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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.)
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
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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.
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"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
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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.
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"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.
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"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.
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"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:
37
<PAGE>
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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<PAGE>
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:
39
<PAGE>
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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<PAGE>
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;
47
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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
50
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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.
51
================================================================================
--------------------
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.
<PAGE>
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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<PAGE>
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
4
<PAGE>
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.
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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.
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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
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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.
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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.
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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.
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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.
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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>
Schedule 1 to
PROMISSORY NOTE
---------------
<TABLE>
<CAPTION>
Interest Prepayment Notation
Date Principal on Loans of Loans By
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<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:
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
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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.
6
<PAGE>
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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<PAGE>
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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(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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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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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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(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
<PAGE>
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.
18
<PAGE>
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
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;
2
<PAGE>
(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
3
<PAGE>
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.
4
<PAGE>
(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.
5
<PAGE>
(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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
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.
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"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
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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.
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"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
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(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.
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"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.
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"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.
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"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
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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:
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(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
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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
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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
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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:
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(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
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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
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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
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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.
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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
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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
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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
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
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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
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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
iv
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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.
5
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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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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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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 any Primary Obligor nor any Secondary Obligor shall
defease, prepay, repay, purchase, redeem or otherwise acquire any of its
Indebtedness for borrowed money.
(n) Issue Power of Attorney. Except pursuant to this Agreement and
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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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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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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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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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
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
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<PERIOD-END> JUN-30-1998
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<SECURITIES> 43,046
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