
4. The Collateral is not subject to any Lien, except Liens
created by the Operative Documents. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned to them in
the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Certificate this ______ day of _____________, ____.
N.A.F. AUTO LOAN TRUST
By: DELAWARE TRUST COMPANY,
not in its individual
capacity, but solely as
Owner Trustee on behalf of
N.A.F. AUTO LOAN TRUST
By:
-----------------------
Name: Richard N. Smith
Title: Vice President
N.A.F. AUTO LOAN TRUST
<PAGE> 61
Schedule I
LIST OF DOCUMENTS
<PAGE>
SCHEDULE 10.20
================================================================================
CONTITRADE SERVICES L.L.C.
____________________
FUNDING COMMITMENT
dated as of May 17, 1996
____________________
FIRSTCITY FINANCIAL CORPORATION
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. REPRESENTATIONS AND WARRANTIES OF FIRST CITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Representations and Warranties of FirstCity . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. FUNDING COMMITMENT OF FIRSTCITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Commitments Re Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 FirstCity to Provide Subordinate Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 4. ADDITIONAL AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Certain Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Maintenance of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 5. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Miscellaneous Provisions Related to the Financial Commitments . . . . . . . . . . . . . . . . . . 8
5.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Survival of Representations, Warranties and Indemnities . . . . . . . . . . . . . . . . . . . . . 11
5.6 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Integration; Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.12 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 SUBMISSION TO JURISDICTION; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.15 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
FUNDING COMMITMENT
FUNDING COMMITMENT, dated as of May 17, 1996 (the
"Commitment"), by and among CONTITRADE SERVICES L.L.C., a Delaware limited
liability company ("Lender") and FirstCity Financial Corporation, a Delaware
corporation ("FirstCity").
W I T N E S S E T H:
WHEREAS, the NAF Auto Loan Trust (the "Borrower") has entered
into a Credit Agreement dated as of May 17, 1996 (as may from time to time, be
amended, supplemented, or modified, the "Credit Agreement") with the Lender and
National Auto Funding Corporation ("NAF Corp."), pursuant to which the Borrower
will receive the proceeds of Advances from time to time thereunder;
WHEREAS, the Borrower intends to enter into from time to time
Non-Standard Auto Loan Origination Agreements (each, as from time to time
amended, supplemented or modified, a "Loan Origination Agreement" and,
collectively, the "Loan Origination Agreements") with certain financial
institutions and agencies (the "FIs"), pursuant to which the Borrower will
agree to purchase Eligible Auto Loans;
WHEREAS, the Borrower and NAF Corp. have, in connection with
the transactions contemplated hereby, also entered into an Investment Banking
Services Agreement dated as of May 17, 1996 (the "IBSA") with the Lender and
the Lender's Affiliate, ContiFinancial Services Corporation;
WHEREAS, FirstCity is the parent corporation of NAF Corp.; and
WHEREAS, it is a condition to the obligations of the Lender to
make the Advances under the Credit Agreement that FirstCity shall have executed
and delivered to the Lender this Commitment.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. (a) As used in this Commitment, the
capitalized terms used herein and therein shall, unless otherwise defined
herein or therein, have the meanings assigned to them in the Definitions List
dated as of the date hereof that refers to this Commitment, which is
incorporated herein by reference and attached as Exhibit A to the Credit
Agreement (the "Definitions List").
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(b) As used herein or in any other Facility Agreement,
accounting terms not defined in the Definitions List and accounting terms
partly defined in the Definitions List to the extent not defined shall have the
respective meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Commitment shall refer to this
Commitment as a whole and not to any particular provision of this Commitment
and Section, subsection, Schedule and Exhibit references are to this Commitment
unless otherwise specified.
(d) Capitalized terms used herein or in any other
Facility Agreement shall be equally applicable to both the singular and plural
forms of such terms.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF FIRST CITY
2.1 Representations and Warranties of FirstCity. To
induce Lender to enter into the Credit Agreement and to make the Advances,
FirstCity hereby represents and warrants to Lender that:
(a) Corporate Existence Compliance with Law. FirstCity
(i) is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and
authority, and the legal right, as a Delaware corporation, to own and
operate its property, to lease the property it operates as lessee and
to conduct the business in which it is currently engaged, (iii) is
duly qualified as a foreign corporation and is in good standing and
has all licenses (in full force and effect) under the laws of each
jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification and/or
licensing and (iv) is in compliance with all Requirements of Law.
(b) Corporate Power; Authorization; Enforceable
Obligations. FirstCity has the power and authority, and the legal
right, as a Delaware corporation, to make, deliver and perform this
Commitment and the other Facility Agreements to which it is a party
and has taken all necessary action to authorize its obligations
hereunder on the terms and conditions hereof and the other Facility
Agreements to which it is a party and to authorize the execution,
delivery and performance of this Commitment and the other Facility
Agreements to which it is a party. All consents or authorizations of,
filing with or other act by or in respect of, any Governmental
Authority or any other Person required to be obtained, made or given
by it in connection with its obligations hereunder or with the
execution, delivery, performance, validity or enforceability of this
Commitment or the other Facility Agreements to which it is a party
have been so obtained, made or received. This Commitment and each
other Facility Agreement to which it is a party has been duly executed
and delivered on behalf of FirstCity. This Commitment and each other
Facility Agreement to which it is a party constitutes a legal, valid
and binding
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obligation of FirstCity enforceable against FirstCity in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
(c) No Legal Bar. The execution, delivery and
performance by FirstCity of this Commitment and the other Facility
Agreements and its obligations hereunder will not violate any
Requirement of Law or Contractual Obligation of FirstCity and will not
result in, or require, the creation or imposition of any Lien on any
of its properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation.
(d) No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator, court or
Governmental Authority is pending or threatened, by or against
FirstCity or against any of its properties or revenues (i) with
respect to this Commitment or the other Facility Agreements or any of
the transactions contemplated hereby or thereby, or (ii) which could
have a material adverse effect on the business, prospects, properties,
assets, operations or condition, financial or otherwise, of FirstCity
or the ability of FirstCity to perform its obligations hereunder or
under the other Facility Agreements.
(e) No Default; No Event of Default. FirstCity is not
in default under or with respect to any of its Contractual Obligations
in any respect which could have a material adverse effect on the
business, operations, properties, assets, condition or prospects,
financial or otherwise, of FirstCity or on the ability of FirstCity to
perform its obligations hereunder or under the other Facility
Agreements.
(f) No Burdensome Restrictions. FirstCity is not a
party to or subject to any Contractual Obligation which could have a
material adverse effect on the business, properties, assets,
operations, condition or prospects, financial or otherwise, of
FirstCity, or on the ability of FirstCity to carry out its obligations
hereunder or under the other Facility Agreements.
(g) Taxes. FirstCity has filed or caused to be filed
all federal, state and other tax returns which are required to be
filed by it, or has filed extensions with respect thereto (which
extensions have not expired) and has paid all taxes shown to be due
and payable on said returns or on any federal, state and other tax
assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority having taxing power; no tax Lien has been
filed against it, and no claim is being asserted by any Governmental
Authority with respect to any such tax, fee or other charge except, in
each case, for filings which, if not made, taxes which, if not paid,
and tax Liens which, if imposed, would not, in the aggregate, have a
material adverse effect on the
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business, properties, assets, operations, condition or prospects,
financial or otherwise, of FirstCity, or on the ability of FirstCity
to carry out its obligations hereunder or under the other Facility
Agreements.
(h) Investment Company Act; Other Regulations. FirstCity
is not an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act
of 1940, as amended. Borrower is not subject to regulation under any
federal or state statute or regulation which limits its ability to
incur Debt.
(i) No Deduction. FirstCity is not required to make any
deduction or withholding from payments to be made by it to Lender
under this Commitment and the execution and performance of this
Commitment and any of the other Facility Agreements does not make
FirstCity liable for any registration tax, stamp duty or similar tax
or duty imposed by any authority of or within its jurisdiction of
creation, which tax or duty has not been, or will not be, paid when
due.
(j) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to FirstCity
and FirstCity is not insolvent or generally unable to pay its debts as
they become due.
(k) Principal Place of Business. FirstCity's principal
place of business is located at 6400 Imperial Drive, Waco, Texas
76712.
(l) Financial Condition. (i) The audited, consolidated
balance sheet of FirstCity as of December 31, 1995 and the related,
consolidated statements of income and of cash flows for the periods
ended on such date, are complete and correct and present fairly the
financial condition of FirstCity as at such date, and the results of
its operations and its consolidated cash flows for the period then
ended. The financial statements referred to in clause (i) above have
been audited by KPMG Peat Marwick, FirstCity's independent certified
public accountants. FirstCity does not have, and at the date of the
December 31, 1995 balance sheet referred to above, did not have any
material Debt, material contingent liability or material liability for
taxes, or any long-term lease or unusual forward or long-term
commitments, including, without limitation, any interest rate or
foreign currency swap or exchange transaction except (i) to the extent
reflected as a liability on the balance sheet referred to above or
(ii) liabilities incurred in the ordinary course of business since the
date of such balance sheet and fully reflected on FirstCity's books of
account. Since the date of the December 31, 1995 balance sheet
referred to above, there has been no material change in the condition
or prospects, financial or otherwise, of FirstCity except changes in
the ordinary course of business, none of which individually or in the
aggregate has been materially adverse. All such financial statements,
including the related schedules and notes thereto, have been prepared
in accordance with GAAP applied consistently throughout the period
covered thereby.
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SECTION 3. FUNDING COMMITMENT OF FIRSTCITY
3.1 Commitments Re Credit Agreement.
(a)(i) FirstCity hereby agrees to indemnify and hold the
Lender harmless with respect to any loss suffered by the Lender as of
a default and resulting credit loss on any WAMCO Contract listed on
Exhibit A hereto, provided that such default and resulting credit loss
occurs prior to the date on which the servicing arrangements for the
Contracts are acceptable to the Lender. As used in this Section 3,
the phrase "the servicing arrangements for the Contracts are
acceptable to the Lender" means the satisfaction of each of the
following conditions:
(x) the Backup Servicer Effective Date (as
defined in the Credit Agreement) shall have
occurred;
(y) the Lender shall be reasonably satisfied with
the results of Baker & Associates' review of
Milco Loan Servicing Corporation's servicing
abilities and procedures; and
(z) the three-month, rolling average Delinquency
Ratio calculated with respect to the WAMCO
Contracts listed on Exhibit A hereto does not
exceed 15% as of the end of the most recent
Collection Period.
At such time, if any, as the servicing arrangements for the
Contracts are acceptable to the Lender, the Lender shall give written
notice thereof to FirstCity and NAF Corp.
(ii) FirstCity shall purchase from the Borrower, at a
purchase price not less than 85% of the Outstanding Contract Balance
thereof, each Pipeline Contract to the extent that the Lender shall
not have received the Collateral Agent's approving Certification by
the close of business on the third Business Day following the Lender's
Advance against such Pipeline Contract, such purchase price shall be
deposited to the Collection Account at the opening of business on the
fourth Business Day following such Advance.
(b) FirstCity may, at any time after the execution and
delivery of this Commitment, deliver to the Lender FirstCity's
additional funding commitment in the form of Exhibit B hereto, and,
upon such delivery, the Lender shall inform TCB, NAF Corp. and the
Borrower that the "Borrowing Base Adjustment amount", as defined in
the Credit Agreement, shall thereafter be zero. Notwithstanding the
foregoing, if FirstCity proposes to deliver such additional funding
commitment after the date on which this commitment is originally
executed and delivered, such
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delivery shall only be effective if the Lender determines in its
reasonable business judgment that no material adverse change has
occurred in financial condition or prospects of FirstCity, or in the
ability of FirstCity to carry out its financial obligations hereunder,
in each case since the date of initial execution of this Commitment.
3.2 FirstCity to Provide Subordinate Financing.
FirstCity hereby agrees and covenants with Lender that FirstCity shall provide
sufficient Subordinate Financing in connection with each securitization
transaction with respect to the Contracts as may be required by independent
third parties (such as the Rating Agencies and/or Credit Enhancer(s)), it being
acknowledged that such level of Subordinate Financing so determined by such
independent third parties shall constitute a "market" level. As used in this
Section 3.2, "Subordinate Financing" means any combination of the following:
cash, purchase of a "B piece" or "residual" certificate, funding of an initial
reserve account deposit, issuance of a guaranty, serving as account party on a
letter of credit, or other form of subordinate financing in the related
securitization. Such subordinate financing shall be acceptable to the Rating
Agencies and the Credit Enhancer.
3.3 Indemnification. FirstCity will indemnify the
Lender and its Affiliates (collectively, "Conti") against any losses, claims,
damages or liabilities to which Conti may become subject in connection with any
matter related to or arising out of a default by FirstCity under this
Commitment; provided, however, there shall be excluded from such
indemnification any such loss, claim, damage or liability which results from
the gross negligence or willful misconduct of Conti in performing the services
which it is to render pursuant to this Commitment or the other Facility
Agreements.
SECTION 4. ADDITIONAL AFFIRMATIVE COVENANTS
4.1 Certain Information. FirstCity shall furnish to
Lender copies of all financial statements, reports and other communications
that FirstCity may make to, or file or have with, the SEC (contemporaneously
with the filing thereof with the SEC) pursuant to the Securities Exchange Act
of 1934, as amended, together with, promptly, such additional financial and
other information as Lender may from time to time reasonably request.
4.2 Conduct of Business and Maintenance of Existence.
FirstCity shall continue to engage in business of the same type as now
conducted by it and preserve, renew and keep in full force and effect its
existence and take all action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business; and comply in all
material respects with all Contractual Obligations and Requirements of Law.
4.3 Notices. FirstCity shall promptly give notice to
Lender of:
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(a) the occurrence of (i) any Event of Default or
Unmatured Event of Default, in either case, under the Credit Agreement
or (ii) a default by FirstCity hereunder;
(b) any (i) default or event of default by FirstCity
under any Contractual Obligation of FirstCity or (ii) litigation,
investigation or proceeding which may exist at any time affecting
FirstCity, which, in either case, is likely to have a material adverse
effect on the financial condition or prospects of FirstCity or the
ability of FirstCity to perform its obligations hereunder;
(c) a material adverse change in the business,
properties, assets, operations, prospects or condition (financial or
otherwise) of FirstCity.
(d) any change in its principal place of business or
chief executive office from the address set forth in paragraph (v) of
subsection 3.1.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action FirstCity proposes to take with respect
thereto.
4.4 Maintenance of Control. FirstCity hereby covenants
and agrees to maintain direct or indirect ownership of (i) at least 80% of the
issued and outstanding shares of capital stock of NAF Corp. and (ii) 100% of
the issued and outstanding shares of capital stock of J-Hawk Servicing
Corporation. Not more than 15% of the issued and outstanding shares of capital
stock of NAF Corp., and not more than one board seat of NAF Corp., may be
controlled by Cargill Financial Services Corporation or any Affiliate thereof.
4.5 Further Assurances. FirstCity shall do such further
acts and things and execute and deliver to Lender such assignments, agreements,
financing statements, powers and instruments as are required by Conti to carry
into effect the purposes of this Commitment or to better assure and confirm
unto Conti its rights, powers and remedies hereunder, including, without
limitation, to obtain such consents and give such notices, and to file and
record all such documents, financing statements and instruments, and renew each
such consent, notice, filing and recordation, at such time or times, in such
manner and at such places, as may be necessary or desirable to preserve and
protect the position of Conti hereunder. This covenant shall survive the
termination of this Commitment.
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SECTION 5. MISCELLANEOUS
5.1 Miscellaneous Provisions Related to the Financial
Commitments.
(a) The liabilities and obligations of FirstCity under
Section 3.1 hereof (including any additional commitment delivered by
FirstCity pursuant to Section 3.1(b) hereof) shall be absolute and
unconditional under all circumstances and shall be performed by
FirstCity regardless of (i) the validity, legality or enforceability
of the Obligations or the Credit Agreement or the avoidance,
subordination, discharge or disaffirmance of any of the foregoing by
any Person (including a trustee in bankruptcy), (ii) any law,
regulation, order or decree now or hereafter in effect which might in
any manner affect any of the terms or provisions of the Credit
Agreement, (iii) the merger or consolidation of any of the Lender or
FirstCity into or with any corporation or any sale or transfer by the
Lender or FirstCity of all or any part of its property, (iv) the
waiver, amendment, consent, extension, forbearance or granting of any
indulgence with respect to the Credit Agreement; IT BEING UNDERSTOOD,
HOWEVER, that any such waiver, amendment, consent, extension,
forbearance or indulgence with respect to the Credit Agreement shall
be equally applicable to FirstCity's obligations and liabilities
hereunder with respect to the subject matter thereof, (v) the failure
by TCB to take any steps to perfect and maintain perfected its
interests in the Collateral or in any other security or collateral
related to the Credit Agreement, or (vi) any other circumstances
whatsoever (with or without notice to or knowledge of FirstCity) which
may in any manner or to any extent vary the risk of FirstCity, or
might otherwise constitute a legal or equitable discharge of a surety
or guarantor; it being the purpose and intent of FirstCity that the
liabilities and obligations of FirstCity under Section 3.1 hereof
(including any additional commitment delivered by FirstCity pursuant
to Section 3.1(b) hereof) shall be absolute and unconditional under
any and all circumstances, and shall not be discharged except by
performance of the Credit Agreement and Section 3.1 hereof (including
any additional commitment delivered by FirstCity pursuant to Section
3.1(b) hereof).
(b) The provisions of Section 3.1 hereof (including any
additional commitment delivered by FirstCity pursuant to Section
3.1(b) hereof) shall continue to be effective or be reinstated, as the
case may be, if at any time payment of any of the Obligations payable
to the Lender under the Credit Agreement or by FirstCity hereunder is
rescinded, declared to be fraudulent or preferential, subsequently
invalidated or set aside. FirstCity hereby waives (i) notice of the
occurrence of any default under any of the Facility Agreements, (ii)
any requirement of diligence or promptness on the part of the Lender
in making demand, commencing suit or exercising any other right or
remedy under the Credit Agreement.
(c) FirstCity hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of
receivership or bankruptcy of the Lender, protest or notice with
respect to the Credit Agreement and all demands whatsoever,
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and covenants that Section 3.1 hereof (including any additional
commitment delivered by FirstCity pursuant to Section 3.1(b) hereof)
will not be discharged, except by complete performance of the
obligations contained herein. FirstCity hereby waives all set-offs
and counterclaims and all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of
dishonor and notices of acceptance of Section 3.1 hereof (including
any additional commitment delivered by FirstCity pursuant to Section
3.1(b) hereof). FirstCity's obligations under Section 3.1 hereof
(including any additional commitment delivered by FirstCity pursuant
to Section 3.1(b) hereof) shall not be limited if the Lender is
precluded for any reason (including, without limitation, the
application of the automatic stay under Section 362 of the Federal
Bankruptcy Code (11 U.S.C. Section 101 et seq., the "BANKRUPTCY
CODE") from enforcing or exercising any right or remedy with respect
to the Credit Agreement.
(d) FirstCity hereby agrees that its obligations
hereunder shall continue in full force and effect and may not be
terminated or otherwise revoked until the amounts due to Lender under
the Credit Agreement shall have been fully discharged and the Facility
Agreements have been terminated. In the event that FirstCity shall
have any right under applicable law to otherwise terminate or revoke
its obligations hereunder, which right cannot be waived, FirstCity
agrees that such termination or revocation shall not be effective
until a written notice of such revocation or termination, specifically
referring hereto, signed by FirstCity, is actually received by the
Lender. Such notice shall not affect the right and power of the
Lender to enforce rights arising prior to the Lender's receipt
thereof. If, in reliance on FirstCity's obligations, the Lender makes
any financial accommodation, incurs any cost or expense or takes any
action after the termination or revocation by FirstCity of its
obligations hereunder but prior to the receipt by the Lender of said
written notice from FirstCity, the rights of the Lender, with respect
to such financial accommodation, cost, expense or action shall be the
same as if such termination or revocation had not occurred.
(e) FirstCity hereby assumes responsibility for keeping
itself informed of the financial condition of the Borrower, and of all
other circumstances bearing upon the risk of nonpayment of the amounts
due to Lender under the Credit Agreement, and FirstCity hereby agrees
that the Lender shall not have any duty to advise FirstCity of any
information known to it regarding such condition or any such
circumstances.
5.2 Amendments and Waivers. This Commitment may be
amended, supplemented or modified by the parties hereto, in writing. Any
waiver of any of the provisions hereof by the Lender and any such amendment,
supplement or modification shall be binding upon Lender and all future holders
of the Promissory Note. In the case of any waiver, the parties hereto shall be
restored to their former position and rights hereunder; but no such waiver
shall extend to any subsequent event, or impair any right consequent thereon.
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5.3 Notices. Except where telephonic instructions or
notices are authorized herein to be given, all notices, demands, instructions
and other communications required or permitted to be given to or made upon any
party hereto shall be in writing and shall be personally delivered or sent by
overnight courier service, or by registered, certified or express mail, postage
prepaid, return receipt requested, or by facsimile copy (accompanied by a
telephonic confirmation or receipt thereof), or telegram (with messenger
delivery specified in the case of a telegram) and shall be deemed to be
delivered for purposes of this Commitment on: (a) the second Business Day
following the day on which such notice was placed in the custody of the U.S.
Postal Service, (b) the next Business Day following the day on which such
notice was placed in the custody of any overnight courier service, including
express mail service or (c) the same Business Day on which such notice is sent
by telegram, messenger or facsimile. Unless otherwise specified in a notice
sent or delivered in accordance with the foregoing provisions of this
subsection, notices, demands, instructions and other communications in writing
shall be given to or made upon the respective parties hereto at their
respective addresses (or to their respective facsimile numbers) indicated
below, and, in the case of telephonic instructions or notices, by calling the
telephone number or numbers indicated for such party below:
If to FirstCity: FirstCity Financial Corporation
6400 Imperial Drive
Waco, Texas 76718
Attention: James T. Sartain, President
Tel. No.: 817-751-1750
Telecopier No.: 817-751-1208
If to Lender: ContiTrade Services L.L.C.
277 Park Avenue, 38th Floor
New York, New York 10172
Attention: Chief Counsel
Tel. No.: 212-207-2822
Telecopier No.: 212-207-2935
5.4 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of Lender; any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies,
powers and privileges provided by law.
5.5 Survival of Representations, Warranties and
Indemnities. All representations, warranties and indemnities made hereunder
and in any document, certificate
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or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Commitment and the other Facility
Agreements.
5.6 Payment of Expenses and Taxes. FirstCity agrees, on
demand, to (a) pay or reimburse Conti for all out-of-pocket costs and expenses
incurred in connection with the preparation, execution and enforcement of this
Commitment, as well as the preparation of any amendments hereto, and (b) pay,
indemnify, and hold Conti, its directors, members, officers, employees and
agents, harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Commitment (all
the foregoing, collectively, the "indemnified liabilities"); provided that
FirstCity has no obligation hereunder to Conti with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of Conti.
5.7 Successors and Assigns; Participations. (a)
This Commitment shall be binding upon and inure to the benefit of FirstCity,
Lender, ContiFinancial Services Corporation and all future holders of the
Promissory Note and their respective successors and assigns, except that
FirstCity may not assign or transfer any of its obligations under this
Commitment, and, except as set forth in paragraph (b) below, Lender may not
assign or transfer any of its obligations under this Commitment without the
prior consent of the other party, which consent shall not unreasonably be
withheld.
(b) Any hypothecation or participation granted by Lender
pursuant to Section 9.6 of the Credit Agreement shall constitute a grant of a
hypothecation or participation in FirstCity's obligations under Section 3.1
hereof (including any additional commitment delivered by FirstCity pursuant to
Section 3.1(b) hereof); FirstCity hereby acknowledges and consents to any such
grant of a hypothecation or participation. In the event of any such grant by
Lender of a hypothecating or participating interest, Lender's obligations under
this Commitment to FirstCity shall remain unchanged, Lender shall remain solely
responsible for the performance thereof, Lender shall remain the holder of the
Promissory Note for all purposes under this Commitment and the other Facility
Agreements, and FirstCity shall continue to deal solely and directly with
Lender in connection with Lender's rights and obligations under this and the
other Facility Agreements. FirstCity agrees that if amounts outstanding under
this Commitment are due and unpaid, or shall have been declared or shall have
become due and payable, each person acquiring such a hypothecation or
participation interest (a "Participant") shall be deemed to have the right of
setoff in respect of its hypothecating or participating interest in amounts
owing under this Commitment to the same extent as if the amount of its
hypothecating or participating interest were owing directly to it under this
Commitment.
(c) FirstCity authorizes Lender to disclose to any
Participant and any prospective Participant any and all financial information
in its possession concerning FirstCity and its Affiliates which has been
delivered to it by or on behalf of such Person
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pursuant to this Commitment or which has been delivered to it by or on behalf
of such Person in connection with its credit evaluation of FirstCity and its
Affiliates prior to becoming a party to this Commitment; provided such
Participant agrees to keep such financial information confidential unless
required to be disclosed by applicable Requirements of Law.
(d) If, pursuant to this subsection 5.6, any interest in
this Commitment is transferred or assigned to any Participant or assignee which
is organized under the laws of any jurisdiction other than the United States or
any state thereof, Lender shall cause such Participant or assignee, as a
condition to the effectiveness of such transfer, (i) to represent to Lender and
FirstCity that under applicable law and treaties then in effect no taxes will
be required to be withheld by FirstCity or Lender with respect to any payments
to be made to such Participant or assignee, in respect of terms of this
Commitment, (ii) to furnish to FirstCity either U.S. Internal Revenue Service
Form 4224 (or any successor form) or U.S. Internal Revenue Service Form 1001
(or any successor form) (wherein such Participant or assignee claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder) and (iii) to agree (for the benefit of Lender and
FirstCity) timely to provide Lender and FirstCity a new Form 4224 (or any
successor form) or Form 1001 (or any successor form) upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with and if permitted under applicable U.S. laws and regulations and
amendments then in effect duly executed and completed by such Participant or
assignee, and to comply from time to time with all applicable U.S. laws and
regulations with regard to such withholding tax exemption.
(e) Lender shall not grant to any Participant the right
to consent to any amendment or waiver entered into in accordance with
subsection 5.1 except for any such amendment or waiver which would increase the
Lender Commitment under the Credit Agreement, or reduce the amount or extend
the due date of any principal of or interest on the Promissory Note.
5.8 Termination. The obligations of FirstCity under
Section 3.1(a) hereof shall terminate upon the receipt by Lender of all amounts
owed to it under the Credit Agreement and the termination of the Credit
Agreement; the obligations of FirstCity under Section 3.1(b) hereof shall
terminate upon the termination of the Investment Banking Services Agreement;
all other obligations of FirstCity hereunder shall terminate on the later of
the dates described in the two foregoing clauses.
5.9 Counterparts. This Commitment may be executed by
one or more of the parties to this Commitment on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
5.10 Severability. Any provision of this Commitment
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof,
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and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
5.11 Integration; Construction. This Commitment
represents the agreement of the parties hereto with respect to the subject
matter hereof, and there are no promises, undertakings, representations or
warranties by the parties hereto relative to the subject matter hereof not
expressly set forth or referred to herein or in the other Facility Agreements.
5.12 Limited Liability. No recourse hereunder or under
any other Facility Agreement shall be had against, and no personal liability
shall attach to, any officer, employee, director, member, affiliate, beneficial
owner, trustee or shareholder of any party hereto, as such, by the enforcement
of any assessment or by any legal or equitable proceeding, by virtue of any
statute or otherwise in respect of any of the Facility Agreements, it being
expressly agreed and understood that each Facility Agreement is solely a
corporate or trust obligation of each party hereto, and that any and all
personal liability, either at common law or in equity, or by statute or
constitution, of every such officer, employee, director, member, affiliate,
beneficial owner, trustee or shareholder for breaches by any party hereto of
any obligations under any Facility Agreement is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Commitment.
5.13 GOVERNING LAW. THIS COMMITMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS COMMITMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
5.14 SUBMISSION TO JURISDICTION; WAIVERS. EACH PARTY
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS FUNDING COMMITMENT AND THE OTHER FACILITY
AGREEMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS
FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT
TO PLEAD OR CLAIM THE SAME;
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(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH IN SUBSECTION 5.5 OR AT SUCH OTHER ADDRESS OF WHICH ALL OF
THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING
REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
5.15 Acknowledgements. FirstCity hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Commitment and the other Facility Agreements;
(b) the Lender has no fiduciary relationship to
FirstCity; and
(c) no joint venture exists between FirstCity and
Lender.
5.16 WAIVER OF JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS COMMITMENT OR ANY OTHER FACILITY AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this
Commitment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers, members or trustees as of the day and year
first above written.
FIRSTCITY FINANCIAL CORPORATION
By /s/ MATT LANDRY, JR.
-------------------------------
Name: Matt Landry, Jr.
Title: Executive Vice President
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<PAGE> 17
CONTITRADE SERVICES L.L.C.
By /s/ JEROME PEARLSON
----------------------------
Name: Jerome Pearlson
Authorized Signatory
/s/ SUSAN O'DONOVAN
----------------------------
Name: Susan O'Donovan
Authorized Signatory
<PAGE>
EXHIBIT 10.21
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT dated as of December 29, 1995
(this "Agreement") is between FIRSTCITY FINANCIAL CORPORATION, a Delaware
corporation (the "Company") and CARGILL FINANCIAL SERVICES CORPORATION, a
Delaware corporation (the "Lender").
The Company has requested that the Lender provide the Company
with a revolving credit facility, pursuant to which the Lender will commit to
make revolving credit loans of up to $25,000,000.00 to the Company to finance
working capital expenditures and certain capital investments of the Company
made in the ordinary course of its business.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein, the Company and the Lender agree as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
SECTION 1.01. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Acquisition Entity" means a limited partnership, limited
liability company or corporation formed by the Company, a Subsidiary
of the Company or an Affiliate of the Company (and possibly certain
other investors), for the purpose of acquiring one or more portfolios
of distressed assets in its ordinary course of business; provided, the
Company, Subsidiary or Affiliate of the Company, as the case may be,
does not own more than fifty percent (50%) of such entity. The
Acquisition Entities on the Effective Date are listed on Schedule 1.01
hereof.
"Advance" means an advance pursuant to a Notice of Advance
comprised of a single Type of Loan from the Lender (or resulting from
a conversion or conversions on the same date having, in the case of
Eurodollar Rate Advances, the same Interest Period (except as
otherwise provided in this Agreement)).
"Advance Date" means, with respect to each Advance, the
Business Day upon which the proceeds of such Advance are to be made
available to the Company.
<PAGE> 2
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including all directors and
officers of such Person), controlled by, or under direct or indirect
common control with such Person, and any other Person in which such
Person's direct or indirect equity interest is 10% or more of the
total outstanding equity interests of such Person.
"Agreement" has the meaning specified in the introduction to
this Agreement.
"Alternate Base Rate" means, for any date, the lesser of (a)
the highest "Prime Rate" quoted in the Southwest Edition of The Wall
Street Journal plus a margin (determined by the Lender in its sole
discretion) which most closely approximates the most recent Eurodollar
Rate plus the applicable Margin and (b) the Highest Lawful Rate.
"Alternate Base Rate Advance" means any Advance bearing
interest at a rate determined by reference to the Alternate Base Rate
in accordance with the provisions of Article II.
"Assignment and Acceptance" has the meaning specified in
Section 9.10 (c).
"Bankruptcy Code" has the meaning specified in Section
8.01(f).
"Board" means the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Minnesota) on which
banks are open for business in Minnetonka, Minnesota.
"Capitalized Lease Obligations" means all lease or rental
obligations which, pursuant to GAAP, are capitalized for balance sheet
purposes.
"Change of Control" means any of (i) the failure of the former
shareholders of J-Hawk Corporation (predecessor in interest to the
Company) to hold at least thirty percent (30%) of the outstanding
voting capital stock of the Company, (ii) the failure of any one of
James R. Hawkins, James T. Sartain, Rick Hagelstein, Matt Landry or
David W. MacLennan (or anyone approved by the Lender in writing in
lieu of any of the above Persons) to be a member of the Board of
Directors of the Company at any time, (iii) all or substantially all
of the assets of the Company are sold in a single transaction or
series of related transactions to any Persons or (iv) the Company
merges or consolidates with or into any other Person.
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"Class A Certificate" means that certain "Class A Certificate"
issued by the FC Liquidating Trust to the Company which requires
payments to the Company in order to provide the Company with the funds
required to pay (a) the Senior Subordinated Notes (i.e., the Senior
Subordinated Certificate Payments), (b) Special Preferred Stock
Payments and (c) certain other payments.
"Code" means Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"Commitment" means $25,000,000.00.
"Commitment Fee" has the meaning specified in Section 3.01(a).
"Company" has the meaning specified in the introduction to
this Agreement.
"Credit Event" means the making of any Advance or the
continuation of any Advance as a Eurodollar Rate Advance.
"Default" means the occurrence of any event which with the
giving of notice or the passage of time or both could become an Event
of Default.
"Default Rate" means the lesser of (i) the Highest Lawful Rate
and (ii) the Eurodollar Rate plus ten percent (10%) per annum.
"Effective Date" means the date on which all conditions to
make an Advance set forth in Article IV are first met or waived in
accordance with Section 9.01 hereof.
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having
total assets in excess of $1,000,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development or any successor
organization, or a political subdivision of any such country, and
having total assets in excess of $1,000,000,000; provided that such
bank is acting through a branch or agency located in the country in
which it is organized or another country which is also a member of the
Organization for Economic Cooperation and Development or any successor
organization; (c) the central bank of any country which is a member of
the Organization for Economic Cooperation and Development or any
successor organization; and (d) any other bank or similar financial
institution approved by the Lender.
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<PAGE> 4
"Environmental Laws" means federal, state or local laws, rules
or regulations, and any judicial, arbitral or administrative
interpretations thereof, including any judicial, arbitral or
administrative order, judgment, permit, approval, decision or
determination pertaining to conservation or protection of the
environment in effect at the time in question, including the Clean Air
Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and
Recovery Act, the Safe Drinking Water Act, the Toxic Substances
Control Act, the Superfund Amendment and Reauthorization Act of 1986,
the Hazardous Materials Transportation Act, and comparable state and
local laws, and other environmental conservation and protection laws.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations promulgated thereunder.
"ERISA Affiliate" means (a) any trade or business (whether or
not incorporated) which is either a member of the same "controlled
group" or under "common control," within the meaning of Section 414 of
the Code and the regulations thereunder, with the Company and (b) any
Subsidiary of the Company.
"Eurodollar Rate" means the London interbank offered rate per
annum for a period equal to the Interest Period which appears on the
Tele Rate Screen "LIBO" page (3750) as of 11:00 a.m., (London time),
two (2) Business Days prior to the first day of the Interest Period.
"Eurodollar Rate Advance" means any Advance bearing interest
at a rate determined by reference to the Eurodollar Rate in accordance
with the provisions of Article II.
"Events of Default" has the meaning specified in Section 8.01.
"Execution Date" means December 29, 1995.
"FCBOT" means First City Bancorporation of Texas, Inc., a bank
holding company incorporated in the State of Delaware, as it existed
prior to its merger with J-Hawk Corporation, a Texas corporation, on
July 3, 1995.
"FC Intangible Assets" means all "Fidelity Bond" policies and
claims and "D & O" policies and claims of FCBOT and all capital stock
in First City Life Insurance Company, a life insurance company owned
by FCBOT, and all capital stock in Central Texas Insurance Company,
Inc.; all of which FC Intangible Assets are being held in the name of
the Company for the benefit of FCLT Loans, L.P., a Texas limited
partnership, and/or FC
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<PAGE> 5
Liquidating Trust, as provided in the FCLT Asset Agency Agreement.
"FC Liquidating Trust" means FirstCity Liquidating Trust, a
Texas business trust.
"FC Trust Agreement" means that certain Liquidating Trust
Agreement dated as of July 3, 1995 under which Shawmut Bank
Connecticut, National Association, appears as Trustee (the "Trustee")
and pursuant to which FC Liquidating Trust was created, and any
amendments thereto.
"FCLT Asset Agency Agreement" means (i) that certain
Assignment of Proceeds of Causes of Action dated June 21, 1995,
pursuant to which FCBOT assigned to FCLT Loans, L.P., a Texas limited
partnership, all of its right, title and interest in and to any and
all proceeds recovered by FCBOT as the result of the assertion by it
of any claims related to that portion of the FC Intangible Assets
consisting of "Fidelity Bond" policies and claims, and agreed that
FCLT Loans, L.P., a Texas limited partnership, would have the right to
direct the prosecution by FCBOT of any such claims, subject to certain
terms and conditions as set forth therein, (ii) that certain
Assignment of Proceeds of Causes of Action dated July 3, 1995,
pursuant to which FCBOT assigned to FCLT Loans, L.P., a Texas limited
partnership, all of its right, title and interest in and to any and
all proceeds recovered by FCBOT as the result of the assertion by it
of any claims related to that portion of the FC Intangible Assets
consisting of "D & O" policies and claims, and agreed that FCLT Loans,
L.P., a Texas limited partnership, would have the right to direct the
prosecution by FCBOT of any such claims, subject to certain terms and
conditions as set forth therein, and (iii) that certain Undertaking
for Future Assignment dated July 3, 1995, pursuant to which the
Company agreed to hold, for the benefit of FC Liquidating Trust, that
portion of the FC Intangible Assets consisting of capital stock in
First City Life Insurance Company and Central Texas Insurance Company,
Inc., and agreed to transfer to FC Liquidating Trust all proceeds in
respect of such capital stock for the account of FCLT Loans, L.P., a
Texas limited partnership, and to transfer, upon receipt of certain
regulatory approvals and other conditions, such capital stock to FCLT
Loans, L.P., a Texas limited partnership, or other designee of FC
Liquidating Trust, subject to certain terms and conditions as set
forth therein.
"Fees" means all amounts payable pursuant to Section 3.01.
"Financials" has the meaning specified in Section 5.07.
"Funding Fee" shall have the meaning specified in Section
3.01(b).
"GAAP" means generally accepted accounting principles as in
effect from time to
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<PAGE> 6
time as set forth in the opinions, statements and pronouncements of
the Accounting Principles Board of the American Institute of Certified
Public Accountants, the Financial Accounting Standards Board and such
other Persons who shall be approved by a significant segment of the
accounting profession and concurred in by the independent certified
public accountants certifying any audited financial statements of the
Company.
"Hazardous Materials" means (a) hazardous waste as defined in
the Resource Conservation and Recovery Act of 1976, or in any
applicable federal, state or local law or regulation, (b) hazardous
substances, as defined in CERCLA, or in any applicable state or local
law or regulation, (c) gasoline, or any other petroleum product or
by-product, (d) toxic substances, as defined in the Toxic Substances
Control Act of 1976, or in any applicable federal, state or local law
or regulation or (e) insecticides, fungicides, or rodenticides, as
defined in the Federal Insecticide, Fungicide, and Rodenticide Act of
1975, or in any applicable federal, state or local law or regulation,
as each such Act, statute or regulation may be amended from time to
time.
"Highest Lawful Rate" means the maximum nonusurious rate of
interest that, under applicable law, may be contracted for, taken,
reserved, charged or received by the Lender on the Loans or under the
Loan Documents at any time or from time to time. If the maximum rate
of interest which, under applicable law, the Lender is permitted to
charge the Company on the Loans shall change after the date hereof, to
the extent permitted by applicable law, the Highest Lawful Rate shall
be automatically increased or decreased, as the case may be, as of the
effective time of such change without notice to the Company or any
other Person.
"Indebtedness" means (a) all indebtedness for borrowed money
(whether by loan or the issuance and sale of debt securities) or for
the deferred purchase price of property or services, (b) all
indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property, (c) all
Capitalized Lease Obligations, (d) all guaranties or other contingent
liabilities of any kind (including letter of credit reimbursement
obligations) and (e) all indebtedness, to the extent it would
constitute a liability on a balance sheet prepared in accordance with
GAAP or would be disclosed as a contingent liability in a footnote to
financial statements of such Person prepared in accordance with GAAP.
"Interest Period" means, with respect to any Eurodollar Rate
Advance, (a) initially, the period commencing on the Advance Date and
ending on the last day of the current calendar month and (b)
thereafter, each succeeding monthly period commencing on the first
(1st) day of the following calendar month; provided that any Interest
Period that would otherwise extend beyond the Maturity Date shall end
on the Maturity Date.
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"Investment" means, as applied to any Person, any direct or
indirect purchase or other acquisition by such Person of the assets,
stock or other securities of any other Person, or any direct or
indirect loan, advance or capital contribution by such Person to any
other Person, and any other item which would be classified as an
"investment" on a balance sheet of such Person, including any direct
or indirect contribution by such Person of property or assets to a
joint venture, partnership or other business entity in which such
Person retains an interest.
"Joint Plan" means that certain Joint Plan of reorganization
dated December 23, 1994, as amended, filed with the Bankruptcy Court
in the Bankruptcy Case by FCBOT, the Official Committee of Equity
Security Holders and J-Hawk Corporation with the participation of
Cargill Financial Services Corporation.
"Lien" means, when used with respect to any Person, any
mortgage, lien, charge, pledge, security interest or encumbrance of
any kind (whether voluntary or involuntary and whether imposed or
created by operation of law or otherwise) upon, or pledge of, any of
its property or assets, whether now owned or hereafter acquired, or
any lease intended as security, any capital lease in the nature of the
foregoing, any conditional sale agreement or other title retention
agreement, in each case, for the purpose, or having the effect, of
protecting a creditor against loss or securing the payment or
performance of an obligation.
"Loan" and "Loans" have the meaning specified in Section 2.01.
"Loan Documents" means this Agreement and the other documents
described in Article IV hereof.
"Margin" means, with respect to any Eurodollar Rate Advance,
five percent (5%) per annum.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) a
material adverse effect equal to or greater than the lesser of (a) the
value of five percent (5%) of the outstanding common stock of the
Company and (b) $2,000,000.00.
"Maturity Date" means one year from the date hereof, unless
accelerated pursuant to Section 8.02.
"Multiemployer Plan" means any plan which is a "multiemployer
plan" (as such
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<PAGE> 8
term is defined in Section 4001(a)(3) of ERISA).
"Note" has the meaning specified in Section 2.02.
"Notice of Advance" has the meaning provided in Section
2.03(a).
"Notice of Default" has the meaning specified in Section 8.02.
"Obligations" means all the obligations of the Company now or
hereafter existing under the Loan Documents, whether for principal,
interest, Fees, expenses, indemnification or otherwise.
"Payment Office" means the office of the Lender located at
6000 Clearwater Drive, Minnetonka, Minnesota, 55343, or such other
office as the Lender may hereafter designate in writing as such to the
other parties hereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Investments" means, as to any Person:
(a) securities issued or directly and fully
guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof)
having maturities of not more than twelve months from the date
of acquisition thereof,
(b) time deposits and certificates of deposit
with maturities of not more than twelve months from the date
of acquisition by such Person which deposits or certificates
are either: (a) fully insured by the Federal Deposit Insurance
Corporation or (b) in any Bank or other commercial bank
incorporated in the United States or any U.S. branch of any
other commercial bank, in each case having capital, surplus
and undivided profits aggregating $100,000,000 or more with a
long-term unsecured debt rating of at least A- from Standard &
Poor's Ratings Group or A3 from Moody's Investors Service,
(c) commercial paper issued by any Person
incorporated in the United States rated at least A2 or the
equivalent thereof by Standard & Poor's Ratings Group or at
least P2 or the equivalent thereof by Moody's Investors
Service and, in each case, maturing not more than 270 days
after the date of issuance,
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<PAGE> 9
(d) investments in money market mutual funds
having assets in excess of $2,000,000,000 substantially all of
whose assets are comprised of securities of the types
described in clauses (a) through (c) above,
(e) repurchase or reverse purchase agreements
respecting obligations with a term of not more than seven days
for underlying securities of the types described in clause (a)
above entered into with any bank listed in or meeting the
qualifications specified in clause (b) above,
(f) acquisitions of promissory notes evidencing
loans (or real property previously foreclosed upon) by the
Company, any Subsidiary or any Acquisition Entity in the
ordinary course of its business, and
(g) equity investments in Subsidiaries and/or
Acquisition Entities for the purposes of acquiring promissory
notes evidencing loans (or real property previously foreclosed
upon).
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a foreign or domestic state or political subdivision
thereof or any agency of such state or subdivision.
"Plan" means any employee pension benefit plan (as defined in
Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of
the Code, other than a Multiemployer Plan, with respect to which the
Company or an ERISA Affiliate contributes or has an obligation or
liability to contribute, including any such plan that may have been
terminated.
"Regulation U" means Regulation U of the Board (respecting
margin credit extended by banks), as the same is from time to time in
effect, and all official rulings and interpretations thereunder or
thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into the environment (including the abandonment
or discarding of barrels, containers and other closed receptacles).
"Reportable Event" means an event described in Section 4043(b)
of ERISA with respect to a Plan as to which the 30-day notice
requirement has not been waived by the PBGC.
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"Requirements of Environmental Laws" means, as to any Person,
the requirements of any applicable Environmental Law relating to or
affecting such Person or the condition or operation of such Person's
business or its properties, both real and personal.
"Responsible Officer" means, with respect to the Company, the
chairman of the board of directors, president or any executive or
senior vice president.
"Security Documents" means (a) that certain Security Agreement
dated as of even date herewith and executed by the Company granting
the Lender a first priority security interest in substantially all of
the assets of the Company, (b) that certain Pledge Agreement dated as
of even date herewith and executed by the Company granting the Lender
a first priority security interest in all of the outstanding capital
stock of each Subsidiary of the Company, (c) those certain Collateral
Assignment of Partnership Interests dated as of even date herewith,
each executed by the Company and granting the Lender a first priority
security interest in all of the Company's interest in each Acquisition
Entity, (d) that certain Power of Attorney dated as of even date
herewith executed by the Company in favor of the Lender and (e) any
and all other security agreements, pledge agreements, mortgages,
assignments, UCC financing statements, registrations of pledge and
other similar documents executed by the Company and securing the
obligations.
"Senior Subordinated Certificate Payments" means payments
required to be paid to the Company under the Class A Certificate in
order to provide the Company with funds sufficient to make the
scheduled payments required to be paid under the Senior Subordinated
Notes.
"Senior Subordinated Notes" means those certain "Senior
Subordinated Notes" dated July 3, 1995 issued by the Company to the
Class A preferred shareholders of FCBOT pursuant to the Joint Plan;
which Senior Subordinated Notes (a) are in the combined principal
amount of $106,690,029, (b) bear interest at the rate of nine percent
(9%) per annum payable quarterly and (c) require one (1) principal
payment in the amount of $53,345,014.50 on September 30, 1996 and an
additional principal payment in the amount of $53,345,014.50 on
September 30, 1997.
"Special Preferred Stock Payments" means all dividends,
redemption amounts and other amounts at anytime payable to holders of
the "Special Preferred Stock" issued by the Company.
"Subsidiary" means and includes, with respect to any Person,
(a) any corporation more than 50% of whose stock of any class or
classes having by the terms thereof ordinary voting power to elect a
majority of the directors of such corporation (irrespective of whether
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or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person, directly or
indirectly and (b) any partnership, association, joint venture or
other entity in which such Person, directly or indirectly, has greater
than 50% of (i) the directors (or Persons performing similar
functions) thereof or (ii) the equity interest; provided, that the
definition of Subsidiary shall not include any Acquisition Entity.
"Tangible Net Worth" means: (a) total assets minus (b) the sum
of (i) all liabilities and (ii) all intangible assets, including,
without limitation, goodwill, patents, trademarks and similar items.
"Unfunded Current Liability" means, with respect to any Plan,
the amount, if any, by which the present value of the accrued benefits
under the Plan as of the close of its most recent Plan year exceeds
the fair market value of the assets allocable thereto, determined in
accordance with Section 412 of the Code.
"Unutilized Commitment" means, at any time, the Commitment
less the outstanding Advances.
SECTION 1.02. Types of Advances. Advances hereunder are
distinguished by "Type". The Type of an Advance refers to the determination
whether such Advance is a Eurodollar Rate Advance or an Alternate Base Rate
Advance.
SECTION 1.03. Accounting Terms. All accounting terms not
defined herein shall be construed in accordance with GAAP, as applicable, and
all calculations required to be made hereunder and all financial information
required to be provided hereunder shall be done or prepared in accordance with
GAAP.
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ARTICLE II
THE LOANS
SECTION 2.01. The Loans. (a) Subject to the terms and
conditions hereof, the Lender agrees at any time and from time to time on and
after the Execution Date and prior to the Maturity Date, to make and maintain a
revolving credit loan or loans (each a "Loan" and collectively, the "Loans") to
the Company, which Loans (i) shall be made and maintained pursuant to one or
more Advances comprised of Eurodollar Rate Advances (unless Eurodollar Rate
Advances are unavailable pursuant to Sections 2.10 or 2.11, and then Alternate
Base Rate Advances); provided, except as otherwise specifically provided
herein, all Loans comprising all or a portion of the same Advance shall at all
times be of the same Type, (ii) shall be made in the minimum amount of
$500,000.00 and integral multiples thereof, (iii) so long as no Default or
Event of Default exists hereunder, may be repaid and reborrowed, at the option
of the Company in accordance with the provisions hereof, (iv) may be borrowed
by the Company (to cover operating expenses only) without the express written
approval of the Lender in an amount not to exceed $3,000,000.00 at any time,
(v) with respect to Advances other than the unrestricted $3,000,000.00
operating expense draw, shall be subject to the Lender's express written
approval and shall be made for a specific purpose with a specifically
identified repayment source and (vi) shall, in the aggregate, not exceed the
Commitment. There shall be no further Advances after the Maturity Date.
(b) The Loans shall be used to provide working capital
and to finance certain capital investments of the Company made in the ordinary
course of its business.
SECTION 2.02. The Note. The Loans shall be evidenced by
the Note in favor of the Lender (the "Note"), substantially in the form of
Exhibit 2.02 hereto.
SECTION 2.03. Notice of Advance. Whenever the Company
requires an Advance, it shall give written notice thereof (a "Notice of
Advance") (or telephonic notice promptly confirmed in writing) to the Lender
not later than 11:00 a.m. (Minnetonka, Minnesota time) two (2) Business Days
prior to the date of such Advance. Each Notice of Advance shall be irrevocable
and shall be in the form of Exhibit 2.03 hereto, specifying (i) the aggregate
principal amount of the Advance to be made and (ii) the date of such Advance
(which shall be a Business Day).
SECTION 2.04. Disbursement of Funds. No later than 1:00
p.m. (Minnetonka, Minnesota time) on each Advance Date, the Lender shall make
available the amount of the Advance in U.S. dollars and in immediately
available funds at the Payment Office.
SECTION 2.05. Continuances. Subject to Sections 2.10 and
2.11, each Advance
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shall automatically continue as a Eurodollar Rate Advance during the term of
this Agreement.
SECTION 2.06. Voluntary Prepayments. The Company shall
have the right to voluntarily prepay Advances in whole or in part at any time
on the following terms and conditions: (a) no Eurodollar Rate Advance may be
prepaid prior to the last day of its Interest Period unless, simultaneously
therewith, the Company pays to the Lender all sums necessary to compensate the
Lender for all costs and expenses resulting from such prepayment, as reasonably
determined by the Lender, including, but not limited to, those costs described
in Sections 2.12, and 2.13 hereof; (b) each partial prepayment shall be in an
initial aggregate principal amount of $500,000.00 and integral multiples
thereof; and (c) each prepayment pursuant to this Section shall be applied
first, to the payment of accrued and unpaid interest, and then, to the
outstanding principal of such Advances in the inverse order of maturity
thereof.
SECTION 2.07. Mandatory Repayments. (a) The aggregate
amount of all Advances under the Note (and all accrued, unpaid interest) shall
be due and payable on the Maturity Date.
(b) The Company shall repay Advances on any day on which
the aggregate outstanding principal amount of the Loans exceeds the Commitment
in the amount of such excess.
SECTION 2.08. Method and Place of Payment. Except as
otherwise specifically provided herein, all payments under this Agreement due
from the Company shall be made to the Lender not later than 11:00 a.m.
(Minnetonka, Minnesota time) on the date when due and shall be made in lawful
money of the United States in immediately available funds at the Payment
Office.
SECTION 2.09. Interest. (a) Subject to Section 9.08, the
Company agrees to pay interest on the total outstanding principal balance of
all Eurodollar Rate Advances from the date of each respective Advance to
maturity (whether by acceleration or otherwise) at a rate per annum (computed
on the basis of the actual number of days elapsed over a year of 360 days)
which shall, during each Interest Period applicable thereto, be equal to the
lesser of (i) the Highest Lawful Rate and (ii) the applicable Eurodollar Rate
for such Interest Period plus the Margin.
(b) Subject to Section 9.08, the Company agrees to pay
interest on the total outstanding principal balance of all Alternate Base Rate
Advances from the date of each respective Advance to maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be
equal to the lesser of (i) the Highest Lawful Rate and (ii) the Alternate Base
Rate in effect from time to time. If the Alternate Base Rate is used, interest
shall be computed on the basis of the actual number of days elapsed over a year
of 365 or 366 days, as the case may be.
(c) Subject to Section 9.08, overdue principal and, to
the extent permitted by law, overdue interest in respect of any Advance and all
other overdue amounts owing hereunder
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shall bear interest for each day that such amounts are overdue at a rate per
annum equal to the Default Rate.
(d) Interest on each Advance shall accrue from and
including the date of such Advance to but excluding the date of any repayment
thereof and shall be payable (i) in respect of Eurodollar Rate Advances (A) on
the first day of each month and (B) on the date of any voluntary or mandatory
repayment or any conversion or continuance, (ii) in respect of Alternate Base
Rate Advances, (A) on the first day of each month and (B) on the date of any
voluntary or mandatory repayment and (iii) in respect of each Advance, at
maturity (whether by acceleration or otherwise) and, after maturity, on demand.
(e) The Lender, upon determining the Eurodollar Rate for
any Interest Period, shall notify the Company thereof. Each such determination
shall, absent manifest error, be final and conclusive and binding on all
parties hereto. In addition, prior to the due date for the payment of interest
on any Advances set forth in the immediately preceding paragraph, the Lender
shall notify the Company of the amount of interest due by the Company on all
outstanding Advances on the applicable due date, but any failure of the Lender
to so notify the Company shall not reduce the Company's liability for the
amount owed.
SECTION 2.10. Interest Rate Not Ascertainable. In the event that
the Lender shall determine (which determination shall, absent manifest error,
be final, conclusive and binding upon all parties) that on any date for
determining the Eurodollar Rate for any Interest Period, by reason of any
changes arising after the date of this Agreement affecting the Eurodollar
interbank market or the Lender's position in such market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the basis
provided for in the definition of Eurodollar Rate, then, and in any such event,
the Lender shall forthwith give notice to the Company of such determination.
Until the Lender notifies the Company that the circumstances giving rise to the
suspension described herein no longer exist, the obligations of the Lender to
make Eurodollar Rate Advances shall be suspended and Alternate Base Rate
Advances shall be available in lieu thereof.
SECTION 2.11. Change in Legality. (a) Notwithstanding anything to
the contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for the Lender
to make or maintain any Eurodollar Rate Advance or to give effect to its
obligations as contemplated hereby, then, by prompt written notice to the
Company, the Lender may:
(i) declare that Eurodollar Rate Advances will not
thereafter be made hereunder, whereupon the Company shall be
prohibited from requesting Eurodollar Rate Advances hereunder unless
such declaration is subsequently withdrawn; and
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<PAGE> 15
(ii) require that all outstanding Eurodollar Rate Advances
be converted to Alternate Base Rate Advances, in which event (A) all
such Eurodollar Rate Advances shall be automatically converted to
Alternate Base Rate Advances as of the effective date of such notice
as provided in paragraph (b) below and (B) all payments and
prepayments of principal which would otherwise have been applied to
repay the converted Eurodollar Rate Advances shall instead be applied
to repay the Alternate Base Rate Advances resulting from the
conversion of such Eurodollar Rate Advances.
(b) For purposes of this Section, a notice to the Company by the
Lender pursuant to paragraph (a) above shall be effective on the date of
receipt thereof by the Company.
SECTION 2.12. Increased Costs or Taxes. If the application or
effectiveness of any applicable law or regulation (i) shall change the basis of
taxation of payments to the Lender of the principal of or interest on any
Eurodollar Rate Advance made by the Lender or any other fees or amounts payable
hereunder (other than taxes imposed on the overall net income of the Lender or
franchise taxes imposed upon it by the jurisdiction in which the Lender has an
office), (ii) shall 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, the Lender or (iii) shall impose on the
Lender any other condition affecting this Agreement or any Eurodollar Rate
Advance made by the Lender, and the result of any of the foregoing shall be to
increase the cost to the Lender of maintaining the Loans or its Commitment or
of making or maintaining any Eurodollar Rate Advance or to reduce the amount of
any sum received or receivable by the Lender hereunder (whether of principal,
interest or otherwise) in respect thereof by an amount deemed in good faith by
the Lender to be material, then the Company shall pay to the Lender such
additional amount as will compensate it for such increase or reduction upon
demand. The Lender shall not be entitled to make a demand for and the Borrower
shall not be liable for payment of any amount under the terms of this Section
2.12 following the termination of the Obligations hereunder.
SECTION 2.13. Eurodollar Advance Prepayment and Default Penalties.
Subject to Section 9.08, the Company shall indemnify the Lender against any
loss or expense which it may sustain or incur as a consequence of (a) an
Advance of, or a conversion from, Eurodollar Rate Advances that does not occur
on the date specified therefor in a Notice of Advance, (b) any payment,
prepayment or conversion of a Eurodollar Rate Advance required by any other
provision of this Agreement or otherwise made on a date other than the last day
of the applicable Interest Period or (c) any default in the payment or
prepayment of the principal amount of any Eurodollar Advance or any part
thereof or interest accrued thereon, as and when due and payable (at the due
date thereof, by notice of prepayment or otherwise). Such loss or expense
shall include an amount equal to the excess determined by the Lender of (i) its
cost of obtaining the funds for the Advance being paid, prepaid or converted or
not borrowed (based on the Eurodollar Rate) for the period from the date of
such payment, prepayment or conversion or failure to borrow to the last day of
the Interest Period for such Advance (or, in the case of a failure to borrow,
the Interest Period for the
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<PAGE> 16
Advance which would have commenced on the date of such failure to borrow) over
(ii) the amount of interest (as determined by the Lender in good faith) that
would be realized in reemploying the funds so paid, prepaid or converted or not
borrowed for such period or Interest Period, as the case may be. The Lender
will notify the Company of any loss or expense which will entitle it to
compensation pursuant to this Section, as promptly as possible after it becomes
aware thereof, but failure to so notify shall not affect the Company's
liability therefor. A certificate of the Lender setting forth any amount which
it is entitled to receive pursuant to this Section shall be delivered to the
Company and shall be conclusive absent manifest error. The Company shall pay
to the Lender the amount shown as due on any certificate within ten (10) days
after its receipt of the same. Without prejudice to the survival of any other
obligations of the Company hereunder, the obligations of the Company under this
Section shall survive the termination of this Agreement and the assignment of
the Note.
ARTICLE III
FEES
SECTION 3.01. Fees. (a) The Company agrees to pay to the
Lender a commitment fee (the "Commitment Fee") of $250,000.00. The Commitment
Fee shall be due and payable as follows: (i) $125,000.00 shall be due and
payable on the Execution Date and (ii) $125,000.00 shall be due and payable on
or before May 31, 1996.
(b) The Company agrees to pay to the Lender on each
Advance Date a fee (each a "Funding Fee") in respect of each Advance hereunder
equal to .5% of the amount of such Advance. Notwithstanding the above, the
Funding Fees shall not exceed $175,000.00 in the aggregate during the term
hereof.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01. Conditions Precedent to the Initial Advance.
The obligation of the Lender to make its initial Advance to the Company is
subject to the condition that the Lender shall have received the following:
(a) this Agreement executed by the Company;
(b) the Note executed by the Company and payable to the
order of the Lender in the amount of the Commitment;
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<PAGE> 17
(c) the Security Documents executed by the Company;
(d) a Notice of Advance with respect to the initial
Advance meeting the requirements of Section 2.03;
(e) a certificate of an officer and of the secretary or
an assistant secretary of the Company certifying, inter alia, (i) true and
complete copies of each of the articles or certificate of incorporation, as
amended and in effect of the Company and each of its Subsidiaries, the bylaws,
as amended and in effect, of the Company and each of its Subsidiaries and the
resolutions adopted by the Board of Directors of the Company (A) authorizing
the execution, delivery and performance by the Company of this Agreement and
the other Loan Documents to which it is or will be a party and the Advances to
be made hereunder, (B) approving the forms of the Loan Documents to which it is
or will be a party and which will be delivered at or prior to the date of the
initial Advance and (C) authorizing officers of the Company to execute and
deliver the Loan Documents to which it is or will be a party and any related
documents, including, any agreement contemplated by this Agreement, (ii) the
incumbency and specimen signatures of the officers of the Company executing any
documents on its behalf and (iii) that there has been no change in the
businesses or financial condition of the Company which could have a Material
Adverse Effect;
(f) favorable, signed opinions addressed to the Lender
from Vander Woude, Malone & Istre, P.C., counsel to the Company, in form and
substance satisfactory to the Lender and their counsel;
(g) the payment to the Lender of all reasonable fees and
expenses (including the reasonable fees and disbursements of Andrews & Kurth
L.L.P.) agreed upon by such parties to be paid on the Execution Date; and
(h) certificates of appropriate public officials as to
the existence, good standing and qualification to do business as a foreign
corporation, as applicable, of the Company and each of its Subsidiaries in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualifications and where the failure to so qualify would
have a Material Adverse Effect.
The acceptance of the benefits of the initial Credit Event
shall constitute a representation and warranty by the Company to the Lender
that all of the conditions specified in this Section above shall have been
satisfied or waived as of that time.
SECTION 4.02. Conditions Precedent to All Credit Events.
The obligation of the Lender to make any Advance is subject to the further
conditions precedent that on the date of such Credit Event:
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(a) The conditions precedent set forth in Section 4.01
shall have theretofore been satisfied or waived.
(b) The representations and warranties set forth in
Article V shall be true and correct in all material respects as of, and as if
such representations and warranties were made on, the date of the proposed
Advance (unless such representation and warranty expressly relates to an
earlier date or is no longer true and correct solely as a result of
transactions permitted by the Loan Documents), and the Company shall be deemed
to have certified to the Lender that such representations and warranties are
true and correct in all material respects by submitting a Notice of Advance.
(c) The Lender shall have satisfactorily completed a
reasonable due diligence investigation with respect to each Advance other than
an Advance under the unrestricted $3,000,000.00 operating expense draw.
(d) The Company shall have complied with the provisions
of Section 2.03 hereof.
(e) No Default or Event of Default shall have occurred
and be continuing or would result from such Credit Event.
(f) No Material Adverse Effect shall have occurred since
the delivery of the most recent financials.
(g) The Lender shall have received such other approvals,
opinions or documents as the Lender may reasonably request.
The acceptance of the benefits of each such Credit Event shall
constitute a representation and warranty by the Company to the Lender that all
of the conditions specified in this Section above exist as of that time.
SECTION 4.03. Delivery of Documents. The Note,
certificates, legal opinions and other documents and papers referred to in this
Article IV, unless otherwise specified, shall be delivered to the Lender and
shall be reasonably satisfactory in form and substance to the Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and
to make the
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Advances provided for herein, the Company makes, on or as of the occurrence of
each Credit Event (except to the extent such representations or warranties
relate to an earlier date or are no longer true and correct in all material
respects solely as a result of transactions permitted by the Loan Documents),
the following representations and warranties to the Lender:
SECTION 5.01. Organization and Qualification. Each of
Company and its Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization, (b) has the corporate power to own its property and to carry
on its business as now conducted and (c) is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect.
SECTION 5.02. Authorization and Validity. The Company has
the corporate power and authority to execute, deliver and perform its
obligations hereunder and under the other Loan Documents and all such action
has been duly authorized by all necessary corporate proceedings on its part.
The Loan Documents have been duly and validly executed and delivered by the
Company and constitute a valid and legally binding agreement the Company
enforceable in accordance with the respective terms thereof, except, in each
case, as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws relating
to or affecting the enforcement of creditors' rights generally, and by general
principles of equity regardless of whether such enforceability is a proceeding
in equity or at law.
SECTION 5.03. Governmental Consents. No authorization,
consent, approval, license or exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid execution,
delivery or performance by the Company of any Loan Document.
SECTION 5.04. Conflicting or Adverse Agreements or
Restrictions. Neither the Company nor any Subsidiary is a party to any
contract or agreement or subject to any restriction which would reasonably be
expected to have a Material Adverse Effect. All agreements of the Company
relating to the lending of money or the issuance of letters of credit by any
party are described hereto on Schedule 5.04. Neither the execution nor
delivery of the Loan Documents nor compliance with the terms and provisions
hereof or thereof will be contrary to the provisions of, or constitute a
default under (a) the charter or bylaws of the Company, (b) any applicable law
or any applicable regulation, order, writ, injunction or decree of any court or
governmental instrumentality or (c) any material agreement to which the Company
is a party or by which it is bound or to which it is subject.
SECTION 5.05. Title to Assets. Each of the Company and its
Subsidiaries has good title to all material personalty and good and
indefeasible title to all material realty as reflected on the Company's and the
Subsidiaries' books and records as being owned by it, except for
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properties disposed of in the ordinary course of business, subject to no
Liens, except those permitted hereunder or set forth on Schedule 7.04(a). All
of such assets have been and are being maintained by the appropriate Person in
good working condition in accordance with industry standards.
SECTION 5.06. Litigation. No proceedings against or
affecting the Company or any Subsidiary are pending or, to the knowledge of the
Company, threatened before any court or governmental agency or department which
involve a reasonable risk of having a Material Adverse Effect except those
listed on Schedule 5.06 hereof.
SECTION 5.07. Financial Statements. Prior to the Execution
Date, the Company has furnished to the Lender the audited consolidated balance
sheet, income statement and statement of cash flow for J-Hawk Corporation,
predecessor in interest to the Company, as of December 31, 1994 and all
quarterly reports of the Company as are currently available (such audited
financials and quarterly reports, the "Financials"). The Financials have been
prepared in conformity with GAAP consistently applied (except as otherwise
disclosed in such financial statements) throughout the periods involved and
present fairly, in all material respects, the consolidated financial condition
of the Company and its consolidated Subsidiaries as of the dates thereof and
the results of their operations for the periods then ended. As of the
Execution Date, no Material Adverse Effect has occurred in the consolidated
financial condition of the Company and its consolidated Subsidiaries since
December 31, 1994.
SECTION 5.08. Default. Neither the Company nor any
Subsidiary is in default under any material provisions of any instrument
evidencing any Indebtedness or of any agreement relating thereto, or in default
in any respect under any order, writ, injunction or decree of any court, or in
default in any respect under or in violation of any order, injunction or decree
of any governmental instrumentality, in such manner as to cause a Material
Adverse Effect.
SECTION 5.09. Investment Company Act. Neither the Company
nor any Subsidiary is, or is directly or indirectly controlled by or acting on
behalf of any Person which is, an "investment company," as such term is defined
in the Investment Company Act of 1940, as amended.
SECTION 5.10. Public Utility Holding Company Act. Neither
the Company nor any Subsidiary is a non-exempt "holding company," or is
subject to regulation as such, nor is, to the knowledge of the Company's or
Subsidiaries' officers, an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 5.11. ERISA. No accumulated funding deficiency (as
defined in
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Section 412 of the Code or Section 302 of ERISA), whether or not waived, exists
or is expected to be incurred with respect to any Plan. No liability to the
PBGC (other than required premium payments) has been or is expected by the
Company to be incurred with respect to any Plan by the Company or any ERISA
Affiliate. Neither the Company nor any ERISA Affiliate has incurred any
withdrawal liability under Title IV of ERISA with respect to any Multi-Employer
Plans.
SECTION 5.12. Tax Returns and Payments. Each of the
Company and its Subsidiaries has filed all federal income tax returns and other
tax returns, statements and reports (or obtained extensions with respect
thereto) which are required to be filed and has paid or deposited or made
adequate provision in accordance with GAAP for the payment of all taxes
(including estimated taxes shown on such returns, statements and reports) which
are shown to be due pursuant to such returns, except for such taxes as are
being contested in good faith and by proceedings.
SECTION 5.13. Environmental Matters. Each of the Company
and its Subsidiaries (a) possesses all environmental, health and safety
licenses, permits, authorizations, registrations, approvals and similar rights
necessary under law or otherwise for the Company or such Subsidiary to conduct
its operations as now being conducted (other than those with respect to which
the failure to possess or maintain would not, individually or in the aggregate
for the Company and such Subsidiaries, have a Material Adverse Effect) and (b)
each of such licenses, permits, authorizations, registrations, approvals and
similar rights is valid and subsisting, in full force and effect and
enforceable by the Company or such Subsidiary, and each of the Company and its
Subsidiaries is in compliance with all terms, conditions or other provisions of
such permits, authorizations, registrations, approvals and similar rights
except for such failure or noncompliance that, individually or in the aggregate
for the Company and such Subsidiaries, would not have a Material Adverse
Effect. Except as disclosed on Schedule 5.13, neither the Company nor any of
its Subsidiaries has received any notices of any violation of, noncompliance
with, or remedial obligation under, Requirements of Environmental Laws (which
violation or non-compliance has not been cured) and there are no writs,
injunctions, decrees, orders or judgments outstanding, or lawsuits, claims,
proceedings, investigations or inquiries pending or, to the knowledge of the
Company or any Subsidiary, threatened, relating to the ownership, use,
condition, maintenance or operation of, or conduct of business related to, any
property owned, leased or operated by the Company or any Subsidiary or other
assets of the Company or such Subsidiary, other than those violations,
instances of noncompliance, obligations, writs, injunctions, decrees, orders,
judgments, lawsuits, claims, proceedings, investigations or inquiries that,
individually or in the aggregate for the Company and such Subsidiaries, would
not have a Material Adverse Effect. Except as disclosed on Schedule 5.13,
there are no material obligations, undertakings or liabilities arising out of
or relating to Environmental Laws to which the Company or any of its
Subsidiaries has agreed, assumed or retained, or by which the Company or any of
its Subsidiaries is adversely affected, by contract or otherwise. Except as
disclosed on Schedule 5.13, neither the Company nor any of its Subsidiaries has
received a written notice or claim to the effect that such Person is or may be
liable to any other Person as the result of a Release or threatened Release of
a Hazardous Material.
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SECTION 5.14. Purpose of Loans. (a) The proceeds of the
Advances will be used solely to finance operating expenditures and for certain
capital investments of the Company made in the ordinary course of its business.
(b) None of the proceeds of any Advance will be used
directly or indirectly for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulation U (herein called "margin stock") or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock.
SECTION 5.15. Franchises and Other Rights. Each of the
Company and its Subsidiaries has all franchises, permits, licenses and other
authority as are necessary to enable it to carry on its businesses as now being
conducted where the absence of such would have a Material Adverse Effect except
those listed on Schedule 5.15 hereof. To the best of its knowledge, the
Company is not in default in respect of any of such operating rights.
SECTION 5.16. Subsidiaries. The Subsidiaries listed on
Schedule 5.16 are all of the Subsidiaries of the Company as of the Execution
Date.
SECTION 5.17. Solvency. After giving effect to the initial
Advance hereunder and all other Indebtedness of the Company, the Company and
its Subsidiaries, viewed as a consolidated entity have (a) capital sufficient
to carry on their businesses and transactions, (b) assets, the fair market
value of which exceeds their consolidated liabilities (as reflected on the
Financials or on the financial statements most recently delivered to the
Lender), and (c) sufficient cash flow to pay their existing debts as they
mature.
SECTION 5.18. Material Facts. There is no fact which the
Company has failed to disclose to the Lender in writing which will have a
Material Adverse Effect on or, so far as the Company can now foresee, will have
a Material Adverse Effect on the assets, business, prospects, profits or
condition (financial or otherwise) of the Company or its Subsidiaries or the
ability of the Company to perform its obligations under this Agreement. No
information, exhibit or report furnished by the Company to the Lender in
connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted a material fact or any fact necessary to make
the statement contained therein not materially misleading.
SECTION 5.19. Solvency. The Company is, and after giving
effect to the transactions contemplated under the Loan Documents will be,
solvent.
SECTION 5.20. Security Interests. The Security Documents
create valid security interests in the collateral described therein in favor of
the Lender securing the Obligations and constitute perfected first priority
security interests in such collateral described therein subject to no
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Liens other than Liens permitted by Section 7.04.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company covenants and agrees that on and after the date
hereof and for so long as this Agreement is in effect and until the Commitment
has terminated:
SECTION 6.01. Information Covenants. The Company will
furnish to the Lender:
(a) As soon as available, and in any event within 45 days
after the close of each of the first three quarters in each fiscal year of the
Company, the consolidated and consolidating balance sheet of the Company and
its Subsidiaries as of the end of such quarterly period and the related
consolidated and consolidating statements of income and cash flows for such
quarterly period and for the portion of the fiscal year ended at the end of
such quarter, setting forth, in each case, comparative consolidated figures for
the related periods in the prior fiscal year, all of which shall be certified
by the chief financial officer or chief executive officer of the Company as
fairly presenting in all material respects, the financial position of the
Company and its Subsidiaries as of the end of such period and the results of
their operations for the period then ended in accordance with GAAP, subject to
changes resulting from normal year-end audit adjustments.
(b) As soon as available, and in any event within 120
days after the close of each fiscal year of the Company, the audited
consolidated and the unaudited consolidating balance sheets of the Company and
its Subsidiaries as at the end of such fiscal year and the related consolidated
and consolidating statements of income, stockholders equity and cash flows for
such fiscal year, setting forth, in each case, comparative figures for the
preceding fiscal year and certified by KPMG Peat Marwick, L.L.P. or other
independent certified public accountants of recognized national standing, whose
report shall be without limitation as to the scope of the audit and reasonably
satisfactory in substance to the Lenders.
(c) Immediately after any Responsible Officer of the
Company obtains knowledge thereof, notice of:
(i) any material violation of, noncompliance with, or
remedial obligations under, Requirements of Environmental Laws,
(ii) any material Release or threatened material Release
of Hazardous Materials affecting any property owned, leased or
operated by the Company or any of its Subsidiaries,
(iii) any event or condition which constitutes a Default or
an Event of Default,
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(iv) any condition or event which, in the opinion of
management of the Company, would reasonably be expected to have a
Material Adverse Effect,
(v) any Person having given any written notice to the
Company or taken any other action with respect to a claimed material
default or material adverse event under any material instrument or
material agreement, and
(vi) the institution of any litigation which might
reasonably be expected in the good faith judgment of the Company
either to have a Material Adverse Effect or result in a final,
non-appealable judgment or award in excess of $1,000,000.00 with
respect to any single cause of action, or the institution of any
litigation of any kind by any party with whom the Company has entered
into a franchise agreement;
then, a notice of such event or condition will be delivered to the Lender
specifying the nature and period of existence thereof and specifying the notice
given or action taken by such Person and the nature of any such claimed
default, event or condition and, in the case of an Event of Default or Default,
what action has been taken, is being taken or is proposed to be taken with
respect thereto.
(d) At the time of the delivery of the financial
statement provided for in Sections 6.01(a) and 6.01(b), a certificate of a
Responsible Officer to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and
extent thereof and the action that is being taken or that is proposed to be
taken with respect thereto, which certificate shall set forth the calculations
required to establish whether the Company was in compliance with the provisions
of Sections 7.10 and 7.11 as at the end of such fiscal period or year, as the
case may be.
(e) Upon request by the Lender such audits of the
Company's procedures and policies and operations in respect of Environmental
Laws as the Lender may reasonably request.
(f) Promptly upon receipt thereof, a copy of any report
or letter submitted to the Company by its independent accountants in connection
with any regular or special audit of the Company's records.
(g) From time to time and with reasonable promptness,
such other information or documents as the Lender may reasonably request.
SECTION 6.02. Books, Records and Inspections. The Company
and its Subsidiaries will maintain, and will permit, or cause to be permitted,
any Person designated by the Lender to visit and inspect any of the properties
of the Company and its Subsidiaries, to examine the corporate books and
financial records of the Company and its Subsidiaries and make copies
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thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any such corporations with the officers, employees and agents of the Company
and its Subsidiaries and with their independent public accountants, all at such
reasonable times and as often as the Lender may request. Such inspections
shall be made as often as the Lender reasonably requests, and shall be at the
expense of the Company up to $5,000.00 annually.
SECTION 6.03. Insurance and Maintenance of Properties. (a)
The Company and its Subsidiaries will keep reasonably adequately insured by
financially sound and reputable insurers all of its material property, which is
of a character, and in amounts and against such risks, usually and reasonably
insured by similar Persons engaged in the same or similar businesses,
including, without limitation, insurance against fire, casualty and any other
hazards normally insured against. The Company and its Subsidiaries will at all
times maintain insurance against its liability for injury to Persons or
property, which insurance shall be by financially sound and reputable insurers
and in such amounts and form as are customary for corporations of established
reputation engaged in the same or a similar business and owning and operating
similar properties, and shall annually provide the Lender a listing of all such
insurance and such other certificates and other evidence thereof, as the Lender
shall reasonably request. A listing of all presently existing policies of the
Company and its Subsidiaries is attached hereto as Schedule 6.03.
(b) The Company and its Subsidiaries will cause all of
its material properties used or useful in the conduct of its business to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and will cause to be made all reasonably necessary
repairs, renewals and replacements thereof, all as in the reasonable judgment
of such Person may be reasonably necessary so that the business carried on in
connection therewith may be properly conducted at all times.
(c) The Company will name the Lender as a loss payee on
all of its insurance policies (other than public liability insurance policies).
SECTION 6.04. Payment of Taxes. Except with respect to
"distressed assets" acquired by any Subsidiary in a portfolio acquisition, the
Company and its Subsidiaries will pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits,
or upon any properties belonging to it, prior to the date on which penalties
attach thereto, except for such amounts that are being contested in good faith
and by appropriate proceedings.
SECTION 6.05. Corporate Existence. The Company and its
Subsidiaries will do all things necessary to preserve and keep in full force
and effect (a) its corporate existence and (b) unless the failure to do so
would not have a Material Adverse Effect, the rights and franchises of each of
the Company and its Subsidiaries.
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SECTION 6.06. Compliance with Statutes. The Company and its
Subsidiaries will comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the
ownership of its property, except to the extent the failure to do so would not
reasonably be expected to have a Material Adverse Effect.
SECTION 6.07. ERISA. Immediately after any Responsible
Officer of the Company or any of its Subsidiaries knows or has reason to know
any of the following items are true the Company will deliver or cause to be
delivered to the Lender a certificate of the chief financial officer of the
Company setting forth details as to such occurrence and such action, if any,
the Company or its ERISA Affiliate is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by the
Company or its ERISA Affiliate with respect thereto; that a Reportable Event
has occurred or that an application may be or has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard; that
a Multiemployer Plan has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA; that any required contribution to a
Plan or Multiemployer Plan has not been or may not be timely made; that
proceedings may be or have been instituted under Section 4069(a) of ERISA to
impose liability on the Company or an ERISA Affiliate or under Section 4042 of
ERISA to terminate a Plan or appoint a trustee to administer a Plan; that the
Company or any ERISA Affiliate has incurred or may incur any liability
(including any contingent or secondary liability) on account of the termination
of or withdrawal from a Plan or a Multiemployer Plan; and that the Company or
an ERISA Affiliate may be required to provide security to a Plan under Section
401(a)(29) of the Code; or any other condition exists or may occur with respect
to one or more Plans and/or Multiemployer Plans.
SECTION 6.08. Fidelity Bond. The Company shall at all
times during the term hereof maintain a fidelity bond in an amount not less
than $2,000,000.00 per occurrence and $4,000,000.00 in the aggregate, net of
any applicable deductible.
ARTICLE VII
NEGATIVE COVENANTS
The Company covenants and agrees that, unless the Lender shall
have otherwise given its written consent, on and after the date hereof and for
so long as this Agreement is in effect and until the Commitment has terminated:
SECTION 7.01. Change in Business. The Company will not
engage in any businesses not of the same general type as those conducted by the
Company on the Execution Date.
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SECTION 7.02. Consolidation, Merger or Sale of Assets. The
Company will not wind up, liquidate or dissolve their affairs, or enter into
any transaction of merger or consolidation, or sell or otherwise dispose of all
or any part of their property or assets (other than sales of inventory and
surplus or obsolete assets in the ordinary course of business provided that any
disposal does not prejudice the Lender in any way), including the capital stock
of any Subsidiary, or purchase, lease or otherwise acquire (in one or a series
of related transactions) all or any part of the property or assets of any
Person or all of the capital stock of any Person. The Company will not permit
any of its Subsidiaries to wind up, liquidate or dissolve their affairs, or
enter into any transaction of merger or consolidation, or sell or otherwise
dispose of any capital stock of any Subsidiary, or purchase, lease or otherwise
acquire (in one or a series of related transactions) all or any part of the
property or assets of any Person or all of the capital stock of any Person.
SECTION 7.03. Indebtedness. The Company will not create,
incur, assume or permit to exist any Indebtedness except:
(a) Indebtedness existing hereunder;
(b) long term Indebtedness or unsecured short term
Indebtedness not to exceed in the aggregate $5,000,000.00; and
(c) guarantees of any Indebtedness of any Person not to
exceed in the aggregate $5,000,000.00.
SECTION 7.04. Liens. Neither the Company nor any Subsidiary
will create, incur, assume or suffer to exist any Lien upon or with respect to
any of its property or assets of any kind whether now owned or hereafter
acquired (nor will they covenant with any other Person not to grant such a Lien
to the Lender), except
(a) Liens existing on the Execution Date and listed on
Schedule 7.04(a);
(b) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established;
(c) Liens securing long term Indebtedness permitted under
Section 7.03(b) above;
(d) any renewal, extension or replacement of any Lien
referred to in subparagraph (a) above; provided, that no Lien arising or
existing as a result of such extension, renewal or replacement shall be
extended to cover any property not theretofore subject to the Lien being
extended, renewed or replaced, and provided further, the principal amount of
the
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Indebtedness secured thereby shall not exceed the principal amount of the
Indebtedness so secured at the time of such extension, renewal or replacement;
and
(e) Liens granted in connection with the acquisition of
promissory notes evidencing loans (or real property previously foreclosed
upon).
SECTION 7.05. Investments. Except as provided in Sections
7.02 and 7.09, neither the Company nor any Subsidiary will, directly or
indirectly, make or own any Investment in any Person, except:
(a) The Company and its Subsidiaries may make and own
Permitted Investments;
(b) The Company and its Subsidiaries may continue to own
Investments owned by it on the Execution Date and listed on Schedule 7.05(b);
and
(c) The Company and its Subsidiaries may make and own
Investments arising out of loans and advances for expenses, travel per diem and
similar items in the ordinary course of business to officers, directors and
employees.
SECTION 7.06. Restricted Payments. (a) Other than payments
in respect of the Senior Subordinated Notes and the Special Preferred Stock
Payments, the Company will not pay any dividends or redeem, retire, purchase or
make any other acquisition, direct or indirect, of any shares of any class of
stock of the Company, or of any warrants, rights or options to acquire any such
shares, now or hereafter outstanding; except to the extent that the
consideration therefor consists solely of shares of stock (including warrants,
rights or options relating thereto) of the Company.
(b) Except in the ordinary course of business, the
Subsidiaries will not declare any dividends, make any loans or advances to, or
otherwise transfer any money or other assets to the Company during the term
hereof; provided, such dividends, loans or transfers are simultaneously
transferred to the Lender in repayment of the Obligations.
SECTION 7.07. Change in Accounting. The Company will not,
and will not permit any Subsidiary to, change its method of accounting except
for (a) immaterial changes permitted by GAAP in which the Company's auditors
concur or (b) changes required by GAAP. The Company shall advise the Lender in
writing promptly upon making any material change to the extent same is not
disclosed in the financial statements required under Section 6.01 hereof.
SECTION 7.08. Change of Certain Indebtedness. Other than
payments in respect of the Senior Subordinated Notes and the Special Preferred
Stock Payments, the Company will not
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make any voluntary prepayments of principal or interest on any other of the
Company's Indebtedness.
SECTION 7.09. Transactions with Affiliates. The Company will
not, directly or indirectly, engage in any transaction with any Affiliate,
including the purchase, sale or exchange of assets or the rendering of any
service, except in the ordinary course of business or pursuant to the
reasonable requirements of its business and, in each case, upon terms that are
no less favorable than those which might be obtained in an arm's-length
transaction at the time from non-Affiliates.
SECTION 7.10. Minimum Tangible Net Worth. The Company will
not permit its Tangible Net Worth during the term hereof to be less than
$42,500,000.00.
SECTION 7.11. Indebtedness to Equity Ratio. The Company
will not permit the ratio of (a) its consolidated Indebtedness excluding Senior
Subordinated Notes and "Special Preferred Stock" (as such term is used in the
definition of Special Preferred Stock Payments) to (b) the amount of its equity
represented by common stock, to be greater than 5.0 to 1.0 at any time during
the term hereof.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01. Events of Default. The following events shall
constitute Events of Default ("Events of Default") hereunder:
(a) any installment of principal or payment of interest
on the Note or any payment of any Fee shall not be paid on the date on which
such payment is due and such failure is not remedied within five (5) days; or
(b) any representation or warranty made or, for purposes
of Article V, deemed made by the Company or any Subsidiary herein or in any of
the Loan Documents or other document, certificate or financial statement
delivered in connection with this Agreement or any other Loan Document shall
prove to have been incorrect in any material respect when made or deemed made
or reaffirmed, as the case may be; or
(c) the Company or any Subsidiary shall fail to perform
or observe any duty or covenant contained in Article VII hereof; or
(d) the Company or any Subsidiary shall fail to perform
or observe any duty or
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covenant contained in this Agreement other than in Article VII, or in any of
the Loan Documents, and such failure is not remedied within thirty (30) days;
or
(e) the Company or any Subsidiary shall (i) fail to make
(whether as primary obligor or as guarantor or other surety) any principal
payment of or interest or premium, if any, on any instrument of Indebtedness
allowed hereunder (other than the Note) outstanding beyond any period of grace
provided with respect thereto or (ii) shall fail to duly observe, perform or
comply with any agreement with any Person or any term or condition of any
instrument of Indebtedness in excess of $500,000.00, if such failure causes
such obligations to become due prior to any stated maturity; or
(f) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of the Company or any Subsidiary, or of a
substantial part of the property or assets of the Company or any Subsidiary,
under Title 11 of the United States Code, as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"), or any other federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary or for a substantial part of the property or
assets of the Company or any Subsidiary or (iii) the winding-up or liquidation
of the Company or any Subsidiary; and such proceeding or petition shall
continue undismissed for sixty 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; or
(g) the Company or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under the
Bankruptcy Code or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause (e) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Subsidiary or for a substantial part of
the property or assets of the Company or any Subsidiary, (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, (vi)
become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for the purpose of effecting
any of the foregoing; or
(h) a judgment or order, which with other outstanding
judgments and orders against the Company and its Subsidiaries equal or exceed
$1,000,000.00 in the aggregate (to the extent not covered by insurance as to
which the respective insurer has acknowledged coverage), shall be entered
against the Company or any Subsidiary and (i) within thirty (30) days after
entry thereof such judgment shall not have been paid or discharged or execution
thereof stayed pending appeal or, within thirty (30) days after the expiration
of any such stay, such judgment shall not have been paid or discharged or (ii)
any enforcement proceeding shall have been commenced (and not
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stayed) by any creditor or upon such judgment; or
(i) the occurrence of a change which has a Material
Adverse Effect, in the opinion of the Lender, (A) in the financial condition,
business or operations of the Company or (B) in the ability of the Company to
make payment hereunder or under the Note or the right of the Lender to enforce
any of its remedies to collect any amounts owing under the Loan Documents; or
(j) a Change of Control shall occur.
SECTION 8.02. Primary Remedies. In any such event, and at
any time after the occurrence of any of the above described events, the Lender
may, by written notice to the Company (a "Notice of Default") take any or all
of the following actions to enforce any other rights it may have against the
Company; provided, that if an Event of Default specified in Section 8.01(f) or
Section 8.01(g) shall occur, the following shall occur automatically without
the giving of any Notice of Default: (a) declare the Commitment terminated,
whereupon the Commitment shall forthwith terminate immediately; (b) declare the
principal of and any accrued and unpaid interest in respect of all Advances,
and all obligations owing hereunder, to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, notice of demand or of
dishonor and non-payment, protest, notice of protest, notice of intent to
accelerate, declaration or notice of acceleration or any other notice of any
kind, all of which are hereby waived by the Company; and (c) exercise any
rights or remedies under any document securing any of the Loan Documents. In
the event that no Default has occurred solely because of any grace period
referred to herein, the Company shall, nonetheless, not be entitled to any
Advances during said period.
SECTION 8.03. Other Remedies. Upon the occurrence and
during the continuance of any Event of Default and after a Notice of Default,
the Lender may proceed to protect and enforce its rights, either by suit in
equity or by action at law or both, whether for the specific performance of any
covenant or agreement contained in this Agreement or in any other Loan Document
or in aid of the exercise of any power granted in this Agreement or in any
other Loan Document; or may proceed to enforce the payment of all amounts owing
to the Lender under the Loan Documents and any accrued and unpaid interest
thereon in the manner set forth herein or therein; it being intended that no
remedy conferred herein or in any of the other Loan Documents is to be
exclusive of any other remedy, and each and every remedy contained herein or in
any other Loan Document shall be cumulative and shall be in addition to every
other remedy given hereunder and under the other Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments. No amendment or waiver of any
provision of this Agreement, the Note or any other Loan Document, nor consent
to any departure by the Company herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company, as to
amendments, and by the Lender in all cases, and then, in any case, such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 9.02. Notices. Except with respect to telephone
notifications specifically permitted pursuant to Article II, all notices,
consents, requests, approvals, demands and other communications provided for
herein shall be in writing (including telecopy communications) and mailed,
telecopied, sent by overnight courier or delivered:
(a) If to the Company:
FirstCity Financial Corporation
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714
Telecopy No: (817) 751-1208
Attention: Mr. James T. Sartain
(b) If to the Lender:
Cargill Financial Services Corporation
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
Telecopy No: (612) 984-3905
Attention: Mr. Jeffrey A. Parker
with copies to:
Cargill Financial Services Corporation
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
Telecopy No: (612) 984-3898
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Attention: Mr. James D. Dingel
and to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Telecopy No. (713) 220-4295
Attention: Linda Dole
or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.
All communications shall, when mailed, telecopied or
delivered, be effective when mailed by certified mail, return receipt requested
to any party at its address specified above, or telecopied to any party to the
telecopy number set forth above, or delivered personally to any party at its
address specified above; provided, that communications to the Lender pursuant
to Article II shall not be effective until actually received by the Lender.
SECTION 9.03. No Waiver; Remedies. No failure on the part
of the Lender to exercise, and no delay in exercising, any right hereunder,
under the Note or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, or any
abandonment or discontinuance of any steps to enforce such right, preclude any
other or further exercise thereof or the exercise of any other right. No
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances. The
remedies herein are cumulative and not exclusive of any other remedies provided
by law, at equity or in any other agreement.
SECTION 9.04. Costs, Expenses and Taxes. The Company
agrees to pay on demand: (a) all reasonable due diligence and travel expenses
of the Lender in connection with any Advance not to exceed $10,000.00 per
Advance, (b) all reasonable out-of-pocket costs and expenses of the Lender in
connection with the preparation, execution and delivery of this Agreement, the
Note, the other Loan Documents and the other documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Lender with respect thereto and with respect to advising the Lender as
to its rights and responsibilities under this Agreement, the Note and the other
Loan Documents, and any modification, supplement or waiver of any of the terms
of this Agreement or any other Loan Document, (c) all reasonable costs and
expenses of the Lender and any other holder of an interest in the Note, and the
Obligations of the Company hereunder and under the Loan Documents, including
reasonable legal fees and expenses, in connection with a default or the
enforcement of this Agreement, the Note and the other Loan Documents and (d)
reasonable costs and expenses incurred in connection with third party
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professional services required by the Lender such as appraisers, environmental
consultants, accountants or similar Persons; provided, that prior to any Event
of Default hereunder, the Lender will first obtain the consent of the Company
to such expense, which consent shall not be unreasonably withheld. Without
prejudice to the survival of any other obligations of the Company hereunder and
under the Note, the obligations of the Company under this Section shall survive
the termination of this Agreement or the replacement of the Lender and the
assignment of the Note.
SECTION 9.05. Indemnity. (a) The Company shall indemnify
the Lender and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages (including reasonable legal fees and
expenses) to which any of them may become subject, insofar as such losses,
liabilities, claims or damages arise out of or result from any actual or
proposed use by the Company of the proceeds of any extension of credit
hereunder or any investigation, litigation or other proceeding (including any
threatened investigation or proceeding) relating to the foregoing or any of the
other Loan Documents, and the Company shall reimburse the Lender and each
Affiliate thereof and their respective directors, officers, employees and
agents, upon demand for any expenses (including legal fees) reasonably incurred
in connection with any such investigation or proceeding; but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified.
(B) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT
IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES: (I) ARISING OUT OF
OR RESULTING FROM THE ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON
OR (II) IMPOSED UPON SAID PARTY UNDER ANY THEORY OR STRICT LIABILITY. Without
prejudice to the survival of any other obligations of the Company hereunder and
under the other Loan Documents, the obligations of the Company under this
Section shall survive the termination of this Agreement and the other Loan
Documents and the payment of the Obligations or the assignment of the Note.
SECTION 9.06. Right of Setoff. If any Event of Default
shall have occurred and be continuing, the Lender 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 held and other indebtedness owing by the Lender,
or any Subsidiary or Affiliate, to or for the credit or the account of the
Company against any and all the Obligations of the Company now or hereafter
existing under this Agreement and the other Loan Documents and other
obligations of the Company held by the Lender, irrespective of whether or not
the Lender shall have made any demand under this Agreement, its Note or the
Obligations and although the Obligations may be unmatured. The rights of the
Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which the Lender may have.
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SECTION 9.07. Governing Law. This Agreement, the Note, the
other Loan Documents and all other documents executed in connection herewith
shall be deemed to be contracts and agreements executed by the Company and the
Lender under the laws of the State of Minnesota and of the United States of
America and for all purposes shall be construed in accordance with, and
governed by, the laws of said state and of the United States of America.
Without limitation of the foregoing, nothing in this Agreement, or in the Note
or in any other Loan Document shall be deemed to constitute a waiver of any
rights which the Lender may have under applicable federal legislation relating
to the amount of interest which the Lender may contract for, take, receive or
charge in respect of the Loan and the Loan Documents, including any right to
take, receive, reserve and charge interest at the rate allowed by the law of
the state where the Lender is located.
SECTION 9.08. Interest. Each provision in this Agreement
and each other Loan Document is expressly limited so that in no event
whatsoever shall the amount paid, or otherwise agreed to be paid, to the Lender
or charged, contracted for, reserved, taken or received by the Lender, for the
use, forbearance or detention of the money to be loaned under this Agreement or
any Loan Document or otherwise (including any sums paid as required by any
covenant or obligation contained herein or in any other Loan Document which is
for the use, forbearance or detention of such money), exceed that amount of
money which would cause the effective rate of interest to exceed the Highest
Lawful Rate, and all amounts owed under this Agreement and each other Loan
Document shall be held to be subject to reduction to the effect that such
amounts so paid or agreed to be paid, charged, contracted for, reserved, taken
or received which are for the use, forbearance or detention of money under this
Agreement or such Loan Document shall in no event exceed that amount of money
which would cause the effective rate of interest to exceed the Highest Lawful
Rate. Anything in the Note or any other Loan Document to the contrary
notwithstanding, the Company shall not be required to pay unearned interest on
the Note and the Company shall not be required to pay interest on the
Obligations at a rate in excess of the Highest Lawful Rate, and if the
effective rate of interest which would otherwise be payable under the Note and
such Loan Documents would exceed the Highest Lawful Rate, or if the holder of
the Note shall receive any unearned interest or shall receive monies that are
deemed to constitute interest which would increase the effective rate of
interest payable by the Company under the Note and the other Loan Documents to
a rate in excess of the Highest Lawful Rate, then (a) the amount of interest
which would otherwise be payable by the Company shall be reduced to the amount
allowed under applicable law and (b) any unearned interest paid by the Company
or any interest paid by the Company in excess of the Highest Lawful Rate shall
in the first instance be credited on the principal of the obligations of the
Company (or if all such obligations shall have been paid in full, refunded to
the Company). It is further agreed that, without limitation of the foregoing,
all calculations of the rate of interest contracted for, reserved, taken,
charged or received by the Lender under the Note and the Obligations and under
the other Loan Documents are made for the purpose of determining whether such
rate exceeds the Highest Lawful Rate, and shall be made, to the extent
permitted by usury laws applicable to the Lender, by amortizing, prorating and
spreading in equal
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parts during the period of the full stated term of the Note and this Agreement
and all interest at any time contracted for, charged or received by the Lender
in connection therewith.
SECTION 9.09. Survival of Representations and Warranties.
All representations, warranties and covenants contained herein or made in
writing by the Company in connection herewith and the other Loan Documents
shall survive the execution and delivery of this Agreement, the Note and the
other Loan Documents, the termination of the Commitment of the Lender and will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto, whether so expressed or not; provided, that the Commitment of
the Lender shall not inure to the benefit of any successor or assign of the
Company.
SECTION 9.10. Successors and Assigns; Participations. (a)
All covenants, promises and agreements by or on behalf of the Company or the
Lender that are contained in this Agreement shall bind and inure to the benefit
of their respective permitted successors and assigns. The Company may not
assign or transfer any of its rights or obligations hereunder.
(b) The Lender may assign to or sell participations to
one or more banks of all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of the
Commitment, the Advances and the Obligations of the Company owing to it and the
Note); provided, that the participating banks or other entities shall be
entitled to the cost protection provisions contained in Article II and Section
9.04 and the Company shall continue to deal solely and directly with the Lender
in connection with its rights and obligations under this Agreement and the
other Loan Documents. Except with respect to cost protections provided to a
participant pursuant to this paragraph and the items listed in Section 9.01
hereof, no participant shall be a third party beneficiary of this Agreement nor
shall it be entitled to enforce any rights provided to the Lender against the
Company under this Agreement.
(c) With the prior written consent of the Company and the
Lender (which consent shall not be unreasonably withheld), the Lender may
assign to one or more other Eligible Assignees all or a portion of its
interests, rights, and obligations under this Agreement and the other Loan
Documents (including all or a portion of the Commitment and the same portion of
the Loans and other Obligations of the Company at the time owing to it and the
Note); provided, however, that (i) each such assignment shall be in a minimum
principal amount of not less than $1,000,000.00 and shall be of a constant, and
not a varying, percentage of all the Lender's Commitment, rights and
obligations under this Agreement, (ii) the parties to each such assignment
shall execute and deliver to the Lender, for its acceptance, an Assignment and
Acceptance in form and substance satisfactory to the Lender (an "Assignment and
Acceptance") and the Note subject to such assignment and (iii) no assignment
shall be effective until receipt by the Lender of a reasonable service fee in
respect of said assignment equal to $2,000.00. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five (5)
Business Days after the execution
-36-
<PAGE> 37
thereof unless otherwise agreed to by the Lender and the Eligible Assignee
thereunder (x) the Eligible Assignee thereunder shall be a party hereto and to
the other Loan Documents and, to the extent provided in such Assignment and
Acceptance, have the rights and obligations of the Lender hereunder and under
the other Loan Documents and (y) the Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement and the other Loan Documents (and, in the case of an
Assignment and Acceptance covering all of the remaining portion of the Lender's
rights and obligations under this Agreement and the other Loan Documents, the
Lender shall cease to be a party hereto).
(d) Notwithstanding any other provision herein, the
Lender may, in connection with any assignment or participation or proposed
assignment or participation pursuant to this Section disclose to the assignee
or participant or proposed assignee or participant, any information relating to
the Company furnished to the Lender by or on behalf of the Company.
SECTION 9.11. Confidentiality. The Lender agrees to
exercise its best efforts to keep any information delivered or made available
by the Company to it which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by the Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
Lender from disclosing such information (a) pursuant to subpoena or upon the
order of any court or administrative agency, (b) upon the request or demand of
any regulatory agency or authority having jurisdiction over the Lender, (c)
which has been publicly disclosed, (d) to the extent reasonably required in
connection with any litigation to which the Lender, the Company or its
respective Affiliates may be a party, (e) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (f) to the Lender's legal
counsel and independent auditors and (g) to any actual or proposed participant
or assignee of all or part of its rights hereunder which has agreed in writing
to be bound by the provisions of this Section. The Lender will promptly notify
the Company of any information that it is required or requested to deliver
pursuant to clause (b) or (c) of this Section and, if the Company is a party to
any such litigation, clause (e) of this Section .
SECTION 9.12. Separability. Should any clause, sentence,
paragraph or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating
or voiding the remainder of this Agreement, and the parties hereto agree that
the part or parts of this Agreement so held to be invalid, unenforceable or
void will be deemed to have been stricken herefrom and the remainder will have
the same force and effectiveness as if such part or parts had never been
included herein.
SECTION 9.13. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
-37-
<PAGE> 38
SECTION 9.14. Interpretation. (a) In this Agreement,
unless a clear contrary intention appears:
(i) the singular number includes the plural
number and vice versa;
(ii) reference to any gender includes each other
gender;
(iii) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such
Person's successors and assigns but, if applicable, only if such
successors and assigns are permitted by this Agreement, and reference
to a Person in a particular capacity excludes such Person in any other
capacity or individually, provided that nothing in this clause is
intended to authorize any assignment not otherwise permitted by this
Agreement;
(v) except as expressly provided to the contrary
herein, reference to any agreement, document or instrument (including
this Agreement) means such agreement, document or instrument as
amended, supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms
hereof, and reference to the Note or other note includes the Note
issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise,
reference to any Article, Section, Schedule or Exhibit means such
Article or Section hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative
meaning "include") means including, without limiting the generality of
any description preceding such term;
(viii) with respect to the determination of any
period of time, except as expressly provided to the contrary, the word
"from" means "from and including" and the word "to" means "to but
excluding"; and
(ix) reference to any law, rule or regulation
means such as amended, modified, codified or reenacted, in whole or in
part, and in effect from time to time.
(b) The Article and Section headings herein and the Table
of Contents are for
-38-
<PAGE> 39
convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted
or construed against any Person solely because that Person or its legal
representative drafted such provision.
SECTION 9.15. SUBMISSION TO JURISDICTION. (a) ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF MINNESOTA, IN HENNEPIN
COUNTY OR ELSEWHERE OR OF THE UNITED STATES FOR THE DISTRICT OF MINNESOTA AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR
PROCEEDING.
(b) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
SECTION 9.16. WAIVER OF JURY TRIAL. THE COMPANY HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM
OR RELATING TO ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 9.17. FINAL AGREEMENT OF THE PARTIES. THIS
AGREEMENT (INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTE AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
-39-
<PAGE> 40
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
FIRSTCITY FINANCIAL CORPORATION
/s/ JAMES T. SARTAIN
------------------------------------------------
James T. Sartain
President
CARGILL FINANCIAL SERVICES
CORPORATION
/s/ JEFFREY A. PARKER
------------------------------------------------
Jeffrey A. Parker
Assistant Vice President
-40-
<PAGE> 41
EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
This Eighth Amendment to Revolving Credit Agreement (this "Amendment")
is made and entered into as of the _____ day of FEBRUARY, 1998, by and among
CARGILL FINANCIAL SERVICES CORPORATION, a Delaware corporation (the "Lender")
and FIRSTCITY FINANCIAL CORPORATION, a Delaware corporation (the "Borrower").
RECITALS:
A. Borrower and Lender entered into a Revolving Credit Agreement
on or about December 29, 1995, which Revolving Credit Agreement was amended as
of August 12, 1996, and was further amended and restated as of December 27,
1996, and was further amended as of February 28, April 30, June 13, July 29,
August 29, September 25, and December 15, 1997 (as it is hereby and may be
hereafter amended, modified, extended, supplemented or increased from time to
time, the "Loan Agreement"), pursuant to which Lender agreed to advance funds
to Borrower from time to time in an aggregate amount not to exceed the Maximum
Loan Amount.
B. Borrower desires to increase the limit of the credit facility
available to Borrower under the Loan Agreement from $25,000,000.00 to
$35,000,000.00.
C. Lender is willing to increase the limit of the credit facility
available to Borrower to $35,000,000.00 on the terms and conditions herein
contained.
NOW, THEREFORE, in good consideration of the premises herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the
Loan Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS
2.01 AMENDMENT TO DEFINITION OF COMMITMENT. The definition of
"Commitment" in Section 1.01 of the Loan Agreement is hereby amended by
deleting the reference to "$25,000,000.00" and substituting therefore
"$35,000,000.00".
2.02 AMENDMENT TO SECTION 3.01 (FEES). Section 3.01 of the Loan
Agreement is hereby further amended by deleting subsections
EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT PAGE 1
<PAGE> 42
(c) and (d) and substituting therefore a new subsection (c) as follows:
"(C) Upon the execution of any modification of or
amendment to the Loan Agreement entered into on or after
February 12, 1998, which increases the Lender's Commitment
from $25,000,000.00 up to and including $35,000,000.00, the
Company agrees to pay to the Lender an additional Commitment
Fee in the amount of $12,876.591. Except as may be otherwise
set forth therein, the additional Commitment Fee shall be due
and payable upon the execution of such modification or
amendment.
____________________
1 I based amount on $10,000,000.00 x 1% divided by 365 x 45
days.
EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT PAGE 2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
FirstCity Financial Corporation:
We consent to incorporation by reference in the registration statements on
Form S-8 and Form S-3 of FirstCity Financial Corporation of our report dated
March 24, 1998, relating to the consolidated balance sheets of FirstCity
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997, which
report appears in the December 31, 1997 annual report on Form 10-K of FirstCity
Financial Corporation.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 25, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Partners
Acquisition Partnerships:
We consent to incorporation by reference in the registration statements on
Form S-8 and S-3 of FirstCity Financial Corporation of our report dated March
24, 1998, relating to the combined balance sheets of the WAMCO Partnerships as
of December 31, 1997 and 1996, and the related combined statements of operations
changes in partners' capital and cash flows for each of the years in the
three-year period ended December 31, 1997 which report appears in the December
31, 1997, annual report on Form 10-K of FirstCity Financial Corporation.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 25, 1998
<PAGE>
EXHIBIT 27
PERIOD-TYPE> 12-MOS
FISCAL-YEAR-END> DEC-31-1997
PERIOD-END> DEC-31-1997
CASH> 31,605
SECURITIES> 0
RECEIVABLES> 533,751
ALLOWANCES> 0
INVENTORY> 180,066
CURRENT-ASSETS> 0
PP&E> 0
DEPRECIATION> 0
TOTAL-ASSETS> 940,119
CURRENT-LIABILITIES> 0
BONDS> 750,781
PREFERRED-MANDATORY> 41,908
PREFERRED> 0
COMMON> 65
OTHER-SE> 112,693
TOTAL-LIABILITY-AND-EQUITY> 940,119
SALES> 87,138
TOTAL-REVENUES> 192,577
CGS> 62,955
TOTAL-COSTS> 62,955
OTHER-EXPENSES> 90,276
LOSS-PROVISION> 6,613
INTEREST-EXPENSE> 12,433
INCOME-PRETAX> 20,300
INCOME-TAX> (15,485)
INCOME-CONTINUING> 35,785
DISCONTINUED> 0
EXTRAORDINARY> 0
CHANGES> 0
NET-INCOME> 29,425
EPS-PRIMARY> 4.51
EPS-DILUTED> 4.46
<PAGE>
APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 JUNE 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7614
FIRSTCITY FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6400 IMPERIAL DRIVE, WACO, TX 76712
(Address of Principal Executive (Zip Code)
Offices)
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of common stock, par value $.01 per share,
outstanding at August 1, 1998 was 8,260,582.
<PAGE>
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q may contain forward-looking
statements. The factors identified under Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations are important factors
(but not necessarily all of the important factors) that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
When any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. When, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," "anticipate" and similar
expressions identify forward-looking statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
-------------------- --------------------
<S> <C>
ASSETS
Cash and cash equivalents $30,531 $31,605
Portfolio Assets, net 68,476 89,951
Loans receivable, net 55,912 90,115
Mortgage loans held for sale 1,021,185 533,751
Investment securities 43,046 6,935
Equity investments in and advances to Acquisition Partnerships 36,076 35,529
Mortgage servicing rights 124,242 69,634
Receivable for servicing advances and accrued interest 34,040 21,410
Deferred tax benefit, net 32,185 30,614
Other assets, net 64,346 30,575
-------------------- --------------------
Total Assets $1,510,039 $940,119
==================== ====================
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $1,227,966 $750,781
Other liabilities 68,164 34,672
-------------------- --------------------
Total Liabilities 1,296,130 785,453
Commitments and contingencies -- --
Redeemable preferred stock:
Special preferred stock, including dividends of $669 (nominal stated value of
$21 per share; 2,500,000 shares authorized;
849,777 shares issued and outstanding) 18,515 18,515
Adjusting rate preferred stock, including dividends of $846
(redemption value of $21 per share; 2,000,000 shares authorized;
1,073,704 shares issued and outstanding) 23,393 23,393
Shareholders' equity:
Optional preferred stock (par value $.01 per share; 98,000,000
shares authorized; no shares issued or outstanding) -- --
Common stock (par value $.01 per share; 100,000,000 authorized;
issued and outstanding: 8,260,582 and 6,526,510 shares, 83 65
respectively)
Paid in capital 78,091 29,509
Retained earnings 93,827 83,184
-------------------- --------------------
Total Shareholders' Equity 172,001 112,758
-------------------- --------------------
Total Liabilities, Redeemable Preferred Stock and Shareholders' $1,510,039 $940,119
Equity ==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ -----------------------------
1998 1997 1998 1997
-------------- ------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Gain on sale of mortgage and other loans $28,303 $7,999 $48,572 $13,320
Gain on sale of automobile loans 2,434 -- 2,434 --
Net mortgage warehouse income 2,395 526 4,117 1,292
Gain on sale of mortgage servicing rights -- 2,263 -- 4,529
Servicing fees:
Mortgage 5,588 3,414 10,282 6,985
Other 1,250 1,660 2,363 9,522
Gain on resolution of Portfolio Assets 2,839 4,891 5,936 10,192
Equity in earnings of Acquisition Partnerships 1,523 2,772 4,737 4,313
Rental income on real estate Portfolios 75 87 156 157
Interest income 2,898 3,449 6,697 6,228
Other income 2,239 2,409 6,276 3,570
Interest income on Class A Certificate -- 1,515 -- 3,174
-------------- ------------ ------------ -------------
Total revenues 49,544 30,985 91,570 63,282
Expenses:
Interest on other notes payable 3,304 3,650 6,722 6,512
Salaries and benefits 20,447 10,293 36,464 19,284
Amortization:
Mortgage servicing rights 4,126 1,596 7,302 3,143
Other 373 812 805 1,765
Provision for loan losses 575 1,357 2,927 2,155
Provision for valuation of mortgage servicing rights 500 -- 500 --
Occupancy, data processing, communication and other 13,121 8,608 24,812 16,185
-------------- ------------ ------------ -------------
Total expenses 42,446 26,316 79,532 49,044
Net earnings before minority interest, preferred 7,098 12,038
dividends and income taxes 4,669 14,238
Benefit (provision) for income taxes 755 (230) 1,396 (582)
-------------- ------------ ------------ -------------
Net earnings before minority interest and preferred 7,853 4,439 13,434 13,656
dividends
Minority interest 229 69 14 69
Preferred dividends 1,515 1,515 3,030 3,174
-------------- ------------ ------------ -------------
Net earnings to common shareholders $6,109 $2,855 $10,390 $10,413
============== ============ ============ =============
Net earnings per common share-- basic $0.84 $0.44 $1.51 $1.60
Net earnings per common share-- diluted $0.83 $0.44 $1.47 $1.58
Weighted average common shares outstanding-- basic 7,243 6,517 6,889 6,517
Weighted average common shares outstanding-- diluted 7,401 6,549 7,045 6,575
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF COMMON PAID IN RETAINED TOTAL
COMMON SHARES STOCK CAPITAL EARNINGS SHAREHOLDERS'
EQUITY
-------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 6,513,346 $65 $29,783 $54,954 $84,802
Exercise of warrants, options and 13,164 -- 318 -- 318
employee stock purchase plan
Change in subsidiary year end -- -- -- (1,195) (1,195)
Net earnings, after minority -- -- -- 35,628 35,628
interest, for 1997
Preferred dividends -- -- -- (6,203) (6,203)
Other -- -- (592) -- (592)
-------------- -------------- -------------- -------------- -----------------
BALANCES, DECEMBER 31, 1997 6,526,510 65 29,509 83,184 112,758
Exercise of warrants, options and 491,922 5 12,275 -- 12,280
employee stock purchase plan
Issuance of common stock to acquire 41,000 1 2,149 -- 2,150
the minority interest of subsidiary
Issuance of common stock in public 1,201,150 12 34,158 -- 34,170
offering
Net earnings, after minority -- -- -- 13,420 13,420
interest, for six months ended June
30, 1998
Foreign currency translation and -- -- -- 253 253
other adjustments
Preferred dividends -- -- -- (3,030) (3,030)
-------------- -------------- -------------- -------------- -----------------
BALANCES, JUNE 30, 1998 8,260,582 $83 $78,091 $93,827 $172,001
============== ============== ============== ============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings before minority interest and preferred $13,434 $13,656
dividends
Adjustments to reconcile net earnings to net cash
used in
operating activities, net of effect of acquisitions:
Proceeds from resolution of Portfolio Assets 30,032 30,122
Gain on resolution of Portfolio Assets (5,936) (10,192)
Purchase of Portfolio Assets and loans receivable, (11,827) (20,791)
net
Origination of automobile receivables (57,762) (50,071)
Gain on sale of mortgage servicing rights -- (4,529)
Increase in mortgage loans held for sale (487,434) (87,131)
Increase in construction loans receivable (9,569) (5,488)
Originated mortgage servicing rights (62,409) (20,981)
Purchases of mortgage servicing rights (69) (5,677)
Proceeds from sale of mortgage servicing rights -- 13,826
Provision for loan losses and valuation of mortgage 3,427 2,155
servicing rights
Equity in earnings of Acquisition Partnerships (4,737) (4,313)
Proceeds from performing Portfolio Assets and loans 57,491 46,457
receivable, net
(Increase) decrease in net deferred tax asset (1,571) 13
Depreciation and amortization 9,185 7,360
Increase in other assets (32,221) (34,246)
Increase in other liabilities 38,775 11,795
-------------- --------------
Net cash used in operating activities (521,191) (118,035)
-------------- --------------
Cash flows from investing activities:
Payments on advances to acquisition partnerships and -- 1,029
affiliates
Acquisition of subsidiaries -- 1,118
Principal payments on Class A Certificate -- 33,807
Property and equipment, net (3,269) (1,752)
Contributions to Acquisition Partnerships (13,581) (11,378)
Distributions from Acquisition Partnerships 15,653 7,759
-------------- --------------
Net cash provided by (used in) investing (1,197) 30,583
activities
-------------- --------------
Cash flows from financing activities:
Borrowings under notes payable 10,630,721 4,754,364
Payments of notes payable (10,152,827) (4,640,385)
Purchase of special preferred stock -- (12,567)
Proceeds from issuance of common stock 46,450 111
Distributions to minority interest -- (5,669)
Preferred dividends paid (3,030) (3,597)
Other increases in paid in capital -- 311
-------------- --------------
Net cash provided by financing activities 521,314 92,568
-------------- --------------
Net increase (decrease) in cash $(1,074) $5,116
Cash, beginning of period 31,605 16,445
-------------- --------------
Cash, end of period $30,531 $21,561
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $28,867 $15,621
Income taxes $231 $104
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
The unaudited consolidated financial statements of FirstCity Financial
Corporation ("FirstCity" or the "Company") reflect, in the opinion of
management, all adjustments, consisting only of normal and recurring
adjustments, necessary to present fairly FirstCity's financial position at June
30, 1998, the results of operations and the cash flows for the three month and
six month periods ended June 30, 1998 and 1997. Additionally, the Company's
merger with Harbor Financial Group, Inc. ("Mortgage Corp.") on July 1, 1997 has
been accounted for as a pooling of interests. The accompanying consolidated
financial statements have been retroactively restated to reflect the pooling of
interests.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include the estimation of future
collections on purchased portfolio assets used in the calculation of net gain on
resolution of portfolio assets, interest rate environments, prepayment speeds of
loans in servicing portfolios, collectibility on loans held in inventory and for
investment. Actual results could differ materially from those estimates. Certain
amounts in the financial statements for prior periods have been reclassified to
conform with current financial statement presentation.
(2) MERGERS AND ACQUISITIONS
On July 1, 1997, the Company merged with Mortgage Corp. (the "Harbor
Merger"). The Company issued 1,580,986 shares of its common stock in exchange
for 100% of Mortgage Corp.'s outstanding capital stock in a transaction
accounted for as a pooling of interests. Mortgage Corp. originates and services
residential and commercial mortgage loans. Mortgage Corp. had approximately $12
million in equity, assets of over $300 million and 700 employees prior to the
Harbor Merger.
At year end 1997, an unrelated party exercised warrants to acquire a
four percent minority interest in Mortgage Corp.'s subsidiary, Harbor Financial
Mortgage Corporation. On March 31, 1998, the Company issued 41,000 shares of
common stock in exchange for the four percent minority interest in this
subsidiary.
7
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's net revenues, net earnings to common shareholders and net earnings
per common share, for the three months and six months ended June 30, 1997,
before and after the Harbor Merger are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
1997 1997
------------------------- ------------------
<S> <C> <C>
Net revenues (including equity earnings):
Before 1997 pooling $15,273 $34,838
1997 pooling 15,712 28,444
After 1997 pooling 30,985 63,282
Net earnings to common shareholders:
Before 1997 pooling $2,066 $8,966
1997 pooling 789 1,447
After 1997 pooling 2,855 10,413
Net earnings per common share - diluted:
Before 1997 pooling $0.42 $1.79
1997 pooling 0.02 (0.21)
After 1997 pooling 0.44 1.58
</TABLE>
In the first quarter of 1997, FirstCity received $6.8 million (recorded
as servicing fees) from the FirstCity Liquidating Trust (the "Trust") for
termination of the Investment Management Agreement.
(3) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1998 31,1997
---------------- ---------------
<S> <C> <C>
Non-performing $106,757 $130,657
Performing 12,187 16,131
Real estate 16,721 22,777
---------------- ---------------
Total 135,665 169,565
Discount required to reflect Portfolio Assets at (67,189) (79,614)
carrying value
---------------- ---------------
Portfolio Assets, net $68,476 $89,951
================ ===============
</TABLE>
Portfolio Assets are pledged to secure non-recourse notes payable.
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Construction loans receivable $29,163 $19,594
Residential mortgage and other loans held for 8,364 6,386
investment
Automobile and consumer finance receivables 24,876 73,417
Allowance for loan losses (6,491) (9,282)
----------------- -----------------
Loans receivable, net $55,912 $90,115
================= =================
8
</TABLE>
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity in the allowance for loan losses is summarized as follows
for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
------------- ------------
<S> <C> <C>
Balances, beginning of period $9,282 $2,693
Provision for loan losses 2,852 2,155
Discounts acquired 8,649 4,936
Reduction in contingent liabilities -- 458
Allocation of reserves to sold loans (7,602) --
Charge off activity:
Principal balances charged off (8,956) (7,460)
Recoveries 2,266 1,158
------------- ------------
Net charge offs (6,690) (6,302)
------------- ------------
Balances, end of period $6,491 $3,940
============= ============
</TABLE>
During 1997, a note recorded at the time of original purchase of the
initial automobile finance receivables pool and contingent on the ultimate
performance of the pool was adjusted to reflect a reduction in anticipated
payments due pursuant to the contingency. The reduction in the recorded
contingent liability was recorded as an increase in the allowance for losses.
(5) MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale include loans collateralized by first lien
mortgages on one-to-four family residences as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,1997
-------------- ------------------
<S> <C> <C>
Residential mortgage loans $993,677 $522,970
Unamortized premiums and discounts 27,508 10,781
-------------- ------------------
$1,021,185 $533,751
============== ==================
</TABLE>
(6) INVESTMENT SECURITIES
The Company has investment securities (investments) consisting of rated
securities, retained interests and related interest only strips (collectively
referred to as residual interests) which are all attributable to loans sold
through securitization transactions by the Company. The investments are
accounted for in accordance with SFAS No.115, "Accounting for Investments in
Certain Debt and Equity Marketable Securities" and classified as available for
sale. Accordingly, the Company records these investments at estimated fair
value. The increases or decreases in estimated fair value are recorded as
unrealized gains or losses in the accompanying consolidated statement of
shareholders' equity. The determination of fair value is based on the present
value of the anticipated excess cash flows using valuation assumptions unique to
each securitization. As of June 30, 1998 and December 31, 1997 the Company had
recorded no unrealized gain or loss on the investments. Investments are
comprised of the following as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1998 31,1997
---------------- ---------------
<S> <C> <C>
Rated securities $2,801 $ --
Interest only strips 19,849 3,396
Retained interests 20,164 3,308
Other securities 88 --
Accrued interest 144 231
---------------- ---------------
Investment securities $43,046 $6,935
================ ===============
</TABLE>
9
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity in investments for the six months ended June 30, 1998 and the year
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1998 31,1997
---------------- ---------------
<S> <C> <C>
Balance, beginning of period $6,935 $ --
Cost allocated from securitizations 37,175 6,925
Interest accreted. 688 548
Increase in other securities, net 88 --
Cash received from trusts (1,840) (538)
---------------- ---------------
Balance, end of period $43,046 $6,935
================ ===============
</TABLE>
The investments are valued using discount rates ranging from 12% to 15% for both
home equity and consumer residual interests. Estimated loss rates range from
1.5% to 14% and prepayment assumptions range from 12% to 30% and 3% to 5% on
home equity and consumer residual interests, respectively.
(7) INVESTMENTS IN ACQUISITION PARTNERSHIPS
The Company has investments in Acquisition Partnerships and their general
partners that are accounted for on the equity method. The condensed combined
financial position and results of operations of the Acquisition Partnerships,
which include the domestic and foreign Acquisition Partnerships and their
general partners, are summarized below:
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER
1998 31,1997
--------------- ----------------
<S> <C> <C>
Assets $278,649 $338,484
=============== ================
Liabilities $186,025 $250,477
Net equity 92,624 88,007
--------------- ----------------
$278,649 $338,484
=============== ================
Company's equity in Acquisition Partnerships $36,076 $35,529
=============== ================
</TABLE>
CONDENSED COMBINED SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Proceeds from resolution of Portfolio Assets $30,070 $91,068 $87,628 $115,652
Gross margin 9,110 11,857 27,643 19,558
Interest income on performing portfolio 2,169 1,822 4,622 3,728
assets
Net earnings $3,860 $7,424 $12,982 $11,015
============ ============= ============ ============
Company's equity in earnings of Acquisition $1,523 $2,772 $4,737 $4,313
Partnerships ============ ============= ============ ============
</TABLE>
(8) PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In May 1998, the Company closed the public offering of 1,542,150 shares
of FirstCity common stock, of which 341,000 shares were sold by selling
shareholders. Net proceeds (after expenses) of $34.2 million were used to retire
debt.
10
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 11, 1998, the Company notified holders of its outstanding
warrants to purchase shares of common stock that it was exercising its option to
repurchase such warrants for $1.00 each. In June 1998, as a result of such
notification, warrants representing 471,380 shares of common stock were
exercised for an aggregate warrant purchase price of $11.8 million.
In the first six months of 1997, the Company purchased 537,430 shares
of special preferred stock. In the third quarter of 1997, 1,073,704 shares of
special preferred stock were exchanged for a like number of shares of adjusting
rate preferred stock. At June 30, 1998, accrued dividends totaled $.7 million
for special preferred stock and $.8 million for adjusting rate preferred stock,
or $.7875 per share, and were paid on July 15, 1998.
On July 17, 1998 the Company filed a shelf registration statement with
the Securities and Exchange Commission which allows the Company to issue up to
$250 million in debt and equity securities from time to time in the future. The
registration statement became effective July 28, 1998.
Earnings per share ("EPS") has been calculated in conformity with SFAS
No. 128, Earnings Per Share, and all prior periods have been restated. A
reconciliation between the weighted average shares outstanding used in the basic
and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net earnings to common shareholders $6,109 $2,855 $10,390 $10,413
=========== ========== ============ ==========
Weighted average common shares outstanding - basic 7,243 6,517 6,889 6,517
Effect of dilutive securities:
Assumed exercise of stock options 78 32 76 45
Assumed exercise of warrants 80 -- 80 13
----------- ---------- ------------ ----------
Weighted average common shares outstanding - diluted 7,401 6,549 7,045 6,575
=========== ========== ============ ==========
Net earnings per common share - basic $0.84 $0.44 $1.51 $1.60
Net earnings per common share - diluted $0.83 $0.44 $1.47 $1.58
</TABLE>
The Company adopted Financial Accounting Standards Board Statement No.
130, Reporting Comprehensive Income ("SFAS 130") as of January 1, 1998. SFAS 130
establishes standards for reporting and displaying comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. SFAS 130 also requires the accumulated balance of
other comprehensive income to be displayed separately in the equity section of
the consolidated balance sheet. The accumulated balance of other comprehensive
income at each of June 30, 1998 and December 31, 1997 was $(1) and $44,
respectively, and other comprehensive income for the six months ended June 30,
1998 and 1997 was $(45) and $0, respectively. The adoption of this statement had
no material impact on net earnings or shareholders' equity.
(9) INCOME TAXES
Federal income taxes are provided at a 35% rate. Net operating loss
carry forwards ("NOLs") are available to FirstCity and are recognized as an
offset to the provision in the period during which the benefit is determined to
be realizable. During the first six months of 1998, FirstCity recognized a
deferred tax benefit of $1.5 million (compared to $.6 million in the first six
months of 1997). Realization of the resulting net deferred tax asset is
dependent upon generating sufficient taxable income prior to expiration of the
net operating loss carry forwards. Although realization is not assured,
management believes it is more likely than not that all of the recorded deferred
tax asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be adjusted in the future if estimates of future
taxable income during the carry forward period change.
11
<PAGE>
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings in the ordinary
course of business. In the opinion of management, the resolution of such matters
will not have a material adverse impact on the consolidated financial condition,
results of operations or liquidity of the Company.
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is a 50% owner in an entity that is obligated to advance up
to $2.5 million toward the acquisition of Portfolio Assets from financial
institutions in California. At June 30, 1998, advances of $.2 million had been
made under the obligation.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a diversified financial services company engaged in
residential and commercial mortgage banking ("Mortgage Corp."), Portfolio Asset
acquisition and resolution ("Commercial Corp.") and consumer lending ("Consumer
Corp."). The mortgage banking business involves the origination, acquisition and
servicing of residential and commercial mortgage loans and the subsequent
warehousing, sale or securitization of such loans through various public and
private secondary markets. The Portfolio Asset acquisition and resolution
business involves acquiring Portfolio Assets at a discount to Face Value and
servicing and resolving such Portfolios in an effort to maximize the present
value of the ultimate cash recoveries. The Company also seeks opportunities to
originate and retain high yield commercial loans to businesses and to finance
real estate projects that are unable to access traditional lending sources. The
consumer lending business involves the acquisition, origination, warehousing,
securitization and servicing of consumer receivables. The Company's current
consumer lending operations are focused on the acquisition of sub-prime
automobile receivables.
The Company's financial results are affected by many factors including
levels of and fluctuations in interest rates, fluctuations in the underlying
values of real estate and other assets, and the availability and prices for
loans and assets acquired in all of the Company's businesses. The Company's
business and results of operations are also affected by the availability of
financing with terms acceptable to the Company and the Company's access to
capital markets, including the securitization markets.
The Harbor Merger, which occurred in July 1997, was accounted for as a
pooling of interests. The Company's historical financial statements have
therefore been retroactively restated to include the financial position and
results of operations of Mortgage Corp. for all periods presented. As a result
of the significant period to period fluctuations in the revenues and earnings of
the Company's Portfolio Asset acquisition and resolution business, period to
period comparisons of the Company's results of operations may not be meaningful.
ANALYSIS OF REVENUES AND EXPENSES
The following table summarizes the revenues and expenses of each of the
Company's businesses and presents the contribution that each business makes to
the Company's operating margin.
SUMMARY OF REVENUES AND EXPENSES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED
JUNE 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
MORTGAGE BANKING:
Revenues:
Net mortgage warehouse income $2,395 $526 $4,117 $1,292
Gain on sale of mortgage loans 28,303 7,999 48,572 13,320
Servicing fees 5,588 3,414 10,282 6,985
Other 1,552 3,773 3,556 6,848
--------------- -------------- ------------- -------------
Total 37,838 15,712 66,527 28,445
Expenses:
Salaries and benefits 17,216 7,647 30,151 13,573
Amortization of mortgage servicing rights 4,126 1,596 7,302 3,143
Provision for valuation of mortgage servicing rights 500 -- 500 --
Interest on other notes payables 486 304 987 559
Occupancy, data processing, communication and other 9,410 4,887 17,514 8,846
--------------- -------------- ------------- -------------
Total 31,738 14,434 56,454 26,121
--------------- -------------- ------------- -------------
Operating contribution before direct taxes $6,100 $1,278 $10,073 $2,324
=============== ============== ============= =============
Operating contribution, net of direct taxes $6,100 $833 $9,984 $1,491
=============== ============== ============= =============
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets $2,839 $4,891 $5,936 $10,192
Equity in earnings of Acquisition Partnerships 1,523 2,772 4,737 4,313
Servicing fees (1) 666 1,554 1,395 9,382
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED
JUNE 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Other 512 1,001 2,510 2,033
--------------- -------------- ------------- -------------
Total 5,540 10,218 14,578 25,920
Expenses:
Salaries and benefits 1,100 1,268 2,267 2,883
Interest on other notes payable 1,336 1,762 2,812 3,214
Asset level expenses, occupancy, data processing and 1,886 2,835 4,098 6,033
other
--------------- -------------- ------------- -------------
Total 4,322 5,865 9,177 12,130
--------------- -------------- ------------- -------------
Operating contribution before direct taxes $1,218 $4,353 $5,401 $13,790
=============== ============== ============= =============
Operating contribution, net of direct taxes $1,223 $4,348 $5,392 $13,685
=============== ============== ============= =============
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans $2,434 $ -- $2,434
$ --
Interest income 2,659 2,777 5,225 4,869
Servicing fees and other 653 186 1,043 234
--------------- -------------- ------------- -------------
Total 5,746 2,963 8,702 5,103
Expenses:
Salaries and benefits 1,292 592 2,404 1,097
Provision for loan losses 500 1,357 2,852 2,155
Interest on other notes payable 939 1,113 1,819 1,835
Occupancy, data processing and other 1,658 761 2,765 1,594
--------------- -------------- ------------- -------------
Total 4,389 3,823 9,840 6,681
=============== ============== ============= =============
Operating contribution before direct taxes $1,357 $(860) $(1,138) $(1,578)
=============== ============== ============= =============
Operating contribution, net of direct taxes $1,357 $(862) $(1,138) $(1,581)
=============== ============== ============= =============
Total operating contribution, net of
direct taxes $8,680 $4,319 $14,238 $13,595
=============== ============== ============= =============
CORPORATE OVERHEAD:
Interest income on Class A Certificate (2) $ -- $1,515 $3,174
$ --
Salaries and benefits, occupancy, professional and (1,806) (1,764) (2,318) (3,782)
other income and expenses, net
Deferred tax benefit 750 300 1,500 600
--------------- -------------- ------------- -------------
Net earnings before preferred dividends 7,624 4,370 13,420 13,587
Preferred dividends 1,515 1,515 3,030 3,174
--------------- -------------- ------------- -------------
Net earnings to common shareholders $6,109 $2,855 $10,390 $10,413
=============== ============== ============= =============
SHARE DATA:
Net earnings per common share-- basic $0.84 $0.44 $1.51 $1.60
Net earnings per common share-- diluted $0.83 $0.44 $1.47 $1.58
Weighted average common shares outstanding - basic 7,243 6,517 6,889 6,517
Weighted average common shares outstanding - diluted 7,401 6,549 7,045 6,575
</TABLE>
(1) Includes $6.8 million received as a result of terminating the Investment
Management Agreement with FirstCity Liquidating Trust in first quarter 1997.
(2) Prior to June 30, 1997, income was received from FirstCity Liquidating Trust
equal to the Company's preferred stock dividend obligation.
ORIGINATION AND OTHER FINANCIAL DATA:
Mortgage Corp.:
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED
JUNE 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Origination of residential mortgage loans:
Conventional $1,584,727 $466,256 $2,945,592 $876,352
Agency 377,364 118,060 708,592 201,291
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS ENDED
JUNE 30,
--------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Home equity 89,022 48,477 147,284 59,522
Other 37,075 16,235 56,987 24,138
--------------- -------------- ------------- -------------
Total $2,088,188 $649,028 $3,858,455 $1,161,303
=============== ============== ============= =============
Origination of commercial mortgage loans:
Correspondent $67,985 $42,474 $181,250 $42,474
Construction 12,767 15,623 28,363 26,380
--------------- -------------- ------------- -------------
Total $80,752 $58,097 $209,613 $68,854
=============== ============== ============= =============
Acquisition of Home Equity Loans $69,312 $ -- $105,728 $ --
Commercial Corp.:
Aggregate purchase price of assets acquired $17,869 $10,949 $69,840 $58,187
Proceeds from resolution 43,126 106,348 117,660 145,774
Consumer Corp.:
Aggregate acquisition of automobile and other $33,255 $21,980 $66,630 $53,104
consumer receivables
</TABLE>
MORTGAGE BANKING
The following table presents selected information regarding the
revenues and expenses of the Company's mortgage banking business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
MORTGAGE BANKING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
WAREHOUSE INVENTORY:
Average inventory balance $745,982 $207,978 $907,195 $226,474
Net mortgage warehouse income:
Dollar amount 2,395 526 4,117 1,292
Annualized percentage of average inventory 1.28% 1.01% 0.91% 1.14%
balance
GAIN ON SALE OF MORTGAGE LOANS:
Gain on sale of mortgage loans as a
percentage of loans sold:
Residential 1.15% 1.21% 1.26% 1.13%
Home Equity 4.43% 4.44% 4.59% 4.20%
Securitized Home Equity 1.24% -- 1.24% --
OMSR income as a percentage of residential 1.78% 1.68% 1.80% 1.72%
mortgage loans sold
SERVICING REVENUES:
Average servicing portfolios:
Residential $5,621,502 $3,496,301 $5,119,061 $3,462,207
Commercial 1,388,470 978,812 1,433,898 623,561
Sub-serviced 1,099,795 833,533 960,261 824,958
Servicing fees:
Residential $5,123 $2,991 $9,407 $6,323
Commercial 247 210 485 253
Sub-serviced 218 213 390 409
--------------- ------------- ----------- -------------
Total $5,588 $3,414 $10,282 $6,985
Annualized servicing fee percentage:
Residential 0.36% 0.34% 0.37% 0.37%
Commercial 0.07% 0.09% 0.07% 0.08%
Sub-serviced 0.08% 0.10% 0.08% 0.10%
Gain on sale of servicing rights $-- $2,263 $ -- $4,529
Amortization of servicing rights:
Servicing rights amortization $4,126 $1,596 $7,302 $3,143
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Servicing rights amortization as a 0.29% 0.18% 0.29% 0.18%
percentage of average residential servicing
portfolio (annualized)
PERSONNEL:
Personnel expenses $17,216 $7,647 $30,151 $13,573
Number of personnel (at period end):
Production 511 313
Servicing 146 120
Other 710 338
--------------- -------------
Total 1,367 771
=============== =============
</TABLE>
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
During the first quarter of 1997, the Trust terminated the Investment
Management Agreement and paid Commercial Corp. a termination payment of $6.8
million representing the present value of servicing fees projected to have been
earned by Commercial Corp. upon the liquidation of the assets of the Trust,
which was expected to occur principally in 1997. The following table presents
selected information regarding the revenues and expenses of the Company's
Portfolio Asset acquisition and resolution business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios $42,201 $57,445 $46,005 $51,667
Performing Portfolios 13,177 8,335 14,956 8,314
Real estate Portfolios 17,639 21,773 18,053 22,810
Gain on resolution of Portfolio
Assets:
Nonperforming Portfolios $1,626 $4,057 $3,889 $8,029
Performing Portfolios -- -- 299 --
Real estate Portfolios 1,213 834 1,748 2,163
--------------- --------------- ------------ -----------
Total $2,839 $4,891 $5,936 $10,192
=============== =============== ============ ===========
Interest income on performing Portfolios $455 $571 $1,186 $1,061
Gross profit percentage on
resolution of Portfolio Assets:
Nonperforming Portfolios 20.37% 32.05% 21.97% 34.47%
Performing Portfolios -- -- 7.99% --
Real estate Portfolios 22.26% 31.82% 20.35% 31.67%
Weighted average gross profit percentage 21.74% 32.01% 19.77% 33.84%
Interest yield on performing 13.81% 27.40% 15.86% 25.52%
Portfolios (annualized)
SERVICING FEE REVENUES:
Acquisition partnerships $648 $1,510 $1,308 $2,383
Trust -- -- -- 6,800
Affiliates 18 44 87 199
--------------- --------------- ------------ -----------
Total $666 $1,554 $1,395 $9,382
=============== =============== ============ ===========
PERSONNEL:
Personnel expenses $1,100 $1,268 $2,267 $2,883
Number of personnel (at period end):
Production 11 11
Servicing 70 92
--------------- ---------------
Total 81 103
=============== ===============
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Interest expense:
Average debt $70,641 $81,298 $73,589 $71,038
Interest expense 1,336 1,703 2,812 3,154
Average yield (annualized) 7.56% 8.38% 7.64% 8.88%
</TABLE>
The following chart presents selected information regarding the revenues and
expenses of the Acquisition Partnerships.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
ACQUISITION PARTNERSHIPS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Gain on resolution of Portfolio $9,110 $11,857 $27,643 $19,558
Assets
Gross profit percentage on resolution of 30.30% 13.02% 31.55% 16.91%
Portfolio Assets
Interest income on performing Portfolios 2,169 1,822 4,622 3,728
Other income 163 567 333 858
INTEREST EXPENSE:
Interest expense $3,016 $3,174 $6,957 $6,158
Average yield (annualized) 7.03% 9.59% 7.04% 9.19%
OTHER EXPENSES:
Servicing fees $1,364 $1,664 $2,785 $2,667
Legal 577 643 985 1,224
Property protection 958 1,303 1,994 2,266
Other 1,667 38 6,895 814
----------------- ---------------- ------------- -----------
Total other expenses 4,566 3,648 12,659 6,971
----------------- ---------------- ------------- -----------
NET EARNINGS $3,860 $7,424 $12,982 $11,015
================= ================ ============= ===========
</TABLE>
17
<PAGE>
CONSUMER LENDING
The following chart presents selected information regarding the
revenues and expenses of Consumer Corp.'s consumer lending business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
CONSUMER LENDING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND QUARTER JUNE 30,
------------------------------- --------------------------
1998 1997 1998 1997
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Average loans and investments:
Auto $45,697 $59,158 $51,085 $51,223
Investments 22,677 3,463 18,278 1,732
Interest income:
Auto $2,221 $2,517 $4,470 $4,530
Investments 392 78 689 78
Average yield (annualized):
Auto 19.44% 17.02% 17.50% 17.69%
Investments 6.91% 9.01% 7.54% 9.01%
SERVICING FEE REVENUES:
Affiliates $584 $106 $968 $140
PERSONNEL:
Personnel expenses $1,292 $592 $2,404 $1,097
Number of personnel (at period end):
Production 67 45
Servicing 97 20
--------------- ----------------
Total 164 65
=============== ================
INTEREST EXPENSE:
Average debt $41,521 $50,438 $41,158 $41,586
Interest expense 939 1,113 1,819 1,808
Average yield (annualized) 9.05% 8.83% 8.84% 8.69%
</TABLE>
BENEFIT (PROVISION) FOR INCOME TAXES
The Company has substantial federal NOLs, which can be used to offset
the tax liability associated with the Company's pre-tax earnings until the
earlier of the expiration or utilization of such NOLs. The Company accounts for
the benefit of the NOLs by recording the benefit as an asset and then
establishing an allowance to value the net deferred tax asset at a value
commensurate with the Company's expectation of being able to utilize the
recognized benefit in the next three to four year period. Such estimates are
reevaluated on a quarterly basis with the adjustment to the allowance recorded
as an adjustment to the income tax expense generated by the quarterly earnings.
Significant events that change the Company's view of its currently estimated
ability to utilize the tax benefits, such as the Harbor Merger in the third
quarter of 1997, result in substantial changes to the estimated allowance
required to value the deferred tax benefits recognized in the Company's periodic
financial statements. Similar events could occur in the future, and would impact
the quarterly recognition of the Company's estimate of the required valuation
allowance associated with its NOLs.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of the Company (including the Notes
thereto) included elsewhere in this Quarterly Report on Form 10-Q.
SECOND QUARTER 1998 COMPARED TO SECOND QUARTER 1997
The Company reported net earnings before minority interest and
preferred dividends of $7.9 million in the second quarter of 1998 (including a
$.8 million deferred tax benefit) compared to $4.4 million in the second quarter
of 1997. Net earnings to common shareholders were $6.1 million in 1998 compared
to $2.9 million in 1997. On a per share basis, basic net earnings attributable
to common shareholders were $.84 in 1998 compared to $.44 in 1997. Diluted net
earnings per common share were $.83 in 1998 compared to $.44 in 1997.
18
<PAGE>
Mortgage Banking
Mortgage Corp. experienced significant revenue growth in the second
quarter of 1998 relative to 1997 increasing to $37.8 million from $15.7 million.
The direct retail group ("Direct Retail") and the broker retail group ("Broker
Retail") origination networks experienced substantial growth in levels of
origination volume reflecting, in part, the level of capital that has been
contributed to Mortgage Corp. by the Company following the Harbor Merger and
relatively lower market interest rates in 1998 compared to 1997. Such revenue
growth was partially offset by increases in operating expenses associated with
the increased levels of origination volume.
The Company entered the mortgage conduit business in August 1997 with
the formation of FirstCity Capital Corporation ("Capital Corp."). Capital Corp.
has generated interest revenue from its acquired Home Equity Loans, has incurred
interest expense to finance the acquisition of such loans and has incurred
general and administrative expenses in its start-up phase.
Gain on sale of mortgage loans. Gain on sale of mortgage loans
increased by 254% to $28.3 million in 1998 from $8.0 million in 1997. This
increase was the result of substantial increases in the levels of residential
mortgage loan origination generated principally by the Broker Retail network of
Mortgage Corp. and, to a lesser extent, the Direct Retail network of Mortgage
Corp., and the resulting sales of such loans to government agencies and other
investors. The change in the gain on sale percentage is the result of the sale
of approximately $2.3 billion of mortgage loans in 1998 (compared to $.6 billion
in 1997) and the overall mix and pricing of the loans sold.
Net mortgage warehouse income. Net mortgage warehouse income increased
by 355% to $2.4 million in 1998 from $.5 million in 1997. This is the result of
a significant increase in the average balance of loans held in inventory during
the year coupled with an increase in the spread earned between the interest rate
on the underlying mortgages and the interest cost of the warehouse credit
facility.
Servicing fee revenues. Servicing fee revenues increased by 64% to $5.6
million in 1998 from $3.4 million in 1997 as a result of an increase in the size
of the servicing portfolio. The average residential servicing portfolio
increased $2.1 billion over second quarter 1997, to a level of $5.6 billion,
accounting for the majority of the increase in the servicing fee revenue.
Other revenues. Other revenues decreased by 59% to $1.6 million in 1998
from $3.8 million in 1997. This decrease resulted from Mortgage Corp.'s decision
to retain, rather than sell, servicing rights in 1998. The sale of servicing
rights in 1997 resulted in a gain on sale of $2.3 million.
Operating expenses. Operating expenses of Mortgage Corp. increased by
120% to $31.7 million in 1998 from $14.4 million in 1997. The expansion of the
Broker Retail and Direct Retail operation as well as the commencement of Capital
Corp.'s operations in late 1997 also contributed to the period to period
increases. The acquisition of MIG in 1997, which was accounted for as a purchase
by Mortgage Corp., produced higher relative totals for all components of
Mortgage Corp.'s operating expenses in 1998.
Salaries and benefits increased by $9.6 million in 1998 reflecting the
596 additional staff required to support the increase in origination volumes
derived principally from the Broker Retail network and, to a lesser extent, the
Direct Retail network, and the increase in the size and number of loans in the
residential and commercial servicing portfolios in 1998.
Amortization of mortgage servicing rights increased in 1998 as a result
of the substantially larger investment in mortgage servicing rights in 1998. In
consideration of the uncertainty as to the direction of future interest rates,
the Company has begun, through periodic provisions, to build an allowance
against any future valuation impairments of the mortgage servicing rights.
During the quarter the Company added $.5 million to this provision, resulting in
a total allowance of $1.0 million, or .84% of total mortgage servicing rights.
Interest on other notes payable (the portion not associated with Mortgage
Corp.'s warehouse credit facility) increased due to increased working capital
borrowings during 1998.
Occupancy expense increased by $.5 million in 1998 as the result of the
opening or acquisition of several new offices in the Broker Retail and Direct
Retail networks. Increases in data processing, communication and other expenses
in 1998 resulted from the substantial increases in production and servicing
volumes.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $17.9 million of Portfolio Assets during the
second quarter of 1998 for its own account and through the Acquisition
Partnerships compared to $10.9 million of acquisitions in the second quarter of
1997. Commercial Corp.'s quarter end investment in Portfolio Assets decreased to
$68.5 million in 1998 from $90.0 million in 1997. Commercial Corp. invested $8.2
million in equity in Portfolio Assets in 1998 compared to $6.2 million in 1997.
Net gain on resolution of Portfolio Assets. Proceeds from the
resolution of Portfolio Assets decreased by 15% to $13.1 million in 1998 from
$15.3 million in 1997. The net gain on resolution of Portfolio Assets decreased
by 42% to $2.8 million in 1998 from $4.9 million in 1997 as the result of a
lower gross profit percentage in 1998. The gross profit percentage on the
proceeds from the resolution of Portfolio Assets in 1998 was 21.7% as compared
to 32.0% in 1997.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships decreased by 67%
to $30.1 million in 1998 from $91.1 million in 1997 while the gross profit
percentage on proceeds increased to 30.3% in 1998 from 13.0% in 1997. Other
expenses of the Acquisition Partnerships increased by $.9 million in 1998
generally reflecting costs associated with the resolution of Portfolio Assets in
Europe which generated proceeds of $16.2 million. The net result was an overall
decrease in the net income of the Acquisition Partnerships of 48% to $3.9
million in 1998 from $7.4 million in 1997. As a result, Commercial Corp.'s
equity earnings from Acquisition Partnerships decreased by 45% to $1.5 million
in 1998 from $2.8 million in 1997.
Servicing fee revenues. Servicing fees decreased by 57% to $.7 million
in 1998 from $1.6 million in 1997 as a result of lower domestic collection
levels in the Acquisition Partnerships and affiliated entities.
Other revenues. Other revenues decreased to $.5 million in 1998 from
$1.0 million in 1997.
Operating expenses. Operating expenses declined to $4.3 million in 1998
from $5.9 million in 1997 primarily as a result of reduced salaries and benefits
and lower asset level expenses.
Salaries and benefits declined in 1998 as a result of the consolidation
of some of the servicing offices (Portfolios being serviced in the closed
offices reached final resolution).
Interest on other notes payable declined $.4 million primarily as a
result of lower average borowings.
Asset level expenses incurred in connection with the servicing of
Portfolio Assets decreased in 1998 as a result of the decrease in investments in
Portfolio Assets in 1998. Occupancy and other expenses decreased as a result of
the consolidation of servicing offices in 1998.
Consumer Lending
Consumer Corp.'s revenues and expenses in 1997 were derived principally
from its original sub-prime automobile financing program. Consumer Corp.
terminated its obligations to the financial institutions participating in such
program effective as of January 31,
19
<PAGE>
1998. In late 1997 Consumer Corp., through its 80% owned subsidiary, Funding
Corp., established a new sub-prime automobile financing program through which it
originates automobile loans through direct relationships with franchised
automobile dealerships. Substantially all of Consumer Corp.'s activities are
expected to be conducted through Funding Corp. during 1998.
Gain on sale of automobile loans. Funding Corp. completed a
securitization of $50 million in automobile loans, recognizing a gain of $2.4
million in the second quarter of 1998. Consumer Corp. has retained subordinated
interests in the form of nonrated tranches and excess spreads resulting from
three securitization transactions it has completed reflecting an aggregate
investment of $34.1 million in such interests at June 30, 1998.
Interest and other income. Interest income on consumer loans was
relatively flat in the second quarter of 1998 as compared to the second quarter
of 1997. Other income increased $.5 million due to an increase in service fee
revenues from securitization trusts.
Interest expense. Interest expense decreased by 16% to $.9 million in
1998 from $1.1 million in 1997 as a result of a decrease in the average
outstanding level of borrowings secured by automobile receivables to $41.5
million in 1998 from $50.4 million in 1997. The average rate at which such
borrowings incurred interest increased to 9.05% from 8.83% for the same period.
Operating expenses. Salaries and benefits increased by 118% to $1.3
million in 1998 from $.6 million in 1997 as a result of the increased levels of
operating activity in 1998. Other expenses increased $.9 million due to the
growth of the origination and servicing operations.
Provision for loan losses. The provision for loan losses on automobile
receivables decreased by 63% to $.5 million in 1998 from $1.4 million in 1997.
Consumer Corp. previously increased its rate of provision for loan losses based
on its determination that the discount rate at which it acquired loans under its
prior origination program did not properly provide for the losses expected to be
realized on the acquired loans. The origination program currently operated by
Funding Corp. generally allows for the acquisition of loans from automobile
dealerships at a larger discount from par than Consumer Corp.'s original
financing program. The Company believes that such acquisition prices more
closely approximate the expected loss per occurrence on the loans originated. To
the extent that Funding Corp. cannot match such discount to expected losses,
additional provisions might, in the future, be required to properly provide for
the risk of loss on the loans originated. The Company expects to incur
provisions for loan losses in 1998 on automobile loans acquired by it during
early 1998 through its previous origination program.
20
<PAGE>
Other Items Affecting Net Earnings
The following items affect the Company's overall results of operations
and are not directly related to any one of the Company's businesses discussed
above.
Corporate overhead. Interest income on the Class A Certificate during
the second quarter of 1997 represents reimbursement to the Company from the
Trust of dividends through June 30, 1997, of $1.5 million on special preferred
stock. Company level interest expense was relatively flat year to year . Other
corporate income increased due to interest earned on the excess liquidity
derived from the Trust's redemption of the Class A Certificate. Salary and
benefits, occupancy and professional fees account for the majority of other
overhead expenses, which remained relatively flat compared to 1997.
Income taxes. Federal income taxes are provided at a 35% rate applied
to taxable income and are offset by NOLs that the Company believes are available
to it as a result of the Merger. The tax benefit of the NOLs is recorded in the
period during which the benefit is realized. The Company reported a deferred tax
benefit of $.8 million in 1998 as compared to a benefit of $.3 million in 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company reported net earnings before minority interest and
preferred dividends of $13.4 million in the first six months of 1998 (including
a $1.5 million deferred tax benefit) compared to $13.7 million in the first six
months of 1997. Net earnings to common shareholders were $10.4 million in both
periods. On a per share basis, basic net earnings attributable to common
shareholders were $1.51 in 1998 compared to $1.60 in 1997. Diluted net earnings
per common share were $1.47 in 1998 compared to $1.58 in 1997. The 1997 results
reflect the positive effect of the $6.8 million, or $1.03 per share, payment
from the Trust in settlement of the Investment Management Agreement.
Mortgage Banking
Gain on sale of mortgage loans. Gain on sale of mortgage loans
increased by 265% to $48.6 million in the first six months of 1998 from $13.3
million in the first six months of 1997. This increase was the result of
substantial increases in the levels of residential mortgage loan origination
generated principally by the Broker Retail network of Mortgage Corp. and, to a
lesser extent, the Direct Retail network of Mortgage Corp., and the resulting
sales of such loans to government agencies and other investors. The change in
the gain on sale percentage is the result of the sale of approximately $3.5
billion of mortgage loans in 1998 (compared to $1.1 billion in 1997) and the
overall mix and pricing of the loans sold.
Net mortgage warehouse income. Net mortgage warehouse income increased
by 219% to $4.1 million in 1998 from $1.3 million in 1997. This is the result of
a significant increase in the average balance of loans held in inventory during
the year offset by a decrease in the spread earned between the interest rate on
the underlying mortgages and the interest cost of the warehouse credit facility
as the overall levels of interest rates on residential mortgage loans reached
their lowest levels in several years.
Servicing fee revenues. Servicing fee revenues increased by 47% to
$10.3 million in 1998 from $7.0 million in 1997 as a result of an increase in
the size of the servicing portfolio. Mortgage Corp. substantially increased its
commercial mortgage servicing portfolio and its ability to originate commercial
mortgage loans for correspondents and conduit lenders with the purchase, in the
second quarter of 1997, of MIG.
Other revenues. Other revenues decreased by 48% to $3.6 million in 1998
from $6.8 million in 1997. This decrease resulted from Mortgage Corp.'s decision
to retain, rather than sell, servicing rights in 1998. The sale of servicing
rights in 1997 resulted in a gain on sale of $4.5 million.
Operating expenses. Operating expenses of Mortgage Corp. increased by
116% to $56.5 million in 1998 from $26.1 million in 1997. The expansion of the
Broker Retail and Direct Retail operation as well as the commencement of Capital
Corp.'s operations in late 1997 also contributed to the period to period
increases. The acquisition of MIG in 1997, which was accounted for as a purchase
by Mortgage Corp., produced higher relative totals for all components of
Mortgage Corp.'s operating expenses in 1998.
Salaries and benefits increased by $16.6 million in 1998 reflecting the
additional staff required to support the increase in origination volumes derived
principally from the Broker Retail network and, to a lesser extent, the Direct
Retail network, and the increase in the size and number of loans in the
residential and commercial servicing portfolios in 1998.
Amortization of mortgage servicing rights increased in 1998 as a result
of the substantially larger investment in mortgage servicing rights in 1998.
Interest on other notes payable (the portion not associated with Mortgage
Corp.'s warehouse credit facility) increased due to increased working capital
borrowings during 1998.
21
<PAGE>
Occupancy expense increased by $3 million in 1998 as the result of the
opening or acquisition of several new offices in 1997 in the Broker Retail and
Direct Retail networks. Increases in data processing, communication and other
expenses in 1998 resulted from the substantial increases in production and
servicing volumes.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $69.8 million of Portfolio Assets during the
first six months of 1998 for its own account and through the Acquisition
Partnerships compared to $58.2 million of acquisitions in the first six months
of 1997. Commercial Corp.'s quarter end investment in Portfolio Assets decreased
to $68.5 million in 1998 from $90.0 million in 1997. Commercial Corp. invested
$16.9 million in equity in Portfolio Assets in 1998 compared to $12.3 million in
1997.
Net gain on resolution of Portfolio Assets. Proceeds from the
resolution of Portfolio Assets were flat year to year. The net gain on
resolution of Portfolio Assets decreased by 42% to $5.9 million in 1998 from
$10.2 million in 1997 as the result of a lower gross profit percentage in 1998.
The gross profit percentage on the proceeds from the resolution of Portfolio
Assets in 1998 was 19.8% as compared to 33.8% in 1997.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships decreased by 24%
to $87.6 million in 1998 from $115.7 million in 1997 while the gross profit
percentage on proceeds increased to 31.6% in 1998 from 16.9% in 1997. Interest
income in the Acquisition Partnerships increased $.9 million and interest
expense increased $.8 million in 1998 as a result of increased levels of
interest earning assets and interest bearing liabilities carried by the
Acquisition Partnerships in the first six months of 1998 as compared to 1997.
Other expenses of the Acquisition Partnerships increased by $5.7 million in 1998
generally reflecting costs associated with the resolution of Portfolio Assets in
Europe which generated proceeds of $58.2 million. The net result was an overall
increase in the net income of the Acquisition Partnerships of 18% to $13.0
million in 1998 from $11.0 million in 1997. As a result, Commercial Corp.'s
equity earnings from Acquisition Partnerships increased by 9.8% to $4.7 million
in 1998 from $4.3 million in 1997.
Servicing fee revenues. Servicing fees reported during 1997 included
the receipt of a $6.8 million cash payment related to the early termination of a
servicing agreement between the Company and the Trust, under which the Company
serviced the assets of the Trust. The $6.8 million payment represents the
present value of servicing fees projected to have been earned by Commercial
Corp. upon liquidation of the Trust assets, which was expected to occur
principally in 1997. Excluding fees related to Trust assets, servicing fees
decreased by 46% to $1.4 million in 1998 from $2.6 million in 1997 as a result
of lower domestic collection levels in the Acquisition Partnerships and
affiliated entities.
Other revenues. Other revenues increased to $2.5 million in 1998
compared to $2.0 million in 1997 principally as a result of interest income
derived from Performing Purchased Asset Portfolios in 1998.
Operating expenses. Operating expenses declined to $9.2 million in 1998
from $12.1 million in 1997 primarily as a result of reduced salaries and
benefits, lower asset level expenses and reduced amortization expense.
Salaries and benefits declined in 1998 as a result of the consolidation
of some of the servicing offices (Portfolios being serviced in the closed
offices reached final resolution).
Interest on other notes payable declined $.4 million.
Asset level expenses incurred in connection with the servicing of
Portfolio Assets decreased in 1998 as a result of the decrease in investments in
Portfolio Assets in 1998. Occupancy and other expenses decreased as a result of
the consolidation of servicing offices in 1998.
Consumer Lending
Interest and other income. Interest income increased by 7.3% to $5.2
million in the first six months of 1998 from $4.9 million in the first six
months of 1997, reflecting increased levels of loan origination activity in 1998
and an increase in the average balance of investments held by Consumer Corp.
during 1998. Other income increased $.8 million due to increased service fee
revenue from securitization trusts.
Interest expense. Interest expense was relatively flat period to
period.
Operating expenses. Salaries and benefits increased by 119% to $2.4
million in 1998 from $1.1 million in 1997 as a result of the increased levels of
operating activity in 1998. Other expenses increased $1.2 million due to the
growth in the origination and servicing operations.
22
<PAGE>
Provision for loan losses. The provision for loan losses on automobile
receivables increased by 32% to $2.9 million in 1998 from $2.2 million in 1997.
Consumer Corp. increased its rate of provision for loan losses based on its
determination that the discount rate at which it acquired loans under its
previous origination program did not properly provide for the losses expected to
be realized on the acquired loans.
Other Items Affecting Net Earnings.
The following items affect the Company's overall results of operations
and are not directly related to any one of the Company's businesses discussed
above.
Corporate overhead. Interest income on the Class A Certificate during
1997 represents reimbursement to the Company from the Trust of dividends through
June 30, 1997, of $3.2 million on special preferred stock. Company level
interest expense increased by 22% to $1.1 million in the first six months of
1998 from $.9 million in the first six months of 1997 as a result of higher
volumes of debt associated with the equity required to purchase Portfolio
Assets, equity interests in Acquisition Partnerships and capital support to
operating subsidiaries. Other corporate income increased due to interest earned
on the excess liquidity derived from the Trust's redemption of the Class A
Certificate. Salary and benefits, occupancy and professional fees account for
the majority of other overhead expenses, which decreased in 1998 compared to
1997, as a result of the decrease in the amount of executive and other officer
bonuses granted in 1998.
Income taxes. Federal income taxes are provided at a 35% rate applied
to taxable income and are offset by NOLs that the Company believes are available
to it as a result of the Merger. The tax benefit of the NOLs is recorded in the
period during which the benefit is realized. The Company reported a deferred tax
benefit of $1.5 million in 1998 as compared to a benefit of $.6 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Generally, the Company requires liquidity to fund its operations,
working capital, payment of debt, equity for acquisition of Portfolio Assets,
investments in and advances to the Acquisition Partnerships, investments in
expanding businesses to support their growth, retirement of and dividends on
preferred stock, and other investments by the Company. The potential sources of
liquidity are funds generated from operations, equity distributions from the
Acquisition Partnerships, interest and principal payments on subordinated debt
and dividends from the Company's subsidiaries, short-term borrowings from
revolving lines of credit, proceeds from equity market transactions,
securitization and other structured finance transactions and other special
purpose short-term borrowings.
On July 17, 1998 the Company filed a shelf registration statement with
the Securities and Exchange Commission which allows the Company to issue up to
$250 million in debt and equity securities from time to time in the future. The
registration statement became effective July 28, 1998. In May 1998, the Company
closed the public offering of 1,542,150 shares of FirstCity common stock, of
which 341,000 shares were sold by selling shareholders. Net proceeds (after
expenses) of $34.2 million were used to retire debt. In June 1998, the Company
received $11.8 million from the exercise of warrants.
In the future, the Company anticipates being able to raise capital
through a variety of sources including, but not limited to, public debt or
equity offerings (subject to limitations related to the preservation of the
Company's NOLs), thus enhancing the investment and growth opportunities of the
Company. The Company believes that these and other sources of liquidity,
including refinancing and expanding the Company's revolving credit facility to
the extent necessary, securitizations, and funding from senior lenders for
Acquisition Partnership investments and direct portfolio and business
acquisitions, should prove adequate to continue to fund the Company's
contemplated activities and meet its liquidity needs.
The Company and each of its major operating subsidiaries have entered
into one or more credit facilities to finance its respective operations. Each of
the operating subsidiary credit facilities is nonrecourse to the Company and the
other operating subsidiaries, except as discussed below.
Excluding the term acquisition facilities of the unconsolidated
Acquisition Partnerships, as of June 30, 1998 the Company and its subsidiaries
had credit facilities providing for borrowings in an aggregate principal amount
of $1,992 million and outstanding borrowings of $1,225 million. The following
table summarizes the material terms of the credit facilities to which the
Company, its major operating subsidiaries and the Acquisition Partnerships were
parties and the outstanding borrowings under such facilities as of June 30,
1998.
23
<PAGE>
CREDIT FACILITIES
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1998 INTEREST RATE OTHER TERMS AND CONDITIONS
------ ------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Credit Prime or Secured by the assets of
Facility $ 50 $ 1 LIBOR + 2.625% the Company, expires April
30, 1999
Term fixed asset
facility 1 1 Fixed 9.25% Secured by certain fixed
assets, expires January 1,
2001
MORTGAGE CORP.
Warehouse facility 670 497 LIBOR + 0.5% to 2.5% Revolving line to warehouse
residential mortgage loans,
expires March 31, 1999
Supplemental warehouse
facility 36 25 LIBOR + 0.5% to 2.25% Revolving line to warehouse
residential mortgage loans
and related receivables,
expires March 31, 1999
FNMA warehouse
facility 700 495 Fed Funds+ 0.5% to 1.0% Open facility to fund
committed loans to FNMA and
other
Operating line 47 45 LIBOR + 2.25% Revolving operating line
secured by the unencumbered
assets of Harbor, expires
December 15, 2002
CAPITAL CORP.
Warehouse facility 200 28 LIBOR + 0.75% Repurchase agreement to
facilitate the acquisition
of Home Equity Loans,
expires March 30, 1999
Warehouse facility 48 4 Fixed 6.85% Repurchase agreement to
facilitate the acquisition
of Home Equity Loans,
expired July 31, 1998
COMMERCIAL CORP.
Portfolio acquisition Acquisition facility to
facility 100 36 LIBOR + 2.5% acquire Portfolio Assets,
expires February 28, 1999
(includes $23 million
advanced to unconsolidated
Acquisition Partnerships
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1998 INTEREST RATE OTHER TERMS AND CONDITIONS
------ ------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
French acquisition
facility 15 9 French franc LIBOR + 3.5% Acquisition facility to
fund equity investments in
French Portfolio Assets,
expires March 31, 1999.
Guaranteed by Commercial
Corp. and the Company.
Term facility (1) 15 -- Prime + 7% Term facility to finance
the purchase of mortgage
servicing rights from
Mortgage Corp., expires
October 30, 1998.
Guaranteed by the Company
Term acquisition
facilities 40 40 Fixed at 7.66% Acquisition facilities for
existing Portfolio Assets.
Secured by portfolio
assets. Expires June 5, 2002
CONSUMER CORP.
Warehouse facility 70 54 LIBOR + 3% Revolving line secured by
automobile receivables,
expires May 31, 1999
UNCONSOLIDATED
ACQUISITION PARTNERSHIPS Senior and subordinated
Term acquisition 62 62 Fixed at 7.51% to 10.17%, loans secured by Portfolio
facilities LIBOR + 3% to 6.5% and Assets, various maturities
Prime + 2% to 7%
</TABLE>
- ---------------------------------
(1) The facility was entered into as of July 24, 1998. Outstanding borrowings
under the facility as of July 27, 1998 were $15 million.
25
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders (the "Annual
Meeting") on May 21, 1998. The following items of business were considered at
the Annual Meeting.
(a) Election of Directors
All standing directors were elected as directors to serve as
members of the Company's Board of Directors until the Company's 1999
annual meeting of shareholders. The number of votes cast for each
nominee was as follows:
<TABLE>
<CAPTION>
Votes Cast Votes
Nominee For Against Abstained
------------------------- ----------------------- ----------------------- -------------------------
<S> <C> <C> <C>
James R. Hawkins 5,721,876 0 6,826
C. Ivan Wilson 5,724,452 0 4,250
James T. Sartain 5,724,452 0 4,250
Rick R. Hagelstein 5,724,452 0 4,250
Matt A. Landry, Jr. 5,724,452 0 4,250
Richard J. Gillen 5,724,452 0 4,250
Richard E. Bean 5,724,452 0 4,250
Bart A. Brown, Jr. 5,724,452 0 4,250
Donald J. Douglass 5,724,452 0 4,250
David W. MacLennan 5,724,452 0 4,250
Thomas E. Smith 5,724,452 0 4,250
</TABLE>
(b) Ratification of Appointment of Auditors
A proposal to ratify the Board of Directors' appointment of
KPMG Peat Marwick LLP as the Company's independent auditors for 1998 was
approved by the shareholders. The number of votes for the proposal: 5,712,478;
votes withheld: 8,236; abstentions: 7,988.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 -- Joint Plan of Reorganization by First City Bancorportion of Texas,
Inc., Official Committee of Equity Security Holders and J-Hawk
Corporation, with the Participation of Cargill Financial Services
Corporation, Under Chapter 11 of the United States Bankruptcy Code,
Case No. 392-39474-HCA-11 (incorporated by reference herein to
Exhibit 2.1 of the Company's Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995)
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995, by and
between First City Bancorporation of Texas, Inc. and J-Hawk
Corporation (incorporated herein by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K dated July 3, 1995 filed with
the Commission on July 18, 1995)
4.1 -- Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated July 3, 1995 filed with the
Commission on July 18, 1995)
26
<PAGE>
4.2 -- Certificate of Designations of the New Preferred Stock ($0.01 par
value) of the Company (incorporated herein by reference to Exhibit
4.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
4.3 -- Bylaws of the Company (incorporated herein by reference to Exhibit
3.2 of the Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995)
4.4 -- Registration Rights Agreement, dated July 1, 1997, among the
Company, Richard J. Gillen, Bernice J. Gillen, Harbor Financial
Mortgage Company Employees Pension Plan, Lindsey Capital
Corporation, Ed Smith and Thomas E. Smith (incorporated herein by
reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
10.1 -- Master Repurchase Agreement Governing Purchases and Sales of
Mortgage Loans, dated as of July 1998, between Lehman Commercial
Paper Inc. and FHB Funding Corp.
10.2 -- Warehouse Credit Agreement, dated as of April 30, 1998, among
ContiTrade Services, L.L.C., FirstCity Consumer Lending Corporation,
FirstCity Auto Receivables L.L.C. and FirstCity Financial
Corporation
10.3 -- Servicing Agreement, dated as of April 30, 1998, among FirstCity
Auto Receivables L.L.C., FirstCity Servicing Corporation of
California, FirstCity Consumer Lending Corporation and ContiTrade
Services L.L.C.
10.4 -- Security and Collateral Agent Agreement, dated as of April 30, 1998,
among FirstCity Auto Receivables L.L.C., ContiTrade Services L.L.C.
and Chase Bank of Texas, National Association
10.5 -- Loan Agreement, dated as of July 24, 1998, between FirstCity
Commercial Corporation and CFSC Capital Corp. XXX
10.6 -- Loan Agreement, dated April 8, 1998, between Bank of Scotland and
the Company
10.7 -- First Amendment to Loan Agreement, dated July 20, 1998, between Bank
of Scotland and the Company
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted as an
exhibit only in the electronic format of this Quarterly Report on
Form 10-Q being submitted to the Securities and Exchange Commission.
Exhibit 27.1 shall not be deemed filed for purposes of Section 11 of
the Securities Act of 1933, Section 18 of the Securities Act of
1934, as amended, or Section 323 of the Trust Indenture Act of 1939,
as amended, or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any registration
statement to which it relates.)
(b) Reports on Form 8-K.
The following Current Report on Form 8-K pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 was filed by the
Registrant with the Commission:
1. A Form 8-K was filed, dated April 29, 1998, regarding the first
quarter results.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Matt A. Landry, Jr.
--------------------------------------
Name: Matt A. Landry, Jr.
Title: Executive Vice President and Chief
Administrative Officer
(Duly authorized officer and principal
financial and accounting officer of
the Registrant)
Dated: August 13, 1998
28
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.1 -- Joint Plan of Reorganization by First City Bancorportion of Texas,
Inc., Official Committee of Equity Security Holders and J-Hawk
Corporation, with the Participation of Cargill Financial Services
Corporation, Under Chapter 11 of the United States Bankruptcy Code,
Case No. 392-39474-HCA-11 (incorporated by reference herein to
Exhibit 2.1 of the Company's Current Report on Form 8-K dated July
3, 1995 filed with the Commission on July 18, 1995)
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995, by and
between First City Bancorporation of Texas, Inc. and J-Hawk
Corporation (incorporated herein by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K dated July 3, 1995 filed with
the Commission on July 18, 1995)
4.1 -- Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated July 3, 1995 filed with the
Commission on July 18, 1995)
4.2 -- Certificate of Designations of the New Preferred Stock ($0.01 par
value) of the Company (incorporated herein by reference to Exhibit
4.1 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
4.3 -- Bylaws of the Company (incorporated herein by reference to Exhibit
3.2 of the Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995)
4.4 -- Registration Rights Agreement, dated July 1, 1997, among the
Company, Richard J. Gillen, Bernice J. Gillen, Harbor Financial
Mortgage Company Employees Pension Plan, Lindsey Capital
Corporation, Ed Smith and Thomas E. Smith (incorporated herein by
reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
10.1 -- Master Repurchase Agreement Governing Purchases and Sales of
Mortgage Loans, dated as of July 1998, between Lehman Commercial
Paper Inc. and FHB Funding Corp.
10.2 -- Warehouse Credit Agreement, dated as of April 30, 1998, among
ContiTrade Services, L.L.C., FirstCity Consumer Lending Corporation,
FirstCity Auto Receivables L.L.C. and FirstCity Financial
Corporation
10.3 -- Servicing Agreement, dated as of April 30, 1998, among FirstCity
Auto Receivables L.L.C., FirstCity Servicing Corporation of
California, FirstCity Consumer Lending Corporation and ContiTrade
Services L.L.C.
10.4 -- Security and Collateral Agent Agreement, dated as of April 30, 1998,
among FirstCity Auto Receivables L.L.C., ContiTrade Services L.L.C.
and Chase Bank of Texas, National Association
10.5 -- Loan Agreement, dated as of July 24, 1998, between FirstCity
Commercial Corporation and CFSC Capital Corp. XXX
10.6 -- Loan Agreement, dated April 8, 1998, between Bank of Scotland and
the Company
10.7 -- First Amendment to Loan Agreement, dated July 20, 1998, between Bank
of Scotland and the Company
27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted as an
exhibit only in the electronic format of this Quarterly Report on
Form 10-Q being submitted to the Securities and Exchange Commission.
Exhibit 27.1 shall not be deemed filed for purposes of Section 11 of
the Securities Act of 1933, Section 18 of the Securities Act of
1934, as amended, or Section 323 of the Trust Indenture Act of 1939,
as amended, or otherwise be subject to the liabilities of such
sections, nor shall it be deemed a part of any registration
statement to which it relates.)
<PAGE>
EXHIBIT 10.1
MASTER REPURCHASE AGREEMENT GOVERNING
PURCHASES AND SALES OF MORTGAGE LOANS
Dated as of July __, 1998
Between
LEHMAN COMMERCIAL PAPER INC.,
as Buyer
and
FHB FUNDING CORP.,
as Seller
1. APPLICABILITY
From time to time for a period of 364 days from the date hereof, the
parties hereto may, subject to the terms hereof, enter into transactions in
which FHB Funding Corp. ("Seller") agrees to transfer to Lehman Commercial Paper
Inc. ("Buyer") Mortgage Loans against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a
date certain not later than the date of transfer specified in the Confirmation,
against the transfer of funds by Seller. Each such transaction shall be referred
to herein as a "Transaction" and shall be governed by this Agreement and the
related Confirmation, unless otherwise agreed in writing. Each Transaction shall
commence on the Purchase Date and terminate on the Repurchase Date therefor and
shall be limited to a maximum of 30 days, after which, subject to Section 20
below, Buyer and Seller may agree to roll such Transaction into a new
Transaction that shall likewise have a maximum term of 30 days. This Agreement
does not constitute a commitment of Buyer or Seller to enter into Transactions
but rather sets forth the procedures to be followed in connection with requests
to enter into Transactions by Seller to Buyer. Seller hereby acknowledges that
Buyer is under no obligation to agree to enter into Transactions under this
Agreement.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party and its
Affiliates, (i) the filing of a petition, commencing, or authorizing the
commencement of any case
HOFS02...:\92\54892\0011\1612\AGR7308K.49A
<PAGE>
or proceeding under any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar law relating to the protection of creditors, or suffering
any such petition or proceeding to be commenced by another which is consented
to, not timely contested or results in entry of an order for relief; (ii) the
seeking the appointment of a receiver, trustee, custodian or similar official
for such party or an Affiliate or any substantial part of the property of
either, (iii) the appointment of a receiver, conservator, or manager for such
party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so; (iv) the making or offering by such party or an Affiliate
of a composition with its creditors or a general assignment for the benefit of
creditors, (v) the admission by such party or an Affiliate of such party of its
inability to pay its debts or discharge its obligations as they become due or
mature; or (vi) that any governmental authority or agency or any person, agency
or entity acting or purporting to act under governmental authority shall have
taken any action to condemn, seize or appropriate, or to assume custody or
control of, all or any substantial part of the property of such party or of any
of its Affiliates, or shall have taken any action to displace the management of
such party or of any of its Affiliates or to curtail its authority in the
conduct of the business of such party or of any of its Affiliates.
"Additional Loans" means Mortgage Loans or cash provided by Seller
to Buyer or its designee pursuant to Section 4(a).
"Affiliate" means an affiliate of a party as such term is defined in
the United States Bankruptcy Code in effect from time to time.
"Agency" means FNMA, FHLMC or GNMA.
"Agreement" means this Master Repurchase Agreement Governing
Purchases and Sales of Mortgage Loans between Buyer and Seller, as amended from
time to time.
"Balloon Mortgage Loan" means any Mortgage Loan with a maturity date
of under fifteen (15) years that provided on the date of origination for
scheduled payments by the Mortgagor based upon an amortization schedule
extending beyond its maturity date.
"Business Day" means a day other than (i) a Saturday or Sunday, or
(ii) a day on which the Buyer or the New York Stock Exchange is authorized or
obligated by law or executive order to be closed.
"Buyer" has the meaning specified in Section 1.
"Capital Lease" shall mean any lease or similar arrangement which is
of such a nature that payment obligations of the lessee or obligor thereunder
are
2
<PAGE>
required to be capitalized and shown as liabilities upon a balance sheet of such
lessee or obligor prepared in accordance with GAAP or for which the amount of
the asset and liability thereunder as if so capitalized should be disclosed in a
note to such balance sheet.
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the
amount obtained by application of the applicable Collateral Amount Percentage to
the related Repurchase Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the
Confirmation which, in any event, (i) shall not be less than 103% with respect
to all Mortgage Loans in determining whether a Market Value Collateral Deficit
exists pursuant to the first sentence of Section 4(a) hereof and (ii) shall not
be less than 105% with respect to all Mortgage Loans in determining whether a
Securitization Value Collateral Deficit exists pursuant to the second sentence
of Section 4(a) hereof.
"Collateral Deficit" means either a Market Value Collateral Deficit
or a Securitization Value Collateral Deficit.
"Collateral Information" means the following information with
respect to each Mortgage Loan: (i) Seller's loan number, (ii) the Mortgagor's
name, (iii) the address of the Mortgaged Property, (iv) the current interest
rate, (v) the original balance, (vi) current balance as of the last day of the
immediately preceding month, (vii) the paid to date, (viii) the appraisal value
of the Mortgaged Property as of origination, (ix) whether interest rate is fixed
or adjustable (and if adjustable, the ARM terms, including the index, spread,
adjustment frequency, next adjustment date, caps and floors), (x) the occupancy
status of the Mortgaged Property as of origination (including whether owner
occupied), (xi) whether the Mortgage Loan is a Balloon Loan, (xii) the first
payment date, (xiii) the maturity date, (xiv) the principal and interest
payment, (xv) the property type of the Mortgaged Property as of origination,
(xvi) the applicable credit grade, (xvii) the note date, (xviii) whether the
Mortgage Loan is a Wet Ink Mortgage Loan, and (xix) the lien position of the
Mortgage Loan.
"Confirmation" has the meaning specified in Section 3(a).
"Custodial Agreement" means that certain custodial agreement, dated
as of July __, 1998, by and among Buyer, Seller and the Custodian, who will
initially be The Bank of New York.
"Custodial Delivery" means the form executed by Seller in order to
deliver the Mortgage Loan Schedule and/or the Mortgage File to Buyer or its
3
<PAGE>
designee (including the Custodian) pursuant to Section 7, a form of which is
attached hereto as Exhibit II. Such form shall indicate any Mortgage Loans which
are Wet Ink Mortgage Loans or Correspondent Loans.
"Custodian" means the custodian under the Custodial Agreement.
"'C' Loan" means a Mortgage Loan made by Seller to a Mortgagor with
a 'C' or 'C-' credit history which is underwritten in accordance with Seller's
underwriting guidelines for 'C'or 'C-' credit Mortgage Loans, a copy of which is
attached as Exhibit VI hereto.
"Delinquent" means, with respect to any Mortgage Loan, the period of
time from the date on which a Mortgagor fails to pay an obligation under the
terms of such Mortgage Loan (without regard to any applicable grace periods) to
the date on which such payment is made.
"Event of Default" has the meaning specified in Section 13.
"First Mortgage" means a Mortgage that is a first lien on the
related Mortgaged Property.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States.
"GNMA" means the Government National Mortgage Association.
"Hedge" means, with respect to any or all of the Purchased Mortgage
Loans, any interest rate swap, cap or collar agreement or similar arrangements
providing for protection against fluctuations in interest rates or the exchange
of nominal interest obligations, either generally or under specific
contingencies, entered into by Seller with Buyer or its Affiliates, and
reasonably acceptable to the Buyer.
"HUD" means the United States Department of Housing and Urban
Development.
"Income" means, with respect to any Purchased Mortgage Loan at any
time, any principal thereof then payable and all interest or other distributions
payable thereon less any related servicing fee(s) charged by a subservicer.
4
<PAGE>
"LIBOR" means the London Interbank Offered Rate for one-month United
States dollar deposits as set forth on page 3750 of Telerate as of 11:00 a.m.,
London time, on the date that a Transaction is entered into.
"Loan-to-Value Ratio" means with respect to any Mortgage Loan as of
any date, the fraction, expressed as a percentage, the numerator of which is the
principal balance of such Mortgage Loan at the date of determination and the
denominator of which is the value of the related Mortgaged Property as set forth
in the appraisal of such Mortgaged Property obtained in connection with the
origination of such Mortgage Loan. For purposes of calculating a Mortgage Loan
secured by a Second Mortgage, the principal balance of the related First
Mortgage as well as the Second Mortgage shall be included in the numerator.
"Market Value" means as of any date with respect to any Mortgage
Loan, the price at which such Mortgage Loan could readily be sold as determined
by Buyer in its sole discretion; provided, however, that Buyer shall not take
into account, for purposes of calculating Market Value, any Mortgage Loan (i)
which has been subject to Transactions hereunder for more than 90 days, (ii)
which, together with the other Mortgage Loans subject to then outstanding
Transactions, would cause the 30+ Delinquency Percentage to exceed 3.0%, (iii)
which is a Wet Ink Mortgage Loan for more than 7 Business Days, (iv) which are
more than 59 days Delinquent (v) which, together with the other Mortgage Loans
subject to then outstanding Transactions, would cause the 60+Percentage to
exceed 10.0%, or (vi) with respect to which there is a breach of a
representation, warranty or covenant made by Seller in this Agreement that
materially adversely affects Buyer's interest in such Mortgage Loan and which
breach has not been cured, within the specified time period.
"Market Value Collateral Deficit" has the meaning specified in
Section 4(a).
"Mortgage" means a mortgage, deed of trust, deed to secure debt or
other instrument, creating a valid and enforceable first or second lien on or a
first or second priority ownership interest in an estate in fee simple in real
property and the improvements thereon, securing a mortgage note or similar
evidence of indebtedness.
"Mortgage File" means the documents specified as the "Mortgage File"
in Section 7(d), together with any additional documents and information required
to be delivered to Buyer or its designee (including the Custodian) pursuant to
this Agreement.
"Mortgage Loan" means (i) a non-securitized whole loan, namely a
conventional mortgage loan secured by a first or second lien on a one-to-four
family residential property which conforms to Seller's underwriting guidelines,
as amended
5
<PAGE>
from time to time (including, without limitation, Wet-Ink Mortgage Loans) or
(ii) another type of non-securitized whole loan as may be agreed upon in writing
by the parties hereto from time to time.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans
attached to each Trust Receipt, Confirmation and Custodial Delivery.
"Mortgage Note" means a note or other evidence of indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of
the debt evidenced by a Mortgage Note.
"Mortgagee" means the record holder of a Mortgage Note secured by a
Mortgage.
"Mortgagor" means the obligor on a Mortgage Note and the grantor of
the related Mortgage.
"Net Income" of any Person shall mean, for any period, the net
income (or net deficit), excluding all extraordinary, unusual, non-recurring
and/or non-operating items of such Person for such period, determined in
accordance with GAAP.
"Periodic Payment" has the meaning specified in Section 5(b).
"Person" means an individual, partnership, corporation, joint stock
company, trust, limited liability company, limited liability partnership or
unincorporated organization or a governmental agency or political subdivision
thereof.
"Price Differential" means, with respect to any Transaction
hereunder as of any date, the aggregate amount obtained by daily application of
the Pricing Rate for such Transaction to the Purchase Price for such Transaction
on a 360 day per year basis for the actual number of days during the period
commencing on (and including) the Purchase Date for such Transaction and ending
on (but excluding) the Repurchase Date (reduced by any amount of such Price
Differential previously paid by Seller to Buyer with respect to such
Transaction).
"Pricing Rate" means the per annum percentage rate specified in the
Confirmation for determination of the Price Differential which shall not exceed
LIBOR plus the applicable Pricing Spread.
6
<PAGE>
"Pricing Spread" means 1.25% with respect to any Mortgage Loan;
provided that during any period for which any such Mortgage Loans are Wet Ink
Mortgage Loans, the applicable Pricing Spread in respect of such Mortgage Loan
shall be increased by an additional 0.15% and during any period for which Lehman
has funded the DDA Account (as defined in the Custody Agreement) in respect of
Mortgage Loans prior to the Custodian receiving the related Mortgage Notes, the
Pricing Spread applicable to such amounts shall be increased by an additional
.15%
"Prime Rate" means, with respect to any date of determination, the
rate of interest published by The Wall Street Journal, northeast edition, as the
"prime rate," as most recently available as of the date of determination.
"Purchase Date" means the date on which Purchased Mortgage Loans are
transferred by Seller to Buyer or its designee (including the Custodian) as
specified in the Confirmation.
"Purchase Price" means on each Purchase Date, the price at which
Purchased Mortgage Loans are transferred by Seller to Buyer or its designee
(including the Custodian); which shall in no event exceed the outstanding
principal amount of such Purchased Mortgage Loans.
"Purchased Mortgage Loans" means the Mortgage Loans sold by Seller
to Buyer in a Transaction, any Additional Loans and any Substituted
Mortgage Loans.
"Replacement Loans" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase
the Purchased Mortgage Loans from Buyer, including any date determined by
application of the provisions of Sections 3 or 14, as specified in the
Confirmation; provided that in no event shall such date be more than 30 days
after the related Purchase Date.
"Repurchase Price" means the price at which Purchased Mortgage Loans
are to be transferred from Buyer or its designee (including the Custodian) to
Seller upon termination of a Transaction, which will be determined in each case
(including Transactions terminable upon demand) as the sum of the Purchase Price
and the Price Differential as of the date of such determination decreased by all
cash, Income and Periodic Payments actually received by Buyer pursuant to
Sections 4(a), 5(a) and 5(b), respectively.
"Second Mortgage" means a Mortgage that is a second lien on the
Mortgaged Property.
7
<PAGE>
"Securitization Value" means, as of any date with respect to any
Mortgage Loans, the price at which such Mortgage Loans could be securitized and
sold in a securitization as determined by Buyer in its sole discretion;
provided, however, that Buyer shall not take into account, for purposes of
calculating Securitization Value, any Mortgage Loan (i) which has been subject
to Transactions for more than 180 days, (ii) which, together with the other
Mortgage Loans subject to then outstanding Transactions, would cause the 30+
Delinquency Percentage to exceed 3.0%, (iii) which is a Wet Ink Mortgage Loan
for more than 7 Business Days, (iv) which are more than 59 days Delinquent, (v)
which, together with the other Mortgage Loans subject to then outstanding
Transactions, would cause the 60+Percentage to exceed 10.0%, or (vi) with
respect to which there is a breach of a representation, warranty or covenant
made by Seller in this Agreement that materially adversely affects Buyer's
interest in such Mortgage Loan and which breach has not been cured within the
specified time period.
"Securitization Value Collateral Deficit" has the meaning specified
in Section 4(a).
"Seller" has the meaning specified in Section 1.
"Servicing Agreement" has the meaning specified in Section 25.
"Servicing Records" has the meaning specified in Section 25.
"60+ Percentage" means the fraction, expressed as a percentage, the
numerator of which is the aggregate Purchase Price of Purchased Mortgage Loans
subject to then outstanding Transactions which have remained subject to
Transactions for more than 60 days.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other Person of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions of such corporation, partnership or other Person
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other Person shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Substituted Mortgage Loans" means any Mortgage Loans substituted
for Purchased Mortgage Loans in accordance with Section 9 hereof.
8
<PAGE>
"30+ Delinquency Percentage" means the fraction, expressed as a
percentage, the numerator of which is the aggregate Purchase Price of Purchased
Mortgage Loans subject to then outstanding Transactions which are more than 30
days Delinquent and the denominator of which is the aggregate Purchase Price of
all Purchased Mortgage Loans subject to then outstanding Transactions.
"Transaction" has the meaning specified in Section 1.
"Trust Receipt" means a trust receipt issued by Custodian to Buyer
confirming the Custodian's possession of certain mortgage loan files which are
the property of and held by Custodian for the benefit of the Buyer or the
registered holder of such trust receipt.
"Wet Ink Mortgage Loan" means a Mortgage Loan for which a Mortgage
File has not been delivered to the Custodian.
3. INITIATION; CONFIRMATION; TERMINATION; MAXIMUM
TRANSACTION AMOUNTS
(a) An agreement to enter into a Transaction may be entered into
orally or in writing at the initiation of Seller. In any event, Buyer shall
confirm the terms of each Transaction by issuing a written confirmation to
Seller promptly after the parties enter into such Transaction in the form of
Exhibit I attached hereto (a "Confirmation"). Such Confirmation shall describe
the Purchased Mortgage Loans, identify Buyer and Seller and set forth (i) the
Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date, unless the
Transaction is to be terminable on demand, (iv) the Pricing Rate applicable to
the Transaction, (v) the applicable Collateral Amount Percentages and (vi)
additional terms or conditions not inconsistent with this Agreement. After
receipt of the Confirmation, Seller shall, subject to the provisions of
subsection (c) below, sign the Confirmation and promptly return it to Buyer.
With respect to any Transaction, and subject to the terms and conditions herein,
the Purchase Date shall be within 2 Business Days of the date on which Seller
initiated the Transaction pursuant to the first sentence of this paragraph.
(b) Any Confirmation by Buyer shall be deemed to have been received
by Seller on the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be
conclusive evidence of the terms of the Transaction(s) covered thereby unless
objected to in writing by Seller no more than two (2) Business Days after the
date the Confirmation was received by Seller or unless a corrected Confirmation
is sent by Buyer. An objection sent by Seller must state specifically that
writing which is an objection, must specify the provision(s) being objected to
by Seller, must set forth
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such provision(s) in the manner that the Seller believes they should be stated,
and must be received by Buyer no more than two (2) Business Days after the
Confirmation was received by Seller.
(d) In the case of Transactions terminable upon demand, such demand
shall be made by Seller by telephone or otherwise, no later than 1:00 p.m. (New
York Time) on the second Business Day prior to the day on which such termination
will be effective.
(e) On the Repurchase Date, termination of the Transaction will be
effected by transfer to Seller or its designee of the Purchased Mortgage Loans
(and any Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Section 5)
against the simultaneous transfer of the Repurchase Price to an account of
Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its
designee at Seller's expense on the Repurchase Date.
(f) With respect to all Transactions hereunder, the aggregate
Purchase Price for all Purchased Mortgage Loans at any one time subject to then
outstanding Transactions under this Agreement shall not exceed $200,000,000. (g)
The aggregate Purchase Price of all Purchased Mortgage Loans which relate to Wet
Ink Mortgage Loans shall not represent more than 20% of the aggregate Purchase
Price for all Purchased Mortgage Loans which are subject to then outstanding
Transactions. Seller covenants to deliver the Mortgage File to the Custodian
within 7 Business Days from its respective Purchase Date and to the cause
related Mortgage Note for each funded Mortgage Loan to be faxed to the
Custodian.
(g) The aggregate Purchase Price of all Purchased Mortgage Loans
which are secured by a Mortgage Loan that has a Loan to Value in excess of 95%
shall be reduced by 5% and any Mortgage Loans with a Loan to Value in excess of
90% shall not represent more than the greater of $25,000,000 or 35% of the
aggregate Purchase Price for all Purchased Mortgage Loans which are subject to
then outstanding Transactions.
(h) Seller may only sell under this Agreement its interest in
Mortgage Loans that are (x) originated and owned by Seller or (b) originated by
Innovative Funding Inc. ("Innovative") provided that (i) such Mortgage Loans
must be purchased by Seller within 45 days of funding, and (ii) such Mortgage
Loans acquired from Innovative comply with the representations and warranties
contained in Exhibit V.
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4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased
Mortgage Loans subject to then outstanding Transactions is less than the
aggregate Collateral Amount for all such Transactions (a "Market Value
Collateral Deficit"), then Buyer may by notice to Seller require Seller to
transfer to Buyer or its designee (including the Custodian) Mortgage Loans
("Additional Loans") or cash, so that the cash and aggregate Market Value of the
Purchased Mortgage Loans, including any such Additional Loans, will thereupon
equal or exceed the aggregate Collateral Amount. If at any time the aggregate
Securitization Value of all Purchased Mortgage Loans subject to then outstanding
Transactions is less than the aggregate Collateral Amount for all such
Transactions (a "Securitization Value Collateral Deficit"), then Buyer may by
notice to Seller require Seller to transfer to Buyer or its designee (including
the Custodian) Additional Loans or cash, so that the cash and aggregate
Securitization Value of such Purchased Mortgage Loans, including any such
Additional Loans, will thereupon equal or exceed the aggregate Collateral
Amount.
(b) Notice required pursuant to subsection (a) above may be given by
any means of telecopier or telegraphic transmission. A notice for the payment or
delivery in respect of a Collateral Deficit received on any Business Day must be
met not later than 5:00 p.m. on the second Business Day following the Business
Day on which the notice was given. The failure of Buyer, on any one or more
occasions, to exercise its rights under subsection (a) of this Section shall not
change or alter the terms and conditions to which this Agreement is subject or
limit the right of the Buyer to do so at a later date. Buyer and Seller agree
that a failure or delay to exercise its rights under subsections (a) of this
Section shall not limit Buyer's rights under this Agreement or otherwise
existing by law or in any way create additional rights for Seller.
(c) In the event that Seller fails to comply with the provisions of
this Section 4, Buyer shall not enter into any additional Transactions hereunder
after the date of such failure, unless such failure is satisfactorily cured or
waived.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income
payment date on the Purchased Mortgage Loans subject to that Transaction such
Income shall be the property of Buyer. Notwithstanding the foregoing, so long as
no Event of Default shall have occurred and be continuing, Seller shall be
entitled to all Income with respect to Purchased Mortgage Loans subject to
Transactions. Upon the occurrence and continuance of an Event of Default, all
Income with respect to Purchased Mortgage Loans subject to Transactions shall be
held in a segregated
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account established by the Custodian for the benefit of Buyer and distributed
under the Custodial Agreement.
(b) Notwithstanding that Buyer and Seller intend that the
Transactions hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller
shall pay by wire transfer to Buyer the Price Differential (less any amount of
such Price Differential previously paid by Seller to Buyer)(each such payment, a
"Periodic Payment") on the first Business Day of each month.
(c) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and Periodic Payments actually received by Buyer pursuant
to Sections 5(a) and (b), respectively.
6. SECURITY INTEREST
(a) Buyer and the Seller intend that the Transactions hereunder be
sales to Buyer of the Purchased Mortgage Loans and not loans from Buyer to
Seller secured by the Purchased Mortgage Loans. However, in order to preserve
Buyer's rights under this Agreement in the event that a court or other forum
recharacterizes the Transactions hereunder as loans and as security for the
performance by Seller of all of Seller's obligations to Buyer under this
Agreement and the Transactions entered into pursuant to this Agreement, Seller
grants Buyer a first priority security interest in (x) the Purchased Mortgage
Loans, the Servicing Records, the insurance relating to the Purchased Mortgage
Loans, Income, any and all Hedges, any and all custodial accounts and escrow
accounts relating to the Purchased Mortgage Loans, and any other contract
rights, general intangibles and other assets relating to the Purchased Mortgage
Loans or any interest in the Purchased Mortgage Loans and the servicing of the
Purchased Mortgage Loans and (y) any and all replacements, substitutions,
distributions on or proceeds of any and all of the foregoing (collectively, the
"Collateral").
(b) Seller shall pay all fees and expenses associated with
perfecting Buyer's security interest in the Collateral, including, without
limitation, the cost of filing financing statements under the Uniform Commercial
Code and recording assignments of Mortgage, as and when required by Buyer in its
sole discretion, provided however that Buyer shall not file any assignments of
Mortgage prior to an Event of Default hereunder by Seller.
(c) Seller covenants to take such further actions as are necessary
in order to perfect Buyer's first priority security interest in the Hedges.
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7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of
funds hereunder shall be in immediately available funds.
(b) On or before each Purchase Date, Seller shall deliver or cause
to be delivered to Buyer or its designee the Custodial Delivery in the form
attached hereto as Exhibit II.
(c) On the Purchase Date for each Transaction, ownership of the
Purchased Mortgage Loans shall be transferred to the Buyer or its designee
(including the Custodian) against the simultaneous transfer of the Purchase
Price to an account of Seller specified in the Confirmation. Seller,
simultaneously with the delivery to Buyer or its designee (including the
Custodian) of the Purchased Mortgage Loans relating to each Transaction hereby
sells, transfers, conveys and assigns to Buyer or its designee (including the
Custodian) without recourse, but subject to the terms of this Agreement, all the
right, title and interest of Seller in and to the Purchased Mortgage Loans
together with all right, title and interest in and to the proceeds of any
related insurance policies.
(d) In connection with each sale, transfer, conveyance and
assignment, on or prior to each Purchase Date with respect to each Mortgage Loan
which is not a Wet Ink Mortgage Loan (or with respect to item (vii) below within
seven Business Days after the Purchase Date), the Seller shall deliver or cause
to be delivered and released to the Custodian the following documents
(collectively the "Mortgage File"), pertaining to each of the Purchased Mortgage
Loans identified in the Custodial Delivery delivered therewith:
(i) the original Mortgage Note bearing all intervening
endorsements, endorsed "Pay to the order of ________ without
recourse, and without representation or warranty, express or
implied" and signed in the name of the last endorsee (the "Last
Endorsee") by an authorized officer (in the event that the Mortgage
Loan was acquired by the Last Endorsee in a merger, the signature
must be in the following form: "[the Last Endorsee], successor by
merger to [name of predecessor]"; in the event that the Mortgage
Loan was acquired or originated while doing business under another
name, the signature must be in the following form: "[the Last
Endorsee], formerly known as [previous name]");
(ii) the original of any guarantee executed in connection with
the Mortgage Note (if any);
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(iii) the original Mortgage with evidence of recording thereon
or copies certified by Seller [or its agent] to have been sent for
recording;
(iv) the originals of all assumption, modification,
consolidation or extension agreements, with evidence of recording
thereon or copies certified by Seller [or its agent] to have been
sent for recording;
(v) the original assignment of Mortgage in blank for each
Mortgage Loan, in form and substance acceptable for recording and
signed in the name of the Last Endorsee (in the event that the
Mortgage Loan was acquired by the Last Endorsee in a merger, the
signature must be in the following form: "[the Last Endorsee],
successor by merger to [name of predecessor]"; in the event that the
Mortgage Loan was acquired or originated while doing business under
another name, the signature must be in the following form: "[the
Last Endorsee], formerly known as [previous name]");
(vi) the originals of all intervening assignments of mortgage
with evidence of recording thereon or copies certified by Seller [or
its agent] to have been sent for recording;
(vii) the original policy of title insurance or a true copy
thereof or, if such policy has not yet been delivered by the
insurer, the commitment or binder to issue the same (which may be
marked by the title insurance company to reflect changes); and
(viii) the original or a certified copy of any security
agreement, chattel mortgage or equivalent document executed in
connection with the Mortgage (if any).
(e) In connection with each sale, transfer, conveyance and
assignment with respect to each Mortgage Loan which is a Wet Ink Mortgage Loan,
on or prior to the seventh Business Day following each Purchase Date, Seller
shall deliver or cause to be delivered to the Custodian a complete Mortgage
File. Further, if requested by Buyer, on the Purchase Date with respect to each
Mortgage Loan which is a Wet Ink Mortgage Loan, Seller shall fax an executed
copy of the respective Mortgage Note to the Custodian. On the date on which the
Buyer receives a Trust Receipt from the Custodian certifying that a complete
Mortgage File with respect to a Wet Ink Mortgage Loan is in the possession of
the Custodian, such Wet Ink Mortgage Loan be deemed a standard Mortgage Loan
(and no longer a Wet Ink Mortgage Loan) for all purposes hereunder including,
without limitation,
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determination of the Pricing Spread and compliance with subsection (aaa) of
Exhibit V.
(f) With respect to all of the Mortgage Loans delivered by Seller to
Buyer or its designee (including the Custodian), Seller shall execute an omnibus
power of attorney substantially in the form of Exhibit III attached hereto
irrevocably appointing Buyer, upon the occurrence and during the continuation of
an Event of Default, its attorney-in-fact with full power to complete and record
the assignment of Mortgage, complete the endorsement of the Mortgage Note and
take such other steps as may be necessary or desirable to enforce Buyer's rights
against such Mortgage Loans, the related Mortgage Files and the Servicing
Records.
(g) Buyer shall deposit the Mortgage Files representing the
Purchased Mortgage Loans, or direct that the Mortgage Files be deposited
directly, with the Custodian. The Mortgage Files shall be maintained in
accordance with the Custodial Agreement.
(h) Any Mortgage Files not delivered to Buyer or its designee
(including the Custodian) are and shall be held in trust by Seller or its
designee for the benefit of Buyer as the owner thereof. Seller or its designee
shall maintain a copy of the Mortgage File and the originals of the Mortgage
File not delivered to Buyer or its designee. The possession of the Mortgage File
by Seller or its designee is at the will of the Buyer for the sole purpose of
servicing the related Purchased Mortgage Loan, and such retention and possession
by the Seller or its designee is in a custodial capacity only. The books and
records (including, without limitation, any computer records or tapes) of Seller
or its designee shall be marked appropriately to reflect clearly the sale of the
related Purchased Mortgage Loan to Buyer. Seller or its designee (including the
Custodian) shall release its custody of the Mortgage File only in accordance
with written instructions from Buyer, unless such release is required as
incidental to the servicing of the Purchased Mortgage Loans or is in connection
with a repurchase of any Purchased Mortgage Loan by Seller.
8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE
LOANS
Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer
shall have free and unrestricted use of all Purchased Mortgage Loans. Nothing in
this Agreement shall preclude Buyer from engaging in repurchase transactions
with the Purchased Mortgage Loans or otherwise pledging, repledging,
hypothecating, or rehypothecating the Purchased Mortgage Loans, but no such
transaction shall relieve Buyer of its obligations to transfer Purchased
Mortgage Loans to Seller pursuant to this Agreement or any Confirmation, as
applicable. Nothing contained in this Agreement shall obligate Buyer to
segregate any Purchased Mortgage Loans delivered
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to Buyer by Seller. In the event of a material adverse change in the repurchase
markets that results in Buyer being unable to finance its position through its
traditional repurchase counterparties, Buyer may accelerate the Repurchase Date
for any outstanding Transactions following reasonable written notice to Seller
of the occurrence of such event.
9. SUBSTITUTION
(a) Subject to Section 9(b), Seller may, upon one (1) Business Days'
written notice to Buyer, with a copy to Custodian, substitute other Mortgage
Loans for any Purchased Mortgage Loans. Such substitution shall be made by
transfer to Buyer or its designee (including the Custodian) of the Mortgage
Files of such other Mortgage Loans together with a Custodial Delivery and
transfer to Seller or its designee of the Purchased Mortgage Loans requested for
release. After substitution, the substituted Mortgage Loans, shall be deemed to
be Purchased Mortgage Loans subject to the same Transaction as the released
Mortgage Loans.
(b) Notwithstanding anything to the contrary in this Agreement,
Seller may not substitute other Mortgage Loans for any Purchased Mortgage Loans
(i) if after taking into account such substitution, a Collateral Deficit would
occur or (ii) such substitution would cause a breach of any provision of this
Agreement.
10. REPRESENTATIONS AND WARRANTIES
(a) Each of Buyer and Seller represents and warrants to the other
that (i) it is duly authorized to execute and deliver this Agreement, to enter
into the Transactions contemplated hereunder and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance; (ii) it will engage in such Transactions as principal;
(iii) the person signing this Agreement on its behalf is duly authorized to do
so on its behalf; (iv) this Agreement is legal, valid and binding obligation of
it, enforceable against it in accordance with its terms, (v) no approval,
consent or authorization of the Transactions contemplated by this Agreement from
any federal, state, or local regulatory authority having jurisdiction over it is
required or, if required, such approval, consent or authorization has been or
will, prior to the Purchase Date, be obtained; (vi) the execution, delivery, and
performance of this Agreement and the Transactions hereunder will not violate
any law, regulation, order, judgment, decree, ordinance, charter, by-law, or
rule applicable to it or its property or constitute a default (or an event
which, with notice or lapse of time, or both would constitute a default) under
or result in a breach of any agreement or other instrument by which it is bound
or by which any of its assets are affected; (vii) it has received approval and
authorization to enter into this Agreement and each and every Transaction
actually entered into hereunder pursuant to its internal policies and
procedures; and (viii) neither this Agreement nor any Transaction pursuant
hereto
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are entered into in contemplation of insolvency or with intent to hinder, delay
or defraud any creditor.
(b) Seller represents and warrants to Buyer that as of the Purchase
Date for the purchase of any Purchased Mortgage Loans by Buyer from Seller and
as of the date of this Agreement and any Transaction hereunder and at all times
while this Agreement and any Transaction hereunder is in full force and effect:
(i) Organization. Seller is duly organized, validly existing
and in good standing under the laws and regulations of the state of
New York and where required is duly licensed, qualified, and in good
standing in every state where Seller transacts business and in any
state where any Mortgaged Property is located if the laws of such
state require licensing or qualification in order to conduct
business of the type conducted by Seller therein except where the
failure to be so licensed or qualified would not have a material
adverse effect on the financial condition of the Seller or the
Purchased Mortgage Loans.
(ii) No Litigation. There is no action, suit, proceeding,
arbitration or investigation pending or, to the best knowledge of
Seller, threatened against Seller which, either in any one instance
or in the aggregate, may result in any material adverse change in
the business, operations, financial condition, properties or assets
of Seller, or in any material impairment of the right or ability of
Seller to carry on its business substantially as now conducted, or
in any material liability on the part of Seller, or which if
adversely determined would affect the validity of this Agreement or
the Purchased Mortgage Loans in the aggregate or of any action taken
or to be taken in connection with the obligations of Seller
contemplated herein, or which would be likely to impair materially
the ability of Seller to perform under the terms of this Agreement;
(iii) No Broker. Seller has not dealt with any broker,
investment banker, agent, or other person, except for Buyer, who may
be entitled to any commission or compensation in connection with the
sale of Purchased Mortgage Loans pursuant to this Agreement;
(iv) Good Title to Collateral. All Purchased Mortgage Loans
shall be free and clear of any lien, encumbrance or impediment to
transfer, and Seller has good, valid and indefeasible title and the
right to sell and transfer such Purchased Mortgage Loans to Buyer.
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(v) Delivery of Mortgage File. With respect to each Purchased
Mortgage Loans which is not a Wet Ink Mortgage Loan, the Mortgage
Note, the Mortgage, the assignment of Mortgage and any other
documents required to be delivered under this Agreement and the
Custodial Agreement for such Mortgage Loan have been delivered to
the Custodian. Seller or its designee is in possession of a
complete, true and accurate Mortgage File with respect to each
Mortgage Loan, except for such documents the originals of which have
been delivered to the Custodian.
(vi) Selection Process. The Purchased Mortgage Loans were
selected from among the outstanding mortgage loans in Seller's
portfolio as to which the representations and warranties set forth
in this Agreement could be made and such selection was not made in a
manner so as to affect adversely the interests of Buyer.
(vii) [reserved]
(viii) No Untrue Statements. To the best of Seller's
knowledge, neither this Agreement nor any written statement made, or
any report or other document issued or delivered or to be issued or
delivered by Seller pursuant to this Agreement or in connection with
the transactions contemplated hereby contains any untrue statement
of material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading;
(ix) Origination/Acquisition Practices. The origination or
acquisition practices used by Seller with respect to each Mortgage
Loan (i) have been and are in all respects legal and proper in the
mortgage origination business and (ii) are in accordance with the
underwriting guidelines attached hereto as Exhibit VI;
(x) Performance of Agreement. Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform
each and every covenant contained in this Agreement on its part to
be performed;
(xi) Seller Not Insolvent. Seller is not insolvent; and
(xii) No Event of Default. No Event of Default has occurred
and is continuing hereunder.
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(c) Seller represents and warrants to the Buyer that each Purchased
Mortgage Loan sold hereunder and each pool of Purchased Mortgage Loans sold in a
Transaction hereunder, as of the related Purchase Date conform to the
representations and warranties set forth in Exhibit V attached hereto and that
each Mortgage Loan delivered hereunder as Additional Loans or Substituted
Mortgage Loans, as of the date of such delivery, conforms to the representations
and warranties set forth in Exhibit V hereto. Seller further represents and
warrants to the Buyer that, as of the date of its delivery, the Collateral
Information with respect to each Purchased Mortgage Loan is complete, true and
correct in all material respects. It is understood and agreed that the
representations and warranties set forth in Exhibit V hereto, if any, shall
survive delivery of the respective Mortgage File to Buyer or its designee
(including the Custodian).
(d) On the Purchase Date for any Transaction, Buyer and Seller shall
each be deemed to have made all the foregoing representations with respect to
itself as of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and
until this Agreement is no longer in force with respect to any Transaction,
Seller covenants that it will not:
(a) take any action which would materially directly or indirectly
impair or adversely affect Buyer's title to or the value of the Purchased
Mortgage Loans;
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver
or otherwise transfer any interest in the Purchased Mortgage Loans to any person
not a party to this Agreement nor will the Seller create, incur or permit to
exist any lien, encumbrance or security interest in or on the Purchased Mortgage
Loans except as described in Section 6 of this Agreement;
(c) create, incur or permit to exist any lien, encumbrance or
security interest in or on any of the Collateral without the prior express
written consent of Buyer;
(d) permit the ratio of Tangible Net Worth to Indebtedness to exceed
10:1 (as such terms are defined in GAAP).
12. AFFIRMATIVE COVENANTS OF THE SELLER
For so long as this Agreement is in effect:
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(a) Seller covenants that it will promptly notify Buyer of any
material adverse change in the business operations and/or financial condition of
the Seller;
(b) Seller shall provide Buyer with copies of such documentation as
Buyer may reasonably request evidencing the truthfulness of the representations
set forth in Section 10, including but not limited to resolutions evidencing the
approval of this Agreement by Seller's board of directors or loan committee,
copies of the minutes of the meetings of Seller's board of directors or loan
committee at which this Agreement and the Transactions contemplated by this
Agreement were approved;
(c) Seller shall, at Buyer's request, take all action reasonably
necessary to ensure that Buyer will have a first or second priority security
interest, as applicable, in the Collateral, including, among other things,
filing such Uniform Commercial Code financing statements as Buyer may reasonably
request;
(d) Seller shall notify Buyer no later than one (1) Business Day
after obtaining actual knowledge thereof, if any event has occurred that
constitutes an Event of Default with respect to Seller or any event that with
the giving of notice or lapse of time, or both, would become an Event of Default
with respect to Seller;
(e) Seller covenants that each Mortgage Loan subject to this
Agreement shall be serviced by a servicer approved by Buyer;
(f) Seller covenants to provide Buyer with a copy of any material
changes to Seller's underwriting guidelines prior to the effectiveness of any
such change;
(g) Seller covenants for the term of this Agreement to provide Buyer
or its designee with the exclusive option and right (but not the obligation) of
acting as lead managing underwriter or placement agent for any securities of
Seller or its Affiliates which are collateralized by, or representing interests
in, Mortgage Loans that are or were subject to Transactions hereunder (each such
transaction, a "Securitization"). Each Securitization shall contain terms
mutually acceptable to Buyer and Seller (including, without limitation,
customary and competitive compensation provisions as well as customary
provisions regarding representations and warranties, covenants, delivery terms,
conditions, indemnification, contribution and termination). If Buyer or its
affiliate declines to participate in any Securitization (and the failure to
respond to Seller within 14 days after receipt of a written offer shall be
deemed to be declining), Seller or its subsidiaries may cause such transaction
to be executed by others without prejudice to Buyer's rights as to future
transactions or without any other penalty;
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(h) Seller covenants to provide Buyer on the fifth Business Day of
each month, either by direct modem electronic transmission or via a computer
diskette, the Collateral Information in computer readable format with respect to
all Purchased Mortgage Loans then subject to Transactions;
(i) Seller covenants to provide Buyer with the following financial
and reporting information:
(i) Within 90 days after the last day of its fiscal year,
Seller's audited combined and combining statements of income and
statements of changes in cash flow for such year and balance sheets
as of the end of such year in each case presented fairly in
accordance with GAAP, and accompanied, in all cases, by a report of
a nationally recognized independent certified public accounting firm
consented to by Buyer (which consent shall not be unreasonably
withheld);
(ii) Within 60 days after the last day of the first three
fiscal quarters in any fiscal year, Seller's combined and combining
statements of income and statements of changes in cash flow for such
quarter and balance sheets as of the end of such quarter presented
fairly in accordance with GAAP;
(iii) Within 30 days after the last day of each calendar
quarter an officer's certificate from a senior officer of the Seller
addressed to Buyer certifying that, as of such calendar quarter, (x)
Seller is in compliance with all of the terms, conditions and
requirements of this Agreement, and (y) no Event of Default exists;
and
(iv) As soon as available, copies of all proxy statements,
financial statements, and reports which Seller sends to its
stockholders, and copies of all regular, periodic and special
reports, and all registration statements under the Securities Act of
1933, as amended, which it files with the Securities and Exchange
Commission or any government authority which may be substituted
therefor, or with any national securities exchange.
13. EVENTS OF DEFAULT
If any of the following events (each an "Event of Default") occur,
Seller and Buyer shall have the rights set forth in Section 14, as applicable:
(a) Seller fails to satisfy or perform any material obligation or
covenant under this Agreement including the failure to perform on any Repurchase
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Date; and if such failure is not related to the payment of money or delivery of
additional Collateral pursuant to Section 4 above, such failure is not cured
within 3 Business Days;
(b) an Act of Insolvency occurs with respect to Seller;
(c) any representation made by Seller shall have been incorrect or
untrue in any material respect when made or repeated or deemed to have been made
or repeated;
(d) Seller shall admit its inability to, or its intention not to,
perform any of its obligations hereunder;
(e) any governmental, regulatory, or self-regulatory authority,
including, but not limited to, the Agencies, takes any action to remove, limit,
restrict, suspend or terminate the rights, privileges, or operations of the
Seller or any of its Affiliates, including suspension as an issuer, lender or
seller/servicer of mortgage loans, which suspension has a material adverse
effect on the ordinary business operations of Seller or Seller's Affiliate, and
which continues for more than 3 Business Days;
(f) Seller dissolves, merges or consolidates with another entity
(unless (A) it is the surviving party or (B) the entity into which it merges or
consolidates has equity and a market value of at least that of the Seller
immediately prior to such merger or consolidation and such entity expressly
assumes the obligations of the Seller at the time of such merger or
consolidation), or sells, transfers, or otherwise disposes of a material portion
of its business or assets;
(g) Buyer, in its good faith judgment, believes that there has been
a material adverse change in the business, operations, corporate structure or
financial condition of Seller or that Seller will not meet any of its
obligations under any Transaction pursuant to this Agreement, the Custodial
Agreement or any other agreement between the parties;
(h) Seller is in default under any other agreement for borrowed
money in an amount exceeding $1,000,000, provided, however, such a default shall
not constitute an Event of Default if the exercise of such remedies as are
available to Seller's counterparty with respect to such default would not result
in a material adverse change in the business operations or financial condition
of the Seller;
(i) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $100,000 is rendered
against the Seller, and the same remains undischarged or unpaid for a period of
sixty
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(60) days during which execution of such judgment is not effectively stayed or
appealed or the amount in question is not placed with an escrow agent;
(j) This Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased Mortgage Loans
purported to be covered hereby; or
(k) A Market Value Collateral Deficit or Securitization Value
Collateral Deficit occurs with respect to Seller or Buyer, as applicable, and is
not eliminated within the time period specified in Section 4(b).
14. REMEDIES
(a) If an Event of Default occurs with respect to Seller, the
following rights and remedies are available to Buyer:
(i) At the option of Buyer, exercised by written notice to
Seller (which option shall be deemed to have been exercised, even if
no notice is given, immediately upon the occurrence of an Act of
Insolvency), the Repurchase Date for each Transaction hereunder
shall be deemed immediately to occur,
(ii) If Buyer exercises or is deemed to have exercised the
option referred to in subsection (a)(i) of this Section,
(A) Seller's obligations hereunder to repurchase all
Purchased Mortgage Loans in such Transactions shall thereupon
become immediately due and payable,
(B) to the extent permitted by applicable law, the
Repurchase Price with respect to each such Transaction shall
be increased by the aggregate amount obtained by daily
application of, on a 360 day per year basis for the actual
number of days during the period from and including the date
of the exercise or deemed exercise of such option to but
excluding the date of payment of the Repurchase Price as so
increased, (x) the greater of the Prime Rate or the Pricing
Rate for each such Transaction to (y) the Repurchase Price for
such Transaction as of the Repurchase Date as determined
pursuant to subsection (a)(i) of this Section (decreased as of
any day by (I) any amounts actually in the possession of Buyer
pursuant to clause (C) of this subsection, (II) any proceeds
from the sale of Purchased Mortgage Loans applied to the
Repurchase Price pursuant to
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subsection (a)(xii) of this Section, and (III) any amounts
applied to the Repurchase Price pursuant to subsection
(a)(iii) of this Section), and
(C) all Income actually received by the Buyer or its
designee (including the Custodian) pursuant to Section 5 shall
be applied to the aggregate unpaid Repurchase Price owed by
Seller.
(iii) After one Business Day's notice to Seller (which notice
need not be given if an Act of Insolvency shall have occurred, and
which may be the notice given under subsection (a)(i) of this
Section), Buyer may (A) immediately sell, without notice or demand
of any kind, at a public or private sale and at such price or prices
Buyer may reasonably deem satisfactory any or all Purchased Mortgage
Loans subject to a Transaction hereunder or (B) in its sole
discretion elect, in lieu of selling all or a portion of such
Purchased Mortgage Loans, to give Seller credit for such Purchased
Mortgage Loans in an amount equal to the Market Value of the
Purchased Mortgage Loans against the aggregate unpaid Repurchase
Price and any other amounts owing by Seller hereunder. The proceeds
of any disposition of Purchased Mortgage Loans shall be applied
first to the costs and expenses incurred by Buyer in connection with
Seller's default; second to consequential damages, including but not
limited to costs of cover and/or related hedging transactions; third
to the Repurchase Price; and fourth to any other outstanding
obligation of Seller to Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to
purchase or sell all of the Purchased Mortgage Loans on a particular
Business Day, or in a transaction with the same purchaser, or in the
same manner because the market for such Purchased Mortgage Loans may
not be liquid. In view of the nature of the Purchased Mortgage
Loans, the parties agree that liquidation of a Transaction or the
underlying Purchased Mortgage Loans does not require a public
purchase or sale and that a good faith private purchase or sale
shall be deemed to have been made in a commercially reasonable
manner. Accordingly, Buyer may elect, in its sole discretion, the
time and manner of liquidating any Purchased Mortgage Loan and
nothing contained herein shall (A) obligate Buyer to liquidate any
Purchased Mortgage Loan on the occurrence of an Event of Default or
to liquidate all Purchased Mortgage Loans in the same manner or on
the same Business Day or (B) constitute a waiver of any right or
remedy of Buyer. However, in recognition of the parties' agreement
that the
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Transactions hereunder have been entered into in consideration of
and in reliance upon the fact that all Transactions hereunder
constitute a single business and contractual relationship and that
each Transaction has been entered into in consideration of the other
Transactions, the parties further agree that Buyer shall use its
best efforts to liquidate all Transactions hereunder upon the
occurrence of an Event of Default as quickly as is prudently
possible in the reasonable judgment of Buyer.
(v) Buyer shall, without regard to the adequacy of the
security for the Seller's obligations under this Agreement, be
entitled to the appointment of a receiver by any court having
jurisdiction, without notice, to take possession of and protect,
collect, manage, liquidate, and sell the Collateral or any portion
thereof, and collect the payments due with respect to the Collateral
or any portion thereof. Seller shall pay all costs and expenses
incurred by Buyer in connection with the appointment and activities
of such receiver.
(vi) Seller agrees that Buyer may obtain an injunction or an
order of specific performance to compel Seller to fulfill its
obligations as set forth in Section 25, if Seller fails or refuses
to perform its obligations as set forth therein.
(vii) Seller shall be liable to Buyer for the amount of all
expenses, reasonably incurred by Buyer in connection with or as a
consequence of an Event of Default, including, without limitation,
reasonable legal fees and expenses and reasonable costs incurred in
connection with hedging or covering transactions.
(viii) Buyer shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local
laws (including, without limitation, the rights and remedies of a
secured party under the Uniform Commercial Code of the State of New
York, to the extent that the Uniform Commercial Code is applicable,
and the right to offset any mutual debt and claim), in equity, and
under any other agreement between Buyer and Seller.
(ix) Buyer may exercise one or more of the remedies available
to Buyer immediately upon the occurrence of an Event of Default and,
except to the extent provided in subsections (a)(i) and (iii) of
this Section, at any time thereafter without notice to Seller. All
rights and remedies arising under this Agreement as amended from
time-to-time hereunder are cumulative and not exclusive of any other
rights or remedies which Buyer may have.
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(x) In addition to its rights hereunder, Buyer shall have the
right to proceed against any assets of Seller which may be in the
possession of Buyer or its designee (including the Custodian)
including the right to liquidate such assets and to set off the
proceeds against monies owed by Seller to Buyer pursuant to this
Agreement. Buyer may set off cash, the proceeds of the liquidation
of the Purchased Mortgage Loans, any Collateral or its proceeds, and
all other sums or obligations owed by Seller to Buyer against all of
Seller's obligations to Buyer, whether under this Agreement, under a
Transaction, or under any other agreement between the parties, or
otherwise, whether or not such obligations are then due, without
prejudice to Buyer's right to recover any deficiency. Any cash,
proceeds, or property in excess of any amounts due, or which Buyer
reasonably believes may become due, to it from Seller shall be
returned to Seller after satisfaction of all obligations of Seller
to Buyer.
(xi) Buyer may enforce its rights and remedies hereunder
without prior judicial process or hearing, and Seller hereby
expressly waives any defenses Seller might otherwise have to require
Buyer to enforce its rights by judicial process. Seller also waives
any defense Seller might otherwise have arising from the use of
nonjudicial process, enforcement and sale of all or any portion of
the Collateral, or from any other election of remedies. Seller
recognizes that nonjudicial remedies are consistent with the usages
of the trade, are responsive to commercial necessity and are the
result of a bargain at arm's length.
(xii) [reserved]
(xiii) Notwithstanding the foregoing remedies, if the Event of
Default (other than an Event of Default under Section 13(a)(xi))
arises from a breach of any representation or warranty set forth in
Sections 10(b)(iii), (v) or (ix) or in Exhibit V attached hereto
with respect to a Purchased Mortgage Loan, then Seller may elect to
cure such default by repurchasing such Mortgage Loan or substituting
for such Mortgage Loan within two (2) Business Days of such Event of
Default, provided, however, that (ii) any such substistuted
Collateral otherwise conforms to this Agreement and (ii) Seller
shall not have the right to make the foregoing election if such
breach causes a default with respect to Mortgage Loans that in the
aggregate represent ten percent (10%) or more of the aggregate
Purchase Price of all Purchased Mortgage Loans subject to then
outstanding Transactions. The repurchase price for any such
repurchase shall be the outstanding Repurchase Price of such
Mortgage Loan, as the case may be, less any Income received by
Buyer.
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Any such substitution shall be performed in accordance with Section
9 of this Agreement.
(b) If an Event of Default occurs with respect to Buyer, the
following rights and remedies are available to Seller:
(i) Upon tender by Seller of payment of the aggregate
Repurchase Price for all such Transactions, Buyer's right, title and
interest in all Purchased Mortgage Loans subject to such
Transactions shall be deemed transferred to Seller, and Buyer shall
deliver or cause to be transferred all such Purchased Mortgage Loans
to Seller or its designee at Buyer's expense.
(ii) If Seller exercises the option referred to in subsection
(b)(i) of this Section and Buyer fails to deliver or cause to be
delivered the Purchased Mortgage Loans to Seller or its designee,
after one Business Day's notice to Buyer, Seller may (A) purchase
Mortgage Loans ("Replacement Loans") that are as similar as is
reasonably practicable in characteristics, outstanding principal
amounts (as a pool) and interest rate to any Purchased Mortgage
Loans that are not delivered by Buyer to Seller or its designee as
required hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Loans, to be deemed to have purchased
Replacement Loans at a price therefor on such date, equal to the
Market Value of the Purchased Mortgage Loans.
(iii) Buyer shall be liable to the Seller, and Buyer shall pay
to the Seller on demand, (A) with respect to Purchased Mortgage
Loans (other than Additional Loans), for any excess of the price
paid (or deemed paid) by Seller for Replacement Loans therefor over
the Repurchase Price for such Purchased Mortgage Loans and (B) with
respect to Additional Loans, for the price paid (or deemed paid) by
Seller for the Replacement Loans therefor. In addition, Buyer shall
be liable to Seller for interest on such remaining liability with
respect to each such purchase (or deemed purchase) of Replacement
Loans calculated on a 360-day year basis for the actual number of
days during the period from and including the date of such purchase
(or deemed purchase) until paid in full by Buyer. Such interest
shall be at the greater of the Pricing Rate or the Prime Rate.
(iv) Buyer shall be liable to Seller for the amount of all
expenses reasonably incurred by Seller in connection with or as a
consequence of an Event of Default, including, without limitation,
reasonable legal expenses and reasonable expenses and losses
incurred in
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connection with covering existing hedging transactions with respect
to the Purchased Mortgage Loans.
(v) Seller shall have all the rights and remedies provided
herein, provided by applicable federal, state, foreign, and local
laws, in equity, and under any other agreement between Buyer and
Seller, including, without limitation, the right to offset any debt
or claim.
(vi) Seller may exercise one or more of the remedies available
to Seller immediately upon the occurrence of an Event of Default and
at any time thereafter without notice to Buyer. All rights and
remedies arising under this Agreement as amended from time-to-time
hereunder are cumulative and not exclusive of any other rights or
remedies which Seller may have.
15. ADDITIONAL CONDITIONS
Seller shall, on the date of the initial Transaction hereunder and,
upon the reasonable request of Buyer (but no more than once annually), on the
date of any subsequent Transaction, cause to be delivered to Buyer, with
reliance thereon permitted as to any Person that purchases the Purchased
Mortgage Loan from Buyer in a repurchase transaction, a favorable opinion or
opinions of counsel with respect to the matters set forth in Exhibit IV attached
hereto. In addition, on the date of the initial Transaction, Seller shall
execute a letter agreement with Buyer with respect to certain fees owed
hereunder and other matters reasonably required by Buyer.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and
will enter into each Transaction hereunder in consideration of and in reliance
upon the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries, and other transfers
made by either of them in respect of any Transaction shall be deemed to have
been made in consideration of payments, deliveries, and other transfers in
respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted; provided, however, that the parties hereto acknowledge and agree
that each Purchased Mortgage
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Loan is identified and unique and nothing in this Agreement should limit or
reduce Buyer's obligation to deliver the Purchased Mortgage Loans to Seller as
and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective
party to whom any written notice or other communication is to be given
hereunder, all such notices or communications shall be in writing or confirmed
in writing and delivered at the respective addresses set forth in the
Confirmation.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation and the
Custodial Agreement constitutes the entire understanding between Buyer and
Seller with respect to the subject matter it covers and shall supersede any
existing agreements between the parties containing general terms and conditions
for repurchase transactions involving Purchased Mortgage Loans. By acceptance of
this Agreement, Buyer and Seller acknowledge that they have not made, and are
not relying upon, any statements, representations, promises or undertakings not
contained in this Agreement. Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein
and shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
19. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by Seller without the prior written
consent of Buyer. Subject to the foregoing, this Agreement and any Transactions
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. Nothing in this Agreement express or implied,
shall give to any person, other than the parties to this Agreement and their
successors hereunder, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement.
20. TERMINABILITY
This Agreement shall terminate upon the earlier of (a) 30 days'
written notice from either party to the other to such effect or (b) 364 days
from the date hereof, except that this Agreement shall, notwithstanding the
clause above, remain applicable to any Transaction then outstanding.
Notwithstanding any such termination or the occurrence of an Event of Default,
(i) all of the representations and warranties
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hereunder (including those made in Exhibit V) and (ii) the covenants of Seller
made in subsection (g) of Section 12 shall each continue and survive.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
22. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction
of the United States District Court for the Southern District of New York, the
parties irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York; provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
23. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to exercise
any other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
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24. INTENT
The parties understand and intend that this Agreement and each
Transaction hereunder constitute a "repurchase agreement" and a "securities
contract" as those terms are defined under the relevant provisions of Title 11
of the United States Code, as amended.
25. SERVICING
(a) Notwithstanding the purchase and sale of the Purchased Mortgage
Loans hereby, Seller shall continue to cause the Purchased Mortgage Loans to be
serviced and special serviced by ___________ Mortgagor or another servicer
reasonably acceptable to Buyer, respectively, for the benefit of Buyer and, if
Buyer shall exercise its rights to pledge or hypothecate the Purchased Mortgage
Loan prior to the related Repurchase Date pursuant to Section 8, Buyer's
assigns; provided, however, that the obligations of Seller to service the
Purchased Mortgage Loans shall cease, at Seller's option, upon the payment by
Seller to Buyer of the Repurchase Price therefor. Seller shall cause the
Purchased Mortgage Loans to be serviced in accordance with the servicing
standards maintained by other prudent mortgage lenders with respect to mortgage
loans similar to the Purchased Mortgage Loans.
(b) Seller agrees that Buyer is the owner of all servicing records,
including but not limited to any and all servicing agreements, files, documents,
records, data bases, computer tapes, copies of computer tapes, proof of
insurance coverage, insurance policies, appraisals, other closing documentation,
payment history records, and any other records relating to or evidencing the
servicing of Purchased Mortgage Loans (the "Servicing Records"). Seller grants
Buyer a security interest in all servicing fees and rights relating to the
Purchased Mortgage Loans and all Servicing Records to secure the obligation of
the Seller or its designee to service in conformity with this Section and any
other obligation of Seller to Buyer. Seller covenants to safeguard such
Servicing Records and to deliver them promptly to Buyer or its designee
(including the Custodian) at Buyer's request and upon Event of Default.
(c) Upon the occurrence and continuance of an Event of Default,
Buyer may, in its sole discretion, (i) sell its right to the Purchased Mortgage
Loans on a servicing released basis or (ii) terminate the servicers of the
Purchased Mortgage Loans with or without cause, in each case without any
obligation on the part of Buyer to pay any termination fees owed by Seller.
(d) Seller shall not employ any servicers or special servicer other
than _____________, to service the Purchased Mortgage Loans without the prior
written approval of Buyer, which approval will not be unreasonably withheld.
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(e) Seller shall cause the servicer to execute a letter agreement
with Buyer acknowledging Buyer's security interest and agreeing that, upon
notice from Buyer (or the Custodian on its behalf) that an Event of Default has
occurred and in continuing hereunder, it shall deposit all Income with respect
to the Purchased Mortgage Loans in the account specified in the third sentence
of Section 5(a).
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case
of Transactions in which one of the parties is an "insured depository
institution" as that term is defined in Section 1831(a) of Title 12 of the
United States Code, as amended, funds held by the financial institution pursuant
to a Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation, the Savings Association Insurance
Fund or the Bank Insurance Fund, as applicable.
27. RESERVED
28. MISCELLANEOUS
(a) Buyer shall be authorized to accept orders and take any other
action affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by any person authorized to act on
behalf of the Seller.
(b) If there is any conflict between the terms of this Agreement or
any Transaction entered into hereunder and the Custodial Agreement, this
Agreement shall prevail.
(c) If there is any conflict between the terms of a Confirmation or
a corrected Confirmation issued by the Buyer and this Agreement, the corrected
Confirmation shall prevail.
(d) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(e) Seller agrees to reimburse Buyer for all reasonable costs and
expenses of Buyer in connection with this Agreement including, without
limitation, (i) the fees, expenses and disbursement of counsel to Buyer, (ii)
due diligence expenses and (iii) on-going auditing fees; provided that with
respect to the establishment of this Agreement, Seller shall be responsible for
up to $50,000 pursuant to this paragraph.
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(f) Seller and Buyer agree to maintain the confidentiality of this
Agreement and its terms and agree not to disclose this Agreement or its terms to
any other party except as required for the enforcement of its terms or as
required by law, regulatory requirements or court order or discovery. In the
event Seller determines, in consultation with legal counsel experienced in
securities regulation, that the Agreement must be filed with the Securities and
Exchange Commission pursuant to applicable law, such filing may only be made
after consultation with Buyer and agreement upon redaction of certain terms of
the Agreement (including, without limitation, the Pricing Spread), provided that
nothing herein is intended to prevent Seller from complying with applicable laws
and requirements of the Securities Act of 1933, as amended or regulations
promulgated thereunder.
(g) The headings in this Agreement are for convenience of reference
only and shall not affect the interpretation or construction of this Agreement.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the date set forth above.
LEHMAN COMMERCIAL PAPER INC.,
Buyer
By:
-----------------------------------------
Title:
Date:
FHB FUNDING CORP.,
Seller
By:
-----------------------------------------
Title:
Date:
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EXHIBITS
--------
EXHIBIT I Confirmation
EXHIBIT II Form of Custodial Delivery
EXHIBIT III Form of Power of Attorney
EXHIBIT IV Opinion of Counsel to Seller
EXHIBIT V Representations and Warranties Regarding Mortgage Loan
EXHIBIT VI Seller's Underwriting Guidelines
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EXHIBIT I
Form of Confirmation Letter
(date)
FHB Funding Corp.
- -------------------------------------
- -------------------------------------
- -------------------------------------
Attention:
--------------------------
Confirmation No.:
-------------------
Ladies/Gentlemen:
This letter confirms our oral agreement to purchase from you the
Mortgage Loans listed in Appendix I hereto, pursuant to the Master Repurchase
Agreement Governing Purchases and Sales of Mortgage Loans between us, dated as
of July __, 1998 (the "Agreement"), as follows:
Purchase Date:
Mortgage Loans to be Purchased: See Appendix I hereto.
[Appendix I to Confirmation Letter will list Mortgage Loans]
Aggregate Principal Amount of Purchased Mortgage Loans:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Collateral Amount Percentage with respect to Market Value:
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Names and addresses for communications:
Buyer:
Lehman Commercial Paper Inc.
200 Vesey Street
9th Floor
New York, New York 10285-0900
Attention: Central Funding Department
Seller:
FHB Funding Corp.
-------------------------------------
-------------------------------------
-------------------------------------
Attention:
--------------------------
LEHMAN COMMERCIAL PAPER INC.
By:
-----------------------------------------
Name:
Title:
Agreed and Acknowledged:
FHB FUNDING CORP.,
Seller
By:
-----------------------------------------
Name:
Title:
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EXHIBIT II
Form of Custodial Delivery
On this ____ day of ___________, 199__, FHB Funding Corp.
("Seller"), as the Seller under that certain Master Repurchase Agreement
Governing Purchases and Sales of Mortgage Loans, dated as of July __, 1998 (the
"Repurchase Agreement") between the Seller and Lehman Commercial Paper Inc.
("Buyer"), does hereby deliver to __________________ ("Custodian"), as custodian
under that certain Custodial Agreement, dated as of July, 1998, among Buyer,
Seller and Custodian the Mortgage Files with respect to the Mortgage Loans to be
purchased by Buyer pursuant to the Repurchase Agreement, which Mortgage Loans
are listed on the Mortgage Loan Schedule attached hereto and which Mortgage
Loans shall be subject to the terms of the Custodial Agreement on the date
hereof.
With respect to the Mortgage Files delivered hereby, for the
purposes of issuing the Trust Receipt, the Custodian shall review the Mortgage
Files to ascertain delivery of the documents listed in Annex A attached to the
Custodial Agreement.
[The Mortgage Loans delivered hereby constitute Additional
Collateral delivered pursuant to Section 7 of the Custodial Agreement].][The
Mortgage Loans delivered hereby constitute Substituted Collateral pursuant to
Section 6 of the Custodial Agreement and are intended to be substituted for the
Purchased Mortgage Loans listed on the [schedule attached hereto][Request for
Release of Documents and receipt delivered herewith]. The Purchased Mortgage
Loans to be released shall be delivered to _______________.]
Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in the Custodial Agreement.
IN WITNESS WHEREOF, the Seller has caused its name to be signed
hereto by its officer thereunto duly authorized as of the day and year first
above written.
FHB FUNDING CORP.,
Seller
By:
-----------------------------------------
Name:
Title:
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EXHIBIT III
Form of Power of Attorney
"Know All Men by These Presents, that FHB Funding Corp. ("Seller"),
does hereby appoint Lehman Commercial Paper Inc. ("Buyer"), its attorney-in-fact
to act in Seller's name, place and stead in any way which Seller could do with
respect to (i) the completion of the endorsements of the Mortgage Notes and the
Assignments of Mortgages, (ii) the recordation of the assignments of Mortgages
and (iii) the enforcement of the Seller's rights under the Mortgage Loans
purchased by Buyer pursuant to a Master Repurchase Agreement Governing Purchases
and Sales of Mortgage Loans dated as of July _, 1998 between Seller and Buyer
(the "Master Agreement") and to take such other steps as may be necessary or
desirable to enforce Buyer's rights against such Mortgage Loans, the related
Mortgage Files and the Servicing Records to the extent that Seller is permitted
by law to act through an agent. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Master Agreement.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES
THAT ANY THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS
INSTRUMENT MAY ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE
INEFFECTIVE AS TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE
OF SUCH REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY,
AND SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER'S ASSIGNS, HEREBY AGREES TO
INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL
CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY
HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be
executed and the Seller's seal to be affixed this __ day of July, 1998.
FHB FUNDING CORP.
(Seal)
By:
-----------------------------------------
Name:
Title:
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EXHIBIT IV
OPINION OF SELLER'S COUNSEL
40
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EXHIBIT V
Representations and Warranties
Regarding Mortgage Loans
The Seller represents and warrants to the Buyer that, with respect
to each Mortgage Loan sold in a Transaction hereunder, as of the related
Purchase Date:
(a) Mortgage Loans as Described. The information set forth in the
Mortgage Loan Schedule is complete, true and correct in all material respects;
(b) Payments Current Within 59 Days. The Mortgage Loan, together
with the other Purchased Mortgage Loans subject to Transactions, would not cause
the 30+ Delinquency Percentage to exceed 3.0%, and is not more than 59 days
Delinquent;
(c) No Outstanding Charges. There are no defaults in complying with
the terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
Seller has not advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required under the Mortgage Loan, except for
interest accruing from the date of the Mortgage Note or date of disbursement of
the Mortgage Loan proceeds, whichever is greater, to the day which precedes by
one month the due date of the first installment of principal and interest;
(d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
except by a written instrument which has been recorded, if necessary to protect
the interests of Buyer and which has been delivered to Buyer or its designee
(including the Custodian). The substance of any such waiver, alteration or
modification has been approved by the issuer of any related primary mortgage
guarantee policy (a "PMI Policy") and the title insurer, to the extent required
by the policy, and its terms are reflected on the Mortgage Loan Schedule. No
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the issuer of any related PMI Policy and the
title insurer, to the extent required by the policy, and which assumption
agreement is included in the Mortgage File delivered to Buyer or its designee
(including the Custodian);
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of
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usury, nor will the operation of any of the terms of the Mortgage Note or the
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, counterclaim or defense, including without limitation
the defense of usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(f) Insurance Policies in Effect. The fire and casualty insurance
policy covering the Mortgaged Property (1) affords (and will afford) sufficient
insurance against fire and such other risks as are usually insured against in
the broad form of extended coverage insurance from time to time available, as
well as insurance against flood hazards if the Mortgaged Property is an area
identified by the Federal Emergency Management Agency as having special flood
hazards; (2) is a standard policy of insurance for the locale where the
Mortgaged Property is located, is in full force and effect, and the amount of
the insurance is in the amount of the full insurable value of the Mortgaged
Property on a replacement cost basis or the unpaid balance of the Mortgage
Loans, whichever is less; (3) names (and will name) the present owner of the
Mortgaged Property as the insured; and (4) contains a standard mortgagee loss
payable clause in favor of Seller. All individual insurance policies with
respect to the Mortgage Loan are the valid and binding obligation of the insurer
and contain a standard mortgage clause naming Seller, its successors and
assigns, as Mortgagee. All premiums thereon have been paid. The Mortgage
obligates the Mortgagor thereunder to maintain all such insurance policies at
the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor;
(g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the origination and
servicing of the Mortgage Loan have been complied with, and Seller shall
maintain in its possession, available for Buyer's inspection, and shall deliver
to Buyer upon demand, evidence of compliance with all such requirements;
(h) No Satisfaction of Mortgage. The Mortgage has not been
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any such
release, cancellation, subordination or rescission;
(i) Location and Type of Mortgaged Property. The Mortgaged Property
is located in the state identified in the Mortgage Loan Schedule and consists
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of a parcel of real property with a detached single family residence erected
thereon, or a two- to four-family dwelling, or an individual condominium unit in
a condominium project, or an individual unit in a planned unit development and
no residence or dwelling is a mobile home or a manufactured dwelling which is
not permanently affixed to real property. No portion of the Mortgaged Property
is used for commercial purposes (except that up to 5% of the Purchased Mortgage
Loans can relate to mixed-use property);
(j) Valid First or Second Lien. The Mortgage is a valid, subsisting
and enforceable first or second lien on the Mortgaged Property, including all
buildings on the Mortgaged Property and all installations and mechanical,
electrical, plumbing, heating and air conditioning systems located in or annexed
to such buildings, and all additions, alterations and replacements made at any
time with respect to the foregoing.
The lien of the Mortgage is subject only to:
(1) the lien of current real property taxes and special
assessments not yet due and payable;
(2) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy
delivered to the originator of the Mortgage Loan and (i) referred to
or to otherwise considered in the appraisal made for the originator
of the Mortgage Loan or (ii) which do not adversely affect the
appraised value of the Mortgaged Property set forth in such
appraisal;
(3) in the case of a Mortgaged Property that is a condominium
or an individual unit in a planned unit development, liens for
common charges permitted by statute;
(4) in the case where the Mortgage Loan is secured by a Second
Mortgage (and represented on the Mortgage Loan Schedule as such),
the lien of the First Mortgage; and
(5) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document
related to and delivered in connection with the Mortgage Loan establishes and
creates a valid, subsisting and enforceable first or second lien and first or
second priority
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security interest on the property described therein and Seller has full right to
pledge and assign the same to Buyer or its designee (including the Custodian).
(k) Validity of Mortgage Documents. The Mortgage Note and the
Mortgage are genuine, and each is the legal, valid and binding obligation of the
maker thereof enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditor's generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law.) All
parties to the Mortgage Note and the Mortgage had legal capacity to enter into
the Mortgage Loan and to execute and deliver the Mortgage Note and the Mortgage,
and the Mortgage Note and the Mortgage have been duly and properly executed by
such parties. The Mortgagor is a natural person who is a party to the Mortgage
Note and the Mortgage in an individual capacity, and not in the capacity of a
trustee or otherwise;
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan
have been fully disbursed and there is no requirement for future advances
thereunder, and any and all requirements as to completion of any on-site or
off-site improvement and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making or closing
the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor
is not entitled to any refund of any amounts paid or due under the Mortgage Note
or Mortgage;
(m) Ownership. Seller is the sole owner of record and holder of the
Mortgage Loan. The Mortgage Loan is not assigned or pledged except as provided
in this Agreement, and Seller has good and indefeasible title thereto, and has
full right to pledge and assign the Mortgage Loan to Buyer or its designee
(including the Custodian) free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest, and
has full right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign each Mortgage Loan pursuant
to this Agreement (except a first lien where the Mortgage Loan is secured by a
second lien);
(n) Doing Business. To the best of Seller's knowledge, all parties
which have had any interest in the Mortgage Loan, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (1) in compliance with any and all
applicable licensing requirements of the laws of the state wherein the Mortgaged
Property is located, and (2) organized under the laws of such state, or (3)
qualified to do business in such state, or (4) federal savings and loan
associations or national banks having principal offices in such state, or (5)
not doing business in such state;
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(o) LTV. No Mortgage Loan has a Loan-to-Value Ratio of more than
100%.
(p) Title Insurance. The Mortgage Loan is covered by an ALTA
mortgage title insurance policy or such other form of policy acceptable to FNMA
or FHLMC, issued by and constituting the valid and binding obligation of a title
insurer generally acceptable to prudent mortgage lenders that regularly
originate or purchase mortgage loans comparable to the Mortgage Loans for sale
to prudent investors in the secondary market that invest in mortgage loans such
as the Mortgage Loans and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring Seller, its successors and assigns, as
to the first or second priority lien of the Mortgage, as applicable. Seller is
the sole named insured of such mortgage title insurance policy, the assignment
to Buyer or the Custodian as assignee of Buyer of Seller's interest in such
mortgage title insurance policy does not require the consent of or notification
to the insurer or the same has been obtained, and such mortgage title insurance
policy is in full force and effect and will be in full force and effect and
inure to the benefit of Buyer upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such mortgage
title insurance policy and no prior holder of the related Mortgage, including
Seller, has done, by act or omission, anything that would impair the coverage of
such mortgage title insurance policy;
(q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event which
to the best knowledge of Seller, with the passage of time or with notice and the
expiration of any grace or cure period, other than the failure to make, prior to
expiration of the applicable grace period, the monthly payment due immediately
prior to the related Purchase Date if such Purchase Date occurs prior to the
expiration of such grace period, would constitute a default, breach, violation
or event of acceleration, and neither Seller nor its predecessors have waived
any default, breach, violation or event of acceleration;
(r) No Mechanics' Liens. There are no mechanics' or similar liens or
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage except those that are stated in the title
insurance policy and for which related losses are affirmatively insured against
by such title insurance policy;
(s) Location of Improvements; No Encroachments. All improvements
which were considered in determining the appraised value of the Mortgaged
Property lay wholly within the boundaries and building restriction lines of the
Mortgaged Property and no improvements on adjoining properties encroach upon
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the Mortgaged Property except those that are stated in the title insurance
policy and for which related losses are affirmatively insured against by such
title insurance policy. No improvement located on or being part of the mortgaged
property is in violation of any applicable zoning law or regulation;
(t) Origination. The Mortgage Loan was originated, or purchased and
reunderwritten, by Seller. The documents, instruments and agreements submitted
for loan underwriting were not falsified and contain no untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the information and statements therein not misleading.
(u) Customary Provisions. The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by
judicial foreclosure. To the best knowledge of the Seller, there is no homestead
or other exemption available to a Mortgagor which would interfere with the right
to sell the Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage;
(v) Occupancy of the Mortgaged Property. As of the related Purchase
Date the Mortgaged Property is capable of being lawfully occupied under
applicable law. All inspections, licenses and certificates required to be made
or issued with respect to all occupied portions of the Mortgaged Property and,
with respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities. Either that the Mortgagor represented
at the time of origination of the Mortgage Loan that the Mortgagor would occupy
the Mortgaged Property as the Mortgagor's primary residence or second home or
the Mortgaged Property is capable of being occupied pursuant to terms that
approximate current standard market rental terms and rates;
(w) No Additional Collateral. The Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage and
the security interest of any applicable security agreement or chattel mortgage
referred to in (j) above;
(x) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by Buyer to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor;
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(y) [reserved];
(z) Purchase of Mortgage Documents. Each of the documents and
instruments included in the Mortgage File is duly executed and in due and proper
form and each such document or instrument is in a form generally acceptable to
prudent institutional mortgage lenders that regularly originate and purchase
mortgage loans;
(aa) Condominiums/Planned Unit Developments. If the Mortgaged
Property is a condominium unit or a planned unit development (other than a de
minimus planned unit development) such condominium or planned unit development
project meets FNMA eligibility requirements for sale to FNMA or is located in a
condominium or planned unit development project which has received FNMA project
approval and the representations and warranties required by FNMA with respect to
such condominium or planned unit development have been made and remain true and
correct in all respects;
(bb) Transfer of Mortgage Loans. The assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located;
(cc) Due on Sale. The Mortgage contains an enforceable provision for
the acceleration of the payment of the unpaid principal balance of the Mortgage
Loan in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the Mortgagee thereunder;
(dd) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
monthly payments are paid or partially paid with funds deposited in any separate
account established by Seller, the Mortgagor or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions currently in effect which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan
and the Mortgage Loan does not have a shared appreciation or other contingent
interest feature;
(ee) Consolidation of Future Advances. Any future advances made
prior to the Purchase Date have been consolidated with the outstanding principal
amount secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having first or second lien priority, as applicable, by a title insurance
policy or an endorsement to the policy insuring the mortgagee's consolidated
interest. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan;
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(ff) Mortgaged Property Undamaged. There is no proceeding pending or
threatened for the total or partial condemnation of the Mortgaged Property. The
Mortgaged Property is undamaged by waste, fire, earthquake or earth movement,
windstorm, flood, tornado or other casualty so as to affect adversely the value
of the Mortgaged Property as security for the Mortgage Loan or the use for which
the premises were intended;
(gg) Collection Practices; Escrow Deposits; Interest Rate
Adjustments. The origination and collection practices used with respect to the
Mortgage Loan have been in all respects in accordance with industry custom and
practice, and have been in all respects legal and proper. With respect to escrow
deposits and escrow payments, all such payments are in the possession of Seller
or servicer and there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made. All escrow
payments have been collected in full compliance with state and federal law. If
an escrow of funds has been established, it is not prohibited by applicable law
and has been established in an amount sufficient to pay for every item that
remains unpaid and has been assessed but is not yet due and payable. No escrow
deposits or escrow payments or other charges or payments due Seller have been
capitalized under the Mortgage or the Mortgage Note. All mortgage interest rate
adjustments have been made in strict compliance with state and federal law and
the terms of the related Mortgage Note. Any interest required to be paid
pursuant to state and local law has been properly paid and credited;
(hh) Conversion to Fixed Interest Rate. None of the Mortgage Notes
contain a provision allowing the Mortgagor to convert the Mortgage Note from an
adjustable interest rate Mortgage Note to a fixed interest rate Mortgage Note;
(ii) Appraisal. The Mortgage File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the originator of the
Mortgage Loan, who had no interest, direct or indirect in the Mortgaged Property
or in any loan made on the security thereof, other than as an employee of the
lender, and whose compensation is not affected by the approval or disapproval of
the Mortgage Loan, and the appraisal and appraiser both satisfy the requirements
of Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of
1989 and the regulations promulgated thereunder, all as in effect on the date
the Mortgage Loan was originated;
(jj) Soldiers' and Sailors' Relief Act. The Mortgagor has not
notified Seller, and Seller has no knowledge of any relief requested or allowed
to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940;
48
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(kk) Environmental Matters. The Mortgaged Property is free from any
and all toxic or hazardous substances and there exists no violation of any
local, state or federal environmental law, rule or regulation;
(ll) Second Mortgages. The Mortgage Loan, together with the other
Purchased Mortgage Loans subject to then outstanding Transactions does not cause
the aggregate Purchase Price of all Purchased Mortgage Loans which are secured
by Second Mortgages to exceed 30% of the aggregate Purchase Price for all
Purchased Mortgage Loans which are subject to then outstanding Transactions.
With respect to each Mortgage Loan secured by a Second Mortgage lien on the
related Mortgaged Property:
(A) if the Loan-to-Value Ratio is higher than 70%, either the
related First Mortgage does not provide for a balloon payment or the
maturity date of each Mortgage Loan with respect to which a First
Mortgage on the related Mortgaged Property provides for a balloon
payment is prior to the maturity date of the Mortgage Loan relating
to such first lien;
(B) the related first lien on any Mortgaged Property with
respect to which the related Mortgage Loan secured by a second lien
does not provide for negative amortization;
(C) either no consent for the Mortgage Loan secured by a
Second Mortgage on the related Mortgaged Property is required by the
holder of the related First Mortgage or such consent has been
obtained and is contained in the Mortgage File; and
(D) the related First Mortgage is not held by an individual
(to the extent the aggregate principal amount of Second Mortgages in
which the First Mortgage is held by an individual is in excess of 5%
of the aggregate principal amount of Mortgage Loans in the
facility);
(mm) Seller Origination. The Mortgage Loan was originated or
purchased and reunderwritten by Seller;
(nn) "C" Loans. In the event such Mortgage Loan is a "C" Loan, the
aggregate unpaid principal balance of such Mortgage Loan, together with the
other Purchased Mortgage Loans subject to then outstanding Transactions, does
not cause the aggregate Purchase Price of all Purchased Mortgage Loans which are
"C" Loans to exceed 20% of the aggregate unpaid principal balance for all
Purchased Mortgage Loans which are subject to then outstanding Transactions;
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(oo) No Construction Loans. No Mortgage Loan is a construction
loan;
(pp) Selection by Seller. No Mortgage Loan was selected for
inclusion under this Agreement on any basis which was intended to
have a material adverse effect on Buyer;
(qq) Manufactured Housing. No Mortgage Loans relate to a
manufactured housing unit which is not permanently affixed to real property. If
the Mortgage Loan relates to a permanently affixed manufactured housing unit or
mixed use property, such Mortgage Loan together with all other such Mortgage
Loans then subject to Transactions shall not exceed 3% of the aggregate Purchase
Price;
(rr) [reserved]
(ss) No Bankruptcy of Mortgagor. None of the Mortgage Loans are
subject to a bankruptcy plan; (tt) Conformance to Underwriting Standards. Each
Mortgage Loan conforms to the Seller's underwriting guidelines supplied to Buyer
by Seller, or is an approved exception thereto, provided that such exception
does not materially impact the value of such Mortgage Loan;
(uu) Qualified Mortgage. Each Mortgage Loan constitutes a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code;
(vv) [Reserved];
(ww) Balloon Mortgage Loans. If the Mortgage Loan is a Balloon
Mortgage Loan, such Mortgage Loan together with all other Balloon Mortgage Loans
subject to Transactions, does not exceed 20% of the aggregate Purchase Price;
(xx) Owner Occupied. In the event such Mortgage Loan relates to a
Mortgaged Property which is non-owner occupied, the Mortgage Loan, together with
the other Purchased Mortgage Loans subject to Transactions relating to Mortgaged
Properties which are non-owner occupied, does not exceed 20% of the aggregate
outstanding unpaid principal balance of all Purchased Mortgage Loans subject to
Transactions;
(yy) Payment Terms. With respect to adjustable rate Mortgage Loans,
the mortgage interest rate is adjusted annually or semi-annually on each
interest rate adjustment date to equal the index plus the gross margin, rounded
up or down to the nearest 1/8%, subject to the mortgage interest rate cap. With
respect to fixed rate Mortgage Loans, the Mortgage Note is payable each month in
equal monthly
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installments of principal and interest. With respect to adjustable rate Mortgage
Loans, installments of interest are subject to change due to the adjustments to
the mortgage interest rate on each interest rate adjustment date, with interest
calculated and payable in arrears, sufficient to amortize the Mortgage Loan
fully by the stated maturity date, over an original term of not more than thirty
years from commencement of amortization; and
(aaa) Wet Ink Mortgage Loans. In the event such Mortgage Loan is a
Wet Ink Mortgage Loan, the Mortgage Loan, together with the other Wet Ink
Mortgage Loans subject to then outstanding Transactions does not cause the
aggregate unpaid principal balance of all Purchased Mortgage Loans which are Wet
Ink Mortgage Loans to exceed $40,000,000.
It is understood and agreed that the representations and warranties
set forth in this Exhibit V shall survive delivery of the respective Mortgage
Files to the Custodian on behalf of Buyer.
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================================================================================
--------------------
WAREHOUSE CREDIT AGREEMENT
DATED AS OF APRIL 30, 1998
--------------------
AMONG
CONTITRADE SERVICES L.L.C.,
FIRSTCITY CONSUMER LENDING CORPORATION,
FIRSTCITY AUTO RECEIVABLES L.L.C.,
AND
FIRSTCITY FINANCIAL CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. DEFINITIONS.....................................................................................1
1.1. DEFINED TERMS...................................................................................1
SECTION 2. AMOUNT AND TERMS OF LENDER FUNDING COMMITMENT...................................................2
2.1. LENDER FUNDING COMMITMENT.......................................................................2
2.2. PROMISSORY NOTE.................................................................................2
2.3. AVAILABILITY OF BORROWINGS......................................................................2
2.4. INTEREST........................................................................................3
2.5. PRINCIPAL PAYMENTS ON THE LOAN..................................................................3
2.6. SECURITY AND COLLATERAL AGENT AGREEMENT.........................................................3
2.7. DEPOSITS TO COLLECTION ACCOUNT..................................................................4
2.8. PROCEEDS........................................................................................4
2.9. TAXES...........................................................................................4
SECTION 3. REPRESENTATIONS AND WARRANTIES..................................................................5
3.1. REPRESENTATIONS AND WARRANTIES OF BORROWER......................................................5
3.2. REPRESENTATIONS AND WARRANTIES OF FIRSTCITY CONSUMER............................................8
3.3. REPRESENTATIONS AND WARRANTIES OF FIRSTCITY FINANCIAL..........................................11
SECTION 4. CONDITIONS PRECEDENT...........................................................................13
4.1. CONDITIONS TO INITIAL ADVANCE..................................................................13
4.2. CONDITIONS TO EACH ADVANCE.....................................................................15
SECTION 5. RELEASE OF LIENS...............................................................................16
SECTION 6. AFFIRMATIVE COVENANTS..........................................................................16
6.1. FINANCIAL STATEMENTS...........................................................................16
6.2. CERTIFICATES; OTHER INFORMATION................................................................17
6.3. PAYMENT OF OBLIGATIONS.........................................................................17
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6.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE...............................................17
6.5. MAINTENANCE OF PROPERTY; INSURANCE.............................................................17
6.6. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS; AUDIT REPORTS..........................18
6.7. NOTICES........................................................................................18
6.8. DELIVERY OF OTHER REPORTS......................................................................19
6.9. APPROVAL OF NEW ORIGINATORS....................................................................19
6.10. FURTHER ASSURANCES.............................................................................19
6.11. COOPERATION IN MAKING CALCULATIONS.............................................................19
6.12. SECURITIZATION.................................................................................20
6.13. ADDITIONAL CREDIT SUPPORT......................................................................20
6.14. MINIMUM NET WORTH..............................................................................20
6.15. UNDERWRITING AND REVIEW........................................................................20
6.16. CERTAIN INFORMATION............................................................................20
6.17. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE...............................................20
6.18. NOTICES........................................................................................20
6.19. MAINTENANCE OF CONTROL.........................................................................21
6.20. FURTHER ASSURANCES.............................................................................21
6.21. MAINTENANCE OF CONTROL-BORROWER................................................................21
SECTION 7. NEGATIVE COVENANTS.............................................................................21
7.1. LIMITATION ON DEBT.............................................................................21
7.2. LIMITATION ON LIENS............................................................................21
7.3. LIMITATION ON FUNDAMENTAL CHANGES..............................................................22
7.4. SALE, TRANSFER OR ENCUMBRANCE OF ASSETS........................................................22
7.5. CONTRACTS......................................................................................22
7.6. LIMITATION ON DIVIDENDS........................................................................22
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7.7. LIMITATIONS ON BORROWER'S BUSINESS AND ACTIVITIES..............................................22
7.8. LIMITATION ON INVESTMENTS, LOANS AND ADVANCES..................................................23
7.9. TRANSACTIONS WITH AFFILIATES...................................................................23
7.10. SALE AND LEASEBACK.............................................................................23
7.11. CERTIFICATE OF FORMATION.......................................................................23
7.12. FISCAL YEAR....................................................................................23
7.13. LIMITATION ON NEGATIVE PLEDGE CLAUSES..........................................................23
7.14. ACTIVITIES OF BORROWER.........................................................................23
7.15. AGREEMENTS.....................................................................................24
7.16. BANK ACCOUNTS..................................................................................24
7.17. LOCKBOX PROVIDERS..............................................................................24
7.18. SUBORDINATED DEBT..............................................................................24
7.19. MARGIN SECURITIES..............................................................................24
7.20. NO COMMINGLING.................................................................................24
7.21. GUARANTEES.....................................................................................24
7.22. AMENDMENT OF FACILITY AGREEMENTS...............................................................24
7.23. POLICIES.......................................................................................25
7.24. MISCELLANEOUS..................................................................................25
SECTION 8. REMEDIES UPON DEFAULT..........................................................................25
8.1. ACCELERATION...................................................................................25
8.2. FILES..........................................................................................25
8.3. COLLECTIONS....................................................................................25
8.4. POWER OF ATTORNEY..............................................................................26
SECTION 9. FUNDING COMMITMENT OF FIRSTCITY................................................................26
9.1. FUNDING COMMITMENT.............................................................................26
9.2. FIRSTCITY FINANCIAL TO PROVIDE SUBORDINATE FINANCING...........................................27
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9.3. INDEMNIFICATION................................................................................27
SECTION 10. MISCELLANEOUS..................................................................................27
10.1. AMENDMENTS AND WAIVERS.........................................................................27
10.2. NOTICES........................................................................................28
10.3. NO WAIVER; CUMULATIVE REMEDIES.................................................................29
10.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................................29
10.5. PAYMENT OF EXPENSES AND TAXES..................................................................29
10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.........................................................30
10.7. TERMINATION....................................................................................31
10.8. COUNTERPARTS...................................................................................31
10.9. SEVERABILITY...................................................................................31
10.10. INTEGRATION; CONSTRUCTION......................................................................31
10.11. LIMITED LIABILITY..............................................................................31
10.12. GOVERNING LAW..................................................................................32
10.13. SUBMISSION TO JURISDICTION; WAIVERS............................................................32
10.14. ACKNOWLEDGEMENTS...............................................................................33
10.15. WAIVER OF JURY TRIAL...........................................................................33
</TABLE>
EXHIBITS
Exhibit A - Definition List
Exhibit B - Form of Promissory Note
Exhibit C - Notice of Borrowing
Exhibit D - Reserved
Exhibit E - Reserved
Exhibit F - Underwriting Guidelines
Exhibit G - Charge Off Policy
Exhibit H - Lockbox Agreement
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WAREHOUSE CREDIT AGREEMENT
WAREHOUSE CREDIT AGREEMENT, dated as of April 30, 1998 (this
"Credit Agreement"), by and among CONTITRADE SERVICES L.L.C., a Delaware limited
liability company ("Lender"), FIRSTCITY AUTO RECEIVABLES L.L.C., a Texas limited
liability company ("Borrower"), FIRSTCITY CONSUMER LENDING CORPORATION, a Texas
corporation ("FirstCity Consumer"), and FIRSTCITY FINANCIAL CORPORATION, a
Delaware corporation (together with the Borrower and FirstCity Consumer, the
"FirstCity Entities").
W I T N E S S E T H:
WHEREAS, Borrower desires to purchase certain Contracts from
time to time; and
WHEREAS, Borrower has requested that Lender make the Loan to
Borrower, the proceeds of which shall be used to purchase Contracts; and
WHEREAS, as security for its obligations under this Credit
Agreement, Borrower shall pledge the Collateral; and
WHEREAS, subject to the terms and conditions set forth herein,
Lender is willing to make the Loan to Borrower.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1. Defined Terms.
(a) As used in this Credit Agreement, the Promissory Note, the
Servicing Agreement, the Security and Collateral Agent Agreement, the Paying
Agent Agreement, the IBSA, or any certificate or other document made or
delivered pursuant hereto or thereto (collectively, the "Facility Agreements"),
the capitalized terms used herein and therein shall, unless otherwise defined
herein or therein, have the meanings assigned to them in the Definitions List
dated as of the date hereof that refers to this Credit Agreement, which is
incorporated herein by reference and attached as Exhibit A hereto (the
"Definitions List").
(b) As used herein or in any other Facility Agreement,
accounting terms not defined in the Definitions List and accounting terms partly
defined in the Definitions List to the extent not defined shall have the
respective meanings given to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Credit Agreement shall refer to this Credit
Agreement as a whole and not to any particular provision of this Credit
Agreement, and Section, subsection and Exhibit references are to this Credit
Agreement unless otherwise specified.
(d) Capitalized terms used herein or in any other Facility
Agreement shall be equally applicable to both the singular and plural forms of
such terms.
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SECTION 2. AMOUNT AND TERMS OF LENDER FUNDING COMMITMENT
2.1. Lender Funding Commitment.
(a) Subject to the terms and conditions hereof, Lender
agrees to make revolving credit loans (collectively, "Advances" or the "Loan",
and, individually, an "Advance") to Borrower from time to time during the
Commitment Period, as requested by the Borrower; provided, however, that in no
event shall Lender make any Advance, if (x) after giving effect to such Advance
the Outstanding Facility Balance would exceed either (i) the Maximum Loan Amount
or (ii) the Borrowing Base or (y) an Event of Default or an Unmatured Event of
Default shall have occurred and be continuing and not waived by Lender. Funds
may be borrowed, repaid and reborrowed on a revolving basis subject to the terms
and conditions set forth herein. The lending arrangement described herein is
referred to herein as the "Facility".
(b) The Facility will cancel automatically on the Commitment
Termination Date; provided, however, that the Borrower may request a renewal, in
writing (a "Renewal Request"), not more than 120 days prior to the Commitment
Termination Date; and provided, further, that the Lender must notify the
Borrower, in writing, by the later of (x) 30 days from receipt by the Lender of
the Renewal Request or (y) at least 60 days prior to the Commitment Termination
Date that it has elected to renew the Facility.
(c) If the Facility is not renewed pursuant to Section 2.1(b),
Lender shall extend the Facility 60 days if no Event of Default or Unmatured
Event of Default shall have occurred and be continuing and if the Borrower
delivers to the Lender (i) a commitment letter, acceptable to the Lender, for a
replacement warehouse loan facility from a financial institution acceptable to
the Lender or (ii) a guarantee, from a party acceptable to the Lender, of all
amounts payable under the Facility.
2.2. Promissory Note.
The Borrower shall, in connection with the Facility, execute
and deliver a promissory note, substantially in the form of Exhibit B hereto
(the "Promissory Note"), payable to the order of Lender. Borrower is obligated
to make payments to Lender as provided in this Agreement whether or not Borrower
has executed the Promissory Note. The actual amount Borrower is obligated to pay
the Lender shall be determined by this Agreement and the records of the Lender,
regardless of the terms of the Promissory Note. Any Promissory Note executed in
connection with the Facility need not be amended to reflect changes made to this
Agreement. The records of the Lender shall, absent demonstrable error, be
conclusive evidence at any time as to the amount of the Loan, the interest due
thereon, and all other amounts owed in connection with this Agreement with
respect to the Borrower. The Promissory Note shall (a) be dated the Closing
Date, (b) be stated to mature on the Commitment Termination Date and (c) provide
for the payment of interest in accordance with Section 2.4.
2.3. Availability of Borrowings.
Borrower may request an Advance on any Business Day during
the Commitment Period, subject to the provisions contained in Section 2.1, by
giving Lender, with a copy to the Collateral Agent, prior irrevocable notice of
each borrowing in the form of Exhibit C hereto ("Notice of Borrowing") by 11:00
A.M. (New York City time) on the second Business Day prior to a Borrowing Date
which shall specify (a) the Borrowing Date for such borrowing, (b) the
Outstanding Facility Balance on such date (prior to the making of the requested
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Advance), (c) the Borrowing Base applicable to such Advance, and (d) the
Available Facility Amount; provided, however, that Lender shall not be obligated
to make more than one Loan in any single calendar week. Subject to satisfaction
of the conditions precedent set forth in Section 4 hereof, the proceeds of such
Advance will be made available to Borrower by Lender by wire transfer of
immediately available funds to the Collection Account. The amount of such
Advance shall be paid out from the Collection Account as set forth in Section
2.03(a) of the Paying Agent Agreement.
2.4. Interest.
Interest shall accrue on the Outstanding Facility Balance at
a fluctuating rate per annum equal to (i) in the case of the Contracts
originated by FirstCity Funding or the N.A.F. Entities, LIBOR plus three percent
(3.00%) and (ii) in the case of Contracts originated by FirstCity Consumer
Finance, LIBOR plus one and one-half percent (1.50%). Interest accrued on the
Loans shall be paid monthly in arrears on the third day of each calendar month,
or if such day is not a Business Day the next succeeding Business Day,
commencing in the first calendar month following the Closing Date (each such
date, a "Payment Date"). Upon the occurrence, and during the continuance of, an
Event of Default, the Outstanding Facility Balance shall bear interest at the
rate per annum equal to LIBOR plus seven percent (7.00%); provided, however,
that no provision of this Agreement shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable law; and
provided, further, that interest shall not be considered paid by any
distribution if at any time such distribution is rescinded or must be returned
for any reason. Interest shall accrue on the basis of a 360-day year and the
actual number of days elapsed.
2.5. Principal Payments on the Loan.
(a) Other than as set forth in Section 2.03(a)(i), (ii) and
(iii) of the Paying Agent Agreement, the Borrower shall prepay the Loan with the
proceeds of a Securitization to at least an extent such that the Outstanding
Facility Balance (after such prepayment) does not exceed the Borrowing Base
(after taking into account the Contracts transferred from the Facility to the
Securitization). Any such prepayment shall be accompanied by payment of all
accrued and unpaid interest thereon and all fees and other amounts due to the
Lender hereunder through the date of such prepayment.
(b) Borrower shall pay the Outstanding Facility Balance,
together with any accrued and unpaid interest thereon, and any other sums due
pursuant to the terms hereof as set forth in Section 2.0(3)(a)(iv) and (v) of
the Paying Agent Agreement and otherwise on or before the Commitment Termination
Date.
2.6. Security and Collateral Agent Agreement.
The Facility is secured pursuant to a Security and
Collateral Agent Agreement, dated as of the date hereof (the "Security and
Collateral Agent Agreement"), among the Borrower, the Lender and Chase Bank of
Texas, National Association, as Collateral Agent (together with any successors
thereto, the "Collateral Agent").
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2.7. Deposits to Collection Account.
(a) Borrower shall cause the Paying Agent to establish on or
prior to the Closing Date, a bank account in the name of the Borrower (the
"Collection Account"), as set forth in Section 2.01 of the Paying Agent
Agreement. The Collection Account shall at all times be an Eligible Deposit
Account. All amounts held in such account shall, to the extent permitted by
applicable laws, rules and regulations, be invested by the Collateral Agent at
the written direction of the Borrower, in Permitted Investments which mature
prior to the following Payment Date, or such earlier date as may be specified by
the Borrower. Investments in Permitted Investments shall not be sold or
otherwise disposed of prior to their maturity unless (x) a Securitization or an
Event of Default shall have occurred and be continuing, (y) the Lender shall
have instructed the Borrower to sell or otherwise dispose of such investments
prior to their maturity or (z) as needed to fund the disbursements listed in
Section 2.03(a) of the Paying Agent Agreement. Should the Collection Account no
longer be an Eligible Deposit Account, then the Borrower shall within 10
Business Days (or such longer period, not to exceed 30 calendar days, as to
which the Lender shall consent), with such bank's or trust company's assistance
as necessary, cause the Collection Account to be moved to a bank or trust
company such that the Collection Account will be an Eligible Deposit Account.
Investment earnings on funds deposited in the Collection Account shall be
deposited in the Collection Account.
(b) The Servicer shall cause each Lockbox Provider to deposit,
within 1 Business Day of Receipt, all available Collections received by each
such Lockbox Provider into Wells Fargo Account #0221688385 (the "Lockbox
Account"). Within 2 Business Days of Receipt, the Servicer shall cause each
Lockbox Provider to transfer such payments into the Collection Account.
(c) All Collections received directly by the Borrower or the
Servicer shall be held by the Borrower or the Servicer, as applicable, in trust
for the benefit of the Lender. Borrower shall remit for deposit, and shall cause
the Servicer to remit for deposit, no later than the close of business on the
day received, such Collections in the Collection Account.
(d) Borrower may, from time to time, deposit cash and/or
deliver to the Paying Agent Permitted Investments to be credited to the
Collection Account.
2.8. Proceeds.
The proceeds of the Loan shall be used by Borrower solely to
finance the purchase or holding of Eligible Contracts, and to pay other amounts
expressly permitted under the terms and conditions of the Facility Agreements,
provided, however, if the Loan is prepaid, proceeds can be re-borrowed up to the
Available Facility Amount.
2.9. Taxes.
All payments made by Borrower under this Credit Agreement
and the Promissory Note shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority having taxing authority, excluding income taxes and
franchise taxes (imposed in lieu of income taxes) imposed on Lender, as a result
of any present or former connection between the jurisdiction of the government
or taxing authority imposing such tax or any political subdivision or taxing
authority thereof or therein and Lender (excluding a connection arising solely
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from Lender having executed, delivered or performed its obligations or received
a payment under, or enforced, this Credit Agreement or the Promissory Note) (all
such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to or under the Promissory Note, the amounts
so payable to Lender shall be increased to the extent necessary to yield to
Lender (after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Credit Agreement and
the Promissory Note. Whenever any Taxes are payable by Borrower, as promptly as
possible thereafter Borrower shall send to Lender a certified copy of an
original official receipt received by Borrower showing payment thereof. If
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to Lender the required receipts or other required documentary
evidence, Borrower shall indemnify Lender for any incremental Taxes, interest or
penalties that Lender is legally required to pay as a result of any such
failure. The agreements in this subsection shall survive the termination of this
Credit Agreement and the payment of the Promissory Note.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Borrower.
To induce Lender to enter into this Credit Agreement and to
make the Advances, Borrower hereby represents and warrants to Lender that:
(a) Existence; Compliance with Law. Borrower (i) is duly
organized, validly existing and in good standing under the laws of Texas, (ii)
has the power and authority, and the legal right, as a Texas limited liability
company, to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged, (iii) is
duly qualified as a foreign limited liability company, is in good standing and
has all licenses (in full force and effect) under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification and/or licensing and (iv) is in compliance
with all Requirements of Law.
(b) Power; Authorization; Enforceable Obligations. Borrower
has the power and authority, and the legal right, as a Texas limited liability
company, to make, deliver and perform this Credit Agreement and the other
Facility Agreements to which it is a party and to borrow hereunder and has taken
all necessary action to authorize the borrowings on the terms and conditions of
this Credit Agreement and the other Facility Agreements to which it is a party
and to authorize the execution, delivery and performance of this Credit
Agreement and the other Facility Agreements to which it is a party. All consents
or authorizations of, filing with or other act by or in respect of, any
Governmental Authority or any other Person required to be obtained, made or
given by it in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of this Credit Agreement or
the other Facility Agreements to which it is a party have been so obtained, made
or received. This Credit Agreement and each other Facility Agreement to which it
is a party has been duly executed and delivered on behalf of Borrower. This
Credit Agreement and each other Facility Agreement to which it is a party
constitutes a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
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general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
(c) No Legal Bar. The execution, delivery and performance of
this Credit Agreement and the other Facility Agreements, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of Borrower and will not result in, or require,
the creation or imposition of any Lien on any of its properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation other than the
Lien set forth herein.
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator, court or Governmental Authority is
pending or threatened, by or against Borrower or against any of its properties
or revenues (i) with respect to this Credit Agreement or the other Facility
Agreements or any of the transactions contemplated hereby or thereby, or (ii)
which could have a material adverse effect on the business, prospects,
properties, assets, operations or condition, financial or otherwise, of
Borrower, or the ability of Borrower to perform its obligations hereunder or
under the other Facility Agreements.
(e) No Default; No Event of Default. Borrower is not in
default under or with respect to any of its Contractual Obligations in any
respect which could have a material adverse effect on the business, operations,
properties, assets, condition or prospects, financial or otherwise, of Borrower,
or on the ability of Borrower to perform its obligations hereunder or under the
other Facility Agreements. No Event of Default or Unmatured Event of Default has
occurred or is continuing.
(f) No Burdensome Restrictions. Borrower is not a party to or
subject to any Contractual Obligation (other than the Facility Agreements) which
could have a material adverse effect on the business, properties, assets,
operations, condition or prospects, financial or otherwise, of Borrower, or on
the ability of Borrower to carry out its obligations hereunder or under the
other Facility Agreements.
(g) Taxes. Borrower has filed or caused to be filed all
federal, state and other tax returns which are required to be filed by it, or
has filed extensions with respect thereto (which extensions have not expired)
and has paid all taxes shown to be due and payable on said returns or on any
federal, state and other tax assessments made against it or any of its property
and all other taxes, fees or other charges imposed on it or any of its property
by any Governmental Authority having taxing power; no tax Lien has been filed
against it, and no claim is being asserted by any Governmental Authority with
respect to any such tax, fee or other charge.
(h) ERISA. Borrower has not participated in any Multiemployer
Plan. Borrower has not maintained any Single-Employer Plan.
(i) Investment Company Act; Other Regulations. Borrower is not
an "investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended. Borrower
is not subject to regulation under any federal or state statute or regulation
which limits its ability to incur Debt.
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(j) Subsidiaries. Borrower has no Subsidiaries, other than
Subsidiaries formed in connection with any Securitization.
(k) Purpose of Advances. The proceeds of the Advances shall be
used by Borrower to purchase Eligible Contracts and for other purposes expressly
permitted by the Facility Agreements.
(l) No Deduction. Borrower is not required to make any
deduction or withholding from payments to be made by it to Lender under this
Credit Agreement, and the execution and performance of this Credit Agreement and
any of the other Facility Agreements does not make Borrower liable for any
registration tax, stamp duty or similar tax or duty imposed by any authority of
or within its jurisdiction of creation, which tax or duty has not been, or will
not be, paid when due.
(m) No Other Debt. Borrower has no liability in respect of any
Debt or in respect of any guarantee by Borrower of the obligations of another
under which the lender, creditor or lessor or the Person in whose favor such
guarantee is given has any right, by operation of law or otherwise, to have any
claim in respect of such obligation or guarantee satisfied out of any assets of
Borrower, other than Subordinated Debt consented to by Lender in writing.
(n) Title; Liens. Except for the Liens granted to the Lender
pursuant to the Facility Agreements and any Subordinate Liens consented to by
the Lender in writing, Borrower owns each item of the Collateral free and clear
of any and all Liens or claims of others. No security agreement, financing
statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as may have
been filed in favor of the Lender pursuant to the Facility Agreements.
(o) Ownership of Contracts. Each purchase by Borrower of
Contracts constitutes a valid sale of the Contracts to Borrower and creates in
favor of Borrower a perfected ownership interest in and valid, legal and
equitable title to such Contracts, which ownership interest is not subject to
any Lien.
(p) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to Borrower and Borrower
is not insolvent or generally unable to pay its debts as they become due.
(q) Eligible Contracts. Each Contract is an Eligible Contract.
With respect to each such Contract, (i) no effective financing statement, lien
notation on any certificate of title or other instrument similar in effect
covering all or any part of such Contract or the security therefor, which would
give the Person filing, named on or entitled to the benefit of such statement or
instrument priority senior to or pari passu with the Borrower, is on file in any
recording office or is otherwise effective except such as may be filed in favor
of the Dealer, the related Originator or the Borrower and collaterally assigned
to Lender in accordance with the Facility Agreements; and (ii) the Vehicle,
including any equipment sold and financed in connection with such Contract, is
the subject of an application for a certificate of title to be issued in the
name of the Obligor which will indicate a security interest therein held by the
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Originators, and to be held in the possession of the Servicer, in the
appropriate form and in compliance with all appropriate procedures as may be
necessary under applicable law to cause a perfected and first priority security
interest to exist in favor of, or for the benefit of, the Borrower, to secure
the obligations of such Obligor under such Contract; and (iii) it is in
compliance with the Underwriting Criteria.
(r) Representations and Warranties in Facility Agreements. The
representations and warranties of the Borrower contained in each of the Facility
Agreements to which it is a party and in any document, certificate or instrument
delivered pursuant to any such Facility Agreement are true and correct and the
Lender may rely on such representations and warranties, if not made directly to
the Lender, as if such representations and warranties were made directly to the
Lender.
(s) Principal Place of Business. The Borrower's principal
place of business is located at 6400 Imperial Drive, Waco, Texas 76712.
3.2. Representations and Warranties of FirstCity Consumer.
To induce Lender to enter into this Credit Agreement and to
make the Loans, FirstCity Consumer hereby represents and warrants to Lender
that:
(a) Financial Condition. (i) The consolidated balance sheet of
FirstCity Consumer as of February 28, 1998 and reflecting all Closing Date
transactions is complete and correct and presents fairly the financial condition
of FirstCity Consumer as at such date. As of the Closing Date, FirstCity
Consumer does not have any Debt, contingent liability or liability for taxes, or
any long-term lease or unusual forward or long-term commitments, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction except to the extent reflected as a liability on the balance sheet
referred to above. Such balance sheet has been prepared in accordance with GAAP.
(ii) The consolidated balance sheet of FirstCity Funding as of
February 28, 1998 and reflecting all Closing Date transactions is
complete and correct and presents fairly the financial condition of
FirstCity Funding as at such date. As of the Closing Date, FirstCity
Funding does not have any Debt, contingent liability or liability for
taxes, or any long-term lease or unusual forward or long-term
commitments, including, without limitation, any interest rate or
foreign currency swap or exchange transaction except to the extent
reflected as a liability on the balance sheet referred to above. Such
balance sheet has been prepared in accordance with GAAP.
(b) Corporate Existence; Compliance with Law. FirstCity
Consumer (i) is duly organized, validly existing and in good standing under the
laws of Texas, (ii) has the power and authority, and the legal right, as a Texas
corporation, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (iii) is
duly qualified as a foreign corporation, is in good standing and has all
licenses (in full force and effect) under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification and/or licensing and (iv) is in compliance with all
Requirements of Law.
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(c) Corporate Power; Authorization; Enforceable Obligations.
FirstCity Consumer has the power and authority, and the legal right, as a Texas
corporation, to make, deliver and perform this Credit Agreement and the other
Facility Agreements to which it is a party and to borrow hereunder and has taken
all necessary action to authorize the borrowings on the terms and conditions of
this Credit Agreement and the other Facility Agreements to which it is a party
and to authorize the execution, delivery and performance of this Credit
Agreement and the other Facility Agreements to which it is a party. All consents
or authorizations of, filing with or other act by or in respect of, any
Governmental Authority or any other Person required to be obtained, made or
given by it in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of this Credit Agreement or
the other Facility Agreements to which it is a party have been so obtained, made
or received. This Credit Agreement and each other Facility Agreement to which it
is a party has been duly executed and delivered on behalf of FirstCity Consumer.
This Credit Agreement and each other Facility Agreement to which it is a party
constitutes a legal, valid and binding obligation of FirstCity Consumer
enforceable against FirstCity Consumer in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(d) No Legal Bar. The execution, delivery and performance of
this Credit Agreement and the other Facility Agreements, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of FirstCity Consumer and will not result in,
or require, the creation or imposition of any Lien on any of its properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation other
than the Lien set forth herein.
(e) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator, court or Governmental Authority is
pending or threatened, by or against FirstCity Consumer or against any of its
properties or revenues.
(f) No Default; No Event of Default. FirstCity Consumer is not
in default under or with respect to any of its Contractual Obligations in any
respect which could have a material adverse effect on the business, operations,
properties, assets, condition or prospects, financial or otherwise, of FirstCity
Consumer, or on the ability of FirstCity Consumer to perform its obligations
hereunder or under the other Facility Agreements. No Event of Default or
Unmatured Event of Default has occurred or is continuing.
(g) No Burdensome Restrictions. FirstCity Consumer is not a
party to or subject to any Contractual Obligation (other than the Facility
Agreements) which could have a material adverse effect on the business,
properties, assets, operations, condition or prospects, financial or otherwise,
of FirstCity Consumer, or on the ability of FirstCity Consumer to carry out its
obligations hereunder or under the other Facility Agreements.
(h) Taxes. FirstCity Consumer has filed or caused to be filed
all federal, state and other tax returns which are required to be filed by it,
or has filed extensions with respect thereto (which extensions have not expired)
and has paid all taxes shown to be due and payable on said returns or on any
federal, state and other tax assessments made against it or any of its property
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and all other taxes, fees or other charges imposed on it or any of its property
by any Governmental Authority having taxing power; no tax Lien has been filed
against it, and no claim is being asserted by any Governmental Authority with
respect to any such tax, fee or other charge.
(i) Investment Company Act; Other Regulations. FirstCity
Consumer is not an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended. FirstCity Consumer is not subject to regulation under any federal or
state statute or regulation which limits its ability to incur Debt.
(j) No Deduction. FirstCity Consumer is not required to make
any deduction or withholding from payments to be made by it to Lender under this
Credit Agreement, and the execution and performance of this Credit Agreement and
any of the other Facility Agreements does not make FirstCity Consumer liable for
any registration tax, stamp duty or similar tax or duty imposed by any authority
of or within its jurisdiction of creation, which tax or duty has not been, or
will not be, paid when due.
(k) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to FirstCity Consumer
and FirstCity Consumer is not insolvent or generally unable to pay its debts as
they become due.
(l) Eligible Contracts. Each Contract is an Eligible Contract.
With respect to each such Contract, (i) no effective financing statement, lien
notation on any certificate of title or other instrument similar in effect
covering all or any part of such Contract or the security therefor, which would
give the Person filing, named on or entitled to the benefit of such statement or
instrument priority senior to or pari passu with the Borrower, is on file in any
recording office or is otherwise effective except such as may be filed in favor
of the Dealer, the related Originator or the Borrower and collaterally assigned
to Lender in accordance with the Facility Agreements; and (ii) the Vehicle,
including any equipment sold and financed in connection with such Contract is
the subject of an application for a certificate of title to be issued in the
name of the Obligor which will indicate a security interest therein held by the
Originator and to be held in the possession of the Servicer, in the appropriate
form and in compliance with all appropriate procedures as may be necessary under
applicable law to cause a perfected and first priority security interest to
exist in favor of, or for the benefit of, to secure the obligations of such
Obligor under such Contract; and (iii) it is in compliance with each
Originator's Underwriting Criteria.
(m) Representations and Warranties in Facility Agreements. The
representations and warranties of FirstCity Consumer contained in each of the
Facility Agreements to which it is a party and in any document, certificate or
instrument delivered pursuant to any such Facility Agreement are true and
correct and the Lender may rely on such representations and warranties, if not
made directly to the Lender, as if such representations and warranties were made
directly to the Lender.
(n) Principal Place of Business. FirstCity Consumer's
principal place of business is located at 6400 Imperial Drive, Waco, Texas
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3.3. Representations and Warranties of FirstCity Financial.
To induce Lender to enter into the Credit Agreement and to
make the Advances, FirstCity Financial hereby represents and warrants to Lender
that:
(a) Corporate Existence; Compliance with Law. FirstCity
Financial (i) is duly organized, validly existing and in good standing under the
laws of Delaware, (ii) has the power and authority, and the legal right, as a
Delaware corporation, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(iii) is duly qualified as a foreign corporation and is in good standing and has
all licenses (in full force and effect) under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification and/or licensing and (iv) is in compliance
with all Requirements of Law.
(b) Corporate Power; Authorization; Enforceable Obligations.
FirstCity Financial has the power and authority, and the legal right, as a
Delaware corporation, to make, deliver and perform all obligations under this
Credit Agreement and has taken all necessary action to authorize its obligations
hereunder on the terms and conditions hereof to authorize the execution,
delivery and performance of this Credit Agreement. All consents or
authorizations of, filing with or other act by or in respect of, any
Governmental Authority or any other Person required to be obtained, made or
given by it in connection with its obligations hereunder or with the execution,
delivery, performance, validity or enforceability of this Credit Agreement have
been so obtained, made or received. This Credit Agreement has been duly executed
and delivered on behalf of FirstCity Financial. This Credit Agreement
constitutes a legal, valid and binding obligation of FirstCity Financial
enforceable against FirstCity Financial in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) No Legal Bar. The execution, delivery and performance by
FirstCity Financial of this Credit Agreement and its obligations hereunder will
not violate any Requirement of Law or Contractual Obligation of FirstCity
Financial and will not result in, or require, the creation or imposition of any
Lien on any of its properties or revenues pursuant to any such Requirement of
Law or Contractual Obligation.
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator, court or Governmental Authority is
pending or threatened, by or against FirstCity Financial or against any of its
properties or revenues (i) with respect to this Credit Agreement or any of the
transactions contemplated hereby, or (ii) which could have a material adverse
effect on the business, prospects, properties, assets, operations or condition,
financial or otherwise, of FirstCity Financial or the ability of FirstCity
Financial to perform its obligations hereunder.
(e) No Default; No Event of Default. FirstCity Financial is
not in default under or with respect to any of its Contractual Obligations in
any respect which could have a material adverse effect on the business,
operations, properties, assets, condition or prospects, financial or otherwise,
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of FirstCity Financial or on the ability of FirstCity Financial to perform its
obligations hereunder.
(f) No Burdensome Restrictions. FirstCity Financial is not a
party to or subject to any Contractual Obligation which could have a material
adverse effect on the business, properties, assets, operations, condition or
prospects, financial or otherwise, of FirstCity Financial, or on the ability of
FirstCity Financial to carry out its obligations hereunder or under the other
Facility Agreements.
(g) Taxes. FirstCity Financial has filed or caused to be filed
all federal, state and other tax returns which are required to be filed by it,
or has filed extensions with respect thereto (which extensions have not expired)
and has paid all taxes shown to be due and payable on said returns or on any
federal, state and other tax assessments made against it or any of its property
and all other taxes, fees or other charges imposed on it or any of its property
by any Governmental Authority having taxing power; no tax Lien has been filed
against it, and no claim is being asserted by any Governmental Authority with
respect to any such tax, fee or other charge except, in each case, for filings
which, if not made, taxes which, if not paid, and tax Liens which, if imposed,
would not, in the aggregate, have a material adverse effect on the business,
properties, assets, operations, condition or prospects, financial or otherwise,
of FirstCity Financial, or on the ability of FirstCity Financial to carry out
its obligations hereunder or under the other Facility Agreements.
(h) ERISA. Neither FirstCity Financial, nor any other person,
including any fiduciary, has engaged in any prohibited transaction (as defined
in section 4975 of the Code or section 406 of ERISA) which could subject
FirstCity Financial or any entity which they have an obligation to indemnify to
any material tax or penalty imposed under section 4975 of the Code or section
502(I) of ERISA. Each Employee Benefit Plan and Single-Employer Plan is
administered in accordance with its terms and compliance with all applicable
law. The projected benefit obligations of each Single-Employer Plan does not
exceed the fair market value of assets allocated to each such Single-Employer
Plan as of the end of the most recent plan year. There is no lien outstanding or
security interest given in connection with a Single-Employer Plan. Each member
of the ERISA Group has fulfilled its obligations under the minimum funding
standards of ERISA and the Code with respect to each Single-Employer Plan. No
member of the ERISA Group has incurred or expects to incur any liability under
Title IV of ERISA (other than the payment of premiums), or withdrawal liability
(contingent or otherwise) under a Multiemployer Plan. No Multiemployer Plan is
terminating, in Reorganization or insolvent within the meaning of section 4245
of ERISA. FirstCity Financial has no material liability for retiree medical and
life benefits (contingent or otherwise).
(i) Investment Company Act; Other Regulations. FirstCity
Financial is not an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended. Borrower is not subject to regulation under any federal or state
statute or regulation which limits its ability to incur Debt.
(j) No Deduction. FirstCity Financial is not required to make
any deduction or withholding from payments to be made by it to Lender under this
Credit Agreement and the execution and performance of this Credit Agreement and
any of the other Facility Agreements does not make FirstCity Financial liable
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for any registration tax, stamp duty or similar tax or duty imposed by any
authority of or within its jurisdiction of creation, which tax or duty has not
been, or will not be, paid when due.
(k) No Petition. There is no intent to file a voluntary
petition under the federal bankruptcy laws with respect to FirstCity Financial
and FirstCity Financial is not insolvent or generally unable to pay its debts as
they become due.
(l) Principal Place of Business. FirstCity Financial's
principal place of business is located at 6400 Imperial Drive, Waco, Texas
76712.
(m) Financial Condition. The audited, consolidated balance
sheet of FirstCity Financial as of December 31, 1997 and the related,
consolidated statements of income and of cash flows for the periods ended on
such date, are complete and correct and present fairly the financial condition
of FirstCity Financial as at such date, and the results of its operations and
its consolidated cash flows for the period then ended. Such financial statements
have been audited by KPMG Peat Marwick, FirstCity Financial's independent
certified public accountants. FirstCity Financial does not have, and at the date
of the December 31, 1997 balance sheet referred to above, did not have any
material Debt, material contingent liability or material liability for taxes, or
any long-term lease or unusual forward or long-term commitments, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction except (i) to the extent reflected as a liability on the balance
sheet referred to above or (ii) liabilities incurred in the ordinary course of
business since the date of such balance sheet and fully reflected on FirstCity
Financial's books of account. Since the date of the December 31, 1997 balance
sheet referred to above, there has been no material change in the condition or
prospects, financial or otherwise, of FirstCity Financial except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the period covered thereby.
(n) Tangible Net Worth Requirement. The Tangible Net Worth
Requirement is met.
SECTION 4. CONDITIONS PRECEDENT
4.1. Conditions to Initial Advance.
The agreement of Lender to fund the initial Advance is
subject to the satisfaction, immediately prior to or concurrently with the
making of such Loan on the Closing Date, of the following conditions precedent:
(a) Facility Agreements. Each of the Facility Agreements shall
have been duly executed and delivered by the parties thereto and Lender shall
have received executed copies thereof, and of such other documents or
instruments as may be reasonably requested by Lender.
(b) Organization; Incumbency. (i) Lender shall have received
copies of the certificate of formation of Borrower certified by the Secretary of
State or other appropriate official of the State of Delaware and the operating
agreement of Borrower certified as of the Closing Date as complete and correct
copies thereof by a Responsible Officer, (ii) good standing certificates for
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Borrower issued by the Secretary of State or other appropriate official of the
State of Delaware and each jurisdiction where the conduct of Borrower's business
activities or its ownership of properties makes qualification necessary and
(iii) a certificate of a Responsible Officer of Borrower, certifying the names
and true signatures of the officers of Borrower authorized to sign the Facility
Agreements to which it is a party.
(c) Credit Committee Approval. Lender shall have received the
approval of its credit committee with respect to the transactions contemplated
by the Facility Agreements.
(d) No Violation. The consummation of the transactions
contemplated hereby and by the other Facility Agreements shall not contravene,
violate or conflict with, nor involve Borrower in any violation of, any
Requirement of Law except to the extent that any such contravention, violation,
conflict or involvement would not adversely affect the transactions contemplated
hereby and by the other Facility Agreements.
(e) Legal Opinions. Lender shall have received the executed
legal opinion of counsel to Borrower, FirstCity Financial and FirstCity
Consumer, which shall be reasonably satisfactory to Lender and its counsel and
which shall address the security interest in the vehicles described in Section
3.1 (q)(ii) hereof.
(f) Collection Account. Borrower shall have caused the
Collection Account to be established.
(g) Lien Certificate. Lender shall have received a certificate
of a Responsible Officer of Borrower to the effect that the Collateral is not
subject to any Lien, except Liens created by the Facility Agreements.
(h) UCC Searches. Lender shall have received lien searches and
other evidence as to the absence of any Lien on or security interest in the
Collateral in form and substance satisfactory to Lender. Any termination
statements or releases requested by Lender to be filed with respect to the
Contracts shall have been filed.
(i) Filings. Lender shall have received acknowledgment copies
of proper financing statements, duly filed under the UCC of all jurisdictions
that Lender may deem necessary or desirable in order to perfect the security
interests created by this Credit Agreement and the other Facility Agreements and
all other filings, notifications, consents and recordings necessary to
consummate the transactions contemplated hereunder and under the other Facility
Agreements shall be accomplished and Lender shall have received evidence of such
filings, notifications, consents and recordings satisfactory in form and
substance to Lender.
(j) Lockbox Accounts. Borrower shall have established or
caused to have been established Lockbox Accounts in its name and the name of the
Lender and shall have received an executed Lockbox Agreement (a "Lockbox
Agreement") for each Lockbox Account from each Lockbox Provider. All Obligors
shall have been instructed to remit Collections to a Lockbox Account.
(k) Consents. Lender shall have received copies of all
consents, licenses and approvals, if any, required in connection with the
execution, delivery and performance by Borrower and the validity and
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enforceability against it of the Facility Agreements to which it is a party and
such consents, licenses and approvals shall be in full force and effect.
(l) Insurance. Lender shall have received evidence that the
Blanket Policy is in full force and effect.
(m) Servicer's Certificates. Lender shall have received a
certificate from the Servicer confirming the loss and delinquency status of the
portfolio immediately prior to Closing.
(n) No Default. Neither FirstCity Consumer nor the Borrower is
in default under any agreement to which either is a party.
(o) Due Diligence. Lender shall have had the opportunity to
conduct legal, financial, operational and key man due diligence on the FirstCity
Entities and FirstCity Financial.
(p) Servicing Agreement. Borrower, the Servicer, the Lender
and the Collateral Agent shall have entered into the Servicing Agreement.
4.2. Conditions to Each Advance.
The agreement of Lender to fund any Advance requested to be
made by it on any date (including, without limitation, the initial Advance) is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by Borrower and FirstCity Consumer in or
pursuant to any of the Facility Agreements, shall be true and correct on and as
of such date as if made on and as of such date.
(b) Notice of Borrowing. Borrower shall have delivered to
Lender a Notice of Borrowing within the time period specified in Section 2.3.
(c) Section 2.1 Requirements. After giving effect to the
Advance to be made on such day, the Outstanding Facility Balance does not exceed
either (x) the Maximum Loan Amount or (y) the Borrowing Base.
(d) Evidence of Pledge. Prior to the release of the proceeds
of such Advance in consideration of the Borrower's acquisition of any Contracts,
Lender shall have received a Borrowing Base confirmation from the Collateral
Agent not later than 12 noon, New York time, on the day on which such amounts
are to be released.
(e) Additional Documents. The Lender shall have received each
additional document, instrument, legal opinion or item of information reasonably
requested by Lender with respect of any aspect or consequence of the
transactions contemplated hereby or by any other Facility Agreement.
(f) Additional Matters. All proceedings, documents,
instruments and legal matters specified in subsection 4.1 hereof, or required
after the Closing Date, shall be satisfactory in form and substance to Lender.
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(g) Event of Default. No Event of Default or Unmatured Event
of Default shall have occurred and be continuing to occur.
Each borrowing by Borrower hereunder shall constitute a representation and
warranty by Borrower as of the date of such Loan that the conditions contained
in this subsection 4.2 have been satisfied.
SECTION 5. RELEASE OF LIENS
In connection with any payment of principal on the Facility,
upon receipt of a written request from the Borrower to the Lender, the Lender
shall take such actions as are necessary to release or cause the lien of the
Lender on the related Contract to be released and to cause the related Contract
Files to be returned to the Borrower; as used in this Section 5, the "related
Contracts" shall be those Contracts, specified by Borrower to be released from
this Facility; provided that, following such release and the related payment of
principal on the Facility, the Outstanding Facility Balance does not exceed the
Borrowing Base. Upon payment in full of all Obligations, termination of all
obligations of Lender to make Advances hereunder and expiration or termination
of this Credit Agreement, the Lender shall take such actions as are necessary to
release or cause the Lien of the Lender on the Collateral to be released and to
cause the Contract Files then held by the Collateral Agent to be returned to the
Borrower. To the extent the Borrower consummates a Securitization and so long as
the proceeds thereof are applied to repay Loans hereunder, the Lender shall take
such actions as are necessary to release the Lien of the Lender on the related
Collateral and shall instruct the Collateral Agent to deliver possession of the
related Contracts and Contract Files in the Collateral Agent's possession which
will be used as collateral for such securities.
SECTION 6. AFFIRMATIVE COVENANTS
FirstCity Consumer, FirstCity Financial and/or the Borrower
hereby agree that, so long as this Credit Agreement remains in effect, FirstCity
Consumer, FirstCity Financial and/or the Borrower shall:
6.1. Financial Statements.
FirstCity Financial shall furnish to Lender, commencing with
the year ending December 31, 1997:
(i) as soon as available, but in any event within 120 days after the
end of each fiscal year of FirstCity Financial a copy of the
audited consolidated balance sheet as at the end of such year and
the related audited consolidated statements of income and of cash
flows for such year, setting forth in each case in comparative
form the figures for the previous year and including all
footnotes thereto and management discussions and analysis
contained therein, audited by KPMG Peat Marwick or another
nationally recognized accounting firm acceptable to Lender (the
"Accountants").
(ii) as soon as available, but in any event not later than 60 days
after the end of each fiscal quarter of FirstCity Financial, the
unaudited consolidated balance sheet of FirstCity Financial and
the related audited consolidated statements of income and cash
flows of FirstCity Financial for such period and the portion of
the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year.
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(iii) as soon as available, but in any event not later than 20 days
after the end of each month, the unaudited consolidated balance
sheet of FirstCity Funding and FirstCity Consumer Finance as at
the end of such month and the related unaudited consolidated
statements of income for such period, setting forth in each case
in comparative form the figures for the previous year.
6.2. Certificates; Other Information.
FirstCity Consumer shall furnish to Lender:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the Accountants reporting on
such financial statements stating that (i) such audit was made in accordance
with GAAP and (ii) no knowledge was obtained of any Event of Default or
Unmatured Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsection 6.1, a certificate of a Responsible Officer stating
that each of FirstCity Consumer and the Borrower during such period has observed
or performed all of its covenants and other agreements, and satisfied every
condition contained in this Credit Agreement and the other Facility Agreements
to be observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Unmatured Event of Default or Event of Default,
except as specified in such certificate;
(c) copies of all financial statements, reports and other
communications that FirstCity Consumer or the Borrower may make to, or file or
have with, the SEC or any state securities commission contemporaneously with the
filing thereof;
(d) at the time of each securitization or whole-loan sale, a
comfort letter from the Accountants covering the loss and delinquency statistics
on the Servicer's servicing portfolio of the Borrower's contracts; and
(e) promptly, such additional financial and other information
as Lender may from time to time reasonably request.
6.3. Payment of Obligations.
The FirstCity Entities shall pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, each of their obligations (with a balance of $50,000 or more) of whatever
nature.
6.4. Conduct of Business and Maintenance of Existence.
The FirstCity Entities shall continue to engage in business
of the same type as now conducted by them and preserve, renew and keep in full
force and effect their existence and take all action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of their
business; and comply in all material respects with all Contractual Obligations
and Requirements of Law.
6.5. Maintenance of Property; Insurance.
The FirstCity Entities shall keep all property useful and
necessary in their business in good working order and condition; maintain, or
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cause to be maintained on their behalf, with financially sound and reputable
insurance companies, the Blanket Policy and insurance on all their property in
at least such amounts and against at least such risks as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and furnish to Lender, at least annually, and otherwise upon written
request, full information as to the insurance carried.
6.6. Inspection of Property; Books and Records; Discussions; Audit Reports.
FirstCity Consumer and the Borrower shall each
(a) keep proper books of records and account in which full,
true and correct entries in conformity with GAAP and all Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities; and permit representatives of Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records on
prior notice during normal business hours and to discuss the business,
prospects, operations, properties and financial and other condition of FirstCity
Financial with officers and employees of FirstCity Consumer and the Borrower and
with its independent certified public accountants.
(b) permit all accountants and auditors employed by FirstCity
Consumer and the Borrower at any time to exhibit and deliver to the Lender
copies of any and all of FirstCity Consumer's and the Borrower's financial
statements, trial balances or other accounting records of any sort in the
accountant's or auditor's possession and to disclose to the Lender any
information they may have concerning the Borrower's financial status and
business operations which the Lender may reasonably request. FirstCity Consumer
and the Borrower shall authorize all federal, state and municipal authorities to
furnish to the Lender copies of reports or examinations relating to FirstCity
Consumer or the Borrower, whether made by FirstCity Consumer, the Borrower or
otherwise.
(c) permit the Lender to conduct at any time and from time to
time, and fully cooperate with, field examinations and audits of the business
affairs of FirstCity Consumer and/or the Borrower. FirstCity Consumer shall
reimburse the Lender for all reasonable costs and expenses in connection with
such examinations.
(d) permit the Lender to inspect the Collateral, during normal
business hours and upon reasonable notice; the Borrower shall reimburse the
Lender for the reasonable expenses of the Lender in conducting any such
inspection.
(e) deliver promptly upon receipt thereof, one copy of each
other report submitted to the Borrower by its independent accountants, including
management letters and "comment" letters, in connection with any annual, interim
or special audit report made by them of the books of the Borrower.
6.7. Notices.
The Borrower or FirstCity Consumer shall promptly give
notice to Lender, the Collateral Agent and the Paying Agent of:
(a) the occurrence of any Event of Default or Unmatured Event
of Default;
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(b) any (i) default or event of default by Borrower or
FirstCity Consumer under any Contractual Obligation of Borrower or FirstCity
Consumer or (ii) litigation, investigation or proceeding which may exist at any
time affecting the Borrower or FirstCity Consumer and which is likely to result
in a material adverse change in the financial condition or business prospects of
the Borrower or of FirstCity Consumer;
(c) a material adverse change in the business, properties,
assets, operations, prospects or condition (financial or otherwise) of the
Borrower, FirstCity Consumer or FirstCity Financial; and
(d) any change in its principal place of business or chief
executive office from the address set forth in paragraph (v) of subsection 3.1.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the FirstCity Entities propose to take with respect
thereto.
6.8. Delivery of Other Reports.
The FirstCity Entities shall furnish any reports required to
be delivered by the FirstCity Entities pursuant to any Facility Agreement to
which any FirstCity Entity is a party or which any FirstCity Entity has signed.
6.9. Approval of New Originators.
The Originators are FirstCity Funding, FirstCity Consumer
Finance and the N.A.F. Entities. The FirstCity Entities shall not execute an
agreement with a new Originator unless they have received approval of the new
Originator and the new agreement from the Lender, which approval shall not be
unreasonably withheld. The Borrower shall inform the Collateral Agent in writing
of the approval by Lender of any new Originator.
6.10. Further Assurances.
The FirstCity Entities shall do such further acts and things
and execute and deliver to Lender such assignments, agreements, financing
statements, powers and instruments as are required by Lender to carry into
effect the purposes of this Credit Agreement and the other Facility Agreements
or to better assure and confirm unto Lender its rights, powers and remedies
hereunder and under the other Facility Agreements, including, without
limitation, to obtain such consents and give such notices, and to file and
record all such documents, financing statements and instruments, and renew each
such consent, notice, filing and recordation, at such time or times, in such
manner and at such places, as may be necessary or desirable to preserve and
protect the position of Lender hereunder and under the other Facility
Agreements. This covenant shall survive the termination of this Credit
Agreement.
6.11. Cooperation in Making Calculations.
The FirstCity Entities shall cooperate with Lender at all
times in the calculation of all formulas used in any Facility Agreement,
including, without limitation, delivering in written or electronic form any and
all data and other information as may be so required. The FirstCity Entities
hereby agree to provide all such information or data on or before each date,
without prior request by Lender, as required to make any such calculation, and
to provide such information and data in such form as may be immediately used by
Lender without further interpretation or purchase or license of any software.
The FirstCity Entities do hereby further agree that if they fail to provide any
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such information or data as required in this subsection 6.11, Lender may use any
estimate of any amount or calculation that it, in its sole discretion,
determines.
6.12. Securitization.
The Borrower shall use its best efforts to effect a
refinancing of the Loans through the issuance by Borrower or an Affiliate of
asset backed securities secured by Contracts (each such refinancing a
"Securitization") on a semi-annual basis.
6.13. Additional Credit Support.
The FirstCity Entities will deliver or cause to be delivered to the Lender any
and all subordinate securities (together with appropriate, fully-executed bond
powers and assignments) received by them or by any Affiliate of the FirstCity
Entities pursuant to any Securitization in order to create a first-priority,
perfected security interest therein in favor of the Lender.
6.14. Minimum Net Worth.
For so long as there are any Obligations to Lender, the
Borrower shall maintain at all times the Tangible Net Worth Requirement.
6.15. Underwriting and Review.
(a) FirstCity Consumer shall review each Contract for
compliance with each Originator's Underwriting Criteria.
The Borrower agrees to pay up to $20,000 per year in
additional fees and expenses of a third-party contract reviewer (such as Baker
and Associates); provided, that if any such review reveals material
inconsistencies in the application of each Originator's Underwriting Criteria,
the Lender may require additional reviews to be performed, all at the Borrower's
expense.
6.16. Certain Information.
FirstCity Financial shall furnish to Lender copies of all financial
statements, reports and other communications that FirstCity Financial may make
to, or file or have with, the SEC (contemporaneously with the filing thereof
with the SEC) pursuant to the Securities Exchange Act of 1934, as amended,
together with, promptly, such additional financial and other information as
Lender may from time to time reasonably request.
6.17. Conduct of Business and Maintenance of Existence.
FirstCity Financial shall continue to engage in business of the same type as
now conducted by it and preserve, renew and keep in full force and effect its
existence and take all action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business; and comply in all
material respects with all Contractual Obligations and Requirements of Law.
6.18. Notices.
FirstCity Financial shall promptly give notice to Lender of:
(a) the occurrence of any Event of Default or Unmatured Event
of Default, in either case, under this Credit Agreement;
(b) any (i) default or event of default by FirstCity under any
Contractual Obligation of FirstCity Financial or (ii) litigation, investigation
or proceeding which may exist at any time affecting FirstCity Financial, which,
in either case, is likely to have a material adverse effect on the financial
condition or prospects of FirstCity Financial or the ability of FirstCity
Financial to perform its obligations hereunder;
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(c) a material adverse change in the business, properties,
assets, operations, prospects or condition (financial or otherwise) of FirstCity
Financial.
(d) any change in its principal place of business or chief
executive office from the address set forth in Section 3.3(k) hereof. Each
notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action FirstCity proposes to take with respect thereto.
6.19. Maintenance of Control.
FirstCity Financial hereby covenants and agrees to maintain direct or indirect
ownership of (i) at least 100% of the issued and outstanding shares of capital
stock of FirstCity Consumer, (ii) 100% of the issued and outstanding shares of
capital stock of FirstCity Servicing Corporation of California, (iii) 100% of
the issued and outstanding shares of capital stock of FirstCity Consumer Finance
and (iv) at least 80% of the issued and outstanding shares of capital stock of
FirstCity Funding.
6.20. Further Assurances.
FirstCity Financial shall do such further acts and things and execute and
deliver to Lender such assignments, agreements, financing statements, powers and
instruments as are required by Conti to carry into effect the purposes of this
Commitment or to better assure and confirm unto Conti its rights, powers and
remedies hereunder, including, without limitation, to obtain such consents and
give such notices, and to file and record all such documents, financing
statements and instruments, and renew each such consent, notice, filing and
recordation, at such time or times, in such manner and at such places, as may be
necessary or desirable to preserve and protect the position of Conti hereunder.
This covenant shall survive the termination of Section 9 hereunder.
6.21. Maintenance of Control-Borrower.
FirstCity Financial hereby covenants and agrees that it or an Affiliate will
maintain direct or indirect ownership of 100% of membership interests in the
Borrower at all times.
SECTION 7. NEGATIVE COVENANTS
Each FirstCity Entity hereby agrees that, so long as this
Credit Agreement remains in effect, it shall directly or indirectly ensure that
the negative covenants set forth in this Section 7 are fully complied with,
except with the prior written consent of the Lender, in its sole discretion.
7.1. Limitation on Debt.
The Borrower shall not create, incur, assume or suffer to
exist any Debt, except (i) indebtedness in respect of the Loans, the Promissory
Note, and other obligations of the FirstCity Entities under the Facility
Agreements and, (ii) Subordinated Debt which is subordinated to the Obligations
on terms reasonably satisfactory to Lender.
7.2. Limitation on Liens.
The Borrower shall not create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, including, without
limitation, the Collateral, whether now owned or hereafter acquired, except
Subordinate Liens.
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7.3. Limitation on Fundamental Changes.
Neither the Borrower nor FirstCity Consumer, except as
expressly permitted by the Facility Agreements, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business.
7.4. Sale, Transfer or Encumbrance of Assets.
The Borrower shall not sell, lease, or otherwise dispose of,
move, relocate, or transfer, whether by sale or otherwise, any of its property,
business or assets, including, without limitation, the Collateral, (whether now
owned or hereafter acquired) except for (i) the movement of assets in the
ordinary course of business to locations disclosed in advance to Lender and
where Borrower has executed and tendered to Lender appropriate UCC-1 financing
statements for filing or taken other steps required to enable Lender to perfect
its lien and (ii) Securitizations.
7.5. Contracts.
(a) The Borrower shall not sell, assign or otherwise encumber
any Contract except as expressly permitted by the Facility Agreements; or
(b) The Borrower shall not cancel, terminate, amend, modify or
waive any term or condition of any Contract (including the granting of rebates
or adjustments with respect thereto), or the related certificates of title
except in accordance with the Credit and Collection Policy. 7.6. Limitation on
Dividends.
The Borrower shall not declare or pay any dividend on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of Borrower.
7.7. Limitations on Borrower's Business and Activities.
(a) The business to be conducted by the Borrower shall be
limited to the following: (i) acquiring, owning, purchasing, holding,
transferring, pledging and otherwise dealing with the Contracts; (ii) issuing,
transferring, assigning and financing the Promissory Note; (iii) transferring
the Borrower's right to any cash flow to the Lender; and (iv) engaging in any
other acts or activities to accomplish the foregoing.
(b) The Borrower shall not: (i) consolidate or merge with or
into any other entity or person or dissolve or liquidate or transfer its
properties and assets to any entity; (ii) hold itself out as being liable for
the debts of any other party, form any subsidiaries or act in any name other
than its own; (iii) except as provided in Section 7.20 hereof, commingle its
funds and assets with those of any other company; or (iv) file or otherwise
initiate (w) a voluntary petition for relief under any chapter of the Bankruptcy
Code, (x) a receivership, conservatorship or custodianship, (y) assignment for
the benefit of creditors or (z) any other bankruptcy or insolvency proceeding.
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7.8. Limitation on Investments, Loans and Advances.
Neither the Borrower nor FirstCity Consumer shall make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person,
except:
(a) purchases of Contracts;
(b) investments in Permitted Investments of funds, if any, on
deposit in the Collection Account; and
(c) capitalization of any special purpose entity formed for
the purpose of a Securitization.
7.9. Transactions with Affiliates.
The Borrower shall not enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate, except for transactions
expressly permitted by the Facility Agreements, and transactions in the ordinary
course of Borrower's business and which are upon fair and reasonable terms not
less favorable to Borrower than it would obtain in a comparable arm's length
transaction with a person that is not an Affiliate.
7.10. Sale and Leaseback.
The Borrower shall not enter into any arrangement with any
Person providing for the leasing by the Borrower of real or personal property
which has been or is to be sold or transferred by the Borrower to such Person or
to any other Person to whom funds have been or are to be advanced by such Person
on the security of such property or rental obligations of Borrower.
7.11. Certificate of Formation.
The Borrower shall not amend its Certificate of Formation.
7.12. Fiscal Year.
The Borrower shall not permit the fiscal year of Borrower to
end on a day other than December 31.
7.13. Limitation on Negative Pledge Clauses.
The Borrower shall not enter into any agreement with any
Person other than Lender which prohibits or limits the ability of Borrower to
create, incur, assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.
7.14. Activities of Borrower.
The Borrower shall not engage in any business or activity of
any kind, or enter into any transaction or indenture, mortgage, instrument,
agreement, contract, lease or other undertaking or expend any funds (other than
incidental expenses incurred in the ordinary course of business), which are not
directly related to the transactions contemplated and authorized hereby or by
the other Facility Agreements other than an agreement or other arrangement
approved in writing by Lender to share taxes of any affiliated, consolidated,
unitary, combined or similar group including Borrower, such approval not to be
unreasonably withheld.
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7.15. Agreements.
The Borrower shall not, except for the Facility Agreements,
and as expressly permitted by the Facility Agreements, become a party to, or
permit any of its properties to be bound by, any indenture, mortgage,
instrument, contract, agreement, lease or other undertaking, or issue any power
of attorney except to Lender except for instruments, contracts, agreements or
leases entered into in the ordinary course of the Borrower's business which are
necessary or desirable in furtherance of the transactions contemplated by the
Facility Agreements.
7.16. Bank Accounts.
The FirstCity Entities shall not, except as otherwise
permitted by this Credit Agreement, move the Bank Accounts from the institution
at which they are maintained on the Closing Date.
7.17. Lockbox Providers.
The FirstCity Entities shall not terminate any Lockbox
Provider or Lockbox Agreement pursuant to Section 4.1(j) hereof, or make any
change in its instructions to Obligors regarding payments to be made to the
Lockbox Provider, and shall not add any Lockbox Provider with respect to the
Contracts unless the Lender shall have received notice of such addition of any
Lockbox Provider and a Lockbox Agreement executed by Borrower, the Lender and
such Lockbox Provider shall have been delivered to the Lender; or deposit or
otherwise credit, or cause or permit to be so deposited or credited, Collections
to any Lockbox Account except the Lockbox Accounts and the Collection Account.
7.18. Subordinated Debt.
The Borrower shall not make or take any action to authorize
or effect any payment of principal on or in respect of any part or all of any
Debt that is by its terms subordinated to the Obligations or voluntarily prepay
any such Debt or otherwise repurchase, redeem or retire any instrument
evidencing any such Debt.
7.19. Margin Securities.
The Borrower shall not own, purchase or acquire (or enter
into any contract to purchase or acquire) any "margin security" as defined by
any regulation of the Federal Reserve Board as now in effect or as the same may
hereinafter be in effect.
7.20. No Commingling.
The Borrower shall maintain separate bank accounts and no
funds of the Borrower shall be commingled with funds of any other entity,
provided, however, that Lockbox funds from the FirstCity securitization dated as
of February 11, 1998, or any other FirstCity auto loan securitization, may be
commingled with funds deposited in the Lockbox hereunder. The Borrower shall not
maintain bank accounts other than those which have been identified in writing to
the Lender.
7.21. Guarantees.
None of the Borrower, FirstCity Consumer Finance or
FirstCity Funding will guarantee (directly or indirectly), endorse or otherwise
become contingently liable (directly or indirectly) for the obligations of, or
own or purchase any stock, obligations or securities of or any other interest
in, or make any capital contribution to, any other Person.
7.22. Amendment of Facility Agreements.
The FirstCity Entities will not amend the Facility
Agreements without the prior written approval of the Lender, such approval not
to be unreasonably withheld.
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7.23. Policies.
The FirstCity Entities shall not amend the Credit and
Collection Policy or each Originator's Underwriting Criteria without the prior
written approval of Lender, such approval not to be unreasonably withheld.
7.24. Miscellaneous.
(i) The Borrower will at all times hold itself out to the public
under the Borrower's own name and as a separate and distinct
entity from FirstCity Financial, FirstCity Funding, FirstCity
Consumer, FirstCity Consumer Finance, the N.A.F. Entities, and
FirstCity Servicing.
(ii) The Borrower will at all times be responsible for the payment of
all its obligations and indebtedness, will at all times maintain
a business office, records, books of account, and funds separate
from any other entity and will observe all customary formalities
of independent existence.
SECTION 8. REMEDIES UPON DEFAULT
8.1. Acceleration.
Upon the occurrence of one or more Events of Default (other
than pursuant to clause (e) of the definition of Event of Default), the Lender
may cease making Advances, and may immediately declare all or any portion of the
Obligations to be immediately due and payable. Upon such declaration, the
Obligations shall become immediately due and payable without presentation,
demand or further notice of any kind to the Borrower. Upon the occurrence of an
Event of Default specified in clause (e) of the definition of Event of Default,
the Lender shall immediately cease making Advances and the Obligations shall
automatically accelerate and become due and payable, without any further action
of the Lender. Upon acceleration of the Obligations for any reason, Borrower
shall thereupon be obligated to pay to Lender the Obligations then outstanding,
and Lender shall not be obligated to make any further Advance under this Credit
Agreement.
8.2. Files.
Upon the occurrence of one or more Events of Default, the
Lender shall have the right to obtain physical possession of the Collateral, on
a servicing-retained or servicing-released basis, as Lender may elect, together
with all files of Borrower relating to the Collateral and all documents relating
to the Collateral which are then or may thereafter come into the possession of
Borrower or any third party acting for Borrower, including the Collateral Agent
and the Servicer.
8.3. Collections.
Upon the occurrence of one or more Events of Default, Lender
may exercise all rights and remedies under each Contract, lease, security
agreement and other contract included among the Collateral as are afforded to
the secured party thereunder or which are otherwise afforded to Borrower
thereunder; Lender may, subject to the rights of Obligors, recover possession of
any tangible personal property under any Contract, and require that the same be
assembled and delivered to a specific location. Without limiting the foregoing,
the Lender shall have the right to give direction to the Servicer, replace or
remove the Servicer, collect and receive all further payments made on the
Collateral, to instruct the Obligors to make payments to a Lockbox Account or
other location designated by the Lender, to control deposits to and
disbursements from the Collection Account, to notify Lockbox Providers to follow
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the instructions of the Lender, and if any payments are received by Borrower,
the Borrower shall not commingle the amounts received with other funds of the
Borrower and shall promptly pay them over to the Lender. In addition, the Lender
shall have the right to dispose of all or any part of the Collateral as provided
in the other documents executed in connection herewith, or in any commercially
reasonable manner, or as provided by law. The Lender shall be entitled to place
the Contracts which it recovers after any default in a pool for issuance of
automobile loan receivable pass-through securities and to sell such securities
at the then prevailing price for such securities in the open market as a
commercially reasonable disposition of collateral subject to the applicable
requirements of the UCC. The Lender shall also be entitled to sell (on a
servicing-retained or servicing-released basis, as Lender may elect) any or all
of such Contracts individually for the prevailing price as a commercially
reasonable disposition of collateral subject to the applicable requirements of
the UCC and to retitle in Lender's or Lender's nominee's name, the subordinate
certificates referenced in Section 6.13 hereof. Any surplus which exists after
payment and performance in full of the Loans and any other Obligations which
arise hereunder shall be promptly paid over to Borrower or otherwise disposed of
in accordance with the UCC or other applicable law. The specification in this
subsection 8.3 of manners of disposition of collateral as being commercially
reasonable shall not preclude the use of other commercially reasonable methods
(as contemplated by the UCC) at the option of the Lender.
8.4. Power of Attorney.
Borrower hereby authorizes the Lender, at Borrower's
expense, to file such financing statement or statements relating to the
Collateral without Borrower's signature thereon as Lender at its option may deem
appropriate, and appoints the Lender as the Borrower's attorney-in-fact (but
without requiring the Lender to act) to execute any such financing statement or
statements in Borrower's name and to perform all other acts which the Lender
deems appropriate to perfect and continue the security interest granted hereby
and to protect, preserve and realize upon the Collateral, including, but not
limited to, the right to endorse notes and instruments, complete blanks in
documents and sign assignments on behalf of Borrower as its attorney-in-fact and
to prove and adjust any losses and to endorse any loss drafts under applicable
insurance policies. This power of attorney is coupled with an interest and is
irrevocable without the Lender's consent. Notwithstanding the foregoing, the
power of attorney hereby granted shall only be effective during the occurrence
and continuance of any Event of Default hereunder.
SECTION 9. FUNDING COMMITMENT OF FIRSTCITY
9.1. Funding Commitment.
(a) If, on any Payment Date, or any other date on which
amounts are due to the Lender hereunder (including, without limitation, in
connection with an acceleration of the Loan), the full amount then due to the
Lender is not received by the Lender on such date, FirstCity Financial shall,
within two Business Days of receipt by FirstCity Financial of written demand
from Lender, pay to Lender, in immediately available funds, the lesser of (i)
the amount of such shortfall and (ii) 25% of the aggregate Outstanding Contract
Balance of the Contracts which were subject to advances made by the Lender less
the Outstanding Contract Balance of any Contracts released by the Lender as of
the related Determination Date.
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(b) In furtherance of the foregoing, FirstCity Financial
hereby covenants and agrees with the Lender that FirstCity Financial shall (i)
monitor the Borrower's loan acquisition and securitization program (the
"Program") and each of the Facility Agreements, (ii) report to the Lender the
progress of such Program and compliance with the Facility Agreements, including,
without limitation, the Borrower's and FirstCity Financial's respective
reporting requirements under each of the Facility Agreements, as applicable, and
(iii) use its best efforts to take all other steps necessary to insure the
success of the Borrower's Program and each of the Borrower's and FirstCity
Financial's respective performances under each of the Facility Agreements, as
applicable, including, without limitation, compliance with the Borrower's and
FirstCity Financial's respective reporting obligations thereunder, including,
without limitation, the reporting of delinquency, default and loss information
with regard to the Contracts as well as the reporting of any default or
prospective default under any of the Facility Agreements.
9.2. FirstCity Financial to Provide Subordinate Financing.
FirstCity Financial hereby agrees and covenants with Lender
that FirstCity Financial shall provide sufficient Subordinate Financing in
connection with each securitization transaction with respect to the Contracts as
may be required by independent third parties (such as the Rating Agencies and/or
Credit Enhancer(s)), it being acknowledged that such level of Subordinate
Financing so determined by such independent third parties shall constitute a
"market" level.
9.3. Indemnification.
FirstCity Financial will indemnify Conti against any losses,
claims, damages or liabilities to which Conti may become subject in connection
with any matter related to or arising out of a default by FirstCity Financial
under this Commitment; provided, however, there shall be excluded from such
indemnification any such loss, claim, damage or liability which results from the
gross negligence or willful misconduct of Conti in performing the services which
it is to render pursuant to this Credit Agreement or the other Facility
Agreements.
SECTION 10. MISCELLANEOUS
10.1. Amendments and Waivers.
None of this Credit Agreement, the Promissory Note, any
other Facility Agreement to which Lender or Borrower is a party, nor any terms
hereof or thereof may be amended, supplemented or modified except in accordance
with the provisions of this subsection. Lender, the Collateral Agent and
Borrower may, from time to time, enter into written amendments, supplements or
modifications hereto and to the Promissory Note and the other Facility
Agreements to which they are parties for the purpose of adding any provisions to
this Credit Agreement or the Promissory Note or such other Facility Agreements
or changing in any manner the rights of Lender, the Collateral Agent or Borrower
hereunder or thereunder and, in addition, waiving, on such terms and conditions
as Lender may specify in such instrument, any of the requirements of this Credit
Agreement or the Promissory Note or such other Facility Agreements or any
Unmatured Event of Default or Event of Default and its consequences. Any such
waiver and any such amendment, supplement or modification shall be binding upon
Lender and all future holders of the Promissory Note. In the case of any waiver,
Lender and Borrower shall be restored to their former position and rights
hereunder and under the Promissory Note and any other Facility Agreements to
which they are parties, and any Unmatured Event of Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Unmatured Event of Default or Event of
Default, or impair any right consequent thereon.
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10.2. Notices.
Except where telephonic instructions or notices are
authorized herein to be given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing and shall be personally delivered or sent by
overnight courier service, or by registered, certified or express mail, postage
prepaid, return receipt requested, or by facsimile copy (accompanied by a
telephonic confirmation or receipt thereof), or telegram (with messenger
delivery specified in the case of a telegram) and shall be deemed to be
delivered for purposes of this Credit Agreement on: (a) the second Business Day
following the day on which such notice was placed in the custody of the U.S.
Postal Service, (b) the next Business Day following the day on which such notice
was placed in the custody of any overnight courier service, including express
mail service or (c) the same Business Day on which such notice is sent by
telegram, messenger or facsimile. Unless otherwise specified in a notice sent or
delivered in accordance with the foregoing provisions of this subsection,
notices, demands, instructions and other communications in writing shall be
given to or made upon the respective parties hereto at their respective
addresses (or to their respective facsimile numbers) indicated below, and, in
the case of telephonic instructions or notices, by calling the telephone number
or numbers indicated for such party below:
If to Borrower:
FirstCity Auto Receivables L.L.C.
Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
Facsimile Number: (817) 751-1757
Telephone Number: (817) 751-1750
Attention: Jim Moore
If to FirstCity Consumer:
Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
Facsimile Number: (817) 751-1757
Telephone Number: (817) 751-1750
Attention: Jim Moore
If to Lender:
ContiTrade Services L.L.C.
277 Park Avenue, 38th Floor
New York, New York 10172
Tel. No.: 212-207-2822
Telecopier No.: 212-207-2935
Attention: Chief Counsel
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10.3. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the
part of Lender; any right, remedy, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
10.4. Survival of Representations and Warranties.
All representations and warranties made hereunder and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Credit Agreement and
the Promissory Note.
10.5. Payment of Expenses and Taxes.
Borrower agrees, on demand, and except as otherwise
specifically set forth herein, to (a) pay or reimburse Lender and the Collateral
Agent for all out-of-pocket costs and expenses incurred in connection with the
preparation and execution of this Credit Agreement, the Promissory Note and the
other Facility Agreements and any other documents prepared in connection
herewith or therewith, and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, subject to the limitations in
Section 5.2 hereof, any and all collateral audit fees and the reasonable fees
and disbursements of counsel to Lender, (b) pay or reimburse Lender for all of
its costs incurred in connection with its due diligence review of Borrower and
all of its out-of-pocket expenses incurred in connection with the preparation,
negotiation and execution of the Facility Agreements, (c) pay or reimburse
Lender and the Collateral Agent for all out-of-pocket costs and expenses
incurred in connection with the preparation and execution of any amendment,
modification or supplement to this Credit Agreement, the Promissory Note and the
other Facility Agreements and any other documents prepared in connection
herewith or therewith, and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, any and all collateral audit
fees and the reasonable fees and disbursements of counsel to Lender, (d) pay or
reimburse Lender for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Credit Agreement, the
Promissory Note, the other Facility Agreements and any such other documents,
including, without limitation, reasonable fees and disbursements of counsel to
Lender, (e) pay, indemnify, and hold Lender, its directors, members, officers,
employees, agents and Affiliates, harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, any registration tax, stamp, duty and other similar taxes or
duties, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Credit Agreement, the Promissory Note,
the other Facility Agreements and any such other documents (other than income
taxes and franchise taxes), and (f) pay, indemnify, and hold Lender, its
directors, members, officers, employees, agents and Affiliates, harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Credit Agreement, the Promissory Note and
the other Facility Agreements (all the foregoing, collectively, the "indemnified
liabilities"), provided that Borrower has no obligation hereunder to the Lender
with respect to indemnified liabilities arising from the gross negligence or
willful misconduct of the Lender.
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10.6. Successors and Assigns; Participations.
(a) This Credit Agreement shall be binding upon and inure to
the benefit of Borrower and Lender, and all future holders of the Promissory
Note and their respective successors and assigns, except that Borrower may not
assign or transfer any of its rights or obligations under this Credit Agreement
and Lender, except as set forth in paragraph (b) below, may not assign or
transfer any of its rights or obligations under this Credit Agreement without
(except following the occurrence of, and during the continuance of, an Event of
Default) the prior consent of Borrower, which consent shall not unreasonably be
withheld; provided, however, that if Lender desires to assign, transfer, sell or
otherwise dispose of all of its right, title and interest in the Collateral or
the Obligations owed to it under the Facility Agreements to any institutional
investor pursuant to any repurchase agreement or similar arrangement, or to a
Subsidiary or Affiliate of Continental Grain Company, the consent of Borrower
shall not be required.
(b) Lender may, in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to it, the Promissory Note, the Facility or any
other interest of Lender hereunder and under the other Facility Agreements. In
the event of any such sale by Lender of participating interests to a
Participant, Lender's obligations under this Credit Agreement to the other
parties hereto shall remain unchanged, Lender shall remain solely responsible
for the performance thereof, Lender shall remain the holder of the Promissory
Note for all purposes under this Credit Agreement and the other Facility
Agreements, and Borrower shall continue to deal solely and directly with Lender
in connection with Lender rights and obligations under this Credit Agreement and
the other Facility Agreements. Borrower agrees that if amounts outstanding under
this Credit Agreement and the Promissory Note are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of the
Commitment Termination Date, each Participant shall be deemed to have the right
of setoff in respect of its participating interest in amounts owing under this
Credit Agreement and the Promissory Note to the same extent as if the amount of
its participating interest were owing directly to it under this Credit Agreement
or the Promissory Note. Borrower also agrees that each Participant shall be
entitled to the benefits of Subsections 2.9 and 9.5 with respect to its
participation in the Facility and the Loans outstanding from time to time;
provided, that no Participant shall be entitled to receive any greater amount
pursuant to such subsections than Lender would have been entitled to receive in
respect of the amount of the participation transferred by Lender to such
Participant had no such transfer occurred.
(c) Borrower authorizes Lender to disclose to any Participant
and any prospective Participant any and all financial information in its
possession concerning the Borrower and its Affiliates which has been delivered
to it by or on behalf of such Person pursuant to this Credit Agreement or which
has been delivered to it by or on behalf of such Person in connection with its
credit evaluation of Borrower and its Affiliates prior to becoming a party to
this Credit Agreement; provided such Participant agrees to keep such financial
information confidential unless required to be disclosed by applicable
Requirements of Law.
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(d) If, pursuant to this Subsection 10.6, any interest in this
Credit Agreement or the Promissory Note is transferred or assigned to any
Participant or assignee which is organized under the laws of any jurisdiction
other than the United States or any state thereof, Lender shall cause such
Participant or assignee, as a condition to the effectiveness of such transfer,
(i) to represent to Lender and Borrower that under applicable law and treaties
then in effect no taxes will be required to be withheld by Borrower or Lender
with respect to any payments to be made to such Participant or assignee, in
respect of the Loans, (ii) to furnish to Borrower either U.S. Internal Revenue
Service Form 4224 (or any successor form) or U.S. Internal Revenue Service Form
1001 (or any successor form) (wherein such Participant or assignee claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder) and (iii) to agree (for the benefit of Lender and
Borrower) timely to provide Lender and Borrower a new Form 4224 (or any
successor form) or Form 1001 (or any successor form) upon the expiration or
obsolescence of any previously delivered form and comparable statements in
accordance with and if permitted under applicable U.S. laws and regulations and
amendments then in effect duly executed and completed by such Participant or
assignee, and to comply from time to time with all applicable U.S. laws and
regulations with regard to such withholding tax exemption.
(e) Lender shall not grant to any Participant the right to
consent to any amendment or waiver entered into in accordance with subsection
10.1 except for any such amendment or waiver which would increase the Lender
Funding Commitment, or reduce the amount or extend the due date of any principal
of or interest on the Promissory Note.
10.7. Termination.
This Credit Agreement (except for Sections 10.4 and 10.5)
shall terminate following the Commitment Termination Date upon payment in full
of all outstanding principal, interest and other amounts due hereunder to
Lender.
10.8. Counterparts.
This Credit Agreement may be executed by one or more of the
parties to this Credit Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument.
10.9. Severability.
Any provision of this Credit Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10. Integration; Construction.
This Credit Agreement represents the agreement of Borrower
and Lender with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by Lender relative to the subject
matter hereof not expressly set forth or referred to herein or in the other
Facility Agreements.
10.11. Limited Liability.
No recourse under any Facility Agreement shall be had
against, and no personal liability shall attach to, any officer, employee,
director, member, affiliate, beneficial owner, trustee or shareholder of any
party hereto, as such, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise in respect of any of
the Facility Agreements, it being expressly agreed and understood that each
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Facility Agreement is solely a corporate or trust obligation of each party
hereto, and that any and all personal liability, either at common law or in
equity, or by statute or constitution, of every such officer, employee,
director, member, affiliate, beneficial owner, trustee or shareholder for
breaches by any party hereto of any obligations under any Facility Agreement is
hereby expressly waived as a condition of and in consideration for the execution
and delivery of this Agreement.
10.12. GOVERNING LAW.
THIS CREDIT AGREEMENT AND THE PROMISSORY NOTE AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS CREDIT AGREEMENT AND THE PROMISSORY
NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.
10.13. SUBMISSION TO JURISDICTION; WAIVERS.
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS CREDIT AGREEMENT AND THE OTHER FACILITY AGREEMENTS
TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT OF
THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH IN SUBSECTION 10.2 OR AT SUCH OTHER ADDRESS OF WHICH ALL OF
THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED
TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
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10.14. Acknowledgements.
Borrower and FirstCity Consumer each hereby acknowledge
that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Credit Agreement, the Promissory Note and the
other Facility Agreements;
(b) the Lender has no fiduciary relationship to Borrower or
FirstCity Consumer, and the relationship between Lender and Borrower is solely
that of debtor and creditor; and
(c) no joint venture exists between Borrower, FirstCity
Consumer and Lender.
10.15. WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS CREDIT
AGREEMENT OR THE PROMISSORY NOTE OR ANY OTHER FACILITY AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers, members or trustees as of the day and year
first above written.
FIRSTCITY AUTO RECEIVABLES L.L.C.
-----------------------------------------
By:
Name:
Title:
FIRSTCITY CONSUMER LENDING CORPORATION
-----------------------------------------
By:
Name:
Title:
FIRSTCITY FINANCIAL CORPORATION
-----------------------------------------
By:
Name:
Title:
CONTITRADE SERVICES L.L.C.
------------------------------------------
By:
Name:
Authorized Signatory
-------------------------------------------
Name:
Authorized Signatory
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EXHIBIT A
DEFINITIONS LIST
Adjusted Eligible Contract Balance: On any date, the amount
described in clause (y) of the definition of "Borrowing Base."
Advance: As defined in Subsection 2.1 of the Credit Agreement.
Advance Rate: For each Contract which is designated "tier 1,"
"tier 2," "tier 3" or "tier 4" under the Underwriting Criteria, 85%. For each
Contract originated by FirstCity Consumer, 95%.
Affiliate: As to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" or
"controlled" have meanings correlative to the foregoing. Notwithstanding the
foregoing, no "acquisition vehicle" (such as WAMCO XXIII, Ltd.) shall be
considered an "Affiliate" of FirstCity Financial or any FirstCity Entity.
Annual Percentage Rate: The annual rate of interest applicable
to each Contract, as disclosed therein.
Available Amount: As defined in Subsection 9.1(c).
Available Facility Amount: On any date, the excess, if any, of
(a) the Borrowing Base, as of such date, minus (b) the Outstanding Facility
Balance (not to exceed the Maximum Loan Amount).
Bank Accounts: Collectively, the Lockbox Account and the
Collection Account.
Bankruptcy Event: With respect to a Person, (a) such Person or
any of its Affiliates (if any) shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or such Person or any of its Affiliates shall
make a general assignment for the benefit of its creditors; or (b) there shall
be commenced against such Person or any of its Affiliates any case, proceeding
or other action of a nature referred to in clause (a) above which (i) results in
the entry of an order for relief or any such adjudication or appointment or (ii)
remains undismissed, undischarged or unbonded for a period of 60 days; or (c)
there shall be commenced against such Person or any of its Affiliates any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
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shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (d) such Person or any of its
Affiliates shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause (a),
(b), or (c) above; or (e) such Person or any of its Affiliates shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due.
Blanket Policy: An Insurance Policy maintained by the Borrower
and its assignees for "vendor's single interest" coverage with respect to each
Vehicle.
Borrower: FirstCity Auto Receivables L.L.C., a Texas limited
liability company.
Borrowing Base: As determined by the Collateral Agent pursuant
to Section 7.08(a)(v) of the Security and Collateral Agent Agreement, on any
day, an amount equal to the product of (x) the applicable Advance Rate and (y)
the Outstanding Contract Balance of all Contracts which are not Defaulted or
Liquidated, less the Outstanding Contract Balance of Contracts (a) as to which
the Collateral Agent has not confirmed that it has possession thereof and (b)
Contracts that do not have a certificate of title by the 121st day of its
origination.
Borrowing Date: Any Business Day specified in a notice
pursuant to subsection 2.3 of the Credit Agreement as a date on which Borrower
requests Lender to make Loans thereunder.
Business Day: A day of the year on which banks are not
required or authorized to close in New York City, New York, Wilmington,
Delaware, Dallas, Texas and Los Angeles, California.
Capital Stock: With respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to purchase any
of the foregoing.
Change of Control:
(i) Except with respect to a securitization contemplated by
the Facility Agreements, all or substantially all of any of the Borrowers',
FirstCity Funding's, FirstCity Consumer's or FirstCity Servicing's assets are
sold, leased, transferred or otherwise disposed of as an entirety or
substantially as an entirety (in one transaction or in a series of transactions)
to any Person or Persons which are not at least 80% owned, directly or
indirectly, by FirstCity Financial; or
(ii) the beneficial owners or trustees of either of the
FirstCity Entities consummate, or approve a definitive agreement or plan for:
(A) any merger, consolidation, exchange of certificates,
recapitalization, restructuring or other business combination with or into
another corporation or any sale of beneficial ownership of any of the Borrower,
FirstCity Funding, FirstCity Consumer or FirstCity Servicing (for purposes of
this definition, a "Transaction") pursuant to which (x) any of the Borrower,
FirstCity Funding, FirstCity Consumer or FirstCity Servicing will not survive,
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or (y) FirstCity Financial, directly or indirectly, will not hold at least 80%
of the beneficial interest in any of the Borrower, FirstCity Funding, FirstCity
Consumer or FirstCity Servicing after such Transaction, or (z) FirstCity
Financial, directly or indirectly, is entitled to receive any cash, securities
or other property, except any such Transaction as a result of which at least 80%
of the beneficial ownership of the surviving Person is owned, directly or
indirectly, by FirstCity Financial, or
(B) the liquidation or dissolution of any of the Borrower,
FirstCity Funding, FirstCity Consumer or FirstCity Servicing.
Closing Date: April 30, 1998.
Code: The United States Internal Revenue Code of 1986,
amended.
Collateral: As defined in Section 2 of the Security and
Collateral Agent Agreement.
Collateral Agent: Chase Bank of Texas, National Association,
acting in its capacity as Collateral Agent under the Security and Collateral
Agent Agreement and any successor Collateral Agent appointed pursuant to the
Security and Collateral Agent Agreement.
Collateral Agent Certification: As defined in Section
7.08(a)(i) of the Security and Collateral Agent Agreement.
Collection Account: The Collection Account maintained by the
Collateral Agent pursuant to the Paying Agent Agreement.
Collection Period: With respect to any Payment Date, the
calendar month (or portion of such calendar month, in the case of the first
Payment Date) immediately preceding such Payment Date.
Collections: All amounts (including, without limitation,
Recoveries) due and owing on, or otherwise received by Borrower in respect of
the Contracts and the Vehicles.
Commitment Period: The period from and including the date
hereof to but not including the Commitment Termination Date.
Commitment Termination Date: May 30, 1998; or such later date
to which the Commitment Termination Date may be extended pursuant to Section
2.1(b) of this Credit Agreement.
Computer Tape: A computer tape generated by the Borrower
containing, without limitation, the information set forth on the Contract List.
Conti: The Lender and its Affiliates.
ContiFinancial: ContiFinancial Services Corporation, a
Delaware Corporation.
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Contract: Each retail installment sale contract for a Vehicle
that was originated by an Originator, and all rights and obligations thereunder.
Contract File: Each original Contract, a record of the
information supplied by the Obligor in the original credit application, together
with any other documents relating thereto each of which are delivered to and
held by the Collateral Agent (including, but not limited to, the application for
title registration).
Contract List: Each schedule of Contracts delivered by
Borrower to Lender and the Collateral Agent with respect to each Borrowing Date
identifying, in such detail as such parties may require, each Contract being
purchased by Borrower, delivered to the Lender and, for so long as the Security
and Collateral Agent Agreement is in effect, the Collateral Agent, pledged by
Borrower to the Lender, organized by the name of the Obligor and the state in
which the Obligor's billing address is located and setting forth for each such
Contract: (i) a number identifying the Contract, (ii) the original amount
financed of such Contract, (iii) Annual Percentage Rate, (iv) the original
maturity of the Contract, (v) the remaining maturity of the Contract, (vi) the
amount of the Obligor's monthly payment, (vii) the purchase price of such
Contract, (viii) the name of the Obligor on such Contract, (ix) the address of
the Obligor on such Contract, (x) the Outstanding Balance of such Contract and
(xi) the name of the holder of the Lien on such Contract.
Contractual Obligation: As to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
Credit Agreement: This Warehouse Credit Agreement dated as of
April 30, 1998 among Borrower, Lender, FirstCity Consumer and FirstCity
Financial.
Credit and Collection Policy: The credit and collection policy
in effect as of the Closing Date.
Credit Enhancer: A monoline insurer, letter of credit bank or
other third- party supplier of credit enhancement, if any.
Dealer Assignment: Any agreement pursuant to which a Contract
or security interest in a Vehicle has been transferred, sold or assigned by a
Vehicle Dealer to Borrower (to an Originator and then assigned to Borrower).
Debt: Of a Person on any day, the sum on such day of (a)
indebtedness for borrowed money or for the deferred purchase price of property
or services, or evidenced by bonds, notes or other similar instruments, (b)
obligations as lessee under any operating leases and any leases which shall have
been or should be, in accordance with GAAP, recorded as capital leases, and (c)
obligations under direct or indirect guaranties in respect of, and obligations
(contingent or otherwise) to purchase or otherwise acquire, or otherwise to
assure a creditor against loss in respect of, indebtedness or obligations of
others of the kinds referred to in clause (a) or (b) above.
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Defaulted Contract: As of any Determination Date, any Contract
that as of the end of the preceding Collection Period (a) is classified by the
Borrower, on a contractual basis, as 61 or more days past due, or (b) with
respect to which the related Vehicle has been repossessed by Borrower and the
notice of intent to sell has expired, or (c) with respect to which the related
Vehicle has been voluntarily repossessed.
Delinquency Ratio: With respect to a Determination Date, the
aggregate Outstanding Contract Balances of all contracts in the Servicer's
entire servicing portfolio which are thirty-one (31) or more days past due as of
the end of the preceding Collection Period divided by the aggregate Outstanding
Contract Balances of all contracts in the Servicer's entire servicing portfolio
as of the end of such preceding Collection Period.
Delinquent Contract: Any Contract (a) that is classified by
the Borrower, on a contractual basis, as 31 or more days past due and (b) that
is not a Liquidated Contract.
Deposit Amount: means all funds deposited in the Collection
Account (i) by the Borrower, pursuant to Section 2.01(a)(iii) of the Paying
Agent Agreement or (ii) by the Lender, pursuant to Section 2.01(a)(i) of the
Paying Agent Agreement in each case (a) since the end of the immediately
preceding Collection Period and (b) which remain on deposit in the Collection
Account at the time of the Borrowing Base calculation is being made and, thus
have not been applied to the acquisition of Contracts.
Deposited Funds: On any day, all Principal Collections on
deposit in or otherwise to the credit of the Collection Account at the close of
business on the previous Business Day.
Determination Date: With respect to a Collection Period, the
tenth day following the end of such Collection Period.
Dollars and $: Lawful money of the United States of America.
Eligible Contract: On any day, a Contract (a) that arises from
the completed delivery of a Vehicle and which has been fully performed by
Borrower and the Dealer party thereto, (b) that arises from the normal course of
the Dealer's business, (c) that is not a Defaulted Contract, (d) that is not a
Delinquent Contract; (e) the Obligor of which is a natural person residing in
any state of the United States or the District of Columbia, (f) the Obligor of
which is not a government or governmental subdivision or agency, (g) the Obligor
of which has full power and capacity to enter into such Contract and perform his
or her obligations thereunder, (h) as to which the Obligor has executed and
delivered an original note that is in full force and effect and constitutes the
legal, valid and binding obligation of the Obligor in accordance with its terms,
(i) that is denominated and payable in Dollars in the United States, (j) that is
not subject to any dispute, litigation, counterclaim or defense, or any offset
or right of offset at the time of purchase by Borrower, (k) that has an original
term to maturity of not less than 24 nor more than 72 months, provided that no
more than 1% shall have original terms to maturity greater than 60 months, (l)
that provides for equal monthly payments which will cause the Contract to fully
amortize during its term, (m) that has an Annual Percentage Rate of not less
than the lesser of (A) 500 basis points over the two-year Treasury rate in
effect on the date of origination of such Contract and (B) the maximum interest
rate permissible by law with respect to such Contract, (n) that, together with
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the note applicable thereto, does not contravene any Requirements of Law
applicable thereto, (o) with respect to which all required consents, approvals
and authorizations have been obtained, (p) as to which the security interest in
the Vehicle securing such Contract has been recorded in the name of Originator
and which security interest is in full force and effect and subject to no prior
or equal liens, claims or encumbrances, (q) which was originated using each
Originator's Underwriting Criteria, (r) that requires the Borrower to be named
as loss payee or beneficiary (as applicable) under an insurance policy with
respect to the Vehicle financed by such Contract and entitles the Borrower to
the benefits of such insurance policy (s) that, if such Contract is a Modified
Contract, the Lender has not given the Borrower notice that such Contract is to
be excluded as not being an Eligible Contract and (t) as to which the Collateral
Agent has issued a Collateral Agent's Certification listing no exceptions.
Eligible Deposit Account: Either (i) a segregated account with
an Eligible Institution or (ii) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the States thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution have a credit rating acceptable
to the Lender.
Eligible Institution: A depository institution organized under
the laws of the United States of America or any one of the States thereof or the
District of Columbia (or any domestic branch of a foreign bank), (A) which has
either (1) a long-term unsecured debt rating of at least AA by S&P and Aa by
Moody's or otherwise acceptable to the Lender or (2) a short-term unsecured debt
rating or certificate of deposit rating of at least A-1 by S&P and P-1 by
Moody's or otherwise acceptable to the Lender and (B) whose deposits are insured
by the FDIC.
Employee Benefit Plan: Any plan, agreement, arrangement or
commitment which is an employee benefit plan, as defined in section 3(3) of
ERISA, maintained by FirstCity Consumer or with respect to which FirstCity
Consumer has any liability or obligation to contribute.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
ERISA Group: FirstCity Financial and any entity required to be
aggregated with the FirstCity Consumer under Section 414(b), (c), (m) or (o) of
the Code.
Event of Default: The occurrence of any of the following
events:
(a) Borrower fails to pay when due any amount payable under
the Credit Agreement.
(b) Any representation or warranty made or deemed made by
Borrower or FirstCity Consumer, in any capacity which is contained in
the Facility Agreements or in any agreement, written report or written
information furnished at any time under or required by the Facility
Agreements shall prove to have been false or incorrect on or as of the
date made or deemed made, which remains uncured for five Business Days
following FirstCity Consumer's receipt of notice thereof, and which is
likely to have a material, adverse effect on the financial condition or
business prospects of the Borrower or of FirstCity Consumer.
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(c) (i) Borrower (x) defaults in any payment of principal of
or interest on any Debt, beyond the period of grace, if any, provided
in the instrument or agreement under which such Debt was created or (y)
defaults in the observance or performance of any agreement or condition
contained in any instrument or agreement to which it is a party or by
which its property or assets are bound, which remains uncured for five
Business Days following the Borrower's and FirstCity Consumer's receipt
of notice thereof.
(ii) FirstCity Consumer (x) defaults in any payment
of principal of or interest on any Debt, beyond the period of grace, if
any, provided in the instrument or agreement under which such Debt was
created and which has an outstanding principal balance of $50,000 or
more or (y) defaults in the observance or performance of any agreement
or condition contained in any instrument or agreement to which it is a
party or by which its property or assets are bound, which remains
uncured for five Business Days following FirstCity Consumer's receipt
of notice thereof, and which is likely to have a material adverse
effect on the financial condition or business prospects of FirstCity
Consumer.
(iii) FirstCity Financial (x) defaults in any payment
of principal of or interest on any Debt, beyond the period of grace, if
any, provided in the instrument or agreement under which such Debt was
created and which has an outstanding principal balance of $50,000 or
more or (y) defaults in the observance or performance of any agreement
or condition contained in any instrument or agreement to which it is a
party or by which its property or assets are bound, which remains
uncured for five Business Days following FirstCity Financial's receipt
of notice thereof, and which is likely to have a material adverse
effect on the financial condition or business prospects of FirstCity
Financial; provided, however, that only payments due from FirstCity
Financial, if any, with respect to any acquisition partnership shall
apply with respect to this provision.
(d) For any reason, Borrower shall cease to have a valid and
perfected first priority ownership interest in the Contracts or Lender
shall cease to have a valid and perfected first priority security
interest in the Collateral or any other collateral pledged under the
Facility Agreements or any other Operative Document shall cease to be
in full force and effect or cease to be the legal, valid, binding and
enforceable obligation of any party thereto.
(e) A Bankruptcy Event shall occur with respect to any of the
FirstCity Entities.
(f) One or more judgments or decrees (in the case of FirstCity
Consumer, in an aggregate amount in excess of $50,000) shall have been
entered against any FirstCity Entity which is not paid, bonded, stayed
or covered by insurance, provided, that this clause shall not apply to
actions relating to individual Contracts, unless a material portion of
the Contracts is affected.
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(g) Borrower or FirstCity Consumer becomes liable for
environmental remediation or compliance expenses or fines, penalties or
other charges related to environmental matters in excess of $50,000.
(h) (i) FirstCity Consumer or any other person engages in a
transaction in connection with which FirstCity Consumer or any entity
which it has an obligation to indemnify could be subject to liability
for either a civil penalty assessed pursuant to section 502(I) of ERISA
or a tax imposed by section 4975 of the Code; (ii) any "accumulated
funding deficiency" (as defined in Section 302 of ERISA or Section 412
of the Code), whether or not waived, shall exist with respect to any
Single Employer Plan, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lender,
likely to result in the termination of such Plan for purposes of Title
IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, (v) any member of the ERISA Group shall, or in
the reasonable opinion of Lender is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization
of, a Multiemployer Plan or (vi) any other event or condition shall
occur or exist, with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other
such events or conditions, if any, could subject Borrower or any ERISA
Affiliate to any tax, penalty or other liabilities which are materially
adverse to the business, operations, prospects, property or financial
or other condition of FirstCity Consumer.
(i) Any financial statement delivered pursuant to the Facility
Agreements and reported on by any independent certified public
accountants shall contain any qualification or exception, or
qualification arising out of the scope of the audit.
(j) A material adverse change from the date hereof in the
business, properties, operations, prospects or financial or other
condition of Borrower, FirstCity Consumer, or FirstCity Financial as
determined by Lender in its reasonable, good faith business judgment.
(k) A material adverse change from the date hereof in the
collectibility of the Contracts taken as a whole.
(l) Borrower or FirstCity Consumer becomes an "investment
company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(m) Borrower shall fail to provide any information required to
be provided by Sections 6.1 and 6.2 of this Credit Agreement by the
time required thereby.
(n) Borrower or FirstCity Consumer shall default in the
observance or performance of any other term, condition or covenant
under the Facility Agreements and such failure to observe or perform
continues for five Business Days.
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(o) As of any Determination Date, the Rolling Delinquency
Ratio is greater than or equal to 15%.
(p) As of any Determination Date, the Delinquency Ratio is
greater than or equal to 20%.
(q) The Net Loss Ratio is greater than or equal to, on an
annualized basis, 19% during April, May or June 1998, 16% during July,
August or September 1998, and 13% thereafter.
(r) As of any Determination Date, the average of the Recovery
Percentages for the three preceding Collection Periods is less than
40%.
(s) As of any date, the Outstanding Facility Balance exceeds
the Borrowing Base.
(t) A Change of Control shall occur.
(u) The aggregate principal amount of Contracts originated by
FirstCity Consumer is less than $20,000,000 for the first six months
following the Closing Date.
(v) Borrower fails to observe the financial covenant set forth
in Section 6.14 of the Credit Agreement.
(w) FirstCity Financial fails to observe the covenant set
forth in Section 6.17 of the Credit Agreement.
(x) Any default occurs under the Servicing Agreement.
(y) Any FirstCity Entity shall default in the observance or
performance of any term, condition or covenant in any other Facility
Agreement and such failure to observe or perform continues for five
Business Days.
(z) Any default by FirstCity Consumer under the IBSA.
Facility: As defined in Section 2.1(a) of this Credit
Agreement.
Facility Agreements: The collective reference to the Credit
Agreement, the Promissory Note, the Security and Collateral Agent Agreement, the
Servicing Agreement, the IBSA, and any other agreement or instrument related or
delivered to any party to any of the foregoing pursuant to or in connection with
any of the foregoing.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereof.
File: With respect to each Contract to be purchased by
Borrower:
(a) the original Dealer Assignment;
(b) the fully executed original of the Contract;
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(c) documents evidencing or related to any Insurance
Policy with respect to a Vehicle;
(d) the original or a copy of the credit application of the
Obligor, fully executed by such Obligor, such application to be in a
form substantially similar to that included in the Credit and
Collection Policy;
(e) where permitted by law, the original certificate of title
and otherwise such documents, if any, that the Servicer keeps on file
in accordance with its customary procedures and the Credit and
Collection Policy indicating that the Vehicle is owned by the Obligor
and subject to the interest of Borrower as first lienholder or secured
party; and
(f) any and all other documents that Borrower, Collateral
Agent or Servicer keeps on file in accordance with its procedures
relating to the Contract, Obligor or Vehicle.
Finance Charges: Interest charges, late charges, and other
fees, charges and similar items with respect to Contracts.
FirstCity Consumer: FirstCity Consumer Lending Corporation, a
Texas corporation.
FirstCity Consumer Finance: FirstCity Consumer Finance
Corporation, a Texas corporation.
FirstCity Entities: The Borrower, FirstCity Consumer,
FirstCity Financial and all subsidiaries (including trusts) of FirstCity
Consumer.
FirstCity Financial: FirstCity Financial Corporation, a
Delaware corporation.
FirstCity Funding: FirstCity Funding Corporation, a Texas
corporation.
GAAP: Generally accepted accounting principles in effect from
time to time in the United States of America.
Governmental Authority: Any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
IBSA: The Investment Banking Services Agreement dated as of
May 17, 1996 between National Auto Funding Corporation and ContiFinancial, as
amended.
Insolvency: With respect to any Multiemployer Plan, the
condition that such plan is insolvent within the meaning of Section 4245 of
ERISA.
Interest Period: With respect to any Payment Date, the prior
calendar month.
A-10
<PAGE>
Lender: ContiTrade Services L.L.C.
Lender Commitment: $50,000,000, or such other amount agreed
upon in writing by Borrower and Lender.
LIBOR: With respect to any Advance, (x) through the end of the
Interest Period in which such Advance is made, one-month LIBOR on the related
Borrowing Date, and (y) for subsequent Interest Periods, one-month LIBOR on the
first day of such Interest Period, in either case as published on such date in
the Wall Street Journal.
Lien: Any lien, mortgage, security interest, pledge,
hypothecation, charge, equity, encumbrance or right of any kind whatsoever
(except any lien, mortgage, security interest, pledge, hypothecation, charge,
equity, encumbrance or right of any kind granted under the Credit Agreement with
respect to the Contracts).
Liquidated Contract: A Contract which is a charged off
Contract, according to the charge-off policy attached hereto as Exhibit G.
Loan: As defined in subsection 2.1 of the Credit Agreement.
Lockbox Account: The Wells Fargo Account #022168835 into which
each Lockbox Provider deposits all available Collections.
Lockbox Agreement: The Lockbox Agreement attached hereto as
Exhibit H.
Lockbox Provider: Fiserv Corporation.
Maximum Loan Amount: At any time, the lesser of (a)
$50,000,000 and (b) the Borrowing Base.
Modified Contract: As defined in Section 2.2(b) of the
Servicing Agreement.
Moody's: Moody's Investors Service, Inc.
Multiemployer Plan: A "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any member of the ERISA Group is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
N.A.F. Entities: N.A.F. Auto Loan Trust, a Delaware business
trust and National Auto Funding Corporation, a Texas corporation.
Net Loss. For a Collection Period, the remaining Contract
Balance of any Contracts liquidated during such period, less any Recoveries
received during such period on Contracts liquidated during prior Collection
Periods.
Net Loss Ratio: As of any Determination Date, the average,
over the three most recent Collection Periods, of the product of (a)(i) the Net
Loss for such Collection Period, divided by (ii) the principal balance of all
contracts in the Servicer's entire servicing portfolio outstanding at the end of
such Collection Period and (b) 12.
A-11
<PAGE>
Notice of Borrowing: As defined in Section 2.3 of the Credit
Agreement.
Obligations: All the unpaid principal amount of, and interest
on (including interest accruing on or after any Bankruptcy Event, whether or not
a claim for post-filing or post-petition interest is allowed in a proceeding
relating thereto, and interest on overdue interest), the Promissory Note and all
other obligations and liabilities of Borrower or any Affiliate of the FirstCity
Entities to Lender or any Affiliate of Lender, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Credit
Agreement, the Promissory Note, the Facility Agreement and any other document
executed and delivered in connection therewith whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel to Lender)
or otherwise.
Obligor: Each Person who is indebted on a Contract.
Originators: The N.A.F. Entities, FirstCity Consumer Finance,
FirstCity Funding, and any originator approved by the Lender subject to Section
6.9 hereof.
Outstanding Contract Balance: On any day, with respect to any
Contract, the principal amount due and owing on such Contract on such day.
Outstanding Facility Balance: On any day, with respect to the
Loan, the outstanding principal amount of the Loan on such day.
Paying Agent: The Collateral Agent, acting in its capacity as
paying agent under the Paying Agent Agreement.
Paying Agent Agreement: The Paying Agent Agreement dated as of
April 30, 1998 among Borrower, Lender and the Paying Agent.
Payment Date: As defined in Section 2.4 of the Credit
Agreement.
PBGC: The Pension Benefit Guaranty Corporation established
under ERISA.
Permitted Investments: Book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(i) direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit
of any depository institution or trust company incorporated under the
laws of the United States of America or any state thereof (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or State banking or depository institution
authorities; provided, however, that at the time of the investment or
contractual commitment to invest therein, the commercial paper or other
A-12
<PAGE>
short-term unsecured debt obligations (other than such obligations the
rating of which is based on the credit of a person other than such
depository institution or trust company) thereof shall have a credit
rating from each of S&P and Moody's in the highest investment category
granted thereby;
(iii) commercial paper having, at the time of the investment
or contractual commitment to invest therein, a rating from each of S&P
and Moody's in the highest investment category granted thereby;
(iv) investments in money market funds, including, without
limitation, the VISTA money market funds so long as such funds are
rated Aaa by Moody's or AAAm by S&P, and any other funds for which the
Paying Agent or an affiliate thereof serves as an investment advisor,
administrator, shareholder, servicing agent and/or custodian or
sub-custodian;
(v) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC;
(vi) bankers' acceptances issued by any depository institution
or trust company referred to in clause (ii) above; and
(vii) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the United States of
America or any agency or instrumentality thereof, the obligations of
which are backed by the full faith and credit of the United States of
America, in either case entered into with a depository institution or
trust company (acting as principal) the deposits of which are insured
by the FDIC.
Person: An individual, a partnership, a corporation, a limited
liability company, a limited liability partnership, a business trust, a joint
stock company, a trust, an unincorporated association, a joint venture, a
Governmental Authority or other entity of whatever nature.
Plan: Any employee benefit plan defined in Section 3(3) of
ERISA in respect of which any member of the ERISA Group is or at any time within
the immediately preceding five years was an "employer" as defined in Section
3(5) of ERISA or may have liability, including liability as a substantial
employer, within the meaning of Section 4063 of ERISA and as a contributing
sponsor under Section 4069 of ERISA.
Principal Collections: Collections other than Finance Charges.
Program: As defined in Subsection 9.1(c).
Promissory Note: The note issued pursuant to Section 2.2 of
the Credit Agreement.
Rating Agencies: Moody's Investors Service, Standard & Poor's
Corporation, Duff & Phelps Credit Rating Service and Fitch Investors Service.
A-13
<PAGE>
Recoveries: With respect to any Collection Period, the
aggregate amount of all cash received by Borrower net of expenses during such
Collection Period in respect of any Contract which is a liquidated Contract.
Recovery Percentage: With respect to any Collection Period,
the percentage equivalent of a fraction, the numerator of which is the aggregate
amount of Recoveries deposited in the Collection Account during such Collection
Period in respect of Contracts which became Liquidated Contracts during such
Collection Period and the denominator of which is the aggregate Outstanding
Balance of such Liquidated Contracts.
Reorganization: With respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
Reportable Event: Any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder other than those events as to
which the thirty day notice period is waived under subsections .13, .14, .18,
.19 or .20 of PBGC regulation Section 2615.
Requirements of Law: As to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person and any law, treaty, rule or regulation or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
Responsible Officer: As to any Person, the chief executive
officer, president, vice president-operations, chief financial officer,
controller, secretary or treasurer of a corporation, provided, that (a) with
respect to any certificate to be delivered by a Responsible Officer, such
Responsible Officer shall have personal knowledge of the subject matter of such
certificate, and (b) with respect to any other matter to be undertaken by a
Responsible Officer, such Responsible Officer shall be duly authorized by all
necessary corporate or other action with respect to such matter.
Rolling Delinquency Ratio: With respect to any Determination
Date, the average, as of the last day of each of the three preceding Collection
Periods, of the aggregate Outstanding Contract Balances of all Contracts which
are 31 or more days past due as of the end of the preceding Collection Period
divided by the aggregate Outstanding Contract Balances of all Contracts as of
the end of such preceding Collection Period.
S&P: Standard & Poor's Ratings Services, a Division of The
McGraw Hill Companies, Inc.
SEC: The Securities and Exchange Commission.
Securitization: As defined in Section 6.12 of this Credit
Agreement.
Security and Collateral Agent Agreement: The Security and
Collateral Agent Agreement dated as of April 30, 1998 among Borrower, Lender and
the Collateral Agent.
Servicer: FirstCity Servicing Corporation of California.
A-14
<PAGE>
Servicing Agreement: The Servicing Agreement dated as of April
30, 1998 among Borrower, the Servicer and the Collateral Agent.
Servicing Report: The report to be delivered by Borrower
pursuant to Section 6.2 of the Credit Agreement, substantially in the form of
Exhibit I thereto.
Single-Employer Plan: A single employer plan, as defined in
Section 4001(a)(15) of ERISA, which (a) is maintained for employees of Borrower
or an ERISA Affiliate thereof and no Person other than the Borrower and their
ERISA Affiliates or (b) was so maintained and in respect of which the Borrower
or any ERISA Affiliate thereof could have liability under Title IV of ERISA in
the event such plan has been or were to be terminated.
Subordinated Debt: Any Debt which (x) is by its terms
subordinated to the Obligations, and (y) provides for a non-petition covenant
against Borrower.
Subordinated Lien: A Lien approved in writing by the Lender,
and which secures any Subordinated Debt.
Subordinate Financing: Any combination of the following: cash,
purchase of a "B piece" or "residual" certificate, funding of an initial reserve
account deposit, issuance of a guaranty, serving as account party on a letter of
credit, or other form of subordinate financing in the related securitization.
Such subordinate financing shall be acceptable to the Rating Agencies and the
Credit Enhancer.
Subsidiary: As to any Person, any Person of which a Person
owns, directly or indirectly through one or more intermediaries, more than 50%
of the Capital Stock or beneficial interest thereof.
Tangible Assets: All assets of Borrower except: (i) deferred
assets, other than prepaid insurance and prepaid taxes, (ii) patents,
copyrights, trademarks, trade names, non-compete agreements, franchises and
similar intangibles, (iii) good will, including any amounts, however designated
on the balance sheet of Borrower, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on the books of
Borrower, (iv) unamortized debt discount and expense, and (v) accounts, notes
and other receivables due from Affiliates or employees.
Tangible Net Worth: At any date means a sum equal to (i) the
net book value (after deducting related depreciation, amortization and other
proper reserves) at which the Tangible Assets of Borrower would be shown on a
balance sheet at such date in accordance with GAAP applied on a consistent
basis, minus (ii) the amount at which the liabilities of Borrower (excluding
Subordinated Debt) would be shown on such balance sheet in accordance with GAAP,
and including as liabilities all reserves, required in accordance with GAAP, for
contingencies and other potential liabilities.
Tangible Net Worth Requirement: The total Tangible Net Worth
of FirstCity Financial is equal to at least $95 million.
Taxes: As defined in Section 2.10 of the Credit Agreement.
A-15
<PAGE>
UCC: The Uniform Commercial Code as in effect in the specified
jurisdiction or, if no jurisdiction is specified, as in effect in the state
whose law, by agreement of the parties, governs the document or agreement in
which the term "UCC" appears.
Underwriting Criteria: The criteria agreed upon for
underwriting Contracts between Borrower and Lender and attached to the Credit
Agreement as Exhibit K.
Unmatured Event of Default: Any of the events specified in the
definition of Event of Default, whether or not any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
Vehicle: Any new or used automobile or light truck that
secures a Contract.
Vehicle Dealer: Any seller of automobile or light trucks that
originated one or more of the Contracts and transferred, sold or assigned the
respective Contract, directly or indirectly, to Borrower under a Dealer
Assignment.
A-16
<PAGE>
EXHIBIT B
PROMISSORY NOTE
New York, New York
April 30, 1998
FOR VALUE RECEIVED, the undersigned, FirstCity Auto
Receivables L.L.C., a Delaware limited liability company (the "Borrower"),
promises to pay to the order of ContiTrade Services L.L.C. ("Lender"), on the
date specified in Section 2.5 of the Credit Agreement hereinafter referred to,
at the office of Lender at 277 Park Avenue, New York, New York, in lawful money
of the United States of America and in immediately available funds, the
principal amount of FIFTY MILLION DOLLARS AND NO CENTS ($50,000,000), or if
less, the aggregate unpaid principal amount of all Advances made by Lender to
Borrower pursuant to the Credit Agreement, and to pay interest at such office,
in like money, from the date hereof on the unpaid principal amount of such Loans
from time to time outstanding at the rate and on the dates specified in Section
2.4 of the Credit Agreement.
Lender is authorized to record, on the schedule annexed
thereto and made a part hereof or on other appropriate records of Lender, the
date and amount of each Loan made by Lender, each continuation thereof, the
interest rate from time to time on each Loan and the date and amount of each
payment or repayment of principal thereof. Any such recordation shall constitute
prima facie evidence of the accuracy of the information so recorded, provided
that the failure of Lender to make any such recordation (or any error in such
recordation) shall not affect the obligations of Borrower hereunder or under the
Credit Agreement in respect of the Loan.
This Promissory Note is the Promissory Note referred to in the
Warehouse Credit Agreement dated as of April 30, 1998 (as amended, supplemented
or otherwise modified and in effect from time to time, the "Credit Agreement")
among Borrower, Lender, FirstCity Consumer Lending Corporation and FirstCity
Financial Corporation, and is entitled to the benefits thereof. Capitalized
terms used herein without definition have the meanings assigned to them in the
Credit Agreement.
This Promissory Note is subject to original and mandatory
prepayment as provided in the Credit Agreement.
Upon the occurrence of an Event of Default, the Lender shall
have all of the remedies specified in the Credit Agreement, and Borrower hereby
waives presentment, demand, protest and all notices of any kind.
B-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
FIRSTCITY AUTO RECEIVALBES CORP.
By:
-----------------------------------
Name:
Title:
B-2
<PAGE>
meanings assigned to them in the
Credit Agreement.
This Promissory Note is subject to original and mandatory
prepayment as provided in the Credit Agreement.
<TABLE>
Upon the occurrence of an Event of Default, the Lender Notation
Date Principal on Loans of Loans By
- ------------------ ---------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C>
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</TABLE>
B-3
<PAGE>
EXHIBIT C
NOTICE OF BORROWING
FirstCity Auto Receivables L.L.C. ("Borrower") hereby requests
that ContiTrade Services L.L.C. make a Loan to it on [insert Borrowing Date] in
the amount of [amount of Loan requested] by crediting the Collection Account by
4:00 p.m. (New York City time) on [insert Borrowing Date] (capitalized terms
used herein have the meaning assigned to them in the Warehouse Credit Agreement
dated as of April 30, 1998 as amended, modified or supplemented from time to
time). Borrower hereby certifies to Lender that:
1. The representations and warranties of Borrower contained in
the Credit Agreement are true and correct in all material respects on and as of
this day.
2. Borrower is in compliance with all of the terms and
provisions set forth in the Credit Agreement required to be complied with or
performed by Borrower on or before the date hereof.
3. No Event of Default or Default (as defined in the Credit
Agreement) has occurred and is continuing as of today's date.
4. The Collateral is not subject to any Lien, except Liens
created by the Operative Documents. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned to them in
the Credit Agreement.
5. The Outstanding Facility Balance (prior to the making of
the requested Advance) on the date hereof is $__________.
6. The Borrowing Base applicable to the requested Advance is
$_________.
7. The Available Facility Amount is $____________.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Certificate this _______ day of ________________, _____.
FIRSTCITY AUTO RECEIVABLES L.L.C.
By:
-----------------------------------
Name:
Title:
<PAGE>
EXEECUTED COPY
--------------
SERVICING AGREEMENT
among
FIRSTCITY AUTO RECEIVABLES L.L.C.
as the Borrower
FIRSTCITY SERVICING CORPORATION OF CALIFORNIA
as the Servicer
FIRSTCITY CONSUMER LENDING CORPORATION
and
CONTITRADE SERVICES L.L.C.
as the Lender
---------------------------
Dated as of April 30, 1998
---------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................................1
SECTION 1.1 DEFINITIONS.......................................1
SECTION 1.2 USAGE OF TERMS....................................3
SECTION 1.3 CALCULATIONS......................................4
SECTION 1.4 SECTION REFERENCES................................4
SECTION 1.5 NO RECOURSE.......................................4
ARTICLE II ADMINISTRATION AND SERVICING OF CONTRACTS...........................4
SECTION 2.1 DUTIES OF THE SERVICER............................4
SECTION 2.2 COLLECTION OF CONTRACT PAYMENTS; MODIFICATION
AND AMENDMENT OF CONTRACTS; LOCKBOX AGREEMENTS..................5
SECTION 2.3 REALIZATION UPON CONTRACTS........................6
SECTION 2.4 INSURANCE.........................................7
SECTION 2.5 MAINTENANCE OF SECURITY INTERESTS IN VEHICLES.....8
SECTION 2.6 COVENANTS, REPRESENTATIONS AND WARRANTIES OF
SERVICER........................................................8
SECTION 2.7 INDEMNIFICATION..................................10
SECTION 2.8 SERVICING FEE; PAYMENT OF CERTAIN EXPENSES BY
SERVICER.......................................................11
SECTION 2.9 SERVICER'S CERTIFICATE...........................11
SECTION 2.10 ANNUAL INDEPENDENT ACCOUNTANTS' REPORT...........11
SECTION 2.11 ACCESS TO CERTAIN DOCUMENTATION AND
INFORMATION REGARDING CONTRACTS................................12
SECTION 2.12 PROVISION OF INFORMATION.........................12
SECTION 2.13 FIDELITY BOND....................................12
ARTICLE III LIABILITY AND INDEMNITIES.........................................12
SECTION 3.1 LIABILITY OF SERVICER; INDEMNITIES...............12
SECTION 3.2 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER..................................13
SECTION 3.3 LIMITATION ON LIABILITY OF SERVICER AND
OTHERS.........................................................14
SECTION 3.4 DELEGATION OF DUTIES.............................14
SECTION 3.5 SERVICER NOT TO RESIGN...........................14
ARTICLE IV SERVICER TERMINATION EVENTS........................................15
SECTION 4.1 SERVICER TERMINATION EVENT.......................15
SECTION 4.2 CONSEQUENCES OF A SERVICER TERMINATION EVENT.....16
SECTION 4.3 APPOINTMENT OF SUCCESSOR.........................16
SECTION 4.4 WAIVER OF PAST DEFAULTS..........................17
ARTICLE V MISCELLANEOUS PROVISIONS............................................17
SECTION 5.1 AMENDMENT........................................17
SECTION 5.2 GOVERNING LAW....................................17
SECTION 5.3 SEVERABILITY OF PROVISIONS.......................17
SECTION 5.4 ASSIGNMENT.......................................17
SECTION 5.5 WAIVER...........................................17
SECTION 5.6 COUNTERPARTS.....................................18
SECTION 5.7 NOTICES..........................................18
SECTION 5.8 SUCCESSORS AND ASSIGNS...........................19
EXHIBIT A Form Of Servicer's Certificate
EXHIBIT B Form Of Servicer's Daily Report
<PAGE>
THIS SERVICING AGREEMENT (this "Agreement"), dated as of April
30, 1998, among FIRSTCITY AUTO RECEIVABLES L.L.C., a Delaware limited liability
company (the "Borrower"), FIRSTCITY SERVICING CORPORATION OF CALIFORNIA, a
California corporation (the "Servicer"), FIRSTCITY CONSUMER LENDING CORPORATION,
a Texas corporation ("FC CONSUMER"), CONTITRADE SERVICES L.L.C., a Delaware
limited liability company, as Lender (the "Lender").
WHEREAS, the Borrower is entering into a Warehouse Credit
Agreement dated as of April 30, 1998 (the "Credit Agreement") with the Lender,
providing for the making of Advances by the Lender secured by the Contracts,
WHEREAS, the Servicer has agreed to service the Contracts,
pursuant to the terms of this Agreement,
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Borrower, FC Consumer, the Servicer and
the Lender.
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
As used in this Agreement, defined terms have their
respective meanings as set forth in the Definitions List attached to the Credit
Agreement, or as set forth below:
Accountants' Report: The report of a firm of nationally
recognized independent accountants described in Section 2.10 hereof.
(a) Basic Servicing Fee: With respect to any Collection
Period, the fee payable to the Servicer for services rendered during such
Collection Period, which shall be equal to one-twelfth of the Basic Servicing
Fee Rate multiplied by the sum of the Principal Balances for all Contracts
(other than any Contract which was 120 or more days delinquent as of the first
day of such Collection Period) as of the first day of the Collection Period.
Basic Servicing Fee Rate: 3.00% per annum, payable monthly at
one-twelfth of the annual rate for each contract originated by National Auto
Funding Corporation and FirstCity Funding, and 1.00% per annum for each contract
originated by FC Consumer Finance Corporation.
Blanket Policy: Shall have the meaning set forth in Section
2.4(c) hereof.
Collected Funds: With respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Contracts during the related Collection Period, including all Recoveries
collected during the related Collection Period.
Collection Account: The account designated as the Collection
Account in, and which is established and maintained pursuant to, the Paying
Agent Agreement.
Collection Records: Computer generated records relating to
collection efforts, payment histories and account activity with respect to the
Contracts.
1
<PAGE>
Cram Down Loss: With respect to a Contract, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Contract or otherwise modifying or restructuring
the scheduled payments to be made on a Contract, an amount equal to the excess
of the Outstanding Contract Balance of such Contract immediately prior to such
order over the Outstanding Contract Balance of such Contract as so reduced. A
"Cram Down Loss" shall be deemed to have occurred on the date of issuance of
such order.
Dealer: A seller of new or used automobiles or light trucks
that originated one or more of the Contracts and sold the respective Contract,
directly or indirectly, to the Borrower.
Determination Date: With respect to a Collection Period, the
tenth day following the end of such Collection Period.
Electronic Ledger: The electronic master record of the retail
installment sales contracts or installment loans of the Servicer.
Eligible Servicer: FirstCity Servicing Corporation of
California, or another Person which at the time of its appointment as Servicer,
(i) is servicing a portfolio of motor vehicle retail installment sales contracts
and/or motor vehicle installment loans, (ii) is legally qualified and has the
capacity to service the Contracts, (iii) has demonstrated the ability
professionally and competently to service a portfolio of motor vehicle retail
installment sales contracts and/or motor vehicle installment loans similar to
the Contracts with reasonable skill and care, and (iv) is qualified and entitled
to use, pursuant to a license or other written agreement, and agrees to maintain
the confidentiality of, the software which the Servicer uses in connection with
performing its duties and responsibilities under this Agreement or otherwise has
available software which is adequate to perform its duties and responsibilities
under this Agreement.
Independent Accountants: Shall have the meaning set forth in
Section 2.10(a) hereof.
Insurance Policies: All insurance policies covering physical
damage, theft, mechanical breakdown or similar event with respect to a Vehicle
or loss of such Vehicle or credit life or credit disability insurance with
respect to payments due on a Contract or otherwise benefiting the holder of the
Contracts.
Lien Certificate: With respect to a Vehicle, an original
certificate of title, certificate of lien or other notification issued by the
Registrar of Titles of the applicable state to a secured party which indicates
that the lien of the secured party on the Vehicle is recorded on the original
certificate of title. In any jurisdiction in which the original certificate of
title is required to be given to the Obligor, the term "Lien Certificate" shall
mean only a certificate or notification issued to a secured party.
Lockbox Provider: Fiserv Corporation or any other depository
institution named by the Servicer and acceptable to the Lender and FC Consumer.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Lender, which opinion is acceptable in form and substance to
the Lender.
Paying Agent: Chase Bank of Texas, National Association,
acting in its capacity as paying agent under the Paying Agent Agreement.
2
<PAGE>
Paying Agent Agreement: The Paying Agent Agreement dated as of
April 30, 1998 among Borrower, Lender and the Paying Agent.
Program Administration Manual: The Program Administration
Manual in effect as of the date hereof, as modified from time to time.
Recoveries: With respect to any Collection Period, the
aggregate amount of all cash received by Borrower net of expenses during such
Collection Period in respect of any Contract which is a Liquidated Contract.
Registrar of Titles: With respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
Servicer: FirstCity Servicing Corporation of California, a
California corporation.
Servicing Procedures Manual: The servicing manual previously
delivered to the Lender, as amended from time to time.
Servicing Records: All records and data maintained in
electronic form by the Servicer with respect to the Contracts, including the
following with respect to each Contract: the account number; the originating
Dealer; Obligor name; Obligor address; Obligor home phone number; Obligor
business phone number; original Outstanding Contract Balance; original term;
Annual Percentage Rate; current Outstanding Contract Balance; current remaining
term; origination date; first payment date; final scheduled payment date; next
payment due date; date of most recent payment; new/used classification;
Collateral description; days currently delinquent; number of contract extensions
(months) to date; amount of Scheduled Payment; current Insurance Policy
expiration date; and past due late charges.
Servicer's Certificate: With respect to each Determination
Date, a certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 2.9 hereof, substantially in the form attached hereto as
Exhibit A hereto.
Simple Interest Method: The method of allocating a fixed level
payment on an obligation between principal and interest, pursuant to which the
portion of such payment that is allocated to interest is equal to (a) the
product of the fixed rate of interest on such obligation multiplied by the
period of time (expressed as a fraction of a year, based on the actual number of
days in the calendar month and 365 days in the calendar year) elapsed since the
preceding payment under the obligation was made plus (b) accrued and unpaid
interest.
Supplemental Servicing Fee: With respect to any Collection
Period, all administrative fees, expenses and charges paid by or on behalf of
Obligors, including late fees, prepayment fees and liquidation fees collected on
the Contracts during such Collection Period which have been approved by FC
Consumer for payment to the Servicer.
Vehicle: A new or used automobile or light truck, van or
mini-van together with all accessories thereto, securing or purporting to secure
an Obligor's indebtedness under a Contract.
Section 1.2 Usage of Terms.
With respect to all terms used in this Agreement, the
singular includes the plural and the plural the singular; words importing any
gender include the
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other gender; references to "writing" include printing, typing, lithography,
and other means of reproducing words in a visible form; references to agreements
and other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the terms "include" or "including" mean "include
without limitation" or "including without limitation."
Section 1.3 Calculations.
All calculations of the amount of the Basic Servicing Fee
shall be made on the basis of a 360-day year consisting of twelve 30-day months.
Section 1.4 Section References.
All references to Articles, Sections, paragraphs,
subsections, exhibits and schedules shall be to such portions of this Agreement
unless otherwise specified.
Section 1.5 No Recourse.
No recourse may be taken, directly or indirectly, under this
Agreement or any certificate or other writing delivered in connection herewith
or therewith, against any stockholder, officer, or director, as such, of the
Borrower, FC Consumer, the Servicer or the Lender or of any such stockholder,
officer or director of any predecessor or successor of any of them.
ARTICLE II
ADMINISTRATION AND SERVICING OF CONTRACTS
Section 2.1 Duties of the Servicer.
(a) The Servicer is hereby authorized to act as agent for
the Borrower and in such capacity shall manage, service, administer and make
collections on the Contracts, and perform the other actions required by the
Servicer under this Agreement. The Servicer agrees that its servicing of the
Contracts shall be carried out in accordance with customary and usual procedures
of institutions which service motor vehicle retail installment sales contracts
and, to the extent more exacting, the degree of skill and attention that the
Servicer exercises from time to time with respect to all comparable motor
vehicle receivables that it services for itself or others in accordance with the
Program Administration Manual as in effect at the current time for servicing all
its other comparable motor vehicle receivables or, if not addressed therein,
then in the Servicing Procedures Manual. The Servicer's duties shall include,
without limitation, collection and posting of all payments, responding to
inquiries of Obligors on the Contracts, investigating delinquencies, sending
payment statements to Obligors, reporting any required tax information to
Obligors, policing the Collateral, complying with the terms of the Lockbox
Agreement, accounting for collections, providing the Collateral Agent a daily
report containing the information necessary to calculate the Borrowing Base and
furnishing monthly and annual statements to the Collateral Agent and the Lender
with respect to distributions, monitoring the status of Insurance Policies with
respect to the Vehicles, providing information as required hereby, cooperating
with the reasonable requests of the Lender and performing the other duties
specified herein. The Servicer shall also administer and enforce all rights and
responsibilities of the holder of the Contracts provided for in the Dealer
Assignments and the Insurance Policies, to the extent that such Dealer
Assignments and Insurance Policies relate to the Contracts, the Vehicles or the
Obligors.
To the extent consistent with the standards, policies and
procedures otherwise required hereby, the Servicer shall follow its customary
standards, policies, and procedures and shall have full power and authority,
acting alone, to do any and all things in connection with such managing,
servicing, administration and collection that it may deem necessary or
desirable.
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Without limiting the generality of the foregoing, the Servicer is
hereby authorized and empowered by the Borrower to execute and deliver, on
behalf of the Borrower, any and all instruments of satisfaction or cancellation,
or of partial or full release or discharge, and all other comparable
instruments, with respect to the Contracts and with respect to the Vehicles;
provided, however, that notwithstanding the foregoing, the Servicer shall not,
except pursuant to an order from a court of competent jurisdiction, release an
Obligor from payment of any unpaid amount under any Contract or waive the right
to collect the unpaid balance of any Contract from the Obligor, except that the
Servicer may forego collection efforts if the amount reasonably expected to be
recovered by the Servicer (net of the Servicer's expenses) is de minimis and if
it would forego collection in accordance with its customary procedures. The
Servicer is hereby authorized to commence, in its own name or in the name of the
Borrower, a legal proceeding to enforce a Contract pursuant to Section 2.3
hereof or to commence or participate in any other legal proceeding (including,
without limitation, a bankruptcy proceeding) relating to or involving a
Contract, an Obligor or a Vehicle. If the Servicer commences or participates in
such a legal proceeding in its own name, the Collateral Agent shall thereupon be
deemed to have automatically assigned such Contract to the Servicer solely for
purposes of commencing or participating in any such proceeding as a party or
claimant, and the Servicer is authorized and empowered by the Borrower to
execute and deliver in the Servicer's name any notices, demands, claims,
complaints, responses, affidavits or other documents or instruments in
connection with any such proceeding.
Section 2.2 Collection of Contract Payments; Modification and Amendment of
Contracts; Lockbox Agreements.
(a) Consistent with the standards, policies and procedures
required by this Agreement, the Servicer shall make reasonable efforts to
collect all payments called for under the terms and provisions of the Contracts
as and when the same shall become due, and shall follow such collection
procedures as it follows with respect to all comparable automobile receivables
that it services for itself or others and otherwise act with respect to the
Contracts, the Dealer Assignments, the Insurance Policies and the other
Collateral in such manner as will, in the reasonable judgment of the Servicer,
maximize the amount to be received by the Borrower with respect thereto. The
Servicer is authorized in its discretion to waive any prepayment charge, late
payment charge or any other similar fees that may be collected in the ordinary
course of servicing any Contract.
(b)(i) The Servicer may at any time agree to a modification or
amendment of a Contract in order to (x) change the Obligor's regular due date to
a date within 30 days in which such due date occurs or (y) re-amortize the
scheduled payments on the Contract following a partial prepayment of principal.
(ii) The Servicer may grant payment extensions on, or other
modifications or amendments to, a Contract (including those modifications
permitted by Section 2.2(b) hereof) in accordance with its customary procedures
attached hereto as Exhibit B if the Servicer believes in good faith that such
extension, modification or amendment is necessary to avoid a default on such
Contract, will maximize the amount to be received by the Borrower with respect
to such Contract, and is otherwise in the best interests of the Borrower.
Any Contract which is modified pursuant to this Section is
referred to herein as a "Modified Contract."
(c) The Servicer shall use its best efforts to cause Obligors
to make all payments on the Contracts, whether by check or through the Automated
Clearing House (ACH) system, to be made directly to one or more Lockbox
Providers, acting as agent for the Lender pursuant to a Lockbox Agreement.
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The Servicer shall use its best efforts to cause any Lockbox Provider to deposit
all payments on the Contracts in the Lockbox Account on the Business Day of
receipt, and to cause all amounts credited to the Lockbox Account on account of
such payments to be transferred to the Collection Account, no later than the
second Business Day after receipt of such payments. The Lockbox Account shall be
the demand deposit account #0221688385 held by the Wells Fargo Bank in the name
of the Servicer, or at the request of the Lender an Eligible Deposit Account
satisfying clause (i) of the definition thereof.
The Servicer has notified each Obligor with respect to the
Contracts serviced by the Servicer on the Closing Date to make such payments
thereafter directly to the Lockbox Provider.
Notwithstanding any Lockbox Agreement, or any of the
provisions of this Agreement relating to the Lockbox Agreement, the Servicer
shall remain obligated and liable to the Borrower and the Lender for servicing
and administering the Contracts and the other Collateral in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue thereof.
In the event the Servicer shall for any reason no longer be
acting as such, a successor Servicer shall thereupon assume all of the rights
and, from the date of assumption, all of the obligations of the outgoing
Servicer under the Lockbox Agreement. The successor Servicer shall not be liable
for any acts, omissions or obligations of the Servicer prior to such succession.
In such event, the successor Servicer shall be deemed to have assumed all of the
outgoing Servicer's interest therein and to have replaced the outgoing Servicer
as a party to each such Lockbox Agreement to the same extent as if such Lockbox
Agreement had been assigned to the successor Servicer, except that the outgoing
Servicer shall not thereby be relieved of any liability or obligations on the
part of the outgoing Servicer to the Lockbox Provider under such Lockbox
Agreement. The outgoing Servicer shall, upon request of the Borrower, but at the
expense of the outgoing Servicer, deliver to the successor Servicer all
documents and records relating to each such Agreement and an accounting of
amounts collected and held by the Lockbox Provider and otherwise use its best
efforts to effect the orderly and efficient transfer of any Lockbox Agreement to
the successor Servicer. In the event that the Lender elects to change the
identity of the Lockbox Provider, the Servicer, at its expense, shall cause the
Lockbox Provider to deliver, at the direction of the Lender, to the Collateral
Agent or a successor Lockbox Provider, all documents and records relating to the
Contracts and all amounts held (or thereafter received) by the Lockbox Provider
(together with an accounting of such amounts) and shall otherwise use its best
efforts to effect the orderly and efficient transfer of the lockbox arrangements
and the Servicer shall notify the Obligors to make payments to the Lockbox
Account established by the successor.
(d) The Servicer shall remit all payments by or on behalf of
the Obligors received directly by the Servicer to the Lockbox Account, without
deposit into any intervening account as soon as practicable, but in no event
later than the Business Day after receipt thereof.
Section 2.3 Realization Upon Contracts.
(a) Consistent with the standards, policies and procedures
required by this Agreement, the Program Administration Manual and the Servicing
Procedures Manual, the Servicer shall use its best efforts to repossess (or
otherwise comparably convert the ownership of) and liquidate any Vehicle
securing a Contract with respect to which the Servicer has determined that
payments thereunder are not likely to be resumed, as soon as is practicable
after default on such Contract.
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The Servicer is authorized to follow such customary practices
and procedures as it shall deem necessary or advisable, consistent with the
standard of care required by Section 2.1 hereof, which practices and procedures
may include reasonable efforts to realize upon any recourse to Dealers, selling
the related Vehicle at public or private sale, the submission of claims under an
Insurance Policy and other actions by the Servicer in order to realize upon such
a Contract. The foregoing is subject to the provision that in any case in which
the Vehicle shall have suffered damage, the Servicer shall not expend funds in
connection with any repair or towards the repossession of such Vehicle unless it
shall determine in its discretion that such repair and/or repossession shall
increase the proceeds of liquidation of the related Contract by an amount
greater than the amount of such expenses. All amounts received upon liquidation
of a Vehicle shall be remitted directly by the Servicer to the Lockbox Account
without deposit into any intervening account as soon as practicable, but in no
event later than the Business Day after receipt thereof. The Servicer shall be
entitled to recover all reasonable expenses incurred by it in the course of
repossessing and liquidating a Vehicle, which expenses shall be properly
documented by the Servicer and reviewed by FC Consumer, but only out of the cash
proceeds of such Vehicle, any deficiency obtained from the Obligor or any
amounts received from the related Dealer, as set forth in Section 2.03(a)(iii)
of the Paying Agent Agreement to the extent of such expenses. The Servicer shall
recover such reasonable expenses based on the information contained in the
Servicer's Certificate delivered on the related Determination Date. The Servicer
shall pay on behalf of the Borrower any personal property taxes assessed on
repossessed Vehicles; the Servicer shall be entitled to reimbursement of any
such tax from Recoveries with respect to such Contract, as set forth in Section
2.03(a)(iii) of the Paying Agent Agreement.
(b) If the Servicer elects to commence a legal proceeding to
enforce a Dealer Assignment, the act of commencement shall be deemed to be an
automatic assignment from the Collateral Agent to the Servicer of the rights
under such Dealer Assignment for purposes of collection only. If, however, in
any enforcement suit or legal proceeding, it is held that the Servicer may not
enforce a Dealer Assignment on the grounds that it is not a real party in
interest or a Person entitled to enforce the Dealer Assignment, the Collateral
Agent, at the Borrower's expense, shall take such steps as the Servicer deems
necessary to enforce the Dealer Assignment, including bringing suit in its name.
All amounts recovered shall be remitted directly by the Servicer to the Lockbox
Account without deposit into any intervening account as soon as practicable, but
in no event later than the Business Day after receipt thereof.
Section 2.4 Insurance.
(a) The Servicer shall monitor the status of the Insurance
Policies in accordance with its customary servicing procedures. If the Servicer
shall determine that an Obligor has failed to obtain or maintain a physical loss
and damage insurance policy covering the related Vehicle (including during the
repossession of such Vehicle) the Servicer shall be diligent in carrying on its
customary servicing procedures to enforce the rights of the holder of the
Contract thereunder to ensure that the Obligor obtains such physical loss and
damage insurance.
(b) The Servicer may sue to enforce or collect upon the
Insurance Policies, in its own name, if possible, or as agent of the Borrower.
If the Servicer elects to commence a legal proceeding to enforce an Insurance
Policy, the act of commencement shall be deemed to be an automatic assignment of
the rights of the Borrower under such Insurance Policy to the Servicer for
purposes of collection only.
(c) The Premiums incurred by the Borrower in maintaining such
Blanket Policy shall be paid by the Borrower as set forth in Section 2.03(a)(vi)
of the Paying Agent Agreement. Section 2.5 Maintenance of Security Interests in
Vehicles.
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Section 2.5 Maintenance of Security Intersts in Vehicles.
Consistent with the policies and procedures required by this
Agreement, the Servicer shall take such steps as are necessary to maintain
perfection of the security interest created by each Contract in the related
Vehicle on behalf of the Borrower, including but not limited to obtaining the
execution by the Obligors and the recording, registering, filing, re-recording,
re-filing, and re-registering of all security agreements, financing statements
and continuation statements as are necessary to maintain the security interest
granted by the Obligors under the respective Contracts. The Lender hereby
authorizes the Servicer, and the Servicer agrees, to take any and all steps
necessary to re-perfect such security interest on behalf of the Borrower as
necessary because of the relocation of a Vehicle or for any other reason.
Section 2.6 Covenants, Representations and Warranties of Servicer.
The Servicer hereby makes the following representations,
warranties and covenants to the other parties hereto and the Lender on which the
Collateral Agent shall rely in accepting the Contracts.
(a) The Servicer covenants as follows:
(i) Liens in Force. The Vehicle securing each Contract shall
not be released in whole or in part from the security interest granted by the
Contract, except upon payment in full of the Contract or as otherwise
contemplated herein;
(ii) No Impairment. The Servicer shall do nothing to impair
the rights of the Borrower in the Contracts, the Dealer Assignments, the
Insurance Policies or the other Collateral;
(iii) No Amendments. The Servicer shall not extend or
otherwise amend the terms of any Contract, except in accordance with Section 2.2
hereof;
(iv) Servicing of Contracts. The Servicer shall service the
Contracts as required by the terms of this Agreement and in material compliance
with the current Servicing Procedures Manual for servicing all its other
comparable motor vehicle receivables;
(v) Credit Bureaus. The Servicer shall supply such customary
payment history information to credit reporting bureaus on a monthly basis as is
permissible under applicable law;
(vi) Licenses and Approvals. The Servicer shall obtain and
maintain all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business (involving the
servicing of the Contracts as required by this Agreement) requires;
(vii) Possession of Collateral. The Servicer shall hold all
Collateral items in its possession as custodian on behalf of the Lender;
(viii) Delivery of Loan Documents. The Servicer, as
requested by the Lender, shall deliver to the Lender any Lien Certificate,
credit application, Contract, or other Collateral item which is in possession of
the Servicer, within three Business Days of the Lender's request. To the extent
that the Servicer does not so deliver any requested item with respect to any
Contract by the opening of business on the fourth Business Day following such
request, the Servicer shall deposit on the Lockbox Account an amount not less
than 85% of such Contract's Outstanding Contract Balance;
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(ix) Lien Certificates; Tracking. The Servicer shall track
receipt of all Lien Certificates received by it, and shall report to FC Consumer
and the Lender on each Determination Date all Lien Certificates received by it
during the prior Collection Period, together with all Lien Certificates not yet
received as of the end of the prior Collection Period, as well as the
origination dates of the related Contracts; and
(x) Borrowing Base Report. The Servicer shall send to the
Collateral Agent a daily report by no later than 10 AM New York time containing
the information necessary to calculate the Borrowing Base.
(b) The Servicer represents and warrants to the other
parties hereto as of the Closing Date as to itself:
(i) Organization and Good Standing. The Servicer has been
duly organized and is validly existing and in good standing under the laws of
the State of California, with power, authority and legal right to own its
properties and to conduct its business as such properties are currently owned
and such business is currently conducted, and had at all relevant times, and now
has, power, authority and legal right to enter into and perform its obligations
under this Agreement;
(ii) Due Qualification. The Servicer is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions as shall require such
qualification; in which the ownership or lease of property or the conduct of its
business (involving the servicing of the Contracts as required by this
Agreement) requires;
(iii) Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and to carry out its terms and
their terms, and the execution, delivery and performance of this Agreement have
been duly authorized by the Servicer by all necessary corporate action;
(iv) Binding Obligation. This Agreement and the Servicer's
Facility Agreements shall constitute legal, valid and binding obligations of the
Servicer enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
other similar laws affecting the enforcement of creditors' rights generally and
by equitable limitations on the availability of specific remedies, regardless of
whether such enforceability is considered in a proceeding in equity or at law;
(v) No Violation. The consummation of the transactions
contemplated by this Agreement, and the fulfillment of the terms of this
Agreement, shall not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time) a default
under, the certificate of incorporation or bylaws of the Servicer, or any
indenture, agreement, mortgage, deed of trust or other instrument to which the
Servicer is a party or by which it is bound or any of its properties are
subject, or result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument, other than this Agreement, or violate any
law, order, rule or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or any of its properties,
or in any way materially adversely affect the interest of the Borrower in any
Contract, or affect the Servicer's ability to perform its obligations under this
Agreement;
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(vi) No Proceedings. There are no proceedings or
investigations pending or, to the Servicer's knowledge, threatened against the
Servicer, before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality having jurisdiction over the Servicer
or its properties (A) asserting the invalidity of this Agreement, (B) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement, (C) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer of its obligations under, or
the validity or enforceability of, this Agreement, or (D) that could have a
material adverse effect on the Contracts.
(vii) Approvals. All approvals, authorizations, consents,
orders or other actions of any person, corporation or other organization, or of
any court, governmental agency or body or official, required in connection with
the execution and delivery by the Servicer of this Agreement and the
consummation of the transactions contemplated hereby have been or will be taken
or obtained on prior to the Closing Date.
(viii) No Consents. The Servicer is not required to obtain
the consent of any other party or any consent, license, approval or
authorization, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement;
(ix) Year 2000 Compliance. Services provided under this
Agreement are year 2000 compliant, will function and operate prior to, during
and after the calendar year 2000 in accordance with their specifications and
will provide the required output without experiencing abnormal ending dates
and/or invalid or incorrect years and shall incorporate century recognition date
data, calculations that use same century and multi-century formulas and date
values that reflect the correct century in all transactions.
Without limiting the generality of the foregoing, the Servicer
further represents and warrants that the services provided under this Agreement
will process, manage and manipulate data involving dates, including single
century and multi-century formulas, and will not cause an abnormally ending
scenario within the application or generate incorrect values or invalid results
involving such dates; provide that all date-related user interface
functionalities and data fields include the indication of century; and provide
that all date-related data interface functionalities include the indication of
century.
Notwithstanding any limitation on the Servicer's liability
contained elsewhere herein, the Servicer shall indemnify and hold harmless the
Lender, its subsidiaries and affiliates, and its and their directors, officers,
employees and agents from all costs, loss, damage and expense arising from any
breach of this warranty.
(x) Chief Executive Office. The chief executive office of the
Servicer is located at 14101 Myford Road, Tustin, California 92680.
Section 2.7 Indemnification.
The Servicer shall indemnify the Lender, the Collateral Agent
and the Borrower against all costs, expenses, losses, damages, claims and
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liabilities, including reasonable fees and expense; of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to a breach of the covenants or
representations and warranties set forth in Section 2.5 or 2.6 hereof.
Section 2.8 Servicing Fee; Payment of Certain Expenses by Servicer.
(a) On each Distribution Date, the Servicer shall be entitled
to receive out of the Collection Account the Basic Servicing Fee for the related
Collection Period pursuant to the Paying Agent Agreement. The Servicer may
retain any Supplemental Servicing Fee, or may receive such amounts from the
Collection Account payable pursuant to the Paying Agent Agreement.
(b) The Servicer shall be required to pay all expenses
incurred by it in connection with its activities under this Agreement. The
Servicer shall be liable for the fees and expenses of the Lockbox Provider (and
any fees under the Lockbox Agreement) and the Independent Accountants.
Section 2.9 Servicer's Certificate.
(a) No later than 10:00 a.m. Eastern time on each
Determination Date, the Servicer shall deliver to the Collateral Agent, FC
Consumer and the Lender a Servicer's Certificate executed by a Responsible
Officer of the Servicer substantially in the form of Exhibit A hereto, which
shall, among other things, state that (i) a review of the activities of the
Servicer during the preceding period (or such other period as shall have elapsed
from the Closing Date to the date of the first such certificate) and of its
performance under this Agreement has been made, under such officer's
supervision, and (ii) to such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
period, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.
(b) The Servicer shall deliver to the Borrower, the Collateral
Agent and the Lender, promptly after having obtained knowledge thereof, but in
no event later than two Business Days thereafter, written notice in an Officer's
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Termination Event under Section 4.1 hereof.
(c) On each Business Day, the Servicer shall deliver to the
Collateral Agent, by no later than 10:00 a.m. Eastern time, the Servicer's Daily
Report in the form set forth as Exhibit C hereto. Section 2.10 Annual
Independent Accountants' Report.
Section 2.10 Annual Independent Accountants' Report.
(a) The Servicer shall deliver to the Lender, the Borrower and
the Collateral Agent, on or before April 30th of each year beginning in the year
1998, an Officer's Certificate, dated as of the preceding December 31st, stating
that (i) a review of the activities of the Servicer during the preceding
12-month period and of its performance under this Agreement has been made under
such officer's supervision and (ii) to the best of such officer's knowledge,
based on such review, the Servicer has fulfilled all its obligations under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof.
(b) The Servicer will deliver to the Lender, the Borrower and
the Collateral Agent, on or before April 30th of each year beginning in the year
1999, a copy of a report prepared by a firm of nationally recognized independent
public accountants (the "Independent Accountants"), who may also render other
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services to the Servicer or any of its Affiliates or to the Seller addressed to
the Board of Directors of the Servicer or any of its Affiliates, the Lender and
the Collateral Agent and dated during the current year, to the effect that such
firm has examined the Servicer's policies and procedures and issued its report
thereon and expressing a summary of findings (based on certain procedures
performed on the documents, records and accounting records that such accountants
considered appropriate under the circumstances) relating to the servicing of its
portfolio of contracts during the preceding calendar year and that such
servicing and administration was conducted in compliance with the terms of this
Agreement, except for (i) such exceptions as such firm shall believe to be
immaterial and (ii) such other exceptions as shall be set forth in such report
and that such examination (1) was performed in accordance with standards
established by the American Institute of Certified Public Accountants, and (2)
included necessary procedures related to automotive loans serviced for others in
accordance with the Uniform Single Attestation Program.
Such report shall also indicate that the firm is independent
of the Servicer and its Affiliates within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
Section 2.11 Access to Certain Documentation and Information Regarding
Contracts.
The Servicer shall provide to representatives of the Borrower,
the Lender and the Collateral Agent reasonable access to the documentation
regarding the Contracts. Each of the Borrower and the Servicer will permit any
authorized representative or agent designated by the Lender to visit and inspect
any of the properties of the Borrower or the Servicer, as the case may be, to
examine the corporate books and financial records of the Borrower or Servicer,
as the case may be, its records relating to the Contracts, and make copies
thereof or extracts therefrom and to discuss the affairs, finances, and accounts
of the Borrower or Servicer, as the case may be, with its principal officers, as
applicable, and its independent accountants. Any expense incidental to the
exercise by the Lender of any right under this Section 2.11 shall be borne by
the Servicer. Such access shall be afforded without charge but only upon
reasonable request and during normal business hours. Nothing in this Section
2.11 shall derogate from the obligation of the Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors, and
the failure of the Servicer to provide access as provided in this Section 2.11
as a result of such obligation shall not constitute a breach of this Section
2.11.
Section 2.12 Provision of Information.
On the first Business Day of each month, the Servicer will
deliver to the Lender a computer tape or a diskette (or any other electronic
transmission acceptable to the Lender) in a format reasonably acceptable to the
Lender containing the Collection Records with respect to the Contracts as of the
last Business Day of the prior month.
Section 2.13 Fidelity Bond.
The Servicer shall maintain a fidelity bond in such form and
amount as is customary in the industry for entities acting as servicers of
consumer contracts on behalf of institutional investors, which amount shall
provide coverage of not less than $4,000,000 in the aggregate and
single-occurrence coverage of $2,000,000.
ARTICLE III
LIABILITY AND INDEMNITIES
Section 3.1 Liability of Servicer; Indemnities.
(a) The Servicer shall be liable hereunder only to the
extent of the obligations in this Agreement specifically undertaken by the
Servicer and the representations made by the Servicer.
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<PAGE>
(b) The Servicer shall defend, indemnify and hold harmless the
Borrower, the Collateral Agent, FC Consumer, the Lender and their respective
officers, directors, agents and employees from and against any and all costs,
expenses losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel and expenses of litigation arising out of or resulting from
the use, ownership or operation by the Servicer or any Affiliate thereof of any
Vehicle;
(c) The Servicer shall indemnify, defend and hold harmless the
Borrower, the Lender, FC Consumer, and the Collateral Agent, their respective
officers, directors, agents and employees from and against any and all costs,
expenses, losses, claims, damages, and liabilities to the extent that such cost,
expense, loss, claim, damage, or liability arose out of, or was imposed upon
such indemnified party through the breach of this Agreement, the negligence,
willful misfeasance, or bad faith of the Servicer in the performance of its
duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement;
(d) For purposes of this Section 3.1, in the event of the
termination of the rights and obligations of the Servicer (or any successor
thereto pursuant to Section 3.2 hereof) as Servicer pursuant to Section 4.1
hereof, or a resignation by such Servicer pursuant to this Agreement, such
Servicer shall be deemed to be the Servicer pending appointment of a successor
Servicer pursuant to Section 4.3 hereof. The provisions of this Section 3.1(d)
shall in no way affect the survival pursuant to Section 3.1(e) hereof of the
indemnification by the Servicer provided by Sections 3.1(a) and 3.1(b) hereof;
and
(e) Indemnification under this Article shall survive the
termination of this Agreement and shall include reasonable fees and expenses of
counsel and expenses of litigation. If the Servicer shall have made any
indemnity payments pursuant to this Article and the recipient thereafter
collects any of such amounts from others, the recipient shall promptly repay
such amounts collected to the Servicer, without interest. Notwithstanding any
other provision of this Agreement, the obligations of the Servicer described in
this Section shall not terminate or be deemed released upon the resignation or
termination of FirstCity Servicing Corporation of California as the Servicer and
shall survive any termination of this Agreement. Section 3.2 Merger or
Consolidation of, or Assumption of the Obligations of, the Servicer.
Section 3.2 Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer
The Servicer shall not merge or consolidate with any other
Person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity shall be an
Eligible Servicer and shall be capable of fulfilling the duties of the Servicer
contained in this Agreement. Any Person (i) into which the Servicer may be
merged or consolidated, (ii) resulting from any merger or consolidation to which
the Servicer shall be a party, (iii) which acquires by conveyance, transfer, or
lease substantially all of the assets of the Servicer, or (iv) succeeding to the
business of the Servicer, in any of the foregoing cases shall execute an
agreement of assumption to perform every obligation of the Servicer under this
Agreement and, whether or not such assumption agreement is executed, shall be
the successor to the Servicer under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties to this
Agreement, anything in this Agreement to the contrary notwithstanding; provided,
however, that nothing contained herein shall be deemed to release the Servicer
from any obligation. The Servicer shall provide notice of any merger,
consolidation or succession pursuant to this Section 3.2(a) to the Borrower, FC
Consumer, the Lender and the Collateral Agent. Notwithstanding the foregoing, as
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<PAGE>
a condition to the consummation of the transactions referred to in clauses (i),
(ii), (iii) and (iv) above, (x) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Section 2.6 hereof
shall have been breached (for purposes hereof, such representations and
warranties shall speak as of the date of the consummation of such transaction),
(y) the Servicer shall have delivered to the Borrower, the Collateral Agent, FC
Consumer and the Lender an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger or succession and such agreement of
assumption comply with this Section 3.2(a) and that all conditions precedent, if
any, provided for in this Agreement relating to such transaction have been
complied with, and (z) the Servicer shall have delivered an opinion of counsel
to the Borrower, the Collateral Agent, FC Consumer, and the Lender, stating, in
the opinion of such counsel, either (A) all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary to preserve and protect the interest of the Collateral Agent in
the Collateral and reciting the details of the filings or (B) no such action
shall be necessary to preserve and protect such interest.
Section 3.3 Limitation on Liability of Servicer and Others.
Neither the Servicer, nor any of the directors or officers or
employees or agents of the Servicer shall be under any liability to the
Borrower, the Lender or FC Consumer, except as provided in this Agreement, for
any action taken or for refraining from the taking of any action pursuant to
this Agreement; provided, however, that this provision shall not protect the
Servicer, or any such person against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence (excluding
errors in judgment) in the performance of duties (including negligence with
respect to the Servicer' s indemnification obligations hereunder), by reason of
reckless disregard of obligations and duties under this Agreement or any
violation of law by the Servicer, or such person, as the case may be; further
provided, that this provision shall not affect any liability to indemnify the
Collateral Agent for costs, taxes, expenses, claims, liabilities, losses or
damages paid by the Collateral Agent in its individual capacity. The Servicer,
and any director, officer, employee or agent of the Servicer may rely in good
faith on the advice of counsel or on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
under this Agreement.
Section 3.4 Delegation of Duties.
So long as FirstCity Servicing Corporation of California is
the Servicer, the Servicer may delegate duties under this Agreement to an
Affiliate of FirstCity Servicing Corporation of California with the prior
written consent of the FC Consumer, the Lender and the Borrower. The Servicer
also may at any time perform the specific duty of repossession of Vehicles
through sub-contractors who are in the business of repossessing vehicles which
secure automotive receivables, and may perform other specific duties through
such sub-contractors with the prior written consent of the Lender, provided,
however, that no such delegation or subcontracting duties by the Servicer shall
relieve the Servicer of its responsibility with respect to such duties.
Section 3.5 Servicer Not to Resign.
(a) Subject to the provisions of Section 3.2 hereof, the
Servicer shall not resign from the obligations and duties imposed on it by this
Agreement as Servicer except with the prior written consent of the Lender. No
resignation of the Servicer shall become effective until an entity acceptable to
the Lender shall have assumed the responsibilities and obligations of the
Servicer.
(b) The Borrower may, with the prior written consent of the
Lender upon 45 days' notice to the Servicer, terminate the Servicer as Servicer
hereunder without cause.
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<PAGE>
ARTICLE IV
SERVICER TERMINATION EVENTS
Section 4.1 Servicer Termination Event.
For purposes of this Agreement, each of the following shall
constitute a "Servicer Termination Event":
(a) Any failure by the Servicer to deliver to the Lockbox or
to the Collateral Agent for distribution any proceeds or payment required to be
so delivered under the terms hereof that continues unremedied for a period of
two Business Days after written notice is received by the Servicer or after
discover of such failure by a Responsible Officer of the Servicer;
(b) Failure by the Servicer (i) to deliver the Servicer's
Certificate required by Section 2.9 hereof within five (5) days after the date
such certificate is required to be delivered;
(c) Failure on the part of the Servicer to observe its
covenants any agreements set forth in Section 3.2(a) hereof;
(d) Failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Servicer which failure continues unremedied for a period of 30 days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been give to the Servicer by the Collateral Agent or the Lender;
(e) The entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal or state, bankruptcy, insolvency
or similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Servicer or of any
substantial part of their respective properties or ordering the winding up or
liquidation of the affairs of the Servicer and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days or
the commencement of an involuntary case under the federal bankruptcy laws, as
now or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or
(f) The commencement by the Servicer of a voluntary case under
the federal bankruptcy laws, as now or hereafter in effect, or any other present
or future, federal or state, bankruptcy, insolvency or similar law, or the
consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Servicer or of any substantial part of its property or
the making by the Servicer of an assignment for the benefit of creditors or the
failure by the Servicer generally to pay its debts as such debts become due or
the taking of corporate action by the Servicer in furtherance of any of the
foregoing;
(g) Any representation, warranty or statement of the Servicer
made in this Agreement or any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the
Borrower or the Lender and, within 30 days after written notice thereof shall
have been given to the Servicer by the Lender, the circumstances or condition in
respect of which such representation, warranty or statement was incorrect shall
not have been eliminated or otherwise cured;
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<PAGE>
(h) A material adverse change from the date hereof in the
business, properties, operations, prospects or financial or other condition of
the Servicer, as determined by Lender in its reasonable, good faith business
judgment; or
(i) The occurrence of an "Event of Default" under the Credit
Agreement which is not waived by the Lender. Section 4.2 Consequences of a
Servicer Termination Event.
Section 4.2 Consequences of a Servicer Termination Event.
If a Servicer Termination Event shall occur and be continuing,
the Lender shall thereafter have the right to direct all activities of the
Servicer with respect to the Collateral, including the right to direct the
Servicer to deliver any portion of the Collateral then held by the Servicer to
the location designated by the Lender; in addition, by notice given in writing
to the Servicer may terminate all of the rights and obligations of the Servicer
under this Agreement. On or after the receipt by the Servicer of such written
notice, all authority, power, obligations and responsibilities of the Servicer
under this Agreement automatically shall pass to, be vested in and become
obligations and responsibilities of the successor Servicer selected by the
Lender pursuant to Section 4.3 hereof.
Section 4.3 Appointment of Successor.
(a) On and after (i) the time the Servicer receives a notice
of termination pursuant to Section 4.2 hereof or (ii) upon the resignation of
the Servicer pursuant to Section 3.5, hereof the successor Servicer shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the responsibilities, restrictions, duties, liabilities
and termination provisions relating thereto placed on the Servicer by the terms
and provisions of this Agreement; provided, however, that the successor Servicer
(i) shall not be liable for any acts, omissions or obligations of the Servicer
prior to such succession or for any breach by the Servicer or any of its
representations and warranties contained in this Agreement or in any related
document or agreement and (ii) shall have no duty or obligation with respect to
the Servicer's obligations set forth in Section 2.8(b) hereof. The successor
Servicer is authorized and empowered by this Agreement to execute and deliver,
on behalf of the prior Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement of the Contracts and the other
Collateral and related documents to show the Collateral Agent as lienholder or
secured party on the related Lien Certificates, or otherwise. The prior Servicer
agrees to cooperate with the successor Servicer in effecting the termination of
the responsibilities and rights of the prior Servicer under this Agreement,
including, without limitation, the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
prior Servicer for deposit, or have been deposited by the prior Servicer, in the
Collection Account or thereafter received with respect to the Contracts and the
delivery to the successor Servicer of all Contract Files, Servicing Records and
Collection Records and a computer tape in readable form containing all
information necessary to enable the successor Servicer or a successor Servicer
to service the Contracts and the other Collateral. If requested by the Lender,
the successor Servicer or successor Servicer shall terminate the Lockbox
Agreement and direct the Obligors to make all payments under the Contracts
directly to the successor Servicer (in which event the successor Servicer shall
process such payments in accordance with Section 2.2(e) hereof), or to a lockbox
established by the successor Servicer at the direction of the Lender, at the
prior Servicer's expense. The successor Servicer may set off and deduct any
amounts owed by the terminated Servicer from any amounts payable to the
terminated Servicer pursuant to the preceding sentence. The terminated Servicer
shall grant the Collateral Agent, the successor Servicer and the Lender
reasonable access to the terminated Servicer's premises at the terminated
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Servicer's expense. If a successor Servicer is acting as Servicer hereunder, it
shall be subject to termination under Section 4.2 hereof upon the occurrence of
any Servicer Termination Event applicable to it as Servicer.
(b)Any successor Servicer shall be entitled to such
compensation (whether payable out of the Collection Account or otherwise) as the
Servicer would have been entitled to under the Agreement if the Servicer had not
resigned or been terminated hereunder. If any successor Servicer is appointed
for any reason, the Lender and such successor Servicer may agree on additional
compensation to be paid to such successor Servicer, which additional
compensation shall be payable out of funds on deposit in the Collection Account.
In addition, any successor Servicer shall be entitled, out of funds in the
Collection Account, to reasonable transition expenses incurred in acting as
successor Servicer.
Section 4.4 Waiver of Past Defaults.
The Lender may waive any default by the Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Servicer
Termination Event arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.1 Amendment.
This Agreement may be amended from time to time by the parties
hereto only by a written instrument executed by all such parties and consented
to by the Lender.
Section 5.2 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
principles of conflicts of laws thereof and the obligations, rights and remedies
of the parties under this Agreement shall be determined in accordance with such
laws.
Section 5.3 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement.
Section 5.4 Assignment.
Notwithstanding anything to the contrary contained in this
Agreement, except as provided in Section 3.2 hereof and as provided in the
provisions of the Agreement concerning the resignation of the Servicer, this
Agreement may not be assigned by any party hereto without the prior written
consent of the other parties hereto.
Section 5.5 Waiver.
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER FACILITY AGREEMENTS TO WHICH
17
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IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT OF THE COURTS
OF THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT
SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT THE
RESPECTIVE ADDRESS SET FORTH IN SECTION 5.7 HEREOF OR AT SUCH OTHER ADDRESS OF
WHICH ALL OF THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION:
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVED IN ANY LEGAL ACTION OR PROCEEDING REFERRED
TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL, DAMAGES;
AND
(vi) EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS SERVICING
AGREEMENT OR ANY OTHER FACILITY AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
Section 5.6 Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which counterparts shall constitute but one and the same instrument.
Section 5.7 Notices.
All demands, notices and communications under this Agreement
shall be in writing, personally delivered or mailed by certified mail-return
receipt requested, and shall be deemed to have been duly given upon receipt (a)
in the case of the Servicer, the Borrower or FC Consumer, at the following
address: Box 8216, 6400 Imperial Drive, Waco, Texas 76714-8216, (b) in the case
of the Collateral Agent, at the following address: Chase Bank of Texas, National
Association, 2200 Ross Avenue, 5th Floor, Dallas, Texas 75201, Attention: Mike
Scrivner, FirstCity Auto Receivables L.L.C., fax 214-965-3577, and (c) in the
case of the Lender, at the following address: ContiTrade Services L.L.C., 277
Park Avenue, New York, New York 10172, phone 212-207-2822, fax 212-207-2935,
Attention: Chief Counsel, or at such other address as shall be designated by any
such party in a written notice to the other parties.
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Section 5.8 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and
their respective successors and assigns, and shall inure to the benefit of and
be enforceable by the parties hereto and their respective successors and assigns
permitted hereunder. All covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, the Borrower, the Servicer, FC
Consumer, the Lender and the Collateral Agent and their respective permitted
successors and assigns, if any.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Servicer, FC Consumer
and the Lender have caused this Servicing Agreement to be duly executed by their
respective officers, effective as of the day and year first above written.
FIRSTCITY AUTO RECEIVABLES L.L.C.
By
--------------------------------------------
Name:
Title:
FIRSTCITY SERVICING CORPORATION OF CALIFORNIA
By
--------------------------------------------
Name:
Title:
FIRSTCITY CONSUMER LENDING CORPORATION
By
--------------------------------------------
Name:
Title:
CONTITRADE SERVICES L.L.C.
By
--------------------------------------------
Name:
Title:
By
--------------------------------------------
Name:
Title:
20
<PAGE>
EXHIBIT A
---------
FORM OF SERVICER'S CERTIFICATE
------------------------------
FIRSTCITY SERVICING CORPORATION OF CALIFORNIA
---------------------------------------------
Monthly Servicing Report:
FirstCity Auto Receivables L.L.C.
Collection Period Ending: dd/mm/yy
21
<PAGE>
EXHIBIT B
---------
FORM OF SERVICER'S DAILY REPORT
-------------------------------
FIRSTCITY SERVICING CORPORATION OF CALIFORNIA
---------------------------------------------
Daily Report:
FirstCity Auto Receivables L.L.C.
Date: dd/mm/yy
Aggregate Contract Balance (Gross) $-----------------
Less Defaulted Contracts ($ )
-----------------
Less Liquidated Contracts ($ )
-----------------
Equals Aggregate Contract Balance $-----------------
Aggregate Contract Balance of Contracts that
lack a certificate of title within 121 days o $-----------------
origination
22
<PAGE>
EXECUTED COPY
-------------
SECURITY AND COLLATERAL AGENT AGREEMENT
among
FIRSTCITY AUTO RECEIVABLES L.L.C.
(as Borrower)
CONTITRADE SERVICES L.L.C.
(as Lender)
and
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(as Collateral Agent)
-------------------------
Dated as of April 30, 1998
-------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINED TERMS................................................1
SECTION 2. SECURITY INTERESTS...........................................2
SECTION 3. CERTAIN RIGHTS OF LENDER WITH RESPECT TO COLLATERAL..........3
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT..........4
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS....................5
SECTION 6. [RESERVED]...................................................6
SECTION 7. THE COLLATERAL AGENT.........................................6
7.01. APPOINTMENT..................................................6
7.02. EXCULPATORY PROVISIONS.......................................7
7.03. RELIANCE BY COLLATERAL AGENT.................................7
7.04. NOTICE OF DEFAULT............................................7
7.05. NON-RELIANCE ON COLLATERAL AGENT.............................8
7.06. SUCCESSOR COLLATERAL AGENT...................................8
7.07. DELIVERY OF COLLATERAL AND PERMITTED INVESTMENTS.............9
7.08. DUTIES AND COVENANTS OF COLLATERAL AGENT.....................9
SECTION 8. AMENDMENTS AND WAIVERS......................................10
SECTION 9. NOTICES.....................................................11
SECTION 10. LIMITATION ON COLLATERAL AGENT'S DUTY IN RESPECT
OF COLLATERAL...............................................12
SECTION 11. SEVERABILITY................................................12
SECTION 12. NO WAIVER; CUMULATIVE REMEDIES..............................12
SECTION 13. PAYMENT OF EXPENSES AND TAXES...............................12
SECTION 14. SUCCESSORS AND ASSIGNS; GOVERNING LAW; WAIVERS..............14
i
<PAGE>
SECTION 15. ENFORCEMENT RIGHTS OF LENDER................................15
SECTION 16. BANKRUPTCY PETITION AGAINST THE BORROWER....................15
SECTION 17. MISAPPLICATION OF FUNDS.....................................15
SECTION 18. COUNTERPART SIGNATURES......................................15
SECTION 19. THIRD PARTY BENEFICIARY.....................................16
SECTION 20. STATUS OF COLLATERAL AGENT..................................16
SECTION 21. ACTS OF LENDER..............................................16
EXHIBIT A -- Form of Trust Receipt
EXHIBIT B -- Form of Power of Attorney
ii
<PAGE>
SECURITY AND COLLATERAL AGENT AGREEMENT
SECURITY AND COLLATERAL AGENT AGREEMENT, dated as of April 30,
1998, made by and among FIRSTCITY AUTO RECEIVABLES L.L.C., a Delaware limited
liability company (the "Borrower"), CONTITRADE SERVICES, L.L.C., a Delaware
Limited Liability Company (the "Lender") and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("CBT"), as collateral agent (in such capacity, the "Collateral
Agent").
W I T N E S S E T H
WHEREAS, the Borrower has entered into a Warehouse Credit
Agreement dated as of April 30, 1998 (as may from time to time, be amended,
supplemented, or modified, the "Credit Agreement" with the Lender, the Borrower,
FirstCity Consumer Lending Corporation ("FC Consumer") and FirstCity Financial
Corporation ("FirstCity Financial"), pursuant to which the Borrower will take
out loans (the "Loans") from time to time;
WHEREAS, the Borrower intends to purchase Contracts from
FirstCity Funding Corporation, FirstCity Consumer Finance Corporation, and
N.A.F. Auto Loan Trust;
WHEREAS, it is a condition to the obligations of the Lender to
make the Facility available to the Borrower that this Security and Collateral
Agent Agreement be executed and delivered.
NOW, THEREFORE, to induce the Lender to make the Facility
available to the Borrower the parties hereto hereby agree as follows:
SECTION 1. DEFINED TERMS.
(a) The terms "inventory", "goods", "accounts", "contract
rights", "chattel paper", "general intangibles", and "documents" have the
respective meanings ascribed in the UCC.
(b) Capitalized terms used herein undefined shall, unless
otherwise defined herein, have the respective meanings ascribed in the Credit
Agreement, including the "Definitions List" attached as Exhibit A thereto; and
the following terms shall have the following meanings: "Assignment" shall mean
an assignment executed pursuant to the Master Purchase Agreement.
"Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
"Collateral Agent Fee" shall have the meaning set forth in a
separate letter agreement between Borrower and the Collateral Agent.
<PAGE>
"Contract Acquisition Disbursement Request" shall mean the
disbursement request made from time to time pursuant to Section 2.03(a)(i) of
the Paying Agent Agreement.
"Master Purchase Agreement" shall mean the Master Purchase
Agreement dated as of April 30, 1998 by and among the Borrower, FirstCity
Consumer Finance Corporation, FirstCity Funding Corporation, N.A.F. Auto Loan
Trust, and National Auto Funding Corporation.
"Proceeds" shall have the meaning assigned such term under the
UCC of the State of New York, and of each other jurisdiction whose law governs
the grant or perfection of the Collateral Agent's interest in the particular
proceeds of the Collateral and shall also include (to the extent not already
included): (i) any and all proceeds of any insurance, indemnity, warranty,
guaranty or letter of credit payable to the Borrower from time to time with
respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or rights to amounts payable to the Borrower from time to time
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental body,
authority, bureau or agency (or any person acting under color of governmental
authority), (iii) any and all other amounts, products, rents or profits from
time to time paid or payable under or in connection with the Collateral and (iv)
all additions to or substitutions or replacements for any of the Collateral.
"Responsible Officer" shall mean, when used with respect to
the Collateral Agent, any officer within the corporate trust department in
Dallas, Texas (or any successor thereof) including any vice president, assistant
vice president, or any officer or assistant officer of the Collateral Agent
customarily performing functions similar to those performed by any of the
above-designated officers.
SECTION 2. SECURITY INTERESTS.
(a) As security for the prompt, complete and unconditional
payment and performance of all Obligations of the Borrower, the Borrower hereby
pledges, assigns, transfers and delivers (except that certificates of title are
not being delivered to the Collateral Agent and the stated lienholder thereon
shall be any of FirstCity Consumer Finance, FirstCity Funding or either of the
N.A.F. Entities) to the Collateral Agent for the benefit of the Lender, and
grants to the Collateral Agent for the benefit of the Lender, a continuing first
lien on, and first and prior security interest in, all of the Borrower's assets
and properties, real, personal and mixed, tangible and intangible, of any kind
or description, whether now owned or at any time hereafter acquired, whether now
existing or hereafter acquired, and wherever located (collectively, the
"Collateral") including, without limitation all estate, right, title and
interest in, to and under:
(i) all inventory, goods, accounts, contract rights, chattel
paper, instruments, general intangibles and documents;
(ii) each Contract, including without limitation, all rights
to payments thereunder, purchased by or otherwise conveyed to or established by
the Borrower;
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(iii) each Vehicle and all other property, now or hereafter
acquired, securing or evidenced by, each Contract including, without limitation,
the certificate of title relating to each Vehicle, any insurance proceeds with
respect to any Vehicle or Contract, the proceeds of any repossession and
liquidation of a Vehicle, rights under judgments with respect to defaulted
obligors, right to deficiency judgments with respect to defaulted obligors and
rights under any service contracts with respect to any Vehicle;
(iv) all bank and trust accounts (including, without
limitation, the Lockbox Account and the Collection Account) and all moneys,
checks, instruments, documents, securities, investments, deposits and other
credits (whether or not permitted by the Facility Agreements) credited to the
Collection Account, or otherwise held by the Collateral Agent;
(v) the certificates of title relating to the Contracts,
credit applications, payment history records, and other origination and
servicing records relating to the Contracts;
(vi) all securities and other investments held at any time
by the Borrower including any and all subordinate certificates (including any
"interest only" certificates and the rights to any other distributions from any
securitization) received by the Borrower or any Affiliate of the Borrower from
any securitization, together with appropriate bond powers, duly executed (the
"Subordinate Certificates");
(vii) each Facility Agreement; and
(viii) all Proceeds of any of the foregoing.
(b) All rights of the Collateral Agent and the Lender and all
liens and security interests granted hereunder, shall be absolute, unconditional
and irrevocable unless and until released pursuant to the Facility Agreements,
irrespective of any condition or circumstance whatsoever.
(c) The grant of the security interest to the Collateral Agent
pursuant to this Section 2 shall not: (i) relieve the Borrower from the
performance of any term, covenant, condition or agreement on the Borrower's part
to be performed or observed under or in connection with the Collateral, (ii)
impose any obligation on the Collateral Agent or the Lender to perform or
observe any such term, covenant, condition or agreement on the Borrower's part
to be so performed or observed, or (iii) impose any liability on the Collateral
Agent or the Lender for any act or omission on the part of the Borrower, or any
Person acting as agent for or on behalf of the Borrower, relative to or for any
breach of any representation or warranty on the part of the Borrower in
connection with the Collateral.
SECTION 3. CERTAIN RIGHTS OF LENDER WITH RESPECT TO COLLATERAL.
Upon the occurrence and during the continuance of an Event of
Default, the Borrower hereby irrevocably authorizes the Collateral Agent to
execute and deliver, as the attorney-in-fact of the Borrower, any consent,
waiver or amendment which, under the terms of any Facility Agreement, is or may
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be executed and delivered by the Borrower with respect to the Collateral,
subject to the provisions of the Facility Agreements; provided, however, that
the Collateral Agent shall have no duty or obligation to execute and deliver any
such consent, waiver or amendment unless directed in writing to take the actions
specified therein by the Lender; and provided, further, that the Collateral
Agent shall not be required to take any action which the Collateral Agent
reasonably believes may be contrary to applicable law or which would expose the
Collateral Agent to financial liability if the Collateral Agent has reasonable
grounds to believe that repayment of such financial liability is not reasonably
assured to it. The Borrower hereby agrees to remit to the Collateral Agent for
deposit in accordance with this Agreement any and all Proceeds of any Collateral
received by the Borrower (other than money paid to the Borrower by the
Collateral Agent in accordance with the Facility Agreements).
SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.
(a) (i) If at any time an Event of Default shall have occurred
and be continuing, the Collateral Agent shall, if directed in writing by the
Lender, without demand of performance or other demand, advertisement or notice
of any kind (except for any notice of the time and place of public or private
sale required by law) to or upon the Borrower or any other Person (all of which
demands, advertisements and/or notices are hereby expressly waived), and in its
own name or in the name of the Lender, forthwith demand, collect, receive, sue
for, appropriate and realize upon the Collateral, or any part thereof, and/or
may forthwith sell, assign, grant an option or options to purchase, contract to
sell or otherwise dispose of and deliver said Collateral, or any part thereof,
in one or more parcels at public or private sale or sales, at any location or
locations at the option of the Collateral Agent acting upon any instructions
received from the Lender, all upon such terms and conditions and at such prices
as the Lender may deem advisable, for cash or on credit or for future delivery
without assumption of any credit risk, with the right of the Collateral Agent or
the Lender upon any such public sale or sales to purchase the whole or any part
of said Collateral so sold, free of any right of redemption in the Borrower,
which right is hereby expressly waived and released. At the instruction of the
Lender, the Collateral Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be made
at any time or place to which the same may be so adjourned.
(ii) If at any time an Event of Default shall have
occurred and be continuing and the Lender has given written notice to
the Collateral Agent as to the disposition of the Collateral or as to
the exercise of remedies against the Collateral, the Collateral Agent
hereby agrees to follow such direction; provided, however, no
provision of this Agreement shall require the Collateral Agent to
take any action which it or its counsel deems to be unlawful nor
shall the Collateral Agent be obligated to expend or risk its own
funds or otherwise incur any financial liability in the performance
of any rights, powers or duties hereunder, if the Collateral Agent
shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Until all Obligations have been repaid and
satisfied in full, the Collateral Agent shall be obligated, subject
to the foregoing proviso, to take direction only from the Lender as
to, upon the occurrence and during the continuance of an Event of
Default, the disposition of the Collateral, or the exercise of
remedies against the Collateral.
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(iii) If an Event of Default shall have occurred and be
continuing, then the Collateral Agent shall, if directed by the
Lender, at any time thereafter, without demand of performance or
other demand, succeed to the Borrower's rights and privileges with
respect to each Facility Agreement.
(iv) If an Event of Default shall have occurred and be
continuing, the Collateral Agent shall, if directed by the Lender, at
the expense of the Borrower or the Lender, cause the Subordinate
Certificates to be re-registered in the name of the Lender (which
Subordinate Certificates will in turn be re-registered to the
appropriate FirstCity Entity, at its expense, when and if all
Obligations have been repaid and satisfied in full).
(b) If any notification of a proposed disposition of the
Collateral is required by law, such notification shall be deemed reasonably and
properly given if made in any manner provided in Section 9 hereof at least ten
days before such disposition.
(c) In addition to the rights, powers and remedies granted to
it in this Security and Collateral Agent Agreement and in any other instrument
or agreement securing, evidencing or relating to the Loans, the Collateral Agent
shall have all of the rights, powers and remedies now or hereafter permitted in
law or equity, including, without limitation, those of a secured party under the
UCC of the State of New York and any other applicable jurisdiction.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Borrower represents, warrants and agrees that:
(a) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement listing the Borrower as
debtor covering all or any part of the Collateral is on file or of record in any
jurisdiction, except such as may have been filed, for the benefit of the Lender
recorded or made by the Borrower in favor of the Collateral Agent pursuant to
this Security and Collateral Agent Agreement or the Credit Agreement.
(b) This Security and Collateral Agent Agreement is effective
to create a valid and continuing Lien on the Collateral in favor of the
Collateral Agent for the benefit of the Lender, which Lien is prior to all other
Liens, and is enforceable as such as against creditors of and purchasers from
the Borrower. All action necessary or desirable to protect and perfect such
security interest has been duly taken.
(c) The Borrower's chief executive office is at Box 8216, 6400
Imperial Drive, Waco, Texas, 76714-8216. The Borrower will not change its name
and will not change its principal place of business or chief executive office
unless the Borrower shall have given the Collateral Agent at least thirty (30)
days prior written notice thereof and shall have taken all action necessary to
assure continuous perfection of the security interest held by the Collateral
Agent in the Collateral as evidenced by an opinion of counsel addressed to the
Collateral Agent and the Lender to the effect that the lien and security
interest created by this Security and Collateral Agent Agreement with respect to
such Collateral will continue to be maintained, and that the priority thereof
will not be affected, after giving effect to such action or actions.
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(d) At any time and from time to time, and at the sole expense
of the Borrower, the Borrower will promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as the
Lender may reasonably deem desirable in obtaining the full benefits of this
Security and Collateral Agent Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the liens and security interests granted hereby.
The Borrower also hereby authorizes the Collateral Agent to file any such
financing or continuation statement that requires the signature of the Borrower
to the extent permitted by applicable law; provided, however, that such
authorization shall not be deemed to create a duty in the Collateral Agent to
monitor the compliance of the Borrower with the foregoing covenants and provided
further that the duty of the Collateral Agent to execute any instrument pursuant
to the authorizations of Section 5(d) or (f) shall arise only if a Responsible
Officer of the Collateral Agent has actual knowledge, or has received written
notice, of the failure of the Borrower to comply with the foregoing covenants.
If any amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note or other instrument, or any chattel
paper, the Borrower shall, upon request of the Lender, duly endorse such note,
instrument or chattel paper to the order of the Collateral Agent and deliver
such note, instrument or chattel paper to the Collateral Agent promptly, and
shall take such other actions and execute such other documents as shall be
requested by the Lender to perfect the Collateral Agent's interest in such note,
instrument or chattel paper.
(e) The Borrower will warrant and defend the Collateral
Agent's right, title and interest in and to the Collateral, for the benefit of
the Lender against the claims and demands of all Persons whomsoever.
(f) All authorizations in this Security and Collateral Agent
Agreement for the Collateral Agent to endorse checks, instruments and securities
and to execute, deliver and file financing statements, continuation statements,
security agreements and other instruments with respect to the Collateral are
powers coupled with an interest and are irrevocable so long as any Loans are
outstanding.
(g) The Borrower shall deliver to the Collateral Agent all
Contract Acquisition Disbursement Requests by 2:00 p.m., Dallas time, on the
applicable date of delivery.
SECTION 6. [Reserved]
SECTION 7. THE COLLATERAL AGENT.
7.01. Appointment.
By accepting the benefits of the security interest granted
herein, the Lender hereby designates and appoints Chase Bank of Texas, National
Association as the Collateral Agent of the Lender under this Security and
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Collateral Agent Agreement, and the Lender authorizes Chase Bank of Texas,
National Association as the Collateral Agent for the Lender, to take such action
on its behalf under the provisions of this Security and Collateral Agent
Agreement and to exercise such powers and perform such duties as are expressly
delegated to the Collateral Agent by the terms of this Security and Collateral
Agent Agreement together with such other powers as are reasonably incidental
thereto but in each instance solely at the written instruction of the Lender.
Notwithstanding any provision to the contrary elsewhere in this Security and
Collateral Agent Agreement, the Collateral Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with the Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Security and Collateral Agent Agreement or otherwise exist against the
Collateral Agent. Chase Bank of Texas, National Association hereby accepts its
appointment as Collateral Agent, subject to, and in reliance upon, the provision
of this Section 7.01.
7.02. Exculpatory Provisions.
Neither the Collateral Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Security and Collateral Agent Agreement (except
for its or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to the Lender for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained herein or in any other Facility Agreement, or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Collateral Agent under or in connection with, this Agreement, any other
Facility Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency (except with respect to the Collateral Agent) of
this Agreement, any other Facility Agreement, or the Collateral or for any
failure of the Borrower to perform its obligations hereunder or under any other
Facility Agreement. The Collateral Agent shall not be under any obligation to
the Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, any of the Facility
Agreements, or to inspect the properties, books or records of the Borrower.
7.03. Reliance by Collateral Agent.
The Collateral Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Loan, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Collateral Agent. The Collateral Agent shall be fully justified
in failing or refusing to take any action under this Security and Collateral
Agent Agreement unless it shall first receive such written advice or concurrence
as it deems appropriate or it shall first be indemnified to its satisfaction
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Collateral Agent may from
time to time consult with legal counsel, independent accountants or other
experts of its own selection in the event of any disagreement, controversy,
question or doubt as to the construction of any provision of this Agreement or
any of its duties hereunder, and the Collateral Agent shall be fully protected
in acting in good faith in reliance upon the advice or opinion of any such
counsel or other expert.
7.04. Notice of Default.
The Collateral Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default under the Credit Agreement
unless a Responsible Officer has received written notice from the Lender or the
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Borrower referring to this Security and Collateral Agent Agreement and
describing such Event of Default or unless a Responsible Officer otherwise has
actual knowledge of such Event of Default.
7.05. Non-Reliance on Collateral Agent.
Neither the Collateral Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to the Lender, and no act by the Collateral Agent
hereafter taken, including any review of the affairs of the Borrower, shall be
deemed to constitute any representation or warranty by the Collateral Agent to
the Lender. The Lender represents (or will be deemed to have represented at such
time as such party becomes a Lender hereunder) to the Collateral Agent that it
has, independently and without reliance upon the Collateral Agent, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and made its
own decision to extend credit to the Borrower. The Lender will, independently
and without reliance upon the Collateral Agent, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Security and Collateral Agent Agreement, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower. Except for
notices, reports and other documents expressly required to be furnished by the
Collateral Agent hereunder, the Collateral Agent shall have no duty or
responsibility to provide the Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of the
Collateral Agent or any of its officers, directors, employees, agencies,
attorneys-in-fact or affiliates.
7.06. Successor Collateral Agent.
The Collateral Agent may resign as collateral agent upon 60
days' notice to the Borrower, FC Consumer and the Lender. The Collateral Agent
may be removed at any time by the Lender. No such resignation or removal shall
be effective unless and until a successor collateral agent named by the Borrower
and approved by the Lender has accepted appointment as such pursuant to this
Agreement and in the case of a removal, any and all amounts then due to the
Collateral Agent hereunder have been paid in full. Such successor collateral
agent shall succeed to the rights, powers and duties of the Collateral Agent,
and the term "Collateral Agent" shall mean such successor collateral agent
effective upon its appointment, and the former Collateral Agent's rights, powers
and duties as Collateral Agent shall be terminated, without any other or further
act or deed on the part of such former Collateral Agent. Such successor
collateral agent shall be entitled to amend any UCC financing statements and any
other filings, recordation and declarations it deems advisable or necessary in
connection with such termination and cancellation. After any retiring Collateral
Agent's resignation or removal hereunder as Collateral Agent, the provisions of
this Section 7.06 and Section 13 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Collateral Agent under this
Security and Collateral Agent Agreement . Notwithstanding the foregoing, if no
successor collateral agent shall be appointed as aforesaid, or if appointed,
such successor shall not have accepted its appointment within thirty (30) days
after resignation of the Collateral Agent, the Collateral Agent may petition a
court of competent jurisdiction to make such appointment.
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7.07. Delivery of Collateral and Permitted Investments.
All certificates representing or evidencing the Collateral and
Permitted Investments from time to time which are delivered to and held by or on
behalf of the Collateral Agent pursuant hereto shall, in the case of the
Collateral, be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank. The
Lender hereby appoints CBT as its agent for the purpose of holding the
Collateral and Permitted Investments which are delivered to it. The Collateral
Agent shall be the agent solely of the Lender and shall not be the agent of the
Borrower. The Collateral Agent shall not release possession of any Contract, any
Permitted Investments or the security interest in any Vehicle or Permitted
Investment except as permitted in the next sentence, or upon the written
instruction of the Lender. The Collateral Agent shall not release possession of
any Contracts to the Servicer or any documents in the related Contract Files
thereto except (i) upon receipt of a trust receipt substantially in the form
attached hereto as Exhibit A obligating the Servicer to hold same in trust for
the benefit of the Lender and obligating the Servicer to return same when the
need therefor no longer exists unless such Trust Receipt indicates that the
related Contract has been paid in full.
7.08. Duties and Covenants of Collateral Agent.
(a) The Collateral Agent undertakes to perform the duties as
are set forth in this Agreement, including, without limitation:
(i) reviewing each Contract delivered to it by the
Borrower against the Contract List attached to the related Contract
Acquisition Disbursement Request, ascertaining whether the
information listed in items (i), (ii), (iii), (viii) and (xi) of the
Contract List is accurate with respect to such Contract; with respect
to any Contract Acquisition Disbursement Request, on the third
Business Day of the calendar week following the calendar week in
which such Contract Acquisition Disbursement Request and the related
Contract are received by the Collateral Agent, provide a
certification to the Borrower and the Lender (the "Collateral Agent's
Certification") listing (x) the Contracts so reviewed by the
Collateral Agent and in its possession and (y) whether there were any
exceptions to the Collateral Agent's review of such items (i), (ii),
(iii), (viii) and (xi) on the Contract List;
(ii) maintaining possession of such Contracts on behalf of
the Lender, and releasing such Contracts from the Collateral Agent's
possession only upon the Lender's written instruction or pursuant to
Section 7.07 hereof;
(iii) upon request, providing information reasonably
within its possession and within reasonable time constraints
regarding the Collateral to FC Consumer, the Servicer and the Lender;
(iv) acting as Collateral Agent of all Contract Files
related to the Collateral which are delivered to it;
(v) upon request, and no later than noon New York time on
any Borrowing Date, providing written confirmation to the Paying
Agent and the Lender of the Borrowing Base, and whether a Borrowing
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Base Deficiency exists; provided, however, that the Collateral Agent
shall have received all reports from the Servicer with the
information relating to such confirmation by 10 AM New York time, on
the date of such confirmation;
(vi) cooperating with the Servicer, as requested by the
Servicer at the expense of the Borrower, in enforcing any Contracts
or Insurance Policies;
(vii) furnishing the Servicer with any limited powers of
attorney and other documents which the Servicer may reasonably
request in writing and which the Servicer deems necessary or
appropriate and take any other steps which the Servicer may deem
necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under the Servicing Agreement;
(viii) providing to the Lender and the Borrower on the
third Business Day of each calendar week, a manifest of Contracts
held by the Collateral Agent as of the close of business on the last
Business Day of the previous calendar week; and
(ix) upon a Responsible Officer obtaining actual knowledge
of the occurrence of an Event of Servicing Termination or an Event of
Default, promptly give notice to the Lender and the Borrower of such
occurrence.
(b) The Collateral Agent covenants and agrees that it will not
release any Lien created hereby on any of the Collateral, release possession of
any of the Collateral held by it, or affirmatively create any Lien on the
Collateral adverse to the Lien created hereby, except, in all cases, as
expressly permitted hereby or as directed by the Lender. The Collateral Agent
shall give the Lender prompt written notice of any Liens on any of the
Collateral adverse to the Lien created hereby, of which a Responsible Officer
obtains actual knowledge.
(c) The Lender hereby directs the Collateral Agent to, and the
Collateral Agent shall, on the Closing Date, execute and deliver to the Servicer
the power of attorney in the form set forth as Exhibit B hereto. The Borrower,
irrespective of any other indemnity, agrees to pay, indemnify and hold the
Collateral Agent and each of its officers and agents harmless from and against
all liabilities, obligations, losses, damages, fines, actions, judgments, costs,
expenses or disbursements (including reasonable fees and disbursements of the
Collateral Agent's and its designated agents' legal advisers) of any kind or
nature resulting from or relating to the power of attorney delivered pursuant to
this Section 7.08(c). Such power of attorney shall be a limited revocable power
of attorney which shall be deemed revoked upon the occurrence of an Event of
Default and shall be revocable at any time by the Collateral Agent upon notice
to the Borrower and the Lender.
SECTION 8. AMENDMENTS AND WAIVERS.
The parties hereto may, from time to time, enter into written
amendments, supplements or modifications hereto for the purpose of adding any
provision to this Security and Collateral Agent Agreement or changing in any
manner the rights of the Collateral Agent or the Borrower hereunder.
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The Collateral Agent may, but shall not be obligated to, enter
into any such supplement, amendment or modification that affects the Collateral
Agent's own rights, duties or immunities under this Security and Collateral
Agent Agreement or otherwise.
The parties hereto agree not to execute any supplement,
amendment or modification to any Facility Agreement to which the Collateral
Agent is not a party, without the prior written consent of the Collateral Agent,
if the effect of such supplement. amendment or modification would be to affect
the Collateral Agent's rights, duties, or immunities thereunder or under this
Security and Collateral Agent Agreement .
SECTION 9. NOTICES.
Unless otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or when deposited
in the mail, postage prepaid, or in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of facsimile notice, when
sent, confirmation received, addressed as follows, or to such other addresses as
may be hereafter notified by the respective parties hereto:
The Borrower:
FirstCity Auto Receivables L.L.C.
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
with a copy to:
FirstCity Consumer Finance Corporation
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
The Collateral Agent:
Chase Bank of Texas, National Association
2200 Ross Avenue, 5th Floor
Dallas, TX 75201
Attention: Mike Scrivner
(FirstCity Auto Receivables L.L.C.)
Telecopy: (214) 965-3577
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The Lender:
ContiTrade Services L.L.C.
277 Park Avenue
New York, New York 10172
Attention: Chief Counsel
Telecopy: (212) 207-2935
provided, that any notice to or upon the Borrower shall be deemed to have been
duly given or made as aforesaid when so given or made to the Borrower whether or
not any other party indicated above as the recipient of a copy thereof shall
have received a copy of each notice.
SECTION 10. LIMITATION ON COLLATERAL AGENT'S DUTY IN RESPECT OF
COLLATERAL.
Except as set forth herein and beyond the safe custody
thereof, the Collateral Agent shall not have any duty as to any Collateral in
its possession or control or the possession or control of any agent or nominee
of it or any income thereof or as to the preservation of rights against prior
parties or any other rights pertaining thereto.
SECTION 11. SEVERABILITY.
Any provision of this Security and Collateral Agent Agreement
which is prohibited or unenforceable in any jurisdiction shall as to such
jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidation of the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 12. NO WAIVER; CUMULATIVE REMEDIES.
Neither the Collateral Agent nor the Lender shall by any act,
delay, omission or otherwise be deemed to have waived any of its or their rights
or remedies hereunder and no waiver shall be valid unless in writing, signed by
the Collateral Agent on behalf of the Lender, and then only to the extent
therein set forth. A waiver by the Collateral Agent of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Collateral Agent or the Lender would otherwise have had on any
future occasion. No failure to exercise nor any delay in exercising on the part
of the Collateral Agent or the Lender any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently and are not exclusive of any rights and remedies provided by law.
SECTION 13. PAYMENT OF EXPENSES AND TAXES.
(a) The Borrower hereby agrees to pay to the Collateral Agent
a fee for its services hereunder equal to the Collateral Agent Fee. The Borrower
and FC Consumer, jointly and severally, each agrees to pay, indemnify, and to
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hold the Collateral Agent harmless from, any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any delay in
paying, stamp and other similar taxes, if any, which may be payable or
determined to be payable in connection the execution and delivery of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Security and Collateral Agent Agreement , and any such other documents, and
to pay, indemnify, and hold the Collateral Agent and its officers, directors,
shareholders, employees, agents and representatives harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Security and Collateral Agent Agreement and any such
other documents (including but not limited to those incurred by any negligent
act or negligent omission to act of the Collateral Agent) (all the foregoing,
collectively, the "indemnified liabilities"); provided, that the Borrower and FC
Consumer shall not be liable to the Collateral Agent for any losses incurred by
the Collateral Agent as a result of the fraudulent actions, misrepresentations,
gross negligence or willful misconduct of the Collateral Agent. The obligations
of the Borrower and FC Consumer under this Section 13 shall survive the
termination of this Security and Collateral Agent Agreement and the discharge of
the other obligations of the Borrower hereunder and also shall survive the
resignation or removal of the Collateral Agent hereunder.
(b) Promptly after receipt by the Collateral Agent of notice
of the commencement of any action, such Collateral Agent shall, if a claim in
respect thereof is to be made against the Borrower or FC Consumer under this
Section 13, notify the Borrower or FC Consumer in writing of the commencement
thereof; but the omission so to notify the Borrower will not relieve it from any
liability which it may have to the Collateral Agent except to the extent the
Borrower is prejudiced thereby. In case any action is brought against the
Collateral Agent, and it notifies the Borrower of the commencement thereof, the
Borrower will be entitled to appoint counsel satisfactory to the Collateral
Agent and the Borrower (who shall not, except with the consent of the Collateral
Agent, be counsel to the Borrower or FC Consumer) to represent the Collateral
Agent in such action; provided, however, that, if the defendants in any action
include both the Collateral Agent and the Borrower and the Collateral Agent
shall have reasonably concluded that there may be legal defenses available to it
which are different from or additional to those available to the Borrower, the
Collateral Agent shall have the right to select separate counsel to defend such
action on behalf of it. Upon receipt of notice from the Borrower to the
Collateral Agent of its election so to appoint counsel to defend such action and
approval by the Collateral Agent of such counsel, the Borrower will not be
liable to the Collateral Agent under this Section 13 for any legal or other
expenses subsequently incurred by the Collateral Agent in connection with the
defense thereof unless (i) the Collateral Agent shall have employed separate
counsel in accordance with the proviso to the next preceding sentence, (ii) the
Borrower shall not have employed counsel satisfactory to the Collateral Agent to
represent the Collateral Agent within a reasonable time after notice of
commencement of the action or (iii) the Borrower has authorized the employment
of counsel for the Collateral Agent at the expense of the Borrower; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii).
(c) The obligations of the Borrower, FC Consumer and the
Collateral Agent under this Section 13 shall be in addition to any liability
13
<PAGE>
which each of them may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls the Collateral Agent within the
meaning of the Securities Act; and, with respect to the obligation of the
Borrower to the Collateral Agent as indemnified party, shall extend, upon the
same terms and conditions, to each director of the Collateral Agent.
(d) The agreement, indemnities and other statements of the
parties hereto in or made pursuant to this Section 13 will remain in full force
and effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of any other parties hereto or any of the
officers, directors or controlling persons referred to in this Section 13. The
provisions of this Section 13 shall survive the termination or cancellation of
this Agreement.
SECTION 14. SUCCESSORS AND ASSIGNS; GOVERNING LAW; WAIVERS
(a) This Security and Collateral Agent Agreement and all
obligations of the Borrower hereunder shall be binding upon the successors and
assigns of the Borrower, and shall, together with the rights and remedies of the
Collateral Agent hereunder, inure to the benefit of the Collateral Agent, the
Lender and their respective successors and assigns. THIS SECURITY AND COLLATERAL
AGENT AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
(B) EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER
FACILITY AGREEMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT OF THE COURTS OF THE STATE OF NEW YORK,
THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 9 OR AT SUCH OTHER
ADDRESS OF WHICH ALL OF THE OTHER PARTIES HERETO SHALL HAVE BEEN
NOTIFIED PURSUANT THERETO;
14
<PAGE>
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION;
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES; AND
(vi) EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER FACILITY AGREEMENT
AND FOR ANY COUNTERCLAIM THEREIN. SECTION 1ENFORCEMENT RIGHTS OF
LENDER.
SECTION 15. ENFORCEMENT RIGHTS OF LENDER.
Unless the Collateral Agent shall fail to take action required
to be taken by it in the immediately succeeding sentence, no Lender shall have
any right directly to enforce the security interests granted by this Security
and Collateral Agent Agreement. No Lender shall have any right to require the
Collateral Agent to take or fail to take any action under this Security and
Collateral Agent Agreement, except as otherwise provided in the Credit Agreement
or in this Security and Collateral Agent Agreement.
SECTION 16. BANKRUPTCY PETITION AGAINST THE BORROWER.
The Collateral Agent hereby covenants and agrees that, prior
to the date which is one year and one day after the payment in full of all
outstanding Loans, it will not institute against, or join any other Person in
instituting against, the Borrower any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding or other similar proceeding under the laws
of the United States or any state of the United States.
SECTION 17. MISAPPLICATION OF FUNDS.
The Collateral Agent agrees that any funds incorrectly paid to
it by the Borrower shall be promptly returned to the Borrower upon receipt of
written notice from the Borrower that such funds were incorrectly paid to the
Collateral Agent prior to the Collateral Agent's transfer of such funds in
accordance with this Agreement. The Collateral Agent shall be completely
protected against any liability for returning such funds in reliance on such
written notice that funds were incorrectly paid and shall be entitled to full
indemnification therefor.
SECTION 18. COUNTERPART SIGNATURES.
This Agreement may be executed and delivered to you
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument.
15
<PAGE>
SECTION 19. THIRD PARTY BENEFICIARY.
For all purposes of this Agreement, FC Consumer shall be a
third party beneficiary of the agreements and covenants herein contained and the
Servicer shall be a third party beneficiary of the provisions of this Agreement
which specify the amount and priority of payment of their respective fees.
SECTION 20. STATUS OF COLLATERAL AGENT.
The parties hereto acknowledge and agree that upon payment in
full of all amounts owing under the Credit Agreement and the release of the
Lender's security interest in the Collateral, the rights and obligations of the
Collateral Agent under this Agreement shall continue but shall be performed
solely at the direction of the Borrower.
SECTION 21. ACTS OF LENDER.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by the Lender may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by the Lender in person or by agents duly
appointed in writing; and except as herein otherwise expressly provided such
action shall become effective when such instrument or instruments is or are
delivered to the Collateral Agent. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement if made in the manner provided in this Section 21.
(b) The fact and date of the execution by any person of any
such instrument or writing may be proved in any manner that the Collateral Agent
deems sufficient.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Lender shall bind the Lender in respect
of anything done, omitted or suffered to be done by the Collateral Agent in
reliance thereon, whether or not notation of such action is made upon the
Promissory Note.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed by their duly authorized officers as of the
date first set forth above.
FIRSTCITY AUTO RECIEVABLES L.L.C.
By: /s/
-----------------------------------------
Name:
Title:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as
Collateral Agent
By: /s/
-----------------------------------------
Name:
Title:
CONTITRADE SERVICES L.L.C.
By: /s/
-----------------------------------------
Name:
Title:
By: /s/
-----------------------------------------
Name:
Title:
JOINDER WITH RESPECT TO SECTION 13 ONLY
FIRSTCITY CONSUMER LENDING CORPORATION
By: /s/
-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
FORM OF TRUST RECEIPT
DATE
FirstCity Auto Receivables L.L.C.
Box 8216
6400 Imperial Drive
Waco, Texas 76714-8216
Re: Security and Collateral Agent Agreement, dated as of April
30, 1998 (the "Security Agreement") among FirstCity Auto
Receivables L.L.C., ContiTrade Services L.L.C. and Chase
Bank of Texas, National Association
----------------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 7.07 of the Security Agreement, the
undersigned hereby certifies that it has taken possession of the items set forth
on Annex I hereto with respect to the Contracts on the attached schedule. The
undersigned (i) confirms that it holds such items in trust for the benefit of
the Lender and (ii) agrees to promptly return such items to the Collateral Agent
after its need for possession of them ceases, except with respect to any
Contract paid in full or liquidated, in which case the Servicer shall forward
all proceeds and/or recoveries to the Lockbox Account.
FIRSTCITY SERVICING CORPORATION
OF CALIFORNIA
By: /s/
-----------------------------------------
Name:
Title:
APPROVED
- --------
CONTITRADE SERVICES L.L.C.
By: /s/
-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
---------
FORM OF
LIMITED REVOCABLE POWER OF ATTORNEY
DATE: APRIL 30, 1998
Pursuant to the direction of Contitrade Services L.L.C. (the "Lender") under
Section 7.08(c) of the Security and Collateral Agent Agreement, dated as of
April 30, 1998 the ("Security Agreement"), among the Lender, Chase Bank of
Texas, National Association, a national banking association ("Chase Bank of
Texas"), as Collateral Agent, and FirstCity Auto Receivables L.L.C., as Borrower
(the "Borrower"), Chase Bank of Texas hereby permits FirstCity Servicing
Corporation of California to act on behalf of Chase Bank of Texas in connection
with the Warehouse Credit Agreement, dated as of April 30, 1998 the ("Credit
Agreement"), among the Lender, FirstCity Consumer Lending Corporation, the
Borrower and FirstCity Financial Corporation, and the Security Agreement, to
execute such legal documents and taken such legal proceedings as are required in
connection with the repossession and disposition, if necessary, of each item of
the collateral described in Annex A to this Power of Attorney, where Chase Bank
of Texas is the legal owner of record on an account assigned to FirstCity
Servicing Corporation of California for servicing. This is a limited revocable
power of attorney and only authorizes FirstCity Servicing Corporation of
California to act as expressly set forth herein. This limited revocable power of
attorney shall be deemed revoked upon the occurrence of an Event of Default (as
defined in the Credit Agreement) and shall be revocable at any time by Chase
Bank of Texas upon notice to the Borrower and the Lender.
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
AS COLLATERAL AGENT
By: /s/ Michael A. Scrivner, Vice President
------------------------------------
Michael A. Scrivner, Vice President
Subscribed and sworn to before me, a Notary Public in and for the County of
Dallas, State of Texas, this ___ day of __________, 1998.
--------------------------------
Notary Public
ACKNOWLEDGED AND
APPROVED as of the date
first above written
CONTITRADE SERVICES L.L.C.
By:__________________________
Name:________________________
Title:_________________________
<PAGE>
ANNEX A
TO
LIMITED REVOCABLE POWER OF ATTORNEY DATED APRIL 30, 1998
BY
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
Vehicle's
No. Debtor's Name Account No. Year, Brand, Model VIN
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of July 24, 1998 (this
"Agreement") is between FIRSTCITY COMMERCIAL CORPORATION, a Texas corporation
(the "Company") and CFSC CAPITAL CORP. XXX, a Delaware corporation (the
"Lender").
The Company has requested and the Lender has agreed to provide
the Company with a loan to the Company in the principal amount of
$15,000,000.00.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein, the Company and the Lender agree as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
SECTION 1.01. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including all directors and
officers of such Person), controlled by, or under direct or indirect
common control with such Person, and any other Person in which such
Person's direct or indirect equity interest is 10% or more of the total
outstanding equity interests of such Person.
<PAGE>
"Agreement" has the meaning specified in the introduction to
this Agreement.
"Assignment and Acceptance" has the meaning specified in
Section 9.10 (c).
"Bankruptcy Code" has the meaning specified in Section
8.01(f).
"Board" means the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Minnesota) on which banks are
open for business in Minnetonka, Minnesota.
"Capitalized Lease Obligations" means all lease or rental
obligations which, pursuant to GAAP, are capitalized for balance sheet purposes.
"Change of Control" means any of (i) the failure of the former
shareholders of J-Hawk Corporation (predecessor in interest to the Company) to
hold at least twenty percent (20%) of the outstanding voting capital stock of
the Company, (ii) the failure of any one of James R. Hawkins, James T. Sartain,
Rick Hagelstein, Matt Landry or David W. MacLennan (or anyone approved by the
Lender in writing in lieu of any of the above Persons) to be a member of the
Board of Directors of the Company at any time, (iii) all or substantially all of
the assets of the Company are sold in a single transaction or series of related
transactions to any Persons or (iv) the Company merges or consolidates with or
into any other Person.
"Closing Date" means July __, 1998.
"Code" means Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
2
<PAGE>
"Collateral" shall have the meaning set forth in the Security
Documents.
"Company" has the meaning specified in the introduction to
this Agreement.
"Default" means the occurrence of any event which with the
giving of notice or the passage of time or both could become an Event of
Default.
"Default Rate" means the lesser of (i) the Highest Lawful Rate
and (ii) the Prime Rate plus ten percent (10%) per annum.
"Delinquent Fee" has the meaning specified in Section 3.01(a).
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $1,000,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development or any successor organization, or a political
subdivision of any such country, and having total assets in excess of
$1,000,000,000; provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the Organization for Economic Cooperation and Development or any
successor organization; (c) the central bank of any country which is a member of
the Organization for Economic Cooperation and Development or any successor
organization; and (d) any other bank or similar financial institution approved
by the Lender.
"Environmental Laws" means federal, state or local laws, rules
or regulations, and any judicial, arbitral or administrative interpretations
thereof, including any judicial, arbitral or administrative order, judgment,
permit, approval, decision or determination pertaining to conservation or
3
<PAGE>
protection of the environment in effect at the time in question, including the
Clean Air Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Toxic Substances Control Act, the Superfund
Amendment and Reauthorization Act of 1986, the Hazardous Materials
Transportation Act, and comparable state and local laws, and other environmental
conservation and protection laws.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations promulgated thereunder.
"ERISA Affiliate" means (a) any trade or business (whether or
not incorporated) which is either a member of the same "controlled group" or
under "common control," within the meaning of Section 414 of the Code and the
regulations thereunder, with the Company and (b) any Subsidiary of the Company.
"Event of Default" has the meaning specified in Section 8.01.
"Fannie Mae Mortgage Selling and Servicing Agreement" means
that certain Agreement dated 7/27/95 by and between Harbor Financial Mortgage
Corporation and Federal National Mortgage Association.
"Fees" means all amounts payable pursuant to Section 3.01.
"Financials" has the meaning specified in Section 5.07.
"GAAP" means generally accepted accounting principles as in
effect from time to time as set forth in the opinions, statements and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board and such
other Persons who shall be approved by a significant segment of the accounting
profession and concurred in by the independent certified public accountants
certifying any audited financial statements of the Company.
4
<PAGE>
"Guaranty Agreement" means that certain Guaranty dated of even
date herewith from FirstCity Financial Corporation in favor of the Lender.
"Guarantor" means FirstCity Financial Corporation.
"Hazardous Materials" means (a) hazardous waste as defined
in the Resource Conservation and Recovery Act of 1976, or in any
applicable federal, state or local law or regulation, (b) hazardous
substances, as defined in CERCLA, or in any applicable state or local
law or regulation, (c) gasoline, or any other petroleum product or
by-product, (d) toxic substances, as defined in the Toxic Substances
Control Act of 1976, or in any applicable federal, state or local law
or regulation or (e) insecticides, fungicides, or rodenticides, as
defined in the Federal Insecticide, Fungicide, and Rodenticide Act of
1975, or in any applicable federal, state or local law or regulation,
as each such Act, statute or regulation may be amended from time to
time.
"Highest Lawful Rate" means the maximum nonusurious rate of
interest that, under applicable law, may be contracted for, taken, reserved,
charged or received by the Lender on the Loans or under the Loan Documents at
any time or from time to time. If the maximum rate of interest which, under
applicable law, the Lender is permitted to charge the Company on the Loans shall
change after the date hereof, to the extent permitted by applicable law, the
Highest Lawful Rate shall be automatically increased or decreased, as the case
may be, as of the effective time of such change without notice to the Company or
any other Person.
"Indebtedness" means all amounts payable to Lender by Company
under the Loan Documents, whether existing or subsequently accruing including
without limitation the principal amount of the Loan, interest, fees, costs, and
other charges payable hereunder.
"Interest Period" means, (a) initially, the period commencing
on the Closing Date and ending on the last day of the current calendar month and
5
<PAGE>
(b) thereafter, each succeeding monthly period commencing on the first (1st) day
of the following calendar month; provided that any Interest Period that would
otherwise extend beyond the Maturity Date shall end on the Maturity Date.
"Investment" means, as applied to any Person, any direct or
indirect purchase or other acquisition by such Person of the assets, stock or
other securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other item
which would be classified as an "investment" on a balance sheet of such Person,
including any direct or indirect contribution by such Person of property or
assets to a joint venture, partnership or other business entity in which such
Person retains an interest.
"Lien" means, when used with respect to any Person, any
mortgage, lien, charge, pledge, security interest or encumbrance of any kind
(whether voluntary or involuntary and whether imposed or created by operation of
law or otherwise) upon, or pledge of, any of its property or assets, whether now
owned or hereafter acquired, or any lease intended as security, any capital
lease in the nature of the foregoing, any conditional sale agreement or other
title retention agreement, in each case, for the purpose, or having the effect,
of protecting a creditor against loss or securing the payment or performance of
an obligation.
"Loan" has the meaning specified in Section 2.01.
"Loan Documents" means this Agreement and the other documents
described in Article IV hereof.
"Margin" means seven percent (7%) per annum.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding) a material adverse
effect equal to or greater than the lesser of (a) the value of five percent (5%)
of the outstanding common stock of the Company and (b) $2,000,000.00.
6
<PAGE>
"Maturity Date" means October 30, 1998, unless accelerated
pursuant to Section 8.02.
"Mortgage Loans" shall have the meaning set forth in the
Purchase and Sale Agreement.
Multiemployer Plan" means any plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"Note" has the meaning specified in Section 2.02.
"Notice of Default" has the meaning specified in Section 8.02.
"Obligations" means all the obligations of the Company now or
hereafter existing under the Loan Documents, whether for principal, interest,
Fees, expenses, indemnification or otherwise.
"Payment Date" means the first (1st) day of each month and the
Maturity Date.
"Payment Office" means the office of the Lender located at
6000 Clearwater Drive, Minnetonka, Minnesota, 55343, or such other office as the
Lender may hereafter designate in writing as such to the other parties hereto.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a foreign
or domestic state or political subdivision thereof or any agency of such state
or subdivision.
7
<PAGE>
"Plan" means any employee pension benefit plan (as defined in
Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the Code,
other than a Multiemployer Plan, with respect to which the Company or an ERISA
Affiliate contributes or has an obligation or liability to contribute, including
any such plan that may have been terminated.
"Prime Rate" means the prime rate announced to be in effect
from time to time, as published as the average rate in The Wall Street Journal.
"Purchase and Sale Agreement" means that certain Servicing
Income Purchase and Sale Agreement dated July 24, 1998 by and between Harbor
Financial Mortgage Corporation and Firstcity Commercial Corporation.
Regulation U" means Regulation U of the Board (respecting
margin credit extended by banks), as the same is from time to time in effect,
and all official rulings and interpretations thereunder or thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including the abandonment or discarding of
barrels, containers and other closed receptacles).
"Reportable Event" means an event described in Section 4043(b)
of ERISA with respect to a Plan as to which the 30-day notice requirement has
not been waived by the PBGC.
"Requirements of Environmental Laws" means, as to any Person,
the requirements of any applicable Environmental Law relating to or affecting
such Person or the condition or operation of such Person's business or its
properties, both real and personal.
"Responsible Officer" means, with respect to the Company, the
chairman of the board of directors, president or any executive or senior vice
president.
8
<PAGE>
"Security Documents" means (a) that certain Security Agreement
dated as of even date herewith and executed by the Company granting the Lender a
first priority security interest in the Collateral, (b) any and all other
security agreements, pledge agreements, mortgages, assignments, UCC financing
statements, registrations of pledge and other similar documents executed by the
Company and securing the obligations.
"Servicing Rights" shall have the meaning set forth in the
Purchase and Sale Agreement.
Tangible Net Worth" means: (a) total assets minus (b) the sum
of (i) all liabilities and (ii) all intangible assets, including, without
limitation, goodwill, patents, trademarks and similar items.
"Unfunded Current Liability" means, with respect to any Plan,
the amount, if any, by which the present value of the accrued benefits under the
Plan as of the close of its most recent Plan year exceeds the fair market value
of the assets allocable thereto, determined in accordance with Section 412 of
the Code.
SECTION 1.03. Accounting Terms. All accounting terms not
defined herein shall be construed in accordance with GAAP, as applicable, and
all calculations required to be made hereunder and all financial information
required to be provided hereunder shall be done or prepared in accordance with
GAAP.
ARTICLE II
THE LOAN
9
<PAGE>
SECTION 2.01. The Loan. Subject to the terms and conditions
hereof, the Lender shall make, and Company shall accept, the Loan in a principal
amount not to exceed Fifteen Million Dollars ($15,000,000).
SECTION 2.02. The Note. The Loans shall be evidenced by a note
in favor of the Lender (the "Note"), substantially in the form of Exhibit 2.02
hereto.
SECTION 2.03. Intentionally omitted.
SECTION 2.04. Intentionally omitted.
SECTION 2.05. Intentionally omitted.
SECTION 2.06. Voluntary Prepayments. The Company shall have
the right to voluntarily prepay the Loan in whole or in part at any time on the
following terms and conditions: (a) the Company pays to the Lender all sums
necessary to compensate the Lender for all costs and expenses resulting from
such prepayment, as reasonably determined by the Lender, including, but not
limited to, those costs described in Sections 2.12, and 2.13 hereof; (b) each
partial prepayment shall be in an initial aggregate principal amount of
$500,000.00 and integral multiples thereof; and (c) each prepayment pursuant to
this Section shall be applied first, to the payment of accrued and unpaid
interest, and then, to the outstanding principal of the Loan.
SECTION 2.07. Mandatory Repayments. (a) The outstanding
principal balance of the Loan together with all other Indebtedness shall be
repaid on or before the Maturity Date.
(b) All accrued but unpaid interest on the Note shall be due
and payable on each Payment Date except that interest payable at the Default
Rate shall be payable from time to time daily and on demand.
(c) On each Payment Date all cash flow from the Collateral
will be deposited directly into an account designated by Lender and applied to
repayment of the Note as follows:
10
<PAGE>
(i) first, to the payment of all accrued and unpaid interest
which is then due and payable under the Note;
(ii) second, to the payment to Lender of any late charges,
Fees, and expenses payable to Lender under the Loan Documents; and
(iii) third, to the Lender to reduce the outstanding
principal balance of the Loan.
(d) In the event that monthly cash flow from the Collateral is
insufficient to make the then current interest payment, the Company shall be
required to make such payment directly to the Lender.
(e) Upon the sale of the Collateral, in whole or in part, all
outstanding principal and interest, together with all other Indebtedness shall
be immediately due and payable.
SECTION 2.08. Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement due from the
Company shall be made to the Lender not later than 11:00 a.m. (Minnetonka,
Minnesota time) on the date when due and shall be made in lawful money of the
United States in immediately available funds at the Payment Office.
SECTION 2.09. Interest. (a) Subject to Section 9.08, the
Company agrees to pay interest on the total outstanding principal balance of the
Loan from the Closing Date to maturity (whether by acceleration or otherwise) at
a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 360 days) which shall, during each Interest Period applicable
thereto, be equal to the lesser of (i) the Highest Lawful Rate and (ii) the
applicable Prime Rate for such Interest Period plus the Margin.
(b) Subject to Section 9.08, overdue principal and, to the
extent permitted by law, overdue interest in respect of the Loan and all other
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overdue amounts owing hereunder shall bear interest for each day that such
amounts are overdue at a rate per annum equal to the Default Rate.
SECTION 2.10. Intentionally omitted.
SECTION 2.11. Intentionally omitted.
SECTION 2.12. Increased Costs or Taxes. If the application or
effectiveness of any applicable law or regulation (i) shall change the basis of
taxation of payments to the Lender of the principal of or interest on the Loan
made by the Lender or any other fees or amounts payable hereunder (other than
taxes imposed on the overall net income of the Lender or franchise taxes imposed
upon it by the jurisdiction in which the Lender has an office), (ii) shall
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, the Lender or (iii) shall impose on the Lender any other condition
affecting this Agreement or this Loan, and the result of any of the foregoing
shall be to increase the cost to the Lender of maintaining the Loan or to reduce
the amount of any sum received or receivable by the Lender hereunder (whether of
principal, interest or otherwise) in respect thereof by an amount deemed in good
faith by the Lender to be material, then the Company shall pay to the Lender
such additional amount as will compensate it for such increase or reduction upon
demand. The Lender shall not be entitled to make a demand for and the Borrower
shall not be liable for payment of any amount under the terms of this Section
2.12 following the termination of the Obligations hereunder.
SECTION 2.13. Intentionally omitted.
ARTICLE III
FEES
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SECTION 3.01. Fees. The Company agrees to pay to the Lender a
delinquency fee (the "Delinquency Fee") of $150,000.00. The Delinquency Fee
shall be due and payable on the Maturity Date if the Loan is not paid in full on
or before that date.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.01. Conditions Precedent to the Loan. The obligation
of the Lender to make the Loan to the Company is subject to the condition that
the Lender shall have received the following:
(a) this Agreement executed by the Company;
(b) the Note executed by the Company and payable to the order
of the Lender ;
(c) the Security Documents executed by the Company;
(d) the Guaranty Agreement executed by FirstCity Financial
Corporation;
(e) a certificate of an officer and of the secretary or an
assistant secretary of the Company certifying, inter alia, (i) true and complete
copies of each of the articles or certificate of incorporation, as amended and
in effect of the Company and the Guarantor, the bylaws, as amended and in
effect, of the Company and the Guarantor and the resolutions adopted by the
Board of Directors of the Company and the Guarantor (A) authorizing the
execution, delivery and performance by the Company of this Agreement and the
other Loan Documents to which it is or will be a party, (B) approving the forms
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of the Loan Documents to which it is or will be a party and which will be
delivered at or prior to the Closing Date and (C) authorizing officers of the
Company to execute and deliver the Loan Documents to which it is or will be a
party and any related documents, including, any agreement contemplated by this
Agreement, (ii) the incumbency and specimen signatures of the officers of the
Company and the Guarantor executing any documents on its behalf and (iii) that
there has been no change in the businesses or financial condition of the Company
or the Guarantor which could have a Material Adverse Effect;
(f) favorable, signed opinions addressed to the Lender from
counsel to the Company, in form and substance satisfactory to the Lender and its
counsel;
(g) the payment to the Lender of all reasonable fees and
expenses agreed upon by such parties to be paid on the Closing Date; and
(h) certificates of appropriate public officials as to the
existence, good standing and qualification to do business as a foreign
corporation, as applicable, of the Company and the Guarantor in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualifications and where the failure to so qualify would
have a Material Adverse Effect.
The acceptance of the benefits of the Loan shall constitute a
representation and warranty by the Company to the Lender that all of the
conditions specified in this Section above shall have been satisfied or waived
as of that time.
SECTION 4.02. Additional Conditions Precedent. The obligation
of the Lender to make the Loan is subject to the further conditions precedent
that on the Closing Date:
(a) The conditions precedent set forth in Section 4.01 shall
have theretofore been satisfied or waived.
(b) The representations and warranties set forth in Article V
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shall be true and correct in all material respects as of, and as if such
representations and warranties were made on, the Closing Date, and the Company
shall submit a certification to the Lender confirming that such representations
and warranties are true and correct.
(c) No Material Adverse Effect with respect to the Company or
the Guarantor shall have occurred since the delivery of the most recent
financials.
(d) The Lender shall have received such other approvals,
opinions or documents as the Lender may reasonably request.
SECTION 4.03. Delivery of Documents. The Note, certificates,
legal opinions and other documents and papers referred to in this Article IV,
unless otherwise specified, shall be delivered to the Lender and shall be
reasonably satisfactory in form and substance to the Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and
to make the Loan provided for herein, the Company makes, on and as of the
Closing Date, the following representations and warranties to the Lender:
SECTION 5.01. Organization and Qualification. The Company and
the Guarantor (a) are each corporations duly organized, validly existing and in
good standing under the laws of the state of their incorporation or
organization, (b) each the corporate power to own its property and to carry on
its business as now conducted and (c) each is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect.
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SECTION 5.02. Authorization and Validity. The Company has the
corporate power and authority to execute, deliver and perform its obligations
hereunder and under the other Loan Documents and all such action has been duly
authorized by all necessary corporate proceedings on its part. The Loan
Documents have been duly and validly executed and delivered by the Company and
constitute a valid and legally binding agreement the Company enforceable in
accordance with the respective terms thereof, except, in each case, as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or affecting
the enforcement of creditors' rights generally, and by general principles of
equity regardless of whether such enforceability is a proceeding in equity or at
law.
SECTION 5.03. Governmental Consents. No authorization,
consent, approval, license or exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid execution,
delivery or performance by the Company of any Loan Document.
SECTION 5.04. Conflicting or Adverse Agreements or
Restrictions. Neither the Company nor the Guarantor is a party to any contract
or agreement or subject to any restriction which would reasonably be expected to
have a Material Adverse Effect. All agreements of the Company relating to the
lending of money or the issuance of letters of credit by any party are described
hereto on Schedule 5.04. Neither the execution nor delivery of the Loan
Documents nor compliance with the terms and provisions hereof or thereof will be
contrary to the provisions of, or constitute a default under (a) the charter or
bylaws of the Company, (b) any applicable law or any applicable regulation,
order, writ, injunction or decree of any court or governmental instrumentality
or (c) any material agreement to which the Company is a party or by which it is
bound or to which it is subject.
SECTION 5.05. Title to Assets. The Company has good title to
the Collateral and to all material personalty and good and indefeasible title to
all material realty as reflected on the Company's books and records as being
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owned by it, except for properties disposed of in the ordinary course of
business, subject to no Liens, except those permitted hereunder or set forth on
Schedule 7.04(a). All of such assets have been and are being maintained by the
appropriate Person in good working condition in accordance with industry
standards.
SECTION 5.06. Litigation. No proceedings against or affecting
the Company or to Guarantor are pending or, to the knowledge of the Company,
threatened before any court or governmental agency or department which involve a
reasonable risk of having a Material Adverse Effect except those listed on
Schedule 5.06 hereof.
SECTION 5.07. Financial Statements. Prior to the Closing Date,
the Company has furnished to the Lender the audited consolidated balance sheet
of FirstCity Financial Corporation, income statement and statement of cash flow
and balance sheet for FirstCity Commercial Corporation as of March 31, 1998 and
all quarterly reports of the Company as are currently available (such audited
financials and quarterly reports, the "Financials"). The Financials have been
prepared in conformity with GAAP consistently applied (except as otherwise
disclosed in such financial statements) throughout the periods involved and
present fairly, in all material respects, the financial condition of the Company
and any consolidated subsidiaries as of the dates thereof and the results of
their operations for the periods then ended. As of the Closing Date, no Material
Adverse Effect has occurred in the consolidated financial condition of the
Company or the Guarantor since March 31, 1998.
SECTION 5.08. Default. Neither the Company nor the Guarantor
is in default under any material provisions of any instrument evidencing any
indebtedness or of any agreement relating thereto, or in default in any respect
under any order, writ, injunction or decree of any court, or in default in any
respect under or in violation of any order, injunction or decree of any
governmental instrumentality, in such manner as to cause a Material Adverse
Effect.
SECTION 5.09. Investment Company Act. Neither the Company nor
the Guarantor is, or is directly or indirectly controlled by or acting on behalf
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of any Person which is, an "investment company," as such term is defined in the
Investment Company Act of 1940, as amended.
SECTION 5.10. Public Utility Holding Company Act. Neither the
Company nor the Guarantor is a non-exempt "holding company," or is subject to
regulation as such, nor is, to the knowledge of the Company's or Subsidiaries'
officers, an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
SECTION 5.11. ERISA. No accumulated funding deficiency (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, exists or is expected to be incurred with respect to any Plan. No
liability to the PBGC (other than required premium payments) has been or is
expected by the Company to be incurred with respect to any Plan by the Company
or any ERISA Affiliate. Neither the Company nor any ERISA Affiliate has incurred
any withdrawal liability under Title IV of ERISA with respect to any
Multi-Employer Plans.
SECTION 5.12. Tax Returns and Payments. Each of the Company
and the Guarantor has filed all federal income tax returns and other tax
returns, statements and reports (or obtained extensions with respect thereto)
which are required to be filed and has paid or deposited or made adequate
provision in accordance with GAAP for the payment of all taxes (including
estimated taxes shown on such returns, statements and reports) which are shown
to be due pursuant to such returns, except for such taxes as are being contested
in good faith and by proceedings.
SECTION 5.13. Environmental Matters. Each of the Company and
the Guarantor (a) possesses all environmental, health and safety licenses,
permits, authorizations, registrations, approvals and similar rights necessary
under law or otherwise for the Company or the Guarantor to conduct its
operations as now being conducted (other than those with respect to which the
failure to possess or maintain would not, individually or in the aggregate for
the Company or the Guarantor, have a Material Adverse Effect) and (b) each of
such licenses, permits, authorizations, registrations, approvals and similar
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rights is valid and subsisting, in full force and effect and enforceable by the
Company or the Guarantor, and each of the Company and the Guarantor is in
compliance with all terms, conditions or other provisions of such permits,
authorizations, registrations, approvals and similar rights except for such
failure or noncompliance that, individually or in the aggregate for the Company
or such Guarantor, would not have a Material Adverse Effect. Except as disclosed
on Schedule 5.13, neither the Company nor the Guarantor has received any notices
of any violation of, noncompliance with, or remedial obligation under,
Requirements of Environmental Laws (which violation or non-compliance has not
been cured) and there are no writs, injunctions, decrees, orders or judgments
outstanding, or lawsuits, claims, proceedings, investigations or inquiries
pending or, to the knowledge of the Company or the Guarantor, threatened,
relating to the ownership, use, condition, maintenance or operation of, or
conduct of business related to, any property owned, leased or operated by the
Company or the Guarantor or other assets of the Company or the Guarantor, other
than those violations, instances of noncompliance, obligations, writs,
injunctions, decrees, orders, judgments, lawsuits, claims, proceedings,
investigations or inquiries that, individually or in the aggregate for the
Company or the Guarantor, would not have a Material Adverse Effect. Except as
disclosed on Schedule 5.13, there are no material obligations, undertakings or
liabilities arising out of or relating to Environmental Laws to which the
Company or the Guarantor has agreed, assumed or retained, or by which the
Company or the Guarantor is adversely affected, by contract or otherwise. Except
as disclosed on Schedule 5.13, neither the Company nor the Guarantor has
received a written notice or claim to the effect that such Person is or may be
liable to any other Person as the result of a Release or threatened Release of a
Hazardous Material.
SECTION 5.14. Purpose of Loans. (a) The proceeds of the Loan
will be used solely to finance operating expenditures and for certain capital
investments of the Company made in the ordinary course of its business.
(b) None of the proceeds of the Loan will be used directly or
indirectly for the purpose of purchasing or carrying any "margin stock" within
the meaning of Regulation U (herein called "margin stock") or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry a margin stock.
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SECTION 5.15. Franchises and Other Rights. Each of the Company
and the Guarantor has all franchises, permits, licenses and other authority as
are necessary to enable it to carry on its businesses as now being conducted
where the absence of such would have a Material Adverse Effect except those
listed on Schedule 5.15 hereof. To the best of its knowledge, the Company is not
in default in respect of any of such operating rights.
SECTION 5.16. Intentionally omitted.
SECTION 5.17. Solvency. After giving effect to the Loan
hereunder and all other indebtedness of the Company, the Company has (a) capital
sufficient to carry on its businesses and transactions, (b) assets, the fair
market value of which exceeds its consolidated liabilities (as reflected on the
Financials or on the financial statements most recently delivered to the
Lender), and (c) sufficient cash flow to pay its existing debts as they mature.
SECTION 5.18. Material Facts. There is no fact which the
Company has failed to disclose to the Lender in writing which will have a
Material Adverse Effect on or, so far as the Company can now foresee, will have
a Material Adverse Effect on the assets, business, prospects, profits or
condition (financial or otherwise) of the Company, the ability of the Company to
perform its obligations under this Agreement, or the Guarantor. No information,
exhibit or report furnished by the Company to the Lender in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted a material fact or any fact necessary to make the statement contained
therein not materially misleading.
SECTION 5.19. Solvency. The Company is, and after giving
effect to the transactions contemplated under the Loan Documents will be,
solvent.
SECTION 5.20. Security Interests. The Security Documents
create valid security interests in the Collateral in favor of the Lender
securing the Obligations and constitute perfected first priority security
interests in the Collateral subject to no Liens other than Liens permitted by
Section 7.04.
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ARTICLE VI
AFFIRMATIVE COVENANTS
The Company covenants and agrees that on and after the date
hereof and for so long as this Agreement is in effect and until the Obligations
have been paid in full:
SECTION 6.01. Information Covenants. The Company will furnish
to the Lender:
(a) As soon as available, and in any event within 45 days
after the close of each of the first three quarters in each fiscal year of the
Company, the consolidated and consolidating balance sheet of the Company and the
Guarantor as of the end of such quarterly period and the related consolidated
and consolidating statements of income and cash flows for such quarterly period
and for the portion of the fiscal year ended at the end of such quarter, setting
forth, in each case, comparative consolidated figures for the related periods in
the prior fiscal year, all of which shall be certified by the chief financial
officer or chief executive officer of the Company as fairly presenting in all
material respects, the financial position of the Company and the Guarantor as of
the end of such period and the results of their operations for the period then
ended in accordance with GAAP, subject to changes resulting from normal year-end
audit adjustments.
(b) As soon as available, and in any event within 120 days
after the close of each fiscal year of the Company, the audited consolidated and
the unaudited consolidating balance sheets of the Guarantor and its subsidiaries
as at the end of such fiscal year and the related consolidated and consolidating
statements of income, stockholders equity and cash flows for such fiscal year,
setting forth, in each case, comparative figures for the preceding fiscal year
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and certified by KPMG Peat Marwick, L.L.P. or other independent certified public
accountants of recognized national standing, whose report shall be without
limitation as to the scope of the audit and reasonably satisfactory in substance
to the Lender.
(c) Immediately after any Responsible Officer of the Company
obtains knowledge thereof, notice of:
(i) any material violation of, noncompliance with, or remedial
obligations under, Requirements of Environmental Laws,
(ii) any material Release or threatened material Release of
Hazardous Materials affecting any property owned, leased or operated by the
Company or any of its Subsidiaries,
(iii) any event or condition which constitutes a Default or an
Event of Default,
(iv) any condition or event which, in the opinion of
management of the Company, would reasonably be expected to have a Material
Adverse Effect on the Company or the Guarantor,
(v) any Person having given any written notice to the Company
or taken any other action with respect to a claimed material default or material
adverse event under any material instrument or material agreement, and
(vi) the institution of any litigation which might reasonably
be expected in the good faith judgment of the Company either to have a Material
Adverse Effect or result in a final, non-appealable judgment or award in excess
of $1,000,000.00 with respect to any single cause of action, or the institution
of any litigation of any kind by any party against the Company.
then, a notice of such event or condition will be delivered to the Lender
specifying the nature and period of existence thereof and specifying the notice
given or action taken by such Person and the nature of any such claimed default,
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event or condition and, in the case of an Event of Default or Default, what
action has been taken, is being taken or is proposed to be taken with respect
thereto.
(vii) Any default or condition which threatens or constitutes
a default by Harbor Financial Mortgage Corporation under the Fannie Mae Mortgage
Selling and Servicing Agreement or any commitment relating thereto.
(d) At the time of the delivery of the financial statement
provided for in Sections 6.01(a) and 6.01(b), a certificate of a Responsible
Officer to the effect that no Default or Event of Default exists or, if any
Default or Event of Default does exist, specifying the nature and extent thereof
and the action that is being taken or that is proposed to be taken with respect
thereto, which certificate shall set forth the calculations required to
establish whether the Company was in compliance with the provisions of Sections
7.10 and 7.11 as at the end of such fiscal period or year, as the case may be.
(e) Upon request by the Lender such audits of the Company's
procedures and policies and operations in respect of Environmental Laws as the
Lender may reasonably request.
(f) Promptly upon receipt thereof, a copy of any report or
letter submitted to the Company by its independent accountants in connection
with any regular or special audit of the Company's records.
(g) From time to time and with reasonable promptness, such
other information or documents as the Lender may reasonably request.
SECTION 6.02. Books, Records and Inspections. The Company and
the Guarantor will maintain, and will permit, or cause to be permitted, any
Person designated by the Lender to visit and inspect any of the properties of
the Company or the Guarantor, to examine the corporate books and financial
records of the Company and the Guarantor and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of any such
corporations with the officers, employees and agents of the Company and the
Guarantor and with their independent public accountants, all at such reasonable
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times and as often as the Lender may request. Such inspections shall be made as
often as the Lender reasonably requests, and shall be at the expense of the
Company up to $5,000.00 annually.
SECTION 6.03. Insurance and Maintenance of Properties. (a) The
Company and the Guarantor will keep reasonably adequately insured by financially
sound and reputable insurers all of its material property, which is of a
character, and in amounts and against such risks, usually and reasonably insured
by similar Persons engaged in the same or similar businesses, including, without
limitation, insurance against fire, casualty and any other hazards normally
insured against. The Company and the Guarantor will at all times maintain
insurance against its liability for injury to Persons or property, which
insurance shall be by financially sound and reputable insurers and in such
amounts and form as are customary for corporations of established reputation
engaged in the same or a similar business and owning and operating similar
properties, and shall annually provide the Lender a listing of all such
insurance and such other certificates and other evidence thereof, as the Lender
shall reasonably request. A listing of all presently existing policies of the
Company and the Guarantor is attached hereto as Schedule 6.03.
(b) The Company will cause all of its material properties used
or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all reasonably necessary repairs, renewals and
replacements thereof, all as in the reasonable judgment of such Person may be
reasonably necessary so that the business carried on in connection therewith may
be properly conducted at all times.
(c) The Company will name the Lender as a loss payee on all of
its insurance policies (other than public liability insurance policies).
SECTION 6.04. Payment of Taxes. The Company will pay and
discharge all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits, or upon any properties belonging to it, prior
to the date on which penalties attach thereto, except for such amounts that are
being contested in good faith and by appropriate proceedings.
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SECTION 6.05. Corporate Existence. The Company will do all
things necessary to preserve and keep in full force and effect (a) its corporate
existence and (b) unless the failure to do so would not have a Material Adverse
Effect, the rights and franchises of the Company.
SECTION 6.06. Compliance with Statutes. The Company will
comply with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business and the ownership of its
property, except to the extent the failure to do so would not reasonably be
expected to have a Material Adverse Effect.
SECTION 6.07. ERISA. Immediately after any Responsible Officer
of the Company or any of its Subsidiaries knows or has reason to know any of the
following items are true the Company will deliver or cause to be delivered to
the Lender a certificate of the chief financial officer of the Company setting
forth details as to such occurrence and such action, if any, the Company or its
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Company or its ERISA
Affiliate with respect thereto; that a Reportable Event has occurred or that an
application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard; that a Multiemployer
Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that any required contribution to a Plan or
Multiemployer Plan has not been or may not be timely made; that proceedings may
be or have been instituted under Section 4069(a) of ERISA to impose liability on
the Company or an ERISA Affiliate or under Section 4042 of ERISA to terminate a
Plan or appoint a trustee to administer a Plan; that the Company or any ERISA
Affiliate has incurred or may incur any liability (including any contingent or
secondary liability) on account of the termination of or withdrawal from a Plan
or a Multiemployer Plan; and that the Company or an ERISA Affiliate may be
required to provide security to a Plan under Section 401(a)(29) of the Code; or
any other condition exists or may occur with respect to one or more Plans and/or
Multiemployer Plans.
SECTION 6.08. Fidelity Bond. The Guarantor shall at all times
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during the term hereof maintain a fidelity bond in an amount not less than
$2,000,000.00 per occurrence and $4,000,000.00 in the aggregate, net of any
applicable deductible.
ARTICLE VII
NEGATIVE COVENANTS
The Company covenants and agrees that, unless the Lender shall
have otherwise given its written consent, on and after the date hereof and for
so long as this Agreement is in effect and until the Indebtedness is paid in
full.
SECTION 7.01. Change in Business. The Company will not engage
in any businesses not of the same general type as those conducted by the Company
on the Closing Date.
SECTION 7.02. Consolidation, Merger or Sale of Assets. The
Company will not wind up, liquidate or dissolve their affairs, or enter into any
transaction of merger or consolidation, or sell or otherwise dispose of all or
any part of their property or assets (other than sales of inventory and surplus
or obsolete assets in the ordinary course of business provided that any disposal
does not prejudice the Lender in any way), including the capital stock of any
subsidiary, or purchase, lease or otherwise acquire (in one or a series of
related transactions) all or any part of the property or assets of any Person or
all of the capital stock of any Person. The Company will not permit any of its
subsidiaries to wind up, liquidate or dissolve their affairs, or enter into any
transaction of merger or consolidation, or sell or otherwise dispose of any
capital stock of any subsidiary, or purchase, lease or otherwise acquire (in one
or a series of related transactions) all or any part of the property or assets
of any Person or all of the capital stock of any Person.
SECTION 7.03. Indebtedness. The Company will not create,
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incur, assume or permit to exist any indebtedness except:
(a) Indebtedness existing hereunder;
(b) long term indebtedness or unsecured short term
indebtedness not to exceed in the aggregate $5,000,000.00;
(c) guarantees of any indebtedness of any Person not to exceed
in the aggregate $5,000,000.00 other than (e) below;
(d) $60,000,000.00 Capital Note from FirstCity Commercial
Corporation to FirstCity Financial Corporation; and
(e) guarantee of indebtedness of FirstCity Commercial
Corporation of Guarantor's debt to Bank of Scotland under a Revolving Credit
Agreement dated 4/8/98.
SECTION 7.04. Liens. The Company will not create, incur,
assume or suffer to exist any Lien upon or with respect to any of its property
or assets of any kind whether now owned or hereafter acquired (nor will they
covenant with any other Person not to grant such a Lien to the Lender), except
(a) Liens existing on the Closing Date and listed on Schedule
7.04(a);
(b) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established;
(c) Liens securing long term indebtedness permitted under
Section 7.03(b) above; and
(d) any renewal, extension or replacement of any Lien referred
to in subparagraph (a) above; provided, that no Lien arising or existing as a
result of such extension, renewal or replacement shall be extended to cover any
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property not theretofore subject to the Lien being extended, renewed or
replaced, and provided further, the principal amount of the indebtedness secured
thereby shall not exceed the principal amount of the indebtedness so secured at
the time of such extension, renewal or replacement.
SECTION 7.05. Intentionally omitted.
SECTION 7.06. Intentionally omitted.
SECTION 7.07. Change in Accounting. The Company will not
change its method of accounting except for (a) immaterial changes permitted by
GAAP in which the Company's auditors concur or (b) changes required by GAAP. The
Company shall advise the Lender in writing promptly upon making any material
change to the extent same is not disclosed in the financial statements required
under Section 6.01 hereof.
SECTION 7.08. Intentionally omitted.
SECTION 7.09. Transactions with Affiliates. The Company will
not, directly or indirectly, engage in any transaction with any Affiliate,
including the purchase, sale or exchange of assets or the rendering of any
service, except in the ordinary course of business or pursuant to the reasonable
requirements of its business and, in each case, upon terms that are no less
favorable than those which might be obtained in an arm's-length transaction at
the time from non-Affiliates.
SECTION 7.10. Minimum Tangible Net Worth. The Company will not
permit its Tangible Net Worth during the term hereof to be less than
$5,000,000.00.
SECTION 7.11. Intentionally Omitted
SECTION 7.12 The Company shall not permit the sale by Harbor
Financial Mortgage Corporation of the Servicing Rights related to the Mortgage
Loans without the express written consent of Lender.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01. Events of Default. The following events shall
constitute Events of Default ("Events of Default") hereunder:
(a) any installment of principal or payment of interest on the
Note or any payment of any Fee shall not be paid on the date on which such
payment is due and such failure is not remedied within five (5) days; or
(b) any representation or warranty made or, for purposes of
Article V, deemed made by the Company or the Guarantor herein or in any of the
Loan Documents or other document, certificate or financial statement delivered
in connection with this Agreement or any other Loan Document shall prove to have
been incorrect in any material respect when made or deemed made or reaffirmed,
as the case may be; or
(c) the Company shall fail to perform or observe any duty or
covenant contained in Article VII hereof; or
(d) the Company or the Guarantor shall fail to perform or
observe any duty or covenant contained in this Agreement other than in Article
VII, or in any of the Loan Documents, and such failure is not remedied within
thirty (30) days; or
(e) the Company shall (i) fail to make (whether as primary
obligor or as guarantor or other surety) any principal payment of or interest or
premium, if any, on any instrument of indebtedness allowed hereunder (other than
the Note) outstanding beyond any period of grace provided with respect thereto
or (ii) shall fail to duly observe, perform or comply with any agreement with
any Person or any term or condition of any instrument of indebtedness in excess
29
<PAGE>
of $500,000.00, if such failure causes such obligations to become due prior to
any stated maturity; or
(f) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of the Company or the Guarantor, or of a substantial part
of the property or assets of the Company or the Guarantor, under Title 11 of the
United States Code, as now or hereafter in effect, or any successor thereto (the
"Bankruptcy Code"), or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Company or the
Guarantor for a substantial part of the property or assets of the Company or the
Guarantor or (iii) the winding-up or liquidation of the Company or the
Guarantor; and such proceeding or petition shall continue undismissed for sixty
60 days or an order or decree approving or ordering any of the foregoing shall
be entered; or
(g) the Company or the Guarantor shall (i) voluntarily
commence any proceeding or file any petition seeking relief under the Bankruptcy
Code or any other federal or state bankruptcy, insolvency, receivership or
similar law, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or the filing of any petition described
in clause (e) above, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or the Guarantor or for a substantial part of the property or assets
of the Company or the Guarantor, (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, (vi) become unable, admit in
writing its inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the foregoing; or
(h) a judgment or order, which with other outstanding
judgments and orders against the Company or the Guarantor equal or exceed
$1,000,000.00 in the aggregate (to the extent not covered by insurance as to
which the respective insurer has acknowledged coverage), shall be entered
against the Company or the Guarantor and (i) within thirty (30) days after entry
thereof such judgment shall not have been paid or discharged or execution
thereof stayed pending appeal or, within thirty (30) days after the expiration
30
<PAGE>
of any such stay, such judgment shall not have been paid or discharged or (ii)
any enforcement proceeding shall have been commenced (and not stayed) by any
creditor or upon such judgment; or
(i) the occurrence of a change which has a Material Adverse
Effect, in the opinion of the Lender, (A) in the financial condition, business
or operations of the Company or the Guarantor (B) in the ability of the Company
to make payment hereunder or under the Note or the right of the Lender to
enforce any of its remedies to collect any amounts owing under the Loan
Documents; or
(j) a Change of Control with respect to FirstCity Financial
Corporation shall occur.
SECTION 8.02. Primary Remedies. In any such event, and at any
time after the occurrence of any of the above described events, the Lender may,
by written notice to the Company (a "Notice of Default") take any or all of the
following actions to enforce any other rights it may have against the Company;
provided, that if an Event of Default specified in Section 8.01(f) or Section
8.01(g) shall occur, the following shall occur automatically without the giving
of any Notice of Default: (a) declare the principal of and any accrued and
unpaid interest, and all obligations owing hereunder, to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, notice of
demand or of dishonor and non-payment, protest, notice of protest, notice of
intent to accelerate, declaration or notice of acceleration or any other notice
of any kind, all of which are hereby waived by the Company; and (b) exercise any
rights or remedies under any document securing any of the Loan Documents.
SECTION 8.03. Other Remedies. Upon the occurrence and during
the continuance of any Event of Default and after a Notice of Default, the
Lender may proceed to protect and enforce its rights, either by suit in equity
or by action at law or both, whether for the specific performance of any
covenant or agreement contained in this Agreement or in any other Loan Document
31
<PAGE>
or in aid of the exercise of any power granted in this Agreement or in any other
Loan Document; or may proceed to enforce the payment of all amounts owing to the
Lender under the Loan Documents and any accrued and unpaid interest thereon in
the manner set forth herein or therein; it being intended that no remedy
conferred herein or in any of the other Loan Documents is to be exclusive of any
other remedy, and each and every remedy contained herein or in any other Loan
Document shall be cumulative and shall be in addition to every other remedy
given hereunder and under the other Loan Documents or now or hereafter existing
at law or in equity or by statute or otherwise.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments. No amendment or waiver of any
provision of this Agreement, the Note or any other Loan Document, nor consent to
any departure by the Company herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company, as to
amendments, and by the Lender in all cases, and then, in any case, such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 9.02. Notices. Except with respect to telephone
notifications specifically permitted pursuant to Article II, all notices,
consents, requests, approvals, demands and other communications provided for
herein shall be in writing (including telecopy communications) and mailed,
telecopied, sent by overnight courier or delivered:
32
<PAGE>
(a) If to the Company:
FirstCity Commercial Corporation
P.O. Box 8216
6400 Imperial Drive
Waco, Texas 76714
Telecopy No: (817) 751-1208
Attention: Mr. James C. Holmes
(b) If to the Lender:
CFSC Capital Corp. XXX
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
Telecopy No: (612) 984-3905
Attention: Mr. Jeffrey A. Parker
<PAGE>
with copies to:
Cargill Financial Services Corporation
6000 Clearwater Drive
Minnetonka, Minnesota 55343-9497
Telecopy No: (612) 984-3898
Attention: Ms. Laura H. Witte
or, in the case of any party hereto, such other address or telecopy number as
such party may hereafter specify for such purpose by notice to the other
parties.
All communications shall, when mailed, telecopied or
delivered, be effective when mailed by certified mail, return receipt requested
to any party at its address specified above, or telecopied to any party to the
telecopy number set forth above, or delivered personally to any party at its
address specified above; provided, that communications to the Lender pursuant to
Article II shall not be effective until actually received by the Lender.
SECTION 9.03. No Waiver; Remedies. No failure on the part of
the Lender to exercise, and no delay in exercising, any right hereunder, under
the Note or under any other Loan Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, or any abandonment or
discontinuance of any steps to enforce such right, preclude any other or further
exercise thereof or the exercise of any other right. No notice to or demand on
the Company in any case shall entitle the Company to any other or further notice
or demand in similar or other circumstances. The remedies herein are cumulative
and not exclusive of any other remedies provided by law, at equity or in any
other agreement.
SECTION 9.04. Costs, Expenses and Taxes. The Company agrees to
pay on demand: (a) all reasonable out-of-pocket costs and expenses of the Lender
in connection with the preparation, execution and delivery of this Agreement,
the Note, the other Loan Documents and the other documents to be delivered
34
<PAGE>
hereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Lender with respect thereto and with respect to advising the Lender as
to its rights and responsibilities under this Agreement, the Note and the other
Loan Documents, and any modification, supplement or waiver of any of the terms
of this Agreement or any other Loan Document, (b) all reasonable costs and
expenses of the Lender and any other holder of an interest in the Note, and the
Obligations of the Company hereunder and under the Loan Documents, including
reasonable legal fees and expenses, in connection with a default or the
enforcement of this Agreement, the Note and the other Loan Documents and (c)
reasonable costs and expenses incurred in connection with third party
professional services required by the Lender such as appraisers, environmental
consultants, accountants or similar Persons; provided, that prior to any Event
of Default hereunder, the Lender will first obtain the consent of the Company to
such expense, which consent shall not be unreasonably withheld. Without
prejudice to the survival of any other obligations of the Company hereunder and
under the Note, the obligations of the Company under this Section shall survive
the termination of this Agreement or the replacement of the Lender and the
assignment of the Note.
SECTION 9.05. Indemnity. (a) The Company shall indemnify the
Lender and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages (including reasonable legal fees and
expenses) to which any of them may become subject, insofar as such losses,
liabilities, claims or damages arise out of or result from any actual or
proposed use by the Company of the proceeds of any extension of credit hereunder
or any investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing or any of the other Loan
Documents, and the Company shall reimburse the Lender and each Affiliate thereof
and their respective directors, officers, employees and agents, upon demand for
any expenses (including legal fees) reasonably incurred in connection with any
such investigation or proceeding; but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified.
(B) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS
35
<PAGE>
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY AND
ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES: (I) ARISING OUT OF OR RESULTING FROM
THE ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON OR (II) IMPOSED UPON
SAID PARTY UNDER ANY THEORY OR STRICT LIABILITY. Without prejudice to the
survival of any other obligations of the Company hereunder and under the other
Loan Documents, the obligations of the Company under this Section shall survive
the termination of this Agreement and the other Loan Documents and the payment
of the Obligations or the assignment of the Note.
SECTION 9.06. Right of Setoff. If any Event of Default shall
have occurred and be continuing, the Lender 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 held and other indebtedness owing by the Lender, or any
Affiliate, to or for the credit or the account of the Company against any and
all the Obligations of the Company now or hereafter existing under this
Agreement and the other Loan Documents and other obligations of the Company held
by the Lender, irrespective of whether or not the Lender shall have made any
demand under this Agreement, its Note or the Obligations and although the
Obligations may be unmatured. The rights of the Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
the Lender may have.
SECTION 9.07. Governing Law. This Agreement, the Note, the
other Loan Documents and all other documents executed in connection herewith
shall be deemed to be contracts and agreements executed by the Company and the
Lender under the laws of the State of Minnesota and of the United States of
America and for all purposes shall be construed in accordance with, and governed
by, the laws of said state and of the United States of America. Without
limitation of the foregoing, nothing in this Agreement, or in the Note or in any
other Loan Document shall be deemed to constitute a waiver of any rights which
the Lender may have under applicable federal legislation relating to the amount
of interest which the Lender may contract for, take, receive or charge in
respect of the Loan and the Loan Documents, including any right to take,
receive, reserve and charge interest at the rate allowed by the law of the state
where the Lender is located.
36
<PAGE>
SECTION 9.08. Interest. Each provision in this Agreement and
each other Loan Document is expressly limited so that in no event whatsoever
shall the amount paid, or otherwise agreed to be paid, to the Lender or charged,
contracted for, reserved, taken or received by the Lender, for the use,
forbearance or detention of the money to be loaned under this Agreement or any
Loan Document or otherwise (including any sums paid as required by any covenant
or obligation contained herein or in any other Loan Document which is for the
use, forbearance or detention of such money), exceed that amount of money which
would cause the effective rate of interest to exceed the Highest Lawful Rate,
and all amounts owed under this Agreement and each other Loan Document shall be
held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid, charged, contracted for, reserved, taken or received which
are for the use, forbearance or detention of money under this Agreement or such
Loan Document shall in no event exceed that amount of money which would cause
the effective rate of interest to exceed the Highest Lawful Rate. Anything in
the Note or any other Loan Document to the contrary notwithstanding, the Company
shall not be required to pay unearned interest on the Note and the Company shall
not be required to pay interest on the Obligations at a rate in excess of the
Highest Lawful Rate, and if the effective rate of interest which would otherwise
be payable under the Note and such Loan Documents would exceed the Highest
Lawful Rate, or if the holder of the Note shall receive any unearned interest or
shall receive monies that are deemed to constitute interest which would increase
the effective rate of interest payable by the Company under the Note and the
other Loan Documents to a rate in excess of the Highest Lawful Rate, then (a)
the amount of interest which would otherwise be payable by the Company shall be
reduced to the amount allowed under applicable law and (b) any unearned interest
paid by the Company or any interest paid by the Company in excess of the Highest
Lawful Rate shall in the first instance be credited on the principal of the
obligations of the Company (or if all such obligations shall have been paid in
full, refunded to the Company). It is further agreed that, without limitation of
the foregoing, all calculations of the rate of interest contracted for,
reserved, taken, charged or received by the Lender under the Note and the
Obligations and under the other Loan Documents are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate, and shall be
37
<PAGE>
made, to the extent permitted by usury laws applicable to the Lender, by
amortizing, prorating and spreading in equal parts during the period of the full
stated term of the Note and this Agreement and all interest at any time
contracted for, charged or received by the Lender in connection therewith.
SECTION 9.09. Survival of Representations and Warranties. All
representations, warranties and covenants contained herein or made in writing by
the Company in connection herewith and the other Loan Documents shall survive
the execution and delivery of this Agreement, the Note and the other Loan
Documents, the termination of the Loan Documents and will bind and inure to the
benefit of the respective successors and assigns of the parties hereto, whether
so expressed or not.
SECTION 9.10. Successors and Assigns; Participations. (a) All
covenants, promises and agreements by or on behalf of the Company or the Lender
that are contained in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns. The Company may not assign or
transfer any of its rights or obligations hereunder.
(b) The Lender may assign to or sell participations to one or
more banks of all or a portion of its rights and obligations under this
Agreement and the other Loan Documents; provided, that the participating banks
or other entities shall be entitled to the cost protection provisions contained
in Article II and Section 9.04 and the Company shall continue to deal solely and
directly with the Lender in connection with its rights and obligations under
this Agreement and the other Loan Documents. Except with respect to cost
protections provided to a participant pursuant to this paragraph and the items
listed in Section 9.01 hereof, no participant shall be a third party beneficiary
of this Agreement nor shall it be entitled to enforce any rights provided to the
Lender against the Company under this Agreement.
(c) With the prior written consent of the Company and the
Lender (which consent shall not be unreasonably withheld), the Lender may assign
to one or more other Eligible Assignees all or a portion of its interests,
rights, and obligations under this Agreement and the other Loan Documents;
provided, however, that (i) each such assignment shall be in a minimum principal
38
<PAGE>
amount of not less than $1,000,000.00 and shall be of a constant, and not a
varying, percentage of all the Lender's rights and obligations under this
Agreement, (ii) the parties to each such assignment shall execute and deliver to
the Lender, for its acceptance, an Assignment and Acceptance in form and
substance satisfactory to the Lender (an "Assignment and Acceptance") and the
Note subject to such assignment and (iii) no assignment shall be effective until
receipt by the Lender of a reasonable service fee in respect of said assignment
equal to $2,000.00. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five (5) Business Days after the
execution thereof unless otherwise agreed to by the Lender and the Eligible
Assignee thereunder (x) the Eligible Assignee thereunder shall be a party hereto
and to the other Loan Documents and, to the extent provided in such Assignment
and Acceptance, have the rights and obligations of the Lender hereunder and
under the other Loan Documents and (y) the Lender thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement and the other Loan Documents (and, in the case
of an Assignment and Acceptance covering all of the remaining portion of the
Lender's rights and obligations under this Agreement and the other Loan
Documents, the Lender shall cease to be a party hereto).
(d) Notwithstanding any other provision herein, the Lender
may, in connection with any assignment or participation or proposed assignment
or participation pursuant to this Section disclose to the assignee or
participant or proposed assignee or participant, any information relating to the
Company furnished to the Lender by or on behalf of the Company.
SECTION 9.11. Confidentiality. The Lender agrees to exercise
its best efforts to keep any information delivered or made available by the
Company to it which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by the Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
Lender from disclosing such information (a) pursuant to subpoena or upon the
order of any court or administrative agency, (b) upon the request or demand of
39
<PAGE>
any regulatory agency or authority having jurisdiction over the Lender, (c)
which has been publicly disclosed, (d) to the extent reasonably required in
connection with any litigation to which the Lender, the Company or its
respective Affiliates may be a party, (e) to the extent reasonably required in
connection with the exercise of any remedy hereunder, (f) to the Lender's legal
counsel and independent auditors and (g) to any actual or proposed participant
or assignee of all or part of its rights hereunder which has agreed in writing
to be bound by the provisions of this Section. The Lender will promptly notify
the Company of any information that it is required or requested to deliver
pursuant to clause (b) or (c) of this Section and, if the Company is a party to
any such litigation, clause (e) of this Section .
SECTION 9.12. Separability. Should any clause, sentence,
paragraph or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, and the parties hereto agree that the
part or parts of this Agreement so held to be invalid, unenforceable or void
will be deemed to have been stricken herefrom and the remainder will have the
same force and effectiveness as if such part or parts had never been included
herein.
SECTION 9.13. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 9.14. Interpretation. (a) In this Agreement, unless a
clear contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
40
<PAGE>
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually, provided
that nothing in this clause is intended to authorize any assignment not
otherwise permitted by this Agreement;
(v) except as expressly provided to the contrary herein,
reference to any agreement, document or instrument (including this Agreement)
means such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the terms thereof
and, if applicable, the terms hereof, and reference to the Note or other note
includes the Note issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to
any Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any description
preceding such term;
(viii) with respect to the determination of any period of
time, except as expressly provided to the contrary, the word "from" means "from
and including" and the word "to" means "to but excluding"; and
(ix) reference to any law, rule or regulation means such as
amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time.
(b) The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
41
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(c) No provision of this Agreement shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
SECTION 9.15. SUBMISSION TO JURISDICTION. (A) ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF MINNESOTA, IN HENNEPIN COUNTY OR ELSEWHERE
OR OF THE UNITED STATES FOR THE DISTRICT OF MINNESOTA AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING.
(B) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
SECTION 9.16. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN
THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR RELATING TO
ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES,
42
<PAGE>
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 9.17. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT
(INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTE AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
FIRSTCITY COMMERCIAL CORPORATION
By: /s/ James C. Holmes
-----------------------------
Name: James C. Holmes
Title: Senior Vice President
CFSC CAPITAL CORP. XXX
By: /s/ Jeffery D. Leu
-----------------------------
Name: Jeffery D. Leu
Title: President
44
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Exhibit 2.02
45
<PAGE>
Exhibit 5.04
46
<PAGE>
Exhibit 7.04(a)
47
<PAGE>
Exhibit 5.06
None
48
<PAGE>
Exhibit 5.13
49
<PAGE>
Exhibit 5.15
None
50
<PAGE>
Exhibit 6.03
51
<PAGE>
Exhibit 7.04(a)
52
<PAGE>
LOAN AGREEMENT
BANK OF SCOTLAND
LOAN TO
FIRSTCITY FINANCIAL CORPORATION
APRIL 8, 1998
HOFS02...:\92\54892\0011\1612\AGR8068M.030
<PAGE>
TABLE OF CONTENTS
PAGE
1..............................................1.DEFINITIONS AND TERMS.1
1.1.........................................................GAAP13
1.2.....................................................BORROWER13
1.3........................................RULES OF CONSTRUCTION13
2................................................LOANS - GENERAL TERMS14
2.1...............................................REVOLVING LOAN14
2.2.....................................MAXIMUM PRINCIPAL AMOUNT14
2.3..........................MATURITY DATE; TERMINATION OF LOANS16
2.4..........................AUTHORIZED DISBURSEMENT OF PROCEEDS16
2.5..........................................BORROWING PROCEDURE17
2.6...............................................INTEREST RATE.17
2.7..............................................CHANGE OF LAWS.18
2.8...........................................REGULATORY CHANGES18
2.9...................ADVANCES PRIOR TO LIBOR RATE DETERMINATION18
2.10..........................EURODOLLAR ADVANCES AND CONVERSION18
2.11....................................INTEREST PERIOD ELECTION19
2.12........................................................FEES19
2.13.......................................................USURY20
3........................................................PAYMENT TERMS20
3.1......................LOAN ACCOUNT; METHOD OF MAKING PAYMENTS20
3.2............................................INTEREST PAYMENTS21
i
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3.3...........................................PRINCIPAL PAYMENTS21
3.4.............................................PLACE OF PAYMENT21
3.5...........................PAYMENT ON MATURITY AND PREPAYMENT21
3.6..............................ADVANCES TO CONSTITUTE ONE LOAN22
3.7......................APPLICATION OF PAYMENTS AND COLLECTIONS22
3.8...........................................MONTHLY STATEMENTS23
4.................................................ANCILLARY AGREEMENTS23
4.1...................................................GUARANTIES23
4.2.......................................NOTE PLEDGE AGREEMENTS23
4.3......................................STOCK PLEDGE AGREEMENTS23
5....................GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS24
5.1.......................GENERAL REPRESENTATIONS AND WARRANTIES24
5.2..............REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS32
5.3...................SURVIVAL OF WARRANTIES AND REPRESENTATIONS32
6..................................COVENANTS AND CONTINUING AGREEMENTS33
6.1..........................................FINANCIAL COVENANTS33
6.2........................................AFFIRMATIVE COVENANTS33
6.3...........................................NEGATIVE COVENANTS37
6.4.............................................REQUIRED NOTICES41
6.5............................................PAYMENT OF CLAIMS42
6.6........................................YEAR 2000 COMPLIANCE.43
7..............................................................DEFAULT43
7.1...........................................EVENTS OF DEFAULT.43
ii
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7.2..........................................REMEDIES CUMULATIVE46
7.3.................................................ACCELERATION46
7.4.....................................................REMEDIES47
7.5............................................INJUNCTIVE RELIEF47
7.6............................ADVANCES DURING UNMATURED DEFAULT47
8.................................CONDITIONS PRECEDENT TO DISBURSEMENT47
8.1..............................................CHECKLIST ITEMS47
8.2............................................NECESSARY ACTIONS47
8.3.........................................CONDITIONS PRECEDENT47
9..............................................................GENERAL48
9.1........................................COMPLIANCE WITH ERISA48
9.2........................................................COSTS54
9.3....................................................STATEMENT54
9.4......................................................NOTICES54
9.5.......................................AMENDMENTS AND WAIVERS55
9.6.......................NO IMPLIED WAIVER; REMEDIES CUMULATIVE55
9.7.................................................SEVERABILITY56
9.8............................INCORPORATION OF OTHER AGREEMENTS56
9.9...................................................ACCEPTANCE57
9.10...................................................KNOWLEDGE57
9.11..........................................WAIVER BY BORROWER57
9.12...............................................GOVERNING LAW57
9.13........................................WAIVER OF MARSHALING58
9.14...........................................LIMITATION BY LAW58
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9.15..................SURVIVAL OF REPRESENTATIONS AND WARRANTIES58
9.16..........................................SERVICE OF PROCESS58
9.17...................................REPRESENTATION BY COUNSEL58
9.18.............................................RELEASE OF BANK58
9.19........................................INVALIDATED PAYMENTS59
9.20....................................................HEADINGS59
9.21................................................COUNTERPARTS59
9.22...............................................FAX EXECUTION59
9.23................................NO THIRD PARTY BENEFICIARIES59
9.24...........................................DOMICILE OF LOANS60
9.25............................................ENTIRE AGREEMENT60
9.26................................................CONSTRUCTION60
9.27......................................SUCCESSORS AND ASSIGNS60
9.28..............................................TEXAS LANGUAGE60
9.29.....................................WAIVER OF TRIAL BY JURY61
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LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT"), dated for reference purposes only
as of April 8 , 1998 by and between Bank of Scotland, acting through its branch
in New York, New York ("BANK"), a foreign banking corporation incorporated under
the laws of Scotland with its principal place of business at 565 Fifth Avenue,
New York, NY 10017, and FirstCity Financial Corporation, a Delaware corporation
("BORROWER"), with its principal place of business at 6400 Imperial Drive, P.O.
Box 8216, Waco, Texas 76714.
RECITALS:
A. Borrower has requested and Bank has agreed to provide Borrower with a
revolving credit facility in an amount not to exceed Fifty Million Dollars
($50,000,000) (the "LOANS").
B. Borrower intends to use the proceeds of the Loans to make loans and
other financial accommodations to its Affiliates.
C. The Loans will be secured by a pledge of all of Borrower's assets,
including the stock or other equity interests of corporations and partnerships
owned by Borrower.
D. The parties deem it to be in their best interest to set forth their
mutual agreements herein.
NOW THEREFORE, in consideration of any loan, advance, extension of credit
and/or other financial accommodation at any time made by Bank to or for the
benefit of Borrower, and of the promises set forth herein, the parties hereto
agree as follows:
1. DEFINITIONS AND TERMS.
1.1 Definitions. The following words, terms and/or phrases shall have the
meanings set forth thereafter and such meanings shall be applicable to the
singular and plural form thereof, giving effect to the numerical difference.
(a) "ADVANCE": any loan of monies made by Bank to Borrower pursuant
to the terms of Section 2.1.
(b) "ADVANCE DATE": with respect to each Advance, the Business Day
upon which the proceeds of such Advance are to made available to Borrower.
<PAGE>
(c) "AFFILIATE": any Person (i) in which Borrower, one or more
equity interest holders owning twenty-five percent (25%) or more of the
total equity interest of Borrower, any Subsidiary, and/or any Parent,
individually, jointly and/or severally, now or at any time or times
hereafter, has or have an equity or other ownership interest equal to or
in excess of twenty-five percent (25%) of the total equity of or other
ownership interest in such Person; and/or (ii) which directly or
indirectly through one or more intermediaries controls or is controlled
by, or is under common control with Borrower; and/or (iii) any officer or
director of Borrower or any Primary Obligor. For purposes of this
definition, "CONTROL" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of Stock, by contract
or otherwise, and in any case shall include direct or indirect ownership
(beneficially or of record) of, or direct or indirect power to vote, 25%
or more of the outstanding shares of any class of capital stock of such
Person (or in the case of a Person that is not a corporation, 25% or more
of any class of equity interest).
(d) "AGREEMENT": this Loan Agreement, together with all amendments,
modifications, extensions, supplements, restatements replacements and
extensions hereto or hereof.
(e) "AGREEMENT AND ESTOPPEL CERTIFICATE": an agreement and estoppel
certificate executed and delivered by each maker of a Pledged Note, in
form and substance acceptable to Bank, in its sole and exclusive
discretion.
(f) "AND/OR": one or the other or both, or any one or more or all,
of the things or Persons in connection with which the conjunction is used.
(g) "ASSETS": any and all real, personal and intangible property of
a Person, including, without limitation, accounts, chattel paper, contract
rights, letters of credit, instruments and documents, equipment, general
intangibles, inventory, leases, options, licenses, and real property,
whether now existing or hereafter acquired or arising.
(h) "BANK": Bank of Scotland, a foreign banking corporation
incorporated under the laws of Scotland, and its successors and assigns.
(i) "BOOK VALUE": the meaning set forth in Section 2.2(b).
(j) "BORROWER": FirstCity Financial Corporation, a Delaware
corporation, and its permitted successors and assigns.
(k) "BORROWER'S LIABILITIES": all obligations and liabilities of
Borrower to Bank under the terms of this Agreement, the Security
Agreement, the Note Pledge Agreements, the Stock Pledge Agreements and
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the other Loan Documents, and all extensions and renewals or refinancing
thereof, whether such obligation or liability is direct or indirect,
secured or unsecured, joint or several, absolute or contingent, due or to
become due, whether for payment or performance, whether heretofore
arising, now existing or hereafter arising, however evidenced, created,
incurred, acquired or owing and whether now contemplated or hereafter
arising. Without limitation of the foregoing, such liability and
obligations include the principal amount of Loans, interest, fees,
indemnities or expenses under this Agreement and all other Loan Documents,
and all extensions, renewals and refinancing thereof, whether or not such
Loans were made in compliance with the terms and conditions of this
Agreement or in excess of the obligation of Bank to lend. Borrower's
Liabilities shall remain Borrower's Liabilities, notwithstanding any
assignment or transfer or any subsequent assignment or transfer of any of
the Borrower's Liabilities or any interest therein.
(l) "BORROWER'S OBLIGATIONS": all terms, conditions, warranties,
representations, agreements, undertakings, covenants and provisions (other
than Borrower's Liabilities) to be performed, discharged, kept, observed
or complied with by Borrower to or for the benefit of Bank, under the
terms of this Agreement and all other Loan Documents, and all extensions
and renewals or refinancing thereof, whether such obligation is direct or
indirect, secured or unsecured, joint or several, absolute or contingent,
due or to become due, whether heretofore arising, now existing or
hereafter arising, however evidenced, created, incurred, acquired or owing
and whether now contemplated or hereafter arising. Borrower's Obligations
shall remain Borrower's Obligations, notwithstanding any assignment or
transfer or any subsequent assignment or transfer of any of the Borrower's
Obligations or any interest therein.
(m) "BORROWING BASE": the meaning set forth in Section 2.2(b).
(n) "BORROWING BASE CERTIFICATE": the certificate delivered by
Borrower to Bank in accordance with the provisions of Section 6.2(c)(vi).
(o) "BORROWING REQUEST": a request for an Advance setting forth the
information required pursuant to Section 2.5(a).
(p) "BUSINESS DAY": (i) For all purposes other than as covered by
clause (ii) hereof, any day, other than a Saturday, Sunday, a day that is
a legal holiday under the laws of the State of Illinois, the State of New
York, and the State of Texas or any other day on which banking
institutions located in the State of Illinois, the State of New York and
the State of Texas are authorized or required by law or other governmental
action to close; and (ii) with respect to determinations in connection
with, and payments of principal and interest in Eurodollar Advances, any
day
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which is a Business Day described in clause (i) and which is also a
day for trading by and between banks in U.S. dollar deposits in the London
Interbank Eurodollar Market.
(q) "CAPITALIZED LEASE" at any time any lease which is, or is
required under GAAP to be, capitalized on the balance sheet of the lessee
at such time, and "CAPITALIZED LEASE OBLIGATION" of any Person at any time
shall mean the aggregate amount which is, or is required under GAAP to be,
reported as a liability on the balance sheet of such Person at such time
as lessee under a Capitalized Lease.
(r) "CHARGES": all national, Federal, state, county, city, municipal
and/or other governmental (or any instrumentality, division, agency, body
or department thereof, including without limitation the Pension Benefit
Guaranty Corporation) taxes, levies, assessments, charges, liens, claims
or encumbrances upon and/or relating to the Borrower's Assets, the Secured
Obligations, Borrower's business, Borrower's ownership and/or use of any
of its Assets, Borrower's income and/or gross receipts and/or Borrower's
ownership and/or use of any of its material Assets.
(s) "CONSOLIDATED GROUP": Borrower and those Affiliates of Borrower
required to file consolidated tax returns pursuant to Section 1502 of the
Code.
(t) "COSTS": any and all reasonable costs and expenses (including,
without limitation, the reasonable fees and expenses of any counsel,
accountants, appraisers or other professionals) incurred by Bank at any
time, in connection with: (i) the preparation, negotiation, execution and
administration of this Agreement and all other Loan Documents; (ii) the
preparation, negotiation and execution of any amendment or modification of
this Agreement or the other Loan Documents; (iii) the custody,
preservation, use or operation of, or the sale of, collection from or
other realization upon the Pledged Property; (iv) the exercise or
enforcement of any of the rights of Bank hereunder; (v) any failure by
Borrower to perform or observe any of the provisions hereunder; (vi) any
litigation, contest, dispute, suit, proceeding or action (whether
instituted by Bank, Borrower or any other Person) in any way relating to
this Agreement, the other Loan Documents, the Secured Obligations, the
Pledged Property, Borrower's affairs or any Affiliate's affairs; (vii) any
attempt to enforce any rights of Bank against Borrower or any other Person
which may be obligated to Bank by virtue of this Agreement or the other
Loan Documents; and (viii) performing any of the obligations relating to
or payment of any of Borrower's Obligations hereunder in accordance with
the terms hereof.
(u) "DEFAULT RATE": interest at the rate of two percent (2%) per
annum plus the Prime Interest Rate.
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(v) "DESIGNATED PERSON": any Person identified as a "DESIGNATED
PERSON" on Borrower's Secretary's Certificate dated of even date herewith,
as amended or superseded from time to time.
(w) "DOLLARS": the lawful currency of the United States of America.
(x) "ELIGIBLE NOTE": the meaning set forth in Section 2.2(c).
(y) "ENVIRONMENTAL LAWS": any Federal, state or local law, rule,
regulation, ordinance, order, code or statute applicable to Borrower or
its property, in each case as amended (whether now existing or hereafter
enacted or promulgated), controlling, governing or relating to the
pollution or contamination of the air, water or land or concerning
hazardous, special or toxic materials, wastes or substances, or any
judicial or administrative interpretation of such laws, rules or
regulations, including, without limitation, the Water Pollution Control
Act (33 U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act
(42 U.S.C. ss. 6901 et seq.), Safe Drinking Water Act (42 U.S.C. ss.
3000(f) et seq.), Toxic Substances Control Act (15 U.S.C. ss. 2601 et
seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.), and Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601
et seq.).
(z) "EQUIPMENT LEASES": all leases or similar agreements pursuant to
which Borrower leases equipment.
(aa) "EURODOLLAR ADVANCE": any portion of the Loan for which the
interest rate is based on the Eurodollar Rate, whether or not Bank obtains
Eurodollars equal to all or any portion of such Eurodollar Advance
(bb) "EURODOLLAR RATE": the variable rate equal to two and six
hundred twenty-five thousandths percent (2.625%) per annum plus the LIBOR
Rate.
(cc) "EVENT OF DEFAULT": the definition ascribed to this term in
Section 7.1.
(dd) "EXCLUDED ENTITIES": the definition ascribed to this term in
Section 4.3.
(ee) "EXCLUDED NOTES": the definition ascribed to this term in
Section 4.2.
(ff) "FC CAPITAL": FC Capital Corp., a New York corporation.
(gg) "FC COMMERCIAL": FirstCity Commercial Corporation, a Texas
corporation.
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(hh) "FC CONSUMER LENDING": FirstCity Consumer Lending Corporation,
a Texas corporation.
(ii) "FC MORTGAGE": FirstCity Financial Mortgage Corporation, a
Delaware corporation.
(jj) "FC SERVICING": FirstCity Servicing Corporation, a Texas
corporation.
(kk) "FEDERAL FUNDS EFFECTIVE RATE": for any day shall mean the rate
per annum (rounded upward to the nearest 1/100 of 1%) determined by Bank
(which determination shall be conclusive) to be the rate per annum
announced by the Federal Reserve Bank of New York (or any successor) on
such day as being the weighted average of the rates on overnight Federal
funds transactions arranged by Federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve
Bank computes and announces the weighted average it refers to as the
"Federal Funds Effective Rate" as of the date of this Agreement; provided
that if such Federal Reserve Bank (or its successor) does not announce
such rate on any day, the "Federal Funds Effective Rate" for such day
shall be the Federal Funds Effective Rate for the last day on which such
rate was announced.
(ll) "FEE AGREEMENTS": any partnership agreement, management
agreement, consulting agreement, or other agreements pursuant to which
Borrower or any Primary Obligor or Secondary Obligor is to be paid fees,
distributions, allocations, expense reimbursements, consideration, salary
or other compensation in consideration for providing management, personnel
or services, in any form whatsoever, from any Affiliate or from any other
Person. Services to be rendered under Fee Agreements may include, but not
be limited to consulting, collecting revenues, paying operating expenses
not paid directly by others, and providing clerical and bookkeeping
services.
(mm) "FINANCIALS": those financial statements of Borrower and/or any
other Loan Party, heretofore, concurrently herewith or hereafter delivered
by or on behalf of Borrower and/or any other Loan Party to Bank, including
but not limited to those financial statements and reports delivered by
Borrower to Bank pursuant to Section 6.2(c).
(nn) "GAAP": generally accepted accounting principles applied in the
preparation of the financial statements of a Person with such changes
thereto as: (i) shall be consistent with the then-effective principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors and successors, and (ii) shall be concurred in by the
independent certified public accountants of recognized standing acceptable
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<PAGE>
to Bank reviewing such financial statements of such Person.
(oo) "GOVERNMENTAL AUTHORITY": any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal. grand
jury or arbitrator, in each case whether foreign or domestic.
(pp) "GUARANTIES": the meaning set forth in Section 4.1.
(qq) "GUARANTORS": collectively, (i) FC Commercial, (ii) FC Consumer
Lending, and (iii) FC Servicing, and each other Person who has guaranteed
all or any portion of the Secured Obligations.
(rr) "GUARANTY EQUIVALENT": any agreement, document or instrument
pursuant to which a Person directly or indirectly guarantees, becomes
surety for, endorses, assumes, agrees to indemnify the obligee of any
other Person against, or otherwise agrees, becomes or remains liable
(contingently or otherwise) for, such obligation, other than by
endorsements of instruments in the ordinary course of business. Without
limitation, a Guaranty Equivalent shall be deemed to exist if a Person
agrees, becomes or remains liable (contingently or otherwise), directly or
indirectly: (i) to purchase or assume, or to supply funds for the payment,
purchase or satisfaction of, an obligation; (ii) to make any loan,
advance, capital contribution or other investment in, or a purchase or
lease of any property or services from, a Person; (iii) to maintain the
solvency of such Person; (iv) to enable such Person to meet any other
financial condition; (v) to enable such Person to satisfy any obligation
or to make any payment; (vi) to assure the holder of an obligation against
loss; (vii) to purchase or lease property or services from such Person
regardless of the non-delivery of or failure to furnish of such property
or services; or (viii) in respect of any other transaction the effect of
which is to assure the payment or performance (or payment of damages or
other remedy in the event of nonpayment or nonperformance) of any
obligation.
(ss) "INDEBTEDNESS": with respect to any Person, at a particular
time (without duplication): (i) all obligations on account of money
borrowed by, or credit extended to or on behalf of, or for or on account
of deposits with or advances to, such Person; (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments; (iii)
all obligations of such Person for the deferred purchase price of property
or services other than trade payables incurred in the ordinary course of
business and on terms customary in the trade; (iv) all obligations secured
by a Lien on property owned by such Person (whether or not assumed); and
all obligations of such Person under Capitalized Leases (without regard to
any limitation of the rights and remedies of the holder of such Lien or
the lessor under such Capitalized Lease to repossession or sale of such
property); (v) the face amount of all letters of credit issued for the
account of such Person
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and, without duplication, the unreimbursed amount of all drafts drawn
thereunder, and all other obligations of such Person associated with such
letters of credit or draws thereon; (vi) all obligations of such Person in
respect of acceptances or similar obligations issued for the account of
such Person; (vii) all obligations of such Person under a product
financing or similar arrangement; (viii) all obligations of such Person
under any interest rate or currency protection agreement, interest rate or
currency future, interest rate or currency option, interest rate or
currency swap or cap or other interest rate or currency hedge agreement;
and (ix) all obligations and liabilities with respect to unfunded vested
benefits under any "EMPLOYEE BENEFIT PLAN" or with respect to withdrawal
liabilities incurred under ERISA by Borrower or any ERISA Affiliate to a
"MULTIEMPLOYER PLAN", as such terms are defined under the Employee
Retirement Income Security Act of 1974.
(tt) "INDEBTEDNESS INSTRUMENT": any note, mortgage, indenture,
chattel mortgage, deed of trust, loan agreement, hypothecation agreement,
pledge agreement, security agreement, financing statement or other
document, instrument or agreement evidencing or securing the payment of or
otherwise relating to the borrowing of monies. Indebtedness Instruments
shall include, but not be limited to the Loan Documents.
(uu) "INTEREST PERIOD": with respect to any Eurodollar Advance, the
period commencing on the date such Eurodollar Advance is made or continued
as a Eurodollar Advance, as the case may be, or the date on which a Prime
Rate Advance is converted into such Eurodollar Advance as applicable, and
ending seven days, or one, two, three and six months thereafter, as
Borrower may elect in the applicable Borrowing Request (or as Borrower
shall be deemed to have elected, as applicable); provided that any
Interest Period which would otherwise end on a day which is not a Business
Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Business Day. No Interest Period
shall terminate after the end of the Maturity Date.
(vv) "INTEREST RATE": the Prime Interest Rate or the Eurodollar
Rate, as determined in accordance with the provisions of Article 2.
(ww) "LIEN": any mortgage, deed of trust, pledge, lien,
hypothecation, security interest, charge or other encumbrance or security
arrangement of any nature whatsoever, including but not limited to any
conditional sale or title retention arrangement, and any assignment,
deposit arrangement or lease intended as, or having the effect of,
security.
(xx) "LIBOR BREAKAGE FEE": a fee equal to all losses (excluding loss
of anticipated profits) costs, or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Bank to
fund or maintain the requested Eurodollar Advance, when, as a
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<PAGE>
result of such failure on the part of Borrower or prepayment by Borrower
(including, without limitation, any mandatory prepayment of principal and
any prepayment resulting from the liabilities being declared due and
payable in accordance with their terms hereof), interest on such
Eurodollar Advance is not based on the applicable Eurodollar Rate for the
requested Interest Period.
(yy) "LIBOR RATE": for each Interest Period, a rate of interest, per
annum, equal to: (i) the rate of interest determined by the Bank at which
deposits in U.S. Dollars for the relevant Interest Period are offered
based on information presented on the Telerate Screen as of 11:00 A.M.
(London time) on the applicable Interest Rate Determination Date; provided
that if more than one (1) offered rate appears on the Telerate Screen in
respect of such Interest Period, the arithmetic mean of all such rates (as
determined by the Bank) will be the rate used; provided further that if
Telerate ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by the Bank at which deposits in U.S.
Dollars are offered for the relevant Interest Period by banks or other
financial institutions selected by Bank to banks in London interbank
markets as of 11:00 A.M. (London time) on the applicable Interest Rate
Determination Date, multiplied by (ii) the Libor Rate Reserve Percentage.
The LIBOR Rate shall be adjusted automatically as of the effective date of
each change in the LIBOR Rate Reserve Percentage. The LIBOR Rate shall be
calculated in accordance with the foregoing whether or not Bank is
actually required to hold reserves in connection with its eurocurrency
funding or, if required to hold such reserves, is required to hold
reserves at the LIBOR Rate Reserve Percentage.
(zz) "LIBOR RATE RESERVE PERCENTAGE": for any day shall mean the
percentage (expressed as a decimal, rounded upward to the nearest 1/100 of
1%), as determined in good faith by Bank (which determination shall be
conclusive), which is in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) representing
the maximum reserve requirement (including, without limitation,
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency liabilities")
of a member bank in such system.
(aaa) "LOAN": any and all loans, advances, extensions of credit
and/or other financial accommodations of any kind or nature made by Bank
at any time to, for the benefit or at the request of Borrower pursuant to
this Agreement and/or any of the other Loan Documents.
(bbb) "LOAN DOCUMENTS": this Agreement and the Other Agreements.
(ccc) "LOAN PARTY": Borrower and every other Person who is a party
to any one or more of the Loan Documents.
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(ddd) "MATURITY DATE": April 30, 1999, or such earlier date as all
of Borrower's Obligations shall be due and payable by acceleration or
otherwise.
(eee) "MAXIMUM PRINCIPAL AMOUNT": the meaning set forth in Section
2.2(a).
(fff) "MONTHLY REPORT": those reports delivered to Bank in
accordance with Section 6.2(c)(iii).
(ggg) "NAF": National Auto Funding Corporation, a Texas corporation.
(hhh) "NOTE": that certain revolving promissory note dated even date
herewith, in the original principal amount of $50,000,000 made by Borrower
payable to the order of Bank, as said note may hereafter be amended,
restated, modified, supplemented, extended or replaced.
(iii) "NOTE PLEDGE AGREEMENT": any one or more of those certain Note
Pledge Agreements entered into concurrently herewith by Borrower and
certain of the Primary Obligors, pursuant to which such Loan Party has
pledged to Bank certain promissory notes, including the Eligible Notes.
(jjj) "ORGANIC DOCUMENTS": with respect to any Person, its articles
or certificate of incorporation, by-laws, shareholder's agreement,
certificate of partnership, certificate of limited partnership,
partnership agreement, articles of organization, operating agreement, or
similar documents or agreements governing its management and the rights
and privileges of its equity owners.
(kkk) "OTHER AGREEMENTS": the Note, the Note Pledge Agreements, the
Stock Pledge Agreements, together with all other agreements, instruments
and documents evidencing or securing the Loans or the transactions
contemplated herein, including, without limitation, bond agreements, loan
agreements, security agreements, guaranties, mortgages, deeds of trust,
notes, applications and agreements for letters of credit, letters of
credit, advances of credit, bankers acceptances, pledges, powers of
attorney, consents, assignments, collateral assignments, contracts,
notices, leases, financing statements and all other written matter
heretofore, now and/or from time to time hereafter executed by and/or on
behalf of Borrower, any other Loan Party and delivered to Bank, or issued
by Bank upon the application and/or other request of, and on behalf of,
Borrower.
(lll) "PARENT": any Person, now or at any time or times hereafter,
owning or controlling (alone or with Borrower, any Subsidiary and/or any
other Person) at least a majority of the issued and outstanding Stock or
other ownership interest of Borrower or any Subsidiary (hereinafter
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defined). For purposes of this definition, "CONTROL" shall have the same
meaning ascribed to this term in Section 1.1(c).
(mmm) "PERMITTED LIENS": (i) any liens created in favor of Bank;
(ii) liens for Charges which are not yet due and payable or which are
expressly permitted pursuant to the terms hereof, or claims and unfunded
liabilities under ERISA not yet due and payable or which are being
contested in good faith; (iii) liens arising in connection with worker's
compensation, unemployment insurance, old age pensions and social security
benefits which are not overdue or are being contested in good faith by
appropriate proceedings diligently pursued, provided that in the case of
any such contest any proceedings commenced for the enforcement of such
lien shall have been duly suspended and such provision for the payment of
such lien has been made on the books of Borrower (or the applicable
Affiliate) as may be required by GAAP; (iv) liens incurred in the ordinary
course of business to secure the performance of statutory obligations
arising in connection with progress payments or advance payments due under
contracts with the United States Government or any agency thereof entered
into in the ordinary course of business; (v) any liens securing
indebtedness of Borrower (or any Affiliate) to any Persons in an aggregate
amount less than $200,000; (vi) ad valorem taxes relating to Assets of
First B and First X (as defined on Schedule 1.1(xxx), (vii) as to
Secondary Obligors, NAF and/or FC Capital, purchase money liens in
connection with the acquisition of Assets, (viii) as to Secondary Obligors
NAF, and/or FC Capital, only, liens relating to Indebtedness incurred in
connection with warehousing assets or the securitization of Assets, and
(ix) those liens disclosed on Schedule 5.1(g).
(nnn) "PERSON": any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, entity, party or
government (whether national, Federal, state, county, city, municipal or
otherwise, including without limitation any instrumentality, division,
agency, body or department thereof).
(ooo) "PLEDGED ENTITIES": those entities whose shareholders,
partners, members or other equity owners have pledged an equity interest
in such entity to secure the Secured Obligations.
(ppp) "PLEDGED NOTES": those certain promissory notes made by
certain Primary Obligors payable to the order of Borrower, or made by
certain Secondary Obligors payable to the order of a Primary Obligor,
which have been pledged to Bank pursuant to a Note Pledge Agreement.
(qqq) "PLEDGED PROPERTY": any and all other property (real, personal
or intangible) pledged by Borrower or any other Loan Party to secure
payment and performance of the Secured Obligations, including but
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not limited to: (i) any and all Collateral, as defined in the Security
Agreement; (ii) any and all interests pledged pursuant to the Note Pledge
Agreements; and (iii) any and all interests pledged pursuant to the Stock
Pledge Agreements.
(rrr) "PRIMARY OBLIGORS": collectively, (i) FC Capital, (ii) FC
Commercial, (iii) FC Consumer Lending, (iv) FC Mortgage, (v) FC Servicing,
and (vi) NAF.
(sss) "PRIME INTEREST RATE": an interest rate equal to the higher
of: (i) the Federal Funds Effective Rate plus one-half of one percent
(.5%), or (ii) the Prime Rate.
(ttt) "PRIME RATE": the prime rate of interest quoted from time to
time by the Bank of Scotland as its base rate on corporate loans at large
U.S. money center commercial banks on such day; provided that in the event
the Bank of Scotland ceases quoting a prime rate, Prime Rate shall mean
the per annum rate of interest quoted as the Bank Prime Loan Rate for the
most recent weekday for which such rate is quoted in Statistical Release
H.15 (519) published from time to time by the Board of Governors of the
Federal Reserve System; provided further that in the event that both of
the aforesaid indices cease to be published or to quote rates of the
aforesaid types, the Prime Rate shall be determined from a comparable
index chosen by Bank in good faith. The Prime Rate shall change effective
on the date of the publication of any change in the applicable index by
which the Prime Rate is determined.
(uuu) "PRIME RATE ADVANCE": all or any portion of the Loan which is
not a Eurodollar Advance.
(vvv) "RECORDS": all books, records, computer records, computer
software, ledger cards, programs and other computer materials, customer
and supplier lists, invoices, orders and other property and general
intangibles at any time evidencing or relating to the Assets.
(www) "REDUCTION EVENT": the meaning set forth in Section 2.2(a).
(xxx) "SEC": the Securities and Exchange Commission.
(yyy) "SECONDARY OBLIGORS": those entities identified on Schedule
1.1(xxx).
(zzz) "SECURED OBLIGATIONS": all of Borrower's Liabilities,
Borrower's Obligations and all other obligations and liabilities of any
other Loan Party to Bank under the terms of this Agreement, the Security
Agreement, the Guaranties, the Note Pledge Agreements, the Stock Pledge
Agreements and the other Loan Documents, and all extensions and renewals
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or refinancing thereof, whether such obligation or liability is direct or
indirect, otherwise secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance,
whether heretofore arising, now existing or hereafter arising, however
evidenced, created, incurred, acquired or owing and whether now
contemplated or hereafter arising. Without limitation of the foregoing,
such liability and obligations include the principal amount of Loans,
interest, fees, indemnities or expenses under this Agreement or any other
Loan Document, and all extensions, renewals and refinancing thereof,
whether or not such Loans were made in compliance with the terms and
conditions of this Agreement or in excess of the obligation of the Bank to
lend. Secured Obligations shall remain Secured Obligations,
notwithstanding any assignment or transfer or any subsequent assignment or
transfer of any of the Secured Obligations or any interest therein.
(aaaa) "SECURITIES": shall have the meaning ascribed to that
term in the Securities Act of 1934.
(bbbb) "SECURITIES LAWS": all applicable Federal and state
securities laws and regulations promulgated pursuant thereto.
(cccc) "SECURITY AGREEMENTS": those certain security agreements by
and between Bank and Borrower, dated even date herewith, or by and between
certain Primary Obligors and Bank, each dated even date herewith, as said
agreements may be amended, modified, supplemented, extended, renewed or
replaced.
(dddd) "STOCK": all shares, interests, participations or other
equivalents (however designated) of or in a corporation, whether voting or
non-voting, including, but not limited to, common stock, warrants,
preferred stock, convertible debentures and all agreements, instruments
and documents convertible, in whole or in part, into any one or more or
all of the foregoing.
(eeee) "STOCK PLEDGE AGREEMENT": any one or more of those certain
stock pledge agreements, partnership pledge agreements and/or membership
interest pledge agreements entered into concurrently hereby by Borrower
and other Loan Parties, pursuant to which such Loan Party has pledged to
Bank Stock or other equity interests in the Pledged Entities.
(ffff) "SUBSIDIARY": any Person at least a majority of whose issued
and outstanding Stock or other ownership interests now or at any time
hereafter is owned by Borrower, any Primary Obligor or Secondary Obligor,
as applicable.
(gggg) "TANGIBLE NET WORTH": as determined at any time, the total of
shareholders' equity (including capital stock, additional paid-in
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capital and retained earnings after deducting treasury stock and
subordinated indebtedness approved in writing by Bank) of a Person, less
the sum of the total amount of any intangible assets, which, for purposes
of this definition, shall include, without limitation, general intangibles
and, if applicable, all accounts receivable from any Affiliate of such
Person or any shareholders or officers of any Affiliate of such Person,
all prepaid expenses, any unamortized debt, discount and expense,
unamortized deferred charges and good will, all as determined in
accordance with GAAP.
(hhhh) "UNMATURED DEFAULT": any event or condition which, with the
passage of time or the giving of notice or both, would constitute an Event
of Default hereunder.
1.2 GAAP. Except as otherwise defined in this Agreement or the other Loan
Documents, all accounting terms used herein shall have the meaning ascribed to
that term in accordance with GAAP.
1.3 Borrower. Whenever the context so requires, the use of "IT" in
reference to Borrower shall mean Borrower as defined above.
1.4 Rules of Construction. In this Agreement, unless a clear contrary
intention appears:
(a) the singular number includes the plural number and vice versa;
reference to any gender includes each other gender;
(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(c) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
provided that nothing in this clause is intended to authorize any
assignment not otherwise permitted by this Agreement;
(d) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or modified and
in effect from time to time in accordance with the terms thereof and, if
applicable, the terms hereof, and reference to any note includes any note
issued pursuant to any Loan Document in extension or renewal thereof and
in substitution or replacement therefor;
(e) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto:
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(f) the words "INCLUDING" (and with correlative meaning "INCLUDE")
means including, without limiting the generality of any description
preceding such term:
(g) with respect to the determination of any period of time, the
word "from" means "from and including" and the word "to" means "to but
excluding;" and
(h) reference to any law means such as amended, modified, codified
or reenacted, in whole or in part, and in effect from time to time.
(i) The Article and Section headings herein are for convenience only
and shall not affect the construction hereof.
2. LOANS - GENERAL TERMS
2.1 Revolving Loan.
Subject to the terms and conditions hereof, Bank shall make
available to Borrower revolving Loans from time to time in an aggregate
principal amount not to exceed at any time outstanding $50,000,000. The Loans
shall be further evidenced by the Note. The Loans shall be funded and interest
shall accrue and be paid thereon in accordance with this Article 2. The entire
unpaid principal balance plus accrued but unpaid interest on the Loans is due
and payable on the Maturity Date.
2.2 Maximum Principal Amount.
(a) Notwithstanding anything to the contrary contained herein or in
any other Loan Document but subject to the limitations set forth in Section
2.2(d), the principal portion of Borrower's Liabilities outstanding at any one
time during the term hereof shall not exceed:
(i) at any time prior to the occurrence of a Reduction
Event, the lesser of (A) $50,000,000 and (B) the
Borrowing Base, or
(ii) at any time after the occurrence of a Reduction Event,
the lesser of (A) ($40,000,000), and (B) the Borrowing
Base.
The foregoing is collectively referred to herein as the "MAXIMUM PRINCIPAL
AMOUNT." As used herein, a "REDUCTION EVENT" shall mean:
(y) after the filing of an S-3 in accordance with Section
6.3(f): (i) the sale of Securities pursuant to such
filing, (ii) the voluntary withdrawal of such filing, or
(iii) the
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rejection or prohibition by the SEC of such filing, for
any reason whatsoever; or
(z) ninety (90) days after the date hereof.
Notwithstanding anything to the contrary contained herein, it is the intent and
agreement of the parties that in the event Bank establishes a co-lending
relationship with one or more other lenders and the total amount of the loan to
Borrower pursuant to the terms of this Agreement, as amended, is increased, that
Bank's lending commitment to Borrower under such amended facility shall be
reduced to $40,000,000, whether or not a Reduction Event shall then have
occurred.
(b) Subject to the limitations set forth in Section 2.2(d), the
borrowing base ("BORROWING BASE") applicable to the Loans shall be equal, on any
day during the term of this Agreement, to an amount up to 65% of the Book Value
of all Eligible Notes. As used herein, "BOOK VALUE" shall mean an amount equal
to: (i) the unpaid principal balance of any Eligible Note, exclusive of any
interest, fees, charges, penalties or other amounts due or payable thereunder,
minus (ii) an amount equal to the negative Tangible Net Worth of any obligor on
any Eligible Note.
(c) As used herein, "ELIGIBLE NOTE" shall mean any one or more
negotiable promissory notes made by a Primary Obligor payable to the order of
Borrower, in form and substance acceptable to Bank, in its sole and exclusive
discretion, which note: (i) has been pledged to Bank pursuant to the Note Pledge
Agreement by and between Borrower and Bank; (ii) has been delivered to Bank by
Borrower; (iii) has been endorsed by Borrower payable to the order of Bank; (iv)
for which Borrower has delivered to Bank an Agreement and Estoppel Certificate
from the maker thereof, all in form and substance acceptable to Bank in its sole
and exclusive discretion; and (v) the representations and warranties with
respect to which made in the applicable Note Pledge Agreement are true and
correct in all material respects. A true, accurate and complete schedule of all
Eligible Notes is attached hereto as Schedule 2.2(c); provided however, Borrower
shall have the right to amend Schedule 2.2(c) if and when Borrower delivers to
Lender an Agreement and Estoppel Certificate from FC Capital relating to that
certain Subordinated Promissory Note dated as of January 1, 1998, in the
principal amount of $50,000,000 made by FC Capital payable to the order of
Borrower. Upon delivery and acceptance of such Agreement and Estoppel
Certificate from FC Capital and amendment of Schedule 2.2(c), such note shall be
an Eligible Note under the terms of this Agreement. Borrower shall not enter
into, amend, modify, supplement, restate or replace any Eligible Note, without
in each instance, Bank's prior written consent.
(d) In addition to the limitations on Maximum Principal Amount, Book
Value and Eligible Notes set forth in other provisions hereof, the
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Borrowing Base, Eligible Notes and the Maximum Principal Amount shall be limited
as follows
(i) For the purpose of determining the Borrowing Base, at
any one time, the maximum Book Value for any one
Eligible Note shall be $30,769,231, resulting in the
maximum amount of Loans available to be made with
respect to such portion of the Borrowing Base being
$20,000,000.
(ii) For the purpose of determining the Borrowing Base, at
any one time, the maximum aggregate Book Value of
Eligible Notes made by NAF and FC Consumer Lending shall
be $30,769,231, resulting in the maximum amount of Loans
available to be made with respect to such portion of the
Borrowing Base being $20,000,000.
(iii) Upon Borrower's delivery to Bank of a Borrowing Base
Report, Bank shall determine, in its sole and absolute
discretion and in the exercise of good faith, which
individual notes listed thereon are Eligible Notes.
(e) In the event that the outstanding principal balance of the Loan
exceeds the Maximum Principal Amount at any time, Borrower shall pay the amount
of such excess to Bank, without notice or demand, and any amount not so paid
shall bear interest at the Default Rate until paid. Borrower's obligation to pay
principal pursuant to this Section 2.2(e) shall include (but not be limited to)
an obligation to pay principal in an amount required to reduce the outstanding
principal balance to an amount equal to or less than $40,000,000 at all times
after the occurrence of a Reduction Event. This is an absolute obligation to pay
to Bank the amount of the unpaid principal balance of the Loan in excess of said
Maximum Principal Amount, regardless of the cause of such excess.
2.3 Maturity Date; Termination of Loans.
Bank's obligation to make any Advance to Borrower pursuant to the
provisions hereof shall be in effect until the Maturity Date, unless sooner
terminated by Bank upon the occurrence of an Event of Default, an Unmatured
Default, or pursuant to the terms hereof.
2.4 Authorized Disbursement of Proceeds.
Borrower hereby authorizes and directs Bank to disburse, for and on
behalf of Borrower and for Borrower's account, the proceeds of any Loan to such
Person as Borrower or any Designated Person shall direct. In addition to
Advances of Loan proceeds made pursuant to a Borrowing Request made by Borrower
from time to time, Borrower hereby irrevocably authorizes Bank to disburse
proceeds of the Loan to pay: (a) interest which is accrued but unpaid and which
is due and payable pursuant to the terms hereof and of the Note until the Loan
is paid in full; and (b) for any and all Costs. The execution of this Agreement
by Borrower shall, and hereby does,
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constitute an irrevocable direction and authorization to Bank so to disburse
such funds described in this Section and to treat such Advances as money loaned
pursuant to this Agreement and as indebtedness evidenced by the Note. No further
direction or authorization from Borrower shall be necessary for Bank to make
such Advances, and all such Advances shall satisfy, to the extent so disbursed,
the obligations of Borrower hereunder and shall be evidenced by the Note.
Notwithstanding anything to the contrary contained herein, Bank is under no duty
or obligation to make such Advances and failure to make such Advances shall not
be deemed to be a default by Bank or impair any of Bank's rights or remedies
hereunder.
2.5 Borrowing Procedure.
(a) In order to request an Advance, Borrower shall hand deliver or
telecopy to Bank a duly completed Borrowing Request not later than 11:00 a.m.
New York time: (i) at least three (3) Business Days before a proposed Eurodollar
Advance and (ii) at least one (1) Business Day before a proposed Prime Rate
Advance. Each Borrowing Request shall be irrevocable and shall specify: (w) the
number and location of the account to which funds are to be disbursed; (x) the
date such Advance is to be made (which shall be a Business Day); (y) the amount
of such Advance; and (z) if applicable, the information required to elect that
such Advance be a Eurodollar Advance, in compliance with the provisions of
Sections 2.10 and 2.11. Each Borrowing Request shall be accompanied by a
Borrowing Base Certificate, dated as of the date of such Borrowing Request.
(b) If Borrower in respect of an outstanding Eurodollar Advance
shall not have delivered a Borrowing Request in accordance with Section 2.5(a)
at least three (3) Business Days prior to the end of the Interest Period then in
effect for such Eurodollar Advance and requesting that such Eurodollar Advance
be refinanced, then Borrower shall (unless Borrower has notified the Bank not
fewer than three (3) Business Days prior to the end of such Interest Period,
that such Eurodollar Advance is to be repaid at the end of such Interest Period)
be deemed to have delivered a Borrowing Request requesting that such Advance be
refinanced with a new Advance of equivalent amount, and such new Advance shall
bear interest at the Prime Interest Rate.
2.6 Interest Rate.
The principal on the Note shall bear interest at the Prime Interest
Rate or, to the extent Borrower has fully and timely complied with the
provisions of Sections 2.10 and 2.11, at the Eurodollar Rate. Unless Borrower
has designated any Advance as a Eurodollar Advance in strict accordance with the
terms hereof, Borrower's Liabilities shall bear interest at the Prime Interest
Rate. Interest on all Prime Rate Advances shall be computed on a 365-day year
for the actual number of days elapsed. Interest on all Eurodollar Advances shall
be computed on a 360 day year for the actual number of days elapsed. After the
occurrence of an Event of Default and during the continuation thereof, all Loans
shall bear interest at the Default Rate. The unpaid principal balance of each
Advance shall bear interest at the Interest Rate applicable thereto, determined
by
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Bank in accordance with the provisions hereof, which determination shall be
binding upon Borrower, absent manifest error.
2.7 Change of Laws.
If Bank shall determine at any time after the date hereof that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by Bank with any request
or directive regarding capital adequacy (whether or not having the force of law)
from any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on Bank's capital as a consequence of
its obligations hereunder to a level below that which Bank could have achieved
but for such adoption, change or compliance (taking into consideration Bank's
policies with respect to capital adequacy) by an amount deemed by Bank to be
material, then Borrower shall pay to Bank upon demand such amount or amounts, in
addition to the amounts payable under any other provision of this Agreement or
the Other Agreements, as will compensate Bank for such reduction. Determinations
by Bank for purposes of this Section of the additional amount or amounts
required to compensate Bank with respect to the foregoing shall be conclusive in
the absence of manifest error. In determining such amount or amounts, Bank may
use any reasonable averaging or attribution methods. Notwithstanding the
foregoing, no amounts shall be payable by Borrower to Bank under the terms of
this Section 2.7 if the Secured Obligations are paid in full on or before ten
(10) days after the date on which Bank shall have notified Borrower that amounts
will be due under this Section 2.7. In the event of a prepayment pursuant to
this Section 2.7, any LIBOR Breakage Fee otherwise payable pursuant to the terms
of this Article 2 shall be waived by Bank and shall not be due or payable.
2.8 Regulatory Changes.
Notwithstanding any other provision herein contained to the
contrary, in the event that any regulatory change shall, in the reasonable
determination of Bank, make it unlawful for Bank to make or to maintain any
Eurodollar Advance or impose additional restrictions on Eurodollar Advances by
Bank, then, the obligation of Bank to make or maintain any such Eurodollar
Advance shall be terminated and all outstanding Eurodollar Advances shall
automatically be converted to Prime Rate Advances. Bank shall, as promptly as
practicable following any such determination, give Borrower a notice thereof
that sets forth the basis for any such determination. After such determination
and while such determination is in effect, Bank shall not be required to make
further Eurodollar Advances.
2.9 Advances Prior to LIBOR Rate Determination.
Anything herein to the contrary notwithstanding, after notice but
prior to making any requested Eurodollar Advance if, for any reason whatsoever,
LIBOR Rates are not then being quoted for the requested Interest Period and in
an amount approximating the amount of such Eurodollar Advance, Bank shall give
Borrower prompt notice thereof and such Eurodollar Advance (if not yet made)
shall be a Prime Rate Advance and no conversions into Eurodollar Advances shall
be permitted and no
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new Eurodollar Advances shall be made so long as such condition exists.
2.10 Eurodollar Advances and Conversion.
Provided no Event of Default or Unmatured Default has occurred and
is continuing, Borrower shall have the option, subject to the other provisions
of this Agreement, to: (i) request that any Advance or any portion of an Advance
in a minimum amount of $250,000 and in multiples of $100,000, shall be deemed to
be a Eurodollar Advance by giving telephonic notice to Bank at least three
Business Days prior to the day any Eurodollar Advance is to be made hereunder
specifying the applicable Interest Period; provided that Borrower gives Bank
written confirmation by facsimile of its telephonic notice on the same Business
Day as such telephone notice is given with respect to such Eurodollar Advance,
and (ii) convert on any Business Day, all or any portion of the outstanding
principal amount of any Advance or any portion of an Advance, in a minimum
amount of $250,000 and in multiples of $100,000, from one type of interest rate
advance to another type of interest rate advance by giving at least three (3)
Business Days prior telephonic notice to Bank thereof; provided that Borrower
gives Bank written confirmation of its telephonic notice by facsimile on the
same Business Day that such telephonic notice is given with respect to such
conversion hereunder. Notwithstanding the foregoing: (y) no Eurodollar Advance
may be converted into a Prime Rate Advance pursuant to this Section 2.10, except
effective on the last day of the Interest Period applicable thereto, and (z)
Borrower shall have no more than five (5) Eurodollar Advances with different
interest periods at any one time.
2.11 Interest Period Election.
Borrower may, by prior telephonic notice to Bank, elect the Interest
Period(s) to be applicable to all or any portion of any Eurodollar Advance upon
the expiration of the Interest Period then applicable to such Eurodollar
Advance; provided that such notice is given to Bank at least three (3) Business
Days prior to the expiration of the then Interest Period and that Borrower gives
written confirmation by facsimile of its telephonic notice on the same Business
Day that such telephonic notice is given. In the event Borrower does not make
such an election with respect to all or any portion of a Eurodollar Advance for
which the Interest Period is expiring, then, upon the expiration of such
Interest Period, the portion of such Eurodollar Advance for which no such
election has been made shall automatically convert to a Prime Rate Advance.
2.12 Fees.
(a) Facility Fee. A facility fee of $475,000 shall be payable by
Borrower concurrently herewith.
(b) Unused Commitment. Borrower shall pay an unused commitment fee
in an amount equal to .125% (on an annual basis, based on a 365-day year) of:
(i) at all times prior to a Reduction Event, the difference between $50,000,000
and the daily outstanding principal balance of the Loan, and (ii) at all times
after a Reduction Event, the difference between $40,000,000 and the daily
outstanding principal balance of the Loan. Such fee shall be payable quarterly
in
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arrears on the last Business Day of each calendar quarter.
(c) LIBOR Breakage Fee. In the event of any prepayment of an Advance
prior to the end of the then applicable Interest Period (by acceleration or
otherwise) or in the event any Advance is not made after delivery of a Borrowing
Request in accordance with the terms hereof, for any reason whatsoever, Borrower
shall pay to Bank an amount equal to the LIBOR Breakage Fee.
(d) Interest on Fees. Any fee payable under Sections 2.12(b) and (c)
not paid when due shall bear interest at the Default Rate.
2.13 Usury.
The provisions of this Section shall govern and control over any
irreconcilably inconsistent provision contained in this Agreement or in any
other document evidencing or securing the Loan. Bank shall never be entitled to
receive, collect, or apply as interest hereon (for purposes of this Section, the
word "INTEREST" shall be deemed to include any sums treated as interest under
applicable law governing matters of usury and unlawful interest), any amount in
excess of the Highest Lawful Rate (hereinafter defined) and, in the event Bank
ever receives, collects, or applies as interest any such excess, such amount
which would be excessive interest shall be deemed a partial prepayment of
principal and shall be treated hereunder as such; and, if the principal of this
Agreement is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Borrower and Bank shall,
to the maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this
Agreement, provided, that if this Agreement is paid and performed in full prior
to the end of the full contemplated term hereof, and if the interest received
for the actual period of existence hereof exceeds the Highest Lawful Rate, Bank
shall refund to Borrower the amount of such excess and, in such event, Bank
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Highest Lawful Rate. "HIGHEST
LAWFUL RATE" shall mean the maximum rate of interest which Bank is allowed to
contract for, charge, take, reserve or receive under applicable law after taking
into account, to the extent required by applicable law, any and all relevant
payments or charges hereunder.
3. PAYMENT TERMS
3.1 Loan Account; Method of Making Payments.
Bank shall maintain a Loan Account on its books in which shall be
recorded: (i) all Loans made by Bank to Borrower pursuant to this Agreement;
(ii) all payments made by Borrower on all Loans; and (iii) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with Bank's
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customary accounting practices, in effect from time to time. The failure of Bank
to record any of the foregoing shall not in any way limit Borrower's obligations
under this Agreement.
3.2 Interest Payments.
(a) Accrued interest on all Prime Rate Advances shall be payable
monthly, in arrears, on the last Business Day of each month during the term
hereof, without notice or demand.
(B) Accrued interest on any Eurodollar Advance shall not be due and
payable monthly, but, instead, shall be payable in arrears on the last day, of
the Interest Period applicable thereto; provided that, in the event Borrower
elects a six month interest period, Borrower shall pay accrued interest on the
three month anniversary of the Interest Period and at the end of such Interest
Period.
3.3 Principal Payments.
Borrower shall pay mandatory principal payments at the following
times and in the following amounts:
(a) The unpaid principal balance, plus all accrued but unpaid
interest shall be due and payable in full on the Maturity Date, without notice
or demand.
(b) In the event of a principal payment on any Pledged Note in an
amount in excess, in the aggregate of $500,000, Borrower and the applicable Loan
Party shall give immediate notice thereof to Bank and Borrower shall pay to Bank
principal in an amount equal to the amount of such principal payment on said
Pledged Note; provided that the parties hereby acknowledge that such principal
payment shall not reduce the Maximum Principal Amount hereunder, except to the
extent that payment of the Pledged Note has reduced the amount of the Borrowing
Base.
(c) Upon the occurrence of a Reduction Event, Borrower will pay
principal in an amount necessary to reduce the outstanding principal balance to
an amount less than the Maximum Principal Amount set forth in Section
2.2(a)(ii).
(d) Subject to the provisions of Section 3.3(c), in the event that
Borrower issues Securities in accordance with the provisions of Section 6.3(f),
Borrower shall give immediate notice thereof to Bank and Borrower shall pay to
Bank principal in an amount equal to the net proceeds of such issuance; provided
that the parties hereby acknowledge that such principal payment shall not reduce
the Maximum Principal Amount hereunder.
3.4 Place of Payment.
All payments to Bank hereunder and under the Other Agreements shall
be payable in immediately available funds on or before noon New York time at the
place designated on Exhibit A, or such place or places as Bank may designate in
writing to Borrower. All of such payments to Persons other than Bank shall be
payable at such place or places as Bank may designate in
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writing to Borrower. Borrower's Liabilities and the other Secured Obligations
will be payable as set forth in the Note, this Agreement, and the Other
Agreements.
3.5 Payment on Maturity and Prepayment.
On the Maturity Date, whether by acceleration or otherwise, Borrower
shall pay to Bank, in full, in cash or other immediately available funds, the
outstanding amount of the Loan. Each Prime Rate Advance may be repaid at any
time, without premium or penalty by Borrower giving telephonic notice to Bank of
such prepayment no later than 10:00 a.m. New York time on the date of such
prepayment, confirmed in writing by facsimile of its telephonic notice on the
same day. Each Eurodollar Advance may be prepaid on the last day of the Interest
Period applicable thereto, but only by Borrower giving telephonic notice to Bank
of such prepayment at least three Business Days prior to the day of such
prepayment, such notice confirmed in writing by facsimile on the day of the
telephonic notice. Prepayment of any Eurodollar Advance during an Interest
Period is expressly prohibited. In the event of an attempted prepayment of any
Eurodollar Advance during any Interest Period, Bank, at Borrower's option, shall
either: (i) hold such funds in a non-interest bearing cash collateral account to
secure Borrower's Obligations and to apply such funds to Borrower's Obligations
on the last day of the Interest Period, or (ii) apply such funds to Borrower's
Obligations, in which event Borrower shall pay to Bank a LIBOR Breakage Fee
immediately upon demand therefor, and any amount not so paid shall bear interest
at the Default Rate.
3.6 Advances to Constitute One Loan.
All Advances, loans and any other financial accommodations provided
pursuant to the terms hereof by Bank to Borrower shall constitute one loan and
all indebtedness and obligations of Borrower to Bank under this Agreement, the
Other Agreements or otherwise shall constitute one general obligation.
3.7 Application of Payments and Collections.
(a) Application of Payments. Bank shall have the right unilaterally
(and without notice to or the consent of any Person) to allocate any and all
payments which may be received by or tendered to Bank made by Borrower or any
other Person at any time or from time to time and which relate in any way to the
Loan or any other of Borrower's Obligations then due and payable in any order of
priority as Bank in its reasonable discretion shall elect, as follows: (i) to
the payment of any Costs; (ii) to accrued but unpaid interest, penalties and
late payment fees; and (iii) to principal; provided that Bank shall not allocate
payments in a manner which would create a LIBOR Breakage Fee or other fee or
penalty payable by Borrower which would not otherwise be imposed. Borrower (y)
irrevocably waives the right to direct the application of payments and
collections received by Bank from or on behalf of Borrower, and (z) agrees that
Bank shall have the continuing exclusive right to apply and reapply any and all
such payments and collections against the Loan or any other Borrower's
Liabilities or the Secured Obligations then due and payable in such manner as
Bank may deem appropriate, notwithstanding any entry by Bank upon any of its
books and records.
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(b) Reapplication of Payments. To the extent that Bank receives any
payment on account of the Secured Obligations, and any such payment(s) and/or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other Person under any bankruptcy act, state or
federal law, common law or equitable cause, then, to the extent of such
payment(s) or proceeds received, the Secured Obligations or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment(s) and/or proceeds had not been received by Bank and applied
on account of the Secured Obligations.
3.8 Monthly Statements.
All Advances to Borrower and all other debits and credits provided
for in this Agreement shall be evidenced by entries made by Bank in its internal
data control systems showing the date, amount and reason for each such debit or
credit. Until such time as Bank shall have rendered to Borrower written
statements of account as provided herein, the balance in the Loan Account, as
set forth on Bank's most recent statement, shall be rebuttably presumptive
evidence of the amounts due and owing to Bank by Borrower. At Bank's option,
Bank shall render a monthly statement to Borrower setting forth the balance of
the Loan Account, including principal, interest, costs, penalties, charges and
other fees. Each such statement shall be subject to subsequent adjustment by
Bank and Bank's right to reapply payments in accordance with Section 3.7(b), but
shall, as to statements of principal and interest then due or having been paid,
absent manifest errors or omissions, be presumed correct and binding upon
Borrower and shall constitute an account stated unless, within thirty (30) days
after receipt of any statement from Bank, Borrower shall deliver to Bank written
objection thereto, specifying the error or errors, if any, contained in such
statement.
4. ANCILLARY AGREEMENTS
4.1 Guaranties.
Concurrently herewith, Borrower shall cause each Guarantor to
execute and deliver to Bank a guaranty of payment and performance of all of the
Secured Obligations; provided that the liability of each Guarantor shall be
limited to the unpaid balance of the Eligible Note made by it payable to the
order of Borrower plus enforcement costs.
4.2 Note Pledge Agreements.
Concurrently herewith Borrower shall execute and deliver to Bank a
Note Pledge Agreement, pursuant to which Borrower shall pledge to Bank each and
every promissory note made by an Affiliate payable to the order of Borrower,
whether now existing or hereafter arising and whether or not an Eligible Note.
Concurrently herewith Borrower shall cause each Primary Obligor to execute and
deliver to Bank a Note Pledge Agreement, pursuant to which each Primary Obligor
shall pledge to Bank each and every promissory note made by any Affiliate
payable to the order of a Primary Obligor, whether now existing or hereafter
arising. Notwithstanding the foregoing, Borrower shall not be required to pledge
or to require any other Person to pledge: (i) promissory notes
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made by Borrower or any Primary Obligor payable to the order to an Affiliate
which is a general partner of a limited partnership which note had been made to
satisfy the capital adequacy requirements imposed upon the general partner of a
limited partnership under the Code, or (ii) those notes identified on Schedule
4.2 (those notes referred to in subsection (i), and (ii) above are collectively
referred to as "EXCLUDED NOTES").
4.3 Stock Pledge Agreements.
Except as set forth on Schedule 4.3, Borrower shall execute and
deliver to Bank a Stock Pledge Agreement, pursuant to which Borrower shall
pledge to Bank all of the Stock, shares, membership interests, partnership
interest, venture interest and all other equity interests, in any form
whatsoever, of each and every Person in which Borrower owns an equity interest,
whether now existing or hereafter arising. Except as set forth on Schedule 4.3,
Borrower shall cause each Primary Obligor, each Secondary Obligor and each other
Affiliate, as Bank shall reasonably request to execute and deliver to Bank a
Stock Pledge Agreement, pursuant to which each such Person shall pledge to Bank
all of the Stock, shares, membership interests, partnership interest, venture
interest and all other equity interests, in any form whatsoever, of each and
every Person in which such Person owns an equity interest, whether now existing
or hereafter arising. Those Entities identified on Schedule 4.3 (as may be
amended from time to time with the prior written consent of Bank in accordance
with Section 5.1(e)(iv)) shall be referred to herein as "EXCLUDED ENTITIES" and
neither Borrower nor any Affiliate of Borrower shall be obligated to pledge its
Stock, partnership interests, membership interests or other equity interest in
such Entity.
4.4 Security Agreements.
Concurrently herewith Borrower and each Guarantor shall deliver to
Bank a security agreement pursuant to which it will grant a security interest in
all of its Assets to secure the Secured Obligations.
5. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS
5.1 General Representations and Warranties.
Except as disclosed in writing to Bank concurrently herewith,
Borrower warrants and represents to and covenants with Bank that:
(a) Organization.
(i) Borrower is and at all times hereafter shall be a
corporation, duly organized and existing and in good
standing under the laws of the State of Delaware and
qualified or licensed to do business and in good
standing in all states in which the laws thereof require
Borrower to be so qualified and/or licensed and in which
the failure to so qualify could have a material adverse
effect on the business or assets of Borrower or its
ability to perform its obligations under the Loan
Documents, including without limitation the State of
Texas.
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(ii) Each Primary Obligor and each Secondary Obligor is and
at all times hereafter shall be a corporation or a
limited partnership, duly organized and existing and in
good standing under the laws of the state of its
organization and qualified or licensed to do business
and in good standing in all states in which the laws
thereof require each Primary Obligor and each Secondary
Obligor to be so qualified and/or licensed and in which
the failure to so qualify could have a material adverse
effect on the business, operation, Assets or condition
(financial or otherwise) of such Primary Obligor or
Secondary Obligor or its ability to perform its
obligations under the Loan Documents or any Eligible
Note, to which it is a party.
(b) Entity Power.
(i) Borrower has the right, power and capacity and is duly
authorized and empowered to enter into, execute, deliver
and perform this Agreement and the Other Agreements, to
which it is a party.
(ii) Each Primary Obligor and each Secondary Obligor has the
right, power and capacity and is duly authorized and
empowered to enter into, execute, deliver and perform
those Loan Documents to which it is a party.
(c) Violation of Organizational Documents.
(i) The execution, delivery and/or performance by Borrower
of this Agreement and the Other Agreements to which it
is a party, shall not, by the lapse of time, the giving
of notice or otherwise, constitute a violation of any
applicable law or a breach of any provision contained in
the Organic Documents of Borrower, or contained in any
agreement, instrument or document to which Borrower, is
now or hereafter a party or by which it or any of its
assets is or may become bound.
(ii) The execution, delivery and/or performance by each
Primary Obligor and each Secondary Obligor of the Other
Agreements to which it is a party, shall not, by the
lapse of time, the giving of notice or otherwise,
constitute a violation of any applicable law or a breach
of any provision contained in the Organic Documents of
such Primary Obligor or such Secondary Obligor, or
contained in any agreement, instrument or document to
which such Primary Obligor or such Secondary Obligor is
now or
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hereafter a party or by which it or any of its Assets is
or may become bound.
(d) Enforceability.
(i) This Agreement and the Other Agreements to which
Borrower is a party, are and will be the legal, valid
and binding agreements of Borrower, enforceable in
accordance with their respective terms, except as
enforcement thereof may be subject to the effect of
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights
generally, and to general principles of equity
(regardless of whether such enforcement is sought in a
proceeding in equity or at law); and
(ii) Those Other Agreements to which each other Loan Party is
a party are and will be the legal, valid and binding
agreements of such Loan Party, enforceable in accordance
with their respective terms, except as enforcement
thereof may be subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, and
to general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or
at law);
(e) Ownership
(i) Schedule 5.1(e) sets forth all classes of stock of
Borrower, the shareholders thereof (other than members
of the general public), addresses of each shareholder,
number of shares owned and how the shares are held;
(ii) Schedule 5.1 (e) (as may be amended from time to time)
sets forth all classes of stock and/or partnership
interests of each Primary Obligor and each Secondary
Obligor, the shareholders and/or portions thereof, and
the addresses, number of shares and/or partnership
interests owned and how the shares are held.
(iii) Schedule 5.1(e) (as may be amended from time to time)
sets forth all options, warrants and other rights to
acquire Stock or other equity interests of Borrower, any
Primary Obligor, any Secondary Obligor, and any other
Pledged Entity, the nature of such option, warrant or
right and the conditions for the exercise thereof, with
the exception of those warrants to purchase 500,000
shares of the
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common stock of Borrower which are subject to the
Warrant Agreement dated as of July 3, 1995 by and
between Borrower and American Stock Transfer & Trust
Company, as warrant agent. Bank hereby expressly
consents to the transfer, issuance or conveyance of
Stock and/or other Equity Interests of any Person in
accordance with such options, warrants and rights.
(iv) Borrower shall deliver to Bank notice within (10)
Business Days after Borrower or any other Loan Party
acquires the Stock, Partnership Interest or other equity
interest in any Entity after the date hereof. Unless
Bank elects not to require Borrower or such other Loan
Party to pledge its equity interest in such Entity,
Borrower and/or the applicable Loan Party: (A) shall
grant to Bank a perfected first security interest in its
equity interest in such Entity, (B) shall deliver a
Stock Pledge Agreement or such other pledge agreement in
form and substance acceptable to Bank, (C) shall amend
the applicable Schedules of the applicable Stock Pledge
Agreement, (D) shall execute and deliver to the Pledged
Entity a notice of lien, (E) shall execute any and all
financing statements required by Bank to perfect its
security interest, (F) shall deliver the original Stock
certificates or other evidence of ownership to Bank,
together with an assignment separate from certificate
therefor, and (G) shall take such other action to effect
and perfect such security interest as Bank shall
reasonably require. In the event Bank elects not to
require a pledge of such equity interests, Borrower
shall amend Schedule 4.3.
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(f) Fictitious Names.
(i) Each of the fictitious names, if any, used by Borrower
during the five (5) year period preceding the date of
this Agreement is set forth on Schedule 5.1(f) attached
hereto (as amended from time to time) and none of such
fictitious names are registered trademarks or tradenames
with the U.S. Patent and Trademark Office, except as set
forth in Schedule 5.1(f);
(ii) Each of the fictitious names, if any, used by each
Primary Obligor and each Secondary Obligor during the
five (5) year period preceding the date of this
Agreement is set forth on Schedule 5.1(f) attached
hereto (as amended --------------- from time to time),
and none of such fictitious names are registered
trademarks or tradenames with the U.S. Patent and
Trademark Office; provided that, variations on the
------------- corporate name of Primary Obligors and
Secondary Obligors in states where used solely for
qualifying to do business therein shall and have been
excluded from such schedule, with Lender's consent and
approval.
(g) Title. Schedule 5.1(g) is a true, accurate and complete list of
all Liens, relating to the Pledged Property on the date hereof. At all
times following acquisition thereof, Borrower shall have good,
indefeasible and merchantable title to and ownership of all of its Assets,
free and clear of all liens, claims, security interests and encumbrances,
except the Permitted Liens.
(h) Financial Warranty. Borrower: (i) is now, and at all times
hereafter shall be generally paying its debts as they mature, (ii) now
owns, and shall at all times hereafter own, property which, at a fair
valuation, is greater than the sum of its debt, and (iii) now has, and
shall have at all times hereafter, capital sufficient to carry on its
business and transactions and all businesses and transactions in which it
is about to engage. Primary Obligors and Secondary Obligors (other than SL
Funding, as defined on Schedule 1.1(xxx) and NAF): (i) are each now, and
at all times hereafter shall be generally paying their respective debts as
they mature, and (ii) each now has, and shall have at all times hereafter,
capital sufficient to carry on its business and transactions and all
businesses and transactions in which it is about to engage.
(i) Proceedings. There are no actions or proceedings which are
pending or threatened against Borrower, any Primary Obligor or any
Secondary Obligor which might result in any material and adverse change in
its business, operations, Assets, condition (financial or otherwise) or
its ability to fully perform its respective obligations and liabilities
under the Loan
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Documents to which it is a party.
(j) Government Contracts. Except as set forth on Schedule
5.1(j), neither Borrower, nor any Primary Obligor or any Secondary Obligor
has any government contracts.
(k) Adequate Licenses. Borrower, each Primary Obligor and Secondary
Obligor possesses adequate Assets, licenses, patents, copyrights,
trademarks and tradenames to continue to conduct its business as
previously conducted by it and as contemplated in the foreseeable future
except such licenses, patents, copyrights, trademarks and trade names the
failure of which to obtain could not have a material adverse effect on
Borrower's or such Primary Obligor's or Secondary Obligor's business,
operations, Assets, condition (financial or otherwise) or ability to
perform its obligations under those Loan Documents to which it is a party.
(l) Government Permits; Consents.
(i) Borrower and each Primary Obligor and Secondary Obligor
has and is in good standing with respect to all
governmental permits, certificates, consents and
franchises necessary to continue to conduct its business
as previously conducted prior to the date hereof and to
own or lease and operate its properties as now owned or
leased by it. None of said permits, certificates,
consents or franchises contain any term, provision,
condition or limitation more burdensome than such as are
generally applicable to Persons engaged in the same or
similar business as the applicable Loan Party.
(ii) Except for those consents set forth on Schedule 5.1(l),
neither Borrower, nor any other Loan Party requires the
approval, consent or waiver by any other Person
(including but not limited to shareholders, partners,
members, equity owners, holders of Indebtedness
Instruments, or any owner of any lien upon the Assets of
any one or more of them or their Affiliates) for the
consummation of the transactions contemplated herein,
including but not limited to the borrowing of the Loan,
the pledge of the Pledged Property, and the payment and
performance of all Secured Obligations. Borrower and
each other Loan Party has received the consents
described on Schedule 5.1(l) and has delivered a copy
thereof to Bank.
(m) Charge; Restrictions. Neither Borrower, nor any Primary
Obligor nor any Secondary Obligor is a party to (nor are any of its Assets
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otherwise subject to) any contract or agreement or subject to any Charge
(other than ad valorem taxes owed by First X or First B) restriction,
judgment, decree or order materially and adversely affecting its business,
property, assets, operations or condition, financial or otherwise other
than ad valorem taxes not yet due and payable.
(n) Compliance with Laws. Neither Borrower, nor any Primary Obligor
nor any Secondary Obligor is, or will be during the term hereof, in
violation of any applicable statute, regulation, order or ordinance of the
United States of America, of any state, city, town, municipality, county
or of any other jurisdiction, or of any agency thereof, including the
Federal Reserve Board, in any respect materially and adversely affecting
its business, operations, Assets, or condition (financial or otherwise) or
its ability to perform its obligations under those Loan Documents to which
it is a party.
(o) Compliance with Indebtedness Instruments. Borrower is not and at
no time during the term hereof shall be in default under any Indebtedness
Instrument. No Primary Obligor or any Secondary Obligor is, on the date
hereof, in default under any Indebtedness Instrument.
(p) Financials. The Financials heretofore delivered by Borrower, or
any other Loan Party to Bank, fairly and accurately present the assets,
liabilities and financial conditions and results of operations of
Borrower, and such other Persons described therein as of and for the
periods ending on such dates and have been prepared in accordance with
generally accepted accounting principles and such principles have been
applied on a basis consistently followed in all material respects
throughout the periods involved.
(q) Tax Returns. Borrower and each other member of the Consolidated
Group has filed or caused to be filed all tax returns which are required
to be filed, and has paid all Charges shown to be due and payable on said
returns or on any assessments made against it or any of its property, and
all other Charges imposed on it or any of its properties by any
governmental authority except for ad valorem taxes.
(r) No Adverse Change. There has been no material and adverse change
in the Assets, liabilities or financial condition of Borrower or any
Primary Obligor or Secondary Obligor since the date of the Financials.
(s) No Indebtedness. Except as disclosed in the most recent
Financials heretofore delivered by Borrower to Bank and in Schedule 5.1(s)
and Schedule 5.1(t) or otherwise disclosed in writing to Bank, none of
Borrower nor any other member of the Consolidated Group has any
Indebtedness (except for Indebtedness arising in the ordinary course of
its business since the dates reflected in the Financials that is not
Indebtedness
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for borrowed money), has guaranteed or entered into any Guaranty
Equivalent (other than as a result of the endorsement of any instrument of
items of payment for deposit or collection in the ordinary course of
business or as otherwise expressly permitted pursuant to the terms hereof)
the obligations of any Person, and there are no actions or proceedings
which are pending or, to the best of Borrower's knowledge, threatened
against Borrower or any other member of the Consolidated Group which, in
any of the foregoing cases, are reasonably likely to result in any
material adverse change in its financial condition or materially adversely
affect its assets or its ability to fully perform and satisfy its
obligations under the Loan Documents.
(t) Indebtedness. Attached hereto as Schedule 5.1(t) (as amended
from time to time) is a true, accurate, and complete schedule of all
Indebtedness, other than the Excluded Notes, owing by any one or more of
Borrower, any Primary Obligor, any Secondary Obligor or any other Pledged
Entity setting forth: (i) the date such indebtedness was incurred; (ii)
the original principal amount thereof and the outstanding principal
balance thereof as of the date hereof; (iii) the interest rate payable
thereon; (iv) whether such indebtedness is evidenced by a note or other
writing and whether any security has been granted to secure payment
thereof; (v) the payment terms thereof; (vi) the maturity date thereof;
and (vii) whether there has been any notice of default , or to Borrower's
knowledge, any default thereunder.
(u) Notes. Attached hereto as Schedule 5.1(u) is a true, accurate
and complete schedule of all promissory notes made by any Affiliate
payable to the order of Borrower, a Primary Obligor and a Secondary
Obligor, other than those notes set forth on Schedule 2.2(c) and the
Excluded Notes. If at any time after the date hereof, any Affiliate
borrows money or otherwise incurs Indebtedness from Borrower, a Primary
Obligor or a Secondary Obligor, Borrower shall immediately (i) give Bank
notice thereof, (ii) deliver a copy of such note to Bank, (iii) prepare a
Schedule 5.1(u)(iii) (other than the excluded Notes) (as amended from time
to time) setting forth the maker and holder of such note, the principal
amount thereof and the payment terms thereof, and (iv) if requested by
Bank, cause the holder of such note to pledge such note to Bank pursuant
to a Note Pledge Agreement, in form and substance acceptable to Bank, in
its sole and exclusive discretion.
(v) No Liability on Bank. The execution, delivery and performance by
Borrower and each other Loan Party of this Agreement and/or the Other
Agreements will not, except to the extent caused by independent actions of
Bank, impose on or subject Bank to any liability, whether fixed or
contingent, in respect of any Environmental Law relating to the operation
of Borrower's business. Bank's exercise of any of the rights or remedies
described in this Agreement or in any of the Other Agreements shall not
constitute a breach of any provision contained in any agreement,
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instrument or document concerning the assignment or license of, or the
payment of royalties for, any patents, patent rights, tradenames,
trademarks, trade secrets, know-how, copyrights or any other form of
intellectual property now or at any time or times hereafter protected as
such by any applicable law;
(w) Affiliates. Schedule 5.1(w) attached hereto is a true, accurate
and complete schedule of Borrower's Affiliates, together with a
description of Borrower's relationship to each such Affiliate.
(x) Real Property; Environmental Issues. Neither Borrower nor any
Primary Obligor nor any Secondary Obligor, other than First X and First B,
now owns or at no time in the last five (5) years has owned, any real
property. Neither Borrower nor any Primary Obligor nor any Secondary
Obligor has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission resulting in the releasing, or
otherwise disposing of hazardous waste or hazardous substances into the
environment with respect to any real property.
(y) Investment Company Act and Public Utility Holding Company Act.
Neither Borrower nor any Primary Obligor or any Secondary Obligor nor the
entering into of the Loan Documents, nor the issuance of the Note is
subject to any of the provisions of the Investment Company Act of 1940, as
amended. Neither Borrower, nor any Primary Obligor or any Secondary
Obligor is a "holding company" as defined in the Public Utility Holding
Company Act of 1935, as amended, or subject to any other federal or state
statute or regulation limiting its ability to insure Indebtedness for
money borrowed.
(z) Disclosure. Neither this Agreement nor any Loan Document nor any
statement, list, certificate or other document or information, nor any
schedules to this Agreement or any other Loan Document, delivered or to be
delivered to Bank, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to
make statements contained herein or therein, in light of the circumstances
in which they are made, not misleading.
(aa) Qualification.
(i) Solely by reason of (and without regard to any other
activities of Bank in any state in which Assets are
located) the entering into, performance and enforcement
of this Agreement, the Note and the other Loan Documents
by Bank will not constitute doing business by Bank in
any of such states or result in any liability of Bank
for taxes or other governmental charges; and
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qualification by Bank to do business in such
jurisdiction is not necessary in connection with, and
the failure to so qualify will not affect, the
enforcement of, or exercise of any rights or remedies
under, any of such documents.
(ii) No "business activity," "doing business" or similar
report or notice is required to be filed by the Bank in
any such jurisdiction in connection with the Loans or
the transactions contemplated by this Agreement, and the
failure to file any such report or notice will not
affect the enforcement of, or the exercise of any rights
or remedies under, this Agreement or any of the other
Loan Documents.
5.2 Reaffirmation of Warranties and Representations.
Each request for an Advance made by Borrower pursuant to this
Agreement or the Other Agreements shall constitute (i) an automatic warranty and
representation by Borrower to Bank that there does not then exist an Event of
Default or an Unmatured Default, and (ii) a reaffirmation as of the date of said
Borrowing Request that each and every warranty and representation of Borrower
contained in this Article 5 and other sections of this Agreement and in the
Other Agreements, including without limitation the representations set forth in
the Stock Pledge Agreements and Note Pledge Agreements, is true and correct in
all material respects, except where such representation or warranty specifically
relates to an earlier date.
5.3 Survival of Warranties and Representations.
Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true on the date hereof, and shall survive the
execution, delivery and acceptance hereof and thereof by the parties thereto and
the closing of the transactions described herein and therein or related hereto
or thereto. Unless expressly limited by the terms of this Article 5, each
representation and warranty shall be deemed to be remade concurrently with each
Advance hereunder.
6. COVENANTS AND CONTINUING AGREEMENTS.
6.1 Financial Covenants.
Borrower and all other members of the Consolidated Group, on a
consolidated basis, shall, at all times during the term hereof, measured
quarterly.
(a) maintain a ratio of Indebtedness to Tangible Net Worth equal to
or less than 10 to 1;
(b) maintain a ratio of EBITDA to interest expense equal to 1.25 to
1; and
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(c) maintain Tangible Net Worth equal to or greater than
$95,000,000.
All covenants set forth herein shall be measured quarterly, upon receipt of the
statements delivered to Bank pursuant to Section 6.2(c)(iii) or the annual
consolidated financial statements delivered in accordance with Section
6.2(c)(i), if available.
6.2 Affirmative Covenants.
Borrower warrants and represents to and covenants with Bank that
Borrower shall, unless Bank otherwise consents thereto in writing, do all of the
following during the term hereof:
(a) Representation and Warranties. Subject to Borrower's right to
cure set forth in Section 7.1(e), to the extent any representation or
warranty contained herein refers to an event or state of facts which
exists on the date hereof and shall exist during the term hereof or at the
time of each Advance hereunder, said representation or warranty shall be
deemed to be an affirmative covenant by Borrower to take all actions, omit
to take such actions or cause such actions to be taken which shall be
necessary or desirable to cause such representation or warranty to be true
and accurate at all times during the term hereof. To the extent any
representation, warranty or covenant herein (including the negative
covenants set forth in Section 6.3) relates to any other Person (including
but not limited to a Primary Obligor, a Secondary Obligor, any Pledged
Entity or any other Loan Party) it shall be deemed to be a covenant of
Borrower to cause such Person to comply with or otherwise perform such
representation, warranty or covenant, whether or not Borrower has the
legal, corporate or other ability to cause such compliance or performance.
(b) Corporate Existence. Borrower, Primary Obligors and Secondary
Obligors shall preserve and maintain their respective corporate existence,
rights, privileges and franchises in the jurisdiction of their respective
incorporation or organization, and qualify and remain qualified to do
business in each other jurisdiction in which such qualification is
necessary in view of their respective business or operations, except such
jurisdictions where failure to qualify would not have a material adverse
effect on Borrower's, Primary Obligor's or Secondary Obligor's (as
applicable) business, Assets, operations, condition (financial or
otherwise) or ability to perform its respective obligations under the Loan
Documents.
(c) Records; Reports. Borrower covenants with Bank that Borrower
shall keep Records and prepare financial statements and shall cause to be
furnished to Bank the following (all of the foregoing and following which
comprise financial statements are to be kept and prepared in accordance
with GAAP applied on a basis consistent with the Financials unless
Borrower's certified public accountants concur in any changes therein and
such changes are consistent with then applicable GAAP).
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(i) As soon as available but not later than ninety (90) days
after the close of each fiscal year of Borrower, a
consolidated and consolidating balance sheet of Borrower
and the other members of the Consolidated Group as at
the end of such year, the related statement of
operations (including income statement) for such year
and a reconciliation of capital for such year, all
certified on an unqualified basis by a firm of
independent certified public accountants selected by
Borrower and acceptable to Bank, in Bank's sole and
absolute discretion.
(ii) Concurrently with the delivery of the financial
statements described in Section (i) above for fiscal
years ending after December 31, 1997: (A) a certificate
of the aforesaid certified public accountants certifying
to Bank that based upon their examination of the affairs
of Borrower and the other members of the Consolidated
Group, performed in connection with the preparation of
said financial statements, they are not aware of the
occurrence or existence of any condition or event which
constitutes an Event of Default or Unmatured Default,
or, if they are aware thereof, the nature thereof, and
(B) a reliance letter executed by an authorized partner
of the aforesaid certified public accountants, in form
and substance reasonably acceptable to Bank, and
acknowledging that Bank may rely on such financial
statements in connection with this Agreement
notwithstanding that Bank is not in privity with such
certified public accountants in connection with such
financial statements.
(iii) As soon as available but not later than thirty (30) days
after the end of each calendar month hereafter, a
consolidated and consolidating balance sheet of Borrower
and the other members of the Consolidated Group as at
the end of, and the related statement of operations for,
the portion of such Person's fiscal year then elapsed,
all certified by the chief financial officer of such
Person's to be prepared in accordance with generally
accepted accounting principles and to present fairly the
financial position and results of operations of such
Person for such period.
(iv) Concurrently with delivery to its shareholders copies of
all financial and other information delivered by
Borrower to such Persons, including without limitation,
its proxy statements and annual reports to stockholders.
Concurrently with delivery to the SEC by Borrower,
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copies of all reports filed by Borrower with the SEC,
including without limitation, all reports on Forms 10K,
10Q or 8K promulgated under the Securities Exchange Act
of 1934, as amended.
(v) Concurrently with delivery of the Financials required
pursuant to Sections 6.2(c)(i) and (iii) hereof, a
certificate executed by the President, Treasurer or
Chief Financial Officer of Borrower that no Event of
Default or Unmatured Default has occurred and is
continuing (including but not limited to compliance with
the covenants set forth in Section 6.1) or if an Event
of Default or Unmatured Default has occurred, setting
forth the details of such event and the action which
Borrower proposes to take with respect thereto.
(vi) Concurrently with each Borrowing Request, each payment
by an Affiliate with respect to a Pledged Note and any
change in the Borrowing Base, but in no event less often
than once each month, a Borrowing Base Certificate,
prepared by the Treasurer of Borrower, setting forth in
form and detail reasonably acceptable to Bank a schedule
of the Book Value of the Eligible Notes (including all
detail necessary to the calculation thereof) and a
calculation of the ratio of Indebtedness to Tangible Net
Worth.
(vii) Such other data and information (financial and
otherwise) as Bank, from time to time, reasonably may
request bearing upon or related to Borrower's or any
Guarantor's financial condition and/or results of
operations.
(d) Insurance. Borrower, Primary Obligors and Secondary Obligors at
their sole cost and expense, shall keep and maintain: (i) policies of
insurance against all hazards and risks ordinarily insured against by
other owners or users of properties in similar business or as reasonably
requested in writing by Bank; and (ii) public liability insurance relating
to such Person's ownership and use of its Assets. All such policies of
insurance shall be in form, with insurers and in such amounts as may be
satisfactory to Bank. Borrower shall deliver to Bank the original (or
certified) copy of each policy of insurance, and evidence of payment of
all premiums for each such policy. Such policies of insurance (except
those of public liability) shall contain an endorsement, in form and
substance acceptable to Bank, showing losses payable to Bank. Such
endorsement or an independent instrument furnished to Bank, shall provide
that all insurance companies will give Bank at least thirty (30) days
prior written notice before any such policy or policies of insurance shall
be altered or canceled and that no act or default of Borrower
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or any other Person shall affect the right of Bank to recover under such
policy or policies of insurance in case of loss or damage. Borrower hereby
directs all insurers under such policies of insurance (except those of
public liability) to pay all proceeds payable thereunder directly to Bank.
Borrower, irrevocably, appoints Bank (and all officers, employees or
agents designated by Bank) as Borrower's true and lawful agent and
attorney-in-fact for the purpose of making, settling and adjusting claims
under such policies of insurance, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions with
respect to such policies of insurance. In the event Borrower at any time
or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part
relating thereto, then Bank, without waiving or releasing any of
Borrower's Obligations or any Event of Default or Unmatured Default
hereunder, may at any time or times thereafter (but shall be under no
obligation to do so) obtain and maintain such policies of insurance and
pay such premium and take any other action with respect thereto which Bank
deems advisable. All sums so disbursed by Bank, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
shall be part of Borrower's Liabilities, payable by Borrower to Bank on
demand. The Bank shall also have been named as an additional insured with
respect to Borrower's liability insurance.
(e) Payment of Charges. Other than ad valorem taxes payable by First
X or First B, Borrower, each Primary Obligor and each Secondary Obligor
shall pay promptly, when due, all Charges and Borrower, each Primary
Obligor and each Secondary Obligor shall not permit the Charges to arise
or to remain unpaid, and will promptly discharge the same. In the event
Borrower, any Primary Obligor or any Secondary Obligor, at any time or
times hereafter, shall fail to pay the Charges or to obtain such
discharges as required herein, Borrower shall so advise Bank thereof in
writing. Bank may, without waiving or releasing any of Borrower's
Obligations or any Event of Default or Unmatured Default hereunder, in its
sole and absolute discretion, at any time or times thereafter, make such
payment, or any part thereof, or obtain such discharge and take any other
action with respect thereto which Bank deems advisable. All sums so paid
by Bank and any expenses, including reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
Notwithstanding the foregoing, Borrower, any Primary Obligor or any
Secondary Obligor may permit or suffer the Charges to attach to its Assets
and may dispute, without prior payment thereof, the Charges, on the
conditions that: (i) Borrower or the applicable Primary Obligor or
Secondary Obligor, in good faith, shall be contesting the same in an
appropriate proceeding diligently pursued; (ii) enforcement thereof
against any assets of Borrower or the applicable Primary Obligor or
Secondary Obligor shall be stayed; and (iii) appropriate reserves therefor
shall have been established on
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the Records of Borrower or the applicable Primary Obligor or Secondary
Obligor in accordance with GAAP.
(f) Pay Debts. Borrower and each Primary Obligor and Secondary
Obligor shall pay or discharge or otherwise satisfy all Indebtedness at or
before maturity or before the same becomes delinquent; provided that
neither Borrower, nor any Primary Obligor or any Secondary Obligor shall
be required to pay any Indebtedness while the same is being contested by
it in good faith and by appropriate proceedings so long as Borrower or the
applicable Primary Obligor or Secondary Obligor shall have set aside on
its books reserves in accordance with GAAP with respect thereto and title
to any property of Borrower or the applicable Primary Obligor or Secondary
Obligor is not jeopardized.
(g) Compliance with Laws. Borrower and each Primary Obligor and
Secondary Obligor shall comply with all laws, rules, regulations and
governmental orders (federal, state and local), including all
Environmental Laws, having applicability to it or to the business or
businesses at any time conducted by it, where the failure to so comply
would have a material adverse effect, either individually or in the
aggregate, on the business, Assets, operations, condition (financial or
otherwise) or its ability to perform its obligations under the Loan
Documents.
(h) Perform Obligations. Borrower and each Primary Obligor and
Secondary Obligor shall duly and punctually pay and perform each of its
obligations under this Agreement and the Other Agreements in accordance
with the terms thereof.
(i) Management. As of the date hereof and at all times during the
term hereof either (i) both of James Hawkins and James Sartain, or (ii)
either James Hawkins or James Sartain and either of Matthew Landry or Rick
R. Hagelstein shall be employed full-time with Borrower and shall be
responsible for the day to day management of Borrower.
6.3 Negative Covenants.
Borrower warrants and represents to and covenants with Bank that
neither Borrower, nor any Primary Obligor nor any Secondary Obligor, as the case
may be, shall, without Bank's prior written consent, which Bank may or may not
give in its sole and absolute discretion, concurrently or hereafter do any of
the following:
(a) Sell or Encumber Assets. Neither Borrower, nor any Primary
Obligor nor any Secondary Obligor shall assign, sell or transfer any of
its Assets to any Person, other than in the ordinary course of business,
nor permit, grant, or suffer a security interest, lien, claim or
encumbrance upon any of its Assets, except the Permitted Liens and ad
valorem taxes of First X and First B.
(b) Attachment. Neither Borrower, nor any Primary Obligor
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nor any Secondary Obligor shall permit or suffer any levy, attachment or
restraint to be made affecting any of its Assets;
(c) Receiver. Neither Borrower, nor any Primary Obligor nor any
Secondary Obligor shall permit or suffer any receiver, trustee or assignee
for the benefit of creditors, or any other custodian to be appointed to
take possession of all or any of its Assets, other than a custodian
pursuant to a voluntary custodial agreement entered into to perfect a
security interest.
(d) Amend Organizational Documents; Business Objectives. Neither
Borrower, nor any Primary Obligor or any Secondary Obligor shall make any
change: (i) in its Organic Documents or capital structure; or (ii) in any
of its business objectives, purposes and operations, including by
undertaking additional business activities. Neither Borrower, nor any
Primary Obligor nor any Secondary Obligor shall engage in any business not
of the same general type as those conducted by them on the date hereof.
(e) Mergers and Acquisitions.
(i) Neither Borrower, nor any Primary Obligor nor any
Secondary Obligor shall merge or consolidate with any
Person. Borrower, Primary Obligors and Secondary
Obligors shall have the right to acquire the stock or
Assets of another Person (whether by sale of Assets or
sale or exchange of stock, or purchase, lease or
otherwise); provided that any and all such acquisitions
shall be through one or more Subsidiaries of Borrower,
Primary Obligors or Secondary Obligors and such
acquisition shall not violate any other representation,
warranty or covenant set forth in this Agreement or any
other Loan Document.
(ii) NAF will not merge, consolidate or acquire the Assets of
any Person, shall not commence any new business venture
and shall use the proceeds of any sale or other
disposition of its Assets to pay the Eligible Note made
by it.
(f) Stock Transfers.
(i) Except as disclosed in Schedule 5.1(e), as amended from
time to time with Bank's consent, and except as
permitted pursuant to Section 6.3(f)(ii), neither any
Primary Obligor, any Secondary Obligor nor any Pledged
Entity shall grant any option, warrant or other right to
purchase any equity interest in such Person, without in
each case the prior written consent of Bank, which
consent shall not be unreasonably withheld.
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(ii) Notwithstanding anything to the contrary contained
herein, Borrower shall have the right to register on
Form S-3, and publicly offer and sell equity Securities
of Borrower under the following terms and conditions:
(w) Borrower shall deliver notice to Bank, within
twenty-four (24) hours of the filing with the SEC; (x)
Borrower shall fully and timely comply with all
Securities Laws and with all terms and provisions of the
underwriting agreement pursuant to which such Securities
are offered for sale; (y) the prospectus and all other
selling materials used by Borrower in such offering
shall not contain any misstatement of material fact or
omit to state any fact which would render the statements
contained therein false or misleading., and (z) pay the
proceeds of such offering to Bank, in accordance with
the terms hereof.
(g) Adverse Transactions. Neither Borrower, nor any Primary Obligor
nor any Secondary Obligor shall enter into any transaction which
materially and adversely affects its ability to perform its obligations
under the Loan Documents or to pay any other Indebtedness.
(h) Investments. Neither Borrower, nor any Primary Obligor nor any
Secondary Obligor shall make any investment in the Stock or obligations of
any Person, except in the ordinary course of its business.
(i) Dividends; Payment of Fees, etc. At any time during the term
hereof, without Bank's prior written consent which may be withheld in
Bank's sole and absolute discretion, neither Borrower, nor any Primary
Obligor nor any Secondary Obligor shall: (i) make any distributions or pay
any dividends or make any distributions of property or assets with respect
to its Stock; (ii) pay any director's fees or any salaries to any director
or shareholder unless such shareholder or director is directly and
actively employed by Borrower or any Primary Obligor or Secondary Obligor;
provided that, Borrower may compensate outside directors in an amount not
to exceed $2,000 per meeting and may pay the stated dividends on its
special preferred stock and its adjusting preferred stock.
(j) Fee Agreements. Attached hereto as Schedule 6.3(j) (as amended
from time to time) is a true, accurate and complete schedule of all Fee
Agreements to which Borrower or any Primary Obligor or Secondary Obligor
is a party.. Bank hereby expressly consents to the performance by Borrower
and said Primary Obligors and Secondary Obligors of said Fee Agreements,
as in effect on the date hereof. Within ten (10) Business Day after
Borrower, any Primary Obligor or any Secondary Obligor has entered into
any new Fee Agreement or shall have modified in any material respect any
existing Fee Agreement, Borrower shall give Bank notice thereof and amend
Schedule 6.3(j), if applicable, and shall, upon request by Bank, deliver
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a copy of any new or amended Fee Agreement to Bank. Except in the ordinary
course of business, Borrower shall not enter into any other transactions
with any Affiliate, including, without limitation, agreements for the
purchase, sale or exchange of property or the rendering of any services to
or by any Affiliate, or enter into, assume or suffer to exist any
employment, management, administration, advisory or consulting contract
with any Affiliate or, in each of the foregoing cases, with any officer,
director or partner of any Affiliate (or a spouse or other relative of any
of them).
(k) Indebtedness. Neither Borrower nor any Primary Obligor, other
than NAF and FC Capital, shall contract, create, incur, assume or suffer
to exist any Indebtedness; except for (w) the Loans, , (x) Indebtedness
existing on the date hereof and reflected on the Financials of Borrower
delivered on such date, (y) Indebtedness disclosed on Schedules 5.1(s) and
(t), and (z) unsecured trade payables, unsecured Indebtedness of Borrower
to an Affiliate, and purchase money financing (whether secured or
unsecured) to parties (other than to Affiliates), incurred in the ordinary
course of business that do not exceed, in the aggregate at any time
outstanding, $500,000.
(l) Loan; Guaranty Debt. Borrower shall not make any loan to any
Person, other than loans to Primary Obligors pursuant to the terms of the
Eligible Notes. Except as set forth on Schedule 6.3(l), neither Borrower,
nor any Primary Obligor or any Secondary Obligor shall enter into any
Guaranty Equivalents in the aggregate at any time outstanding exceeding
$5,000,000.
(m) Pay Indebtedness. Except in the ordinary course of business,
neither Borrower, nor anye, and purchase money financing (whether secured or
unsecured) to parties (other than to Affiliates), incurred in the ordinary
course of business that do not exceed, in the aggregate at any time
outstanding, $500,000.
(l the Other Agreements, neither Borrower, nor any Primary Obligor nor any
Secondary Obligor shall issue any power of attorney or other contract or
agreement giving any Person power or control over the day-to-day
operations of Borrower's, any Primary Obligor's or any Secondary Obligor's
business, other than in connection with Permitted Liens or Indebtedness
expressly permitted pursuant to the terms of this Agreement.
(o) Amendment of Credit Agreements. Except in the ordinary course of
business, neither Borrower, nor any Primary Obligor or any Secondary
Obligor, shall amend, modify or extend any note, credit agreement,
security agreement or other document, instrument of agreement evidencing
or securing Indebtedness of such entity, without in each case Bank's prior
written consent; provided that Primary Obligors and Secondary
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Obligors may extend and renew existing credit facilities without Bank's
consent.
6.4 Required Notices.
(a) Borrower shall notify Bank and amend Schedule 5.1(t) on the same
Business Day that: (i) Borrower makes any additional loans or advances to
any Primary Obligor or Secondary Obligor, whether or not evidenced by a
writing signed by the obligor thereof; and (ii) Borrower received any
payment of principal on any Pledged Note identified on Schedule 5.1(t),
(such notice may be given by delivery of a Borrowing Base Certificate in
accordance with the provisions hereof.
(b) In addition to those notices required elsewhere in this
Agreement and in the Stock Pledge Agreement and the Note Pledge Agreement
to which Borrower is a party, Borrower shall notify Bank promptly after
obtaining knowledge of:
(i) except as otherwise previously disclosed, any event or
occurrence which Borrower has determined has caused a
material loss or decline in value of Borrower's, any
Primary Obligor's, or any Secondary Obligor's Assets due
to casualty or any other adverse occurrence and the
estimated (or actual, if available) amount of such loss
or decline;
(ii) the institution of any suit or administrative proceeding
which, if determined adversely to Borrower, any Primary
Obligor or any Secondary Obligor or any Pledged Entity,
is reasonably likely to materially adversely affect the
operations, financial condition or business of Borrower
or any Primary Obligor or any obligor of a Pledged Note,
as applicable;
(iii) Borrower, any Primary Obligor or any Secondary Obligor
or any Pledged Entity becoming subject to any Charge,
restriction, judgment, decree or order which could
materially and adversely affect Borrower's or a Primary
Obligor's business, operations, Assets, condition
(financial or otherwise) or ability to perform its
respective obligations under the Loan Documents.
(iv) the commencement of any lockout, strike or walkout
relating to any labor contract to which Borrower, any
Primary Obligor or any Secondary Obligor is a party;
(v) except as otherwise previously disclosed, any event or
occurrence which Borrower, any Primary Obligor or any
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Secondary Obligor or any Pledged Entity has determined
will have a material adverse affect on the ability of
any obligor of a Pledged Note to repay such Pledged
Note;
(vi) the occurrence of a default by Borrower, any Primary
Obligor or any Secondary Obligor or any Pledged Entity
under any agreement, document or instrument to which it
is a party which could materially and adversely affect
its business, operations, Assets, condition (financial
or otherwise) or ability to perform its respective
obligations under the Loan Documents;
(vii) the filing of a petition under any section or chapter of
the United States Bankruptcy Code or any similar law or
regulation shall be filed by or against Borrower, any
Primary Obligor, Secondary Obligor, or any Pledged
Entity or any such Person shall make an assignment for
the benefit of its creditors or if any case or
proceeding is filed by or against any such Person for
its dissolution or liquidation;
(viii)the making of an application for the appointment of a
receiver, trustee or custodian for any of the assets of
Borrower, any Primary Obligor, or any Secondary Obligor,
other than voluntary custodial relationships entered
into to perfect security interests;
(ix) as soon as possible and in any event within five (5)
days after Borrower shall have obtained knowledge of the
occurrence of an Event of Default or Unmatured Default,
the written statement of the chief financial officer of
Borrower setting forth the details of such event and the
action which Borrower proposes to take with respect
thereto;
(x) the exercise of any holder of any option, warrant or
right to purchase any equity interest in Borrower, any
Primary Obligor, any Secondary Obligor or any other
Pledged Entity, other than the exercise of rights
disclosed in Section 5.1(e);
(xi) the breach of the covenants set forth in Section 6.2(i);
and
(xii) the issuance or sale of any Securities permitted
pursuant to Section 6.3(f).
6.5 Payment of Claims.
Bank, in its sole and absolute discretion,
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without waiving or releasing any of Borrower's Liabilities or Borrower's
Obligations or any Event of Default, may at any time or times hereafter, but
shall be under no obligation to, pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against the
Assets of Borrower, or any Primary Obligor, or any Secondary Obligor. All sums
paid by Bank in respect thereof and all reasonable Costs relating thereto
incurred by Bank or for which Bank becomes obligated on account thereof shall be
part of Borrower's Liabilities payable by Borrower to Bank on demand and any
amount not paid on demand shall bear interest at the Default Rate.
6.6 Year 2000 Compliance.
(a) The computer and management information systems of the Borrower,
the Primary Obligors and the Secondary Obligors are adequate for the
conduct of their business as presently conducted and as proposed to be
conducted and there are no material requirements for systems integration,
upgrade or replacement, and there are no facilities or software
inadequacies that could reasonably be expected to have a material adverse
effect on the business of the Borrower, any Primary Obligor, Secondary
Obligor.
(b) The Borrower, the Primary Obligors and the Secondary Obligors
will be Year 2000 Compliant on or before March 31, 1999 and at all times
thereafter. As used in the preceding sentence, "Year 2000 Compliant" means
the ability of the software and other information processing capabilities
of such Person to correctly interpret and process all data in whatever
form so as to avoid errors that may otherwise occur because of the
inability of software or other information processing capabilities to
recognize accurately the year 2000 or subsequent dates.
(c) Any reprogramming required to permit the proper functioning of
the computer and management information systems of the Borrower and its
Subsidiaries during and following the year 2000 will be completed by March
31, 1999 and the cost of such reprogramming is not expected to have a
material adverse effect on the business of the Borrower or its
Subsidiaries.
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7. DEFAULT
7.1 Events of Default.
The occurrence of any one of the following events shall constitute a
default ("EVENT OF DEFAULT") under this Agreement:
(a) If Borrower fails or neglects to perform, keep or observe any of
Borrower's Obligations or if Borrower fails or neglects to cause any
Primary Obligor, Secondary Obligor or any other Loan Party (for any reason
whatsoever) to keep or observe any covenant with respect to such Entity
set forth herein and the same is not cured within thirty (30) days after
Bank gives Borrower notice of such default; provided that a breach of any
of the provisions, terms, conditions or covenants contained in Sections
6.2(d), 6.3 and 6.4 shall automatically be an Event of Default without any
notice or cure period.
(b) If any representation, warranty or material statement, report or
certificate made or delivered by any Loan Party, or any of its directors,
officers, authorized employees or agents, to Bank is not true and correct;
(c) If Borrower fails to pay any of the Secured Obligations, when
due and payable or declared due and payable and the same is not cured
within five (5) days after Bank gives Borrower notice of such default
provided however, that Interest shall accrue at the Default Rate
commencing immediately after non-payment;
(d) If Borrower shall default under the terms of any Indebtedness
Instrument, other than the Loan Documents.
(e) If any single Primary Obligor or Secondary Obligor shall default
under the terms of any Indebtedness Instrument and such default is not
cured within ninety (90) days after the occurrence thereof; provided that
such cure period shall not apply if: (i) a default occurs by such Primary
Obligor or Secondary Obligor under the terms of any other Indebtedness
Instrument securing or evidencing a different borrowing, or (ii) if any
other Primary Obligor or Secondary Obligor defaults under the terms of any
Indebtedness Instrument during such ninety (90) day cure period.
Notwithstanding the foregoing, if any two or more such Persons are
obligated for the same Indebtedness and a default occurs thereunder, it
shall be deemed to be a default by a single Person for the purposes of
this Section 7.1(e).
(f) If Borrower fails or neglects to perform, keep or observe any of
Borrower's Obligations or to cause any Primary Obligor or Secondary
Obligor to keep or observe any representation, warranty or covenant,
contained in Section 6.2(e) and the same is not cured within ten (10) days
after Bank gives Borrower notice of such default.
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(g) Ten (10) days after a breach of the representation, warranty and
covenant set forth in Section 6.2(i), unless waived by Bank in its sole
and exclusive discretion, nothing in this Section 7.1(g) being deemed to
be a covenant by Bank to waive such default or an implications that Bank
will be reasonable in its decision not to waive such default.
(h) If any of Borrower's Assets or the assets of any Primary
Obligor, or Secondary Obligor or any portion thereof are attached, seized,
subjected to a writ of distress warrant, or are levied upon, or come
within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not terminated or dismissed
within sixty (60) days thereafter, other than the Assets of First X or
First B arising out of the failure to pay ad valorem taxes;
(i) If a petition under any section or chapter of the United States
Bankruptcy Code or any similar law or regulation shall be filed by
Borrower, any Primary Obligor or any Secondary Obligor, or if Borrower,
any Primary Obligor or any Secondary Obligor shall make an assignment for
the benefit of its creditors or if any case or proceeding is filed by
Borrower, any Primary Obligor or any Secondary Obligor for its dissolution
or liquidation;
(j) If Borrower, any Primary Obligor or any Secondary Obligor is
enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs or if a
petition under any section or chapter of the United States Bankruptcy Code
or any similar law or regulation is filed against Borrower, any Primary
Obligor or any Secondary Obligor or if any case or proceeding is filed
against Borrower, any Primary Obligor or any Secondary Obligor for its
dissolution or liquidation and such injunction, restraint or petition is
not dismissed or stayed within sixty (60) days after the entry or filing
thereof;
(k) If an application is made by Borrower, any Primary Obligor, any
Secondary Obligor or any Pledged Entity for the appointment of a receiver,
trustee or custodian for any of its assets other than a custodian pursuant
to a voluntary custodial agreement entered into to perfect a security
interest;
(l) If an application is made by any Person other than a Loan Party
for the appointment of a receiver, trustee, or custodian for any of the
Assets of Borrower, any Primary Obligor or any Secondary Obligor or any
Pledged Entity and the same is not dismissed within sixty (60) days after
the application therefor;
(m) Except as expressly permitted pursuant to Section 6.2(e), (i) if
a notice of any Charge is filed of record with respect to all or any of
Borrower's, any Primary Obligor's, or any Secondary Obligor's Assets, or
(ii) if any Charge becomes a lien or encumbrance upon any of its assets
and
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the same is not released within sixty (60) days after the same becomes a
lien or encumbrance;
(n) The occurrence of a default or Event of Default or Unmatured
Default under any agreement, instrument and/or document executed and
delivered by any Guarantor to Bank, which is not cured within the time, if
any, specified therefor in such agreement, instrument or document or any
of the Loan Documents shall fail to grant to Bank on behalf of the Bank
the lien or other security interest (if any) intended to be created
thereby or any Loan Party thereto shall assert that it is not liable with
respect thereto; or any Guarantor shall assert that it is not liable as a
guarantor or otherwise under its guarantee agreement executed in
connection herewith;
(o) The occurrence of an Event of Default under any of the Other
Agreements, which is not cured within the time, if any, specified therefor
in such Other Agreement;
(p) Except as expressly permitted pursuant to the terms hereof, if
Borrower, any Primary Obligor, any Secondary Obligor or any Pledged Entity
issues to or transfers to any Person any Stock of Borrower, any Primary
Obligor, any Secondary Obligor or any Pledged Entity;
(q) If any final non-appealable judgment for the payment of money in
excess of $250,000 (after giving effect to any amount covered by insurance
as to which the insurer shall not have defied or questioned its obligation
to pay) shall be rendered against Borrower, any Primary Obligor, or any
Secondary Obligor; or final judgment for the payment of money in excess of
$250,000 shall be rendered against Borrower, any Primary Obligor, or any
Secondary Obligor and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively stayed or
diligently contested in good faith by appropriate proceedings;
(r) If Borrower or any ERISA Affiliate (1) shall effect a complete
or partial withdrawal (as defined in ERISA Sections 4203 or 4205) from a
Multiemployer Plan, if such withdrawal could subject either Borrower or
any ERISA Affiliate to liability; (2) shall fail to pay when due an amount
that is payable by it to the PBGC or to an Employee Benefit Plan; (3) has
instituted against it by a fiduciary of any Multiemployer Plan an action
to enforce ERISA Section 515 and such proceedings shall not have been
dismissed within thirty (30) days thereafter; (4) has imposed against it
any tax under Code Section 4980B(a); (5) has assessed against it by the
Secretary of Labor a civil penalty with respect to any Employee Benefit
Plan under ERISA Section 502(c) or 502(l); (6) shall apply for a waiver of
the minimum funding standards of the Code; or (7) shall permit any other
event or condition to occur or exist with respect to an Employee Benefit
Plan that
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could subject either Borrower or any ERISA Affiliate to liability;
(s) Except as set forth in Section 7.1(d) or (e), a default by
Borrower, any Primary Obligor, or any Secondary Obligor shall occur under
any agreement, document or instrument (other than this Agreement or any of
the other Loan Documents) now or hereafter existing, to which Borrower,
any Primary Obligor, or any Secondary Obligor is a party and the effect of
such default is reasonably likely to have a material adverse effect on the
financial conditions or business operations of such Loan Party;
(t) If Borrower, any Primary Obligor, or any Secondary Obligor
dissolves, liquidates (other than with respect to a Secondary Obligor upon
the disposition of all of its Assets in the ordinary course of its
business), or fails to maintain its corporate existence, without the prior
written consent of Bank.
7.2 Remedies Cumulative.
All of Bank's rights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.
7.3 Acceleration.
Upon the occurrence an Event of Default and the continuation
thereof, without notice by Bank to or demand by Bank to Borrower, Bank shall
have no further obligation to and may then forthwith cease advancing monies,
extending credit or issuing letters of credit to or for the benefit of Borrower
under this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank to Borrower, all Secured Obligations shall
be due and payable, forthwith.
7.4 Remedies.
Upon the occurrence of an Event of Default and the continuation
thereof, Bank, in its sole and absolute discretion, may exercise any and all
rights and remedies that it may have under the other Loan Documents, at law or
in equity.
7.5 Injunctive Relief.
Borrower recognizes that upon the occurrence of an Event of Default,
no remedy of law will provide adequate relief to Bank, and agrees that Bank
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
7.6 Advances During Unmatured Default.
Upon the occurrence of any Unmatured Default or Event of Default
(other than Unmatured Defaults under Section 7.1(e), Bank shall not be obligated
to make any Advances; provided that, nothing contained herein shall prohibit
Bank from making any Advances.
8. CONDITIONS PRECEDENT TO DISBURSEMENT
8.1 Checklist Items.
The obligation of Bank to make the Loan to Borrower is subject to
the condition precedent that, in addition to satisfaction of the conditions set
forth in Sections 8.2 and 8.3, Bank shall have received, prior to the first
disbursement of the proceeds of any of the Loan hereunder all documents,
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instruments, agreements, notes, evidences of Borrower's authority, and all other
instruments as Bank may reasonably request, including but not limited to all
items on the documentation checklist, delivered by Bank to Borrower prior to the
date hereof.
8.2 Necessary Actions.
The obligation of Bank to make the Loan to Borrower is subject to
the further condition precedent that all proceedings taken in connection with
the transactions contemplated by this Agreement, and all instruments,
authorizations and other documents applicable thereto, shall be reasonably
satisfactory in form and substance to Bank and its counsel.
8.3 Conditions Precedent.
In addition to the foregoing, prior to Bank making of any and all
Loans hereunder, all of the following shall have been satisfied in a manner
satisfactory to Bank:
(a) no change in the condition or operations, financial or
otherwise, of Borrower or any other Loan Party shall have occurred which
change, in the sole credit judgment of Bank, may have a material adverse
effect on Borrower or any other Loan Party;
(b) no litigation shall be outstanding or have been instituted or
threatened which Bank determines to be material against Borrower or other
Loan Party;
(c) all of the representations and warranties of Borrower set forth
in this Agreement and each of the Other Agreements to which Borrower or
other Loan Party is a party shall be true and correct on the date of the
contemplated Loan to the same extent as originally made on such date; and
(d) no Event of Default or Unmatured Default shall exist or be
continuing.
9. GENERAL
9.1 Compliance with ERISA.
(a) Representations and Warranties. Borrower hereby
represents and warrants that:
(i) Schedule 9.1 hereto describes the Employee Benefit Plans
to which Borrower or any of its ERISA Affiliates may
have obligations;
(ii) each Employee Benefit Plan of Borrower or any of its
ERISA Affiliates is in compliance in all material
respects with its terms and with the applicable
provisions of ERISA, the Code and all other statutes and
regulations
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applicable thereto and each such Employee Benefit Plan
that is intended to be qualified under Section 401(a) of
the Code has been determined by the Internal Revenue
Service to be so qualified, and each trust related to
any such Employee Benefit Plan has been determined to be
exempt from federal income tax under Section 501(a) of
the Code;
(iii) neither Borrower nor any of its ERISA Affiliates
maintains or contributes to any Employee Benefit Plan
with an actuarial present value of projected benefit
obligations that exceeds the fair market value of net
assets available for such benefits, calculated on the
basis of the actuarial assumptions specified in the most
recent actuarial valuation for such Employee Benefit
Plan, and no such Employee Benefit Plan provides for
subsidized early retirement benefits that could
materially adversely affect the funded status of such
Employee Benefit Plan or Employee Benefit Plans in the
event of a reduction in force or plant closing;
(iv) with respect to each Employee Benefit Plan that is a
"defined benefit plan," as defined in Section 3(35) of
ERISA, the assets of each such Employee Benefit Plan are
equal to or greater than the accrued benefits of the
participants and beneficiaries thereunder, as determined
pursuant to the actuarial methods and assumptions
utilized by the PBGC in the event of a plan termination;
(v) neither Borrower nor any of its ERISA Affiliates
sponsors, maintains, participates in or contributes to
any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA that provides benefits to
employees after termination of employment other than as
required by Section 601 of ERISA; as such, neither
Borrower nor any of its ERISA Affiliates are currently
or will in the future be subject to the accounting
recognition and disclosure standards of Statement of
Financial Accounting Standards No. 106 (FASB 106);
(vi) neither Borrower nor any of its ERISA Affiliates has
breached any of the responsibilities, obligations, or
duties imposed on them by ERISA or the regulations
promulgated thereunder with respect to any Employee
Benefit Plan;
(vii) neither Borrower nor any ERISA Affiliate has (i) failed
to
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make a required contribution or payment to a
Multiemployer Plan or (ii) made or expects to make a
complete or partial withdrawal under Sections 4203 or
4205 of ERISA from a Multiemployer Plan;
(viii)at the date hereof, the aggregate potential withdrawal
liability payment, as determined in accordance with
Title IV of ERISA, of Borrower and any ERISA Affiliates
with respect to all Employee Benefit Plans that are
Multiemployer Plans does not exceed $50,000 and, to the
best of Borrower's and its ERISA Affiliate's knowledge,
no Multiemployer Plan is in reorganization or insolvent
within the meaning of Sections 4241 or 4245 of ERISA.
(ix) neither Borrower nor any ERISA Affiliate has failed to
make a required installment or any other required
payment under Section 412 of the Code on or before the
due date for such installment or other payment;
(x) neither Borrower nor any ERISA Affiliate is required to
provide security to an Employee Benefit Plan under
Section 401(a)(29) of the Code due to an Employee
Benefit Plan amendment that results in an increase in
current liability for the plan year;
(xi) no liability to the PBGC has been, or is expected by
Borrower or any ERISA Affiliate to be, incurred by
Borrower or any ERISA Affiliate, other than the payment
of premiums, and there are no premium payments that have
became due and which are unpaid;
(xii) no events have occurred in connection with any Employee
Benefit Plan that might constitute grounds for the
termination of any such Employee Benefit Plan by the
PBGC or for the appointment by any United States
District Court of a trustee to administer any such
Employee Benefit Plan;
(xiii)no Reportable Event has, in the case of any Employee
Benefit Plan maintained by Borrower or an ERISA
Affiliate other than a Multiemployer Plan, occurred and
is continuing, or to the best of Borrower's knowledge,
has occurred and is continuing in the case of any such
Employee Benefit Plan that is a Multiemployer Plan;
(xiv) no Employee Benefit Plan maintained by Borrower or an
ERISA Affiliate had an Accumulated Funding Deficiency,
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whether or not waived, as of the last day of the most
recent fiscal year of such Employee Benefit Plan or, in
the case of any Multiemployer Plan, as of the most
recent fiscal year of such Multiemployer Plan for which
the annual reports of such Multiemployer Plan's
actuaries and auditors have been received; and
(xv) neither Borrower nor any ERISA Affiliate has engaged in
a Prohibited Transaction prior to the date hereof, and
the execution, delivery, and carrying out of this
Agreement will not involve any non-exempt Prohibited
Transactions (within the meaning of Part 4 of Subtitle B
of Title I of ERISA) or any transaction in connection
with which a tax could be imposed pursuant to Section
4975 of the Code.
(b) ERISA Reports. Borrower shall:
(i) as soon as possible, and in any event within fifteen
(15) Business Days, after Borrower or an ERISA Affiliate
knows or has reason to know that, regarding any Employee
Benefit Plan with respect to Borrower or an ERISA
Affiliate, a Prohibited Transaction or a Reportable
Event has occurred (whether or not the requirement for
notice, if applicable, of such Reportable Event has been
waived by the PBGC), deliver to the Bank a certificate
of a responsible officer of Borrower setting forth the
details of such Prohibited Transaction or Reportable
Event, the action that Borrower proposes to take with
respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, Department
of Labor, or PBGC;
(ii) upon request of the Bank made from time to time, deliver
to the Bank a copy of the most recent actuarial report,
funding waiver request, and annual report filed with
respect to any Employee Benefit Plan maintained by
Borrower or an ERISA Affiliate;
(iii) upon request of the Bank made from time to time, deliver
to the Bank a copy of any Employee Benefit Plan
sponsored, contributed to, participated in or maintained
by Borrower or any ERISA Affiliate; and
(iv) as soon as possible, and in any event within ten (10)
Business Days, after it knows or has reason to know that
any of the following have occurred with respect to any
Employee Benefit Plan maintained, or contributed to, by
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Borrower or an ERISA Affiliate, deliver to the Bank a
certificate of a responsible officer of Borrower setting
forth the details of the events described in (a) through
(l) and the action that Borrower or any ERISA Affiliate
proposes to take with respect thereto, together with a
copy of any notice or filing from the PBGC or other
agency of the United States government with respect to
such of the events described in (a) through (l): (a) any
Employee Benefit Plan has been terminated; (b) the Plan
Sponsor intends to terminate any Employee Benefit Plan;
(c) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate any
such Employee Benefit Plan or to appoint a trustee to
administer such Employee Benefit Plan, or Borrower or
any ERISA Affiliate receives a notice from a
Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan; (d)
Borrower or any ERISA Affiliate withdraws from any
Employee Benefit Plan, or notice of any withdrawal
liability is received by Borrower or any ERISA
Affiliate; (e) any Employee Benefit Plan has received an
unfavorable determination letter from the Internal
Revenue Service regarding the qualification of the
Employee Benefit Plan under Section 401(a) of the Code;
(f) Borrower or any ERISA Affiliate fails to make a
required installment or any other required payment under
Section 412 of the Code on or before the due date for
such installment or payment or has applied for a waiver
of the minimum funding standard under Section 412 of the
Code; (g) the imposition of any tax under Code Section
4980B(a) or the assessment by the Secretary of Labor of
a civil penalty under Sections 502(c) or 502(l) of
ERISA; (h) there is a partial or complete withdrawal (as
described in ERISA Section 4203 or 4205) by Borrower or
any ERISA Affiliate from a Multiemployer Plan; (i)
Borrower or any ERISA Affiliate is in "DEFAULT" as
defined in ERISA Section 4219(c)(5)) with respect to
payments to a Multiemployer Plan required by reason of
its complete or partial withdrawal from such Employee
Benefit Plan; (j) a Multiemployer Plan is in
"REORGANIZATION" or is "INSOLVENT" (as described in
Title IV of ERISA) or such Multiemployer Plan intends to
terminate or has terminated under Section 4041A of
ERISA; (k) the institution of a proceeding by a
fiduciary of a Multiemployer Plan against Borrower or
any ERISA Affiliate to enforce Section 515 of ERISA; or
(1) Borrower or any ERISA Affiliate has increased
benefits under any existing Employee Benefit Plan or
commenced
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contributions to an Employee Benefit Plan to which
Borrower or any ERISA Affiliate was not previously
contributing. For purposes of this Section, Borrower
shall be deemed to have knowledge of all facts known by
the Plan Administrator of any Employee Benefit Plan of
which Borrower or any ERISA Affiliate is the Plan
Sponsor.
(c) Compliance with ERISA. Borrower and its ERISA Affiliates will
not (i) establish, maintain, or operate any Employee Benefit Plan that is
not in compliance in all material respects with the provisions of ERISA,
the Code, and all other applicable laws, and the regulations and
interpretations thereunder; (ii) allow to exist any Accumulated Funding
Deficiency with respect to any Employee Benefit Plan, whether or not
waived; (iii) terminate any Employee Benefit Plan or withdraw or effect a
partial or complete withdrawal (as described in ERISA Section 4203 or
4205) from any Multiemployer Plan, if such termination or withdrawal could
subject Borrower or any ERISA Affiliate to liability; (iv) fail to make
any required installment or any other payment required under Section 412
of the Code on or before the due date for such installment or other
payment; (v) amend any Employee Benefit Plan so as to result in an
increase in current liability for the plan year such that Borrower or any
ERISA Affiliate is required to provide security to such Employee Benefit
Plan under Section 401(a)(29) of the Code; (vi) fail to make any
contribution or payment to any Multiemployer Plan which Borrower or any
ERISA Affiliate may be required to make under any agreement relating to
such Multiemployer Plan; (vii) enter into any Prohibited Transaction for
which a class exemption is not available or a private exemption previously
has not been obtained from the Department of Labor; (viii) permit the
occurrence of any Reportable Event, or any other event or condition, which
could subject either Borrower or any ERISA Affiliate to liability; or (ix)
allow or permit to exist any other event or condition known or that
reasonably should be known to Borrower which event or condition could
subject either Borrower or any ERISA Affiliate to liability.
(d) Definitions. For purposes of this Section 9.1, the following
definitions shall apply:
(i) "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning
assigned to that term in Section 302 of ERISA.
(ii) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(iii) "EMPLOYEE BENEFIT PLAN" shall mean an employee benefit
plan within the meaning of Section 3(3) of ERISA that is
maintained, sponsored, participated in or contributed to
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by Borrower or any ERISA Affiliate.
(iv) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, or
any successor thereto.
(v) "ERISA AFFILIATE" shall mean any corporation, trade or
Business that is, along with Borrower, a member of a
controlled group of trades or businesses, or a member of
any group of organizations, within the meaning of
Sections 414(b), (c), (m) or (o) of the Code, and any
regulations thereunder.
(vi) "MULTIEMPLOYER PLAN" shall mean any plan described in
Section 3(37) or 4001(a)(3) of ERISA to which
contributions are or have been made by Borrower or any
ERISA Affiliate.
(vii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation or any governmental body succeeding to its
functions.
(viii)"PLAN Administrator" shall have the meaning assigned to
it in Section 3(16)(A) of ERISA.
(ix) "PLAN SPONSOR" shall have the meaning assigned to it in
Section 3(16)(B) of ERISA.
(x) "PROHIBITED TRANSACTION" shall mean a transaction that
is prohibited under Code Section 4975 or ERISA Section
406 and not exempt under Code Section 4975 or ERISA
Section 408.
(xi) "REPORTABLE EVENT" shall mean (a) an event described in
Section 4043(c), 4068(a), or 4063(a) of ERISA or in the
regulations thereunder, (b) receipt of a notice of
withdrawal liability with respect to a Multiemployer
Plan pursuant to Section 4202 of ERISA, (c) an event
requiring Borrower or any ERISA Affiliate to provide
security for an Employee Benefit Plan under Code Section
401(a)(29), (d) any failure to make payments required by
Code Section 412(m), (e) the withdrawal of Borrower or
any ERISA Affiliate from an Employee Benefit Plan in
which it is a "SUBSTANTIAL EMPLOYER" as defined in
Section 4001(a)(2) of ERISA, (f) the institution of
proceedings to terminate an Employee Benefit Plan by the
PBGC, or (g) the filing of a notice to terminate an
Employee Benefit Plan or the treatment of an amendment
of an Employee
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Benefit Plan as a termination under Section 4041 of
ERISA.
9.2 Costs.
Borrower hereby agrees that it shall reimburse Bank on demand, as
part of Borrower's Obligations, for any and all Costs and any amount not paid on
demand shall bear interest at the Default Rate.
9.3 Statement.
Each statement of account by Bank delivered to Borrower relating to
the Secured Obligations shall be presumed correct and accurate and shall
constitute an account stated between Borrower and Bank unless Bank subsequently
corrects such statement of its own volition or, within thirty (30) days after
Borrower's receipt of said statement, Borrower delivers to Bank, by registered
or certified mail addressed to Bank at the address specified in Section 9.4,
written objection thereto specifying the error or errors, if any, which Borrower
asserts are contained in any such statement.
9.4 Notices.
Any and all notices given in connection with this Agreement shall be
deemed adequately given only if in writing (which term, for all purposes of this
Agreement and the other Loan Documents, shall include telecopy) and addressed to
the party for whom such notices are intended at the address set forth below. All
notices shall be sent by personal delivery, Federal Express or other over-night
messenger service, first class registered or certified mail, postage prepaid,
return receipt requested or by other means at least as fast and reliable as
first class mail. A written notice shall be deemed to have been given to the
recipient party on the earlier of (a) the date it shall be delivered to the
address required by this Agreement; (b) the date delivery shall have been
refused at the address required by this Agreement; or (c) with respect to
notices sent by mail, the date as of which the postal service shall have
indicated such notice to be undeliverable at the address required by this
Agreement. Any and all notices referred to in this Agreement, or which either
party desires to give to the other, shall be addressed as follows:
IF TO BORROWER: FirstCity Financial Corporation
6400 Imperial Drive
P.O. Box 8216
Waco, Texas 76714
Attn: James Holmes
Telecopy: 254-751-7648
IF TO BANK: Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Attn: Loans Administration
Telecopy: 212-557-9460
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WITH A COPY TO: Sachnoff & Weaver, Ltd.
Suite 2900
30 South Wacker Drive
Chicago, Illinois 60606
Attn: Frank Ballantine, Esq.
Telecopy: 312-207-6400
and to
Bank of Scotland
Chicago Representative Office
181 West Madison Street
Suite 3525
Chicago, Illinois 60602
Attn: James Halley
Telecopy: 312-263-1143
The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.
9.5 Amendments and Waivers.
This Agreement and the other Loan Documents may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Borrower expressly agrees that for purposes of this Agreement and each and
every other Loan Document: (i) this Agreement and each and every other Loan
Document shall be a "credit agreement" under the Illinois Credit Agreements Act,
815 ILCS 160/1 et. seq. (the "ACT"); (ii) the Act applies to this transaction
including, but not limited to, the execution of this Agreement and each and
every other Loan Document; and (iii) any action on or in any way related to this
Agreement and each and every other Loan Document shall be governed by the Act.
Borrower may not sell, assign or transfer this Agreement or the Other Agreements
or any portion thereof, including, without limitation, Borrower's rights,
titles, interests, remedies, powers and/or duties hereunder or thereunder.
Borrower hereby consents to Bank's sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of this Agreement or
the Other Agreements, or of any portion thereof or participation therein,
including, without limitation, Bank's rights, titles, interests, remedies,
powers and/or duties.
9.6 No Implied Waiver; Remedies Cumulative.
Bank's failure at any time or times hereafter to require strict
performance by Borrower of any provision of this Agreement or any other Loan
Document shall not waive, affect or diminish any right of Bank thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Bank of an Event of Default or an Unmatured Default by Borrower or any other
Loan Party under this Agreement or the Other Agreements shall not suspend, waive
or affect any other Event of Default or Unmatured Default by Borrower or any
other Loan Party under this Agreement or the Other Agreements, whether the same
is prior or subsequent
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thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default or
Unmatured Default by Borrower or any other Loan Party under this Agreement or
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is by an instrument in writing signed by an
officer of Bank and directed to Borrower or such applicable other Loan Party
specifying such suspension or waiver.
9.7 Severability.
If any provision (in whole or in part) of this Agreement or the
other Loan Documents or the application thereof to any person or circumstance is
held invalid or unenforceable, then such provision shall be deemed modified,
restricted, or reformulated to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement
or the other Loan Document, as the case may require, and this Agreement and such
other Loan Document shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
as so modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein or therein, as the case may be. The parties
further agree to seek a lawful substitute for any provision found to be
unlawful. If such modification, restriction or reformulation is not reasonably
possible, the remainder of this Agreement and the other Loan Documents and the
application of such provision to other persons or circumstances will not be
affected thereby and the provisions of this Agreement and the other Loan
Documents shall be severable in any such instance.
9.8 Incorporation of Other Loan Documents.
The provisions of the Other Agreements are incorporated in this
Agreement by this reference thereto. Except as otherwise provided in this
Agreement and except as otherwise provided in the Other Agreements by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Other Agreements or the other Loan Documents, Bank shall have
the right to elect, in its sole and absolute discretion, which provision shall
govern and control. Except to the extent provided to the contrary in this
Agreement and in the other Loan Documents, no termination or cancellation
(regardless of cause or procedure) of this Agreement or the Other Agreements
shall in any way affect or impair the powers, obligations, duties, rights and
liabilities of Borrower or Bank in any way or respect relating to (a) any
transaction or event occurring prior to such termination or cancellation, and/or
(b) any of the undertakings, agreements, covenants, warranties and
representations of Borrower contained in this Agreement or the Other Agreements.
All such undertakings, agreements, covenants, warranties and representations
shall survive such termination or cancellation.
9.9 Acceptance.
This Agreement and the other Loan Documents are submitted by
Borrower to Bank (for Bank's acceptance or rejection thereof) at Bank's
principal place of business as an offer by Borrower to borrow monies from
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Bank now and from time to time hereafter and shall not be binding upon Bank or
become effective until and unless accepted by Bank, in writing, at said place of
business. If so accepted by Bank, this Agreement and the other Loan Documents
and the other Loan Documents shall be deemed to have been made at said place of
business. This Agreement and the other Loan Documents and the other Loan
Documents shall be governed and controlled by the laws of the State of Illinois
as to interpretation, enforcement, validity, construction, effect and in all
other respects including, but not limited to, the legality of the interest rate
and other charges, but excluding choice of law provisions and perfection of
security interests which shall be governed and controlled by the laws of the
relevant jurisdiction.
9.10 Knowledge.
As used herein the phrase "TO THE BEST OF BORROWER'S KNOWLEDGE" or
words of such import shall mean all knowledge, including, actual knowledge and
knowledge of matters which any reasonable person in such position knew or should
have known, of the respective officers, directors and managers of Borrower.
9.11 Waiver by Borrower.
EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR REQUIRED BY
LAW, BORROWER WAIVES (A) PRESENTMENT, DEMAND AND PROTEST, NOTICE OF PROTEST,
NOTICE OF PRESENTMENT, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY
TIME HELD BY BANK ON WHICH BORROWER MAY IN ANY WAY BE LIABLE; (B) ALL RIGHTS TO
NOTICE AND A HEARING PRIOR TO BANK'S TAKING POSSESSION OR CONTROL OF, OR TO BANK
REPLEVY, ATTACHMENT OR LEVY UPON THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING BANK TO EXERCISE ANY OF BANK'S
REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, EXTENSION AND
EXEMPTION LAWS.
9.12 Governing Law.
THIS AGREEMENT HAS BEEN DELIVERED FOR ACCEPTANCE BY BANK IN CHICAGO,
ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS.
TO THE EXTENT PERMITTED BY APPLICABLE LAW BORROWER HEREBY (a) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO,
ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS AGREEMENT; (b) IRREVOCABLY WAIVES THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT; (c) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW;
AND (d) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST BANK OR
ANY OF THEIR
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RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR
BANK'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR BANK'S
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION.
9.13 Waiver of Marshaling.
All rights of marshaling of assets of Borrower, including any such
right with respect to the Pledged Property, are hereby waived by Borrower.
9.14 Limitation by Law.
All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Agreement invalid, unenforceable, in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any
applicable law.
9.15 Survival of Representations and Warranties.
All representations and warranties contained in this Agreement or
made in writing by Borrower in connection herewith shall survive the execution
and delivery of this Agreement and repayment of the Secured Obligations. Any
investigation by Bank shall not diminish in any respect whatsoever its rights to
rely on such representations and warranties.
9.16 Service of Process.
Borrower hereby irrevocably appoints and designates CT Corporation
System, Inc., 208 S. LaSalle Street, Chicago, IL 60604 as its true and lawful
attorney-in-fact and duly authorized agent for service of legal process and
agrees that service of such process upon such agent and attorney-in-fact shall
constitute personal service of such process upon Borrower.
9.17 Representation by Counsel.
Borrower hereby represents that it has been represented by competent
counsel of its choice in the negotiation and execution of this Agreement and the
other Loan Documents; that it has read and fully understood the terms hereof;
Borrower and its counsel have been afforded an opportunity to review, negotiate
and modify the terms of this Agreement, and that it intends to be bound hereby.
In accordance with the foregoing, the general rule of construction to the effect
that any ambiguities in a contract are to be resolved against the party drafting
the contract shall not be employed in the construction and interpretation of
this Agreement.
9.18 Release of Bank.
Borrower releases Bank from any and all causes of action or claims
which Borrower may now or hereafter have for any asserted loss or damage to
Borrower claimed to be caused by or arising from any act or omission to act on
the part of Bank, its officers, agents or employees,
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<PAGE>
except for willful misconduct or gross negligence.
9.19 Invalidated Payments.
To the extent that either Bank receives any payment on account of
the Secured Obligations, and any such payment(s) and/or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, subordinated and/or required to be repaid to a trustee, receiver or
any other Person under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment(s) or proceeds received,
the Secured Obligations or part thereof intended to be satisfied shall be
revived and continue in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of the Secured
Obligations.
9.20 Headings.
The descriptive headings of the various provisions of this Agreement
and the other Loan Documents are inserted for convenience of reference only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
9.21 Counterparts.
This Agreement and the other Loan Documents may be executed in any
number of counterparts, and by the different parties hereto and thereto on the
same or separate counterparts, each of which when so executed and delivered
shall be deemed to be an original; all the counterparts for each such Loan
Document shall together constitute one and the same agreement.
9.22 Fax Execution.
For purposes of negotiating and finalizing this Agreement (including
any subsequent amendments thereto), any signed document transmitted by facsimile
machine ("FAX") shall be treated in all manner and respects as an original
document. The signature of any party by FAX shall be considered for these
purposes as an original signature. Any such FAX document shall be considered to
have the same binding legal effect as an original document, provided that an
original of the faxed document was mailed by first class US Mail or personally
delivered to the recipient, on the date of its transmission with proof of the
fax transmission. At the request of either party, any FAX document subject to
this Agreement shall be re-executed by both parties in an original form. The
undersigned parties hereby agree that neither shall raise the use of the FAX or
the fact that any signature or document was transmitted or communicated through
the use of a FAX as a defense to the formation of this Agreement.
9.23 No Third Party Beneficiaries.
This Agreement is solely for the benefit of the Bank, Borrower and
their respective successors and assigns (except as otherwise expressly provided
herein) and nothing contained herein shall be deemed to confer upon any Person
other than Borrower and its successors and assigns any right to insist on or to
enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of the Bank to make the Loans
hereunder are imposed solely and exclusively for the benefit of the Bank and its
respective successors and assigns and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms
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<PAGE>
and no other Persons shall under any circumstances be deemed to be a beneficiary
of such conditions.
9.24 Domicile of Loans.
Bank may make, maintain or transfer any of its Loans hereunder to,
or for the account of, any branch office, subsidiary or affiliate of Bank.
9.25 Entire Agreement.
This Agreement and the other Loan Documents constitute the entire
agreement of Borrower and Bank with respect to the subject matter hereof and
supersedes all prior and contemporaneous negotiations, agreements,
understandings and communications. No representation, understanding, promise or
condition concerning the subject matter hereof shall be binding upon Bank unless
expressed herein or therein. No course of dealing, course or performance, trade
usage or parole evidence of any nature, whether based on actions, omissions or
circumstances occurring or existing heretofore or hereafter, may be used in any
way to alter or supplement the terms hereof.
9.26 Construction.
In this Agreement, unless the context otherwise clearly requires,
references to the plural include the singular, the singular the plural, and the
part the whole; the neuter case includes the masculine and feminine cases; and
"or" is not exclusive. In this Agreement, any references to property (and
similar terms) include an interest in such property (or other item referred to);
"include," "includes," "including" and similar terms are not limiting; and
"hereof," "herein," "hereunder" and similar terms refer to this Agreement as a
whole and not to any particular provision; and "expenses," "costs,"
"out-of-pocket expenses" and similar terms include the charges of in-house
counsel, auditors and other professionals of the relevant Person to the extent
that such amounts are routinely identified and charged under such Person's cost
accounting system. Section and other references in this Agreement are to this
Agreement unless otherwise specified.
9.27 Successors and Assigns.
This Agreement shall be binding upon Borrower and its successors and
assigns, and shall inure to the benefit of and be enforceable by Bank and its
successors and assigns. Without limitation of the foregoing, Bank (and any
successive assignee or transferee) from time to time may assign or otherwise
transfer all or any portion of its rights or obligations under the Loan
Documents (including all or any portion of any commitment to extend credit), or
any Secured Obligations, to any other Person, and such Secured Obligations
(including any Secured Obligations resulting from extension of credit by such
other Person under or in connection with the Loan Documents) shall be and remain
Secured Obligations entitled to the benefit of this Agreement, and to the extent
of its interest in such Secured Obligations such other Person shall be vested
with all the benefits in respect thereof granted to Bank in this Agreement or
otherwise.
9.28 Texas Language.
(a) THIS WRITTEN AGREEMENT (TOGETHER WITH THE
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<PAGE>
OTHER LOAN DOCUMENTS ) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO
WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO.
9.29 Waiver of Trial by Jury.
TO THE EXTENT PERMITTED BY LAW, BORROWER AND BANK EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR THE OTHER AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN
CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOAN.
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<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been duly executed as of the
day and year specified at the beginning hereof.
BORROWER:
FIRSTCITY FINANCIAL CORPORATION
a Delaware corporation
By:
Title:
BANK:
-----
BANK OF SCOTLAND
By:
Title:
<PAGE>
Schedule of Exhibits and Schedules
----------------------------------
Exhibit A Wire Transfer Instruction to Bank of Scotland
- ---------
Schedule 1.1 (xxx) Schedule of Secondary Obligors
Schedule 2.2(c) Schedule of Eligible Notes
Schedule 4.2 Schedule of Excluded Notes
Schedule 4.3 Schedule of Excluded Entities
Schedule 5.1(e) Schedule of Shareholders, Stock and Options
Schedule 5.1(f) Schedule of Fictitious Names
Schedule 5.1(g) Schedule of Permitted Liens
Schedule 5.1(j) Schedule of Government Contracts
Schedule 5.1(l) Consents
Schedule 5.1(s) Schedule of Other Indebtedness
Schedule 5.1(t) Schedule of Affiliate Indebtedness
Schedule 5.1(u) Affiliate Notes
Schedule 5.1(u)(iii) Schedule of Future Notes (to be delivered post-
closing as they arise)
Schedule 5.1(w) Schedule of Affiliates
Schedule 6.3(j) Fee Agreements
Schedule 6.3(l) Guaranty Equivalents
Schedule 9.1 ERISA Matters
<PAGE>
EXHIBIT A
WIRE TRANSFER INSTRUCTION TO BANK OF SCOTLAND
CITIBANK N.A., NEW YORK
ABA NO. 021000089
FOR ACCOUNT OF BANK OF SCOTLAND, NEW YORK
ACCOUNT NO.: 36046633
ATTN: LOAN ADMINISTRATION
REF: FIRSTCITY FINANCIAL CORPORATION
<PAGE>
SCHEDULE 1.1 (xxx)
SECONDARY OBLIGORS
FirstCity Funding Corporation, a Texas corporation
FirstCity Consumer Finance Corporation, a Texas corporation
SL Funding Corp., a Texas corporation
Harbor Financial Mortgage Corporation, a Texas corporation ("HARBOR")
Bosque Asset Corporation, a Texas corporation
First X Realty, L.P., a Texas limited partnership ("FIRST X")
FH Partners, Ltd., a Texas limited partnership
First B Realty, Ltd., a Texas limited partnership ("FIRST B")
Wamco XVII, Ltd., a Texas limited partnership
Wamco XXIV, Ltd., a Texas limited partnership
Wamco XXV, Ltd., a Texas limited partnership
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated for
reference purposes only as of July 20, 1998 by and between FirstCity Financial
Corporation, a Delaware corporation ("BORROWER"), with its principal place of
business at 6400 Imperial Drive, P.O. Box 8216, Waco, Texas 76714 and Bank of
Scotland, acting through its branch in New York, New York ("BANK")
RECITALS:
Borrower and BOS have entered into that certain Loan Agreement dated
as of April 8, 1998 (the "EXISTING AGREEMENT") pursuant to which Bank agreed to
provide credit facilities to Borrower in the original maximum amount of
$50,000,000, which the maximum principal amount has been reduced pursuant to the
express terms of the Existing Agreement to $40,000,000.
Borrower has requested that Bank increase the credit facility to
$50,000,000.
Bank has agreed to increase the credit facility pursuant to the
terms and conditions of this Amendment.
The parties deem it to be in their best interest to amend the
Existing Agreement to reflect the increase in the maximum loan amount.
NOW THEREFORE, in consideration of any loan, advance, extension of credit and/or
other financial accommodation at any time made by Bank to or for the benefit of
Borrower and Bank agree as follows:
1. Recitals and Definitions.
1.1. Borrower hereby represents and warrants to Bank that the foregoing
Recitals are (a) true and accurate, (b) an integral part of this Amendment; and
(c) hereby incorporated into this Amendment and made a part hereof.
1.2. All terms capitalized but not expressly defined herein shall, for
purposes hereof, have the respective meanings set forth in the Existing
Agreement.
2. Amendments to Loan Agreement. The Existing Agreement is hereby amended as
follows:
2.1 All references to "Reduction Events" in the Existing Agreement are
HOFS02...:\92\54892\0011\1612\AGR8068M.070
<PAGE>
hereby deleted.
2.2 Section 2.2(a) of the Loan Agreement is hereby deleted in its entirety
and the following is substituted therefor:
(A) NOTWITHSTANDING ANYTHING AT ANY TIME TO THE CONTRARY CONTAINED
HEREIN OR IN ANY OTHER LOAN DOCUMENT, BUT SUBJECT TO THE LIMITATIONS SET
FORTH IN SECTION 2.2(D), THE PRINCIPAL PORTION OF BORROWER'S LIABILITIES
OUTSTANDING AT ANY ONE TIME DURING THE TERM HEREOF SHALL NOT EXCEED AN
AMOUNT EQUAL TO THE LESSER OF (A) $50,000,000 AND (B) THE BORROWING BASE
WHICH AMOUNT IS REFERRED TO HEREIN AS THE "MAXIMUM PRINCIPAL AMOUNT."
2.3 Section 2.2(e) of the Existing Agreement is hereby deleted in its
entirety and the following is substituted therefor:
(E) IN THE EVENT THAT THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN
EXCEEDS THE MAXIMUM PRINCIPAL AMOUNT AT ANY TIME, BORROWER SHALL PAY THE
AMOUNT OF SUCH EXCESS TO BANK, WITHOUT NOTICE OR DEMAND, AND ANY AMOUNT
NOT SO PAID SHALL BEAR INTEREST AT THE DEFAULT RATE UNTIL PAID. THIS IS AN
ABSOLUTE OBLIGATION TO PAY TO BANK THE AMOUNT OF THE UNPAID PRINCIPAL
BALANCE OF THE LOAN IN EXCESS OF SAID MAXIMUM PRINCIPAL AMOUNT, REGARDLESS
OF THE CAUSE OF SUCH EXCESS.
2.4 Sections 2.12(b) of the Existing Agreement is hereby deleted in its
entity and the following is substituted therefor:
(B) UNUSED COMMITMENT. BORROWER SHALL PAY AN UNUSED COMMITMENT FEE
IN AN AMOUNT EQUAL TO .125% (ON AN ANNUAL BASIS, BASED ON A 365-DAY YEAR)
OF THE DIFFERENCE BETWEEN $50,000,000 AND THE DAILY OUTSTANDING PRINCIPAL
BALANCE OF THE LOAN. SUCH FEE SHALL BE PAYABLE QUARTERLY IN ARREARS ON THE
LAST BUSINESS DAY OF EACH CALENDAR QUARTER.
2.5 Section 3.3(c) is hereby deleted.
3. Representations and Warranties of Borrower. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. To induce Bank to enter into this Amendment, Borrower
hereby represents and warrants to Bank that:
(a) Borrower represents and warrants that the execution and delivery
of this Amendment, and the performance by Borrower of its obligations under this
Amendment and the other Loan Documents, as amended, are within Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
have received all necessary
2
<PAGE>
governmental approvals (if any shall be required) and do not and will not
contravene or conflict with any provisions of law, or the Articles of
Incorporation or corporate By-Laws of Borrower or of any other agreement binding
upon Borrower;
(b) Borrower represents and warrants that this Amendment, and each
other instrument executed by Borrower concurrently herewith, is the legal, valid
and binding obligation of Borrower, enforceable against Borrower in accordance
with their respective terms, except as enforcement thereof may be subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, and to the general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law);
(c) Borrower represents and warrants that all of the representations
and warranties of Borrower made in the Loan Documents are true and correct as of
the date hereof, except where such representation or warranty specifically
relates to an earlier date. Borrower hereby expressly remakes and reaffirms each
and every representation, warranty and covenant set forth in the Agreement and
the other Loan Documents to which Borrower is a party to and for the benefit of
Agent and Lenders, as if made on the date herein and fully set forth herein.
(d) Borrower represents and warrants that no Event of Default or
Unmatured Default under the Loan Documents exists and Borrower is in full
compliance with all of the terms, conditions and all provisions of the Agreement
and the other Loan Documents.
(e) Borrower represents and warrants that it is Borrower's belief,
based upon Borrower's best knowledge that Borrower shall, on or before September
30, 1998 publicly offer and sell securities, in the form of preferred stock of
Borrower, resulting in net proceeds of sale to Borrower in an amount of not less
than $45,000,000 and Borrower has no knowledge that would lead Borrower to
believe that such offering of securities shall not be effected or that net
proceeds in an amount of less than $45,000,000 would not be paid to Borrower
therefrom. Borrower represents and warrants that the sale of such securities
shall be effected in compliance with the provisions of Section 6.3(f) of the
Loan Agreement and that the net proceeds thereof shall be paid to Bank in
accordance with the provisions of Section 3.3(d) of the Loan Agreement.
(f) Borrower, Bank and NationsBank, N.A. are in the process of
negotiating an amendment of the Loan Agreement, pursuant to which the Maximum
Principal Amount would be increased to $75,000,000 and a portion of the Loans
would be sold by Bank to NationsBank, N.A., a co-lender. Borrower represents and
warrants to Bank that Borrower has no knowledge that would lead Borrower to
believe that such amendment will
3
<PAGE>
not be effected on or before September 30, 1998.
4. Miscellaneous.
4.1. Fees. In addition to all fees payable by Borrower in connection with
the Existing Agreement, Borrower shall pay to Bank $25,000 in connection with
this Amendment.
4.2. Reimbursement for Expenses. Upon demand by Bank therefor, Borrower
shall reimburse Bank for all reasonable costs, fees and expenses incurred by
Bank or for which Bank becomes obligated, in connection with the negotiation,
preparation and conclusion of this agreement, including without limitation,
reasonable attorney's fees, costs and expenses, search fees, title insurance
policy fees, costs and expenses, filing and recording fees and all taxes payable
in connection with this Amendment.
4.3. Waiver of Claims. Borrower hereby acknowledges, agrees and affirms
that it possesses no claims, defenses, offsets, recoupment or counterclaims of
any kind or nature against or with respect to the enforcement of the Loan
Agreement, or any other Loan Document or any amendments thereto (collectively,
the "CLAIMS"), nor does Borrower now have knowledge of any facts that would or
might give rise to any Claims. If facts now exist which would or could give rise
to any Claim against or with respect to the enforcement of the Loan Agreement,
or any other Loan Document, as amended by the amendments thereto, Borrower
hereby unconditionally, irrevocably and unequivocally waives and fully releases
any and all such Claims as if such Claims were the subject of a lawsuit,
adjudicated to final judgment from which no appeal could be taken and therein
dismissed with prejudice.
4.4. Representation by Counsel. Borrower hereby represents that it has
been represented by competent counsel of its choice in the negotiation and
execution of this Amendment and the other Loan Documents; that it has read and
fully understood the terms hereof; Borrower and its counsel have been afforded
an opportunity to review, negotiate and modify the terms of this Amendment, and
that it intends to be bound hereby. In accordance with the foregoing, the
general rule of construction to the effect that any ambiguities in a contract
are to be resolved against the party drafting the contract shall not be employed
in the construction and interpretation of this Amendment.
4.5. Counterparts. This Amendment and the other Loan Documents may be
executed in any number of counterparts, and by the different parties hereto and
thereto on the same or separate counterparts, each of which when so executed and
delivered shall be deemed to be an original;
4
<PAGE>
all the counterparts for each such Loan Document shall together constitute one
and the same agreement.
4.6. Fax Execution. For purposes of negotiating and finalizing this
Amendment (including any subsequent amendments thereto), any signed document
transmitted by facsimile machine ("FAX") shall be treated in all manner and
respects as an original document. The signature of any party by FAX shall be
considered for these purposes as an original signature. Any such FAX document
shall be considered to have the same binding legal effect as an original
document, provided that an original of the faxed document was mailed by first
class US Mail or personally delivered to the recipient, on the date of its
transmission with proof of the fax transmission. At the request of either party,
any FAX document subject to this Amendment shall be re-executed by both parties
in an original form. The undersigned parties hereby agree that neither shall
raise the use of the FAX or the fact that any signature or document was
transmitted or communicated through the use of a FAX as a defense to the
formation of this Amendment and execution of this Amendment and the other Loan
Documents; that it has read and fully understood the terms hereof; Borrower and
its counsel have been afforded an opportunity to review, negotiate and modify
the terms of this Amendment, and that it intends to be bound hereby. In
accordance with the foregoing, the general rule of construction to the effect
that any ambiguities in a contract are to be resolved against the party drafting
the contract shall not be employed in the construction and interpretation of
this Amendment.
The remainder of this page is left intentionally blank.
5
<PAGE>
IN WITNESS WHEREOF, this First Amendment to Loan Agreement has been duly
executed as of the day and year specified at the beginning hereof.
BORROWER:
---------
FIRSTCITY FINANCIAL CORPORATION
a Delaware corporation
By:
Title:
BANK:
BANK OF SCOTLAND
By:
Title:
6
<PAGE>
PERIOD-TYPE> 6-MOS
FISCAL-YEAR-END> DEC-31-1998
PERIOD-END> JUN-30-1998
CASH> 30,531
SECURITIES> 43,046
RECEIVABLES> 1,021,185
ALLOWANCES> 0
INVENTORY> 124,388
CURRENT-ASSETS> 0
PP&E> 0
DEPRECIATION> 0
TOTAL-ASSETS> 1,510,039
CURRENT-LIABILITIES> 0
BONDS> 1,227,966
PREFERRED-MANDATORY> 41,908
PREFERRED> 0
COMMON> 83
OTHER-SE> 171,918
TOTAL-LIABILITY-AND-EQUITY> 1,510,039
SALES> 30,032
TOTAL-REVENUES> 115,666
CGS> 24,096
TOTAL-COSTS> 24,096
OTHER-EXPENSES> 69,383
LOSS-PROVISION> 3,427
INTEREST-EXPENSE> 6,722
INCOME-PRETAX> 12,038
INCOME-TAX> (1,396)
INCOME-CONTINUING> 13,434
DISCONTINUED> 0
EXTRAORDINARY> 0
CHANGES> 0
NET-INCOME> 10,390
EPS-PRIMARY> 1.51
EPS-DILUTED> 1.47
<PAGE>
APPENDIX C
CERTIFICATE OF DESIGNATIONS
OF THE
NEW PREFERRED STOCK
($0.01 Par Value)
OF
FIRSTCITY FINANCIAL CORPORATION
------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------
The undersigned DOES HEREBY CERTIFY that the following resolution was duly
adopted on May 30, 1997, by the Board of Directors (the "Board") of FirstCity
Financial Corporation, a Delaware corporation (the "Corporation"), at a duly
convened meeting of the Board at which a quorum was present and active
throughout;
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board by the provisions of the Amended and Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), the
issuance of a series of preferred stock (the "New Preferred Stock"), which shall
consist of up to 2,000,000 of the 100,000,000 shares of the Optional Preferred
Stock, par value $0.01 per share (the "Optional Preferred Stock"), which the
Corporation now has authority to issue, be, and the same hereby is, authorized,
and the Board hereby fixes the powers, designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series (in addition
to the powers, designations, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation which may be applicable
to the Optional Preferred Stock) as follows:
For the purposes of this resolution: (a) "Common Stock" means the shares
of Common Stock, $0.01 par value per share, of the Corporation; and (b) "Special
Preferred Stock" means the shares of Special Preferred Stock, $0.01 par value
per share, of the Corporation.
I. Designation and Amount. The series of Optional Preferred Stock
authorized by this resolution shall be designated the "New Preferred Stock". The
maximum number of shares of New Preferred Stock shall be 2,000,000.
II. Dividends and Distributions. Holders of shares of New Preferred Stock
shall be entitled to receive, when, as and if declared by the Board out of funds
of the Corporation legally available therefor, dividends at an annual rate of
$3.15 per share until and including September 30, 1998, and thereafter at an
annual rate of $2.10 per share, payable in quarterly installments on the last
business day of March, June, September and December of each year, commencing
September 30, 1997 (each a "Dividend Payment Date"). Dividends on the New
Preferred Stock shall accrue and be cumulative from July 1, 1997. Dividends
shall be payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than sixty (60) days nor less than
ten (10) days preceding the payment dates thereof, as shall be fixed by the
Board (each a "Dividend
<PAGE>
Payment Record Date"). No Dividend Payment Record Date shall precede the date
upon which the resolution fixing the Dividend Payment Record Date is adopted.
Unless full cumulative dividends on the New Preferred Stock shall have been
paid, dividends (other than in Common Stock (as defined in Paragraph III below),
other stock ranking junior to the New Preferred Stock and rights to acquire the
foregoing) may not be paid or declared and set aside for payment and other
distributions may not be made upon the Common Stock or on any other stock of the
Corporation, except for dividends on the Special Preferred Stock (as defined in
Paragraph III below), nor may any Common Stock or any other stock of the
Corporation be redeemed, purchased or otherwise acquired for any consideration
by the Corporation (except for redemption of the Special Preferred Stock and
except by conversion into or exchange for stock of the Corporation ranking
junior to the New Preferred Stock as to dividends). Dividends payable for any
partial dividend period shall be calculated on the basis of a 360-day year of
twelve 30-day months. Accrued but unpaid dividends shall not bear interest.
III. Rank. The shares of New Preferred Stock shall rank prior to the
shares of the Corporation's Common Stock, par value $0.01 per share (the "Common
Stock") and any other class of stock of the Corporation except the Special
Preferred Stock ("Junior Liquidation Stock"), so that in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the New Preferred Stock shall be entitled to receive
out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any distribution
is made to holders of shares of Common Stock or any Junior Liquidation Stock, an
amount equal to $21.00 per share (the "Liquidation Preference") plus an amount
equal to all dividends (whether or not earned or declared) accumulated and
unpaid on the shares of New Preferred Stock to the date of final distribution.
After payment of the full amount of the Liquidation Preference and accumulated
dividends to which holders of shares of New Preferred Stock are entitled, the
holders of shares of New Preferred Stock shall not be entitled to any further
participation in any distribution of assets by the Corporation. For the purposes
hereof, neither a consolidation or merger of the Corporation with or into any
other corporation, nor a sale or transfer of all or any part of the
Corporation's assets for cash or securities, shall be considered a liquidation,
dissolution or winding up of the Corporation.
IV. Status. Upon any conversion, exchange or redemption of shares of New
Preferred Stock, the shares of New Preferred Stock so converted, exchanged or
redeemed shall have the status of authorized and unissued shares of New
Preferred Stock, and the number of shares of New Preferred Stock which the
Corporation shall have authority to issue shall not be decreased by the
conversion, exchange or redemption of shares of New Preferred Stock.
V. Voting Rights. The holders of shares of New Preferred Stock shall have
no voting rights whatsoever, except for any voting rights to which they may be
entitled under the laws of the State of Delaware, and except as follows:
(a) (i) If and whenever at any time or times dividends payable on
the New Preferred Stock shall have been in arrears and unpaid in an
aggregate amount equal to or exceeding of any the amount of dividends
payable thereon for six quarterly periods, then the holders of the New
Preferred Stock and of any class or series of Optional Preferred Stock
having similar voting rights then exercisable ("Voting Parity Preferred
Stock") shall have the exclusive right, voting as a single class without
regard to series, to elect two directors of the Corporation, such
directors to be in addition to the number of directors constituting the
Board immediately prior to the accrual of that right. The remaining
directors shall be elected in accordance with the provisions of the
Corporation's Certificate of Incorporation and Bylaws by the other class
or classes of stock entitled to vote thereof at each meeting of
stockholders held for the purpose of electing directors. Such voting right
of the New Preferred Stock shall continue until such time as all
cumulative dividends accumulated on the New Preferred Stock shall have
been paid in full at which time the voting right of the holders of the New
Preferred Stock shall terminate, subject to revesting in accordance with
the provisions of the first sentence of this Subparagraph V(a)(i) in the
event of each and every subsequent event of default of the character
indicated above.
C-2
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
(ii) Whenever the voting right described in Subparagraph
V(a)(i) above shall have vested in the holders of the New Preferred Stock,
the right may be exercised initially either at a special meeting of the
holders of the New Preferred Stock and Voting Parity Preferred Stock (if
any), called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at
each successive annual meeting.
(iii) At any time when the voting rights described in
Subparagraph V(a)(i) above shall have vested in the holders of the New
Preferred Stock, and if the right shall not already have been initially
exercised, a proper officer of the Corporation shall, upon the written
request of the holders of record of 10% in number of the shares of the New
Preferred Stock then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of the holders of the New Preferred
Stock and Voting Parity Preferred Stock for the purpose of electing
directors. Such meeting shall be held at the earliest practicable date
upon the notice required for annual meetings of stockholders at the place
for holding of annual meetings of stockholders of the Corporation, or, if
none, at a place designated by the Secretary of the Corporation. If the
meeting shall not be called by the proper officers of the Corporation
within thirty (30) days after the personal service of such written request
upon the Secretary of the Corporation, or within thirty (30) days after
mailing it within the United States of America, by registered mail,
addressed to the Secretary of the Corporation at its principal office
(such mailing to be evidenced by the registry receipt issued by the postal
authorities), then the holders of record of 10% in number of shares of the
New Preferred Stock then outstanding may designate in writing one of their
number to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice
required for annual meetings of stockholders and shall be held at the same
place as is elsewhere provided for in this Subparagraph V(a). Any holder
of the New Preferred Stock shall have access to the stock books of the
Corporation for the purpose of causing a meeting of the stockholders to be
called pursuant to the provisions of this Subparagraph V(a)(iii).
Notwithstanding the provision of this Subparagraph, however, no such
special meeting shall be held during a period within ninety (90) days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(iv) At any meeting held for the purpose of electing directors
at which the holders of the New Preferred Stock shall have the right to
elect directors as provided herein, the presence in person or by proxy of
the holders of a majority of the then outstanding shares of the New
Preferred Stock and Voting Parity Preferred Stock shall be required and be
sufficient to constitute a quorum of the holders of such preferred stock
for the election of directors by the holders of such preferred stock. At
any such meeting or adjournment thereof (A) the absence of a quorum of the
holders of the New Preferred Stock and Voting Parity Preferred Stock shall
not prevent the election of directors other than those to be elected by
the holders of such preferred stock, and the absence of a quorum or
quorums of the holders of other classes or series of capital stock
entitled to elect such other directors shall not prevent the election of
directors to be elected by the holders of the New Preferred Stock and
Voting Parity Preferred Stock, and (B) in the absence of a quorum of the
holders of New Preferred Stock and Voting Parity Preferred Stock, a
majority of the holders present in person or by proxy of such preferred
stock shall have the power to adjourn the meeting, or appropriate portion
thereof, for the election of directors which the holders of such preferred
stock are entitled to elect, from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
(v) The directors elected pursuant to this Subparagraph V(a)
shall serve until the next annual meeting or until their respective
successors shall be elected and shall qualify; provided, however, that
when the right of the holders of the New Preferred Stock to elect
directors as herein provided shall terminate, the terms of office of all
persons so elected by the holders of the New Preferred Stock shall
terminate, and the number of directors of the Corporation shall thereupon
be such number as may be provided in accordance with the Certificate of
Incorporation and Bylaws of the Corporation irrespective of any increase
made pursuant to this Subparagraph V(a).
C-3
<PAGE>
(vi) So long as any shares of New Preferred Stock are
outstanding, the Certificate of Incorporation and Bylaws of the
Corporation shall contain provisions ensuring that the number of Directors
of the Corporation shall at all times be such that the exercise by the
holders of shares of New Preferred Stock of the right to elect directors
under the circumstances provided in this Subparagraph V(a) shall not
contravene any provisions of the Corporation's Certificate of
Incorporation or Bylaws.
(b) So long as any shares of the New Preferred Stock remain
outstanding, the Corporation shall not, (i) create or issue or increase the
authorized number of shares of any class or classes or series of stock ranking
prior to the New Preferred Stock either as to dividends or upon liquidation,
(ii) amend, alter or repeal any of the provisions of the Certificate of
Incorporation (including this resolution) so as to affect adversely the
preferences, special rights or powers of the New Preferred Stock or (iii)
authorize any reclassification of the New Preferred Stock.
VI. Redemption by the Corporation.
(a) The shares of New Preferred Stock may be redeemed for cash at
the option of the Corporation, in whole or from time to time in part, at
any time on or after September 30, 2003, on at least fifteen (15) but not
more than sixty (60) days' prior notice mailed to the holders of the
shares to be redeemed, at $21.00 per share, together with an amount equal
to all dividends (whether or not earned or declared) accumulated and
unpaid to the date fixed for redemption. The shares of New Preferred Stock
shall be redeemed for cash on September 30, 2005, at $21.00 per share
together with an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid as of September 30, 2005.
(b) If full cumulative dividends on the New Preferred Stock have not
been paid through the most recent Dividend Payment Date, the New Preferred
Stock may not be redeemed in part and the Corporation may not purchase or
acquire any shares of the New Preferred Stock otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of the
New Preferred Stock. If less than all the outstanding shares of New
Preferred Stock are to be redeemed, redemption may be either a pro rata
proportion of the shares of the New Preferred Stock to be redeemed or the
Corporation may select the shares of the New Preferred Stock to be
redeemed by lot or a substantially equivalent method.
(c) (i) If a notice of redemption has been given pursuant to this
Paragraph VI and if, on or before the date fixed for the redemption, the
funds necessary for the redemption shall have been set aside by the
Corporation, separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificates for those shares have not been
surrendered for cancellation, on the date fixed fore redemption dividends
shall cease to accrue on the shares of New Preferred Stock to be redeemed,
and at the close of business on the date fixed for redemption the holders
of those shares shall cease to be stockholders with respect to those
shares and shall have no interest in or claims against the Corporation by
virtue thereof and shall have no voting or other rights with respect to
the shares, except the right to receive the monies payable upon such
redemption and the right to accumulated and unpaid dividends, without
interest thereon, upon surrender (the endorsement, if required by the
Corporation) of their certificates, and, unless the Corporation
subsequently shall default in mailing payment of these amounts, the shares
shall default in mailing payment of these amounts, the shares evidenced
thereby shall no longer be deemed outstanding for any purpose.
(ii) If on or before the date fixed for redemption (but not
less than fifteen (15) days after the date the notice of redemption is
mailed to the holders of the New Preferred Stock) the Corporation shall
deposit, in a trust fund, with any bank or trust company organized under
the laws of the United States of America or any state thereof having a
combined capital and surplus of at least $5,000,000 (the "Redemption
Agent") monies sufficient to redeem on the date fixed for redemption the
shares of New Preferred Stock to be redeemed, with irrevocable
instructions and authority to the
C-4
<PAGE>
Redemption Agent on behalf and at the expense of the Corporation, to pay,
on the date fixed for redemption or prior to that date, the full amount of
the consideration (consisting of the redemption price plus accrued and
unpaid dividends, if any, to the date fixed for redemption, without
interest) payable to the holders of the New Preferred Stock upon the
redemption, upon surrender (and endorsement, if required by the
Corporation) of their certificates, then, from and after the close of
business on the date of such deposit (although prior to the dated fixed
for redemption) the "Deposit Date"), the deposit shall be deemed to
constitute full and final payment for the shares of New Preferred Stock to
be redeemed to the holders thereof and, notwithstanding that any
certificates for those shares have not been surrendered for cancellation,
on the date fixed for redemption dividends shall cease to accrue on the
shares of New Preferred Stock to be redeemed, and at the close of business
on the Deposit Date the holders of those shares shall cease to be
stockholders with respect to those shares and shall have no interest in or
claims against the Corporation by virtue thereof and shall have no voting
or other rights with respect to the shares, except the right to receive
the monies payable upon redemption and the right to accumulated and unpaid
dividends to the date fixed for redemption without interest thereof, upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be deemed
outstanding for any purposes.
(iii) Subject to applicable escheat laws, any monies necessary
for redemption set aside or deposited by the Corporation and unclaimed at
the end of two years from the date fixed for redemption shall revert to
the general funds of the Corporation, after which reversion the holders of
such shares so called for redemption but not surrendered shall look only
to the general funds of the Corporation for the payment of the amounts
payable upon such redemption. Any interest accrued on funds so set aside
or deposited shall belong to the Corporation and shall be paid to it from
time to time.
VII. Consent. No consent of the holders of the New Preferred Stock shall
be required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or issuance, or increase or decrease in the
amount, of any class or series of stock of the Corporation not ranking prior as
to dividends or upon liquidation to the New Preferred Stock, (c) any increase or
decrease in the amount of authorized Common Stock or any increase, decrease or
change in the par value thereof or in any other terms thereof or (d) of any
increase or decrease in the authorized amount of preferred stock issuable by the
Board of Directors in series.
VIII. Number of Shares of New Preferred Stock. The Board reserves the
right by subsequent amendment of this resolution from time to time to amend this
resolution within the limitations provided by law, this resolution and the
Certificate of Incorporation.
IX. Miscellaneous.
(a) Except as otherwise expressly provided, whenever in this
resolution notices or other communications are required to be made,
delivered or otherwise given to holders of shares of New Preferred Stock,
the notice or other communication shall be deemed properly given if
deposited in the United States mail, postage prepaid, addressed to the
persons shown on the books of the Corporation as such holders at the
addresses as they appear in the books of the Corporation, as of a record
date or dates determined in accordance with the Corporations' Certificate
of Incorporation and Bylaws and applicable law, as in effect from time to
time.
(b) The holders of the New Preferred Stock shall not have any
preemptive right to subscribe for or purchase any shares or any other
securities which may be issued by the Corporation.
(c) Except as may otherwise be required by law, the shares of New
Preferred Stock shall not have any designations, preferences, limitations
or relative rights, other than those specifically set forth in this
resolution (as such resolution may be amended from time to time) and in
the Certificate of Incorporation.
C-5
<PAGE>
(d) The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
(e) If any right, preference or limitation of the New Preferred
Stock set forth in this resolution (as such resolution may be amended from
time to time) is invalid, unlawful or incapable of being enforced by
reason of any rule or law or public policy, all other rights, preferences
and limitations set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and
effect, and no right, preference or limitation herein set forth shall be
deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
C-6
<PAGE>
APPENDIX D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 21, 1998
--------------------------------
FIRSTCITY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7614 76-0243729
- --------------------------------------------------------------------------------
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
6400 Imperial Drive, Waco, TX 76712
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (254) 751-1750
------------------------------
HOFS02...:\92\54892\0004\1848\FRM8248R.50A
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
Press Release of August 21, 1998.
Item 7. Exhibits
Exhibit number Description
-------------- -----------
99.1 Press Release of August 21, 1998
2
<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 hereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Matt A. Landry, Jr.
--------------------------------------------
Name: Matt A. Landry, Jr.
Title: Executive Vice President and Chief
Administrative Officer
Date: August 24, 1998
3
<PAGE>
EXHIBIT INDEX
Exhibit number Description
-------------- -----------
99.1 Press Release of August 21, 1998
4
<PAGE>
- --------------------------------------------------------------------------------
N E W S R E L E A S E
- --------------------------------------------------------------------------------
FIRSTCITY
FINANCIAL CORPORATION
Suzy W. Taylor
P.O. Box 105
Houston, Texas 77001
(713) 652-1810
FirstCity Announces Management Changes at Mortgage Corp.
Houston, Texas, August 21, 1998... FirstCity Financial Corporation
today announced that Rick R. Hagelstein, Executive Vice President and Director
of Subsidiary Operations, has been named Chairman and CEO of FirstCity Financial
Mortgage Corporation, the company's conventional residential origination and
servicing subsidiary. Mr. Hagelstein replaces Richard J. Gillen who has elected
to retire. Mr. Gillen will continue to serve on the company's board of
directors.
FirstCity's Chairman and CEO James Hawkins said, "Harbor Mortgage has
experienced unprecedented growth since its merger with FirstCity in July, 1997.
Under Dick's management, quarterly production levels are now three times the
1997 levels and the servicing platform has grown to nearly $10 billion. The
challenge facing us now is to manage this growth at Harbor to ensure that
FirstCity's capital is deployed to its most profitable uses."
Mr. Hagelstein added, "We have a dedicated team of mortgage
professionals who recognize the opportunities we have at this time to center our
attention on the things we do extremely well. Dick Gillen, as he grew Harbor
over the years, provided us with a solid foundation upon which to build a tight,
focused business."
FirstCity is a diversified financial services company with operations
dedicated to mortgage lending, portfolio asset acquisition and resolution and
consumer lending through over 90 offices in the US and with affiliate
organizations in Europe and Mexico. Its common (FCFC) and preferred (FCFCP and
FCFCO) stocks are listed on the NASDAQ National Market System.
<PAGE>
APPENDIX E
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) August 28, 1998
--------------------------------
FIRSTCITY FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-7614 76-0243729
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
6400 Imperial Drive, Waco, TX 76712
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (254) 751-1750
-----------------------------
HOFS02...:\92\54892\0013\1848\FRM8278U.54A
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
Consistent with the stated business strategy of FirstCity Financial
Corporation (the "Company") to remain a diversified financial services company,
the Company has completed an internal review of the level of its capital
commitment to FirstCity Financial Mortgage Corporation ("FC Mortgage"), its
conventional mortgage banking subsidiary. Since the Company acquired FC Mortgage
in 1997, the Company has invested over $100 million in capital to fund the
successful expansion of FC Mortgage's asset base and production levels. Over the
past year, FC Mortgage's owned residential servicing portfolio has grown from
approximately $3.2 billion to over $7.0 billion as a result of its strategy of
retaining the servicing rights to substantially all of its loan production
generated during the period. Spurred by the favorable interest rate environment,
FC Mortgage's 1998 residential loan origination volumes have almost tripled from
the levels during 1997. To accommodate this increase, FC Mortgage has increased
significantly its borrowings under its warehouse credit facilities. The growth
in the residential servicing portfolio combined with the increased warehouse
credit facilities required a significant capital commitment by the Company to FC
Mortgage since its acquisition in 1997.
Based upon its internal review, the Company concluded that it should
reduce its overall level of capital commitment to FC Mortgage to ensure that
appropriate and adequate levels of capital resources from the Company remain
available to support each of the Company's operating subsidiaries. In order to
permit the Company to make such reduction, FC Mortgage is implementing a
strategy to sell up to $3 billion of its owned residential servicing rights. To
manage the capital required to support its future loan production, FC Mortgage
anticipates that it will sell, periodically, a portion of the servicing rights
related to future loan production. Additionally, the Company has concluded that
continuation of FC Mortgage's GNMA loan buy-back program is not consistent with
its current business strategy. Accordingly, FC Mortgage has determined not to
continue this program and the underlying assets will be managed in an orderly
fashion to maximize their realizable value.
The Company believes that the actions described in the preceding
paragraph will result in a reduction in FC Mortgage's owned residential
servicing portfolio from approximately $7 billion at June 30, 1998 to
approximately $4 to $5 billion. Consequently, the Company expects a reduction in
FC Mortgage's aggregate investment in mortgage servicing rights from
approximately $124 million at June 30, 1998 to approximately $70 million.
Overall, the Company expects that its capital committed to FC Mortgage will be
reduced from the current level of over $100 million to approximately $50 to $70
million over
2
<PAGE>
a six to nine month time frame. FC Mortgage expects to sustain its current
levels of residential loan origination volume in light of the current favorable
interest rate environment for its mortgage products. FC Mortgage believes that
it will be able to operate without the need for increased capital commitments
from the Company as it continues to assess its other lines of business, its
channels of distribution and other strategic matters to permit it to focus on
its core business strengths.
The Company does not expect that the results of these specific
actions will have a material impact on its or FC Mortgage's financial condition
or results of operations. The Company, however, cannot predict the future effect
on its financial condition and results of operations of market conditions, the
direction and relative levels of interest rates and the effects of other market
factors.
This Current Report on Form 8-K contains forward-looking statements
that are dependent upon a number of uncertainties that could cause the actual
results to differ materially from those implied, projected or predicted in the
forward-looking statements. When any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking statement,
the Company cautions that, while such assumptions or bases are believed to be
reasonable and are made in good faith, assumed facts or bases almost always vary
from actual results, and the differences between assumed facts or bases and
actual results can be material, depending upon the circumstances. When, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The words "believe," "expect," "estimate,"
"project," "anticipate" and similar expressions identify forward-looking
statements.
3
<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 hereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By: /s/ Matt A. Landry, Jr.
----------------------------------------------
Name: Matt A. Landry, Jr.
Title: Executive Vice President and Chief
Administrative Officer
Date: August 28, 1998
4
EXHIBIT 99.(a)(2)
LETTER OF TRANSMITTAL
To Tender for Exchange Outstanding
Special Preferred Stock, $.01 Par Value Per Share
of
FirstCity Financial Corporation
Pursuant to the Offer to Exchange dated August 31, 1998 of
FirstCity Financial Corporation
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY,
SEPTEMBER 29, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF SPECIAL
PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE FOR
THE EXCHANGE OFFER. THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED ONLY BY
HOLDERS OF SPECIAL PREFERRED STOCK WISHING TO EXCHANGE SUCH SPECIAL PREFERRED
STOCK FOR NEW PREFERRED STOCK. THIS LETTER OF TRANSMITTAL IS NOT TO BE USED IN
CONNECTION WITH THE TENDER OF SHARES OF SPECIAL PREFERRED STOCK BY HOLDERS
THEREOF FOR REDEMPTION.
- -------------------------------------------------------------------------------
To:
American Stock Transfer & Trust Company, Exchange Agent
Facsimile Transmission:
(718) 234-5001
(For Eligible Institutions Only)
By Hand/Overnight Courier: Confirm by Telephone: By Mail:
American Stock (718) 921-8200 American Stock
Transfer & Trust Company Transfer & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
Delivery of this Letter of Transmittal to an address, or transmission of
instructions via facsimile transmission or telex, other than as set forth above
will not constitute a valid delivery.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE TENDER OFFER CONSIDERATION
PURSUANT TO THE OFFER TO EXCHANGE MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR
SECURITIES TO THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
SECURITIES NOT TENDERED FOR EXCHANGE PURSUANT TO THE OFFER TO EXCHANGE
WILL BE REDEEMED BY THE COMPANY. A GREY LETTER OF TRANSMITTAL TO BE USED WITH
RESPECT TO SECURITIES TO BE REDEEMED, BUT NOT EXCHANGED, IS ENCLOSED.
This Letter of Transmittal should be used only to tender Special
Preferred Stock, $.01 par value per share, of FirstCity (the "Securities") for
New Preferred Stock.
This Letter of Transmittal ("Letter of Transmittal") is to be used only
if Securities are to be physically delivered to the Exchange Agent or delivered
by book-entry transfer to the Exchange Agent's account at The
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
Depository Trust Company ("DTC") (a "Book-Entry Transfer Facility") pursuant to
the book-entry transfer procedure set forth in the Offer to Exchange of
FirstCity Financial Corporation dated August 31, 1998 (as the same may be
amended or supplemented from time to time, the "Offer to Exchange") under the
heading "The Exchange Offer -- Procedures for Tendering" and " -- Book-Entry
Transfer." Delivery of documents to a Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
Holders whose Securities are not immediately available or who cannot
deliver their Securities and all other documents required hereby to the Exchange
Agent prior to, or on, the Expiration Date, or who cannot complete the procedure
for book-entry transfer on a timely basis, may nevertheless tender their
Securities in accordance with the guaranteed delivery procedures set forth in
the Offer to Exchange under the caption "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery." See Instruction 2.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Offer to Exchange.
Holders who wish to tender their Securities for exchange must, at a
minimum, complete columns (1) through (3) in the box herein entitled
"Description of Securities Tendered" and sign in the appropriate box below. If
only those columns are completed, the Holder will be deemed to have tendered all
Securities listed in the table. If a Holder wishes to tender less than all of
such Securities for exchange, column (4) must be completed in full, and such
Holder should refer to Instruction 4.
- --------------------------------------------------------------------------------
[ ]CHECK HERE IF TENDERED SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility: DTC [ ]
Account Number: Transaction Code Number:
----------------------- -----------
[ ]CHECK HERE IF SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Names of Registered Holder(s):
----------------------------------------------
Window Ticket No. (if any):
-------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-------------------------
Name of Institution which Guaranteed Delivery:
------------------------------
If Delivered by Book-Entry Transfer, Check Box
of Applicable Book-Entry Transfer Facility: DTC [ ]
Account Number: Transaction Code Number:
---------------------- -----------
- --------------------------------------------------------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES TENDERED
- -------------------------------------------------------------------------------------------
Name(s) and Address(es) of Holder(s) Securities Tendered
(Please fill in, if blank, exactly as name(s) (Attachsadditionalischedule, if necessary)
- -------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of
Security Total Number of Shares Tendered
Number(s)* Shares of Securities (if less than all)
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Total
===========================================================================================
* Need not be completed by Holders tendering by book-entry transfer (see below).
- -------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned hereby acknowledges receipt of the
Offer to Exchange dated August 31, 1998 (as the same may be amended or
supplemented from time to time, the "Offer to Exchange") of FirstCity Financial
Corporation, a Delaware corporation ("FirstCity"), and this Letter of
Transmittal and instructions hereto (the "Letter of Transmittal"), which
together constitute FirstCity's offer to exchange (the "Exchange Offer") all the
outstanding shares of Special Preferred Stock, $.01 par value per share of
FirstCity (the "Securities") for an equal number of shares of New Preferred
Stock, $.01 par value per share of FirstCity (the "Tender Offer Consideration")
and otherwise upon the terms and subject to the conditions set forth in the
Offer to Exchange.
Subject to, and effective upon, the acceptance for exchange of the
Securities tendered hereby, the undersigned hereby sells, assigns and transfers
to, or upon the order of, FirstCity, all right, title and interest in and to,
and any and all claims in respect of or arising or having arisen as a result of
the undersigned's status as a holder of, all Securities tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent as
the true and lawful agent and attorney-in-fact of the undersigned with respect
to such Securities, with full power of substitution (such power-of-attorney
being deemed to be an irrevocable power coupled with an interest) to (a) deliver
such Securities, or transfer ownership of such Securities on the account books
maintained by a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
FirstCity, (b) present such Securities for transfer on the books of FirstCity,
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Securities, all in accordance with the terms of the Exchange
Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Securities
tendered hereby, and that when such Securities are accepted for exchange by
FirstCity, FirstCity will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
that none of such Securities will be subject to any adverse claim or right. The
undersigned, upon request, will execute and deliver all additional documents
deemed by the Exchange Agent to be necessary or desirable to complete the sale,
assignment and transfer of the Securities tendered hereby.
3
<PAGE>
The undersigned understands that tenders of Securities pursuant to any of
the procedures described in the Offer to Exchange under the caption "The
Exchange Offer -- Procedures for Tendering" and in the instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Exchange Offer. FirstCity's acceptance of such Securities for exchange will
constitute a binding agreement between the undersigned and FirstCity upon the
terms and subject to the conditions of the Exchange Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned and every
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives. Securities tendered under the Exchange Offer may be withdrawn
at any time until the Expiration Date. See the information set forth under the
heading "The Exchange Offer -- Withdrawal of Tenders" in the Offer to Exchange.
Unless otherwise indicated herein in the box entitled "Special Issuing and
Delivery Instructions," please issue the Tender Offer Consideration with respect
to Securities accepted for exchange, and return any certificates for Securities
not tendered or not accepted for exchange, in the name(s) of the registered
holder(s) appearing above under "Description of Securities Tendered" (and, in
the case of Securities tendered by book-entry transfer, by credit to the account
at the Book-Entry Transfer Facility designated above). Similarly, unless
otherwise indicated herein in the box entitled "Special Delivery Instructions,"
please mail the certificates representing the Shares of New Preferred Stock
constituting the Tender Offer Consideration with respect to Securities accepted
for exchange, together with any certificates for Securities not tendered or not
accepted for exchange (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing above under "Description of
Securities Tendered." If both the "Special Issuing and Delivery Instructions"
box and the "Special Delivery Instructions" box are completed, please issue the
Tender Offer Consideration with respect to any Securities accepted for exchange,
and return any certificates for Securities not tendered or not accepted for
exchange, in the name(s) of, and mail any such certificates to, the person(s) at
the address(es) so indicated. Please credit any Securities tendered hereby and
delivered by book-entry transfer, but which are not accepted for exchange, by
crediting the account at the Book-Entry Transfer Facility designed above. The
undersigned recognizes that FirstCity has no obligation pursuant to the "Special
Issuing and Delivery Instructions" box or "Special Delivery Instructions" box
provisions of this Letter of Transmittal to transfer any Securities from the
name of the registered holder(s) thereof if FirstCity does not accept for
exchange any of the principal amount of such securities.
<TABLE>
<CAPTION>
- ----------------------------------------- ------------------------------------------
SPECIAL ISSUING AND DELIVERY INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, and 6) (See Instructions 1, 5, and 6)
To be completed ONLY if certificates for To be completed ONLY if certificates for
Securities not tendered or not accepted Securities not tendered or not accepted
for exchange, and/or shares of New for exchange, and/or shares of New
Preferred Stock constituting the Tender Preferred Stock constituting the Tender
Offer Consideration are to be issued in Offer Consideration is to be made to OTHER
the name of someone other than the than the address of the registered holder(s)
undersigned. appearing under the "Description of Securities
Tendered."
<S> <C>
Issue Securities to:
Issue Securities to:
Name: ..................................
(Please print) Name: ..................................
(Please print)
Address ................................
Address ................................
........................................
Zip Code ........................................
........................................ Zip Code
........................................
- ----------------------------------------- ------------------------------------------
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
(To Be Completed By All Tendering Holders of
Securities Regardless of Whether Securities Are Being
Physically Delivered Herewith)
X.............................................................................
X.............................................................................
Signature(s) of Holder(s) or Authorized Signatory
Must be signed by the registered holder(s) of Securities exactly as their
name(s) appear(s) on certificate(s) for the Securities or, if tendered by a
participant in the Book-Entry Transfer Facility, exactly as such participant's
name appears on a security position listing as the owner of the Securities or by
person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, agent or other person acting in a fiduciary or representative
capacity, please provide the following information and see Instruction 5.
Name(s): .....................................................................
..............................................................................
(Please Print)
Capacity: ....................................................................
Address: .....................................................................
..............................................................................
(Including Zip Code)
Area Code and Telephone No.: .................................................
SIGNATURE GUARANTEE (See Instructions 1 and 5 below)
..............................................................................
(Name of Eligible Institution Guaranteeing Signatures)
..............................................................................
(Address (including zip code) and Telephone Number
(including area code) of Firm)
..............................................................................
(Authorized Signature)
..............................................................................
(Printed Name)
..............................................................................
(Title)
Date: .................................................................., 1998
- -------------------------------------------------------------------------------
5
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or by a commercial bank or trust company having an office or correspondent in
the United States (each of the foregoing being referred to herein as an
"Eligible Institution") unless (a) this Letter of Transmittal is signed by the
registered holder(s) of the Securities tendered herewith (or by a participant in
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of such Securities) and neither the "Special Issuing and
Delivery Instructions" box nor the "Special Delivery Instructions" box of this
Letter of Transmittal has been completed or (b) such Securities are tendered for
the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Securities; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be used only if Securities tendered
for exchange hereby are to be forwarded herewith or delivered by book-entry
transfer to the Exchange Agent's account at a Book-Entry Transfer Facility
pursuant to the procedures set forth in the Offer to Exchange under the heading
"The Exchange Offer -- Book-Entry Transfer." All physically tendered Securities
or a confirmation of a book-entry transfer into the Exchange Agent's account
with a Book-Entry Transfer Facility of Securities delivered by book-entry
transfer, together with a properly completed and validly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address set
forth on the cover page hereof on or prior to the Expiration Date. If Securities
are forwarded to the Exchange Agent in multiple deliveries, a properly completed
and validly executed Letter of Transmittal must accompany each such delivery.
Tenders of Securities in the Exchange Offer will be accepted on or prior
to the Expiration Date in the manner described in the preceding sentence and
otherwise in compliance with this Letter of Transmittal.
If Holders desire to tender Securities for exchange pursuant to the
Exchange Offer and (a) such Securities are not immediately available, (b) time
will not permit this Letter of Transmittal, the Securities and all other
required documents to reach the Exchange Agent on or prior to the Expiration
Date, or (c) the procedures for book-entry transfer cannot be completed on or
prior to the Expiration date, such Holders may effect a tender of Securities in
accordance with the guaranteed delivery procedure set forth in the Offer to
Exchange under the caption "The Exchange Offer -- Guaranteed Delivery."
Pursuant to such procedure:
(a) such tender must be made by or through an Eligible Institution;
(b) on or prior to the Expiration Date, the Exchange Agent must have
received from such Eligible Institution, at the address of the Exchange
Agent set forth on the cover page hereof, a properly completed and validly
executed Notice of Guaranteed Delivery (by telegram, facsimile, mail or
hand delivery) substantially in the form provided by FirstCity; and
(c) this Letter of Transmittal or a facsimile hereof, properly
completed and validly executed, with any required signature guarantees,
the Securities in proper form for transfer by delivery (or confirmation of
book-entry transfer into the Exchange Agent's account with a Book-Entry
Transfer Facility) and all other documents required by this Letter of
Transmittal must be received by the Exchange Agent within three NASDAQ
National Market System trading days after the date of such Notice of
Guaranteed Delivery.
<PAGE>
The method of delivery of this Letter of Transmittal, Securities and all
other required documents, including delivery through any Book-Entry Transfer
Facility, to the Exchange Agent is at the election and risk of the tendering
Holder, and the delivery will be deemed made only when actually received by the
Exchange Agent. If such delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, the mailing should be
made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to such date. No alternative, conditional or contingent
tenders of Securities will be accepted. By execution of this Letter of
Transmittal (or a facsimile hereof), all tendering Holders waive any right to
receive any notice of the acceptance of their Securities for exchange.
3. Inadequate Space. If the space provided herein under "Description of
Securities Tendered" is inadequate, the certificate numbers of the Securities
and the number of shares of Special Preferred Stock tendered should be listed on
a separate schedule and attached hereto.
4. Partial Tenders (Not applicable to Holders who tender by book-entry
transfer). All Securities delivered to the Exchange Agent with this blue Letter
of Transmittal will be deemed to have been tendered for exchange unless
otherwise indicated. If tenders of Securities for exchange are made with respect
to less than all of the Securities delivered herewith, a grey Letter of
Transmittal, relating to redemption of shares of Special Preferred Stock, should
be completed and returned to the Exchange Agent with respect to such Securities
not tendered for exchange.
5. Signatures on Letter of Transmittal; Bond Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the
Securities tendered hereby, the signature(s) must correspond with the name(s) as
written on the face of the Securities without alteration, enlargement or any
other change whatsoever. If this Letter of Transmittal is signed by a
participant in one of the Book-Entry Transfer Facilities whose name is shown as
the owner of the Securities tendered hereby, the signature must correspond with
the name shown on the security position listing as the owner of the Securities.
If any Securities tendered for exchange hereby are owned of record by two
or more persons, all such persons must sign this Letter of Transmittal.
If any Securities tendered for exchange hereby are registered in the names
of different Holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal, and any necessary accompanying documents, as
there are different registrations of such Securities.
If this Letter of Transmittal is signed by the registered holder of
Securities tendered hereby, no endorsements of such Securities or separate bond
powers are required, unless payment is to be made to, or Securities not tendered
or not accepted for exchange are to be issued in the name of, a person other
than the registered holder(s), in which case, the Securities tendered hereby
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on such
Securities (and with respect to a participant in a Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Securities,
exactly as the name(s) of the participant(s) appear(s) on such security position
listing). Signatures on such Securities and bond powers must be guaranteed by an
Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Securities tendered hereby, the Securities must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such Securities.
Signatures on such Securities and bond powers must be guaranteed by an Eligible
Institution. See Instruction 1.
If this Letter of Transmittal or any Securities or bond powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or
<PAGE>
representative capacity, such person should so indicate when signing, and proper
evidence satisfactory to FirstCity of such person's authority so to act must be
submitted with this Letter of Transmittal.
6. Special Issuing and Delivery Instructions. If shares of New Preferred
Stock constituting Tender Offer Consideration are to be issued, or Securities
not tendered or not accepted for exchange are to be issued, in the name of a
person other than the person(s) signing this Letter of Transmittal or if such
Tender Offer Consideration or any such Security is to be sent to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal but at an address other than that shown in
the box entitled "Description of Securities Tendered," the appropriate boxes in
this Letter of Transmittal must be completed. All Securities tendered by
book-entry transfer and not accepted for exchange will be returned by crediting
the account at the Book-Entry Transfer Facility designated above is the account
from which such Securities were delivered.
7. Conflicts. In the event of any conflict between the terms of the Offer
to Exchange and the terms of this Letter of Transmittal, the terms of the Offer
of Exchange will control.
EXHIBIT 99.(a)(3)
FirstCity Financial Corporation
Offer to Exchange
Each Outstanding Share of Special Preferred Stock for
One Share of Preferred Stock, $21 Liquidation/Redemption value
per share of FirstCity Financial Corporation
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY,
SEPTEMBER 29, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF SPECIAL
PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME UNTIL THE EXPIRATION DATE FOR THE
EXCHANGE OFFER.
- -------------------------------------------------------------------------------
August 31, 1998
To Our Clients:
Enclosed for your consideration is the Offer to Exchange dated August 31,
1998 (as the same may be amended or supplemented from time to time, the "Offer
to Exchange") and a related blue form of Letter of Transmittal and instructions
thereto (the "Letter of Transmittal") relating to the offer (the "Exchange
Offer") by FirstCity Financial Corporation ("FirstCity") to exchange each
outstanding share of FirstCity's Special Preferred Stock, $.01 par value per
share (the "Securities" or "Special Preferred Stock") for one share of the
Preferred Stock, $.01 par value per share of FirstCity ("New Preferred Stock").
(Also enclosed is information relating to the redemption by FirstCity of all
outstanding shares of Special Preferred Stock for $21 per share plus accrued
dividends on September 30, 1998, and a related grey Letter of Transmittal. All
Securities not tendered for exchange pursuant to the Exchange Offer will be
redeemed by FirstCity on September 30, 1998).
Consummation of the Exchange Offer is subject to certain conditions
described in the Offer to Exchange.
The Exchange offer is more fully described in the Offer to Exchange.
We are the registered holder of Securities held by us for your account. A
tender of any such Securities can be made only by us as the registered holder
and pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Securities held by
us for your account.
Accordingly, we request instructions as to whether you wish us to tender
any or all such Securities held by us for your account pursuant to the terms and
conditions set forth in the Offer to Exchange and the Letter of Transmittal. We
urge you to read the Offer to Exchange and the Letter of Transmittal carefully
before instructing us to tender your Securities.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Securities for exchange on your behalf in
accordance with the provisions of the Exchange Offer. The Exchange Offer will
expire at Midnight, New York City time, on Tuesday, September 29, 1998 unless
extended (the "Expiration Date"). Securities tendered pursuant to the Exchange
Offer may be withdrawn subject to the procedures described in the Offer to
Exchange, at any time prior to the Expiration Date. Securities not tendered for
exchange pursuant to the Exchange Offer will be redeemed by FirstCity on
September 30, 1998, in accordance with the Amended and Restated Certificate of
Incorporation of FirstCity.
<PAGE>
The Exchange Offer is for all outstanding shares of Special Preferred
Stock.
If you wish to have us tender for exchange any or all of the Securities
held by us for your account, please so instruct us by completing, executing and
returning to us the instruction form that appears below.
INSTRUCTIONS REGARDING THE OFFER TO EXCHANGE
FIRSTCITY FINANCIAL CORPORATION SPECIAL PREFERRED STOCK
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of FirstCity
Financial Corporation.
This will instruct you to tender for exchange the number of shares of
Securities indicated below held by you for the account of the undersigned
pursuant to the terms of and conditions set forth in the Offer to Exchange.
Box 1 [ ] Please tender for exchange my Securities held by you for my account.
Box 2 [ ] Please do not tender for exchange any Securities held by you for my
account.
Date: _______________, 1998
-----------------------------------------------------------
-----------------------------------------------------------
Signature(s)
-----------------------------------------------------------
-----------------------------------------------------------
Please print name(s) here
Number of Shares of
Securities to be
Tendered:
________________*
-----------------------------------------------------------
Please type or print address
-----------------------------------------------------------
Area Code and Telephone Number
-----------------------------------------------------------
Taxpayer Identification or
Social Security Number
-----------------------------------------------------------
My Account Number With You
*UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER FOR EXCHANGE ALL SECURITIES
OF SUCH BENEFICIAL OWNER(S).
2
EXHIBIT 99.(a)(4)
FirstCity Financial Corporation
Offer to Exchange
Each Outstanding Share of Special Preferred Stock
For One Share of the Preferred Stock,
$21 Liquidation/Redemption Value Per Share
of FirstCity Financial Corporation
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY,
SEPTEMBER 29, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF SPECIAL
PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME UNTIL THE EXPIRATION DATE FOR THE
EXCHANGE OFFER.
- --------------------------------------------------------------------------------
August 31, 1998
TO BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
We are enclosing herewith the material listed below relating to the offer
(the "Exchange Offer") by FirstCity Financial Corporation ("FirstCity" or the
"Company") to exchange all the outstanding shares of the Company's Special
Preferred Stock, $.01 par value per share (the "Securities" or "Special
Preferred Stock") for one share of the Preferred Stock, $.01 par value per share
of FirstCity ("New Preferred Stock").
The Exchange Offer is more fully described in the Offer to Exchange
referred to below. Securities not tendered for exchange will be redeemed by
First City on September 30, 1998 in accordance with the Amended and Restated
Certificate of Incorporation of FirstCity. A grey Letter of Transmittal to be
used with respect to Securities to be redeemed, but not exchanged, is enclosed.
We are asking you to contact your clients for whom you hold shares of
Securities registered in your name or in the name of your nominee. In addition,
we ask you to contact your clients who, to your knowledge, hold shares of
Securities registered in their own name.
Enclosed for your information and use in connection with the Exchange
Offer are copies of the following documents:
1. Offer to Exchange, dated August 31, 1998 as the same may be
amended or supplemented from time to time, the "Offer to Exchange);
2. A BLUE Letter of Transmittal for your use in connection with the
tender of Securities for exchange and for the information of your clients;
3. A BLUE form of letter that may be sent to your clients for whose
accounts you hold Securities registered in your name or the name of your
nominee, with space provided for obtaining the clients' instructions with
regard to the Exchange Offer;
4. A BLUE form of Notice of Guaranteed Delivery;
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
and
5. A return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY,
SEPTEMBER 29, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). SECURITIES TENDERED
PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN SUBJECT TO THE PROCEDURES
DESCRIBED IN THE OFFER TO EXCHANGE, AT ANY TIME PRIOR TO THE EXPIRATION DATE FOR
THE EXCHANGE OFFER.
In all cases, exchange of shares of Special Preferred Stock for New
Preferred Stock accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of such Special Preferred
Stock (or a confirmation of a book-entry transfer of such Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility (as defined in the
Offer to Exchange)), a Letter of Transmittal (or facsimile thereof) properly
completed and validly executed and any other required documents.
If holders of Securities wish to tender Securities for exchange, but it is
impracticable for them to forward certificates representing their Special
Preferred Stock or other required documents on or prior to the Expiration Date,
a tender may be effected by following the guaranteed delivery procedure
described in the Offer to Exchange under the heading "The Exchange Offer --
Guaranteed Delivery."
FirstCity will not pay any fees or commission to any broker, dealer or
other person in connection with the solicitation of tenders of Special Preferred
Stock pursuant to the Offer to Exchange. However, FirstCity will reimburse you
for customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients.
Any inquiries you may have with respect to the Exchange Offer should be
addressed to, and additional copies of the enclosed materials may be obtained
from, the Company at its address and telephone number set forth on the back
cover page of the Offer to Exchange.
Very truly yours,
FirstCity Financial Corporation
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF FIRSTCITY, THE EXCHANGE AGENT OR THE
DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
2
EXHIBIT 99.(a)(5)
NOTICE OF GUARANTEED DELIVERY
for
Tender and Delivery of Shares of
Special Preferred Stock
of
FirstCity Financial Corporation
for Exchange
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept the Exchange Offer relating to the Special
Preferred Stock of FirstCity Financial Corporation ("FirstCity") (the
"Securities" or "Special Preferred Stock") if (a) certificates representing the
Securities are not immediately available, (b) the procedures for book-entry
transfer cannot be completed on or prior to the Expiration Date, or (c) time
will not permit the holder's Letter of Transmittal, Certificates evidencing the
Special Preferred Stock or other required documents to reach the Exchange Agent
on or prior to the Expiration Date. This form may be delivered by an Eligible
Institution by mail or hand delivery or transmitted, via facsimile, telegram or
telex to the Exchange Agent as set forth below. All capitalized terms used
herein but not defined herein shall have the meanings ascribed to them in the
Offer to Exchange dated August 31, 1998 (as the same may be amended or
supplemented from time to time, the "Offer to Exchange") of FirstCity.
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY,
SEPTEMBER 29, 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF FIRSTCITY
SPECIAL PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME UNTIL THE EXPIRATION DATE
FOR THE EXCHANGE OFFER. THIS NOTICE OF GUARANTEED DELIVERY IS TO BE USED ONLY
WITH RESPECT TO SHARES OF SPECIAL PREFERRED STOCK BEING EXCHANGED PURSUANT TO
THE EXCHANGE OFFER.
- -------------------------------------------------------------------------------
To:
American Stock Transfer & Trust Company, Exchange Agent
Facsimile Transmission:
(718) 234-5001
(For Eligible Institutions Only)
By Hand/Overnight Courier: Confirm by Telephone: By Mail:
American Stock (718) 921-8200 American Stock
Transfer & Trust Company Transfer & Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, New York 10005 New York, New York 10005
Delivery of this Notice of Guaranteed Delivery to an address, or
transmission of instructions via facsimile transmission or telex, other than as
set forth above will not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tender(s) to FirstCity, upon the terms and subject
to the conditions set forth in the Offer to Exchange and the blue Letter of
Transmittal, receipt of which is hereby acknowledged, the number of shares of
Special Preferred Stock set forth below, pursuant to the guaranteed delivery
procedures set forth in the Offer to Exchange under the heading "The Exchange
Offer -- Guaranteed Delivery."
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
Signature(s) of Registered Holder(s) or Address(es):............................
Authorized Signatory:
..................................... .........................................
Name(s) of Registered Holder(s) .........................................
Area Code and Telephone No.:
..................................... .........................................
Number of Shares of Special Preferred If Securities will be delivered by
book-entry transfer, check box below:
..................................... [ ] The Depository Trust Company
Certificate No(s). of Securities
(if Available):
.....................................
Date: ............................... Account No. .............................
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the registered
Holder(s) of Special Preferred Stock exactly as their name(s) appear(s) on the
Certificates representing the Special Preferred Stock or on a security position
listing as the owner(s) of the Special Preferred Stock, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, guardian, attorney-in-fact, officer of a corporation, executor,
administrator, agent or other representative, such person must provide the
following information.
Please print name(s) and address(es)
Name(s):
-----------------------------------------------------------------
Capacity:
-----------------------------------------------------------------
Address(es):
-----------------------------------------------------------------
Do not send Certificates representing the Special Preferred Stock with this
form. Certificates representing the Special Preferred Stock should be sent to
the Exchange Agent, together with a properly completed and validly executed
Letter of Transmittal.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States, hereby guarantees that, within three NASDAQ National Market
System trading days from the date of this Notice of Guaranteed Delivery, a
properly completed and validly executed Letter of Transmittal (or a facsimile
thereof), together with Securities tendered hereby in proper form for transfer
(or confirmation of the book-entry transfer of such Securities into the Exchange
Agent's account at a Book-Entry Transfer Facility, pursuant to the procedure for
book-entry transfer set forth in the Offer to Exchange under the heading "The
Exchange Offer -- Book Entry Transfer"), and all other required documents will
be deposited by the undersigned with the Exchange Agent at its address set forth
above.
Name of Firm:
-------------------------
Address: Name:
------------------------------ -----------------------------
Title:
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Area Code and Telephone No.: Date:
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DO NOT SEND CERTIFICATES REPRESENTING THE SPECIAL PREFERRED STOCK WITH
THIS FORM. ACTUAL SURRENDER OF CERTIFICATES REPRESENTING THE SPECIAL PREFERRED
STOCK FOR EXCHANGE MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY
COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
3
EXHIBIT 99.(a)(6)
NEWS RELEASE
FIRSTCITY FINANCIAL
CORPORATION
Suzy W. Taylor
P.O. Box 105
Houston, Texas 77001
(713) 652-1810
FirstCity Financial Announces Exchange Offer
for Special Preferred Stock
Houston, Texas August 27, 1998. . . FirstCity Financial Corporation
announced that it will commence an exchange offer to the holders of its Special
Preferred Stock. The exchange will allow a holder of the current Special
Preferred to exchange those shares, on a share for share basis, for New
Preferred Stock. The redemption value of the New Preferred Stock is $21 and the
annual dividend rate will be 10 percent of redemption value, or $2.10 per share,
payable quarterly. The New Preferred will be callable on or after September 30,
2003 and is to be redeemed on September 30, 2005.
The transaction is structured to be a tax free exchange and the New
Preferred Stock will qualify for dividend received exclusions under the current
IRS code.
Shares of Special Preferred Stock that are not exchanged for New Preferred
Stock will be redeemed, pursuant to the terms of the Special Preferred Stock, on
September 30, 1998 for $21.00 per share plus accrued dividends.
James Hawkins, Chairman of FirstCity noted, "We are very enthusiastic
about this offer to our current Special Preferred shareholders. The preferred
they now hold is to be redeemed in September of 1998, at which point the holders
will have to pay taxes on any gains they may have in the security. Exchanging
for the new preferred allows a holder to defer any tax recognition and provides
the holder with a new preferred at very competitive dividend rates. We believe
this is a very attractive offer for our preferred holders, as well as a good
source of medium term capital for FirstCity."
This release contains forward-looking statements that are dependent upon a
number of uncertainties that could cause the actual results to differ materially
from those implied, projected or predicted in the forward-looking statements.
When any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that,
while such assumptions or bases are believed to be reasonable and are made in
good faith, assumed facts or bases almost always vary from actual results, and
the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. When, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The words "believe," "expect," "estimate," "project," "anticipate" and similar
expressions identify forward-looking statements.
FirstCity is a diversified financial services company with operations
dedicated to mortgage lending, portfolio asset acquisition and resolution and
consumer lending through over 90 offices in the US and with affiliate
organizations in Europe and Mexico. Its common (FCFC) and preferred (FCFCP and
FCFCO) stocks are listed on the NASDAQ National Market System.
HOFS02...:\92\54892\0013\1848\SCH8248K.26B
