<PAGE> 1
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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, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26500
FIRSTCITY FINANCIAL CORPORATION
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0243729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6400 IMPERIAL DRIVE, WACO, TX 76712
(Address of Principal Executive Offices) (Zip Code)
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)
</TABLE>
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 13, 1999 was 8,314,239.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Cash and cash equivalents................................... $ 17,940 $ 13,677
Portfolio Assets, net....................................... 48,157 69,717
Loans receivable, net....................................... 77,859 46,187
Mortgage loans held for sale................................ 694,552 1,207,679
Residual interests in securitizations....................... 68,021 65,242
Equity investments in Acquisition Partnerships and Servicing
Entities.................................................. 40,092 41,466
Mortgage servicing rights, net.............................. 15,241 91,440
Receivable from sale of mortgage servicing rights........... 53,103 10,313
Receivable for servicing advances and accrued interest...... 44,034 48,664
Deferred tax benefit, net................................... 27,098 32,162
Other assets, net........................................... 23,554 37,430
---------- ----------
Total Assets...................................... $1,109,651 $1,663,977
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $ 930,969 $1,462,231
Other liabilities......................................... 62,570 38,468
---------- ----------
Total Liabilities................................. 993,539 1,500,699
Commitments and contingencies............................... -- --
Redeemable preferred stock:
Adjusting rate preferred stock, including dividends of
$642 (redemption value of $21 per share; 2,000,000
shares authorized; 1,222,901 shares issued and
outstanding)........................................... 26,323 26,323
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: 8,314,239 and
8,287,959 shares, respectively)........................ 83 83
Paid in capital............................................. 78,651 78,456
Retained earnings........................................... 11,394 58,061
Accumulated other comprehensive income (loss)............... (339) 355
---------- ----------
Total Shareholders' Equity........................ 89,789 136,955
---------- ----------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $1,109,651 $1,663,977
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of mortgage loans........................ $ 13,233 $28,303 $ 39,874 $48,572
Gain on sale of automobile loans...................... 6,445 2,434 6,445 2,434
Net mortgage warehouse income......................... 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing rights............. (6,298) -- (8,693) --
Servicing fees:
Mortgage........................................... 4,227 5,588 10,370 10,282
Other.............................................. 2,165 1,250 4,278 2,363
Gain on resolution of Portfolio Assets................ 745 2,839 2,047 5,936
Equity in earnings of Acquisition Partnerships and
servicing entities................................. 2,798 1,523 5,442 4,737
Interest income....................................... 4,989 2,898 10,196 6,697
Other income.......................................... 1,816 2,314 4,036 6,432
-------- ------- -------- -------
Total revenues................................ 33,649 49,544 83,481 91,570
Expenses:
Interest on notes payable............................. 5,431 3,304 11,001 6,722
Salaries and benefits................................. 25,847 20,447 51,640 36,464
Amortization of mortgage servicing rights............. 2,431 4,126 7,154 7,302
Provision for loan losses and impairment on residual
interests.......................................... 3,597 575 3,268 2,927
Provision for valuation of mortgage servicing
rights............................................. 4,638 500 2,294 500
Occupancy, data processing, communication and other... 30,230 13,494 47,658 25,617
-------- ------- -------- -------
Total expenses................................ 72,174 42,446 123,015 79,532
Earnings (loss) before minority interest, accounting
change and income taxes............................... (38,525) 7,098 (39,534) 12,038
Benefit (provision) for income taxes.................. (5,010) 755 (5,032) 1,396
-------- ------- -------- -------
Earnings (loss) before minority interest and
accounting change..................................... (43,535) 7,853 (44,566) 13,434
Minority interest..................................... (346) (229) 18 (14)
Cumulative effect of accounting change................ -- -- (835) --
-------- ------- -------- -------
Net earnings (loss)..................................... (43,881) 7,624 (45,383) 13,420
Preferred dividends................................... (642) (1,515) (1,284) (3,030)
-------- ------- -------- -------
Net earnings (loss) to common shareholders.............. $(44,523) $ 6,109 $(46,667) $10,390
======== ======= ======== =======
Earnings (loss) before accounting change per common
share -- basic........................................ $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per common
share -- diluted...................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting change -- basic......... $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting change -- diluted....... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common share -- basic........... $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common share -- diluted......... $ (5.36) $ 0.83 $ (5.63) $ 1.47
Weighted average common shares outstanding -- basic..... 8,299 7,243 8,294 6,889
Weighted average common shares outstanding -- diluted... 8,299 7,401 8,294 7,045
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF OTHER TOTAL
COMMON COMMON PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
--------- ------ ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1998....... 6,526,510 $65 $29,509 $ 83,140 $ 44 $112,758
Exercise of warrants, options
and employee stock purchase
plan.......................... 519,299 5 12,675 -- -- 12,680
Issuance of common stock to
acquire the minority interest
of subsidiary................. 41,000 1 2,149 -- -- 2,150
Issuance of common stock in
public offering............... 1,201,150 12 34,123 -- -- 34,135
Comprehensive loss:
Net loss for 1998............. -- -- -- (20,192) -- (20,192)
Foreign currency items........ -- -- -- -- 311 311
--------
Total comprehensive loss........ (19,881)
--------
Preferred dividends............. -- -- -- (5,186) -- (5,186)
Other........................... -- -- -- 299 -- 299
--------- --- ------- -------- ----- --------
BALANCES, DECEMBER 31, 1998..... 8,287,959 83 78,456 58,061 355 136,955
Exercise of employee stock
purchase plan................. 26,280 -- 195 -- -- 195
Comprehensive loss:
Net loss for the six months
ended June 30, 1999........ -- -- -- (45,383) -- (45,383)
Foreign currency items........ -- -- -- -- (694) (694)
--------
Total comprehensive loss........ (46,077)
--------
Preferred dividends............. -- -- -- (1,284) -- (1,284)
--------- --- ------- -------- ----- --------
BALANCES, JUNE 30, 1999......... 8,314,239 $83 $78,651 $ 11,394 $(339) $ 89,789
========= === ======= ======== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ (45,383) $ 13,420
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities, net of
effect of acquisitions:
Proceeds from resolution of Portfolio Assets........... 11,018 30,032
Gain on resolution of Portfolio Assets................. (2,047) (5,936)
Purchase of Portfolio Assets and loans receivable,
net................................................... (2,108) (11,827)
Origination of automobile receivables, net of purchase
discount.............................................. (94,159) (57,762)
Loss on sale of mortgage servicing rights.............. 8,693 --
(Increase) decrease in mortgage loans held for sale.... 513,127 (487,528)
(Increase) decrease in construction loans receivable... 7,942 (9,569)
Originated mortgage servicing rights................... (77,934) (62,409)
Purchases of mortgage servicing rights................. -- (69)
Proceeds from sale of mortgage servicing rights........ 151,023 --
Provision for loan losses, residual interests and
valuation of mortgage servicing rights................ 5,562 3,427
Equity in earnings of Acquisition Partnerships......... (5,442) (4,737)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 57,083 51,884
(Increase) decrease in net deferred tax asset.......... 5,064 (1,571)
Depreciation and amortization.......................... 11,984 9,185
Increase in other assets............................... (22,784) (26,506)
Increase in other liabilities.......................... 13,477 38,775
----------- ------------
Net cash provided by (used in) operating
activities..................................... 535,116 (521,191)
----------- ------------
Cash flows from investing activities, net of effect of
acquisitions:
Property and equipment, net............................... (4,391) (3,269)
Contributions to Acquisition Partnerships and servicing
entities............................................... (10,939) (13,581)
Distributions from Acquisition Partnerships and servicing
entities............................................... 15,760 15,653
----------- ------------
Net cash provided by (used in) investing
activities..................................... 430 (1,197)
----------- ------------
Cash flows from financing activities, net of effect of
acquisitions:
Borrowings under notes payable............................ 4,813,259 10,630,721
Payments of notes payable................................. (5,343,453) (10,152,827)
Proceeds from issuance of common stock.................... 195 46,450
Preferred dividends paid.................................. (1,284) (3,030)
----------- ------------
Net cash provided by (used in) financing
activities..................................... (531,283) 521,314
----------- ------------
Net increase (decrease) in cash............................. 4,263 (1,074)
Cash, beginning of period................................... 13,677 31,605
----------- ------------
Cash, end of period......................................... $ 17,940 $ 30,531
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 47,492 $ 33,188
Income taxes........................................... $ 87 $ 231
Non-cash investing activities:
Investment securities received as a result of sales of
loans through securitizations......................... $ 11,957 $ 37,175
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1999, the results of operations and the cash flows for the three month and
six month periods ended June 30, 1999 and 1998.
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,
securitization trusts 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.
An accounting change due to the adoption of SOP 98-5, which requires
previously capitalized start-up costs including organization costs to be written
off and future costs related to start-up entities to be charged to expense as
incurred, resulted in a loss of $.8 million for the first quarter of 1999 and
has been reflected as a cumulative effect of a change in accounting principle.
(2) PORTFOLIO ASSETS
Portfolio Assets are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Non-performing Portfolio Assets............................. $ 82,430 $ 93,716
Performing Portfolio Assets................................. 19,750 24,759
Real estate Portfolios...................................... 9,707 12,561
-------- --------
Total Portfolio Assets............................ 111,887 131,036
Discount required to reflect Portfolio Assets at carrying
value..................................................... (63,730) (61,319)
-------- --------
Portfolio Assets, net............................. $ 48,157 $ 69,717
======== ========
</TABLE>
Portfolio Assets are pledged to secure non-recourse notes payable.
(3) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Construction loans receivable............................... $ 16,648 $24,590
Residential mortgage and other loans held for investment.... 7,317 11,016
Automobile and consumer finance receivables................. 65,831 16,475
Allowance for loan losses................................... (11,937) (5,894)
-------- -------
Loans receivable, net............................. $ 77,859 $46,187
======== =======
</TABLE>
6
<PAGE> 7
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,
-----------------
1999 1998
------- -------
<S> <C> <C>
Balances, beginning of period............................... $ 5,894 $ 9,282
Provision for loan losses................................. (36) 2,852
Discounts acquired........................................ 14,582 8,649
Allocation of reserves to sold loans...................... (7,890) (7,602)
Charge off activity:
Principal balances charged off......................... (1,723) (8,956)
Recoveries............................................. 1,110 2,266
------- -------
Net charge offs................................... (613) (6,690)
------- -------
Balances, end of period..................................... $11,937 $ 6,491
======= =======
</TABLE>
The provision for loan losses during the six months ended June 30, 1998,
was predominantly for automobile finance receivables generated by the NAF
platform that was discontinued in January 1998.
(4) 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, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Residential mortgage loans.................................. $683,854 $1,190,585
Unamortized premiums and discounts, net..................... 10,698 17,094
-------- ----------
$694,552 $1,207,679
======== ==========
</TABLE>
(5) RESIDUAL INTERESTS IN SECURITIZATIONS
The Company has residual interests in securitizations consisting of rated
securities, retained interests and related interest only strips (collectively
referred to as residual interests) which are attributable to loans sold through
securitization transactions by the Company. Residual interests are comprised of
the following as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Rated securities............................................ $ 1,523 $ 2,073
Residual interests.......................................... 72,067 66,473
Accrued interest............................................ 2,234 1,146
Allowance for losses........................................ (7,803) (4,450)
------- -------
$68,021 $65,242
======= =======
</TABLE>
7
<PAGE> 8
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity related to residual interests for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1999 1998
-------- -------
<S> <C> <C>
Balance, beginning of period................................ $ 65,242 $ 6,935
Cost allocated from securitizations......................... 11,957 37,175
Interest accreted........................................... 4,345 688
Increase in other securities, net........................... -- 88
Cash received from trusts................................... (10,170) (1,840)
Provision for permanent impairment of value................. (3,353) --
-------- -------
Balance, end of period...................................... $ 68,021 $43,046
======== =======
</TABLE>
(6) EQUITY INVESTMENTS IN ACQUISITION PARTNERSHIPS AND SERVICING ENTITIES
The Company has investments in Acquisition Partnerships and their general
partners that are accounted for on the equity method. The Company also has
investments in servicing entities that are accounted for on the equity method.
The condensed combined financial position and results of operations of the
Acquisition Partnerships (excluding the servicing entities), which include the
domestic and foreign Acquisition Partnerships and their general partners, are
summarized below.
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Assets...................................................... $269,810 $295,114
======== ========
Liabilities................................................. $161,389 $190,590
Net equity.................................................. 108,421 104,524
-------- --------
$269,810 $295,114
======== ========
Equity investment in Acquisition Partnerships............... $ 36,491 $ 41,466
Equity investment in servicing entities..................... 3,601 --
-------- --------
$ 40,092 $ 41,466
======== ========
</TABLE>
CONDENSED COMBINED SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Proceeds from resolution of Portfolio Assets... $37,539 $30,070 $67,184 $87,628
Gross margin................................... 13,626 9,110 24,357 27,643
Interest income on performing Portfolio
Assets....................................... 3,248 2,169 6,584 4,622
Net earnings................................... $ 9,997 $ 3,860 $16,380 $12,982
======= ======= ======= =======
Equity in earnings of Acquisition
Partnerships................................. $ 2,792 $ 1,523 $ 5,463 $ 4,737
Equity in earnings of servicing entities....... 6 -- (21) --
------- ------- ------- -------
$ 2,798 $ 1,523 $ 5,442 $ 4,737
======= ======= ======= =======
</TABLE>
(7) SEGMENT REPORTING
The Company is engaged in three reportable segments i) residential and
commercial mortgage banking; ii) portfolio asset acquisition and resolution; and
iii) consumer lending. These segments have been segregated
8
<PAGE> 9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on products and services offered by each. The following is a summary of
results of operations for each of the segments and a reconciliation to net
earnings (loss) for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
MORTGAGE BANKING:
Revenues:
Gain on sale of mortgage loans.................. $ 13,233 $28,303 $ 39,874 $48,572
Net mortgage warehouse income................... 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing rights....... (6,298) -- (8,693) --
Servicing fees.................................. 4,227 5,588 10,370 10,282
Other........................................... 2,562 1,552 5,245 3,556
-------- ------- -------- -------
Total...................................... 17,253 37,838 56,282 66,527
Expenses:
Salaries and benefits........................... 23,232 17,216 45,128 30,151
Amortization of mortgage servicing rights....... 2,431 4,126 7,154 7,302
Provision for loan losses and residual
interests..................................... 1,658 75 1,708 75
Provision for valuation of mortgage servicing
rights........................................ 4,638 500 2,294 500
Interest on notes payables...................... 1,750 486 3,778 987
Occupancy, data processing, communication and
other......................................... 24,926 9,335 36,903 17,439
-------- ------- -------- -------
Total...................................... 58,635 31,738 96,965 56,454
-------- ------- -------- -------
Operating contribution (loss) before direct
taxes........................................... $(41,382) $ 6,100 $(40,683) $10,073
======== ======= ======== =======
Operating contribution (loss), net of direct
taxes........................................... $(41,382) $ 6,100 $(40,683) $ 9,984
======== ======= ======== =======
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets.......... $ 745 $ 2,839 $ 2,047 $ 5,936
Equity in earnings of Acquisition
Partnerships.................................. 2,798 1,523 5,442 4,737
Servicing fees.................................. 779 666 1,757 1,395
Other........................................... 719 512 2,009 2,510
-------- ------- -------- -------
Total...................................... 5,041 5,540 11,255 14,578
Expenses:
Salaries and benefits........................... 613 1,100 2,034 2,267
Interest on notes payable....................... 1,038 1,336 2,090 2,812
Asset level expenses, occupancy, data processing
and other..................................... 1,598 1,886 3,144 4,098
-------- ------- -------- -------
Total...................................... 3,249 4,322 7,268 9,177
-------- ------- -------- -------
Operating contribution before direct taxes......... $ 1,792 $ 1,218 $ 3,987 $ 5,401
======== ======= ======== =======
Operating contribution, net of direct taxes........ $ 1,782 $ 1,223 $ 3,958 $ 5,392
======== ======= ======== =======
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans................ $ 6,445 $ 2,434 $ 6,445 $ 2,434
Interest income................................. 3,445 2,659 6,850 5,225
Servicing fees and other........................ 1,426 653 2,590 1,043
-------- ------- -------- -------
Total...................................... 11,316 5,746 15,885 8,702
======== ======= ======== =======
</TABLE>
9
<PAGE> 10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Expenses:
Salaries and benefits........................... 1,667 1,292 3,200 2,404
Provision for loan losses and residual
interests..................................... 1,939 500 1,962 2,852
Interest on notes payable....................... 736 939 1,403 1,819
Occupancy, data processing and other............ 3,001 1,658 5,097 2,765
-------- ------- -------- -------
Total...................................... 7,343 4,389 11,662 9,840
-------- ------- -------- -------
Operating contribution (loss) before direct
taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138)
======== ======= ======== =======
Operating contribution (loss), net of direct
taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138)
======== ======= ======== =======
Total operating contribution (loss), net of
direct taxes............................. $(35,627) $ 8,680 $(32,502) $14,238
======== ======= ======== =======
CORPORATE OVERHEAD:
Corporate interest expense, salaries and benefits,
occupancy, professional and other income and
expenses, net................................... $ (3,254) $(1,806) $ (7,878) $(2,318)
Deferred tax benefit (provision) from NOLs......... (5,000) 750 (5,003) 1,500
-------- ------- -------- -------
Net earnings (loss)................................ $(43,881) $ 7,624 $(45,383) $13,420
======== ======= ======== =======
</TABLE>
Total assets for each of the segments and a reconciliation to total assets
is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Mortgage assets............................................. $ 849,727 $1,413,799
Portfolio acquisition and resolution assets................. 88,175 114,596
Consumer assets............................................. 99,377 52,029
Deferred tax benefit........................................ 27,098 32,162
Other assets................................................ 45,274 51,391
---------- ----------
Total assets...................................... $1,109,651 $1,663,977
========== ==========
</TABLE>
10
<PAGE> 11
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 $34.1 million were used to retire
debt. 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. 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. As of June 30, 1999, there have been
no securities issued under this registration statement. At June 30, 1999,
accrued dividends on adjusting rate preferred stock totaled $.6 million, or
$.525 per share, and were paid on July 15, 1999. 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,
------------------- ------------------
1999 1998 1999 1998
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Net earnings (loss) to common shareholders............ $(44,523) $6,109 $(46,667) $10,390
======== ====== ======== =======
Weighted average common shares outstanding -- basic... 8,299 7,243 8,294 6,889
Effect of dilutive securities:
Assumed exercise of stock options................... -- 78 -- 76
Assumed exercise of warrants........................ -- 80 -- 80
-------- ------ -------- -------
Weighted average common shares
outstanding -- diluted.............................. 8,299 7,401 8,294 7,045
======== ====== ======== =======
Earnings (loss) before accounting change per common
share -- basic...................................... $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per common
share -- diluted.................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting change -- basic....... $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting change -- diluted..... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common share -- basic......... $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common share -- diluted....... $ (5.36) $ 0.83 $ (5.63) $ 1.47
</TABLE>
(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 realized. 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 result in substantial changes to the
estimated allowance required to value the deferred tax benefits recognized in
the Company's periodic financial statements. The Company's analysis for the
quarter ended June 30, 1999 resulted in an increase in the valuation allowance
of $5 million. Additional 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. Although realization is not assured,
management believes it is more likely than not that all of the recorded deferred
tax asset will be realized.
11
<PAGE> 12
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.
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, 1999, advances of $.7 million had been
made under the obligation.
(11) MORTGAGE BANKING OPERATIONS
Over the past nine months, the Company explored numerous strategic
alternatives regarding its mortgage banking operations, which is comprised of
FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and
FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included
obtaining a joint venture partner, new funding sources and/or sale or
liquidation of the businesses. Ultimately, the Company made the decision that
the operations of the mortgage segment do not fit the Company's long-term
strategy. As a result, the Company engaged independent advisory firms subsequent
to quarter end to assist with the sale of Mortgage Corp. and Capital Corp. The
due diligence process by prospective buyers has already begun at Mortgage Corp.
There can be no assurance that a satisfactory contract to sell either entity
will be received. To date, an exit plan has not been adopted. Accordingly, other
options, including liquidation, may be required in the future.
In the second quarter of 1999, the mortgage operations operating loss was
$41.4 million, comprised of a $6.6 million loss on sale of FHA/VA buyout assets
(netted against gain on sale of mortgage loans), an $11.3 million loss on sale
of mortgage servicing rights (including the provision for valuation of mortgage
servicing rights), $8.1 million in operating losses at Mortgage Corp., $9.1
million in writeoffs and reserves, including $1.8 million of goodwill related to
the 1997 acquisition of a commercial mortgage origination platform (included in
other expense), and a $1.4 million impairment in Home Equity residuals.
(12) 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
intercompany debt and dividends from the Company's subsidiaries, short-term
borrowings from revolving lines of credit, proceeds from equity market
transactions, securitization and other structured finance transactions and other
special purpose short-term borrowings.
In August, the Company completed the extension and renewal of its working
capital revolving line of credit with its revolving lenders ("Revolving
Lenders") in the amount of $93 million. In consideration of the additional
funding provided under the revolving line of credit, warrants for the purchase
of 250,000 shares of the Company's common stock were issued which are
exercisable over a ten year period at a strike price equal to the average
closing price for the Company's common stock for the month of August 1999. This
renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer")
and matures June 30, 2000. This facility requires the approval of the lenders
prior to payment of common and preferred dividends.
Previously, the Company announced that certain trigger and termination
events had occurred under the agreements with its credit enhancement provider on
the Consumer residual assets and the Consumer warehouse facility. The credit
enhancement provider has given the Company a waiver until September 15, 1999, of
the trigger and termination events subject to the following conditions: (1) all
excess cash flows
12
<PAGE> 13
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable to affiliates of Consumer under the securitizations will be escrowed by
the credit provider, (2) advances under the warehouse line will be reduced from
79.5% to 77% of the principal balances of the loans funded with total fundings
under the line limited to $11,500,000 for the thirty day period, (3) the
Corporate revolving lenders must agree to waive the default under the revolving
loan agreement related to the trigger event for a thirty day period, (4) the
Company and its subsidiaries will be required to cross-collateralize the
securitizations wrapped by the credit provider, (5) the servicing agreements
related to the wrapped securitizations will be made subject to thirty day
renewal periods. Additionally, these trigger events were events of default under
a $4.3 million credit facility secured by certain automobile residual assets.
The Company is currently working with this lender to waive such defaults.
Mortgage Corp. is currently in default on a payment in the approximate
amount of $5 million on a $14 million gestation facility and is working with the
lender to cure such defaults. As a result of this payment default and the net
worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of
its covenants contained in the $500 million warehouse facility. These defaults
also create defaults in Mortgage Corp's other credit facilities. Mortgage Corp.
is currently working with the syndicate lenders to receive waivers of these
defaults. If such waivers or cures are not obtained, funding under Mortgage
Corp's warehouse facilities could be halted. The Company's revolving credit
facility provides that the defaults by Mortgage do not constitute a default
under the Company's revolving credit facility unless they are not cured or
waived on or before September 15, 1999. In the event these defaults are not
waived or cured by September 15, 1999, they could have an adverse impact on the
Company's liquidity.
As described above, the Company has recently engaged independent advisory
firms to assist with the sale of Mortgage Corp. and Capital Corp. Assuming the
Company sells or liquidates its mortgage segment, and is able to cure or obtain
waivers of the defaults in its loan facilities described above, the Company
believes that the liquidity provided by its revolving credit facility, funding
from senior lenders in Acquisition Partnership investments, direct portfolio
investments and business acquisitions, securitizations of loans made by
Consumer, and other revenue generated by Consumer and Commercial Corp. will be
adequate to fund the Company's contemplated activities and liquidity needs. In
addition, the Company believes that after it has exited the mortgage business
that it will be able to raise capital through public debt equity offerings
(subject to limitations related to the preservation of the Company's NOLS).
13
<PAGE> 14
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 Banking"), 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 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 posted a loss of $43.9 million for the quarter ended June 30,
1999 and $45.4 million for the year-to-date. After dividends on the preferred
stock, the loss was $44.5 million or $5.36 per common share on a fully diluted
basis for the quarter and $46.7 million or $5.63 per common share on a fully
diluted basis year-to-date.
Over the past nine months, the Company explored numerous strategic
alternatives regarding its mortgage banking operations, which are comprised of
FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and
FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included
obtaining a joint venture partner, new funding sources and/or sale or
liquidation of the business. Ultimately, the Company made a decision that the
operations of the mortgage segment do not fit the Company's long-term strategy.
As a result, the Company engaged independent advisory firms to assist with the
sale of Mortgage Corp. and Capital Corp. The due diligence process by
prospective buyers has already begun at Mortgage Corp. There can be no assurance
that a satisfactory contract to sell either entity will be received. To date, an
exit plan has not been adopted. Accordingly, other options, including
liquidation, may be required in the future.
The major factors contributing to the second quarter loss were (dollars in
thousands):
<TABLE>
<S> <C>
Loss on the sale of FHA/VA buyout assets (reduces gain on
sale of mortgage loans)................................... $ 6,630
Loss on sale of mortgage servicing rights (includes
provision for valuation of mortgage servicing rights)..... 11,329
Operating losses at Mortgage................................ 8,085
Write-offs and reserves at Mortgage including goodwill
(included in other expense)............................... 9,107
Impairment in NAF originated Auto Receivable residuals...... 1,990
Impairment in Home Equity residuals......................... 1,363
An increase in the valuation allowance of the deferred tax
asset..................................................... 5,000
</TABLE>
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.
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, and the strategic changes in Mortgage Corp., period to
period comparisons of the Company's results of operations may not be meaningful.
14
<PAGE> 15
ANALYSIS OF REVENUES AND EXPENSES
The following table summarizes the revenues and expenses of each of the
Company's business lines and presents the operating contribution (loss) of each
business.
ANALYSIS OF REVENUES AND EXPENSES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
MORTGAGE BANKING:
Revenues:
Gain on sale of mortgage and other loans... $13,233.... $ 28,303 $ 39,874 $ 48,572
Net mortgage warehouse income.............. 3,529 2,395 9,486 4,117
Loss on sale of mortgage servicing
rights................................... (6,298) -- (8,693) --
Servicing fees............................. 4,227 5,588 10,370 10,282
Other...................................... 2,562 1,552 5,245 3,556
---------- ---------- ---------- ----------
Total................................. 17,253 37,838 56,282 66,527
Expenses:
Salaries and benefits...................... 23,232 17,216 45,128 30,151
Amortization of mortgage servicing
rights................................... 2,431 4,126 7,154 7,302
Provision for loan losses and residual
interests................................ 1,658 75 1,708 75
Provision for valuation of mortgage
servicing rights......................... 4,638 500 2,294 500
Interest on notes payables................. 1,750 486 3,778 987
Occupancy, data processing, communication
and other................................ 24,926 9,335 36,903 17,439
---------- ---------- ---------- ----------
Total................................. 58,635 31,738 96,965 56,454
---------- ---------- ---------- ----------
Operating contribution (loss) before direct
taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 10,073
========== ========== ========== ==========
Operating contribution (loss), net of direct
taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 9,984
========== ========== ========== ==========
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets..... $ 745 $ 2,839 $ 2,047 $ 5,936
Equity in earnings of Acquisition
Partnerships and Servicing Entities...... 2,798 1,523 5,442 4,737
Servicing fees............................. 779 666 1,757 1,395
Other...................................... 719 512 2,009 2,510
---------- ---------- ---------- ----------
Total................................. 5,041 5,540 11,255 14,578
Expenses:
Salaries and benefits...................... 613 1,100 2,034 2,267
Interest on notes payable.................. 1,038 1,336 2,090 2,812
Asset level expenses, occupancy, data
processing and other..................... 1,598 1,886 3,144 4,098
---------- ---------- ---------- ----------
Total................................. 3,249 4,322 7,268 9,177
---------- ---------- ---------- ----------
Operating contribution before direct taxes.... $ 1,792 $ 1,218 $ 3,987 $ 5,401
========== ========== ========== ==========
Operating contribution, net of direct taxes... $ 1,782 $ 1,223 $ 3,958 $ 5,392
========== ========== ========== ==========
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONSUMER LENDING:
Revenues:
Gain on sale of automobile loans........... $ 6,445 $ 2,434 $ 6,445 $ 2,434
Interest income............................ 3,445 2,659 6,850 5,225
Servicing fees and other................... 1,426 653 2,590 1,043
---------- ---------- ---------- ----------
Total................................. 11,316 5,746 15,885 8,702
Expenses:
Salaries and benefits...................... 1,667 1,292 3,200 2,404
Provision for loan losses and residual
interests................................ 1,939 500 1,962 2,852
Interest on notes payable.................. 736 939 1,403 1,819
Occupancy, data processing and other....... 3,001 1,658 5,097 2,765
---------- ---------- ---------- ----------
Total................................. 7,343 4,389 11,662 9,840
---------- ---------- ---------- ----------
Operating contribution (loss) before direct
taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138)
========== ========== ========== ==========
Operating contribution (loss), net of direct
taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138)
========== ========== ========== ==========
Total operating contribution (loss),
net of direct taxes................. $ (35,627) $ 8,680 $ (32,502) $ 14,238
========== ========== ========== ==========
CORPORATE OVERHEAD:
Corporate interest expense, salaries and
benefits, occupancy, professional and other
income and expenses, net................... $ (3,254) $ (1,806) $ (7,878) $ (2,318)
Deferred tax benefit (provision) from NOLs.... (5,000) 750 (5,003) 1,500
---------- ---------- ---------- ----------
Net earnings (loss)........................ (43,881) 7,624 (45,383) 13,420
Preferred dividends........................ (642) (1,515) (1,284) (3,030)
---------- ---------- ---------- ----------
Net earnings (loss) to common
shareholders........................ $ (44,523) $ 6,109 $ (46,667) $ 10,390
========== ========== ========== ==========
SHARE DATA:
Earnings (loss) before accounting change per
common share -- basic...................... $ (5.36) $ 0.84 $ (5.53) $ 1.51
Earnings (loss) before accounting change per
common share -- diluted.................... $ (5.36) $ 0.83 $ (5.53) $ 1.47
Cumulative effect of accounting
change -- basic............................ $ -- $ -- $ (0.10) $ --
Cumulative effect of accounting
change -- diluted.......................... $ -- $ -- $ (0.10) $ --
Net earnings (loss) per common
share -- basic............................. $ (5.36) $ 0.84 $ (5.63) $ 1.51
Net earnings (loss) per common
share -- diluted........................... $ (5.36) $ 0.83 $ (5.63) $ 1.47
Weighted average common shares outstanding --
basic...................................... 8,299 7,243 8,294 6,889
Weighted average common shares outstanding --
diluted.................................... 8,299 7,401 8,294 7,045
ORIGINATION AND OTHER FINANCIAL DATA:
Mortgage Corp.:
Origination of residential mortgage loans:
Conventional............................. $1,031,658 $1,584,727 $2,463,453 $2,945,592
Agency................................... 460,537 377,364 1,057,774 708,592
Home equity.............................. 53,062 89,022 115,406 147,284
Other.................................... 18,551 37,075 48,979 56,987
---------- ---------- ---------- ----------
Total................................. $1,563,808 $2,088,188 $3,685,612 $3,858,455
========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Origination of commercial mortgage loans:
Correspondent............................ $ 91,725 $ 67,985 $ 214,353 $ 181,250
Construction............................. 6,724 12,767 24,786 28,363
---------- ---------- ---------- ----------
Total................................. $ 98,449 $ 80,752 $ 239,139 $ 209,613
========== ========== ========== ==========
Capital Corp.:
Acquisition of Home Equity Loans........... $ 46,908 $ 69,312 $ 146,648 $ 105,728
Commercial Corp.:
Aggregate purchase price of assets
acquired................................. $ 58,017 $ 17,869 $ 67,996 $ 69,840
Proceeds from resolution................... 43,590 43,126 78,202 117,660
Consumer Corp.:
Aggregate acquisition of automobile and
other consumer receivables............... $ 55,008 $ 33,250 $ 108,744 $ 67,061
</TABLE>
MORTGAGE BANKING
The Company continued its efforts to "right-size" Mortgage Corp. Additional
sales of mortgage servicing rights occurred, including bulk sales totaling $1.1
billion and flow sales totaling $1.6 billion. Losses of $11.3 million were
recognized as a result of such sales. Additionally, Mortgage Corp. must incur
the cost to subservice the loans for the period between sale date and delivery
date, which averages approximately 90 days. At quarter end, Mortgage Corp. was
subservicing $4.5 billion, down from $5.1 billion at the end of the first
quarter.
Additionally, Mortgage Corp. was able to sell or close the majority of its
retail origination offices during the quarter, with a nominal gain realized on
the sales. Such offices generated operating losses of $1.2 million for the
quarter and $2.9 million year-to-date. Sales and closings of such offices and
other reductions resulted in a decrease of personnel in the mortgage operations.
This action allowed Mortgage Corp. to focus its originations solely from the
broker retail network at New America. Originations for the second quarter of
$1.7 billion dropped by 24% from the first quarter of 1999. The decrease
resulted from the elimination of the retail origination offices, as well as, a
significant rise in interest rates during the quarter. Monthly broker retail
production for the months of April, May and June were $544, $429 and $437
million, respectively.
During the second quarter Capital had originations of $46.9 million of home
equity loans, down from $100 million during the first quarter of 1999. Such
decrease is consistent with the Company's planned reduction in the level of
capital commitment to the mortgage business, as previously announced by the
Company at the end of the first quarter. At quarter end, the Capital held $184
million of home equity loans in inventory, and $23 million in home equity
residuals. No securitization transaction was planned or completed during the
quarter.
17
<PAGE> 18
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 SECOND JUNE 30,
QUARTER QUARTER -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
WAREHOUSE INVENTORY:
Average inventory balance.................. $ 809,869 $1,103,779 $ 919,391 $ 907,195
Net mortgage warehouse income:
Dollar amount........................... 3,529 2,395 9,486 4,117
Annualized percentage of average
inventory balance..................... 1.74% 0.87% 2.06% 0.91%
GAIN ON SALE OF MORTGAGE LOANS:
Gain on sale of mortgage loans as a
percentage of loans sold:
Residential............................. 0.55% 1.15% 0.81% 1.26%
Home Equity............................. 1.14% 4.43% 1.55% 4.59%
Securitized Home Equity................. -- 1.24% -- 1.24%
SERVICING REVENUES:
Average servicing portfolios:
Residential............................. $2,483,094 $5,621,502 $4,166,526 $5,119,061
Commercial.............................. 1,369,427 1,388,470 1,376,720 1,433,898
Sub-serviced............................ 5,085,168 1,099,795 4,936,430 960,261
Servicing fees:
Residential............................. $ 3,748 $ 5,123 $ 9,279 $ 9,407
Commercial.............................. 196 247 457 485
Sub-serviced............................ 283 218 634 390
---------- ---------- ---------- ----------
Total.............................. $ 4,227 $ 5,588 $ 10,370 $ 10,282
Annualized servicing fee percentage:
Residential............................. 0.60% 0.36% 0.45% 0.37%
Commercial.............................. 0.06% 0.07% 0.07% 0.07%
Sub-serviced............................ 0.02% 0.08% 0.03% 0.08%
Loss on sale of servicing rights........... $ 6,298 $ -- $ 8,693 $ --
Amortization of servicing rights:
Servicing rights amortization........... $ 2,431 $ 4,126 $ 7,154 $ 7,302
Servicing rights amortization as a
percentage of average residential
servicing portfolio (annualized)...... 0.39% 0.29% 0.34% 0.29%
PERSONNEL:
Personnel expense.......................... $ 23,232 $ 17,216 $ 45,128 $ 30,151
Number of personnel (at period end):
Production.............................. 232 511
Servicing............................... 302 146
Other................................... 576 710
---------- ----------
Total.............................. 1,110 1,367
========== ==========
</TABLE>
18
<PAGE> 19
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
Commercial Corp. acquired assets of $58 million during the quarter
comprised of one French portfolio and five domestic portfolios. Collections
during the quarter totaled $43.6 million. Collections and returns achieved on
assets acquired in France and Mexico continue to exceed expectations. Commercial
Corp. also acquired an interest in the French entity that performs the servicing
on the French portfolios. This move is expected to solidify Commercial Corp.'s
servicing relationship in France.
Additionally, Japan's Minister of Finance approved the servicing license
for Commercial Corp.'s Japanese joint venture, which should facilitate increased
portfolio acquisition activity in the future. Commercial Corp. also made its
first bid in Korea. Although unsuccessful, this represents an entrance, with a
significant New York based capital partner, into a promising market.
The following table presents selected information regarding the revenues
and expenses of Commercial Corp.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SECOND SECOND JUNE 30,
QUARTER QUARTER -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios.......................... $29,319 $42,201 $31,074 $46,005
Performing Portfolios............................. 15,554 13,177 19,166 14,956
Real estate Portfolios............................ 10,372 17,639 10,851 18,053
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios............................. $ 545 $ 1,626 $ 1,439 $ 3,889
Performing Portfolios............................. -- -- -- 299
Real estate Portfolios............................ 200 1,213 608 1,748
------- ------- ------- -------
Total........................................ $ 745 $ 2,839 $ 2,047 $ 5,936
======= ======= ======= =======
Interest income on performing Portfolios............. $ 599 $ 455 $ 1,487 $ 1,186
Gross profit percentage on resolution of Portfolio
Assets:
Nonperforming Portfolios.......................... 11.66% 20.37% 17.25% 21.97%
Performing Portfolios........................... -- -- -- 7.99%
Real estate Portfolios.......................... 14.45% 22.26% 22.69% 20.35%
Weighted average gross profit percentage........ 12.31% 21.74% 18.58% 19.77%
Interest yield on performing Portfolios
(annualized)................................. 15.40% 13.81% 15.52% 15.86%
SERVICING FEE REVENUES:
Acquisition partnerships........................ $ 760 $ 648 $ 1,693 $ 1,308
Affiliates...................................... 19 18 64 87
------- ------- ------- -------
Total........................................ $ 779 $ 666 $ 1,757 $ 1,395
======= ======= ======= =======
PERSONNEL:
Personnel expenses................................... $ 613 $ 1,100 $ 2,034 $ 2,267
Number of personnel (at period end):
Production........................................ 10 11
Servicing......................................... 63 70
------- -------
Total........................................ 73 81
======= =======
INTEREST EXPENSE:
Average debt................................. $56,012 $70,641 $58,664 $73,589
Interest expense............................. 1,038 1,336 2,090 2,812
Average yield (annualized)................... 7.41% 7.56% 7.13% 7.64%
</TABLE>
19
<PAGE> 20
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 SECOND JUNE 30,
QUARTER QUARTER -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Gain on resolution of Portfolio Assets................ $13,626 $9,110 $24,357 $27,643
Gross profit percentage on resolution of Portfolio
Assets............................................. 36.30% 30.30% 36.25% 31.55%
Interest income....................................... $ 3,248 $2,169 $ 6,584 $ 4,622
Other interest income................................. 978 163 1,139 333
INTEREST EXPENSE:
Interest expense...................................... $ 2,703 $3,016 $ 5,855 $ 6,957
Average yield (annualized)............................ 10.50% 7.03% 9.24% 7.04%
OTHER EXPENSES:
Servicing fees........................................ $ 1,071 $1,364 $ 2,509 $ 2,785
Legal................................................. 662 577 1,219 985
Property protection................................... 645 958 2,030 1,994
Other................................................. 2,774 1,667 4,087 6,895
------- ------ ------- -------
Total other expenses.......................... 5,152 4,566 9,845 12,659
------- ------ ------- -------
Net earnings.................................. $ 9,997 $3,860 $16,380 $12,982
======= ====== ======= =======
</TABLE>
CONSUMER LENDING
Consumer Corp. continued to perform as expected. In April, Consumer Corp.
completed a planned securitization of $55.8 million of auto receivables
resulting in a gain of $6.4 million. The loans purchased during the quarter were
purchased at an average discount to face value of 13.8% and carry a weighted
average coupon in excess of 19%. The defaults to date on assets acquired through
June 30, 1999 have totaled 8.7% of the total loans acquired. Actual losses on
these defaults have totaled 3.3% of the original loan balances at the time of
default. Delinquencies at quarter-end were 5.8% of the total serviced portfolio
of FirstCity Funding Corp. acquired loans. At the end of the quarter Consumer
Corp.'s balance sheet reflected $45 million of auto finance residuals. FirstCity
Funding Corp. originated $36 million of these residuals with the remainder
originated by NAF, the discontinued auto finance platform.
20
<PAGE> 21
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 SECOND JUNE 30,
QUARTER QUARTER ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Average loans and investments:
Auto........................................... $32,556 $45,697 $32,597 $51,085
Investments.................................... 46,480 22,677 45,430 18,278
Interest income:
Auto........................................... $ 1,900 $ 2,221 $ 3,898 $ 4,470
Investments.................................... 1,435 392 2,703 689
Average yield (annualized):
Auto........................................... 23.34% 19.44% 23.92% 17.50%
Investments.................................... 12.35% 6.91% 11.90% 7.54%
SERVICING FEE REVENUES.............................. $ 1,386 $ 584 $ 2,521 $ 968
PERSONNEL:
Personnel expenses................................ $ 1,667 $ 1,292 $ 3,200 $ 2,404
Number of personnel (at period end):
Production..................................... 130 67
Servicing...................................... 122 97
------- -------
Total..................................... 252 164
======= =======
INTEREST EXPENSE:
Average debt................................. $43,678 $41,521 $38,418 $41,158
Interest expense............................. 736 939 1,403 1,819
Average yield (annualized)................... 6.74% 9.05% 7.30% 8.84%
</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 result in substantial changes to the estimated allowance required to
value the deferred tax benefits recognized in the Company's periodic financial
statements. The Company's analysis for the quarter ended June 30, 1999 resulted
in an increase in the valuation allowance of $5 million. Additional 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. Although
realization is not assured, management believes it is more likely than not that
all of the recorded deferred tax asset will be realized.
21
<PAGE> 22
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 1999 COMPARED TO SECOND QUARTER 1998
The Company reported a net loss of $43.9 million (including a deferred tax
provision of $5.0 million) in 1999 compared to earnings of $7.6 million in 1998
(including a $0.8 million deferred tax benefit from NOLs). Net loss to common
shareholders was $44.5 million in 1999 compared to earnings of $6.1 million in
1998. On a per share basis, basic net loss attributable to common shareholders
was $5.36 in 1999 compared to earnings of $.84 in 1998. Diluted net loss per
common share was $5.36 in 1999 compared to earnings of $.83 in 1998.
Mortgage Banking
Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by
53% to $13.2 million in 1999 from $28.3 million in 1998. Although loan sales
were flat, the percentage gain declined from 1.23% in 1998 to 0.57% in 1999
because of increases in interest rates during the quarter and a $6.6 million
loss on sale of FHA/VA buyout assets.
Net mortgage warehouse income. Net mortgage warehouse income increased by
47% to $3.5 million in 1999 from $2.4 million in 1998. This is the result of a
significant increase in the spread between the interest rate on the underlying
mortgages and the interest cost of the warehouse credit facility.
Servicing fee revenues. Servicing fee revenues decreased by 24% to $4.2
million in 1999 from $5.6 million in 1998 as a result of a decrease in the size
of the owned residential servicing portfolio.
Other revenues. A $6.3 million loss on sale of mortgage servicing rights
was realized in the second quarter. Other revenues increased by 65% to $2.6
million in 1999 from $1.6 million in 1998 because of an increase in interest
income.
Operating expenses. Operating expenses of Mortgage Corp. increased by 85%
to $58.7 million in 1999 from $31.7 million in 1998 primarily as a result of
significant increases in the provision for mortgage servicing rights, personnel
and other costs.
Salaries and benefits increased by $6.0 million or 35% in 1999 reflecting a
growth in the platform from 1998. During the quarter, the majority of the retail
production offices were sold or closed.
Amortization of mortgage servicing rights decreased by $1.7 million or 41%
in 1999 as a result of the Company's strategy to reduce investment in servicing
rights.
A provision of $4.6 million for valuation of mortgage servicing rights was
recorded during the second quarter 1999.
Interest on notes payable (the portion not associated with Mortgage Corp.'s
warehouse credit facility) increased by $1.3 million or 260% due to higher
working capital borrowings during 1999.
Occupancy expense increased by $.8 million or 22% in 1999 as the result of
the opening or acquisition of several new offices in 1998 in the Broker Retail
and Direct Retail networks. Increases in data processing, communication and
other expenses in 1999 resulted primarily from $9.1 million for the write down
of assets deemed to be uncollectible and reserves for potential losses on assets
and $8.1 million of charges relating to the closing of retail offices.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $58.2 million of Portfolio Assets during 1999
for its own account and through the Acquisition Partnerships compared to $17.9
million in acquisitions in 1998. Commercial Corp.'s quarter end investment in
Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998.
22
<PAGE> 23
Commercial Corp. invested $4.5 million in equity in Portfolio Assets in 1999
compared to $8.4 million in 1998.
Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 54% to $6.1 million in 1999 from $13.1 million in
1998. The net gain on resolution of Portfolio Assets decreased by 74% to $.7
million in 1999 from $2.8 million in 1998 as the result of lower collections and
a lower gross profit percentage. The gross profit percentage on the resolution
of Portfolio Assets in 1999 was 12.3% as compared to 21.7% in 1998.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships increased by 25%
to $37.5 million in 1999 from $30.1 million in 1998 and the gross profit
percentage increased to 36.3% in 1999 from 30.3% in 1998. Interest income rose
$1.9 million. Other expenses of the Acquisition Partnerships increased by $.6
million in 1999 generally reflecting costs associated with the resolution of
Portfolio Assets in Mexico which generated proceeds of $1.5 million. The net
result was an overall increase in the net income of the Acquisition Partnerships
of 159% to $10.0 million in 1999 from $3.9 million in 1998. As a result,
Commercial Corp.'s equity earnings from Acquisition Partnerships increased by
84% to $2.8 million in 1999 from $1.5 million in 1998.
Servicing fee revenues. Servicing fees increased by 17% to $.8 million in
1999 from $.7 million in 1998 primarily as a result of collections from the
acquisition partnership in Mexico formed at year-end 1998.
Other revenues. Other revenues increased by 40% to $.7 million in 1999
compared to $.5 million in 1998 principally as a result of higher interest
income.
Operating expenses. Operating expenses declined by 25% to $3.2 million in
1999 from $4.3 million in 1998 primarily as a result of reduced personnel and
interest expense.
Salaries and benefits decreased by $.5 million or 44% in 1999 as a result
of staff reductions during the quarter.
Interest on notes payable declined $.3 million or 22% due to overall lower
cost of funds and lower debt levels.
Asset level expenses, occupancy, data processing and other expenses
decreased by 15% to $1.6 million in 1999 from $1.9 million in 1998 as a result
of lower investments in Portfolio Assets and the consolidation of servicing
offices in 1999.
Consumer Lending
Gain on sale of automobile loans. Consumer Corp. sold $55.8 million of
automobile loans in the second quarter and realized a gain of $6.4 million.
Interest and other income. Interest income increased by 30% to $3.4 million
in 1999 from $2.7 million in 1998, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 1999. Other income increased $.8
million or 118% due to increased service fee revenue from securitization trusts.
Interest expense. Interest expense decreased by 22% to $.7 million in 1999
from $.9 million in 1998 as a result of lower funding rates.
Operating expenses. Operating expenses increased by 67% to $7.3 million in
1999 from $4.4 million in 1998 primarily as a result of a significant increase
in the provision for impairment on residual interests and increased operating
activity.
Provision for impairment on residual interest increased by $2.0 million
from 1998 as a result of increased losses in NAF originated Auto Receivable
residuals.
Salaries and benefits increased by $.4 million or 29% and other expenses
increased $1.3 million or 81% as a result of the increased levels of operating
activity.
23
<PAGE> 24
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. Company level interest expense increased by 251% to
$1.9 million in 1999 from $.5 million in 1998 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. Salaries and benefits decreased 60% to $.3 million in 1999. Loan
fees and professional fees account for the majority of the $.2 million increase
in other overhead expenses, which increased due to higher borrowings and other
costs associated with outsourcing projects related to the Company's year 2000
initiative and other operational reviews. Additionally, during the second
quarter of 1998 the Company recognized $.4 million of deferred premium income
related to the redemption of Special Preferred Stock.
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.
The tax benefit of the NOLs is recorded in the period during which the benefit
is realized. The Company recorded a deferred tax provision from NOLs of $5.0
million in 1999 as compared to a benefit of $.8 million in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The Company reported a net loss of $45.4 million in 1999 (including a
deferred tax provision of $5.0 million) compared to earnings of $13.4 million in
1998 (including a $1.5 million deferred tax benefit from NOLs). Net loss to
common shareholders was $46.7 million in 1999 compared to earnings of $10.4
million in 1998. On a per share basis, basic net loss attributable to common
shareholders was $5.63 in 1999 compared to earnings of $1.51 in 1998. Diluted
net loss per common share was $5.63 in 1999 compared to earnings of $1.47 in
1998. An accounting change related to SOP 98-5 resulted in a loss of $.8 million
in the first six months of 1999 or $0.10 per share.
Mortgage Banking
Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by
18% to $39.9 million in 1999 from $48.6 million in 1998. Although loan sales
increased from $3.6 billion in 1998 to $4.8 billion in 1999, the percentage gain
declined from 1.35% in 1998 to 0.84% in 1999 because of a $6.6 million loss on
sale of FHA/VA buyout assets.
Net mortgage warehouse income. Net mortgage warehouse income increased by
130% to $9.5 million in 1999 from $4.1 million in 1998. This is the result of a
significant increase in the spread between the interest rate on the underlying
mortgages and the interest cost of the warehouse credit facility.
Servicing fee revenues. Servicing fee revenues were flat period to period.
Other revenues. An $8.7 million loss on sale of mortgage servicing rights
was realized in the first six months of 1999. Other revenues increased by 47% to
$5.2 million in 1999 from $3.6 million in 1998 because of a boost in interest
income.
Operating expenses. Operating expenses of Mortgage Corp. increased by 72%
to $97.0 million in 1999 from $56.5 million in 1998 primarily as a result of
significant increases in the provision for mortgage servicing rights, personnel
and other costs.
Salaries and benefits increased by $15.0 million or 50% in 1999 reflecting
a growth in the platform from 1998. During the period, the majority of the
retail production offices were sold or closed.
Amortization of mortgage servicing rights decreased as a result of the sale
of mortgage servicing rights. Interest on notes payable (the portion not
associated with Mortgage Corp.'s warehouse credit facility) increased due to
higher working capital borrowings during 1999. A provision of $2.3 million for
valuation of mortgaging servicing rights was recorded in the first six months of
1999.
24
<PAGE> 25
Occupancy expense increased by $2.1 million or 31% in 1999 as the result of
the opening or acquisition of several new offices in 1998 in the Broker Retail
and Direct Retail networks. Increases in data processing, communication and
other expenses in 1999 resulted from $9.1 million for the write down of assets
deemed to be uncollectible and reserves for potential losses on assets and $8.1
million of one-time charges relating to the closing of retail offices.
Portfolio Asset Acquisition and Resolution
Commercial Corp. purchased $68.0 million of Portfolio Assets during 1999
for its own account and through the Acquisition Partnerships compared to $69.8
million in acquisitions in 1998. Commercial Corp.'s quarter end investment in
Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998.
Commercial Corp. invested $7.0 million in equity in Portfolio Assets in 1999
compared to $17.1 million in 1998.
Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 63% to $11.0 million in 1999 from $30.0 million in
1998. The net gain on resolution of Portfolio Assets decreased by 66% to $2.0
million in 1999 from $5.9 million in 1998 as the result of lower collections.
The gross profit percentage on the resolution of Portfolio Assets in 1999 was
18.6% as compared to 19.8% in 1998.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships decreased by 23%
to $67.2 million in 1999 from $87.6 million in 1998 while the gross profit
percentage increased to 36.3% in 1999 from 31.6% in 1998. Interest income rose
$2.0 million in 1999. Other expenses of the Acquisition Partnerships decreased
by $2.8 million in 1999 generally reflecting costs associated with the
resolution of Portfolio Assets in Europe which generated proceeds of $37.4
million. The net result was an overall increase in the net income of the
Acquisition Partnerships of 26% to $16.4 million in 1999 from $13.0 million in
1998. As a result, Commercial Corp.'s equity earnings from Acquisition
Partnerships increased by 15% to $5.4 million in 1999 from $4.7 million in 1998.
Servicing fee revenues. Servicing fees increased by 26% to $1.8 million in
1999 from $1.4 million in 1998 primarily as a result of collections from the
acquisition partnership in Mexico formed at year-end 1998.
Other revenues. Other revenues decreased by 20% to $2.0 million in 1999
compared to $2.5 million in 1998 principally as a result of fewer acquisitions
during the year (which would generate lower due diligence recovery income).
Operating expenses. Operating expenses declined by 21% to $7.3 million in
1999 from $9.2 million in 1998 primarily as a result of reduced interest expense
and lower asset level expenses.
Salaries and benefits were relatively flat period to period.
Interest on notes payable declined $.7 million or 26% due to overall lower
cost of funds and lower debt levels.
Asset level expenses, occupancy, data processing and other expenses
decreased by 23% to $3.1 million in 1999 from $4.1 million in 1998 as a result
of lower investments in Portfolio Assets and the consolidation of servicing
offices in 1999.
Consumer Lending
Gain on sale of automobile loans. In the first six months of 1999, Consumer
Corp. realized a gain of $6.4 million on the sale of automobile loans as
compared to $2.4 million in 1998.
Interest and other income. Interest income increased by 31% to $6.9 million
in 1999 from $5.2 million in 1998, reflecting increased levels of loan
origination activity and an increase in the average balance of aggregate loans
and investments held by Consumer Corp. during 1999. Other income increased $1.5
million or 148% due to increased service fee revenue from securitization trusts.
Interest expense. Interest expense decreased by 23% to $1.4 million in 1999
from $1.8 million in 1998 as a result of lower funding costs.
25
<PAGE> 26
Operating expenses. Operating expenses increased by 19% to $11.7 million in
1999 from $9.8 million in 1998 primarily as a result of increased operating
activity.
Provision for loan losses and impairment on residual interests decreased by
$.9 million or 31% from 1998 as a result of a reduction in loan loss provision
of $2.9 million when compared to 1998, offset by the provision on impairments on
residual assets increased by $2.0 million over 1998.
Salaries and benefits increased by $.8 million or 33% and other expenses
increased $2.3 million or 84% as a result of the increased levels of operating
activity.
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. Company level interest expense increased by 238% to
$3.7 million in 1999 from $1.1 million in 1998 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. Salary and benefits decreased 22% to $1.3 million in 1999. Loan
fees and professional fees account for the majority of the $1.1 million increase
in other overhead expenses, which increased due to higher borrowings and other
costs associated with outsourcing projects related to the Company's year 2000
initiative and other operational reviews, as well as a write-off of $.5 million
of organization costs in accordance with SOP 98-5. Additionally, during the
first six months of 1998 the Company recognized $1.7 million of deferred premium
income related to the redemption of Special Preferred Stock.
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.
The tax benefit of the NOLs is recorded in the period during which the benefit
is realized. The Company recorded a deferred tax provision from NOLs of $5.0
million in 1999 as compared to a benefit of $1.5 million in 1998.
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
intercompany 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.
The Company has completed the extension and renewal of its working capital
revolving line of credit with its revolving lenders ("Revolving Lenders") in
August 1999 in the amount of $93 million. In consideration of the additional
funding provided under the revolving line of credit, warrants for the purchase
of 250,000 shares of the Company's common stock were issued which are
exercisable over a ten year period at a strike price equal to the average
closing price for the Company's common stock for the month of August 1999. This
renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer")
and matures June 30, 2000. This facility requires the approval of the lenders
prior to payment of common and preferred dividends.
Previously, the Company announced that certain trigger and termination
events had occurred under the agreements with its credit enhancement provider on
the Consumer residual assets and the Consumer warehouse facility. The credit
enhancement provider has given the Company a waiver until September 15, 1999, of
the trigger and termination events subject to the following conditions: (1) all
excess cash flows payable to affiliates of Consumer under the securitizations
will be reserved by the credit enhancement provider, (2) advances under the
warehouse line will be reduced from 79.5% to 77% of the principal balances of
the loans funded with total fundings under the line limited to $11,500,000 for
the thirty day period, (3) the Corporate revolving lenders must agree to waive
the default under the revolving loan agreement related to the
26
<PAGE> 27
trigger event for a thirty day period, (4) the Company and its subsidiaries will
be required to cross-collateralize the securitizations wrapped by the credit
enhancement provider, (5) the servicing agreements related to the wrapped
securitizations will be made subject to thirty day renewal periods.
Additionally, these trigger events were events of default under a $4.3 million
credit facility secured by certain automobile residual assets. The Company is
currently working with this lender to waive such defaults.
Mortgage Corp. is currently in default on a payment in the approximate
amount of $5 million on a $14 million gestation facility and is working with the
lender to cure such defaults. As a result of this payment default and the net
worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of
its covenants contained in the $500 million warehouse facility. These defaults
also create defaults in Mortgage Corp.'s other credit facilities. Mortgage Corp.
is currently working with the syndicate lenders to receive waivers of these
defaults. If such waivers or cures are not obtained, funding under the Mortgage
Corp. warehouse facilities could be halted. The Company's revolving credit
facility provides that the defaults by Mortgage do not constitute a default
under the Company's revolving credit facility unless they are not cured or
waived on or before September 15, 1999. In the event these defaults are not
waived or cured by September 15, 1999, they could have an adverse impact on the
Company's liquidity.
As described above, the Company has recently engaged independent advisory
firms to assist with the sale of Mortgage Corp. and Capital Corp. Assuming the
Company sells or liquidates its mortgage segment, and is able to cure or obtain
waivers of the defaults in its loan facilities described above, the Company
believes that the liquidity provided by its revolving credit facility, funding
from senior lenders in Acquisition Partnership investments, direct portfolio
investments and business acquisitions, securitizations of loans made by
Consumer, and other revenue generated by Consumer and Commercial Corp. will be
adequate to fund the Company's contemplated activities and liquidity needs. In
addition, the Company believes that after it has exited the mortgage business
that it will be able to raise capital through public debt equity offerings
(subject to limitations related to the preservation of the Company's NOLS).
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, 1999, the Company and its subsidiaries had credit
facilities providing for borrowings in an aggregate principal amount of $1.9
billion and outstanding borrowings of $931 million. The following table
summarizes the material terms of the credit facilities to which the Company, its
major operating subsidiaries and the Acquisition Partnerships were parties as of
August 13, 1999 and the outstanding borrowings under such facilities as of June
30, 1999.
CREDIT FACILITIES
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Credit
Facility.............. $ 93 $ 76 Prime + 1.0% to Secured by the assets of the Company, expires
Prime + 4% June 30, 2000*
Term fixed asset
facility.............. 1 1 Prime + 1.0% Secured by certain fixed assets, expires
January 1, 2001
Term credit facility.... 10 10 LIBOR + 5.0% Secured by stock of an acquisition partnership
and certain residual interests, expires
February 20, 2000
MORTGAGE CORP.
Warehouse facilities.... 500 364 LIBOR + 1.375% Revolving line to warehouse residential
to 2.5% mortgage loans, expires May 27, 2000*
Supplemental warehouse
facilities............ 62 41 LIBOR + 1.75% Revolving line to warehouse residential
to 2.75% mortgage loans and related receivables, expires
May 27, 2000
Gestation facilities.... 860 148 Fed Funds + 0.8% Open facilities to fund committed loans to FNMA
to 1.05% and and others*
LIBOR + 0.5%
to 0.8%
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL BORROWINGS AS OF
AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- ---------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
CAPITAL CORP.
Warehouse facility...... 200 177 LIBOR + 1.50% Acquisition facility to acquire Home Equity
to 3.00% Loans, expires March 31, 2000
Repurchase agreement.... 7 7 LIBOR + 4.00% Repurchase agreement secured by residual
interests in Home Equity securitized loans,
expires November 10, 1999
COMMERCIAL CORP.
Term facility........... 65 65 LIBOR + 4.0% Term facility secured by existing Portfolio
Assets, expires April 30, 2000 (includes $55
million advanced to unconsolidated Acquisition
Partnerships).
French and Japanese
acquisition
facility.............. 4 14 French franc Acquisition facility to fund equity investments
LIBOR + 3.5% in French and Japanese Portfolio Assets,
Japanese yen expires March 31, 2000. Guaranteed by
LIBOR + 3.5% Commercial Corp. and the Company. Paid down and
curtailed to $4 million in August, 1999.
Term acquisition
facilities............ 30 30 Fixed at 7.00% Acquisition facilities for existing Portfolio
to 7.66% Assets. Secured by Portfolio Assets. Expires
February 25, 2003 and June 5, 2002 and November
7, 2002
</TABLE>
<TABLE>
CONSUMER CORP.
<S> <C> <C> <C> <C>
Warehouse facility...... 100 44 Rate equal to the Commercial paper conduit warehouse facility
mixed rate of secured by automobile receivables, expires
LIBOR and March 30, 2000*
commercial paper
rates
Repurchase Agreement.... 3 3 LIBOR + 3% Repurchase agreement secured by residual
interests in automobile securitized loans,
expires November 10, 1999
Term facility........... 6 6 Prime + 1% Term facility secured by residual interests in
automobile securitized loans, expires March 15,
2000
Unconsolidated
Acquisition
Partnerships Term
acquisition
facilities............ 74 74 Fixed at 4.5% to Senior and subordinated loans secured by
13%, LIBOR + Portfolio Assets, various maturities
3.0% to 5.0% and
Prime + 1.0%
</TABLE>
- ---------------
* See discussions above.
RELIANCE ON SYSTEMS; YEAR 2000 ISSUES
The Year 2000 Issue consists of shortcomings of many electronic data
processing systems that make them unable to process year-date data accurately
beyond the year 1999. The primary shortcoming arises because computer
programmers have abbreviated dates by eliminating the first two digits of the
year under the assumption that these digits would always be 19. Another
shortcoming is caused by the routine used by some computers for calculating leap
year does not detect that the year 2000 is a leap year. This inability to
process dates could potentially result in a system failure or miscalculation
causing disruptions in the Company's operations or performance.
The potential problems posed by this issue affect the Company's internal
business-critical systems ("internal systems") upon which the Company depends.
This includes information technology systems and applications ("IT"), as well as
non-IT systems and equipment with embedded technology, such as fax machines and
telephone systems. Examples of internal IT systems includes accounting systems
such as general ledger, loan servicing systems, cash management systems and loan
origination systems. In addition to the internal systems, the Company may be at
risk from Year 2000 failures caused by or occurring to third parties. Some third
parties have significant direct business relationships with the Company. These
parties include borrowers, lenders, investors who buy the Company's loan
products and outside system vendors such as Alltel, Inc., the primary data
processing provider for the servicing of Mortgage Corp's loans.
28
<PAGE> 29
The Company's Year 2000 Initiative
The Company, with the assistance of a consulting firm that specializes in
Year 2000 readiness, is conducting an enterprise-wide Year 2000 initiative that
encompasses both the internal systems and exposure to third parties. For the
Company's internal systems, the initiative is being approached in four phases
comprised of assessment, remediation, testing and contingency planning. While
there is considerable overlap in the timing of the four phases, the internal
assessment phase was completed in March 1999 within the $135,000 budget
allocated for this phase. The components (i.e., hardware and software) of all
internal systems have been identified and the Year 2000 readiness assessed.
The Company has identified its third party business relationships and is
conducting a letter writing campaign to obtain written representations of Year
2000 readiness from the mission critical and significant third party business
relationships. At present, approximately 1000 letters have been mailed with 42%
of the entities responding including both mission critical and non-mission
critical relationships. At this time 59% of the mission critical business
relationships have responded with 92% of those indicating that they are Year
2000 ready or have Year 2000 plans in place and 8% responded with insufficient
data regarding Year 2000 readiness. The letter writing campaign to assess third
party relationships will continue throughout the remainder of 1999 and it is
anticipated that a significant number of positive Year 2000 readiness responses
will be received in the third and fourth quarters.
A comprehensive remediation and testing plan along with a budget of
approximately $1,500,000 for the remainder of the Year 2000 project was
presented and approved by the Board of Directors of the Company on April 15,
1999. Within this budget, approximately $165,000 is for computer hardware and
software that must be replaced or upgraded and the remainder is for personnel
costs (employees, external consultants and travel expenses). All estimated costs
have been budgeted and will be funded by cash flows from operations.
Remediation of mission critical infrastructure components began in January
1999 and has been completed as of June 30, 1999. Infrastructure is defined as
Servers, Workstations, Operating Systems and Network Operating Systems. Mission
critical vendor supplied applications have been upgraded to the vendor's
disclosed Year 2000 ready release with the exception of the Company's PC based
General Ledger software packages. The Year 2000 ready versions of the General
Ledger packages are scheduled for implementation in July and September 1999. The
PC General Ledger accounting systems will be replaced by the implementation of
PeopleSoft Financials in the third quarter of 1999. Mission critical custom
applications written and/or maintained by the Company have been remediated and
are in the process of verification testing. Test plans have been written for
these applications and testing will be completed by August 31, 1999.
Non IT systems, including fax machines, copiers and building mechanical
systems are also being addressed. Fax and copy machines have been identified by
model number and manufacturer have been contacted using the third party/vendor
letters requesting their for Year 2000 readiness. Properties owned or occupied
by the Company's business units are managed by individual property management
companies who have been contacted as to the readiness of the mechanical systems
within those buildings. To date no critical Non-IT systems or equipment with
embedded technology have been identified as having Year 2000 related issues that
will have a significant impact on business operations.
In addition to being included in the Company's initiative described above,
Mortgage Corp. participated in the Year 2000 Inter-Industry Test sponsored by
the Mortgage Bankers Association ("MBA Test"). Other participants in the MBA
Test were from a cross section of the top industry participants including
originators, servicers, mortgage insurers, service bureaus, investors and
software vendors. Mortgage Corp.'s primary data processing vendor, Alltel, Inc.,
and FNMA, Mortgage Corp.'s primary investor, were also participants. The
objective of the test was to prove that the interaction with common mortgage
industry trading partners is acceptable in a year 2000+ environment. The test
covered 17 types of transactions that fall under the three primary mortgage
processes: origination, secondary marketing, and servicing. The test was
completed April 30,
29
<PAGE> 30
1999 within the $102,400 budget allotted. While this test will not replace
internal testing, it does provide additional assurance to Mortgage Corp. and the
other participants that the readiness of their systems, many of which are
directly interfaced, are subjected to independent verification.
Based on the Company's remediation efforts, responses received and testing
to date, it is not anticipated that any internal or third party Year 2000
readiness issues will materially affect the Company. The Company expects to have
a comprehensive Year 2000 contingency plan in place by the third quarter of
1999. In general, contingency plans will be developed to replace any significant
third party service providers or internal systems that have not completed their
Year 2000 initiative and disclosed their readiness to the Company by the third
quarter of 1999. Contingency planning also involves a comprehensive risk
assessment in order to maintain focus on critical business relationships and
systems. Contingency planning with respect to third parties will continue
throughout the remainder of 1999.
The cost of the Year 2000 initiative and the dates by which the Company
anticipates completion of its Year 2000 plan are based on management's best
estimates, which are derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. Unanticipated failures by critical third
parties, as well as the failure by the Company to execute its own remediation
and testing efforts, could have a material adverse effect on the cost of the
initiative and its completion date. As a result, there can be no assurance that
these forward-looking estimates will be achieved and the actual cost and third
party compliance could differ materially from those plans, resulting in material
financial risk.
Potential Risks
Currently, there is uncertainty as to the ultimate success of global
remediation efforts, including the efforts of entities that provide services to
large segments of society such as airlines, utilities and securities exchanges.
There could be short term or longer-term disruptions in segments of the economy
that could impact the Company. Due to the uncertainty with respect to how the
Year 2000 issue will affect business and government, it is not possible to list
all potential problems or risks to the Company.
The Company believes that the most reasonably likely worst case scenarios
that could have adverse effects on the Company are the failures of third
parties, particularly residential mortgage loan borrowers, its lenders and the
investors who purchase its mortgage and consumer loan products. The Company's
residential mortgage and consumer loan borrowers could be affected by any
adverse impact on the general economy that could cause a rise in delinquencies.
Lenders, who provide funds used by the Company to acquire assets, might be
adversely affected, disrupting the flow of funds, which could have an adverse
impact on the Company's ability to make new loans. Likewise, a disruption in
services by investors such as FNMA could have an adverse impact on the Company's
ability to sell loans, which would result in significant reductions in operating
activities.
Any Year 2000 factors that might impact borrowers' abilities to repay their
obligations relate to the failure of global remediation efforts over which the
Company has no influence. The Company's lenders and investors, most of which
operate in highly regulated industries, are among the largest such institutions
in the world. These institutions are under government regulatory mandates to
achieve full readiness prior to the end of 1999. The Company believes that it is
unlikely that these institutions will fail to achieve readiness within a
reasonable time frame; however, the Company will continue to monitor their
readiness and maintain an ongoing contingency plan.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q or
incorporated by reference from time to time, including, but not limited to,
statements relating to the Company's strategic objectives and future
performance, which are not historical fact, may be deemed to be forward-looking
statements under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
project, indicate or imply future results, performance or achievements, and may
contain the words "expect", "intend", "plan", "estimate", "believe", "will be",
"will continue", "will likely result",
30
<PAGE> 31
and similar expressions. Such statements inherently are subject to a variety of
risks and uncertainties that could cause actual results to differ materially
from those projected. There are many important factors that could cause the
Company's actual results to differ materially from those indicated in the
forward-looking statements. Such factors include, but are not limited to, the
impact of certain covenants in loan agreements of the Company and its
subsidiaries; the degree to which the Company is leveraged; its need for
financing; the continued availability of the Company's credit facilities;
capital markets conditions, including the markets for asset-backed securities
and commercial mortgage-backed securities; the performance of the Company's
subsidiaries and affiliates; availability of net operating loss carryforwards;
risks associated with rapid growth and entry into new businesses; general
economic conditions; interest rate risk; prepayment speeds; delinquency and
default rates; credit loss rates; changes (legislative and otherwise) in the
asset securitization industry; risk of securitization; demand for the Company's
services; residential and commercial and other real estate values; changes in
foreign political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, the ability to attract and retain
qualified and key personnel; dependence on independent mortgage brokers and
automobile dealership relationships, the Company's Year 2000 issues; factors
more fully discussed and identified under Item 2 Management's Discussion and
Analysis of Financial Condition and Results of Operations, risk factors and
other risks identified in the Company's current report on Form 10-K, filed March
31, 1999 and other Securities and Exchange Commission filings. Many of these
factors are beyond the Company's control. In addition, it should be noted that
past financial and operational performance of the Company is not necessarily
indicative of future financial and operational performance. Given these risks
and uncertainties, investors should not place undue reliance on forward-looking
statements. The forward-looking statements in this Report speak only as of the
date of this Report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any
forward-looking statement is based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Company's earnings are materially impacted by net gains on
sales of loans and net interest margins. The level of gains from loan sales the
Company achieves is dependent on demand for the products originated. Net
interest margins are dependent on the Company to maintain the spread or interest
differential between the interest it charges the customer for loans and the
interest the Company is charged for the financing of those loans. The following
describes each component of interest bearing assets held by the Company and how
each could be effected by changes in interest rates.
Portfolio assets consist of investments in pools of non-homogenous assets
that predominantly consist of loan and real estate assets. Earnings from these
assets are based on the estimated future cash flows from such assets and
recorded when those cash flows occur. The underlying loans within these pools
bear both fixed and variable rates. Due to the non-performing nature and history
of these loans, changes in prevailing bench-mark rates (such as the prime rate
or LIBOR) generally have a nominal effect on the ultimate future cash flow to be
realized from the loan assets. Furthermore, these pools of assets are held for
sale, not for investment; therefore, the disposition strategy is to liquidate
these assets as quickly as possible.
The sub-prime loans the Company sells generally are included in asset
backed securities the investor or purchaser issues. These securities are priced
at spreads over the LIBOR or an equivalent term treasury security. These spreads
are determined by demand for the security. Demand is affected by the perception
of credit quality and prepayment risk associated with the loans the Company
originates and sells. Interest rates offered to customers also affect prices
paid for loans. These rates are determined by review of competitors rate
offerings to the public and current prices being paid to the Company for the
products. The Company does not hedge these price risks.
Prices paid for prime loans, primarily mortgage loans held for sale, are
impacted by movements in interest rates. The Company mitigates this risk by
locking in prices with its investors as the customer locks in the price with the
Company, thus allowing the Company to maintain its margin. Generally, if
interest rates rise
31
<PAGE> 32
significantly, home sales and refinancing will decline adversely affecting the
Company's prime mortgage loan production.
The Company's residual interests in securitizations represent the present
value of the excess cash flows the Company expects to receive over the life of
the underlying sub-prime mortgage or automobile loans. The value of the
sub-prime mortgage residual interest is adversely affected by prepayment, losses
and delinquencies due to the longer term of the underlying assets and the value
would be negatively impacted by an increase in short-term rates, as a portion of
the cash flows fluctuate monthly based upon the one-month LIBOR. The sub-prime
automobile residual interests is affected less by prepayment speeds due to the
shorter term of the underlying assets and the fact that the loans are fixed
rate, generally at the highest rate allowable by law.
The Company's investment in mortgage servicing rights is based on weighted
average service fee rates and assumed prepayment speeds. Changes in prevailing
mortgage interest rates contribute to changes in the prepayment assumptions of
servicing rights, thus causing increases to the value of the servicing rights
when mortgage rates increase and decreases in value when mortgage rates
decrease.
Additionally the Company has various sources of financing which have been
previously described in the Liquidity Capital Resources section of Item 2.
In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact prime mortgage production and the value of the residual
interests in the securitization and declining prices for the Company's sub-prime
loans would adversely effect the levels of gains achieved upon the sale of those
loans.
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<PAGE> 33
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 12, 1999. The following items of business were considered at the Annual
Meeting.
(a) Election of Directors
The following were elected as directors to serve as members of the
Company's Board of Directors until the Company's 2000 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............................................ 5,674,587 0 129,912
C. Ivan Wilson.............................................. 5,674,591 0 120,908
James T. Sartain............................................ 5,674,591 0 120,908
Rick R. Hagelstein.......................................... 5,674,591 0 120,908
Buddy L. Terrell............................................ 5,618,204 0 177,295
Richard E. Bean............................................. 5,674,475 0 121,024
Dane Fulmer................................................. 5,674,591 0 120,908
Robert E. Garrison II....................................... 5,674,591 0 120,908
David W. MacLennan.......................................... 5,674,591 0 120,908
Thomas E. Smith............................................. 5,674,591 0 120,908
</TABLE>
(b) Ratification of Appointment of Auditors
A proposal to ratify the Board of Directors' appointment of KPMG LLP as the
Company's independent auditors for 1999 was approved by the shareholders. The
number of votes for the proposal: 5,748,525; votes witheld: 39,528; abstentions:
7,446.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report
on form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith. (incorporated herein by reference to Exhibit 4.3
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 26, 1998).
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 24, 1998).
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation. (incorporated
herein by reference to Exhibit 9.1 of the Company's Form
10-K dated March 24,1998 filed with the Commission on
March 26, 1998).
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10,7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
10.10 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated
herein by reference to Exhibit 10.11 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ConiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
10.23 -- 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. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated dated August 14, 1998, filed with the Commission
August 16, 1998).
10.24 -- 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. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated dated August 14, 1998, filed with the
Commission August 16, 1998).
10.25 -- Security and Collateral 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. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, LLC and
NationsBank , N.A. (incorporated herein by reference to
Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables LLC, FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A. (incorporated herein by
reference to Exhibit 10.32 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- Credit agreement dated effective as of May 28, 1999 made
by and among Harbor Financial Mortgage, New America
Financial, Inc., FirstCity Financial Mortgage
Corporation, and Guaranty Federal Bank F.S.B. as
Administrative Agent and Bank One, Texas, N.A. as
Collateral Agent.
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
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.)
</TABLE>
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant
with the Securities Exchange Commission during the quarterly period ended June
30, 1999.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRSTCITY FINANCIAL CORPORATION
By /s/ JAMES T. SARTAIN
-----------------------------------
Name: James T. Sartain
Title: President and Chief Operating
Officer and Director
(Duly authorized officer of
the Registrant)
By /s/ GARY H. MILLER
-----------------------------------
Name: Gary H. Miller
Title: Senior Vice President and
Chief Financial Officer
(Duly authorized officer and
principal financial officer
of the Registrant)
By /s/ JAMES B. BAKER
-----------------------------------
Name: James B. Baker
Title: Vice President and Controller
(Duly authorized officer and
principal accounting officer
of the Registrant)
Dated: August 16, 1999
38
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company. (incorporated herein by
reference to Exhibit 4.1 to the Company's Current Report
on form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.2 -- Warrant Agreement, dated July 3, 1995, by and between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
4.3 -- Registration Rights Agreement, dated July 1, 1997, among
the Company, Richard J. Gillen, Bernice J. Gillen, Harbor
Financial Mortgage Company Employees Pension Plan,
Lindsey Capital Corporation, Ed Smith and Thomas E.
Smith. (incorporated herein by reference to Exhibit 4.3
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 26, 1998).
4.4 -- Stock Purchase Agreement, dated March 24, 1998, between
the Company and Texas Commerce Shareholders Company.
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission on March 26, 1998).
4.5 -- Registration Rights Agreement, dated March 24, 1998,
between the Company and Texas Commerce Shareholders
Company. (incorporated herein by reference to Exhibit 4.5
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission on March 24, 1998).
9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995,
among ATARA I Ltd., James R. Hawkins, James T. Sartain
and Cargill Financial Services Corporation. (incorporated
herein by reference to Exhibit 9.1 of the Company's Form
10-K dated March 24,1998 filed with the Commission on
March 26, 1998).
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.7 -- Modification Agreement, dated January 26, 1998, to the
Amended and Restated Facilities Agreement, dated as of
December 3, 1997, among Harbor Financial Mortgage
Corporation, New America Financial, Inc. and Chase Bank
of Texas, National Association (formerly known as Texas
Commerce Bank National Association). (incorporated herein
by reference to Exhibit 10,7 of the company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional
Warehouse Note, dated March 17, 1998, by Harbor Financial
Mortgage Corporation and New America Financial, Inc., in
favor of Chase Bank of Texas, National Association.
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.9 -- Employment Agreement, dated as of July 1, 1997, by and
between Harbor Financial Mortgage Corporation and Richard
J. Gillen. (incorporated herein by reference to Exhibit
10.9 of the Company's 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.10 -- Employment Agreement, dated as of September 8, 1997, by
and between FirstCity Funding Corporation and Thomas R.
Brower, with similar agreements between FC Capital Corp.
and each of James H. Aronoff and Christopher J.
Morrissey. (incorporated herein by reference to Exhibit
10.10 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.11 -- Shareholder Agreement, dated as of September 8, 1997,
among FirstCity Funding Corporation, FirstCity Consumer
Lending Corporation, Thomas R. Brower, Scot A. Foith,
Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves,
Stephen H. Trent and Blake P. Bozman. (incorporated
herein by reference to Exhibit 10.11 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Revolving Credit Loan Agreement, dated as of March 20,
1998, by and between FC Properties, Ltd. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.12 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.13 -- Revolving Credit Loan Agreement, dated as of February 27,
1998, by and between FH Partners, L.P. and Nomura Asset
Capital Corporation. (incorporated herein by reference to
Exhibit 10.13 of the Company's Form 10-K dated March 24,
1998 filed with the Commission March 26, 1998).
10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque
Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque
Investment Realty Partners, L.P. and Bankers Trust
Company of California, N.A. (incorporated herein by
reference to Exhibit 10.14 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated
September 25, 1997, by J-Hawk International Corporation
in favor of the Bank of Scotland. (incorporated herein by
reference to Exhibit 10.15 of the Company's Form 10-K
dated March 24, 1998 filed with the Commission March 26,
1998).
10.16 -- Loan Agreement, dated as of September 25, 1997, by and
between Bank of Scotland and J-Hawk International
Corporation. (incorporated herein reference to Exhibit
10.16 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.17 -- Guaranty Agreement, dated as of September 25, 1997, by
J-Hawk (incorporated herein by reference to Exhibit 10.17
of the Company's Form 10-K dated March 24, 1998 filed
with the Commission March 26, 1998).
10.18 -- Guaranty Agreement, dated as of September 25, 1997, by
FirstCity Financial Corporation in favor of Bank of
Scotland. (incorporated herein by reference to Exhibit
10.18 of the Company's Form 10-K dated March 24, 1998
filed with the Commission March 26, 1998).
10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996,
among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust
and National Auto Funding Corporation. (incorporated
herein by reference to Exhibit 10.19 of the Company's
Form 10-K dated March 24, 1998 filed with the Commission
March 26, 1998).
10.20 -- Funding Commitment, dated as of May 17, 1996 by and
between ConiTrade Services L.L.C. and The Company.
(incorporated herein by reference to Exhibit 10.20 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.21 -- Revolving Credit Agreement, dated as of December 29,
1995, by and between the Company and Cargill financial
Services Corporation, as amended by the Eighth Amendment
to Revolving Credit Agreement dated February 1998.
(incorporated herein by reference to Exhibit 10.21 of the
Company's Form 10-K dated March 24, 1998 filed with the
Commission March 26, 1998).
10.22 -- Master Repurchase Agreement Governing Purchased and Sales
of Mortgage Loans, dated as of July 1998, between Lehman
Commercial Paper Inc. and FHB Funding Corp. (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission
August 18, 1998).
10.23 -- 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. (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
dated dated August 14, 1998, filed with the Commission
August 16, 1998).
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.24 -- 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. (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q dated dated August 14, 1998, filed with the
Commission August 16, 1998).
10.25 -- Security and Collateral 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. (incorporated herein by reference to Exhibit
10.4 of the Company's Form 10-Q dated August 14, 1998,
filed with the Commission August 16, 1998).
10.26 -- Loan Agreement, dated as of July 24, 1998, between
FirstCity Commercial Corporation and CFSC Capital Corp.
XXX (incorporated herein by reference Exhibit 10.5 of the
Company's Form 10-Q dated August 14, 1998, filed with the
Commission on August 18, 1998).
10.27 -- Loan Agreement, dated April 8, 1998 between Bank of
Scotland and the Company (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
dated August 14, 1998, filed with the Commission on
August 18, 1998)
10.28 -- First Amendment to Loan Agreement, dated July 20, 1998,
between Bank of Scotland and the Company (incorporated
herein by reference to Exhibit 10.7 of the Company's Form
10-Q dated August 14, 1998, filed with the Commission on
August 18, 1998).
10.29 -- Employment Agreement, dated October 1, 1998, by and
between FirstCity. Financial Mortgage Corporation, and
Buddy L. Terrell (incorporated herein by reference to
Exhibit 10.29 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.30 -- Security Agreement, dated as of April 30, 1998 among
Enterprise Funding Corporation, FCAR Receivables L.L.C.,
MBIA Insurance Corporation, FirstCity Funding
Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a
Loan Servicing enterprise (incorporated herein by
reference to Exhibit 10.30 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, LLC and
NationsBank , N.A. (incorporated herein by reference to
Exhibit 10.31 of the Company's Form 10-Q dated May 17,
1999, filed with the commission on May 17, 1999).
10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR
Receivables LLC, FirstCity Funding Corporation,
NationsBank, N.A., Enterprise Funding Corporation and
Chase Bank of Texas, N.A. (incorporated herein by
reference to Exhibit 10.32 of the Company's Form 10-Q
dated May 17, 1999, filed with the commission on May 17,
1999).
10.33 -- Credit agreement dated effective as of May 28, 1999 made
by and among Harbor Financial Mortgage, New America
Financial, Inc., FirstCity Financial Mortgage
Corporation, and Guaranty Federal Bank F.S.B. as
Administrative Agent and Bank One, Texas, N.A. as
Collateral Agent.
10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999
between Bank of Scotland and the Company.
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.)
</TABLE>
<PAGE> 1
- -------------------------------------------------------------------------------
HARBOR FINANCIAL MORTGAGE CORPORATION
AND
NEW AMERICA FINANCIAL, INC.
("Obligors"),
FIRSTCITY FINANCIAL MORTGAGE CORPORATION
("Guarantor")
and
GUARANTY FEDERAL BANK, F.S.B.,
in its capacity as one of the Banks
and as Administrative Agent for the other Banks,
BANC ONE CAPITAL MARKETS, INC.,
as Syndication Agent, Lead Arranger
and Sole Book Runner,
BANK ONE, TEXAS, N.A.,
in its capacity as one of the Banks
and as Collateral Agent for the other Banks
PNC BANK KENTUCKY, INC.,
in its capacity as one of the Banks
and as Co-Agent for the other Banks
COMERICA BANK
in its capacity as one of the Banks
and as Co-Agent for the other Banks
CREDIT AGREEMENT
Effective as of May 28, 1999
- -------------------------------------------------------------------------------
<PAGE> 2
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
"Acquisition Cost".............................................................15
"Adjusted Balances".............................................................1
"Adjusted LIBOR Rate"...........................................................1
"Adjusted Tangible Net Worth"...................................................1
"Administrative Agent".......................................................1, 2
"Affiliate" ....................................................................2
"Agents" .......................................................................2
"Agreement" ....................................................................1
"Allocated Commitment Price"...................................................15
"Applicable Margin".............................................................2
"Approved Servicing Purchaser"..................................................3
"Approved Servicing Sale Contract"..............................................3
"Bank One" ..................................................................1, 3
"Banks" ........................................................................1
"Business Day" .................................................................3
"Ceiling Rate" .................................................................3
"Change of Control".............................................................4
"Chapter 1D" ...................................................................3
"Claim Under Loan Guaranty"....................................................38
"CLTV" ......................................................................5, 9
"Collateral"....................................................................5
"Collateral Agent"..............................................................5
"Collateral Proceeds".......................................................5, 79
"Commitments Lapse Provision"...............................................5, 48
"Commitments Schedule"..........................................................5
"Committed Sum" ................................................................5
"Company" ......................................................................1
"Compliance Certificate"........................................................5
"Conventional Mortgage Loan"....................................................5
"Current SR Appraisal"..........................................................1
"Current SR Appraisal Date".....................................................1
"Debt" .........................................................................6
"Default" ..................................................................6, 48
"Defective Mortgage"............................................................6
"EDI" ......................................................................6, 38
"Effective Date" ...............................................................1
"Eligible Mortgage".........................................................6, 81
"Eligible Other Loan"...........................................................8
"Eligible Receivables"......................................................9, 37
"Eligible Servicing Held for Sale ".............................................9
"Eligible Servicing Portfolio"..................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
"Eligible Servicing Portfolio Balance".........................................9
"Eligible Servicing Sale Receivables"..........................................9
"ERISA"........................................................................9
"ERISA Affiliate" ............................................................10
"Eurodollar Base Rate"........................................................10
"Eurodollar Rate".............................................................10
"Eurodollar Rate Loan"........................................................10
"Eurodollar Reserve Requirement"..............................................10
"Facility"....................................................................10
"Facility Limit" ........................................................10, 28
"Federal Funds Effective Rate"................................................10
"FHA"..........................................................................7
"FHA Loans" ..................................................................11
"FHLMC" .......................................................................6
"Financial Statements"........................................................11
"FNMA" ........................................................................6
"Foreclosed Properties Loans".............................................11, 31
"Foreclosed Properties Mortgages".........................................11, 35
"Foreclosed Properties Sub-subline".......................................11, 31
"Foreclosed Properties Sublimit"..........................................11, 31
"Foreclosed Property".....................................................11, 31
"Foreclosure Receivables Loans"...........................................11, 31
"Foreclosure Receivables Sub-subline".....................................11, 31
"Foreclosure Receivables Sublimit"........................................11, 31
"Free Adjusted Balances"......................................................11
"Funding Accounts"............................................................11
"Funding Share" ..............................................................11
"GAAP" .......................................................................11
"GFB"..........................................................................1
"GFB Balances" ...............................................................12
"GNMA" ........................................................................6
"Governmental Authority"......................................................12
"Guarantor" ...............................................................1, 12
"Guaranty" ...................................................................12
"Harbor Funding Account"......................................................12
"HUD" ........................................................................12
"ICF Agreement" ..............................................................12
"In Default" .................................................................12
"Interest Period" ............................................................12
"Investments" ............................................................13, 68
"Investor Commitment".........................................................13
"Jumbo Mortgage Loan".........................................................13
"Laws" .......................................................................13
"LIBOR".......................................................................13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
"LIBOR Rate Loan" .........................................................................13
"Lien" ....................................................................................13
"Loan".....................................................................................13
"Loan Documents" ..........................................................................13
"Loan Request" ............................................................................14
"Loan Servicing Agreement".................................................................14
"Loan Servicing Rights"....................................................................14
"Majority Banks" ..........................................................................14
"Market Value" ............................................................................14
"Master Warehouse Notes"...............................................................14, 33
"Material Adverse Effect"..................................................................15
"Mortgage-Backed Security".................................................................15
"Mortgage Loans"...........................................................................15
"Mortgage Loan Value"......................................................................15
"Mortgage Repurchase Loans"............................................................16, 31
"Mortgage Repurchase Loan Value"...........................................................16
"Mortgage Repurchase Sublimit".........................................................16, 31
"Mortgage Repurchase Subline"..........................................................16, 31
"Mortgages"............................................................................16, 35
"Mortgage Warehouse Loan"..................................................................16
"Net Worth" ...............................................................................16
"New Am Funding Account"...................................................................16
"New Am Inc." ..............................................................................1
"Nonconforming Mortgage Loan"..............................................................16
"Notice for Election to Convey and/or Invoice for Transfer of Property.....................38
"Obligations" .............................................................................16
"Obligor Order" ...........................................................................16
"Obligors" .................................................................................1
"Order" ...............................................................................17, 72
"Other Loan Sublimit"......................................................................32
"Other Loan Subline"...................................................................17, 32
"Other Loan Subline Loan"..............................................................17, 32
"Other Loan Value".........................................................................17
"Owned Servicing Rights"...................................................................17
"P&I Loans" ...........................................................................17, 30
"P&I Sub-subline" .....................................................................17, 31
"P&I Sublimit" ........................................................................17, 31
"Par Value" ...........................................................................15, 17
"PBGC" ....................................................................................17
"Permitted Facilities Agreements"..........................................................17
"Person" ..................................................................................18
"Plan" ....................................................................................18
"Pledged Mortgages"........................................................................18
"PMI" ......................................................................................7
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
"Pool" ................................................................................18, 28
"Potential Default"....................................................................18, 48
"Property" ................................................................................18
"Qualified Investment Securities"..........................................................18
"Qualified Investor".......................................................................19
"Ratably" .................................................................................19
"Rate Designation Date"....................................................................20
"Receivables Advances Loans"...........................................................20, 30
"Receivables Advances Sublimit"........................................................20, 30
"Receivables Advances Subline".........................................................20, 30
"Receivables Claim"........................................................................20
"Receivables Loan Values"..................................................................20
"Receivables Security Agreement"...........................................................21
"Regulation Q" ............................................................................21
"Released Persons".....................................................................21, 71
"Replacement Date".........................................................................82
"Reportable Event".........................................................................21
"Repurchased Defaulted Mortgage"...........................................................21
"Required Documents".......................................................................21
"Residential Mortgage File".................................................................6
"Residential Mortgage Note".................................................................6
"Residential Mortgage".....................................................................21
"Retiring Bank" ...........................................................................21
"Seasoned Pledged Mortgage"................................................................15
"Second-Lien Loans"....................................................................22, 30
"Second-Lien Sublimit".................................................................22, 30
"Second-Lien Subline"..................................................................22, 30
"Secondary Syndication"....................................................................76
"Serviced Mortgages".......................................................................22
"Servicing Held for Sale Loans"........................................................22, 32
"Servicing Held for Sale Loan Value".......................................................22
"Servicing Held for Sale Sublimit".........................................................32
"Servicing Held for Sale Subline"..........................................................32
"Servicing Rights".........................................................................22
"Servicing Rights Security Agreement"......................................................22
"Servicing Sale Receivable Loans"......................................................22, 32
"Servicing Sale Receivable Loan Value".....................................................22
"Servicing Sale Receivable Sublimit".......................................................32
"Servicing Sale Receivable Subline"........................................................32
"Settlement Account".......................................................................22
"Single Family Application for Insurance Benefits".........................................38
"Special Damages" .........................................................................89
"Standard Financial Statements"............................................................23
"Stated Rate" .............................................................................23
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
"Stock Pledge Agreement"...................................................................23
"Sub-sublines" ........................................................................23, 28
"Sublines" ............................................................................23, 28
"Subordinated Debt"........................................................................23
"Subsidiary" ..............................................................................24
"Super Jumbo Mortgage Loan"................................................................24
"Swing Loans" .........................................................................24, 29
"Swing Sublimit" ......................................................................24, 29
"Swing Subline" .......................................................................24, 29
"T&I Loans" ...........................................................................24, 30
"T&I Sub-subline" .....................................................................24, 31
"T&I Sublimit" ........................................................................24, 31
"Tangible Net Worth".......................................................................24
"Texas Finance Code"....................................................................3, 25
"Total Debt" ..............................................................................25
"Transaction Claim"....................................................................25, 88
"UCC" .....................................................................................25
"Uniform Single Audit Program for Mortgage Bankers"........................................58
"VA"........................................................................................7
"VA Loans" ................................................................................25
"Warehouse Collateral".................................................................25, 35
"Warehouse Facility Fee"...............................................................25, 35
"Warehouse Facility Fee Rate"..............................................................25
"Warehouse Final Termination Date".....................................................25, 35
"Warehouse Line".......................................................................25, 27
"Warehouse Line Commitments"...........................................................25, 35
"Warehouse Loan Value".................................................................25, 36
"Warehouse Note".......................................................................25, 33
"Warehouse Notes" .........................................................................26
"Warehouse Pledge Agreement"...............................................................26
"Warehouse Termination Date"...........................................................26, 28
"weekly ceiling" ...........................................................................3
"Wet Mortgage Loan"........................................................................26
"Wet Warehousing Loans"................................................................26, 29
"Wet Warehousing Sublimit".............................................................26, 29
"Wet Warehousing Subline"..............................................................26, 29
</TABLE>
v
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article 1. Certain Definitions...................................................................1
Article 2. The Warehouse Line...................................................................27
Section 2.1 General Terms for the Warehouse Line and its Sublines and
Sub-sublines..........................................................27
Section 2.2 The Warehouse Line....................................................28
Section 2.3 Sublines and Sub-subline defined......................................29
Section 2.4 Warehouse Line Term...................................................32
Section 2.5 Master Warehouse Notes................................................33
Section 2.6 Warehouse Notes Interest Accrual and Payment..........................33
Section 2.7 Warehouse Notes' Due Date.............................................33
Section 2.8 Warehouse Notes Voluntary Prepayments.................................33
Section 2.9 Warehouse Notes Mandatory Payments....................................33
Section 2.10 Warehouse Line Security...............................................35
Section 2.11 Warehouse Facility Fee................................................35
Section 2.12 Agency and Syndication Fees...........................................36
Section 2.13 Amount the Obligors May Borrow Against Each Eligible Mortgage;
Investor Commitment Coverage and Weekly Reports of Coverages
Required; Mortgage Loan Value.........................................36
Section 2.14 Borrowing Procedures..................................................36
Section 2.15 Determination Assumptions.............................................41
Section 2.16 Refinancings of Swing-Line Loans......................................41
Section 2.17 Releases of Sold or Securitized Pledged Mortgages.....................42
Section 2.18 Mandatory Prepayments or Collateral Substitutions for Ineligible
Mortgages.............................................................43
Section 2.19 Mandatory Prepayments or Collateral Substitutions for Ineligible
Foreclosed Property Collateral........................................43
Section 2.20 Title Insurance, Recording Foreclosed Properties Mortgages............44
Section 2.21 Disposition of Foreclosed Properties..................................44
Section 2.22 Partial Releases of Foreclosed Properties.............................44
Article 3. Interest Rate Election Provisions....................................................45
Section 3.1 Interest Rate Elections...............................................45
Section 3.2 Inadequacy of Pricing and Rate Determination..........................45
Section 3.3 Funding Losses........................................................46
Section 3.4 Determinations........................................................46
Section 3.5 Affiliates............................................................46
Section 3.6 Funding Decision......................................................46
Section 3.7 Rate of Return Maintenance Covenant...................................46
Section 3.8 Illegality of Eurodollar Rate Loans; Inability to Determine
LIBOR Rate............................................................47
</TABLE>
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<TABLE>
<S> <C> <C>
Article 4. Funding Provisions..............................................................47
Section 4.1 Commitments Lapse Provision......................................47
Section 4.2 Application of Proceeds of Realization on Collateral.............48
Section 4.3 Application of Setoff Proceeds...................................48
Section 4.4 Conditions Precedent.............................................48
Article 5. The Obligors' Warranties and Representations....................................51
Section 5.1 Organization.....................................................51
Section 5.2 Corporate Action.................................................52
Section 5.3 No Violations....................................................52
Section 5.4 Approved Lender, Seller and Servicer.............................52
Section 5.5 Obligors are not an Investment Company or Controlled by One......52
Section 5.6 Obligors' Legal Compliance.......................................52
Section 5.7 Financial Statements Accurate....................................52
Section 5.8 Litigation.......................................................53
Section 5.9 Payment of Taxes.................................................53
Section 5.10 Title to Properties..............................................53
Section 5.11 Eligibility of Collateral........................................53
Section 5.12 Year 2000 Compliance.............................................54
Article 6. Defaults and Remedies...........................................................54
Section 6.1 Note Payment Default.............................................54
Section 6.2 Covenant Default.................................................54
Section 6.3 Default on Other Obligation......................................54
Section 6.4 Violation of Law.................................................54
Section 6.5 False Representation or Warranty.................................54
Section 6.6 Undischarged Final Judgment......................................55
Section 6.7 Lien Claimed or Held Invalid.....................................55
Section 6.8 Disposition, Encumbrance or Loss of Collateral...................55
Section 6.9 Liquidation, Etc. Order..........................................55
Section 6.10 Default under Other Loan Documents...............................55
Section 6.11 Assignment for the Benefit of Creditors, Voluntary Bankruptcy....55
Section 6.12 Involuntary Proceeding...........................................55
Section 6.13 General Failures, Writ of Attachment, Etc. ......................56
Section 6.14 Fraudulent Concealment or Removal................................56
Section 6.15 Dissolution, Etc.................................................56
Section 6.16 Change of Control................................................56
Section 6.17 Material Adverse Change..........................................56
Article 7. Affirmative Covenants...........................................................57
Section 7.1 Use of Proceeds..................................................57
Section 7.2 Promptly Correct Escrow Imbalances...............................57
Section 7.3 Financial Statements and Other Reports...........................57
Section 7.4 Maintenance of Existence, Conduct of Business....................60
</TABLE>
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<TABLE>
<S> <C> <C>
Section 7.5 Compliance with Applicable Laws..................................60
Section 7.6 Perform Agreement................................................60
Section 7.7 Books............................................................60
Section 7.8 Investor Commitments.............................................61
Section 7.9 Notice...........................................................61
Section 7.10 Pay Debt, Taxes, Etc. ...........................................61
Section 7.11 Insurance........................................................62
Section 7.12 Other Loan Obligations...........................................62
Section 7.13 Covenants Concerning Collateral..................................62
Section 7.14 Employee Benefit Plans...........................................63
Section 7.15 Benefit Plan Obligations.........................................64
Section 7.16 Further Assurances...............................................64
Article 8. Negative Covenants..............................................................65
Section 8.1 No Change of Business............................................65
Section 8.2 No Other Investments.............................................65
Section 8.3 No Other Debt....................................................65
Section 8.4 Limitation on Dividends..........................................65
Section 8.5 Minimum Adjusted Tangible Net Worth..............................66
Section 8.6 Maximum Debt to Adjusted Tangible Net Worth......................66
Section 8.7 Limitations on Transactions with Affiliates......................66
Section 8.8 Limitation on Unmarketable Loans.................................67
Section 8.9 No Uncovered Commercial Loans, Etc...............................68
Section 8.10 Loss of Eligibility..............................................68
Section 8.11 Fiscal Year Accounting...........................................68
Section 8.12 Loans, Advances and Investments..................................68
Section 8.13 Actions with Respect to Pledged Mortgages........................69
Section 8.14 Cancellation of Loan Servicing Rights............................69
Section 8.15 Continuous Compliance............................................69
Article 9. Agreements Concerning the Administrative Agent and the Banks....................70
Section 9.1 Authorization and Action.........................................70
Section 9.2 Employment of Others by the Administrative Agent.................71
Section 9.3 No Liability.....................................................71
Section 9.4 Reliance.........................................................72
Section 9.5 Qualifications of the Administrative Agent.......................72
Section 9.6 Resignation of the Administrative Agent..........................73
Section 9.7 Removal of the Administrative Agent..............................73
Section 9.8 Effective Date of Resignation or Removal.........................74
Section 9.9 Successor Agent..................................................74
Section 9.10 Merger of the Administrative Agent...............................74
Section 9.11 Banks' Credit Decisions..........................................75
Section 9.12 Indemnification..................................................75
Section 9.13 Rights as Bank...................................................76
Section 9.14 Benefit of Article IX............................................76
</TABLE>
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<TABLE>
<S> <C> <C>
Section 9.15 No Representations...............................................76
Section 9.16 Participation; Assignment........................................76
Section 9.17 Loan Requests; Payments..........................................78
Section 9.18 Application of Collateral Proceeds...............................79
Section 9.19 Information Concerning Other Banks...............................79
Section 9.20 Expense Reimbursement............................................79
Section 9.21 Rights of Individual Banks.......................................80
Section 9.22 Notice to the Administrative Agent...............................81
Section 9.23 No Partnership...................................................81
Section 9.24 Amendments and Modifications.....................................81
Section 9.25 Replacement of Retiring Bank.....................................82
Section 9.26 Replacement Banks Replace Retiring Banks.........................82
Section 9.27 Termination of Retiring Bank's Commitment........................83
Section 9.28 Syndication Agent................................................83
Article 10. Miscellaneous..................................................................83
Section 10.1 No Waiver........................................................83
Section 10.2 Notices..........................................................83
Section 10.3 Governing Law, Jurisdiction and Venue............................84
Section 10.4 Survival; Successors and Assigns.................................85
Section 10.5 Counterparts.....................................................85
Section 10.6 Usury Not Intended; Credit or Refund of Any Excess Payments......85
Section 10.7 Expenses.........................................................86
Section 10.8 Indemnification..................................................87
Section 10.9 Entire Agreement.................................................87
Section 10.10 Accounting Terms.................................................87
Section 10.11 Severability.....................................................88
Section 10.12 Domicile of Loan.................................................88
Section 10.13 Disclosures......................................................88
Section 10.14 Release of Transaction Claims....................................88
Section 10.15 Notice Pursuant to Section 26.02 of the Tex. Bus. & Comm. Code...88
Section 10.16 Waiver of Jury Trial, Punitive Damages, etc......................88
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") dated effective as of May 28,
1999 (the "Effective Date") made by and among (a) HARBOR FINANCIAL MORTGAGE
CORPORATION (the "Company"), a Texas corporation; (b) NEW AMERICA FINANCIAL,
INC. ("New Am Inc."), a Texas corporation that is a wholly-owned subsidiary of
the Company (the Company and New Am Inc. being the "Obligors"); (c) GUARANTY
FEDERAL BANK, F.S.B. ("GFB"), a federal savings bank, in its capacity as one of
the Banks and as Administrative Agent (it and its successors in that capacity
being called the "Administrative Agent") for the other Banks; (d) BANK ONE,
TEXAS, N.A. ("Bank One"), in its capacity one of the Banks and as Collateral
Agent, (e) the other lenders (together with GFB and Bank One, the "Banks") that
are signatories and parties to this Agreement from time to time, and (f)
FIRSTCITY FINANCIAL MORTGAGE CORPORATION ("Guarantor"), a Delaware corporation;
The parties hereto hereby agree as follows:
ARTICLE 1. CERTAIN DEFINITIONS
In addition to the terms defined elsewhere in the text of this
Agreement, these terms are defined as follows:
"Adjusted Balances" means, for any calendar month that month's daily
average of all collected balances in all non-interest bearing accounts
maintained by the Obligors with GFB during that month (although the Obligors
shall have no obligation whatsoever to maintain any deposits with GFB) less
amounts necessary (a) to satisfy reserve and deposit insurance requirements
allocable to that month and (b) to compensate GFB for services rendered to the
Obligors for that month, with each element calculated in accordance with GFB's
system of allocating reserve and deposit insurance requirements and charges for
services and as that system may be changed from time to time without notice,
excluding the Funding Account.
"Adjusted LIBOR Rate" means for any day a rate per annum that on any
day is equal to the quotient of (a) LIBOR for that day divided by (b) 1.00
minus the Eurodollar Reserve Requirement (if any) for one (1) day loans,
rounded upwards, if necessary, to the nearest 1/100 of 1%.
"Adjusted Tangible Net Worth" means, with respect to the Obligors and
on any day:
(a) the Obligors' aggregate Tangible Net Worth on that day;
plus: (b) one hundred percent (100%) of the aggregate appraised
value, as determined in accordance with Section 7.3(e)(2) by the most
recent quarterly independent appraisal (the "Current SR Appraisal") of
the Obligors' Eligible Servicing Portfolio as it existed on the
effective date of such appraisal (the "Current SR Appraisal Date").
<PAGE> 12
"Administrative Agent" means GFB as Administrative Agent hereunder and
its permitted successors and assigns.
"Affiliate" means and includes, with respect to a specified Person,
any other Person:
(a) that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control
with the specified Person;
(b) that is a director, trustee, general partner or executive
officer of the specified Person or serves in a similar capacity in
respect of the specified Person;
(c) that, directly or indirectly through one or more
intermediaries, is the beneficial owner of ten percent (10%) or more
of any class of equity securities of the specified Person; or
(d) of which the specified Person is directly or indirectly
the owner of ten percent (10%) or more of any class of equity
securities.
"Agents" means the Administrative Agent and the Collateral Agent.
"Applicable Margin" means:
(a) for outstanding Mortgage Warehouse Loans that are not Wet
Warehousing Loans, plus one and three-eighths percent (+1.375%);
(b) for outstanding Wet Warehousing Loans, plus one and
five-eighths percent (+1.625%);
(c) for Swing Loans, plus the Applicable Margin for the
actual type of Loan requested, which is initially deemed to be a Swing
Loan;
(d) for Second-Lien Loans, plus one and five-eighths percent
(+1.625%);
(e) for P&I Loans, plus one and five-eighths percent
(+1.625%);
(f) for T&I Loans, plus one and five-eighths percent
(+1.625%);
(g) for Foreclosure Receivables Loans, plus one and
five-eighths percent (1.625%);
(h) for Foreclosed Properties Loans, plus one and
five-eighths percent (+1.625%); and
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<PAGE> 13
(i) for Mortgage Repurchase Loans, plus one and five-eighths
percent (+1.625%);
(j) for Servicing Held for Sale Loans, plus two percent
(+2.000%);
(k) for Servicing Sale Receivable Loans, plus one and
three-fourths percent (+1.750%); and
(l) for Other Loans, plus three percent (+3.000%);
PROVIDED THAT IF AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING,
THE APPLICABLE MARGIN FOR EACH TYPE OF LOAN DESCRIBED ABOVE SHALL BE
INCREASED BY TWO PERCENT (2%) PER ANNUM.
"Approved Servicing Purchaser" means any of the Persons listed on
Schedule 6 or any other Person which meets the credit guidelines established by
Majority Banks and which is approved in writing by Administrative Agent.
"Approved Servicing Sale Contracts" means the flow contracts for the
sale of Servicing Rights for Mortgage Loans to each Approved Servicing
Purchaser as in effect on the date hereof, and any other such contracts
hereafter approved by Majority Banks.
"Bank One" means Bank One, Texas, N.A., in its individual capacity.
"Business Day" means any day other than Saturday, Sunday or a day (a)
which is a legal holiday in Dallas, Texas, (b) on which neither Agent nor any
of the Banks is authorized or obligated by Law or executive order to close or
(c) when dealings in dollar deposits are not carried out in the relevant
interbank dollar market.
"Ceiling Rate" means on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas law
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that applicable Texas law establishes the Ceiling Rate, the Ceiling Rate
shall be the "weekly ceiling" as defined in Chapter 303 of the Texas Finance
Code (the "Texas Finance Code") and Chapter 1D of Title 79, Texas Rev. Civ.
Stats. 1925 ("Chapter 1D"), as amended, respectively, for that day. The Banks
may from time to time, as to current and future balances, implement any other
ceiling under the Texas Finance Code or Chapter 1D by the Administrative
Agent's giving notice to the Company if and to the extent permitted by the
Texas Finance Code or Chapter 1D.
"Chapter 1D" is defined in the definition of "Ceiling Rate".
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<PAGE> 14
"Change of Control" means and includes:
(a) in respect of the Company:
(1) a sale of the Company's stock or a sale of
substantially all of the Company's assets to any Person or
related group of Persons;
(2) without the Administrative Agent's and the
Majority Banks' prior written consent, any merger or
consolidation of the Company with or into (A) another Person
with the effect that the Guarantor holds less than one
hundred percent (100%) of the total voting power entitled to
vote in the election of directors, managers or trustees of
the survivor of such merger or consolidation or (B) the
Guarantor;
(3) the occurrence of any event after which the
Guarantor no longer owns at least the majority of the total
voting power entitled to vote in the election of the
Company's directors;
(4) Rick R. Hagelstein is no longer the chairman of
the board of the Company; or
(5) Company's liquidation or dissolution; and
(b) in respect of New Am Inc.:
(1) a sale of New Am Inc.'s stock or a sale of
substantially all of New Am Inc.'s assets to any Person or
related group of Persons;
(2) without the Administrative Agent's and the
Majority Banks' prior written consent, any merger or
consolidation of New Am Inc. with or into (A) another Person
with the effect that the Company holds less than the majority
of the total voting power entitled to vote in the election of
directors, managers or trustees of the survivor of such
merger or consolidation or (B) the Company;
(3) the occurrence of any event after which the
Company no longer owns at least the majority of the total
voting power entitled to vote in the election of New Am
Inc.'s directors;
(4) Rick R. Hagelstein is no longer the chairman of
the board and chief executive officer of New Am Inc; or
(5) New Am Inc.'s liquidation or dissolution; and
(c) in respect of the Guarantor:
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<PAGE> 15
(1) a sale of the Guarantor's stock or a sale of
substantially all of the Guarantor's assets to any Person or
related group of Persons;
(2) FirstCity Financial Corporation no longer
directly or indirectly owns and controls at least ninety
percent (90%) of the total voting power entitled to vote in
the election of directors, managers or trustees of the
survivor of such merger or consolidation; or
(3) Rick R Hagelstein is no longer the chairman of
the board of Guarantor; or
(4) the Guarantor's liquidation or dissolution.
"CLTV" is defined in the definition of Eligible Other Loan.
"Collateral" means, on any day, the Obligors' or Guarantor's Property
deposited with or held by or for the Collateral Agent, the Administrative Agent
or any Bank in which the Collateral Agent or the Administrative Agent, for the
benefit of the Banks, is granted a Lien pursuant to this Agreement or any other
Loan Documents or any guaranties of the Obligations.
"Collateral Agent" means Bank One, in its capacity as Collateral Agent
hereunder, and its permitted successors and assigns.
"Collateral Proceeds" is defined in Section 9.18.
"Commitments Lapse Provision" is defined in Section 4.1.
"Commitments Schedule" means the dated schedule of the Banks'
respective Commitments attached to this Agreement, as it may be superseded (or
amended and restated) from time to time by a later-dated schedule approved in
writing by Bank One, on behalf of Banc One Capital Markets, Inc. as Syndication
Agent, the Administrative Agent and the Obligors.
"Committed Sum" means the maximum amount a Bank has committed to lend
to the Obligors under this Agreement. The amount of each Bank's Committed Sum
for each Facility is stated on that Bank's dated signature page to this
Agreement or the latest amendment, supplement or restatement of this Agreement
which it has signed, whichever is the latest dated signature page signed by
that Bank.
"Compliance Certificate" means the document in the form of Exhibit F,
to be completed from time to time by the Obligors pursuant to Section 7.3(f).
"Conventional Mortgage Loan" means a Residential Mortgage evidenced by
a Residential Mortgage Note, the payment of which is not guaranteed by VA or
insured by FHA.
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<PAGE> 16
"Debt" means, with respect to any Person and on any day the sum
(without duplication) on that day of (a) all of that Person's debt (1) for
borrowed money, (2) for the deferred purchase price of Property or services, or
(3) that is evidenced by a bond, debenture, note or other instrument plus (b)
any debt secured by any Lien existing on any interest of that Person in
Property owned subject to such Lien whether or not that Person is liable for
the debt secured thereby, plus (c) all of that Person's obligations under all
capitalized leases, (d) all of that Person's obligations under all guaranties,
endorsements and other contingent obligations in respect of, or any obligations
to purchase or otherwise acquire, Debt of others (other than Mortgage Loans)
and (e) all of that Person's obligations in respect of letters of credit,
acceptances, or similar obligations issued or created for the account of such
Person.
"Default" is defined in Section 4.1.
"Defective Mortgage" is a Residential Mortgage that was initially sold
to a Qualified Investor in connection with the sale of the related Mortgage
Loan and that is required to be repurchased by such Obligor from such Qualified
Investor and that is otherwise acceptable to Agents for inclusion in Mortgage
Repurchase Loan Value.
"EDI" is defined in Section 2.14(d)(2)(A).
"Eligible Mortgage" means a Residential Mortgage that is:
(a) evidenced by a promissory note (the "Residential Mortgage
Note") payable (either originally or by one or more endorsements) to
the order of and owned and held by either Obligor (whichever is
pledging it to borrow against it under the Warehouse Line) and duly
endorsed in blank or if the Collateral Agent shall request it,
endorsed to be payable to the order of the Collateral Agent subject to
no pledge, security interest, collateral assignment, Lien, charge or
claim held by any Person other than the Collateral Agent. In addition,
such promissory note must not have been borrowed against under the
Warehouse Line for more than 180 days; provided, that up to Seven
Million Five Hundred Thousand Dollars ($7,500,000) of Residential
Mortgages borrowed against under the Warehouse Line at any time may
have been advanced against for more than one hundred eighty (180) days
but not more than three hundred sixty (360) days;
(b) covered by currently-effective policies of mortgagee
title insurance and casualty insurance, covered by a sufficient and
current appraisal and having all documentation, characteristics and
elements complete and packaged so as to satisfy every requirement of
the issuer (whether the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") or another Qualified
Investor) of the Investor Commitment covering such Residential
Mortgage, with all such documentation placed in a file (a "Residential
Mortgage File") organized so as to satisfy such issuer's requirements
for file content, form and order, but in any event including at least
(1) the original executed Residential Mortgage Note, (2) a certified
copy of the Residential Mortgage and
6
<PAGE> 17
(3) an original assignment of the Residential Mortgage Note in blank
(including any applicable intervening assignments), in recordable
form; provided, that (1) up to 20% of the aggregate Committed Sums of
all Banks for the Warehouse Line of Residential Mortgages borrowed
against under the Warehouse Line at any time may be Jumbo Mortgage
Loans and (2) up to 5% of the aggregate Committed Sums of all Banks
for the Warehouse Line of Residential Mortgages borrowed against under
the Warehouse Line at any time may be Super Jumbo Mortgage Loans;
(c) either (i) eligible for guaranty or insurance by the
Veterans Administration ("VA") or the Federal Housing Administration
("FHA"), or for insurance (as to the portion of the Residential
Mortgage that initially exceeds an 80% loan-to-collateral value ratio)
by private mortgage insurance ("PMI") by an insurer rated "A" or
better by a nationally recognized rating agency, or (ii) an uninsured
conventional mortgage loan conforming to the maximum loan amount and
loan-to-collateral value ratio standards for guaranty by FNMA or FHLMC
and with both an initial and a current loan-to-collateral value ratio
no greater than 80%;
(d) in a face amount that, when aggregated with all of the
other warehoused Mortgage Loans (wherever warehoused) owned by
whichever Obligor is pledging it to borrow against it under the
Warehouse Line, will not exceed the hedging coverage provided by
Investor Commitments then owned by such Obligor as determined by the
Collateral Agent based on such Obligor's most current weekly report to
the Collateral Agent listing all Investor Commitments held by such
Obligor;
(e) accompanied by (1) a duly executed assignment (and any
intervening assignments) recordable (but not recorded) in the U.S.
jurisdiction where the real property securing such Residential
Mortgage Note is located, duly completed, signed, notarized, attested
(if necessary for recording in that Jurisdiction) and otherwise
adequate to be recorded and, by recording, to perfect an assignment of
that Residential Mortgage so as to receive the full benefit of the
recording Laws of that jurisdiction and (2) all other instruments and
documents, if any, required to provide the Collateral Agent with all
the information and authority it would need (assuming its
qualification to the extent, if any, required under the applicable
guide as a servicer) to service such Residential Mortgage and collect
all sums due under it when due and either (A) unilaterally sell that
Residential Mortgage to any Qualified Investor and receive full
payment for it, in accordance with such Qualified Investor's Investor
Commitment to purchase it or otherwise, or (B) by recording the
assignment, unilaterally clothe the Collateral Agent with full
authority to demand and receive all sums due under that Residential
Mortgage from any obligor (including guarantors) for its payment and
from any servicer of that Residential Mortgage, including, without
limitation, transferring full record title to the Collateral Agent;
and
(f) otherwise satisfactory to the Collateral Agent in its
sole reasonable discretion in all other respects.
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<PAGE> 18
WITHOUT LIMITING ANY OF THE FOREGOING PROVISIONS, A
RESIDENTIAL MORTGAGE THAT OTHERWISE QUALIFIES AS AN ELIGIBLE
MORTGAGE SHALL FAIL OR IMMEDIATELY CEASE TO BE SO QUALIFIED
IF:
(1) it fails or ceases for any reason to be the
subject of a valid and enforceable Investor Commitment which
is and remains satisfactory to the Collateral Agent;
(2) an obligor on or under it has failed to perform
an obligation under such obligor's papers and such default
has continued for thirty (30) days;
(3) foreclosure proceedings have been commenced with
respect to it;
(4) it is not (A) secured by a first Lien (or a
second Lien for up to the Second-Lien Sublimit only) against
the real property originally securing it (or that was
purported to secure it) or if the title to the real property
securing it ceases or fails for any reason to be currently
insured by a title insurer acceptable to the Collateral Agent
for at least the outstanding principal balance of such
Residential Mortgage, or such insurer denies coverage or
liability in whole or in part or fails to assume defense of
any attack on such title for any reason, (B) in full force
and effect or (C) (excluding only Residential Mortgages whose
servicing is transferred by the applicable Obligor to another
servicer with the Collateral Agent's express written consent)
fully serviced (including collection of all amounts due on or
for such Residential Mortgage Note, including both loan and
escrow payments) by the applicable Obligor; or
(5) it has been borrowed against under the Warehouse
Line (including, if applicable, its Sublines and
Sub-sublines) for more than one hundred eighty (180) days
(subject to the proviso in clause (a) in this definition of
Eligible Mortgage).
(6) it has a cumulative loan to collateral ratio
that exceeds 100%, unless it is a VA guaranteed or FHA
insured mortgage.
(7) it is subject to a Trust Receipt issued by the
Collateral Agent pursuant to Warehouse Pledge Agreement under
which it has been in the possession of an Obligor for more
than seven (7) days.
(8) it is subject to a Bailee Letter issued by the
Collateral Agent pursuant to the Warehouse Pledge Agreement
under which is has been in the possession of a Qualified
Investor for more than forty-five (45) days; and
"Eligible Other Loan" means a first-lien or second-lien Conventional
Mortgage Loan, FHA Loan or VA Loan that is evidenced by a promissory note
payable (either originally or by
8
<PAGE> 19
one or more endorsements) to the order of and owned and held by either Obligor
(whichever is pledging it to borrow against it under the Other Loan Subline)
and duly endorsed in blank or if the Collateral Agent shall request it,
endorsed to be payable to the order of the Collateral Agent, and that is
subject to no pledge, security interest, collateral assignment, Lien, charge or
claim held by any Person other than the Collateral Agent and, if a second-lien
loan, the holder of the first lien. In addition, such loan (i) must not have
been originated more than 365 days before the date it was first included in
Other Loan Value, (ii) must not have been borrowed against under the Other Loan
Subline for more than 180 days, (iii) must not be more than 60 days past due,
(iv) must have a combined loan-to-value ratio, taking into account first and
second liens ("CLTV"), of nor more than 100% and (v) must otherwise be
acceptable to Agents for inclusion in Other Loan Value.
"Eligible Receivables" is defined in Section 2.14(d)(1).
"Eligible Servicing Portfolio" means, on any day, all Serviced
Mortgages excluding those (i) as to which either Obligor is the subservicer,
(ii) for which any payment is delinquent for more than ninety (90) days or
(iii) for which any maker or mortgagor is the subject of a case in bankruptcy
or as to which the first step in foreclosure proceedings has been taken.
"Eligible Servicing Held for Sale " means rights to service
residential Mortgage Loans originated within 120 days of the date first
included in Servicing Held for Sale Loan Value that are eligible to be sold
under Approved Servicing Sale Contracts and that have not been included in
Servicing Held for Sale Loan Value for more than 120 days.
"Eligible Servicing Portfolio Balance" means the sum of the principal
balances of all Serviced Mortgages comprising the Eligible Servicing Portfolio.
"Eligible Servicing Sale Receivables" are receivables (i) which arise
from either Obligor's sale of Servicing Rights to Approved Servicing Purchasers
pursuant to Approved Servicing Sale Contracts, (ii) which are due and payable
within 120 days after the date first included in Servicing Sale Receivable Loan
Value; provided that up to ten percent (10%) of the Servicing Sale Receivables
Subline may be due and payable within 180 days after the date first included in
Servicing Sale Receivable Loan Value, and (iii) which are not past due.
Servicing Sale Receivables shall not include any "holdback" amounts determined
by Administrative Agent in its discretion, or deferred installments of the
purchase price payable by such Approved Servicing Purchaser which are subject
to withholding or offset on account of the performance of the servicing being
sold or any failure, breach or other deficiency in the performance of the
Obligors, including documentary deficiencies.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
any successor statute, as amended from time to time, and all rules and
regulations promulgated under it.
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"ERISA Affiliate" means any trade or business (whether or not
incorporated) which, together with either Obligor, would be treated as a single
employer under Section 4001 of ERISA.
"Eurodollar Base Rate" means, for any Interest Period, the rate per
annum, (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Bloomberg (or, if not available, any other nationally recognized trading screen
reporting offered rates for Eurodollar deposits in United States Dollars) at
10:00 a.m. (Dallas, Texas time) as the offered rate for Eurodollar deposit
rates in United States dollars, for a term comparable to such Interest Period
and in an amount comparable to the relevant Loan. Any rate of interest based on
Eurodollar Base Rate shall be (a) computed on the basis of a year of three
hundred sixty (360) days applied for the actual number of days for which the
borrowing to which it applies is outstanding and bears interest in accordance
with this Agreement at such rate of interest based on Eurodollar Base Rate
(i.e., on the 365/360 (366/360 in a leap year) day basis) and (b) adjusted as
of the effective date of each change in Eurodollar Base Rate. The
Administrative Agent's determination of Eurodollar Base Rate for each day shall
be conclusive and binding, absent manifest error.
"Eurodollar Rate" means, for any Interest Period, rounded up, if
necessary, to the nearest 1/100 of 1%, the quotient of (a) the Eurodollar Base
Rate divided by (b) 1.00 minus the Eurodollar Reserve Requirement (if any), in
each case for such Interest Period.
"Eurodollar Rate Loan" means any Loan at the Eurodollar Rate plus the
Applicable Margin.
"Eurodollar Reserve Requirement" means, for the Interest Period for
each Eurodollar Rate Loan and for the time that each Adjusted LIBOR Rate Loan
is outstanding, respectively, the maximum rate (expressed as a decimal) for all
reserves required to be maintained by the Administrative Agent against any
category of liabilities that includes deposits by reference to which any
Eurodollar Base Rate or Adjusted LIBOR Rate is determined, adjusted
automatically (and without notice to the Obligors) on and as of the effective
date of any change therein.
"Facility" means a credit or financial line, subline or facility
provided for in this Agreement (under this Agreement, the term means and
includes each of the Warehouse Line, its five Sublines and its eight
Sub-sublines).
"Facility Limit" is defined in Section 2.2(a).
"Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Administrative Agent from three (3) federal funds brokers of recognized
standing selected by the Administrative
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<PAGE> 21
Agent. Any rate of interest based on the Federal Funds Effective Rate shall be
adjusted as of the effective date of each change in the Federal Funds Effective
Rate.
"FHA Loans" means Mortgage Loans evidenced by Residential Mortgage
Notes, payment of which is insured by FHA or which is covered by a current,
binding and enforceable commitment for such insurance issued by FHA or its
delegated underwriter.
"Financial Statements" means (a) balance sheets, (b) statements of
operations and (c) statements of cash flow. Whenever any of the Loan Documents
calls for an Obligor to provide unaudited financial statements (or any element
of them), such Obligor agrees to provide them (or the element called for) in
the form and manner used for the Standard Financial Statements (although all
audited Financial Statements shall be prepared in accordance with GAAP).
"Foreclosed Properties Loans" is defined in Section 2.3(d)(1).
"Foreclosed Properties Mortgages" is defined in Section 2.10.
"Foreclosed Properties Sub-subline" is defined in Section 2.3(d)(6).
"Foreclosed Properties Sublimit" is defined in Section 2.3(d)(6).
"Foreclosed Property" is defined in Section 2.3(d)(1).
"Foreclosure Receivables Loans" is defined in Section 2.3(d)(1).
"Foreclosure Receivables Sub-subline" is defined in Section 2.3(d)(4).
"Foreclosure Receivables Sublimit" is defined in Section 2.3(d)(4).
"Free Adjusted Balances" means, for any calendar month, the sum of
that month's Adjusted Balances less the portion of them (if any) already used
to reduce the interest or fee charged by GFB on any Debt to GFB (in its
individual capacity) other than the Obligations.
"Funding Accounts" means the Harbor Funding Account and the New Am
Funding Account.
"Funding Share" means, for each Bank, that proportion of each Loan
under a particular Facility which bears the same ratio to the total amount of
the Loan under that Facility as the portion of that Bank's Committed Sum which
is applicable to that Facility bears to the aggregate Committed Sums of all
Banks for that Facility.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, stated in opinions of the Accounting Principles Board of the
American Institute of Certified
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<PAGE> 22
Public Accountants or in statements of the Financial Accounting Standards Board
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis means that
the accounting principles observed in a current period shall be comparable in
all material respects to those applied in an earlier period, with the exception
of changes in application to which the applicable Obligor's independent
certified public accountants shall have agreed and which changes and their
effects are summarized in the Financial Statements following such changes.
"GFB Balances" means, for any calendar month, the aggregate principal
balances of all Warehouse Notes held by GFB.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States and any political
subdivision of any of them, and any agency, central bank, department,
commission, board, bureau, court or other tribunal.
"Guarantor" means FirstCity Financial Mortgage Corporation, a Delaware
corporation.
"Guaranty" means the Guaranty of even date herewith executed by
Guarantor in favor of the Administrative Agent, for the benefit of the Banks,
as the same may be amended, supplemented, modified and/or restated from time to
time.
"Harbor Funding Account" means the non-interest bearing demand
checking account established by Harbor with Administrative Agent to be used for
(i) the initial deposit of proceeds of Loans; and (ii) the funding or purchase
of mortgages by Harbor; provided that the Funding Account shall be pledged to
Administrative Agent for the benefit of Banks and that Obligors shall not be
entitled to withdraw funds from the Funding Account and provided further that
Administrative Agent will transfer funds as directed by Harbor.
"HUD" means the U.S. Department of Housing and Urban Development.
"ICF Agreement" is defined in the definition of Permitted Facilities
Agreements.
"In Default" means a default has occurred under a Residential Mortgage
Note or its related Residential Mortgage and has remained in existence for at
least thirty (30) days.
"Interest Period" means the period beginning on the date a Loan at the
Eurodollar Rate plus the Applicable Margin is designated to begin and ending on
the numerically corresponding day that is one (1), two (2) or three (3) months
thereafter as the Obligors may select as provided herein; except (a) if an
Interest Period begins on a day for which there is no numerically corresponding
day in the appropriate subsequent calendar month, then that Interest Period
shall end on the last Business Day of such calendar month; (b) an Interest
Period that would otherwise end on a day that is not a Business Day shall end
on the next Business Day (or, if such next Business Day is in the next calendar
month, on the preceding Business Day), and (c) no Interest Period shall end
after the maturity of the applicable Note.
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"Investments" is defined in Section 8.12.
"Investor Commitment" means a binding commitment from a Qualified
Investor in favor of the applicable Obligor to purchase Pledged Mortgages,
subject to no condition which cannot be reasonably anticipated to be satisfied
before its expiration, and acceptable in form and substance to the Collateral
Agent.
"Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the
principal balance of which does not exceed Six Hundred Fifty Thousand Dollars
($650,000).
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions or decrees of any Governmental Authority.
"LIBOR" means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Bloomberg (or, if not
available, any other nationally recognized trading screen reporting on-line
trading in London interbank offered rates) as the London interbank offered rate
for deposits in United States dollars (BBA USD LIBOR) in the amount of
$1,000,000, on that day for a period of one month. Any rate of interest based
on LIBOR shall be (a) computed on the basis of a year of three hundred sixty
(360) days applied for the actual number of days for which the borrowing to
which it applies is outstanding and bears interest in accordance with this
Agreement at such rate of interest based on LIBOR Rate (i.e., on the 365/360
(366/360 in a leap year) day basis) and (b) adjusted as of the effective date
of each change in LIBOR. The Administrative Agent's determination of LIBOR for
each day shall be conclusive and binding, absent manifest error. For purposes
of this Agreement and all Warehouse Notes and other Loan Documents, LIBOR shall
fluctuate upward and downward automatically and concurrently with day-to-day
changes in such arithmetic mean, and in the amount of the change.
"LIBOR Rate Loan" means any Loan bearing interest at the Adjusted
LIBOR Rate plus the Applicable Margin.
"Lien" means any lien, mortgage, deed of trust, deed to secure debt,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature of
a mortgage or security agreement and any agreement to give any mortgage or
security interest).
"Loan" means a sum or sums lent to an Obligor by any one or more of
the Banks pursuant to this Agreement in accordance with the applicable
borrowings procedures set forth in Section 2.14 including readvances of funds
previously advanced to or for the Obligors and repaid to the Banks; if
permitted.
"Loan Documents" means (a) this Agreement and (b) any and all
promissory notes, mortgages, deeds of trust, deeds to secure debt and other
real estate mortgage instruments, security agreements and all other
instruments, documents and agreements or other papers
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<PAGE> 24
(including the Warehouse Notes, the Guaranty, the Warehouse Pledge Agreement,
the Receivables Security Agreement, the Servicing Rights Security Agreement,
the Foreclosed Properties Mortgages, if any, and the Stock Pledge Agreements)
executed or delivered pursuant to the terms of, to guarantee or secure, or
which otherwise relate to, this Agreement, and any and all future amendments,
supplements, renewals, extensions, rearrangements or restatements of any of
them.
"Loan Request" means an Obligor Order requesting a Loan, substantially
in the form of Exhibit B-1 for Mortgage Warehouse Loans or Wet Warehousing
Loans, B-2 for Second-Lien Loans, B-3 for P&I Loans, B-4 for T&I Loans, B-5 for
Foreclosure Receivables Loans, B-6 for Foreclosed Properties Loans, B-7 for
Mortgage Repurchase Loans, B-8 for Servicing Held for Sale Loans, B-9 for
Servicing Sale Receivable Loans, and B-10 for Other Loans.
"Loan Servicing Agreement" means any contract, agreement or account,
whether or not in writing, now existing or hereafter established between either
Obligor (or any predecessor in interest) and any Person (including any
Governmental Authority) providing for or contemplating such Obligor's (or any
predecessor in interest's) collection, disbursement and other servicing or
management of any Mortgage Loans or portfolio of Mortgage Loans, irrespective
of whether such loan or loans are owned or held by or for the account of a
direct investor (or any pledgee of, or trustee or bailee for, any direct
investor) or pooled and/or pledged with other loans to directly or indirectly
secure, provide a source of funds to pay or otherwise support or back any
collateral mortgage obligation or other security (whether certificated or
book-entry), and whether or not such security is issued, guaranteed, insured or
bonded by GNMA, FNMA, FHLMC, an insurance company, a private issuer or any
other investor.
"Loan Servicing Rights" means and includes all of each Obligor's
rights under any of its Loan Servicing Agreements, including the rights to
service Serviced Mortgages and to be compensated, directly or indirectly, for
doing so.
"Majority Banks" means, for any day, the holders of Warehouse Notes
evidencing sixty-six and two-thirds percent (662/3%) or more of (a) the sum of
the aggregate Committed Sums of all Banks for the Warehouse Line if on that day
the Banks are committed to lend under this Agreement or (b) the aggregate Loans
outstanding under the Warehouse Line if on or before that day the Banks'
commitments to lend under this Agreement have expired or been terminated and
have not been reinstated.
"Market Value" at any time shall be determined by the Collateral
Agent, in its sole discretion, based upon information then available to the
Collateral Agent regarding quotes to dealers for the purchase of mortgage loans
similar to the Residential Mortgages that have been delivered to the Collateral
Agent pursuant to this Agreement.
"Master Warehouse Notes" is defined in Section 2.5.
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"Material Adverse Effect" means any material adverse effect on (a) the
validity or enforceability of this Agreement, any Note or any of the other Loan
Documents, (b) the Guarantor's or either Obligor's ability to continue in
business as a going concern, (c) the Guarantor's or either Obligor's
operations, Property or financial condition, (d) any material item or part of
the Collateral or its value, (e) the priority or perfection of the Collateral
Agent's Liens in any material item or part of the Collateral or (f) the
Guarantor's or either Obligor's ability to timely repay any of its debt or
guaranty obligations to the Banks or timely perform any of its other material
obligations under this Agreement or any of the other Loan Documents.
"Mortgage-Backed Security" means and includes (a) a security issued by
FHLMC or (b) a security guaranteed by GNMA or FNMA or (c) a security issued by
any other Person acceptable to the Collateral Agent, (1) which is based on and
backed by an underlying pool of Residential Mortgage Notes and Residential
Mortgages or Qualified Mortgage Loans, as applicable and (2) provides for
payment by its issuer to its holder of specified principal installments and a
fixed rate of interest on the unpaid balance and for all prepayments to be
passed through to the holder, whether issued in certificated or book-entry
form.
"Mortgage Loans" means one-to-four family residential Conventional
Mortgage Loans, Nonconforming Mortgage Loans, FHA Loans and VA Loans, or any
combination of them.
"Mortgage Loan Value" means, on any day, for each Residential Mortgage
that qualifies as an Eligible Mortgage, is fully covered by Investor
Commitments and is pledged by such Obligor to the Collateral Agent so as to
give the Collateral Agent a first and prior or perfected security interest
therein and in its proceeds the least of (a) ninety-eight percent (98%) of its
"Acquisition Cost" which is the amount the Obligor that is pledging it to the
Collateral Agent to borrow against it under the Warehouse Line paid for it,
i.e., the net amount actually funded against a Residential Mortgage originated
by the applicable Obligor or the net purchase price of an Eligible Mortgage
purchased by it (prorated according to their original principal amounts for
Residential Mortgages in any Pool purchased by it), (b) ninety-eight percent
(98%) of its "Allocated Commitment Price", which, is the investor commitment
price stated in the Investor Commitment covering that Residential Mortgage
(similarly prorated), (c) ninety-eight percent (98%) of Market Value, or (d)
one hundred percent (100%) of its "Par Value" which is hereby defined to mean,
(1) in the case of a residential Mortgage Loan refinanced by either Obligor, an
amount equal to the unpaid principal balance of the residential Mortgage Loan
refinanced or, (2) in the case of a purchased residential Mortgage Loan, its
unpaid principal balance on the date first included in Mortgage Loan Value,
even though the applicable Obligor funded or paid more than its Par Value for
it and even if the Investor Commitment covering it specifies a purchase price
for it greater than its Par Value; provided further, that if on any day the
aggregate Mortgage Loan Values of all Pledged Mortgages whose Mortgage Notes
are dated earlier than one hundred eighty (180) days before the date such
Mortgage Notes were first included in Mortgage Loan Value (the "Seasoned
Pledged Mortgage") shall exceed an amount equal to five percent (5%) of the
aggregate Committed Sums for that same day of all Banks for the Warehouse Line
of Residential Mortgages (the "5% Limit"), then the Mortgage Loan Values of all
such Seasoned Pledged Mortgages shall be deemed equal to the 5% Limit; and
provided further, that each
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Residential Mortgage that fails or ceases to qualify as an Eligible Mortgage
for any reason shall automatically have a Mortgage Loan Value of zero from and
after the date when the first disqualifying event occurs and for so long as it
remains disqualified.
"Mortgage Repurchase Loans" is defined in Section 2.3(e).
"Mortgage Repurchase Loan Value" means seventy percent (70%) of the
lesser of (i) Par Value of the related residential Mortgage Loan or (ii) the
value of the subject property as reflected in a brokers price opinion rendered
within sixty (60) days of the date of repurchase.
"Mortgage Repurchase Sublimit" is defined in Section 2.3(e).
"Mortgage Repurchase Subline" is defined in Section 2.3(e).
"Mortgages" is defined in Section 2.10.
"Mortgage Warehouse Loan" means a Loan advanced against Mortgage Loan
Value.
"Net Worth" means the excess of a Person's total assets over that
Person's total liabilities as each is determined in accordance with GAAP.
"New Am Funding Account" means the non-interest bearing demand
checking account established by New Am with Administrative Agent to be used for
(i) the initial deposit of proceeds of Loans; and (ii) the funding or purchase
of mortgages by New Am; provided that the Funding Account shall be pledged to
Administrative Agent for the benefit of Banks and that Obligors shall not be
entitled to withdraw funds from the Funding Account and provided further that
Administrative Agent will transfer funds as directed by New Am.
"Nonconforming Mortgage Loan" means a Mortgage Loan which is neither
an FHA Loan nor a VA Loan and which (a) complied at origination with all
applicable requirements for purchase under the FNMA or FHLMC standard form of
conventional mortgage purchase contract and any supplement to it then in
effect, except only that the amount of the loan exceeded the maximum loan
amount under such requirements or all of another Qualified Investor's
requirements for its purchase and (b) currently complies with all applicable
requirements for purchase under a valid and binding Investor Commitment
covering it.
"Obligations" means and includes all of the Obligors' present and
future debts, obligations and liabilities to the Banks and all renewals and
extensions of all or any part of them, arising pursuant to this Agreement or
any of the other Loan Documents and all interest accrued on them, regardless of
whether such debts, obligations or liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several.
"Obligor Order" means an Obligor's written or electronic order
(including a telegram, telex, teletype, telecopy or cablegram), signed or
presented in the Obligor's name by the
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Chairman or any Vice Chairman of its Board of Directors, its President or any
Senior Vice President, or by any other Obligor officer who has been designated
as authorized to execute Obligor Orders in a writing executed by any of them
and delivered to the Administrative Agent and as to whom such designation has
not subsequently been revoked by the same means. The Persons authorized to
issue Obligor Orders shall be listed in a written schedule furnished by each
Obligor to the Administrative Agent, and each Obligor shall update such
schedule from time to time so that the current schedule in the Administrative
Agent's possession at all time is a correct list of only those Persons
currently authorized to issue Obligor Orders. The schedule for the Effective
Date and for each day thereafter until the Obligors deliver a revised schedule
to the Administrative Agent is Schedule 4 to this Agreement.
"Order" is defined in Section 9.4.
"Other Loan Subline" is defined in Section 2.3(h).
"Other Loan Subline Loan" is defined in Section 2.3(h).
"Other Loan Value" means for any Eligible Other Loan (i) if the CLTV
for such Eligible Other Loan is less than seventy-five percent (75%), seventy
percent (70%) of the aggregate unpaid principal balance of such Eligible Other
Loan and (ii) if the CLTV of such Eligible Other Loan is greater than
seventy-five percent (75%), fifty percent (50%) of the aggregate unpaid
principal balance of such Eligible Other Loan.
"Owned Servicing Rights" means the Obligors' rights under Loan
Servicing Agreements where the relevant Obligor is the owner of the Loan
Servicing Rights that are the subject matter thereof and not merely a
subservicer.
"P&I Loans" is defined in Section 2.3(d)(1).
"P&I Sub-subline" is defined in Section 2.3(d)(2).
"P&I Sublimit" is defined in Section 2.3(d)(2).
"Par Value" is defined in the definition of "Mortgage Loan Value."
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor to any or all of its functions under ERISA.
"Permitted Facilities Agreements" means
Coastal Banc Savings Association up to $ 42,000,000
3/96 Senior ICF Credit Agreement up to $ 15,000,000
(the "ICF Agreement")
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Servicing Sale Accounts Receivable Line
of Credit with Matrix Bancorp and its
Subsidiaries up to $ 7,500,000
Servicing Sale Accounts Receivable Line
of Credit with Bank United up to $ 7,500,000
Non-conforming Warehouse Line of Credit with
GMAC-RFC under which RFC will act as
Collateral Custodian (in process) up to $ 50,000,000
Warehouse Line of Credit with Morgan Stanley
under which Bank One will act as Custodian.
Bank One to be document custodian (in process) up to $ 200,000,000
"Person" means and includes (a) any natural person, corporation,
limited partnership, general partnership, limited liability partnership or
company, joint stock company, joint venture, association, company, trust,
estate, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, (b) any Governmental Authority or (c) any other
organization or entity whatsoever.
"Plan" means an employee benefit plan of a type described in Section
3(3) of ERISA in respect of which either Obligor or the Guarantor is an
"employer" as defined in Section 3(5) of ERISA.
"Pledged Mortgages" means, for any day, all of the Obligors' Mortgage
Loans pledged to the Collateral Agent and in which the Collateral Agent has a
first and prior perfected Lien on that day to secure the Obligations.
"Pool" is defined in Section 2.2(a).
"Potential Default" is defined in Section 4.1.
"Property" means any interest in any kind of tangible or intangible
property or asset, whether real, personal or mixed, including the Collateral.
"Qualified Investment Securities" means: (a) readily marketable
securities issued or fully guaranteed by the United States of America with
remaining maturities of not more than one (1) year, (b) commercial paper or any
other debt instrument rated P-1 by Moody's Investors Service, Inc. or A-1 by
Standard and Poor's Ratings Group with remaining maturities of not more than
two hundred seventy (270) days; (c) FNMA and FHLMC discount notes with
remaining maturities of not more than one (1) year; (d) certificates of deposit
fully insured by the FDIC -- or, if not, that are issued by financial
institutions acceptable to the Administrative Agent -- with remaining
maturities of not more than one (1) year; (e) banker's acceptances with
remaining
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maturities of not more than one (1) year issued by banks whose short-term
credit is rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard and
Poor's Ratings Group; (f) securities received in settlement of liabilities
created in the ordinary course of business and (g) other investment quality
securities with remaining maturities of not more than one (1) year and which
are specifically approved by the Administrative Agent.
"Qualified Investor" means GNMA, FNMA, FHLMC, any of the Persons
listed on Schedule 1 or any other financially responsible Person which the
Obligors have added to a copy of a new Schedule 1 dated (to show it is new) and
sent to the Administrative Agent with that Person's name (and any other
newly-added Persons' names) highlighted or otherwise marked to clearly indicate
the addition(s) and which the Administrative Agent has not disapproved (either
on its own initiative or because the Majority Banks have disapproved them) by
notice given to the Obligors within thirty (30) days of the Administrative
Agent's receipt of such revised Schedule 1; provided that until any such new
Qualified Investor has been approved by the Majority Banks, either
affirmatively or by their failing to notify the Collateral Agent of their
disapproval within thirty (30) days after the Administrative Agent's receipt
from the Obligors of the Obligors' addition of such new Qualified Investor to
Schedule 1 (the Administrative Agent shall promptly notify the Banks of the
name of each such new Qualified Investor) the Collateral Agent shall not ship
Pledged Mortgages having aggregate Mortgage Loan Value of more than Five
Million Dollars ($5,000,000) to that Qualified Investor; and provided further
that at any time by written notice to the Collateral Agent (stating their
reason or reasons) the Majority Banks may disapprove any Qualified Investor
because they have determined in their sole discretion and for any reason that
they are no longer comfortable with that Person's being a Qualified Investor,
whether or not that Person is named as a Qualified Investor in this definition
or on Schedule 1 or has previously been approved as a Qualified Investor by the
Majority Banks. Upon receipt of such a notice from the Majority Banks, the
Collateral Agent shall give written notice to the Obligors of the Majority
Banks' disapproval of all Qualified Investors named in the notice, whereupon
the Persons named in the Collateral Agent's notice to the Obligors shall no
longer be Qualified Investors from and after the time when the Administrative
Agent sends that notice to the Obligors.
"Ratably" means in accordance with the Banks' respective ownership
interests in a particular Facility. On any day, the Banks will each own that
portion of each Facility, both principal and accrued interest (and will each
have an undivided interest in each guaranty of that Facility, all other
Collateral for that Facility and all rights to proceeds of all guarantees of
and other Collateral for that Facility, equal to that Bank's ownership interest
in that Facility), which bears the same ratio to the entire advanced and unpaid
principal of that Facility then outstanding as that Bank's Committed Sum for
that Facility bears to the aggregate Committed Sums of all Banks for that
Facility as provided in this Agreement, subject to this adjustment: if at any
time or times, any Bank fails or refuses to fund its Funding Share of any Loan
under a Facility when such Bank is obligated to do so, and one or more of the
other Banks elect (in the sole discretion of each Bank and for such amount, if
any, as each Bank shall itself determine) to fund it, then:
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(a) the respective ownership interests in that Facility and
its Collateral of (1) the Bank which failed or refused to fund its
Funding Share and (2) the Bank (or Banks) which funded that Funding
Share, shall be proportionately decreased and increased, respectively,
to the same extent as if their respective Committed Sums for that
Facility were changed in direct proportion to the unreimbursed
principal balance of the amount so funded that is thereafter
outstanding from time to time;
(b) the nonfunding Bank's share of all future distributions
of any payments and prepayments on the Note payable to the nonfunding
Bank and evidencing the Obligations under that Facility shall be paid
to the Bank (or Banks) which funded its Funding Share until such
funding or purchasing Bank(s) have been fully repaid the amount so
funded by such funding or purchasing Bank(s); and
(c) such adjustment shall remain in effect until such time as
the Bank (or Banks) which funded the nonfunding or nonpurchasing
Bank's Funding Share have been so fully repaid.
"Rate Designation Date" means the Business Day which is in the case of
Loans (a) at the Eurodollar Rate plus the Applicable Margin, 10:00 a.m. on the
date two (2) Business Days preceding the first day of any proposed Interest
Period and (b) at any other interest rate, on the date of such Loan.
"Receivables Advances Loans" is defined in Section 2.3(d).
"Receivables Advances Sublimit" is defined in Section 2.3(d).
"Receivables Advances Subline" is defined in Section 2.3(d).
"Receivables Loan Values" means the following percentages of the
following categories of Eligible Receivables:
(a) ninety-five percent (95%) of the value of the borrowing
Obligor's equity in accounts or general intangibles owned by such
Obligor under which such Obligor has an enforceable and liquidated
claim ("Receivables Claim") against obligors and their accounts, an
insurer or another identified Person under any Serviced Mortgage for
reimbursement of advances made by such Obligor that qualify for P&I
Loans;
(b) eighty-five percent (85%) of the value of the borrowing
Obligor's Receivables Claim against obligors and their accounts, an
insurer or another identified Person under any Serviced Mortgage for
reimbursement of advances made by such Obligor that qualify for T&I
Loans;
(c) ninety percent (90%) of the value of the borrowing
Obligor's Receivables Claim against obligors and their accounts, an
insurer, a guarantor or another identified
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Person under any Serviced Mortgage for reimbursement of advances made
by such Obligor that qualify for Foreclosure Receivables Loans;
(d) seventy percent (70%) of the current (as of the time of
borrowing) fair value of each unit of Foreclosed Property as set forth
on a current appraisal satisfactory to the Collateral Agent;
provided, that each account, general intangible or Foreclosed Properties
Mortgage that fails or ceases to qualify as an Eligible Receivable for any
reason shall automatically have a Receivables Loan Value of zero from and after
the date when the first disqualifying event occurs and for so long as it
remains disqualified.
"Receivables Security Agreement" means the Receivables Security
Agreement dated of even date herewith by and among the Obligors and the
Collateral Agent, for the benefit of the Banks, covering all of Obligors'
rights to reimbursement or compensation for Obligors' advancement on loans
which Obligors service, as the same may be amended, supplemented, modified
and/or restated from time to time.
"Regulation Q" means Part 217 of Title 12 of the Code of Federal
Regulations, as in effect on December 1, 1996 and as it may be amended or
modified from time to time.
"Released Persons" is defined in Section 9.3.
"Reportable Event" means a reportable event described in Section 4043
of ERISA or the regulations thereunder for which the 30-day notice is not
waived by such regulations, a withdrawal from a Plan described in Section 4063
or 4064 of ERISA or a cessation of operations described in Section 4062(f) of
ERISA.
"Repurchased Defaulted Mortgage" means a defaulted Residential
Mortgage repurchased by an Obligor from a Qualified Investor or out of a GNMA,
FNMA or FHLMC Pool pursuant to such Obligor's contractual obligation as its
servicer to do so.
"Required Documents" has the meaning given to such term in the
Warehouse Pledge Agreement.
"Residential Mortgage" means a Mortgage Loan secured by a first Lien
(or second Lien for up to the Second Lien Sublimit only) Mortgage appropriate
to the U. S. jurisdiction where the real estate securing the Mortgage Loan is
located, covering real estate improved by one single-, two-, three- or
four-family dwelling and the land on which it is located, or a single one
family residential condominium unit and its related easements and proportionate
interest in common elements.
"Retiring Bank" means a bank or other lending institution that ceases
to be a Bank under this Agreement pursuant to operation of Section 9.25.
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<PAGE> 32
"Second-Lien Loans" is defined in Section 2.3(c).
"Second-Lien Sublimit" is defined in Section 2.3(c).
"Second-Lien Subline" is defined in Section 2.3(c).
"Serviced Mortgages" means Mortgage Loans which either Obligor has the
right or obligation to service under any Loan Servicing Agreement.
"Servicing Held for Sale Loans" is defined in Section 2.3(f).
"Servicing Held for Sale Loan Value" means seventy percent (70%) of
the value of Eligible Servicing Held for Sale, as determined by prices
indicated in Approved Servicing Sale Contracts which can be discounted at the
reasonable discretion of the Administrative Agent or Majority Banks, but in no
event to exceed the appraised value of the Eligible Servicing Held for Sale if
an appraisal is available.
"Servicing Rights" means rights to service and to be compensated for
servicing residential Mortgage Loans from time to time and all related
accounts, general intangibles, rights, interests and proceeds pursuant to Loan
Servicing Agreements.
"Servicing Rights Security Agreement" means the Servicing Rights
Security Agreement dated of even date herewith by and among the Obligors and
the Collateral Agent, for the benefit of the Banks, as the same may be amended,
supplemented, modified and/or restated from time to time.
"Servicing Sale Receivable Loans" is defined in Section 2.3(g).
"Servicing Sale Receivable Loan Value" means seventy-five percent
(75%) of Eligible Servicing Sale Receivables; provided that an acknowledgment
letter must be received by the Administrative Agent from the Approved Servicing
Purchaser thereunder, within five (5) Business Days after first included in
Servicing Sale Receivable Loan Value, acknowledging the amount of the
receivable, the pledge of the receivable to the Collateral Agent, and agreeing
to make payment of such receivable to the Settlement Account.
"Servicing Sale Receivables Subline" is defined in Section 2.3(g).
"Settlement Account" means the non-interest bearing demand checking
account established by each Obligor with Administrative Agent to be used for
(a) the deposit of proceeds from the sale of Collateral, and (b) the payment of
the Obligations; provided that (i) the Settlement Account shall be pledged to
Administrative Agent for the benefit of the Banks, and (ii) no Obligor shall be
entitled to withdraw funds from the Settlement Account.
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<PAGE> 33
"Standard Financial Statements" means financial statements
substantially in the form of the Obligors' December 31, 1998 financial
statements reproduced as Schedule 2, including each schedule and all of the
detail provided in the Obligors' financial statements previously furnished to
the Administrative Agent, including the monthly management reports, with only
such changes to format, schedules and presentation as are acceptable to the
Administrative Agent or are required by GAAP.
"Stated Rate" means, for each Loan on any day, either of the following
rates, as designated by the borrowing Obligor in the related Loan Request, (a)
the Adjusted LIBOR Rate for that day plus the Applicable Margin for that day
and for that Loan or (b) the Eurodollar Rate for that day plus the Applicable
Margin for that day and for that Loan, each computed in accordance with the
provisions of this Agreement; provided, that if on any day any rate so
designated for any Loan shall exceed the Ceiling Rate for that day, then the
Stated Rate for that Loan shall be fixed at the Ceiling Rate on that day and on
each day thereafter until the total amount of interest accrued at the Stated
Rate on the unpaid balance of that Loan equals the total amount of interest
that would have accrued on it if there were no Ceiling Rate; and provided
further, that the Obligors may elect as the Stated Rate to be applied for that
day to a designated portion of the then-outstanding Loans owing to GFB which
portion is both (1) not past due and (2) less than or equal to the Free
Adjusted Balances, a rate per annum equal to the Applicable Margin (only) for
that day and for those respective Loans; however, to the extent that the
portion so designated exceeds the GFB Balances, the Administrative Agent will
pay to the Banks other than GFB, Ratably, interest on such excess at a rate per
annum equal to the Applicable Margin plus the Federal Funds Effective Rate
although if doing so would violate Regulation Q, on demand made by the
Administrative Agent, the Obligors shall gross-up and pay to the Administrative
Agent the interest on that designated portion so that the Administrative Agent
will have the funds to pay the interest due to the other Banks without
violating Regulation Q. In no event will the Administrative Agent ever be
obligated to pay any amount that would violate Regulation Q.
"Stock Pledge Agreements" means (i) the Stock Pledge Agreement dated
of even date herewith by and between Guarantor and the Collateral Agent, for
the benefit of the Banks, covering all of Guarantor's rights, titles and
interests in the stock of the Company, as the same may be amended,
supplemented, modified and/or restated from time to time, and (ii) the Stock
Pledge Agreement dated of even date herewith by and between the Company and the
Collateral Agent, for the benefit of the Banks, covering all of the Company's
rights, titles and interests in the stock of the New Am, Inc., as the same may
be amended, supplemented, modified and/or restated from time to time.
"Sub-sublines" is defined in Section 2.1.
"Sublines" is defined in Section 2.1.
"Subordinated Debt" means Debt that is (a) is owed to Persons other
than one or more of the Banks, (b) is fully subordinated to all present and
future Obligations owing to the Banks by
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<PAGE> 34
written subordination provisions that are in form and substance approved by the
Agent and (c) has been consented to in a writing signed by the Agent.
"Subsidiary" means any Person (other than a natural person) in which
any other Person (directly or through one or more other Subsidiaries or other
types of intermediaries), owns or controls:
(a) more than fifty percent (50%) of the total voting power
or shares of stock entitled to vote in the election of its directors,
managers or trustees; or
(b) more than fifty percent (50%) of the total assets and
more than fifty percent (50%) of the total equity through the
ownership of capital stock (which may be nonvoting) or a similar
device or indicia of equity ownership.
"Super Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the
principal balance of which exceeds Six Hundred Fifty Thousand Dollars
($650,000) but is no greater than One Million Dollars ($1,000,000).
"Swing Loans" is defined in Section 2.3(a)(1).
"Swing Sublimit" is defined in Section 2.3(a).
"Swing Subline" is defined in Section 2.3(a).
"T&I Loans" is defined in Section 2.3(d)(1).
"T&I Sub-subline" is defined in Section 2.3(d)(3).
"T&I Sublimit" is defined in Section 2.3(d)(3).
"Tangible Net Worth" means with respect to any Person on any day:
(a) that Person's Net Worth on that day;
less (b) the sum of (1) aggregate advances to shareholders,
officers or Affiliates in excess of Five Hundred Thousand Dollars
($500,000), (2) investments in Subsidiaries (provided that the portion
of such investment reasonably allocable to tangible assets of
Subsidiaries, as determined in accordance with GAAP, to the extent
acceptable to HUD for the purpose of calculating adjusted net worth in
accordance with its requirement in effect as of such day and as
detailed in a note to such Obligor's financial statements forwarded to
the Administrative Agent, shall not be required to be deducted from
Net Worth) and other Affiliates, (3) Loan Servicing Rights, (4)
intangibles and (5) capitalized excess service fees, goodwill and all
other assets that would be deemed by HUD to be
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<PAGE> 35
unacceptable for the purpose of calculating adjusted net worth in
accordance with its requirements in effect as of such day.
"Texas Finance Code" is defined in the definition of "Ceiling Rate".
"Total Debt" means the Obligors' aggregate Debt, calculated on a
consolidated basis in accordance with GAAP.
"Transaction Claim" is defined in Section 10.14.
"UCC" means the Uniform Commercial Code of any relevant jurisdiction.
"VA Loans" means Mortgage Loans evidenced by a Residential Mortgage
Note, payment of which is either partially or completely guaranteed by the VA
or which is covered by a current, binding and enforceable commitment for a
guaranty issued by the VA.
"Warehouse Collateral" is defined in Section 2.10.
"Warehouse Facility Fee" is defined in Section 2.11.
"Warehouse Facility Fee Rate" means:
<TABLE>
<CAPTION>
Commitment Facility Fee
Amount Percentage
---------- ----------
<S> <C> <C>
$ 60,000,000 or greater .37%
equal to or greater than $40,000,000
but less than $60,000,000 .30%
equal to or greater than $25,000,00
but less than $40,000,000 .25%
less than $25,000,000 .20%.
</TABLE>
"Warehouse Final Termination Date" is defined in Section 2.11.
"Warehouse Line" is defined in Section 2.1.
"Warehouse Line Commitments" is defined in Section 2.11.
"Warehouse Loan Value" is defined in Section 2.13.
"Warehouse Note" is defined in Section 2.5.
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<PAGE> 36
"Warehouse Notes" means and includes each and all of the Obligors'
promissory notes (including the Master Warehouse Notes) made payable to the
order of a Bank pursuant to this Agreement and also includes all renewals,
extensions, rearrangements, modifications, increases and replacements of such
promissory notes made from time to time with the consent and approval of the
respective holders of such Warehouse Notes.
"Warehouse Pledge Agreement" means the Security and Collateral Agency
Agreement dated of even date herewith by and among the Obligors and the
Collateral Agent, for the benefit of the Banks, covering all of Obligors'
rights, titles and interest in and to all promissory notes and all documents
and instruments securing, guaranteeing or otherwise relating to such promissory
notes, as the same may be amended, supplemented, modified and/or restated from
time to time.
"Warehouse Termination Date" is defined in Section 2.2(a).
"Wet Mortgage Loan" means a Mortgage Loan newly originated or
purchased by the Obligors:
(a) which would qualify as an Eligible Mortgage (including
having been funded) except that some or all of the papers evidencing,
securing or otherwise relating to it have not been delivered to the
Collateral Agent so as to satisfy all requirements to permit the
applicable Obligor to borrow against such Mortgage Loan under the
Warehouse Line without restriction;
(b) which the applicable Obligor actually and reasonably
expects to fully qualify as an Eligible Mortgage when the original
Residential Mortgage Note, Residential Mortgage and all other
documents in the Residential Mortgage File have been executed and
delivered; and
(c) as to which the applicable Obligor actually and
reasonably expects that such full qualification can and will be
achieved on or before seven (7) Business Days after the day when a
Loan against such Wet Mortgage Loan is requested and made under this
Agreement, excluding, however, the day on which such Wet Mortgage Loan
is so requested or made; provided that up to the aggregate amount of
$10,000,000 of Wet Mortgage Loans may be delivered on or before ten
(10) Business Days after the day when a Loan against such Wet Mortgage
Loan is requested and made under this Agreement.
"Wet Warehousing Loans" is defined in Section 2.3(b).
"Wet Warehousing Sublimit" is defined in Section 2.3(b).
"Wet Warehousing Subline" is defined in Section 2.3(b).
Except where specifically otherwise provided:
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(a) Wherever the term "including" or any of its correlatives
appears in this Agreement or any other Loan Documents, it shall be
read as if it were written, "including (by way of example and without
limiting the generality of the subject or concept referred to)",
unless it is already followed by words to that effect.
(b) Except where otherwise specified, all times of day used
in the Loan Documents mean local time in Dallas, Texas.
(c) References in any of the Loan Documents to any property's
being pledged to the Collateral Agent or any Lien's or security
interest's being granted to or held by the Collateral Agent (or
required so to be) shall mean, respectively, pledged to, granted to or
held by the Collateral Agent, for itself as a Bank and as agent for
and on behalf of the other Banks.
(d) References in any of the Loan Documents to Article or
Section numbers are references to the Articles and Sections of that
Loan Document.
(e) References in any of the Loan Documents to Exhibits,
Schedules, Annexes and Appendices are references to the Exhibits,
Schedules, Annexes and Appendices to that Loan Document and they shall
be deemed incorporated into that Loan Document as if set forth
verbatim at each such reference.
(f) Wherever the word "herein" of "hereof" is used in any of
the Loan Documents, it is a reference to that entire Loan Document and
not just to the Section, clause or subdivision of it in which the word
is used.
(g) Words and phrases used or defined in the UCC in force in
the State of Texas on the effective date of this Agreement that are
not redefined in this Agreement have the same meanings here as there.
(h) Accounting terms not otherwise defined shall have the
meanings given them under GAAP.
(i) Defined terms may be used in the singular or the plural,
as the context requires.
ARTICLE 2. THE WAREHOUSE LINE
Section 2.1 General Terms for the Warehouse Line and its Sublines and
Sub-sublines. This Article sets forth terms and conditions governing the
Obligors' mortgage warehousing revolving credit facility (the "Warehouse
Line"), its Swing Subline, its Wet Warehousing Subline, its Second-Lien
Subline, its Receivables Advances Subline (and its four Sub-sublines: (a) the
P&I Sub-subline; (b) the T&I Sub-subline; (c) the Foreclosure Receivables
Sub-subline,
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(d) the Foreclosed Properties Sub-subline), (e) its Mortgage Repurchase
Subline, (f) its Servicing Held for Sale Subline, (g) its Servicing Sale
Receivable Subline and (h) its Other Loan Subline (the Swing Subline, the Wet
Warehousing Subline, the Second-Lien Subline, the Receivables Advances Subline,
the Mortgage Repurchase Subline, the Servicing Held for Sale Subline, the
Servicing Sale Receivable Subline and the Other Loan Subline being the
"Sublines") and the P&I Sub-subline, the T&I Sub-subline, the Foreclosure
Receivables Sub-subline and the Foreclosed Properties Sub-subline of the
Receivables Advances Subline being the "Sub-sublines") requested by the
Obligors and approved by the Banks. Its provisions are subject to the other
terms and conditions of this Agreement.
Section 2.2 The Warehouse Line.
(a) Subject to the provisions of Section 2.13 and the other
terms and conditions of this Agreement, the Banks agree to make and continue
loans to the Obligors under the Warehouse Line in aggregate principal amounts
outstanding on any day of up to Five Hundred Million Dollars ($500,000,000)
(the "Facility Limit") for each day until May 27, 2000 (the "Warehouse
Termination Date") solely (1) to finance each Obligor's funding of such
Obligor's own Residential Mortgages that are Eligible Mortgages originated by
such Obligor to (or for the account of) the obligor(s) on such Eligible
Mortgages, (2) to finance such Obligor's own purchase of Eligible Mortgages
that were not originated by such Obligor, and (3) for the other purposes set
forth in Section 2.3 and for no other applications or purposes.
(b) Each Obligor agrees to use the credit extended to it as a
Mortgage Warehouse Loan to carry each Residential Mortgage only for so long as
(x) it continues to satisfy all of the requirements to be an Eligible Mortgage
and (y) the borrowing Obligor is diligently taking all steps necessary to
complete either (i) the sale of that Residential Mortgage (if the Investor
Commitment covering it contemplates its purchase as a whole loan), or (ii) its
securitization as part of a pool of Residential Mortgages (a "Pool") and the
sale of the resulting Mortgage-Backed Securities (if the Investor Commitment
covering it contemplates securitization of a Pool that includes such Eligible
Mortgage and the Qualified Investors purchase of the resulting Mortgaged-Backed
Securities).
(c) The Banks' commitments are several and not joint, no Bank
has any obligation under this Agreement to fund any part of any other Bank's
commitment for the Warehouse Line or otherwise, and the respective commitments
of the Banks and the sublimits applicable to those commitments are set forth on
the Commitments Schedule.
(d) The failure of any Bank to fund any part of its
commitment for the Warehouse Line shall not in itself relieve any other Bank of
its obligation to fund its commitment for the Warehouse Line; provided, that no
Bank shall be responsible or incur any liability whatsoever for the failure of
any other Bank to fund any of its Funding Shares or make any Loan that such
other Bank is obligated to fund or make.
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<PAGE> 39
(e) The maximum credit henceforth available on any day under
the Warehouse Line (including credit under the Sublines and Sub-sublines) is
and shall be:
(1) the Facility Limit for that day;
minus (2) the aggregate principal amount of Loans outstanding.
Section 2.3 Sublines and Sub-subline defined.
(a) The "Swing Subline" is a sublimit under the Warehouse
Line under which Subline the Obligors may borrow, repay and reborrow from GFB
only up to an aggregate amount equal to $45,000,000 (the "Swing Sublimit"),
against Eligible Mortgages and/or Wet Mortgage Loans and in conformity with all
other applicable limits or sublimits:
(1) for the purpose of promptly funding Loans under the
Warehouse Line or its Wet Warehousing Subline which either are requested by the
Obligors after the deadline for submitting Loan Requests specified in Section
2.14 or for which the Banks other than GFB do not receive notice of the Loan
Request by the deadline specified in Section 2.14 ("Swing Loans");
(2) so long as the Swing Sublimit is never exceeded;
(3) provided that the Loan Request deemed to be a request
for the Swing Loan is received by each Agent by no later than 1:15 p.m. on the
Business Day the Swing Loan is to be made and the Administrative Agent has
received a collateral added report in form agreed upon by Agents from the
Collateral Agent no later than 2:30 p.m.; and
(4) provided that neither the requesting Obligor nor GFB
is aware of any reason why the Swing Loan requested by the Loan Request cannot
or will not be fully funded by the Banks within five (5) or fewer Business Days
following the Business Day on which such Loan Request is received by GFB.
(b) The "Wet Warehousing Subline" is a sublimit under the
Warehouse Line under which Subline the Obligors may borrow, repay and reborrow
up to an amount equal to, at any one time outstanding, (i) forty percent (40%)
of the aggregate Committed Sums of all Banks for the Warehouse Line during the
first five (5) Business Days and last five (5) Business Days of any calendar
month or (ii) twenty-five percent (25%) of the aggregate Committed Sums of all
Banks for the Warehouse Line during the remainder of each calendar month (the
"Wet Warehousing Sublimit", which term shall refer to the dollar limit for the
applicable period of each calendar month) against Wet Mortgage Loans ("Wet
Warehousing Loans") each of which:
(1) is originated by the borrowing Obligor, or is
purchased by the borrowing Obligor substantially concurrently with its
origination by another Person;
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<PAGE> 40
(2) is funded by the borrowing Obligor substantially
concurrently with the borrowing Obligor's borrowing against it under the Wet
Warehousing Subline; and
(3) is set out on the list of Wet Warehousing Loans more
fully described in Section 2.14(b).
When the Residential Mortgage File, including the original Residential
Mortgage Note for such a Pledged Mortgage duly endorsed (as required
by clause (a) in the definition of "Eligible Mortgage") has been
actually received and certified by the Collateral Agent in accordance
with the Warehouse Pledge Agreement (provided, of course, that it
qualifies under all other requirements of this Agreement to constitute
an Eligible Mortgage) it will no longer be considered as being
borrowed against under the Wet Warehousing Subline, but will instead
thenceforth be treated as being borrowed against under the Warehouse
Line itself.
(c) The "Second-Lien Subline" is a sublimit under the
Warehouse Line under which Subline the Obligors may borrow, repay and reborrow
up to an aggregate amount equal to ten percent (10%) of the aggregate Committed
Sums of all Banks for the Warehouse Line (the "Second-Lien Sublimit") from time
to time solely for the acquisition or funding of such Obligor's own second-lien
Residential Mortgages that satisfy every requirement of GNMA, FNMA or FHLMC or
another Investor acceptable to the Collateral Agent under its Investor
Commitment covering such second-lien Residential Mortgages ("Second-Lien
Loans").
(d) The "Receivables Advances Subline" is a sublimit under
the Warehouse Line under which Subline the Obligors may borrow, repay and
reborrow up to an aggregate principal amount equal to seven and one-half
percent (7.5%) of the aggregate Committed Sums of all Banks for the Warehouse
Line (the "Receivables Advances Sublimit") from time to time solely to finance
the applicable Obligor's fundings of any of the following ("Receivables
Advances Loans"):
(1) The applicable Obligor's advances required pursuant
to the applicable Obligor's obligations as servicer under the relevant guide
(or its equivalent where such Obligor is servicer for another Qualified
Investor) to cover (A) shortfalls between (i) principal and interest
installments collected from the obligors on serviced Residential Mortgages and
(ii) the scheduled principal and interest payments due to the owners of such
Residential Mortgages or the holders of the Mortgage-Backed Securities based on
and backed by such serviced Pool ("P&I Loans"), (B) shortfalls between (i)
property tax and property insurance escrow payments collected from the obligors
on serviced Residential Mortgages and (ii) the property tax and property
insurance premiums actually due for the real estate described in such
Residential Mortgages ("T&I Loans"); (C) (i) foreclosure expenses for defaulted
Residential Mortgages serviced by the Obligors where the Obligors are obligated
by their Loan Servicing Agreements to advance such foreclosure expenses; or
(ii) purchases out of such serviced Pools of Repurchased Defaulted Mortgages
that are either guaranteed or insured by VA, FHA or PMI companies as may be
approved by the Administrative Agent pending payment of the guaranty or
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<PAGE> 41
insurance claims under their VA mortgage guaranties or their FHA or PMI
insurance, or payment of the guaranty claims by FNMA or FHLMC as to mortgages
repurchased out of FNMA or FHLMC mortgage pools for which FNMA or FHLMC
accepted the default and foreclosure risk ("Foreclosure Receivables Loans"), or
(D) purchase of land improved by one single-, two-, three- or four-family
dwelling, or a single one-family residential condominium unit and its related
easements and proportionate interests in common elements acquired by the
applicable Obligor through successfully bidding for it at a proper and lawful
foreclosure of the first Lien Mortgage on that Property owned and held by the
applicable Obligor in its own investment portfolio ("Foreclosed Property") with
the concurrent and continuing intent of such Obligor to dispose of such
Foreclosed Property as promptly as is reasonable and prudent (the "Foreclosed
Properties Loans").
(2) The "P&I Sub-subline" is a Sub-subline of the
Receivables Advances Subline under which the Obligors may borrow, repay and
reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%)
of the aggregate Committed Sums of all Banks for the Warehouse Line (the "P&I
Sublimit") from time to time for P&I Loans.
(3) The "T&I Sub-subline" is a Sub-subline of the
Receivables Advances Subline under which the Obligors may borrow, repay and
reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%)
of the aggregate Committed Sums of all Banks for the Warehouse Line (the "T&I
Sublimit") from time to time for T&I Loans.
(4) The "Foreclosure Receivables Sub-subline" is a
Sub-subline of the Receivables Advances Subline under which the Obligors may
borrow, repay and reborrow up to an aggregate amount equal to three percent
(3%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the
"Foreclosure Receivables Sublimit") from time to time for Foreclosure
Receivables Loans.
(5) The "Foreclosed Properties Sub-subline" is a
Sub-subline of the Receivables Advances Subline under which the Obligors may
borrow, repay and reborrow up to an aggregate amount equal to one percent (1%)
of the aggregate Committed Sums of all Banks for the Warehouse Line (the
"Foreclosed Properties Sublimit") from time to time for Foreclosed Properties
Loans.
Neither Obligor shall be entitled to receive any Loan under a
Sub-subline of the Receivables Advances Subline even if all other
requirements and conditions for such Loan have been satisfied if after
giving effect to such Loan, the total of all Loans outstanding under
the Sub-sublines would exceed the Receivables Advances Sublimit.
(e) the "Mortgage Repurchase Subline" is a subline under the
Warehouse Line under which the Obligors may borrow, repay and reborrow up to an
aggregate amount equal to one percent (1%) of the aggregate Committed Sums of
all Banks for the Warehouse Line (the "Mortgage Repurchase Sublimit") from time
to time solely for the repurchase of Defective Mortgages ("Mortgage Repurchase
Loans").
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(f) the "Servicing Held for Sale Subline" is a subline under
the Warehouse Line under which the Obligors may borrow, repay and reborrow up
to an aggregate amount equal to $10,000,000 (the "Servicing Held for Sale
Sublimit") from time to time solely to finance newly originated GNMA, FNMA and
FHLMC Servicing Rights until sold on a monthly, bi-monthly or quarterly basis,
and for which a purchase agreement is in place pursuant to which such servicing
is to be sold ("Servicing Held for Sale Loans"). Upon the sale of any Eligible
Servicing Held for Sale to an Approved Servicing Purchaser, the Administrative
Agent shall, within three (3) Business Days after receiving a written request
of Obligors (and at Obligors' expense) notify the Collateral Agent of such sale
describing in such notice the servicing rights so sold and, upon receiving such
notice, the Collateral Agent shall release (at Obligors' expense) its security
interest in such servicing rights without consent by any Bank. Such servicing
rights shall no longer be included in Servicing Held for Sale Loan Value.
(g) the "Servicing Sale Receivable Subline" is a subline
under the Warehouse Line under which the Obligors may borrow, repay and
reborrow up to an aggregate amount equal to seven and one-half percent (7.5%)
of the aggregate Committed Sums of all Banks for the Warehouse Line (the
"Servicing Sale Receivable Sublimit") from time to time for general corporate
purposes ("Servicing Sale Receivable Loans").
(h) the "Other Loan Subline" is a subline under the Warehouse
Line under which the Obligors may borrow, repay and reborrow up to an aggregate
amount equal to one percent (1%) of the aggregate Committed Sums of all Banks
for the Warehouse Line (the "Other Loan Sublimit") from time to time solely to
finance or refinance the origination or acquisition of Eligible Other Loans
("Other Loan Subline Loan").
(i) Notwithstanding any other provision of this Agreement to
the contrary, for each day when, for any reason:
(1) the sum of the Banks' commitments is less than the
amount of the Facility Limit stated in Section 2.2(a), the Facility Limit shall
be that lesser amount; and
(2) the sum of the Banks' Sublimit or Sub-sublimit for
any Facility, as shown on the most recent signature pages to the Commitment
Schedule (or any supplement, amendment or restatement of it), is less than the
amount of the Sublimit for the relevant Subline or Sub-subline stated in
Section 2.3, such Sublimit or Sub-sublimit shall be that lesser amount.
Section 2.4 Warehouse Line Term. Subject to the Commitments Lapse
Provisions, credit under the Warehouse Line (including its Sublines and
Sub-sublines) shall be available to the Obligors until the Warehouse
Termination Date. Upon expiration or any earlier termination of the Warehouse
Line (including its Sublines and Subsublines), the Warehouse Notes shall
automatically be and become due and payable on demand, the Warehouse Facility
Fee shall automatically cease to accrue and any accrued but unpaid portion of
it shall be immediately due and payable to the Administrative Agent (for the
accounts of the Banks) without notice or demand.
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Section 2.5 Master Warehouse Notes. The Obligors' borrowings under the
Warehouse Line (including in each instance its Sublines and Sub-sublines) shall
be evidenced by promissory notes (the "Master Warehouse Notes") dated as of the
Effective Date (or by the promissory notes, if any, from time to time in the
future issued by the Obligors to renew, extend, rearrange, increase or replace
the Master Warehouse Notes, each of which, as well as each such future note,
being called a "Warehouse Note") substantially in the form of Exhibit A,
executed by the Obligors, one payable to the order of each respective Bank in
the face principal amount of such Bank's Committed Sum of the Warehouse Line.
All borrowings under the Sublines and Sub- sublines pursuant to this Agreement
are and shall be evidenced by the Warehouse Notes.
Section 2.6 Warehouse Notes Interest Accrual and Payment. Each
Warehouse Note shall bear interest on its advanced and unpaid principal balance
outstanding on each day at the applicable Stated Rate for the types of Loans
outstanding under the Warehouse Notes; provided that all past due amounts, both
principal and accrued interest, shall be due and payable upon demand. Unpaid
interest accrued on each Warehouse Note to the end of each calendar month, as
well as all unpaid interest on past due amounts for which no demand has been
sooner made, will be automatically due and payable without demand on the
fifteenth (15th) day of the next succeeding calendar month commencing with July
15, 1999; provided that all interests accruing in May 1999 shall be due and
payable on July 15 and provided further that all unpaid principal and accrued
interest on each Warehouse Note shall be finally due and payable in full at the
maturity of such Warehouse Note, however such maturity may occur or be brought
about. All interest calculations under the Warehouse Notes shall be computed on
the basis of the actual number of days elapsed over a year of 360 days unless
that would produce a usurious interest rate under applicable Law, in which
event such rate shall be computed on the basis of the actual number of days
elapsed over a year of 365 days, or 366 days in a leap year, to the extent
required to prevent or minimize usury.
Section 2.7 Warehouse Notes' Due Date. All principal and accrued
interest on the Warehouse Notes will be due and payable on the earlier of the
Warehouse Termination Date or the final maturity of any of the Warehouse Notes,
however such maturity may occur or be brought about.
Section 2.8 Warehouse Notes Voluntary Prepayments. The Obligors may
elect to prepay the Warehouse Notes in whole or in part at any time without
notice, penalty or fee other than the payment of any breakage costs described
in the Warehouse Notes with respect to Loans thereunder bearing interest at the
Eurodollar Rate plus the Applicable Margin, and all such prepayments shall be
applied Ratably to the Warehouse Notes; provided that each such prepayment must
be in the amount of $5,000,000 or any higher integral multiple of $1,000,000.
Section 2.9 Warehouse Notes Mandatory Payments.
(a) The principal amount of each Swing Loan shall be due and
payable without grace, notice or demand on or before the fifth (5th) Business
Day next following the Business Day on which it is funded by GFB unless already
repaid with proceeds of an advance
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made by the Banks. The principal amount of each Wet Warehousing Loan shall be
due and payable without grace, notice or demand on or before the seventh (7th),
or with respect to up to $10,000,000 of Wet Warehousing Loans, the tenth
(10th), Business Day following the Business Day on which it is funded, or at
such earlier date as is required to prevent the balance of outstanding Wet
Warehousing Loans from at any time exceeding the Wet Warehousing Sublimit.
(b) The principal amount of each P&I Loan shall be due and
payable without grace, notice or demand on the first (1st) Business Day of the
calendar month succeeding the calendar month in which it is made.
(c) As and when the Obligors receive recoveries or
reimbursements of any Eligible Receivables under any guides, insurance,
guaranties or contract, or recoveries, reimbursements or compensation from any
source whatsoever for advances made by the Obligors for any such Residential
Mortgages or Pools serviced by the Obligors, the Obligors will promptly prepay
to the Administrative Agent, for application Ratably on the Warehouse Notes,
the amount so recovered, collected or received, as a mandatory prepayment of
principal on the Warehouse Notes.
(d) The borrowing Obligor agrees to pay a mandatory payment
of principal against the Warehouse Notes promptly after:
(1) collecting on any guaranty, insurance or deficiency
claim in respect of the Foreclosed Property or the Mortgage Loan which it
secured or collecting any rentals, other income or any sale, condemnation or
other disposition proceeds from or in respect of such Foreclosed Property or
any casualty, claim, tax rebate or refund of any other source of funds relative
to such Foreclosed Property, in an amount equal to one hundred percent (100%)
of the amount so collected, but not less than the principal amount which the
borrowing Obligor received under the Foreclosed Properties Sub-subline against
such Foreclosed Property;
(2) receiving any current appraisal of any Foreclosed
Property borrowed against under the Foreclosed Properties Sub-subline which
indicates that the principal amount which the borrowing Obligor received under
the Foreclosed Properties Sub-subline against that Foreclosed Property is
greater than seventy percent (70%) of the value indicated by such appraisal, in
an amount sufficient to reduce the principal amount of such Foreclosed
Properties Loan to seventy percent (70%) of such appraised value; or
(3) any Foreclosed Property borrowed against under the
Foreclosed Properties Sub-subline ceases for any reason to be an Eligible
Receivable, in an amount equal to the principal amount which the borrowing
Obligor received against such Foreclosed Property under the Foreclosed
Properties Sub-subline.
(e) If on any day, a Loan proposed to be made under the
Warehouse Line (including its Sublines and Sub-sublines) would cause all
outstanding Loans of that type (including the requested Loan) to exceed the
applicable limit(s) or sublimit(s) on such type of
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Loans as described in the applicable Loan Request, then the Obligors shall
immediately repay the Warehouse Notes as necessary to eliminate such excess.
(f) In addition, the Obligors shall make all mandatory
prepayments required by Sections 2.16, 2.17, 2.18, 2.19, 2.21 and 2.22.
Section 2.10 Warehouse Line Security. The Collateral Agent holds and
shall hold the pledgee's interest and the security interests granted by the
Obligors to the Collateral Agent for the benefit of the Banks in all of the
Obligors' Mortgage Loans, now or hereafter pledged to the Collateral Agent for
the benefit of the Banks, pursuant to this Agreement including all of the
Collateral covered by (1) the Warehouse Pledge Agreement, (2) the Servicing
Rights Security Agreement, (3) the Receivables Security Agreement, (4) all
mortgages, deeds of trust, deeds to secure debt or other forms of mortgage
instruments that are intended to grant a Lien against real property
("Mortgages") now or hereafter held by the Collateral Agent for the benefit of
the Banks, as mortgagee (as they may have been or may be supplemented, amended
or restated from time to time, the "Foreclosed Properties Mortgages") and (4)
all other pledge agreements and security agreements executed by either Obligor
to secure the Obligations except for (5) the Pledge Agreement (Deposit Account)
covering the Settlement Accounts and the Funding Accounts which shall be held
by Administrative Agent (all of the foregoing collectively, the "Warehouse
Collateral"), to Ratably secure all of the Obligors' present and future
Obligations to the Banks under this Agreement.
Section 2.11 Warehouse Facility Fee. While the Obligors have no
obligation to borrow or to maintain any minimum balance of borrowed funds
outstanding under the Warehouse Line at any time. as compensation to the Banks
for their agreements (the "Warehouse Line Commitments") to make the Warehouse
Line's credit available to the Obligors between the Effective Date and the
Warehouse Termination Date or the effective date of any earlier termination of
the Warehouse Line (the "Warehouse Final Termination Date") and not as
compensation for the use, forbearance or detention of money the Obligors,
jointly and severally, hereby agree to pay to the order of the Administrative
Agent for the account of the Banks a facility fee (the "Warehouse Facility
Fee") for each day between the Effective Date and the Warehouse Final
Termination Date equal to the Warehouse Facility Fee Rate of the amount of all
Warehouse Line Commitments on each such day. The Warehouse Facility Fee shall
be due and payable quarterly in advance on the Effective Date (prorated through
the end of the calendar quarter) and on the first day of each succeeding April,
July, October and January thereafter until the Warehouse Facility Fee has been
fully paid and satisfied, provided that on the Warehouse Final Termination
Date, the entire balance of the Warehouse Facility Fee then unpaid shall be
finally due and payable without notice or demand. Provided further, that the
amount of the Warehouse Facility Fee (although not itself interest) shall be
absolutely limited to that amount which, when added to all interest contracted
for, charged, reserved or received on the Warehouse Line, will not exceed an
amount equal to the maximum amount of nonusurious interest on the advanced and
unpaid balance of the Warehouse Line over its entire actual term allowed by
whichever of applicable Texas or federal Law permits the higher nonusurious
interest rate. If the amount of the Warehouse Facility Fee payable on any day
calculated in accordance with the
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immediately preceding sentence would exceed that limit, then the Warehouse
Facility Fee due on that day shall automatically be reduced to the amount that
will meet, but not exceed, that limit, and if on any day the Obligors have
already paid any such excess, then the excess will be refunded to the Obligors
or appropriately credited against the Obligors' then-outstanding, Warehouse
Notes, whichever the Banks elect.
Section 2.12 Agency and Syndication Fees. The Obligors, jointly and
severally, also promise to pay to the agency and syndication fees described in
(i) a fee letter among the Obligors, the Agents and Banc One Capital Markets,
Inc., as Syndication Agent, dated May 14, 1999, (ii) a fee letter among the
Obligors and the Collateral Agent dated May 14, 1999, and (iii) a fee letter
among the Obligors and the Administrative Agent dated May 28, 1999.
Section 2.13 Amount the Obligors May Borrow Against Each Eligible
Mortgage; Investor Commitment Coverage and Weekly Reports of Coverages
Required; Mortgage Loan Value. Each of the Obligors may obtain Loans of up to
the sum (the "Warehouse Loan Value") of (i) the Mortgage Loan Value of Eligible
Mortgages, (ii) the Receivables Loan Value of the Receivables, (iii) the
Mortgage Repurchase Loan Value of the Defective Mortgages, (iv) the Servicing
Held for Sale Loan Value of Eligible Servicing Held for Sale, (v) the Servicing
Sale Receivable Loan Value of Eligible Servicing Sale Receivables, and (vi) the
Other Loan Subline Loan Value of Eligible Other Loans (the sum of the foregoing
being the "Warehouse Loan Value"). Each of the Obligors agree to provide each
Agent a weekly report of all Investor Commitments held by such Obligor in a
form agreed to by it and the Agents demonstrating that all warehoused Mortgage
Loans (whether warehoused with the Collateral Agent as security for the Loans
or elsewhere as security for other obligations) of such Obligor are fully
covered and hedged by valid and enforceable Investor Commitments that either
match such Obligor's warehoused Mortgage Loan portfolio or can be readily
adjusted to match it under market and interest rate conditions then prevailing.
Section 2.14 Borrowing Procedures. The borrowing Obligor agrees to
notify each Agent of the amount and date of each proposed Loan, and the
designated Stated Rate to apply thereto, under the Warehouse Line (including
its Sublines and Sub-sublines other than the Swing Subline), either by
electronic transmission or facsimile or other writing by no later than 11:30
a.m., Dallas time, on the date (which must also be a Business Day) of the
desired funding (or such earlier Rate Designation Date, if required). The
initial request, whether by electronic transmission or facsimile or other
writing, shall identify the Obligor for which the Loan is being requested, and
a separate request shall be made for each Loan to each Obligor. Neither Obligor
may request funding of a P&I Loan to occur earlier than the day upon which such
Obligor is obligated to make the advance for which it is borrowing such P&I
Loan to the holders of the applicable Mortgage-Backed Securities. The borrowing
Obligor will confirm or make the request for a Loan in writing by delivering to
each Agent a Loan Request, with all blanks appropriately completed, including
the designation of the Stated Rate on or before the applicable Rate Designation
Date, signed by the borrowing Obligor, and accompanied by:
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(a) with respect to Mortgage Warehouse Loans (other than Wet
Warehouse Loans),
(1) a list of Eligible Mortgages having aggregate current
Mortgage Loan Values at least equal to the amount of the requested Mortgage
Warehouse Loan and against which no other Mortgage Warehouse Loan is then
pending or outstanding, and listing the borrowing Obligor's loan numbers or
Pool numbers, the names of the obligors, Property address, the dates, face
amounts, Acquisition Cost, Allocated Commitment Price and Par Value of the
Residential Mortgages and Residential Mortgage Notes, the interest rate on the
Residential Mortgage Note and the Mortgage Loan Value for each Eligible
Mortgage listed; and
(2) the Required Documents (as defined in the Warehouse
Pledge Agreement) for each of the Eligible Mortgages listed.
(b) with respect to Wet Warehousing Loans, a list of Wet
Mortgage Loans having aggregate current Mortgage Loan Values at least equal to
the amount of the requested Wet Warehousing Loan and against which no other Wet
Warehousing Loan is then pending or outstanding. and listing the borrowing
Obligor's loan numbers, Pool numbers (if applicable), the names of the
obligors, Property address, the dates, face amounts, Acquisition Cost,
Allocated Commitment Price and Par Value of the Residential Mortgages and
Residential Mortgage Notes. the interest rate on the Residential Mortgage Note,
the loan term and type and the Mortgage Loan Value for each Wet Mortgage Loan
listed.
(c) with respect to Second-Lien Loans, the documentation
required by Section 2.14(a).
(d) with respect to Receivables Advances Loans,
(1) made under any Sub-subline, a list of the serviced
Residential Mortgage(s) or Pool(s) for which the borrowing Obligor is obligated
to make advances that qualify for Receivables Advances Loans as to which
Receivables Claims no condition exists which the borrowing Obligor cannot
satisfy timely so as not to impair or delay collection of such Receivables
Claims and in which Receivables Claims the borrowing Obligor grants or has
granted the Collateral Agent a first, prior, perfected and currently
enforceable Lien having aggregate Receivables Loan Values at least equal to the
amount of the requested Receivables Advances Loan and against which no other
Receivable Advances Loan is then pending or outstanding (the "Eligible
Receivables"), as described on the schedule of funding to be financed with the
requested Receivables Advances Loan that is attached to the applicable Loan
Request.
(2) if applicable:
(A) made under the Foreclosure Receivables
Sub-subline only, in respect of Repurchased Defaulted Mortgages for which the
borrowing Obligor has a valid and enforceable claim against VA on a VA mortgage
guaranty or against FHA under an FHA
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mortgage insurance policy, a true and correct copy of the appropriate fully
completed VA form 26-1874, "Claim Under Loan Guaranty", VA form 26-8903,
"Notice for Election to Convey and/or Invoice for Transfer of Property" or HUD
form HUD-2701 1, "Single Family Application for Insurance Benefits", showing on
such appropriate form the Agent as (i) the "Claimant" in Box 1 of each such VA
form 26-18741, (ii) the "holder (or payee)" who the form is "from" on the top
right box of each such VA form 26 8903 or (iii) the "holding mortgagee" (by the
Collateral Agent's number in Block 12 of each such form HUD-27011, with each
such form signed by such authorized officer(s) of the borrowing Obligor and the
servicer of such Repurchased Defaulted Mortgage as such form requires (for each
form that is submitted by Electronic Data Interchange ("EDI"), the borrowing
Obligor shall deliver to the Collateral Agent a copy of the EDI file
transmitted to the relevant agency on floppy diskette(s) (or by such means of
electronic transmission as the Collateral Agent shall approve) on or before
five (5) Business Days of the date of the EDI transmission); or
(B) made under the Foreclosed Properties Sub-subline
only, a copy of the recorded trustee's deed, sheriffs deed, warranty deed or
other instrument by which title to such Foreclosed Property was conveyed to the
borrowing Obligor.
(3) made under the Foreclosed Properties Sub-subline
only, unless the borrowing Obligor is submitting a completed VA form 26-8903,
VA form 26-1874 or HUD form HUD-27011 for the affected Repurchased Defaulted
Mortgage pursuant to Section 2- 14(d)(2)(A), if the borrowing Obligor has
foreclosed the Repurchased Defaulted Mortgage, a signed and recordable original
first Lien Foreclosed Properties Mortgage containing (or accompanied by) a
security agreement and financing statement appropriate to the jurisdiction
where the Foreclosed Property is located, sufficient in all respects to grant
the Collateral Agent a first mortgage Lien and a first and prior security
interest or chattel mortgage (whichever is appropriate to the jurisdiction) on
the Foreclosed Property to be borrowed against and all related fixtures,
equipment and other personal property. On each occasion when the borrowing
Obligor proposes to borrow against new or additional Foreclosed Properties, all
such Foreclosed Properties in that group which are located in the same county
or parish shall themselves be grouped in a single Foreclosed Properties
Mortgage instrument. A good, complete and sufficient legal description of the
Foreclosed Property shall be set forth in the legally-appropriate place in its
text or an exhibit to it, and the street address of each covered property shall
also be included in the Foreclosed Properties Mortgage to assist the Collateral
Agent in identifying it.
(4) made under the Foreclosure Receivables Sub-subline
and/or the Foreclosed Properties Sub-subline only, as applicable, a list of all
unforeclosed Repurchased Defaulted Mortgages, and a separate list of any such
Foreclosed Properties, to be borrowed against, in each case listed by the date,
amount and maker of the Repurchased Defaulted Mortgage pledged and, if the
Property securing it has been foreclosed, (A) the security Property's address,
(B) the date and recording information of the recorded or registered trustee's
deed (or equivalent instrument of foreclosure conveyance to the borrowing
Obligor appropriate to the method of foreclosure and to the jurisdiction where
the Foreclosed Property is located) by which the borrowing Obligor acquired
such Foreclosed Property; (C) the purchase price paid for it; and
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(D) its current appraised fair value according to a reasonably current
appraisal or broker's price opinion which the borrowing Obligor is satisfied is
substantially correct (and, by submitting a copy of it to the Collateral Agent,
the borrowing Obligor will be deemed to make that representation to the
Collateral Agent and to each of the Banks) -- a copy of an appraisal report or
broker's price opinion for each Foreclosed Property listed shall accompany each
such list.
(5) made under the Foreclosed Receivables Sub-subline
only, a copy of the VA guaranty or FHA or PMI insurance certificate applicable
to each such Repurchased Defaulted Mortgage, whether or not yet foreclosed.
(6) made under the Foreclosed Properties Sub-subline
only, at the borrowing, Obligor's sole cost either a current commitment for
title insurance issued in favor of the Collateral Agent or a copy of the
existing title policy with an updated title search by a reputable and
substantial title insurer in an amount at least equal to the amount of the
borrowing Obligor's requested Foreclosed Properties Loan against such
Foreclosed Property and showing no Liens against it other than the statutory
Liens for ad valorem taxes and public improvements assessments that are not
delinquent Liens.
(e) with respect to Servicing Held for Sale Loans, list of
the Mortgage Loans for which Servicing Rights are included in Eligible
Servicing Held for Sale and the Approved
Servicing Sales Contracts under which they are eligible to be sold in which the
borrowing Obligor has granted the Collateral Agent a first, prior, perfected
and currently enforceable Lien having aggregate Servicing Held for Sale Loan
Value at least equal to the amount of the requested Servicing Held for Sale
Loan and against which no other Servicing Held for Sale Loan is then pending or
outstanding, as described on the schedule of funding to be financed with the
requested Servicing Held for Sale Loan that is attached to the applicable Loan
Request. Together with such Loan Request, the borrowing Obligor shall deliver
to Administrative Agent a summary by flow sale contract of servicing to be
delivered that month to each flow buyer with sufficient detail that the
Administrative Agent may recalculate sales proceeds. Such information shall
include, but not be limited to, principal and weighted average servicing fee by
maturity term.
(f) with respect to Servicing Sale Receivable Loans, list of
the Eligible Servicing Sale Receivables included in Servicing Sale Receivable
Loan Value and the Approved Servicing Sales Contracts under which they are due
and payable in which the borrowing Obligor has granted the Collateral Agent a
first, prior, perfected and currently enforceable Lien having aggregate
Servicing Sale Receivable Loan Value at least equal to the amount of the
requested Servicing Sale Receivable Loan and against which no other Servicing
Sale Receivable Loan is then pending or outstanding, as described on the
schedule of funding to be financed with the requested Servicing Sale Receivable
Loan that is attached to the applicable Loan Request. Together with such Loan
Request the borrowing Obligor shall included a schedule showing the calculation
of the amount receivable on the sale date and calculating the amount receivable
on the transfer date. Prior to any contract being included as an Approved
Servicing Sale Contract, the respective Obligor shall deliver to the
Administrative Agent an executed copy of such
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contract and any other information regarding such contract that Administrative
Agent may request.
(g) with respect to Mortgage Repurchase Loans,
(1) a list of Defective Mortgages having aggregate
current Repurchased Mortgage Loan Values at least equal to the amount of the
requested Mortgage Repurchase Loan and against which no other Mortgage
Repurchase Loan is then pending or outstanding, and listing the borrowing
Obligor's loan numbers or Pool numbers, the names of the obligors, Property
address, the dates, face amounts and the Mortgage Repurchase Loan Value for
each Defective Mortgage listed; and
(2) the Required Documents for each of the Defective
Mortgages listed.
(h) with respect to Other Loan Subline Loans,
(1) a list of Eligible Other Loans having aggregate
current Other Loan Values at least equal to the amount of the requested Other
Loan Subline Loan and against which no Other Loan Subline Loan is then pending
or outstanding, and listing the borrowing Obligor's loan numbers or Pool
numbers, the names of the obligors, Property address, the dates, face amounts
and the Other Loan Subline Loan Value for each Eligible Other Loan listed; and
(2) the Required Documents for each of the Eligible
Other Loans listed.
Delivery of a Loan Request may be by electronic transmission or
telecopy if confirmed by the borrowing Obligor's mailing an
originally-signed copy to each Agent on the same day. Upon each
Agent's receipt of a Loan Request before 11:30 a.m. on a Business Day
and the receipt of a collateral added report by Administrative Agent
from Collateral Agent, no later than 1:15 p.m., the Administrative
Agent shall notify each of the other Banks by no later than 2:00 p.m.
on the same Business Day. Each Bank other than GFB shall make its
Funding Share of the requested Loan available to the Administrative
Agent in immediately available funds at the Administrative Agent's
main office no later than 3:00 p.m. on the date such Loan is to be
made. Upon satisfaction of all conditions precedent to the funding of
a Loan, GFB shall make its Funding Share of the requested Loan
available to the borrowing Obligor in immediately available funds at
the Administrative Agent's main office in Dallas, and upon receipt by
the Administrative Agent from each other Bank of its own Funding
Share, the Administrative Agent shall make that portion of such Loan
available to the borrowing Obligor in immediately available funds at
the Administrative Agent's main office in Dallas. If, after any of the
other Banks so provides funds to the Administrative Agent, the
Administrative Agent does not fund the relevant Loan because a
condition precedent is not satisfied or for any other reason, then the
Administrative Agent shall return the funds so received to the
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Bank(s) that provided them on the same Business Day that the
Administrative Agent first determines that the Loan will not be funded
if the Administrative Agent makes that determination before 2:00 p.m.
on that Business Day, or on the next succeeding Business Day if such
determination is not made until 2:00 p.m. or later. If the
Administrative Agent fails to return such funds by the time specified,
then the Administrative Agent shall be obligated to pay interest on
them to, the Bank to which they are due from the day when they should
have been returned to the day when they are returned at the Federal
Funds Effective Rate. By submitting a Loan Request which is received
by the Agents on any Business Day after the 11:30 a.m. deadline for
submitting Loan Requests specified in this Section, or if for any
reason the other Banks do not receive notice of the Loan Request by
the 2:00 p.m. deadline specified in this Section, then the Loan
Request shall automatically be deemed to be a request for both (a) a
Swing Loan to be made by GFB on the Business Day GFB first received
the Loan Request and (b) the Loan actually requested by the text of
the Loan Request to be made by the Banks on or before the fifth (5th)
following Business Day. GFB shall fund each Swing Loan that is deemed
requested by operation of this Section on the same Business Day it is
requested if the requirements of (a) Section 2.3(b) and (b) the
applicable Subsection of Section 2.14 that relates to the type of Loan
actually requested are satisfied (otherwise neither GFB nor the Banks
shall have any obligation to fund either such Swing Loan or the Loan
so requested by the Loan Request's text).
Section 2.15 Determination Assumptions. In making any calculation
involving a determination of all or any part of the Warehouse Loan Value either
Agent shall be permitted to rely, without independent investigation of the
correctness thereof, on:
(A) The information supplied by any Obligor to such
Agent on the related Loan Request, regarding (i) the outstanding
principal balance of any Residential Mortgage, (ii) the Market Value
of any Residential Mortgage, (iii) the amount at which a Qualified
Investor has committed to purchase any Residential Mortgage, (iv) the
Eligible Receivables and Receivables Claims, (v) any Foreclosed
Properties, and (vi) any other component of Warehouse Loan Value.
(B) Any information supplied by the Company, or any
other custodian of any of the Collateral, to Agents unless the Agents
have actual knowledge that such information is untrue or unreliable.
Section 2.16 Refinancings of Swing-Line Loans. GFB, at any time in its
sole and absolute discretion, may, upon notice given to each other Bank by not
later than 11:30 a.m. (Dallas time) on any Business Day, request that each Bank
(including GFB) make a Loan in an aggregate amount equal to its Funding Share
of the aggregate unpaid principal amount of any outstanding Swing-Line Loans
for the purpose of refinancing such Swing-Line Loans. In any event, not later
than 11:30 am (Dallas time) on the penultimate Business Day of each week, GFB
will notify each other Bank of the aggregate amount of Swing-Line Loans which
are then outstanding and the amount of the Loans required to be made by each
Bank (including GFB) to
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refinance such outstanding Swing-Line Loans (the aggregate amount of such Loans
to be made by each Bank shall equal such Bank's Funding Share of such
outstanding Swing-Line Loans). Upon the giving of notices by GFB described
above, each Bank (including GFB) shall promptly remit to Administrative Agent
such Loans in the manner described above in Section, so long as (A) GFB
believed in good faith that all conditions to making the subject Swing-Line
Loan were satisfied at the time such Swing-Line Loan was made, or (B) if the
conditions to such Swing- Line Loan were not satisfied, the satisfaction of
such conditions have been waived in a writing by Majority Banks in accordance
with the provisions of this Agreement. The proceeds of the Loans made pursuant
to the preceding sentence shall be paid to GFB (and not to Obligors) and
applied to the payment of principal of the outstanding Swing-Line Loans, and
Obligors authorizes Administrative Agent to charge any account (other than
escrow or custodial accounts) maintained by it with Administrative Agent (up to
the amount available therein) in order to immediately pay GFB the principal
amount of such Swing-Line Loans to the extent amounts received from the other
Banks are not sufficient to repay in full the principal of the outstanding
Swing-Line Loans requested or required to be refinanced. Each Bank's obligation
to make Loans pursuant to this Section shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation, (1)
any setoff, counterclaim, recoupment, defense or other right which such Bank
may have against GFB, Obligors or anyone else for any reason whatsoever; (2)
the occurrence or continuance of an Event of Default or Default; (3) any
adverse change in the condition (financial or otherwise) of Obligors; (4) any
breach of this Agreement by Obligors, Administrative Agent or any Bank; or (5)
any other circumstance, happening or event whatsoever, whether or not similar
to any of the foregoing; provided, that in no event shall a Bank be obligated
to make a Loan pursuant to this Section if, after giving effect thereto, the
outstanding principal balance of such Bank's Loans would exceed its Funding
Share of the Facility.
Section 2.17 Releases of Sold or Securitized Pledged Mortgages. When
the sale is settled of any Pledged Mortgage, or of any Mortgage-Backed
Securities created from a Pool that includes any Pledged Mortgage, the owning
Obligor shall cause the Qualified Investor purchasing such Pledged Mortgage,
Pool or Mortgaged-Backed Securities to pay directly to the Administrative
Agent, for application Ratably as a mandatory prepayment on the Warehouse
Notes, the amount the Banks together have lent against that sold Pledged
Mortgage or against all Pledged Mortgages in that Pool, whichever the case may
be. Each of the Obligors hereby GRANTS to the Collateral Agent, as secured
party for itself and the other Banks, a security interest in all of such
Obligor's present and future right, title and interest in the Mortgaged- Backed
Securities created from each Pool that includes any Pledged Mortgages, up to
the amount of such Pledged Mortgages, and in such Obligor's present and future
rights to demand, have, receive receipt for them and their proceeds until the
full amount of such mandatory prepayment for the sold Pledged Mortgages in that
Pool shall have been made. Each of the Obligors agrees to take all steps
necessary to cause all such Mortgaged-Backed Securities to be duly registered
in the Collateral Agent's name and to be delivered to the Collateral Agent
(meaning, in the case of uncertificated or book-entry securities, registered as
owned by the Collateral Agent on the books of the securities intermediary that
is shown as their record owner on the books of the fiscal agent for the issuer
of such securities) until such mandatory prepayment for that securitized Pool
has
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been made. Each of the Obligors hereby APPOINTS the Collateral Agent as its
attorney-in-fact to take all such steps in its name and behalf, and each such
appointment shall be deemed a power coupled with an interest and shall be
irrevocable. Upon payment in full of the amount the Banks have lent against
such sold Pledged Mortgage(s), the Collateral Agent's security interest in such
sold Pledged Mortgage(s) only shall terminate and shall be released by the
Collateral Agent upon the owning Obligor's request and at its expense.
Section 2.18 Mandatory Prepayments or Collateral Substitutions for
Ineligible Mortgages. Each of the Obligors agrees that if at any time after any
Mortgage Warehouse Loan is funded against the security of any Residential
Mortgage, that Residential Mortgage ceases to be, or is discovered by the
Obligors or any Bank not to be, an Eligible Mortgage, then its Mortgage Loan
Value shall automatically become zero and whichever Obligor pledged it to the
Collateral Agent will promptly either:
(a) prepay to the Administrative Agent for application
Ratably against the Warehouse Notes, the Mortgage Loan Value used for borrowing
under the Warehouse Line against that ineligible Residential Mortgage, as a
mandatory prepayment of principal on the Warehouse Notes; or
(b) furnish the Collateral Agent substitute collateral having
Mortgage Loan Value, as determined by the Collateral Agent, equal to or greater
than the Mortgage Loan Value used for borrowing under the Warehouse Line
against that ineligible Residential Mortgage, of a type, and by instruments all
of which are, satisfactory to and approved by the Administrative Agent in
accordance with the Loan Documents.
Section 2.19 Mandatory Prepayments or Collateral Substitutions for
Ineligible Foreclosed Property Collateral. Each of the Obligors agrees that if
at any time any legal proceeding is instituted seeking to set aside or
otherwise attacking the trustee's sale (or other mortgage Lien foreclosure
sale) by whichever Obligor acquired any Foreclosed Property that is then
mortgaged or proposed to be mortgaged to obtain or continue any Foreclosed
Properties Loan, or if any Foreclosed Property suffers casualty damage or is
threatened with condemnation, or if for any other reason it ceases to be an
Eligible Receivable or is discovered by such Obligor or any Agent not to be an
Eligible Receivable, then and in any such event the Receivables Loan Value of
that particular Foreclosed Property shall automatically become zero,
irrespective of the merits of any such legal proceeding, the extent or
repairability of the damage or the extent, portion or configuration of the
Property threatened to be condemned. Each of the Obligors agrees that on each
occasion (if any) that such an event occurs, the applicable Obligor will notify
the Agents in writing of such proceedings, casualty damage or condemnation
threat promptly after the applicable Obligor learns of them or it, and the
applicable Obligor will promptly either:
(a) prepay to the Administrative Agent for application
Ratably on the Warehouse Notes the Receivables Loan Value used for borrowing
under the Foreclosed Properties Sub-subline against that ineligible Foreclosed
Property, as a mandatory prepayment of principal on the Warehouse Notes; or
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(b) furnish the Collateral Agent substitute collateral having
Receivables Loan Values as determined by the Collateral Agent, equal to or
greater than the Receivables Loan Value used for borrowing under the Foreclosed
Properties Sub-subline against that ineligible Foreclosed Property, of a type,
and by instruments all of which are, satisfactory to and approved by the
Collateral Agent in accordance with the Loan Documents.
Section 2.20 Title Insurance, Recording Foreclosed Properties
Mortgages. The Obligors agree that the Collateral Agent may record or register
any of the Obligors' Foreclosed Properties Mortgages, and the Obligors agree to
pay for the fees and costs incurred in recording or registering such Foreclosed
Properties Mortgages (and if the applicable Obligor fails or refuses to do so,
then the Collateral Agent may pay such recording or registration cost, and the
applicable Obligor will reimburse the Collateral Agent all such costs and
expenses so incurred). If any Foreclosed Properties Loan made by the Banks is
not paid in full on or before one (1) year after its funding date, the
borrowing Obligor agrees to pay for and deliver to the Collateral Agent
promptly after the expiration of that one (1) year period, without notice or
demand, a mortgagee policy of title insurance in form and substance
satisfactory to the Collateral Agent covering that Foreclosed Property and in
the amount of its appraised value as represented by the borrowing Obligor to
the Collateral Agent when the borrowing Obligor requested such Foreclosed
Properties Loan.
Section 2.21 Disposition of Foreclosed Properties. Each of the
Obligors hereby agrees to dispose of all such Foreclosed Properties mortgaged
to the Collateral Agent in the ordinary course of business as promptly as is
reasonable and prudent and to apply the net proceeds of such dispositions to
reduce the Warehouse Notes.
Section 2.22 Partial Releases of Foreclosed Properties. The Foreclosed
Properties shall be partially released from the Foreclosed Properties Mortgages
covering them from time to time upon the borrowing Obligor's written request,
provided that:
(a) no Default or Potential Default has occurred and is
continuing;
(b) the Warehouse Notes have not matured (however such
maturity may have occurred or been brought about); and
(c) the aggregate principal of all Foreclosed Properties
Loans outstanding after giving effect to the requested release would not (in
the Collateral Agent's reasonable judgment) exceed the aggregate Receivables
Loan Value of all other Foreclosed Properties then mortgaged to the Collateral
Agent.
Any such request shall be in writing, shall identify each Foreclosed Property
proposed to be partially released by its address and the date of the Foreclosed
Properties Mortgage held by the Collateral Agent which covers it, and (unless
all outstanding Foreclosed Properties Loans would remain fully and adequately
secured after such release, in the Collateral Agent's judgment, and the
Collateral Agent shall have therefore waived this requirement) shall be
accompanied by a
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principal payment on the Warehouse Notes in an amount equal to the aggregate
Receivables Loan Values of all such Foreclosed Properties proposed to be
partially released. If that Foreclosed Properties Mortgage instrument has not
yet been registered or recorded, then the partial release, if granted, shall be
effected by the Collateral Agent's striking out the description of such
Foreclosed Property in the Foreclosed Properties Mortgage instrument covering
it, making a marginal notation beside such description, "partially released on
[date]", initialing the change and notifying the borrowing Obligor in writing
that action has been taken. If such Foreclosed Properties Mortgage instrument
has been registered or recorded, then such partial release, if granted, shall
be made by written partial release in recordable form executed by the
Collateral Agent and paid for by and made available to the borrowing Obligor.
Upon both payment in full of all of the borrowing Obligor's other Obligations
under the Facility, and expiration or termination of the Warehouse Line, all
unrecorded Foreclosed Properties Mortgage instruments (if any) shall be
returned to the borrowing Obligor and all registered or recorded Foreclosed
Properties Mortgage instruments shall be released at the borrowing Obligor's
expense and upon its written request.
ARTICLE 3. INTEREST RATE ELECTION PROVISIONS
Section 3.1 Interest Rate Elections. If no Default exists, the
Obligors may elect to have a Eurodollar Rate plus the Applicable Margin or the
Adjusted LIBOR Rate plus the Applicable Margin apply or continue to apply (as
the case may be) to all or a portion of the principal balance of the s. No such
designation shall change the outstanding principal balance of any Warehouse
Note. Obligors shall designate such rate in the related Loan Request given to
the Administrative Agent by the applicable Rate Designation Date or by separate
written notice given thereafter, if Obligors desire to designate (or continue)
a Eurodollar Rate Loan or an Adjusted LIBOR Rate Loan, or to convert a
Eurodollar Rate Loan to an Adjusted LIBOR Rate Loan or vice versa. Each
Eurodollar Rate Loan shall be and remain in the amount of at least Two Hundred
Fifty Thousand Dollars ($250,000), and no more than three (3) Eurodollar Rate
Loans may be outstanding at any one time.
Section 3.2 Inadequacy of Pricing and Rate Determination. If (a) the
Administrative Agent is unable through its customary practices to determine any
applicable Eurodollar Base Rate; (b) by reason of circumstances affecting the
interbank market generally, any of the Banks is not being offered deposits in
dollars in the market for Eurodollar deposits in United States dollars for the
applicable Interest Period and in an amount equal to the amount of any
Eurodollar Rate Loan requested by Obligors or (c) the applicable Eurodollar
Base Rate will not adequately and fairly reflect the cost to any of the Banks
of making and maintaining a Eurodollar Rate Loan, then the Administrative Agent
shall give the Obligors notice thereof and thereupon (1) the Obligors'
designation of a Eurodollar Rate Loan that has not commenced as of the date of
such notice from the Administrative Agent shall be of no force and effect and
(2) until the Administrative Agent notifies the Obligors that the circumstances
giving rise to the Administrative Agent's notice no longer exist, the Obligors
may not request a Eurodollar Rate Loan (and any attempted designation thereof
shall be ineffective). Furthermore, if for any reason
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the LIBOR Rate cannot be determined, then the Administrative Agent shall give
the Obligors notice thereof and thereupon (1) the Obligors' designation of a
LIBOR Rate Loan that has not commenced as of the date of such notice from the
Administrative Agent shall be of no force and effect and (2) until the
Administrative Agent notifies the Obligors that the circumstances giving rise
to the Administrative Agent's notice no longer exist, the Obligors may not
request a LIBOR Rate Loan (and any attempted designation thereof shall be
ineffective).
Section 3.3 Funding Losses. The Obligors shall compensate the relevant
Banks on demand for any loss or expense that any Bank sustains or incurs
because of (1) Obligors' failure to borrow, continue or convert to any
Eurodollar Rate Loan after the Administrative Agent has received the applicable
Loan Request designating it; (2) any prepayment or conversion of all or any
part of a Eurodollar Rate Loan or (3) any default in the full payment of any
Eurodollar Rate Loan or any interest accrued on it when due (whether by
scheduled maturity, acceleration, irrevocable notice of prepayment or
otherwise). Such loss or expense shall include the excess, if any, of (A) the
relevant Bank's cost of obtaining the funds for the Eurodollar Rate Loan being
paid, prepaid or not borrowed, made by continuation or conversion or prepaid
for the period from the date thereof to the last day of the relevant Interest
Period over (B) the interest that would be realized by such Bank in reemploying
the funds so paid, prepaid or not borrowed for such period.
Section 3.4 Determinations. In determining any amount, rate, cost,
loss, expense or reserve requirement hereunder, the Administrative Agent may
make any reasonable assumptions and allocations and may employ any reasonable
averaging and attribution methods. The Administrative Agent's records with
respect to interest rate designations, Interest Periods and the amounts of
Eurodollar Rate Loans to which they apply, the Adjusted LIBOR Rate, any
Eurodollar Rate and all other determinations by the Administrative Agent or any
Bank under this Section and under the relevant definitions shall be binding and
conclusive, absent manifest error.
Section 3.5 Affiliates. Each Bank may make any Eurodollar Rate Loan by
causing a branch or Affiliate of such Bank to make such Eurodollar Rate Loan
and may transfer and carry such Eurodollar Rate Loan at, to or for the account
of the same; but the joint and several obligation of the Obligors to repay such
Eurodollar Rate Loan shall nevertheless be to that Bank and such Eurodollar
Rate Loan shall (1) be deemed to have been made by that Bank and (2) be held by
that Bank for the account of such branch or Affiliate.
Section 3.6 Funding Decision. Each Bank may fund each Eurodollar Rate
Loan in any manner it sees fit; but for the purposes of this Section all
determinations shall be made as if each such Bank funded such Eurodollar Rate
Loan through the purchase of deposits having a maturity corresponding to its
Interest Period and an interest rate equal to the relevant Eurodollar Base
Rate.
Section 3.7 Rate of Return Maintenance Covenant. If at any time after
the date of this Agreement, any Bank determines that (a) any applicable law,
rule or regulation regarding capital adequacy has been adopted or changed since
December 31, 1998 or (b) its interpretation or administration by any
Governmental Authority, central bank or comparable agency has changed
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since December 31, 1998 and determines that such change or such Bank's
compliance with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such Governmental Authority, central bank
or comparable agency, has or would have the effect of reducing the rate of
return on that Bank's capital as a consequence of its obligations under this
Agreement or any of the other Loan Documents to a level below that which that
Bank would have achieved but for such adoption, change or compliance (taking
into consideration the Bank's own capital adequacy policies) by an amount the
Bank deems to be material, then upon notice to the Obligors by that Bank or the
Administrative Agent summarizing the facts triggering the increase and showing
the detailed calculations of the increase. The interest rate on the principal
of that Bank's portion of the Loans funded and outstanding from time to time
shall be increased to a rate sufficient to provide that Bank with a rate of
return on its capital equal to that which would have been achieved but for such
adoption. change or compliance (taking into consideration that Bank's own
capital adequacy policies), or if no Loan is then outstanding, the Obligors
shall pay that Bank on demand an additional interest payment in an amount
sufficient to provide that rate of return, but in no event to exceed the
Ceiling Rate. In determining the increase in interest rate required to achieve
that result, each affected Bank may employ such assumptions and make such
allocations of costs and expenses fairly applicable to such Loans as that Bank
reasonably elects and may use any reasonable averaging and attribution method.
Section 3.8 Illegality of Eurodollar Rate Loans; Inability to
Determine LIBOR Rate. If the Administrative Agent or any Bank, acting in its
sole discretion, determines (i) that maintenance of any Eurodollar Rate Loan
would violate any applicable Law or any rule, regulation, guideline or
directive of any Governmental Authority applicable to any Bank or the
Administrative Agent. whether or not having the force of law or (ii) before the
commencement of an Interest Period after exerting reasonable efforts to obtain
them, that deposits of a type and maturity appropriate to match fund a
Eurodollar Rate Loan are not available, then the Administrative Agent shall
suspend the availability of each interest rate option affected by such
determination and any Eurodollar Rate Loan outstanding under every affected
interest rate option shall automatically convert to a LIBOR Rate Loan: provided
that if the LIBOR Rate cannot be determined for any reason, the availability of
interest rates based thereon shall be suspended and all LIBOR Rate Loans shall
automatically be converted to bear interest at a rate equal to (i) the Federal
Funds Effective Rate plus (ii) 0.125% plus (iii) the Applicable Margin for
LIBOR Rate Loans.
ARTICLE 4. FUNDING PROVISIONS
Notwithstanding any other inconsistent or contrary provision of this
Agreement or any of the other Loan Documents:
Section 4.1 Commitments Lapse Provision. The Banks' commitments to
lend or fund (and all of the Obligors' correlative rights to borrow) under any
of the Facilities now or hereafter existing under this Agreement for which any
such commitment of any of the Banks to lend or fund (or any such right of the
Obligors to borrow or receive funding) then exists, shall lapse
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immediately, automatically and without notice upon the occurrence of (a) any
default, event of default or similar occurrence, however denominated (a
"Default") under any of the Loan Documents the occurrence of which gives the
Administrative Agent or any of the Banks the right to exercise any remedy
(regardless of whether its exercise has been stayed or enjoined by operation of
Law or governmental act) or (b) any event ("Potential Default") that, with
notice and/or the passage of time would ripen into or become a Default, until
(1) each such Potential Default (if any) that occurred is cured before it
ripens into a Default and (2) all such Defaults that have occurred (if any)
have been waived in a writing signed by a Vice President or more senior officer
of the Administrative Agent. In their sole discretion, the Banks may elect to
continue funding on one or more occasions under any of their Facility
notwithstanding any Default or Potential Default, and no such election shall be
construed to be a reinstatement of any lapsed or suspended commitment, a waiver
of any Default or Potential Default or a course of dealing from which the
Obligors or anyone else may infer or construe any obligation on any Bank's or
the Administrative Agent's part to defer exercising or to not exercise any
remedy or to resume, continue or initiate any additional or other funding or
purchasing beyond the specific funding(s) which the Banks have in fact already
made. The provisions of this Section 4.1 are called the "Commitments Lapse
Provision".
Section 4.2 Application of Proceeds of Realization on Collateral. All
Collateral secures all Obligations held by the Banks from time to time and any
and all realizations whether by the Administrative Agent, the Collateral Agent,
any of the Banks or any Person acting on behalf of any of them, on any
Collateral, shall be applied Ratably to the payment of all of the Warehouse
Notes and all other Obligations.
Section 4.3 Application of Setoff Proceeds. The proceeds of the
exercise of any right of setoff or banker's Lien that any Bank exercises
against any of the Obligors' accounts with such Bank shall be applied (a)
first, Ratably to the unpaid costs and expenses incurred and paid by the
Administrative Agent, the Collateral Agent and the Banks for which the Obligors
are liable to the Administrative Agent, the Collateral Agent and/or the Banks
under this Agreement and the other Loan Documents, in the proportion that the
outstanding balance of such costs and expenses reimbursement of which is owed
to each Bank bears to the aggregate outstanding balances of all such
unreimbursed costs and expenses owed to all Banks and (b) second, Ratably to
the Warehouse Notes and all other Obligations. This provision shall not imply
any obligation of either Obligor to maintain any deposit balances with any
Bank.
Section 4.4 Conditions Precedent. No Bank shall have any obligation to
make any Loan unless and until all of the applicable conditions precedent
stated in this Section shall have been satisfied.
(a) Each Bank's obligation to make its part of the first Loan
requested to be funded after the Effective Date is conditioned upon the
Administrative Agent's receipt, of sufficient copies (other than the Warehouse
Notes) for each Bank to receive one, of the following documents on or before
the date the requested initial Loan is to be made, all of which must be
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satisfactory to the Administrative Agent in both form and content and duly
executed by all parties thereto:
(1) this Agreement;
(2) the Master Warehouse Notes;
(3) UCC searches for each of the Obligors and the
Guarantor, as debtor, in the office of the Secretary of State of Texas;
(4) Termination statements for all existing financing
statements shown on the UCC searches described in item (3) above that pertain
to financings by Persons other than the Banks that will be repaid with the
proceeds of any Facility and a release agreement in form satisfactory to
Administrative Agent from Persons other than the Banks that will be repaid with
proceeds of the Facility.
(5) (A) Guarantor's certificate of incorporation issued
by the Secretary of State of Delaware, (B) copies of Guarantor's bylaws
certified by its corporate secretary or assistant secretary and (C)
certificates of the Guarantor's good standing issued by the Secretary of State
of the State of Delaware.
(6) (A) Copies of each Obligor's articles of
incorporation certified by the Secretary of State of the State of Texas, (B)
copies of each Obligor's bylaws certified by its corporate secretary or
assistant secretary and (C) a certificate of good standing issued by the
Secretary of State of the State of Texas and (D) certificate of authority and
franchise taxes paid issued by the Secretary of State of the State of Texas and
the Texas Comptroller of Public Accounts.
(7) resolutions of the board of directors of the
Guarantor and each Obligor, certified, in each case, by its corporate secretary
or assistant secretary, authorizing the execution, delivery and performance of
all applicable Loan Documents and all other documents to be delivered by the
Guarantor and/or each Obligor pursuant to this Agreement;
(8) a certificate of the corporate secretary or assistant
secretary of the Guarantor and each Obligor as to the incumbency and
authenticity of the signatures of the officers of the Guarantor and each
Obligor executing the applicable Loan Documents (the Administrative Agent shall
be entitled to rely on each such certificate until a replacement certificate
has been furnished to the Administrative Agent);
(9) the opinion of counsel to the Obligors and the
Guarantor, dated as of the Effective Date, addressed to the Administrative
Agent and the Banks and substantially in the form of Exhibit E; and
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(10) all fees due to the Administrative Agents or any
Bank pursuant to this Agreement and any other letters or agreements between the
Guarantor and/or the Obligors and any Bank or the Administrative Agent shall
have been paid on the Effective Date.
(b) Each Bank's obligation to make its part of any Loan
pursuant to this Agreement is also conditioned upon satisfaction of each of the
following additional conditions precedent:
(1) the borrowing Obligor shall have delivered to the
Administrative Agent a Loan Request completed and executed by the borrowing
Obligor and otherwise conforming to the requirements of Section 2.14;
(2) all uncertificated Mortgage-Backed Securities in
which either Obligor has granted a Lien to the Collateral Agent for the benefit
of the Banks shall have been recorded on the books of the Agent's designated
securities intermediary as being owned by the Collateral Agent (and on the
Collateral Agent's books as being held for the Banks) and all other Collateral
in which either Obligor or the Guarantor has granted a Lien to the Collateral
Agent (including all of the capital stock (common and, if any, preferred of all
classes and any stock warrants or other rights) of the Company) shall have been
pledged and physically delivered to the Collateral Agent and sufficiently in
its or its designated bailee's possession to satisfy the UCC's requirement of
possession for perfection of the Collateral Agent's Lien (for the benefit of
the Banks) against such Collateral;
(3) the Obligors' representations and warranties
contained in this Agreement (other than those representations and warranties
which by their express terms are confined to the date as of which they are
initially made) shall be true and correct in all material respects on the date
of such Loan as if republished and made on that date;
(4) on the date of such proposed Loan, no event described
in the Commitments Lapse Provision shall have occurred or would exist if the
requested Loan were made and no such Facility shall have been terminated;
provided that with respect to the first Loans, the condition described in this
paragraph 4 shall be satisfied once the Debt under the existing 12/97
Facilities Agreement among Chase Texas Bank, National Association, formerly
Texas Commerce Bank, National Association, as Agent, the Obligors and certain
lenders have been repaid in full with the proceeds of such Loan.
(5) if the requested Loan were made, the sum of (A) the
amount of the Loan requested to be made by such Bank, plus (B) the aggregate
outstanding balance of Loans made by such Bank plus (C) the total outstanding
loans and other extensions of credit by such Bank to the Obligors and to every
other Person whose loans and other extensions of credit from the Bank are
required to be combined with the Obligors for purposes of any applicable legal
lending limit would be no greater than the lowest legal lending limit
established by any Governmental Authority and applicable to such Bank's loans
and extensions of credit to the Obligors and to all other Persons whose loans
and extensions of credit from that Bank are
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required to be combined with the Obligors' for purposes of any such legal
lending limit; provided, that each Bank, by executing this Agreement,
represents to each of the other parties to this Agreement that (i) to the best
of the current actual knowledge of that Bank's officers who are responsible for
that Bank's participation in the Facility provided for in this Agreement and
(ii) in reliance upon information furnished to such Bank by the Obligors and
their respective officers and representatives concerning relationships between
the Obligors and other credit customers of such Bank, that Bank's aggregate
Committed Sum does not exceed any such legal lending limit;
(6) the making of the Loan shall not be prohibited by any
Law;
(7) at the time the Loan is requested is made, the Banks
and the Collateral Agent each shall have received all fees due and owing to it
pursuant to the Loan Documents;
(8) the Company is a wholly-owned Subsidiary of the
Guarantor and New Am Inc. is a wholly-owned Subsidiary of the Company.
Each Loan Request shall be deemed to constitute a representation and
warranty by the borrowing, Obligor on the date of the requested Loan
that the conditions specified in Subsections 4.5(b)(3), 4.5(b)(5) and
4.5(b)(7) are then currently satisfied.
ARTICLE 5. THE OBLIGORS' WARRANTIES AND REPRESENTATIONS
Each of the Obligors warrants and represents, to the extent
applicable, to the Banks and the Collateral Agent today, and all such
warranties and representations shall be deemed republished and reconfirmed as
currently true by the applicable Obligor each time the applicable Obligor
requests funding or offers to sell, as applicable, under any of the Facility,
as follows:
Section 5.1 Organization. Each of the Obligors is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Texas, it has all requisite power and authority and all necessary licenses,
permits, franchises and other authorizations to (i) own and operate its
Property, (ii) carry on its business as now conducted, (iii) execute and
deliver this Agreement, all other Loan Documents, each Loan Request, and all
other instruments referred to or mentioned here or there to which each such
Obligor is a party, (iv) carry out and comply with the terms of this Agreement,
each other Loan Document, each Loan Request, and all other instruments referred
to or mentioned here or there to which it is a party and (iv) consummate the
transactions contemplated thereby; and each of the Obligors is duly qualified
and authorized to do business and is in good standing as a foreign corporation
in all jurisdictions wherein the Property owned or the business transacted by
it makes such qualification necessary or appropriate, and where the failure to
so qualify would result in a Material Adverse Effect.
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Section 5.2 Corporate Action. All corporate action on each Obligor's
part requisite for the due execution. delivery and performance of, and
compliance with, this Agreement, all other Loan Documents, each Loan Request,
and any instruments referred to or mentioned here or there to which each of the
Obligors is a party, or requisite for the consummation of the transactions
contemplated thereby, has been duly and effectively taken. This Agreement, each
Loan Request, and each other Loan Document each constitutes the legal and
binding obligation of the applicable Obligor, enforceable against such Obligor
in accordance with its terms.
Section 5.3 No Violations. Neither the execution and delivery of this
Agreement, any other Loan Documents, any Loan Request, nor the consummation of
the transactions contemplated by any of them, nor compliance with the
provisions of any of them will conflict with, or result in a breach of, or a
default under, any of the terms, conditions or provisions of any Law or of any
contract, regulation, order, writ, injunction, judgment or decree of any court
or Governmental Authority, domestic or foreign to which either Obligor is
subject, or either Obligor's articles of incorporation or bylaws, or of any
indenture, mortgage, deed of trust, promissory note. loan agreement or any
other agreement or undertaking to which either Obligor is a party or by which
such Obligor or any of its property may be bound or subject, or will result in
the creation or imposition of any Lien upon such Obligor's Property, or will
require any action. consent or approval of, or declaration of filing with, any
Governmental Authority.
Section 5.4 Approved Lender, Seller and Servicer. The Company is an
FHA- and VA- approved lender and mortgagee and a GNMA-, FNMA- and
FHLMC-approved issuer and servicer, in each case in good standing, and the
Company currently satisfies and will continuously satisfy all applicable GNMA,
FNMA and FHLMC net worth requirements. New Am Inc. is an FHA-approved lender
and mortgagee and a FNMA-approved issuer and servicer, in each case, in good
standing, and New Am Inc. currently satisfies and will continuously satisfy all
applicable FNMA net worth requirements.
Section 5.5 Obligors are not an Investment Company or Controlled by
One. Neither Obligor is an "investment company" or "controlled by" an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 5.6 Obligors' Legal Compliance. The Obligors are in
compliance, and will continue to observe and comply, in all material respects
with all Laws of all Governmental Authorities (including ERISA).
Section 5.7 Financial Statements Accurate. The Company's consolidated
balance sheet of itself and its Subsidiaries (including New Am Inc.), as of
December 31, 1998, and the consolidated statement of operations and cash flows
of the Company as of December 31, 1998 heretofore furnished to the Banks,
fairly present the consolidated financial condition and cash flows of the
Company and its Subsidiaries (including New Am Inc.) as of December 31, 1998
and for the fiscal year then ended, all in conformity with GAAP consistently
applied, and subsequent to the date of those Financial Statements, there has
not been any Material Adverse Effect.
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Section 5.8 Litigation. There is no litigation pending, or to the
Obligors' knowledge, threatened, that, if determined adversely, to the
Obligors, would adversely affect the execution, delivery or enforceability of
this Agreement, any other Loan Documents, any Loan Request, any sale or
conveyance of any Pool, any relevant custodial agreement, the pledge, transfer
or assignment of any Pool, to the Administrative Agent or the Collateral Agent
(as agent for the Banks) pursuant to this Agreement, or which would have a
Material Adverse Effect.
Section 5.9 Payment of Taxes. Each of the Obligors has filed (or
caused to be filed) all required federal, state and local income, excise,
property and other tax returns with respect to its and its Subsidiaries'
operations, all of such returns are true and correct and each of the Obligors
has paid or caused to be paid all taxes which are due and owing under
applicable Law or as shown on such returns or on any assessment to the extent
such taxes have become due, including all applicable FICA payments and
withholding taxes. The amounts reserved as a liability for income taxes and
other taxes payable in the Financial Statements heretofore furnished to the
Banks are sufficient for payment of all unpaid federal, state and local income,
excise, property and other taxes (whether or not disputed) of each of the
Obligors, and its respective Subsidiaries accrued for or applicable to the
period and on the dates of such Financial Statements and all prior years and
periods, and for which each of the Obligors and its respective Subsidiaries may
be liable in their own right or as transferee of the assets of other Persons or
as successor to any other Person.
Section 5.10 Title to Properties. Each of the Obligors has good,
valid, insurable (in the case of real property) and marketable title to all of
its Properties and assets (whether real or personal, tangible or intangible)
reflected or referred to in the Financial Statements described in Section 9.3,
except for such Properties and assets as have been disposed of since the date
of such Financial Statements either in the ordinary course of business or
because they were no longer used or useful in the conduct of its respective
business, and all such Properties and assets are free and clear of all Liens,
except as disclosed in such Financial Statements.
Section 5.11 Eligibility of Collateral. By its delivery of a Loan
Request and/or a collateral transmittal letter to the Agents, the borrowing
Obligor represents and warrants that all documents submitted in connection with
such Loan Request and collateral transmittal letter satisfy (or, in the case of
a Wet Warehouse Loan Request, all documents to be submitted in connection with
such Loan Request and collateral transmittal letter, will satisfy, prior to the
expiration of the applicable time period for submitting such documents), the
requirements of Section 2.14 applicable to a Loan Request and collateral
transmittal letter of the type submitted and/or the type of Collateral
submitted in connection with such Loan Request and collateral transmittal
letter and that all Collateral submitted in connection with such Loan Request
and collateral transmittal letter satisfies the eligibility requirements set
forth in the Agreement for that type of Collateral, and, further that the
Residential Mortgage File maintained by the borrowing Obligor in connection
with any Pledged Mortgage contains, among other items, an appraisal mortgage
title insurance with respect to the related real estate encumbered by such
Pledged Mortgage, and a primary mortgage insurance policy with respect to
Pledged Mortgages in which
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the original loan-to-value ratio was greater than eighty percent (80%), except,
in such latter case, for pledged VA Loans, and FHA Loans.
Section 5.12 Year 2000 Compliance. All devices, systems, machinery,
information technology, computer software and hardware, and other date
sensitive technology necessary for Obligors to carry on their business as
presently conducted and as contemplated to be conducted in the future are or
will be in a condition such that no material disruption of Obligors' business
operations will occur at the year 2000.
ARTICLE 6. DEFAULTS AND REMEDIES
If:
Section 6.1 Note Payment Default. The Obligors shall fail to pay or
prepay any principal of or interest on any Warehouse Note held by any of the
Banks and all other amounts including, the Warehouse Facility Fee, the fees
owing pursuant to Section 2.12, or the fee, now or hereafter owing under this
Agreement or any of the other Loan Documents as and when due; or
Section 6.2 Covenant Default. Default shall occur in the punctual and
complete performance of any covenant of either Obligor, the Guarantor or any
other Person contained in this Agreement or any other Loan Documents, except
that the Obligors shall have fifteen (15) days after Default in the performance
of the covenants set out in Sections 7.3(a) through 7.3(j), Section 7.8,
Section 7.10, Section 7.13, and Sections 8.8 through 8.14, to cure any such
Default before the Banks' remedies as set forth in this Article shall apply; or
Section 6.3 Default on Other Obligation. Either Obligor or the
Guarantor shall fail to pay at maturity, or within any applicable period of
grace, any principal of or interest on any other obligation to any Person which
obligation (as opposed to the amount of such delinquent payment) shall equal or
exceed One Million Dollars ($1,000,000) or shall fail to observe or perform any
term, covenant or agreement contained in any agreement or obligation by which
it is bound for such period of time as would accelerate, or would permit its
holder (or the holder of any obligation issued under it) to accelerate, the
maturity of that or any other obligation; or
Section 6.4 Violation of Law. Either Obligor or the Guarantor shall
be in default under, or in violation of, any Law of any Governmental Authority
having jurisdiction over either Obligor or the Guarantor or its assets or
Property in any material respect; or
Section 6.5 False Representation or Warranty. Any representation or
warranty made in or in connection with the execution and delivery of this
Agreement or any of the other Loan Documents shall prove to have been
materially incorrect, false or misleading on the date as of which made; or
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Section 6.6 Undischarged Final Judgment. Final judgment or judgments
in the aggregate for the payment of money in excess of Five Hundred Thousand
Dollars ($500,000), and which is uninsured, shall be rendered against either
Obligor or the Guarantor and remain undischarged for a period of thirty (30)
days during which execution shall not be effectively stayed; or
Section 6.7 Lien Claimed or Held Invalid. Either Obligor or the
Guarantor (or anyone claiming by, through or under either Obligor or the
Guarantor) shall claim, or any court shall find or rule, that the Collateral
Agent does not have a valid Lien on any security that may have been provided by
either Obligor, the Guarantor or such other Person for any obligation under
this Agreement or any of the other Loan Documents; or
Section 6.8 Disposition, Encumbrance or Loss of Collateral. There is a
sale, encumbrance or abandonment of any Property now or hereafter covered by
this Agreement (except as contemplated by the Loan Documents) or any other
mortgage, security agreement or other papers now or hereafter securing or
guaranteeing any part of any obligation under this Agreement or any of the
other Loan Documents, or the making of any levy on any of such Property or any
seizure or attachment of it, or the loss, theft, substantial damage or
destruction of any such Property exceeding the aggregate amount of $500,000; or
Section 6.9 Liquidation, Etc. Order. Any order shall be entered in any
proceeding against either Obligor or the Guarantor decreeing the dissolution,
liquidation or split-up of either Obligor or the Guarantor, and such order
shall remain in effect for thirty (30) days; or
Section 6.10 Default under Other Loan Documents. Any default occurs
under any other instrument now or hereafter securing or guaranteeing any part
of any obligation under this Agreement or any of the other Loan Documents after
the expiration of any applicable grace periods; or
Section 6.11 Assignment for the Benefit of Creditors, Voluntary
Bankruptcy. Either Obligor or the Guarantor shall make a general assignment for
the benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business. estate or assets or shall commence any
proceeding under any bankruptcy. reorganization. arrangement, insolvency,
readjustment of debt, dissolution or liquidation Law of any jurisdiction,
whether now or hereafter in effect; or
Section 6.12 Involuntary Proceeding. Any such petition or application
shall be filed or any such proceeding shall be commenced against either Obligor
or the Guarantor and either Obligor or the Guarantor by any act or omission
shall indicate approval of it, consent to it or acquiescence in it, or an order
shall be entered appointing a trustee, custodian, receiver or liquidator of all
or any substantial part of the assets of either Obligor or the Guarantor or
granting relief to either Obligor or the Guarantor or approving the petition in
any such proceeding, and that order shall remain in effect for more than sixty
(60) days; or
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Section 6.13 General Failures, Writ of Attachment, Etc. Either Obligor
or the Guarantor shall fall generally to pay its debts as they become due. or
suffer any writ of attachment or execution or any similar process to be issued
or levied against it or any substantial part or all of its Property which is
not released, stayed, bonded or vacated within thirty (30) days after its issue
or levy; or
Section 6.14 Fraudulent Concealment or Removal. The Obligors or the
Guarantor shall have concealed, removed, or permitted to be concealed or
removed, any part of its Property, with intent to hinder, delay or defraud its
creditors or any of them, or made or suffered a transfer of any of its Property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
Law, or shall have made any transfer of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid
or shall have suffered or permitted, while insolvent, any creditor to obtain a
Lien upon any of its Property through legal proceedings or distraint which is
not vacated within thirty (30) days from its effective date; or
Section 6.15 Dissolution, Etc. There is dissolution, liquidation or
termination of existence of either Obligor or the Guarantor or the conveyance,
lease or other disposition of a substantial part of either Obligor's or the
Guarantor's assets; or
Section 6.16 Change of Control. Any Change of Control occurs; provided
that acquisition of all of the authorized and issued capital stock of Guarantor
by FirstCity Financial Corporation, a Delaware corporation, shall not
constitute a Default, the Banks and the Agent hereby specifically consenting to
the Change of Control that will result from that (but no other) change in the
ownership of the capital stock of Guarantor; or
Section 6.17 Material Adverse Change. Any event shall occur that would
have a Material Adverse Effect on either Obligor or the Guarantor;
then default shall have occurred under this Agreement, every one of
the Warehouse Notes described or referred to in it and all other Loan
Documents, including all renewals, extensions, rearrangements,
increases or substitutions of them, and all of the Banks' obligations
(if any are then outstanding) to fund any advance or payment to or for
the account of either Obligor shall automatically and immediately
lapse and the Administrative Agent at its option may - and at the
direction of the Majority Banks shall - (a) without notice declare any
or all of the Warehouse Notes and all of the Obligors' Obligations to
each of the Banks to be, and thereupon they shall all forthwith
become, immediately due and payable, together with all accrued
interest on them and all unpaid Facility Fees or other fees
theretofore incurred by the Obligors, without notice of any kind,
notice of acceleration or of intention to accelerate, presentment,
demand or protest, all of which each of the Obligors hereby expressly
waives (provided, that such acceleration shall occur automatically and
immediately upon the occurrence of any of the events described in
Sections 6.11 or 6.12 with respect to either Obligor), or (b) proceed
to protect and enforce the Banks' rights under this Agreement and any
other Loan Documents, by any appropriate proceedings, and all Liens
securing any and all
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Obligations of the Obligors to the Banks, the Administrative Agent or
any of them shall be subject to foreclosure in any manner provided for
therein or provided for by applicable Law, as the Administrative Agent
may elect. The Banks or the Administrative Agent may also elect to
specifically enforce any covenant or agreement contained in this
Agreement or in any of the Warehouse Notes or other Loan Documents, or
to enforce any other legal or equitable right provided under this
Agreement or in any of the Warehouse Notes or any other Loan
Documents, or otherwise existing under any Law. No remedy, and no
right or power, of the Administrative Agent or the Banks, or any of
them, is intended to be exclusive of any other remedy, right or power,
and each and every remedy, right and power shall be cumulative and in
addition to every other remedy, right and power given hereunder or now
or hereafter existing at Law or in equity, or by statute or otherwise,
and the Administrative Agent's or any Bank's pursuit of any remedy or
remedies shall not be construed as an election to waive or relinquish
any other available remedy.
ARTICLE 7. AFFIRMATIVE COVENANTS
Until each of the Obligors has fully paid and performed all of its
Obligations to the Banks under this Agreement and the Banks are no longer
committed to make Loans under this Agreement, each of the Obligors agrees to
keep, observe and perform the following affirmative covenants, to the extent
applicable:
Section 7.1 Use of Proceeds. Each of the Obligors agrees to use the
proceeds of all Loans for proper corporate purposes in the ordinary course of
such Obligor's business as it is presently being conducted. as represented and
warranted in this Agreement, and for no purpose other than the respective
purposes permitted by this Agreement.
Section 7.2 Promptly Correct Escrow Imbalances. By no later than seven
(7) Business Days after learning (from any source) of any material imbalance in
any escrow account(s) maintained by either Obligor, the applicable Obligor will
fully and completely correct and eliminate such imbalance.
Section 7.3 Financial Statements and Other Reports. Each of the
Obligors agrees to deliver to the Administrative Agent and (except for the
weekly Investor Commitment required by clause (a) and the weekly schedule of
Eligible Receivables required by clause (j) of this Section which are to be
furnished only to the Administrative Agent) to each of the other Banks:
(a) by no later than Wednesday of each week, such Obligor's
weekly Investor Commitment (described in Section 2.13) for the preceding week
in form substantially similar to those heretofore furnished to the
Administrative Agent, sufficient in detail to allow the Administrative Agent to
reconcile such reports with Investor Commitments held in trust by the Obligors
for the Administrative Agent,
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(b) promptly -- and in any event within thirty (30) days --
after the end of each calendar month, a management report substantially in the
form of Schedule 3 regarding such Obligor's commitment position, pipeline
position and hedging position, prepared as of the end of such month;
(c) within thirty (30) days after the end of each calendar
month, the Obligors' and the Guarantor's monthly Financial Statements,
including a balance sheet as of the end of such month and an income statement
for such month and for the fiscal year to date, prepared substantially in
accordance with GAAP subject to normal year-end adjustments. and also including
copies in forms substantially similar to those heretofore furnished to the
Administrative Agent of each of the Obligors' portfolio delinquency reports for
such month;
(d) as soon as available and in any event within ninety (90)
days after the last day of each fiscal year of each of the Obligors and the
Guarantor (or longer if, and for the same period that, GNMA, FNMA, FHLMC and
HUD extend the time for such Obligor to file audited Financial Statements with
them, but in no event beyond one hundred twenty (120) days after such fiscal
year end), each Obligor's and the Guarantor's annual Financial Statements, and
including a balance sheet and a statement of income, retained earnings and cash
flows for such fiscal year and the immediately preceding fiscal year in
comparative form and in reasonable detail, and all notes to them, all prepared
in conformity with GAAP and accompanied by a report and opinion, without
material disclaimer or qualification, of KPMG Peat, Marwick or another firm of
certified public accountants reasonably acceptable to and approved by the
Administrative Agent, stating that such accountants have conducted audits of
such Financial Statements in accordance with generally accepted auditing
standards and that, in their opinion, such Financial Statements present fairly,
in all material respects, the financial position of the applicable Obligor or
the Guarantor as of the date thereof and the results of its operations and cash
flows for the periods covered thereby in conformity with GAAP -- each such
annual auditor's report and opinion shall either include or be accompanied by
(1) such accountants' statement that their examination included tests relating
to Mortgage Loans serviced for others in accordance with the requirements of
the "Uniform Single Audit Program for Mortgage Bankers" and (2) such
accountants' report made in accordance with the requirements of such program of
exceptions or errors, if any, in such Obligor's or the Guarantor's records, and
Obligors shall forward to Administrative Agent such accountants' management
letter within thirty (30) days after Obligors' receipt thereof;
(e) as soon as available and in any event within forty-five
(45) days after the end of (1) each month a current written appraisal by the
management of each Obligor, and (2) each fiscal quarter of each fiscal year of
each Obligor, a current written appraisal by an independent appraiser
(nationally known as expert in the evaluation of Loan Servicing Rights and
acceptable to the Administrative Agent in the exercise of its sole discretion),
in each case appraising the fair market value of the Owned Servicing Rights of
such Obligor as of the end of such month or fiscal quarter; such appraisal
shall be addressed to the Administrative Agent and shall be in a form
reasonably acceptable to the Administrative Agent, and if the opinion of value
in any such appraisal is expressed as a range of values, then for purposes of
this Agreement, the
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appraised value shall be deemed the midpoint (the average of the limits) of the
range; provided, that the Administrative Agent (at the discretion of the
Majority Banks) has the right to request an independent appraisal more
frequently than quarterly; and provided further that for purposes of this
Agreement, the value of the Obligors' commercial mortgage loan Servicing Rights
shall in no event exceed the lesser of their appraised value or twenty basis
points (0.020%) of the aggregate principal sum of the Obligors' commercial
mortgage loan servicing portfolio on any day;
(f) together with each delivery of Financial Statements
pursuant to Sections 7.3(c) and 7.3(d), a Compliance Certificate, properly
completed which, among other things required by such form:
(1) sets forth in reasonable detail all calculations
necessary to show that the Obligors are in compliance with the requirements of
this Agreement, or if the Obligors are not in compliance, showing the extent of
noncompliance, stating the period of noncompliance and specifying what actions
the Obligors have taken and propose to take with respect to it; and
(2) sets forth in sufficient detail satisfactory to the
Administrative Agent the delinquency status of all Serviced Mortgages
(calculated as described in Section 10.14); and
(3) sets forth in sufficient detail satisfactory to the
Administrative Agent, the aggregate principal amount of each Obligor's Debt as
of the end of the time period to which the accompanying Financial Statements
relate;
(g) all other delinquency reports maintained by the Obligors
and such other reports in respect of the Collateral deposited with or filed by
or for the Administrative Agent pursuant to this Agreement or any other Loan
Document, in such detail and when and as the Administrative Agent may
reasonably request from time to time;
(h) within thirty (30) days after such Obligor's receipt of
such Obligor's annual HUD report, a copy of such HUD report and such Obligors'
response to it;
(i) within thirty (30) days after such Obligor's receipt of
such Obligor's GNMA, FNMA or FHLMC audit, a copy of such GNMA, FNMA or FHLMC
audit and such Obligor's response to it;
(j) by no later than Wednesday of each week, such Obligor's
weekly, detailed computer generated schedule of all Eligible Receivables;
(k) as soon as available and in any event within forty-five
(45) days after the end of each fiscal quarter, an aging report showing how
long Servicing Rights have been pledged to Collateral Agent for the benefit of
the Banks.
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(l) copies of all other regular or periodic financial and
other reports, if any (including any warranty or indemnity claim reports), that
either Obligor or the Guarantor shall file with GNMA, FNMA, FHLMC, HUD or VA or
any other Governmental Authority, in such detail and when and as the
Administrative Agent may reasonably request from time to time; and
(m) From time to time, with reasonable promptness, such
further information regarding each Obligor's or the Guarantor's business,
operations, properties or financial condition as the Administrative Agent or
any Bank may reasonably request.
Section 7.4 Maintenance of Existence, Conduct of Business. Each of the
Obligors agrees to (a) preserve and maintain its corporate existence in good
standing and all of its material rights. privileges, licenses and franchises
necessary or desirable in the normal conduct of its business. including its
eligibility as mortgagee, seller/servicer or issuer as described in Section
5.4, and (b) make no material change in the nature or character of its
business.
Section 7.5 Compliance with Applicable Laws. Each of the Obligors
agrees to comply with the requirements of all applicable Laws which if breached
by such Obligor could reasonably be expected to result in a Material Adverse
Effect, except only where such Obligor is diligently contesting such Laws in
good faith and by appropriate proceedings with appropriate reserves for any
potential associated liabilities which reserves are both (a) established in
accordance with GAAP and (b) reasonably determined to be adequate by such
Obligor's Board of Directors.
Section 7.6 Perform Agreement. Each of the Obligors will do and
perform every act and discharge every obligation under the Loan Documents and
in the manner here and there specified.
Section 7.7 Books. At any reasonable time, upon the Administrative
Agent's or any Bank's request, each of the Obligors will permit the
Administrative Agent or any Bank or their respective agents or representatives
to examine such Obligor's books of account, records, reports and other papers
and make copies and extracts from them, inspect such Obligor's Property and
discuss such Obligor's business, finances, accounts and affairs with its chief
executive or chief operating officer and independent certified public
accountants and each Obligor hereby consents to and approves of any such
discussions and examinations previously held. Each of the Obligors agrees to
provide its accountants with a copy of this Agreement (including' each
supplement, amendment or restatement of it made, and each from time to time
hereafter made promptly after its execution) and will instruct its accountants
to answer candidly any and all questions that the officers or any authorized
representatives of the Administrative Agent or any Bank may address to them in
reference to such Obligor's financial affairs or condition. Each of the
Obligors may have its representatives in attendance at any meetings between the
officers or other representatives of the Administrative Agent or any Bank and
such Obligor's accountants held in accordance with this Section.
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Section 7.8 Investor Commitments. With respect to Eligible Mortgages,
at all times maintain in effect Investor Commitments in an aggregate amount of
at least one hundred percent (100%) of the aggregate unpaid principal balances
or amounts of such Eligible Mortgages, excluding Other Loans and Defective
Mortgages.
Section 7.9 Notice. Each of the Obligors agrees to give written notice
to the Administrative Agent and the Banks of any of the following that may
occur immediately after such Obligor first learns of it:
(a) the occurrence of a Potential Default or a Default.
(b) the institution or threat of any action, suit or
proceeding by or against either Obligor in or before any Governmental Authority
( excluding routine HUD or VA audits not undertaken for cause) involving a
claim of $50,000 or more.
(c) the filing, recording or assessment of any federal, state
or local tax Lien against such Obligor which could reasonably be expected to
have a Material Adverse Effect.
(d) such Obligor's failure for any reason to continuously
satisfy all requirements for maintaining its eligibility as an approved
mortgagee, seller/servicer or issuer as described in Section 7.4, or the
suspension, revocation or termination of such eligibility for any reason.
(e) any event or condition that either currently has a
Material Adverse Effect or (either by itself or in combination with other
existing or reasonably anticipated circumstances) if adversely determined,
could have a Material Adverse Effect.
Section 7.10 Pay Debt, Taxes, Etc. Each of the Obligors agrees to pay
when due and before delinquency (a) all taxes and other governmental charges or
levies imposed on such Obligor, its income or profits or any of its Property,
(b) all lawful claims for labor, materials and supplies which, if unpaid, might
become a Lien upon any of its Property and (c) all Debts, accounts,
liabilities, debts and charges now or hereafter owing by such Obligor. Each of
the Obligors agrees to maintain appropriate accruals and reserves for all Debts
and all other liabilities, debts and charges in a timely fashion in accordance
with GAAP. Provided. that each Obligor may delay paying any such taxes, levies,
claims, accounts, Debts or other liabilities, debts and charges (excluding
those owing to the Banks, all of which must be paid when due) if, to the extent
that and for so long as (1) such Obligor is contesting their validity
diligently, in good faith and by appropriate proceedings, (2) such Obligor has
posted such bond or other security as shall be fully effective to prevent or
stay any attachment, garnishment, sequestration or seizure of any of such
Obligor's Property during the pendency of such proceedings, (3) such Obligor
has set aside on its books adequate reserves in accordance with GAAP and (4)
such Obligor pays such taxes, etc. before any of such Obligor's Property can
lawfully and effectively be garnished, attached or sold to secure or satisfy
them and before any judgment in respect of them against such Obligor or any of
its Property becomes final.
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Section 7.11 Insurance. Each of the Obligors agrees to maintain (a)
errors and omissions insurance or mortgage impairment insurance and blanket
bond coverage with such companies and in such amounts as satisfy prevailing
GNMA, FNMA, FHLMC, FHA and VA requirements and (b) liability insurance and fire
and other hazard insurance on its Properties with responsible insurance
companies, in such amounts and against such risks as is customarily carried by
similar businesses operating in the same vicinity. Each of the Obligors agrees
to furnish evidence of such insurance to the Administrative Agent upon request
without charge promptly after a request made from time to time by the
Administrative Agent.
Section 7.12 Other Loan Obligations. Each of the Obligors agrees to
perform all obligations under the terms of each loan, credit or similar
agreement, promissory note, mortgage, security agreement, indenture or other
debt or security instrument by which such Obligor is bound or to which it or
any of its Property is subject, if the failure to perform such obligations
could have a Material Adverse Effect (either by itself or in combination with
other existing or reasonably anticipated circumstances).
Section 7.13 Covenants Concerning Collateral. Each of the Obligors
agrees to:
(a) Service (or cause to be serviced) all Mortgage Loans
included in the Collateral which such Obligor has the right or obligation to
service, in accordance with standard industry requirements and all applicable
GNMA, FNMA, FHLMC, FHA and VA requirements, including taking all actions
necessary to enforce the obligations of the obligors under such Mortgage Loans.
(b) Service (or cause to be serviced) in accordance with all
applicable contractual and other requirements all Mortgage Loans and commercial
mortgage loans which (1) back Mortgage-Backed Securities included in the
Collateral and (2) such Obligor has the right or obligation to service.
(c) Timely comply in all respects with all terms and
conditions of all Investor Commitments covering Collateral (and any renewals,
extensions or modifications of them or substitutions for them), and cause the
Collateral covered by and intended to be sold under each Investor Commitment to
be delivered to the Qualified Investor who issued the Investor Commitment
before its expiration in the manner and order contemplated by the Investor
Commitment.
(d) Maintain, at such Obligor's principal office, in trust,
for the benefit of the Administrative Agent and the Banks, the originals (or
copies in any case where the original has been delivered to the Administrative
Agent) of all Residential Mortgage Notes, recorded Residential Mortgages
included in Collateral and Investor Commitments related to them, all insurance
policies and all related papers, as well as all files, surveys, certificates,
correspondence, appraisals (to the extent required by the policies of any
Qualified Investor), computer programs, tapes, disks, cards, accounting records
and other information and data relating to the Collateral.
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Upon the Administrative Agent's reasonable request, such Obligor will promptly
make them conveniently available to the Administrative Agent.
(e) Warrant and forever defend to the Administrative Agent,
the Banks and their respective successors and assigns, (1) title to the
Collateral and (2) the Liens granted by this Agreement and the other Loan
Documents.
(f) Promptly discharge and perform all of such Obligor's
obligations with respect to any of the Collateral and all Investor Commitments
relating to it.
(g) Upon request by the Administrative Agent from time to
time, expeditiously apply for and, if such counter-parties are willing to make
such agreements with an Obligor (each of the Obligors agrees in good faith to
urge them to do so), to execute such acknowledgment agreements and related
agreements with GNMA (if any such agreements with GNMA are both available and
deemed by the Administrative Agent to be necessary), FNMA, FHLMC and other
counterparties to Loan Servicing Agreements as are necessary or appropriate, in
the Administrative Agent's opinion, to achieve, maintain or improve
establishment and perfection of the Collateral Agent's security interest in
collateral intended to be covered by the Servicing Rights Security Agreement as
security for all of such Obligor's present and future Obligations to the Banks.
Section 7.14 Employee Benefit Plans. Each of the Obligors agrees to
promptly furnish to the Administrative Agent:
(a) Within ten (10) Business Days after the occurrence of a
Reportable Event with respect to any Plan, a copy of any materials required to
be filed with the PBGC with respect to such Reportable Event.
(b) A copy of any notice of intent to terminate a Plan, no
later than the date such notice is required to be provided to participants of
such Plan under Section 404 1 (a)(2) of ERISA and copies of any notices of
noncompliance received from the PBGC under Section 4041(b)(2)(C) of ERISA,
within ten (10) Business Days after such Obligor's receipt of such notice.
(c) Not later than ten (10) Business Days after its receipt
by such Obligor, any ERISA Affiliate of such Obligor or the administrator of
any Plan, a copy of any notice to such Obligor or such ERISA Affiliate that the
PBGC has instituted proceedings to terminate such Plan or to appoint a trustee
to administer such Plan.
(d) A statement from a vice president or more senior officer
of such Obligor describing any event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of any Plan or for the
appointment of a trustee to administer any Plan, within ten (10) Business Days
after such Obligor knows or has reason to know such event or condition exists.
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(e) Within ten (10) Business Days after its receipt by such
Obligor or any ERISA Affiliate of such Obligor, a copy of any notice concerning
the imposition of any withdrawal liability under Section 4202 of ERISA.
Section 7.15 Benefit Plan Obligations. Each of the Obligors agrees to
reduce future contributions or benefits to each Plan to the extent (if any) (a)
necessary to avoid the occurrence of a Default and (b) that such reduction may
be effected without (1) causing a "partial termination" as that term is used in
Section 411 (d)(3) of the Internal Revenue Code and its related regulations and
(2) causing the Plan to become disqualified or violating ERISA.
Section 7.16 Further Assurances. Each of the Obligors agrees to
promptly cure any defects in the execution and delivery of any of the Loan
Documents. Each of the Obligors agrees to do, execute, acknowledge and deliver
(or cause to be done, executed, acknowledged and delivered) at its own cost and
expense, all such further acts, documents and assurances as the Administrative
Agent in its discretion shall request or require to more fully, completely or
effectively (a) state the obligations intended to be stated in the Loan
Documents, (b) effect the pledge and assignment to the Collateral Agent of the
Collateral intended by the Loan Documents to be pledged and assigned or which
such Obligor may be (or may hereafter become) bound to pledge or assign to the
Collateral Agent, (c) perfect any transfer, conveyance or security interest
created or intended to be created under the Loan Documents, or (d) carry out
the intention or facilitate the performance of the terms of this Agreement and
the other Loan Documents. Without limitation, each of the Obligors agrees to
immediately execute and deliver to the Administrative Agent (or its designee)
upon written request all such other and further security agreements, financing
statements and other papers in compliance with, or accomplishment of, such
Obligor's promises and obligations in the Loan Documents, as the Administrative
Agent shall request from time to time, and to furnish favorable written
opinions of counsel as to the validity and enforceability of this Agreement and
the other Loan Documents and the validity, enforceability, perfection and
priority of any Lien against the Collateral intended by the Loan Documents to
be pledged and assigned, or that such Obligor may be (or may hereafter become)
bound to pledge or assign, to the Collateral Agent, containing only such
exceptions and qualifications as such counsel requires and as are reasonably
acceptable to the Collateral Agent and its legal counsel.
Within ten (10) Business Days after the Effective Date, Obligors shall
deliver to Administrative Agent (a) certificates of authority and good standing
issued or to be issued by the appropriate Governmental Authority in each state
in which the Guarantor does business and where either the Guarantor is
authorized to do business or where doing business without being duly authorized
would potentially subject the Guarantor to a Material Adverse Effect, each
dated no less recently than thirty (30) days prior to the date of delivery and
(b) certificates of authority and good standing issued or to be issued by the
appropriate Governmental Authority in each state in which each Obligor does
business and where either each Obligor is authorized to do business or where
doing business without being duly authorized would potentially subject each
Obligor to a Material Adverse Effect, each dated no less recently than thirty
(30) days prior to the date of delivery. Within thirty (30) days after the
Effective Date, Obligors shall deliver to
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Administrative Agent the opinion of regulatory counsel to the Obligors and the
Guarantor, addressed to the Administrative Agent and the Banks in form and
substance acceptable to Administrative Agent.
ARTICLE 8. NEGATIVE COVENANTS
Until each of the Obligors has fully paid and performed all of its
Obligations to the Banks under this Agreement and the Banks are no longer
committed to make Loans under this Agreement, each of the Obligors agrees to
keep, observe and perform the following negative covenants, to the extent
applicable:
Section 8.1 No Change of Business. Each of the Obligors agrees not to
engage to any material extent in any line of business other than the lines of
business in which such Obligor and its Subsidiaries are regularly engaged on
the Effective Date, and the Obligors have disclosed all of such lines of
business to the Banks.
Section 8.2 No Other Investments. Each of the Obligors agrees not to
make Investments other than in the normal course of such Obligor's business, as
presently conducted or as changed in accordance with this Agreement.
Section 8.3 No Other Debt. Without first obtaining the specific
written consent of Majority Banks, each of the Obligors agrees to neither
directly nor indirectly create, nor permit the Guarantor to create, any Debt
(or suffer any Debt to exist) except (a) Debt to the Banks under this
Agreement, (b) Debt under the Permitted Facilities Agreements; (c) Debt under
additional warehouse facilities not exclusive to Banks of up to $50,000,000
made available by any lender to Obligors so long as the Collateral Agent is the
only custodian with respect thereto (the Administrative Agent agrees to give
notice to the Banks if and when Administrative Agent receives notice from time
to time that such Debt has been incurred), (d) Debt of less than an aggregate
Five Hundred Thousand Dollars ($500,000) incurred in the ordinary, course of
business and (e) Debt under mortgage gestation repurchase agreements pursuant
to the express provisions of which the relevant purchaser(s) has no recourse to
the Company.
Section 8.4 Limitation on Dividends. Each of the Obligors agrees to
take no action that would result in such Obligor's declaring dividends,
distributions or stock redemptions in any fiscal year except that if (and only
if):
(a) no Potential Default has occurred that has not been cured
before it has become a Default;
(b) no Default has occurred that has not been declared in
writing by the Administrative Agent to have been cured or waived; and
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(c) the Obligors' net income as of the end of the most recent
calendar month earned during the fiscal year during which such calendar month
occurs is at least $1, excluding $10,000,000 in non-recurring restructuring
provision expenses recorded during the second quarter of fiscal year 1999 from
the sale of GNMA and other non-performing assets and from the closure of
production offices and associated headcount reduction costs; and costs and
expenses incurred in restructuring Debt during the second quarter of fiscal
year 1999.
(d) after giving effect to such dividend payment (1) the
Obligors' cash remaining on hand after such payments plus (2) the Mortgage Loan
Values of all Eligible Mortgages owned by the Obligors and that have not been
pledged or borrowed against, totals at least Ten Million Dollars ($10,000,000);
then such Obligor may declare and pay the following dividends to the
Guarantor:
(1) such dividend (if any) as is reasonably required to
pay the cash federal income tax amount due and payable by the Obligors' and the
Guarantor's consolidated corporate group (not to exceed, however, the cash tax
amount that would be due if such Obligor were to file and pay its own tax
return and taxes taking into account the tax benefit of the Obligors' and the
Guarantor's filing consolidated tax returns, including the Guarantor's interest
expense deductions);
(2) if either Obligor shall have incurred Subordinated
Debt, then no dividend shall thereafter be declared or paid until such
Subordinated Debt shall have repaid or until there shall have been a conversion
of that Subordinated Debt into common stock of the applicable Obligor, after
which a dividend of up to twenty-five percent (25%) per annum of the Obligors'
after-tax net income may be declared and paid, and
(3) any other dividend so long as Obligors notify
Administrative Agent that such dividend will be made at least one day before it
is made and with such notice deliver to Administrative Agent an officers
certificate certifying that the conditions described above have been satisfied.
Section 8.5 Minimum Adjusted Tangible Net Worth. The Obligors agree to
neither suffer nor permit their Adjusted Tangible Net Worth at any time to be
or become less than Sixty- five Million Dollars ($65,000,000).
Section 8.6 Maximum Debt to Adjusted Tangible Net Worth. The Obligors
agree to neither suffer nor permit the ratio (measured at the end of each month
on or after the Effective Date) of (a) Total Debt for the month just ended to
(b) the Obligors' Adjusted Tangible Net Worth for the month just ended to be
greater than the ratio of 10.00 to 1.00.
Section 8.7 Limitations on Transactions with Affiliates.
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(a) The Obligors agree to neither amend, modify nor change,
in any respect that would have a Material Adverse Effect (either by itself or
in combination with other existing or reasonably anticipated circumstances),
any material agreement or instrument, whether now or hereafter existing,
pursuant to which the Obligors may incur Debt to an Affiliate (the Obligors
acknowledge that they may do so only with the Administrative Agent's consent),
or to take, suffer or permit any act or omission in respect of any such Debt to
any Affiliate that would have that effect. For purposes of this Section, any of
the following will constitute a Material Adverse Effect per se and without
regard to any other conditions, circumstances or considerations:
(1) any increase in the effective interest rate
applicable to any of the Obligors' Debt to an Affiliate.
(2) any direct or indirect increase in the amount or
frequency of any principal payments on such Debt, including any voluntary or
involuntary prepayment of such Debt.
(3) any acceleration of the maturity of any part of such
Debt.
(4) any prepayment of or agreement to accelerate, the
maturity of any part of such Debt.
(b) The Obligors agree not to incur any Debt to any Affiliate
or otherwise undertake or engage in any other transaction with an Affiliate
except Debt incurred upon fair and reasonable terms no less favorable than the
Obligors could obtain in a comparable arm's-length transaction with a Person
who is not an Affiliate and that does not violate or result in a violation of
Sections 10.3, 10.5, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12 or 10.13.
(c) The Obligors agree neither to directly or indirectly
guarantee any Debt of the Guarantor or any Debt of any other Affiliate nor to
suffer or permit the Guarantor to directly guarantee any Debt of its Affiliates
except for (1) the Guaranty and (2) guarantees of recourse Loan Servicing
Rights in an amount not to exceed five percent (5%) of the aggregate principal
amount of the Obligors' and their Affiliates Serviced Mortgages portfolio.
(d) Except for commissions and bonuses paid to officers and
employees in the ordinary course of business, the Obligors agree to make no
advances, loans or distributions in excess of an aggregate One Hundred Thousand
Dollars ($100,000) to its officers, employees or shareholders without the
Administrative Agent's prior written consent.
(e) The Company agrees to issue no additional capital stock
without the Administrative Agent's prior written consent and unless it is
pledged and delivered when issued to the Administrative Agent as Collateral.
Section 8.8 Limitation on Unmarketable Loans. The Obligors agree not
to own at any time more than Five Million Dollars ($5,000,000) in aggregate
principal amounts of Mortgage
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Loans that, for any reason are not eligible for sale in the regular secondary
market for Residential Mortgage Loans; provided that, for this Section's
purposes, Mortgage Loans whose purchase by the Obligors is financed under the
Foreclosure Receivables Sub-subline, the Mortgage Repurchase Subline and the
Other Loan Subline shall not be considered ineligible for sale as aforesaid.
Section 8.9 No Uncovered Commercial Loans, Etc. Except as otherwise
provided in this Section or as approved in writing by the Administrative Agent
on a case-by-case basis, the Obligors agree not to make or acquire after the
Effective Date any direct outright ownership interest, participation interest
or other creditor's interest in any commercial real estate loan, personal
property loan, oil and gas loan, commercial loan, wrap-around real estate loan
not subject to a valid Investor Commitment, unsecured loan, acquisition loan,
development loan, construction loan (except only for construction loans that
(a) are participated in by another reputable financial institution at the time
of their initial funding to the extent of at least ninety-nine percent (99%) of
the amount committed to be lent and (b) FNMA or another Qualified Investor
approved by the Administrative Agent for that purpose has issued a valid and
enforceable commitment to purchase after the construction financed has been
completed or (c) made pursuant to the ICF Agreement) or unimproved real estate
loans except for such loans made pursuant to the ICF Agreement.
Section 8.10 Loss of Eligibility. Each of the Obligors agrees not to
take or omit to take any act that would result in the suspension or loss of any
of its status with any of GNMA, FNMA, FHLMC, VA or FHA as an eligible
mortgagee, seller/servicer and issuer as described in Section 5.4.
Section 8.11 Fiscal Year Accounting. Neither Obligor will change its
fiscal year or method of accounting unless and until required or recommended by
GAAP and then only after giving notice and a written explanation of each such
change and the reasons for it to the Administrative Agent and the Banks at
least thirty (30) days before the change becomes effective.
Section 8.12 Loans, Advances and Investments. Each of the Obligors
agrees (a) to neither make nor hold any loan, advance or capital contribution
to any Person (or for the account or benefit of any Person) or any investment
in any Person (including any investment in excess of One Million Dollars
($1,000,000) in all Subsidiaries), (b) to neither purchase nor otherwise
acquire any Person's capital stock, securities or evidence of debt
(collectively, "Investments") and (c) to not otherwise acquire any interest in
any Person or control of any Person, except (if and only if the making of an
Investment described below would not violate any other provision of this
Agreement or have a Material Adverse Effect) the following:
(1) Mortgage Loans.
(2) Investments in Qualified Investment Securities.
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(3) Any acquisition of securities or evidence of debt of
others when acquired by such Obligor in settlement of accounts receivable or
other debts arising in the ordinary course of business, if the aggregate amount
of any such securities or evidence of debt is not material to such Obligor's
financial condition according to GAAP.
(4) Any acquisition in the ordinary course of such
Obligor's business of (A) servicing portfolios and related assets, (B)
Mortgage-Backed Securities, (C) Mortgage Loans or (D) businesses for the
purpose of increasing Mortgage Loan production, and related transactions.
Section 8.13 Actions with Respect to Pledged Mortgages.
(a) Each of the Obligors agrees to neither compromise, extend
nor (except in accordance with the provisions of the Pledged Mortgages or to
correct an error) adjust payments on any Pledged Mortgage, accept a conveyance
of mortgaged Property in full or partial satisfaction of any Pledged Mortgage
or (except against full repayment of the affected Residential Mortgage) release
any Residential Mortgage securing or underlying any Pledged Mortgage.
(b) Neither Obligor will agree to the amendment, termination
or pairing off of any Investor Commitment or to the substitution of a different
Investor Commitment for an Investor Commitment, if such amendment, termination,
pairing off or substitution may reasonably be expected (as determined by the
Administrative Agent) to have a Material Adverse Effect (either by itself or in
combination with other existing or reasonably anticipated circumstances).
(c) Neither Obligor will transfer, sell, assign nor deliver
to any Person other than the Collateral Agent any Pledged Mortgage other than
pursuant to Investor Commitments.
(d) Neither Obligor will grant, create, incur, assume, permit
or suffer to exist any Lien upon any Pledged Mortgage except for (1) Liens
granted to the Collateral Agent or (2) such non-consensual Liens (if any) as
may be deemed to arise by operation of law pursuant to any Investor Commitment.
Section 8.14 Cancellation of Loan Servicing Rights. Each of the
Obligors agrees to neither suffer nor permit the cancellation for cause of
Twenty-five Million Dollars ($25,000,000) or more of Loan Servicing Rights.
Section 8.15 Continuous Compliance. Notwithstanding that the Obligors'
compliance with most of the financial covenants set forth in Sections 10.5
through 10.14 is provided in such Sections to be measured periodically, the
Obligors agree to use their best good faith efforts to comply with each of
those financial covenants at all times and continuously for so long as this
Agreement is in force.
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ARTICLE 9. AGREEMENTS CONCERNING THE ADMINISTRATIVE AGENT AND THE BANKS
Section 9.1 Authorization and Action. Each of the Banks hereby
irrevocably appoints GFB as the Administrative Agent under this Agreement and
the other Loan Documents and authorizes the Administrative Agent to act on such
appointing Bank's behalf and to exercise such powers under this Agreement and
all other Loan Documents as are specifically delegated to or required of the
Administrative Agent by their terms, together with all reasonably incidental
powers. If the Administrative Agent (in such capacity) (a) receives any
material writing from either Obligor (including any report or statement
required by any of the Loan Documents), (b) receives any default notice from
any Bank alleging or relating to any Default by either Obligor or (c) gives any
Default notice to either Obligor pursuant to the terms of any of the Loan
Documents, then in each such instance, the Administrative Agent shall promptly
forward copies of such material writing or Default notice to the other Banks.
As to any matter not expressly provided for by this Agreement and all other
Loan Documents (including enforcement or collection of any Warehouse Note and
foreclosure on any Collateral for any or all of either Obligor's present or
future Obligations under the Loan Documents), the Administrative Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the joint instructions of all of the
affected Banks, and such instructions shall be binding upon all Banks;
provided, that the Administrative Agent shall not be required to take any
action that it reasonably believes may (1) expose it to personal liability or
(2) be contrary to this Agreement, any other Loan Documents or applicable
requirements of Law. The Administrative Agent may (but shall not be under any
obligation to) propose to take action or actions under this Agreement and the
other Loan Documents in a notice to the other affected Banks; unless otherwise
directed by the other affected Banks within ten (10) Business Days after the
date of such notice, the Administrative Agent may (but shall not be obligated
to) take the action or actions proposed in such notice and the Administrative
Agent shall be fully protected in so acting as if it had received instructions
to take such action or actions from the other affected Banks; provided that
without the other affected Banks' approval, the Administrative Agent: shall not
(A) declare in writing that a Default that has occurred under this Agreement or
any other Loan Documents has been waived or cured, (B) consent to any merger or
consolidation of either Obligor with or into another Person that would have the
effect described in clause (a)(2) or (b)(2), as applicable, of this Agreement's
definition of "Change of Control", or (C) declare the maturity of any Warehouse
Note accelerated, foreclose or direct Collateral Agent to foreclose on any
Collateral or exercise any of the Banks' other material remedies after the
occurrence of any Default unless such actions set forth in this clause (C) are
(i) reasonably susceptible of being rescinded without materially and adversely
affecting the other Banks or any of the Collateral if the other affected Banks
should elect to have the Administrative Agent rescind them or (ii) actions that
the Administrative Agent, acting reasonably in light of the circumstances then
prevailing and known to the Administrative Agent, shall deem necessary or
appropriate to take on an urgent basis in order to protect or preserve
Collateral or to protect the rights or interests of the Banks. Each Bank hereby
(i) authorizes Administrative Agent to execute and deliver the Warehouse Pledge
Agreement and to appoint Bank One, Texas, N.A., to act as collateral agent and
representative (within the meaning of Section 9.105(13) of the UCC) for each
Bank under the Warehouse Pledge
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Agreement, the Servicing Rights Security Agreement, the Receivables Security
Agreement and the Stock Pledge Agreements and (ii) authorizes Administrative
Agent and Collateral Agent to release Collateral as expressly provided in this
Agreement.
Section 9.2 Employment of Others by the Administrative Agent. The
Administrative Agent may execute and perform any of its duties under the Loan
Documents by or through agents other than (a) either Obligor or (b) any of such
Obligor's Affiliates or (c) any of such Obligor's attorneys, and shall be
entitled to rely (and shall be protected in reasonably relying) on the advice
of such agents and attorneys concerning all matters pertaining to its duties
under the Loan Documents, and, except as otherwise provided in Section 9.3 no
Agent shall be responsible for the negligence or misconduct of any such agents
and attorneys selected by it with reasonable care. Each Bank recognizes and
understands that if neither the Administrative Agent nor the Collateral Agent
shall service any Collateral consisting of loans secured by mortgages and
neither Administrative Agent nor Collateral Agent, as applicable, has adequate
facilities (and neither the Administrative Agent nor the Collateral Agent shall
have any obligation to develop adequate facilities) to service such Collateral,
and that after the occurrence of any Default, it will be necessary for the
Administrative Agent or Collateral Agent, as applicable, to contract with a
third party to service such Collateral and the fees to be paid for such
services will be treated as expenses payable out of the income and proceeds
realized from such Collateral having priority over other applications of such
income and proceeds pursuant to the Loan Documents. The Administrative Agent
will identify any such servicing agent selected by the Administrative Agent or
Collateral Agent for such purpose by written notice to the Banks, and may
engage and continue to employ such servicing agent unless and until the
Majority Banks notify the Administrative Agent in writing that they disapprove
of such servicing agent so selected, in which event the Administrative Agent
shall promptly engage such other servicing agent as shall be approved in
writing by all of the Banks (including GFB) and replace the servicing agent so
originally selected.
Section 9.3 No Liability. Except in the case of its, his or her own
(or own agent's) fraud, gross negligence or willful misconduct, IT BEING
SPECIFICALLY INTENDED THAT THE RELEASED PERSONS (AS DEFINED BELOW) BE HEREBY
RELEASED FROM LIABILITY FOR THEIR OWN SIMPLE NEGLIGENCE, the Administrative
Agent, the Collateral Agent, Banc One Capital Markets, Inc., as Syndication
Agent, and their respective Affiliates and their and each of their Affiliates'
officers, shareholders, directors, employees and agents, the Banks and their
respective shareholders, directors, officers, employees, attorneys and agents
(collectively, the "Released Persons") shall not be (a) liable for any action
taken or omitted to be taken by such Released Person (1) under the Loan
Documents in good faith and believed by such Released Person to be within the
discretion or power conferred upon such Released Person by the Loan Documents
or (2) with the consent or at the request of the Banks or (b) responsible for
consequences of any error of judgment. The Administrative Agent, Collateral
Agent, their Affiliates and its and each of Affiliates' officers, shareholders,
directors, employees and agents shall not be responsible in any manner to
anyone for (1) the effectiveness, enforceability, legality, genuineness,
sufficiency, validity, due execution, filing, registration or recording of any
of the Loan Documents, (2) any representation, warranty, document, certificate,
report or statement made or furnished in, under
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or in connection with the Loan Documents other than its own representation,
warranty, certificate, report or statement furnished to one or more Banks in or
pursuant to any of the Loan Documents, whether deemed given pursuant to another
provision of this Agreement or given in a separate writing (and no certificate,
report or statement so furnished that is prepared in reliance upon information
furnished by either Obligor or any source other than the Administrative Agent
itself shall be construed to be a certification, confirmation, guaranty or
undertaking of any kind by the Administrative Agent of the correctness or
completeness of any of the information so relied upon by the Administrative
Agent), (3) the value of any of the Collateral, (4) except to the extent the
Administrative Agent or the Collateral Agent is required to hold Collateral or
take or perform any other action with respect to it in accordance with this
Agreement and all other Loan Documents and which action is required for such
perfection, the perfection of any Lien on any Collateral or (5) any delay,
error, omission or default of any third party mail, telegraph, telecopy,
electronic mail, cable or wireless agency or operator. Except for its
obligations to make the examinations and determinations required to enable the
Administrative Agent to make the statements which the Administrative Agent will
be deemed to make to the Banks from time to time pursuant to Section 9.17 of
this Agreement by giving notices to Banks of Loan Requests, the Administrative
Agent shall not be under any obligation to anyone to (a) ascertain or to
inquire as to the performance or observation of any of the terms, covenants or
conditions of any of the Loan Documents on the part of either Obligor or any
other Person or (b) inspect the Property (including the books and records) of
either Obligor.
Section 9.4 Reliance. Each Agent shall be entitled to rely (and shall
be fully protected in reasonably relying) upon any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order or other document or conversation believed by it, him
or her to be genuine and correct and to have been signed or made by the proper
Person. Each Agent shall not be required in any way to determine the identity
or authority of any Person delivering or executing the same. If any order,
writ, judgment or decree (an "Order") shall be made or entered by any court
affecting the rights, duties and obligations of either Agent under the Loan
Documents, then and in any of such events such Agent is authorized, in its sole
discretion, to rely upon and comply with such Order; and if such Agent complies
with any such Order, then such Agent shall not be liable to any Bank or to any
other Person by reason of such compliance, even though such Order may be
subsequently reversed, modified, annulled, set aside, held inapplicable or
vacated.
Section 9.5 Qualifications of the Administrative Agent. The
Administrative Agent shall at all times be either a Bank, a commercial bank, a
federal savings bank or trust company organized and doing business under the
Laws of the United States of America or any state, district or territory of it
authorized under such Laws to exercise corporate trust powers, having a
combined capital and unimpaired surplus of at least $50,000,000 and subject to
supervision or examination by Federal, state, district or territorial
authority. The Administrative Agent shall have an office and place of business
in Dallas, Texas, if there is such a Bank, commercial bank, federal savings
bank or trust company willing and able to act as the Administrative Agent on
reasonable and customary terms. If such Bank, commercial bank, federal savings
bank or trust company publishes reports of conditions at least annually,
pursuant to applicable Law or to the
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requirements of the aforesaid supervising or examination authority, then for
the purposes of this Section, the combined capital and unimpaired surplus of
such Bank, commercial bank, federal savings bank or trust company shall be
deemed to be its combined capital and unimpaired surplus as set forth in its
most recent report of condition so published. In case the Administrative Agent
shall cease at any time to be eligible in accordance with the provisions of
this Section, the Administrative Agent shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
Section 9.6 Resignation of the Administrative Agent. The
Administrative Agent, or any agent or agents hereafter appointed, at any time
may resign by giving written notice of resignation to the Obligors and the
Banks and complying with the applicable provisions of this Section. The
Administrative Agent may be removed in accordance with the applicable
provisions of Section 9.7 and with written notice to the Obligors. Upon
receiving such notice of resignation or removal, a successor Administrative
Agent shall be promptly appointed by unanimous action of the Banks (including
GFB) by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Administrative Agent and one copy to the successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed and have accepted the appointment within thirty (30) days after such
notice of resignation, then the resigning Administrative Agent may appoint a
successor Administrative Agent, which shall itself be subject, however, to
removal by the Banks (other than any Bank which is then the Administrative
Agent) without cause (i.e., notwithstanding the conditions to removal of the
Administrative Agent stated in Section 9.7) upon thirty (30) days' written
notice, provided that the removing Banks designate another successor
Administrative Agent in such notice -- or in a separate written notice given on
or before five (5) days thereafter -- to the Administrative Agent being
removed. If the resigning Administrative Agent does not appoint a successor
Administrative Agent as provided in the preceding sentence, then the resigning
Administrative Agent or the Banks (other than any Bank which is then the
Administrative Agent) may petition any appropriate court for the appointment of
a successor Administrative Agent. After such notices, if any, as it may deem
proper and prescribe, such court may appoint a successor Administrative Agent.
Section 9.7 Removal of the Administrative Agent. If (a) the
Administrative Agent shall cease to be eligible in accordance with the
provisions of Section 9.6 and shall fail to resign after written request
therefor by the Banks (other than any Bank which is then the Administrative
Agent), or (b) a receiver of it or of its Property shall be appointed by any
Governmental Authority, of competent jurisdiction and shall take charge or
control of its Property or affairs for the purpose of rehabilitation,
conservation or liquidation, or (c) the Administrative Agent shall be grossly
negligent in the performance of its material duties and obligations under this
Agreement or other Loan Documents or engage in willful misconduct concerning
any such material duties and obligations, then, in any such case, the other
Banks may remove the Administrative Agent and appoint a successor by written
instrument, in duplicate, one copy of which shall be delivered to the
Administrative Agent so removed and one copy to the successor Administrative
Agent; or the Banks may petition any court of competent jurisdiction for the
removal of the Administrative Agent and the appointment of a successor
Administrative Agent. After such notice, if any, as it
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may deem proper and prescribe, such court may remove the Administrative Agent
and appoint a successor Administrative Agent.
Section 9.8 Effective Date of Resignation or Removal. No resignation
or removal of the Administrative Agent shall be effective until (a) a successor
Administrative Agent is appointed pursuant to the provisions of this Agreement
and has accepted the appointment as provided in this Agreement, with a copy of
such acceptance to be provided by the successor Administrative Agent to the
predecessor Administrative Agent, the Obligors and the Banks (but no notice to
any other Person shall be required), and (b) the resigning or removed
Administrative Agent has taken such actions, and the resigning or removed
Administrative Agent agrees to take any and all such actions as may be
necessary or appropriate to substitute the successor Administrative Agent
hereunder, and resigning or removed Agent aggress to take any and all such
actions as the successor Administrative Agent may reasonably request. Each Bank
shall be responsible, Ratably, for its share of all reasonable expenses of the
resigning or removed Administrative Agent and of the successor Administrative
Agent incurred in connection with the actions to be taken in accordance with
the provisions of this Section. No successor Administrative Agent shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor Administrative Agent shall be eligible under the provisions of
Section 9.6.
Section 9.9 Successor Agent. Any successor Administrative Agent
appointed as provided in this Article shall execute and deliver to the Obligors
and to its predecessor Administrative Agent an instrument accepting such
appointment, and thereupon the resignation or removal of the predecessor
Administrative Agent shall become effective and such successor Administrative
Agent, without any further act, deed or conveyance, shall become vested with
all the rights and obligations of its predecessor, with like effect as if
originally named as the Administrative Agent; provided that upon the written
request of the Obligors or the successor Administrative Agent, the
Administrative Agent ceasing to act shall execute and deliver (a) an instrument
transferring to such successor Administrative Agent all of the rights of the
Administrative Agent so ceasing to act and (b) to such successor Administrative
Agent such instruments as are necessary to transfer the Collateral to such
successor Administrative Agent (including assignments of all Collateral or
Collateral documents). Upon the request of any such successor Administrative
Agent made from time to time, the Obligors shall execute any and all papers
which the successor Administrative Agent shall request or require to more fully
and certainly vest in and confirm to such successor Administrative Agent all
such rights. No successor Administrative Agent shall accept appointment as
provided in this Section unless at the time of such acceptance such successor
Administrative Agent shall be eligible under the provisions of Section 9.6.
Section 9.10 Merger of the Administrative Agent. Any Person into which
the Administrative Agent may be merged or converted or with which it may be
consolidated, or any Person surviving or resulting from any merger, conversion
or consolidation to which the Administrative Agent shall be a party or any
Person succeeding to the commercial banking
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business of the Administrative Agent, shall be the successor Administrative
Agent without the execution or filing of any paper or any further act on the
part of any of the parties.
Section 9.11 Banks' Credit Decisions. Each Bank acknowledges that it
has, independently and without reliance upon Administrative Agent or any other
Bank in full compliance with Bank's responsibilities under all applicable
Governmental Requirements (including but not limited to the due diligence
requirements of Banking Circular 181 promulgated by the Office of the
Comptroller of the Currency) based on its own commercial lending expertise has
made its own analysis of Obligor and the transactions contemplated hereby and
its own independent decision to enter into this Agreement and the other Loan
Documents. Each Bank as a sophisticated commercial lender has based its
decision to make the Loan upon a complete analysis of each Obligor's credit
quality, the value and lien status of Collateral and the Loan Documents,
conducted at the same level of due diligence that Bank would undertake if it
alone were making the Loan. Each Bank also acknowledges that it will,
independently and without reliance upon Administrative Agent or any other Bank
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents. Each Bank's Loan is a commercial loan transaction
made in the ordinary course of Bank's business, about which Bank, as a
commercial lender, is fully informed and actively involved on a daily basis.
The Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Bank or the Obligor referring
to the Loan Documents, describing such Default or Event of Default and stating
that such notice is a "notice of default." In the event the Administrative
Agent receives such notice, the Administrative Agent shall give notice thereof
to the Banks. The Administrative Agent shall take such action with respect to
such Default or Event of Default as directed by the number of Banks required
for such action.
Section 9.12 Indemnification. Each Bank agrees to indemnify
Administrative Agent, its Affiliates and each of its Affiliates' officers,
shareholders, directors, employees and agents (to the extent not reimbursed by
Obligor within ten (10) days after demand) Ratably, from and against any and
all liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section, collectively, "LIABILITIES AND COSTS") which to
any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Administrative Agent, in its capacity as Administrative Agent, growing
out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents, and the transactions and events (including the
enforcement thereof) at any time associated therewith or contemplated therein.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED UNDER ANY CLAIM OR THEORY OF STRICT
LIABILITY OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ADMINISTRATIVE AGENT, PROVIDED ONLY THAT NO BANK SHALL BE
OBLIGATED UNDER THIS SECTION TO INDEMNIFY ADMINISTRATIVE AGENT FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND
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COSTS WHICH IS PROXIMATELY CAUSED BY ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. Cumulative of the
foregoing, each Bank agrees to reimburse Administrative
Agent promptly upon demand, ratably, for any costs and expenses to be paid to
Administrative Agent by any Obligor under Section 10.7 to the extent that
Administrative Agent is not timely reimbursed for such expenses by Obligors as
provided in such section.
Section 9.13 Rights as Bank. In its capacity as a Bank, Administrative
Agent shall have the same rights and obligations as any Bank and may exercise
such rights as though it were not Administrative Agent. Administrative Agent
may accept deposits from, lend money to, act as Trustee under indentures of,
and generally engage in any kind of business with Obligor or its Affiliates,
all as if it were not Administrative Agent hereunder and without any duty to
account therefor to any other Bank.
Section 9.14 Benefit of Article IX. The provisions of this Article are
intended solely for the benefit of the Agents and Banks, and the Obligors shall
not be entitled to rely on any such provision or assert any such provision in a
claim or defense against Agents or any Bank. Agents and Banks may waive or
amend such provisions as they desire without any notice to or consent of
Obligor.
Section 9.15 NO REPRESENTATIONS. BANKS ACKNOWLEDGE AND AGREE THAT
ADMINISTRATIVE AGENT HAS MADE NO REPRESENTATION OR WARRANTY, WRITTEN OR ORAL,
EXPRESS OR IMPLIED, REGARDING THE ACCURACY OR COMPLETENESS OF ANY INFORMATION
RELATING TO OBLIGOR OR THE COLLATERAL INCLUDING BUT NOT LIMITED TO THE
CREDITWORTHINESS OF OBLIGORS OR ANY OBLIGOR, OR THE CONDITION OR COLLECTABILITY
OF ANY ASSET. ADMINISTRATIVE AGENT AND ITS DIRECTORS, OFFICERS, ADMINISTRATIVE
AGENTS, ATTORNEYS, EMPLOYEES, REPRESENTATIVES AND AFFILIATES SHALL HAVE NO
LIABILITY TO ANY BANK OR ANY OTHER PERSON RESULTING FROM ANY SUCH INFORMATION.
Section 9.16 Participation; Assignment.
(a) Each Bank reserves the rights (1) with notice to the
Obligors, the Administrative Agent and the other Banks, to sell to any bank,
savings and loan, savings bank, credit union, other deposit-taking financial
institution or commercial lending institution, participations in all or any
part of such Bank's Loans, Notes, Warehouse Line Commitment, and (2) with or
without notice to the Obligors to pledge any or all of its interests under any
or all of the Facilities to a Federal Reserve Bank provided, that no Bank
(other than Bank One) may assign any portion of its commitment until the
earlier of (i) the date upon which Bank One's commitment has been reduced to
$75,000,000 or (ii) 120 days following the effective date hereof (the
"Secondary Syndication"). Participants shall have no rights under the Loan
Documents other than certain voting rights as provided below. Each Bank shall
be entitled to obtain (on
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behalf of its participants) the benefits of this Agreement with respect to all
participants in its Loans outstanding from time to time; provided, that the
Obligors shall not be obligated to pay any amount in excess of the amount that
would be due to such Bank calculated as though no participation had been made.
No Bank shall sell any participating interest under which the participant shall
have any rights to approve any amendment, modification or waiver of any Loan
Documents, except to the extent such amendment, modification or waiver (1)
extends the due date for payment of any amount in respect of principal,
interest or fees due under the Loan Documents or (2) reduces the interest rate
or the amount of principal or fees applicable to the Loan. In those cases (if
any) where a Bank grants rights to any of its participants to approve
amendments, modifications or waivers of any Loan Documents pursuant to the
immediately preceding sentence, such Bank must include a voting mechanism as to
all such approval rights in the relevant participation agreement(s) whereby a
readily-determinable fraction of such Bank's portion of the Facilities under
this Agreement (whether held by such Bank or participated) shall control the
vote for all of such Bank's portion of such Facilities; provided, that if no
such voting mechanism is provided for or is fully and immediately effective,
then the vote of such Bank itself shall be the vote for all of such Bank's
portion of such Facilities. Except in the case of the sale of a participating
interest to a Bank, the relevant participation agreement shall not permit the
participant to transfer, pledge, assign, sell any subparticipation in or
otherwise alienate or encumber its participation interest in such Facilities.
(b) Each Bank shall have the right to sell, assign or
transfer all or any part of such Bank's Warehouse Note, Loans Warehouse Line
Commitment and the associated rights and obligations under all Loan Documents
to one or more financial institutions; provided, that no Bank (other than Bank
One) may assign any portion of its commitment until the earlier of (i) the date
upon which Bank One's commitment has been reduced to $75,000,000 or (ii) 120
days following the effective date hereof, and provided further that each such
sale, assignment, or transfer to any Person other than another Bank shall be
with the reasonable consent of the Collateral Agent, the Administrative Agent
and, so long as no Potential Default or Default has occurred and is continuing,
the Obligors, and the assignee, transferee or recipient shall have, to the
extent of such sale, assignment, or transfer, the same rights, benefits and
obligations as it would if it were such Bank and a holder of such Warehouse
Note, including, without limitation, the right to vote on decisions requiring
consent or approval of all Banks or Majority Banks and the obligation to fund
its Funding Share of any Loan directly to Administrative Agent; provided
further, that (i) each Bank in making each such sale, assignment, or transfer
must dispose of a pro rata portion of each Loan made by such Bank, (ii) each
such sale, assignment, or transfer shall be in a principal amount not less than
$10,000,000, or the entire amount of Bank's Funding Share, if less than
$10,000,000, (iii) each Bank shall at all times maintain Loans then outstanding
in an aggregate amount at least equal to $10,000,000 (unless Bank transfers
100% of its Percentage Share), (iv) each Bank may not offer to sell its
Warehouse Note and Loan or interests therein in violation of any securities
laws, and (v) no such assignments shall become effective until the assigning
Bank delivers to Administrative Agent an Assignment and Assumption Agreement in
the form of Exhibit E, appropriately completed. An assignment fee in the amount
of $3,000 for each such assignment will be payable to Administrative Agent by
assignor or assignee. Within five (5) Business Days after its receipt of notice
that the Administrative Agent has received
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copies of the completed Assignment and Acceptance, the assignee Bank shall
notify Obligors of the outstanding principal balance of the Warehouse Note
payable to such Bank and Obligors shall execute and deliver to Administrative
Agent (for delivery to the relevant assignee) new Warehouse Notes evidencing
such assignee's assigned Loan and, if the assignor Bank has retained a portion
of its Loan, a replacement Warehouse Note in the principal amount of the Loan
retained by the assignor Bank (such Warehouse Note to be in exchange for, but
not in payment of, the Warehouse Note held by such Bank).
(c) If any interest in the Facility is so transferred to any
Person that is organized under the Laws of any jurisdiction other than the
United States of America or any State, the transferor Bank shall cause such
Person, concurrently with the effectiveness of such transfer, (1) to represent
to the transferor Bank (for the benefit of the transferor Bank, the
Administrative Agent, the other Banks and the Obligors) that under applicable
Laws no taxes will be required to be withheld by the Administrative Agent, the
Obligors or the transferor Bank with respect to any payments to be made to such
Person in respect of the Facility, (2) to furnish to each of the transferor
Bank, the Administrative Agent and the Obligors two duly completed copies of
either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 (wherein such Person claims entitlement to complete exemption from
U.S. federal withholding tax on all interest payments hereunder) and (3) to
agree (for the benefit of the transferor Bank, the other Banks, the
Administrative Agent and the Obligors) to provide the transferor Bank, the
Administrative Agent and the Obligors a new Form 4224 or Form 1001 upon the
obsolescence of any previously delivered form and comparable statements in
accordance with applicable United States Laws and amendments duly executed and
completed by such Person and to comply from time to time with all applicable
Laws with regard to such withholding tax exemption.
Section 9.17 Loan Requests; Payments. By giving notice to the
applicable Banks of a Loan Request, the Administrative Agent shall be deemed to
state to them that (a) the Administrative Agent has examined the Loan Request
and its attachments, including any listing provided of any Collateral proposed
to be borrowed against under the Loan Request, and has determined that the Loan
Request and its attachments appear to comply with the requirements of this
Agreement for the form and content of the Loan Request and any required
attachments (including requirements for the Obligors' representations
concerning Collateral value of Collateral furnished to induce and support the
Loan requested and the borrowing Obligor's representations and calculations
concerning mathematical relationships between Loan amounts and Collateral
value). In conjunction with the performance of its duties under the Loan
Documents, the Administrative Agent shall bill and collect all principal and
interest payments on the Warehouse Notes, the Warehouse Facility Fee, and Pool
sales proceeds (including proceeds of sales of MBSs created from Pools), plus
all other amounts due to the Banks on account of this Agreement and all other
Loan Documents. Upon receipt of any payment due under the Warehouse Line, the
Administrative Agent shall transfer each other applicable Bank's share to it by
federal funds wire transfer (or by such other method as may be agreed upon
between the Administrative Agent and such other Bank) as soon as practicable.
If the Administrative Agent receives such sums at or before 11:30 a.m. on a
Business Day and the Administrative Agent fails
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without a valid excuse to initiate a wire transfer (or to initiate such other
method of transferring such funds as the Administrative Agent and such other
Bank have agreed upon) on the same Business Day to any Bank of its portion of
such payment received, then the Administrative Agent shall be obligated to pay
interest on them to the Bank to which they are due from the day when they
should have been transferred to the day when they are transferred at the
Federal Funds Effective Rate. Should any payment owed under the Loan Documents
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. To the extent any such Bank contracts
for charges, reserves or receives interest in excess of the Ceiling Rate, such
Bank hereby indemnifies the Administrative Agent, its Affiliates and its and
each of its Affiliates' officers, shareholders, directors, employees and
agents, and the other Banks, and agrees to hold each harmless, from and against
any and all liabilities, losses, damage, penalties, actions, judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever that may be
imposed on, asserted against or incurred by the Administrative Agent, its
Affiliates and its and each of its Affiliates' officers, shareholders,
directors, employees and agents, or the other Banks in any way relating
thereto, including reasonable attorneys' fees.
Section 9.18 Application of Collateral Proceeds. All realizations and
proceeds of Collateral ("Collateral Proceeds") for the Facilities shall be
applied (a) first, to the costs (including attorneys' fees, appraisal costs and
other expenses related to the preparation of the Collateral for sale) incurred
by the Administrative Agent and the Collateral Agent in obtaining such
Collateral Proceeds, or otherwise owing to the Administrative Agent or the
Collateral Agent under the Loan Documents; (b) second, in accordance with
Section 4.2 or 4.3, as applicable; (c) third, to the payment of all other
unreimbursed expenses of the Administrative Agent, the Collateral Agent and the
Banks under the Loan Documents, Ratably, in accordance with such expenses and
(d) fourth, to the Obligors or another Person, as their interest may appear.
The Collateral Agent shall not be permitted to credit bid with respect to any
foreclosure sale of the Collateral without the consent of all of the Banks. No
Bank bidding at a foreclosure of the Collateral for any Facility may include in
the amount of its bid an amount to be applied as a credit to such Bank's
Warehouse Note; instead, each Bank may bid (if it elects to bid) in cash only.
Section 9.19 Information Concerning Other Banks. From time to time, at
the request of any Bank, the Administrative Agent will advise the requesting
Bank of (a) the identity of each Bank under this Agreement as of the date of
such request, (b) the amount of each Bank's Warehouse Line Commitment and the
amounts funded by any such Bank under such commitments and (c) any default by
such Bank of any of its obligations under this Agreement or the other Loan
Documents and the nature of such default.
Section 9.20 Expense Reimbursement. If the Obligors shall fail to
reimburse the Administrative Agent within thirty (30) days of a request
therefor, as provided in any Loan Document, for any expenses incurred by the
Administrative Agent in connection therewith that
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the Obligors are required to reimburse, then each of the Banks shall pay,
Ratably, its share of such expenses, plus interest at the Federal Funds
Effective Rate from the date of expenditure until paid; provided that in the
event that the Administrative Agent subsequently receives payment from the
Obligors for such expenses, the Administrative Agent shall (if no other amounts
are then due and owing to the Administrative Agent hereunder) pay, Ratably, to
the Banks its share of such payment. Any Bank's failure to pay, Ratably, to the
Administrative Agent that Bank's share of any expenses shall not in itself
relieve any other Bank of its obligation to pay, Ratably, the Administrative
Agent that other Bank's share of those (or any other) expenses, although no
Bank shall be responsible or liable for any other Bank's failure to pay.
Section 9.21 Rights of Individual Banks. No Bank other than the
Administrative Agent shall have any right by virtue (or by availing itself) of
any provision of the Loan Documents to institute any action or proceedings at
Law or in equity or otherwise (excluding any actions in bankruptcy) upon or
under or with respect to the Loan Documents or for the appointment of a
receiver or for any other remedy without the prior written approval of the
other Banks. Further, no Bank or Person other than the Administrative Agent
shall take any such action unless and until, after a Default has occurred and
before the Administrative Agent has declared in writing that it has been cured
or waived (the Administrative Agent's authority to make such a declaration
being, subject to the final proviso of Section 9.1 above):
the Banks (other than the Administrative Agent) have:
given a written direction to the Administrative Agent that
the Administrative Agent institute such action or proceedings in its own name
as Administrative Agent under this Agreement;
not subsequently revoked such written direction or given any
other or further direction inconsistent with such direction; and
offered to the Administrative Agent such reasonable indemnity
as it may require against the costs, expenses and liabilities to be incurred
therein or thereby; and
the Administrative Agent, after its receipt of such request and offer of
indemnity and after having been given a reasonable opportunity to do so, shall
have failed to so institute such action or proceedings or stated that it
refuses to do so. In addition, the parties to this Agreement intend and
mutually covenant that no one or more Banks or other holders of Warehouse Notes
shall have any right in any manner whatever to affect, disturb or prejudice the
rights of any other Bank--or holder of any other Warehouse Note or to obtain or
seek to obtain priority over or preference to any other such Bank or holder, or
to enforce any right under this Agreement and all other Loan Documents, except
(a) in the manner provided in this Agreement and (b) Ratably, for the common
benefit of all Banks under this Agreement. For the protection and enforcement
of the provisions of this Section, each and every Bank and the Administrative
Agent shall be entitled to such relief as can be given either at Law or in
equity.
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Section 9.22 Notice to the Administrative Agent. Should any Potential
Default or Default occur and be continuing, any Bank that becomes aware of it
shall promptly notify the Administrative Agent of its existence. The
Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Default hereunder unless the
Administrative Agent has received notice of such Potential Default or Default
from any Bank pursuant to this Section or from either Obligor. In the event the
Administrative Agent receives such notice, the Administrative Agent shall give
notice thereof to Banks. The Administrative Agent shall take such action with
respect to such Potential Default or Default as directed by the number of Banks
required for such action.
Section 9.23 No Partnership. Neither the execution and delivery of
this Agreement or any of the other Loan Documents nor any interest that the
Banks, the Administrative Agent or any of them may now or hereafter have in all
or any part of the Collateral shall create or be construed as creating a
partnership, joint venture or other joint enterprise between the Banks or among
any of the Banks and the Administrative Agent. The relationship between the
Banks, on the one hand, and the Administrative Agent on the other, is and shall
be that of principals and Administrative Agent only, and nothing in this
Agreement or any of the other Loan Documents shall be construed to constitute
the Administrative Agent as trustee or other fiduciary for any Bank or to
impose on the Administrative Agent any duty, responsibility or obligation other
than those expressly provided for herein and therein.
Section 9.24 Amendments and Modifications. Without the written consent
of all of the Banks, including GFB, the Administrative Agent shall not agree to
any amendments or modifications to the Loan Documents, or grant a written
waiver of any provision of them, the effect of which would be to (a) change the
amount or the due date of any required payment of principal or accrued interest
or any fees, (b) extend the maturity date of any Warehouse Note, (c) change any
sharing ratio applicable to the Banks under this Agreement, (d) change the
several nature of the Banks' respective obligations to make Loans this
Agreement, (e) change the conditions precedent to any Facility, (f) release
Collateral other than pursuant to the express provisions of this Agreement, (g)
amend this Section or the definition of "Majority Banks", (h) amend, or waive
any violation of, the provisions of Section 8.11, (i) amend the definition of
"Eligible Mortgage Loan" or amend any defined term used within the definition
of "Eligible Mortgage Loan" (provided that, with the approval of the Majority
Banks, the Collateral Agent may temporarily waive or suspend one or more of
this Agreement's eligibility requirements or conditions for a particular
grouping of Mortgage Loans to qualify as Eligible Mortgage Loans where their
failure to so qualify is beyond the Company's reasonable control and if the
Collateral Agent believes at the time of such temporary waiver or suspension
that the factors which apparently caused such disqualification will be
eliminated in a reasonably short time), (j) permit either (1) Loans to be made
or continued that are secured by Collateral that does not comply with the
definition of "Eligible Mortgage" as of the Effective Date in an aggregate
amount that exceeds the Collateral Agent's discretionary authority to permit
such Loans in an aggregate amount of up to Five Million Dollars ($5,000,000),
(k) release the Guarantor from its obligations under the Guaranty, or (l)
increase the amount of any Bank's Warehouse Line Commitment. Without the
consent of the Majority Banks, neither the Administrative Agent nor the
Collateral
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Agent shall agree to any other amendments or modifications to the Loan
Documents, or grant a written waiver of any other material provision of the
Loan Documents; provided that any such amendment or waiver proposed by
Administrative Agent or either Obligor shall be submitted to all Banks
concurrently, even though the consent or approval of all Banks may not be
required, and the Administrative Agent may proceed to make any such amendment
or waiver that requires only the Majority Banks' approval when the
Administrative Agent has obtained that approval even if not all Banks have yet
responded to the Administrative Agent's proposal.
Section 9.25 Replacement of Retiring Bank. If (i) any Bank has
demanded compensation or indemnification, or if the Obligors otherwise have
been required to make any payment to any Person pursuant to Section 3.7, or
(ii) any Bank has failed to make available all or any portion of its Funding
Share of any Loan (and has not cured the failure), (iii) any Bank has notified
the Administrative Agent or the Obligors that such Bank does not intend to
comply with its obligations under any or all of Section 2.2 following, the
appointment of a receiver or conservator with respect to such Bank at the
direction or request of my regulatory agency or authority or (iv) any Bank has
failed to consent to a proposed amendment, waiver, discharge or termination or
which, pursuant to the terms of Section 9.24 or any other provision of any Loan
Documents, requires the consent of all Banks and with respect to which the
Majority Banks have consented, the Obligors shall have the right, if no Default
has occurred that has not been cured and if no Event of Default has occurred
that the Administrative Agent has not declared in writing to have been cured or
waived, to replace such Bank with a Replacement Bank. The replacement of a
Retiring Bank pursuant to this Section 9.25 shall be effective on the tenth
(10th) Business Day (the "Replacement Date") following the date of notice of
such replacement to the Retiring Bank and each Continuing Bank through the
Administrative Agent, subject to satisfaction of the following conditions:
(a) the Retiring Bank and the Replacement Bank shall have
satisfied the conditions to assignment and assumption set forth in Section 9.16
and, in connection therewith, the Replacement Bank(s) shall pay to the Retiring
Bank an amount equal in the aggregate to the sum of (x) the principal of all of
the Retiring Bank's outstanding Loans, together with all accrued interest
thereon and (y) the Retiring Bank's share of any accrued fees under this
Agreement: and
(b) the Obligors shall have paid to the Administrative Agent
for the account of the Retiring Bank an amount equal to all obligations owing,
to the Retiring Bank by the Obligors (other than those obligations of the
Obligors owing but not yet due that are referred to in Section 9.25(a)
immediately above).
Section 9.26 Replacement Banks Replace Retiring Banks. On the
Replacement Date, each Replacement Bank that is a New Bank shall become a Bank
and the Retiring Bank shall cease to be a Bank; provided that this Agreement
shall continue to govern the rights and obligations of a Retiring Bank with
respect to any Loans made or any other actions taken by such Retiring Bank
while it was a Bank.
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Section 9.27 Termination of Retiring Bank's Commitment. In lieu of the
foregoing, upon the express written consent of Continuing Banks who are the
holders of at least sixty-six and two-thirds percent (662/3%) of that portion
of the outstanding principal of the Loan held by Continuing Banks, the Obligors
shall have the right to terminate the Commitment of a Retiring Bank in full.
Upon payment by the Obligors to the Administrative Agent for the account of the
Retiring Bank of an amount equal to the sum of (i) the aggregate principal
amount of all Loans held by the Retiring Bank and (ii) all accrued interest,
fees and other amounts owing to the Retiring Bank pursuant to this Agreement
and the other Loan Documents, such Retiring Bank shall cease to be a Bank
hereunder; provided that the provisions of this Agreement shall continue to
govern the rights and obligations of a Retiring Bank with respect to any Loans
made or any other actions taken by such Bank while it was a Bank.
Section 9.28 Syndication Agent. Banc One Capital Markets, Inc., as
Syndication Agent, shall have no obligations except as expressly stated in this
Agreement.
ARTICLE 10. MISCELLANEOUS
Section 10.1 No Waiver. No waiver of any Default or Potential Default
shall be deemed to be a waiver of any other Default or Potential Default. No
failure to exercise or delay in exercising any power or right under any Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. No course of dealing
between (a) the Obligors and (b) the Agent or any Bank, shall operate as a
waiver of any rights of any of the Banks. Except for amendments, modifications
and waivers made pursuant to Section 9.23, no amendment, modification or waiver
of any provision of this Agreement, any Warehouse Note or any other Loan
Documents nor consent to any departure therefrom shall be effective against any
affected Bank unless it is in writing and signed by that affected Bank (or,
unless prohibited by this Agreement, by the Agent acting on behalf of that
affected Bank), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No notice to or
demand on the Obligors or any other Person shall entitle the Obligors or any
other Person to any other or further notice or demand in similar or other
circumstances.
Section 10.2 Notices. Notices under the Loan Documents shall be in
writing and either (a) delivered against a receipt therefor; (b) mailed by
registered or certified mail, return receipt requested, postage prepaid, or (c)
sent by telefax, telex or telegram, in each case addressed as follows:
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<PAGE> 94
(1) If to either Obligor, to:
New America Financial, Inc. c/o
Harbor Financial Mortgage Corporation
3131 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
Attention: Rick R. Hagelstein
Telephone: (214) 599-2300
Telecopy: (214) 599-2495
(2) If to the Administrative Agent or GFB, to:
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue, Suite 1100
Dallas, Texas 75225
Attention: Brian Hilberth
Telephone: (214) 360-1968
Telecopy: (214) 360-1660
(3) If to another Bank, as provided in the
Commitments Schedule.
or to such other address as a party may by notice hereunder designate. Notices
given by postage prepaid certified or registered U.S. mail shall be deemed to
have been given two (2) Business Days after being mailed; notices given by
other means shall be effective only when actually received (in the case of
notices to either Obligor) in such Obligor's offices or (in the case of notices
to the Agent or GFB) by a Vice President of GFB's Mortgage Finance Group or
another officer in that group or (in the case of notices to any other Bank) by
the officer of that Bank named on the Commitments Schedule or another officer
in the named officer's group at that Bank.
Section 10.3 Governing Law, Jurisdiction and Venue. Except as
otherwise stated therein or required by applicable Law, each of the Loan
Documents shall be deemed to be a contract under the Laws of the State of Texas
and of the United States of America and shall be construed and enforced in
accordance with such Laws. Each of the Obligors hereby irrevocably submits to
the nonexclusive jurisdiction of the state and federal courts of the State of
Texas and agrees and consents that service of process may be made upon it in
any proceeding arising out of this Agreement or any of the other Loan Documents
by service of process as provided by Texas Law. Each of the Obligors hereby
irrevocably waives, to the fullest extent permitted by Law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to the this Agreement or any of the other
Loan Documents brought in the District Court of Dallas County, State of Texas,
or in the United States District Court for the Northern District of Texas,
Dallas Division, and hereby further irrevocably waives any claims that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. Each of the Obligors further (a) agrees to designate and
maintain an
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<PAGE> 95
agent for service of process in the City of Dallas in connection with any such
suit, action or proceeding and to deliver to the Agent evidence thereof and (b)
irrevocably consents to the service of process out of any of the aforementioned
courts in any such suit, action or proceeding by the mailing of copies thereof
by certified mail, return receipt requested, postage prepaid, to each of the
Obligors at its address set forth herein. Nothing herein shall affect the right
of the Agent or any Bank to commence legal proceedings or otherwise proceed
against either Obligor in any jurisdiction or to serve process in any manner
permitted by applicable Law. Each of the Obligors hereby irrevocably agrees
that any proceeding against the Agent or any Bank arising out of or in
connection with this Agreement or the other Loan Documents shall be brought in
the district courts of Dallas County, Texas, or in the United States District
Court for the Northern District of Texas, Dallas Division, if such relevant
court has jurisdiction.
Section 10.4 Survival; Successors and Assigns. All representations,
warranties, covenants and agreements made by either Obligor in connection
herewith shall survive the execution and delivery of the Loan Documents, shall
not be affected by any investigation made by any Person and shall bind each of
the Obligors and its successors, trustees, receivers and assigns and shall
benefit the Agent, the Banks and their respective participants and other
holders of any of the Obligors' Obligations under the Loan Documents and their
respective successors and assigns; provided, that the undertaking of the Banks
under this Agreement or any of the other Loan Documents to make loans and
extend other benefits of the Facility to the Obligors shall not inure to the
benefit of any successor, trustee, receiver or assign of any such Obligor.
Subject to such proviso, all references in the Loan Documents to either
Obligor, the Agent or any Bank shall include the successors, trustees,
receivers and assigns of such party. In the event any Bank sells participations
or other rights or interests in any Warehouse Note or other indebtedness or
obligation incurred pursuant to this Agreement or any of the other Loan
Documents to other lenders, each of such other lenders shall have the rights to
set off against such indebtedness and similar rights or Liens to the same
extent as may be available to that Bank.
Section 10.5 Counterparts. This Agreement may be executed in several
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute one and the
same agreement,
Section 10.6 Usury Not Intended; Credit or Refund of Any Excess
Payments. It is the intent of each of the Obligors, the Agent and the Banks in
the execution and performance of this Agreement and the other Loan Documents to
contract in strict compliance with the applicable usury laws of the State of
Texas and the United States of America from time to time in effect. In
furtherance of that purpose, each of the Obligors, the Agent and the Banks
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents shall ever be construed to create a
contract to pay for the use, forbearance or detention of money with interest at
a rate in excess of the Ceiling Rate and that for purposes hereof "interest"
shall include the aggregate of all charges which constitute interest under such
laws that are contracted for, charged, taken, reserved or received under this
Agreement or any of the other Loan Documents. In the event that the maturity of
any Warehouse Note is accelerated by reason of
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<PAGE> 96
any election of its holder resulting from any Default or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest may never include more than the maximum nonusurious amount permitted
by applicable Law, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited on such
Warehouse Note (or, if such Warehouse Note shall have been paid in full,
refunded to the payor of such interest). The provisions of this Section shall
control over all other provisions of this Agreement, the Warehouse Notes and
the other Loan Documents which may be in apparent conflict herewith. In the
event any Bank or other holder of any of such Warehouse Notes shall collect
monies which are deemed to constitute interest at a rate in excess of the
Ceiling Rate then in effect, all such sums deemed to constitute interest in
excess of the Ceiling Rate shall be immediately returned to their payor (or, at
the option of the holder of the Warehouse Notes, credited against the unpaid
principal of the Warehouse Notes) upon such determination.
Section 10.7 Expenses. Whether or not the transactions contemplated by
this Agreement shall be consummated, the Obligors, jointly and severally, agree
to pay (a) all legal fees incurred by the Administrative Agent and Collateral
Agent in connection with the preparation, negotiations and execution of this
Agreement, the Warehouse Notes and the other Loan Documents; (b) the legal fees
actually incurred by each Bank (other than GFB) in reviewing this Agreement and
the other Loan Documents; (c) all out-of-pocket expenses of the Banks
(including the reasonable fees and expenses of counsel for the Banks) in
connection with the filing, recording, refiling and rerecording of this
Agreement and the other Loan Documents and in establishing, making, servicing,
administering and collecting any of the Facility, findings and loans hereunder;
(d) any and all stamp, mortgage and recording taxes; (e) all other expenses
incurred in the recording, filing, rerecording and refiling of any of the Loan
Documents and all other documents or instruments of further assurance required
or appropriate to be recorded, rerecorded, filed or refiled in appropriate
recording or filing offices; (f) the costs of any title insurance or lien
insurance in connection therewith; (g) all costs of preparation, execution and
delivery of any and all amendments, modifications, supplements, consents,
waivers or other documents or writings relating to the transactions
contemplated by this Agreement (including reasonable attorneys' fees); and (h)
all costs (including reasonable attorneys' fees) of the review of title
opinions, security opinions and other legal opinions relating to the
transactions contemplated in this Agreement or any of the other Loan Documents.
Upon request, the Obligors, jointly and severally, agree to promptly reimburse
the Agents or any Bank for all amounts expended by them, respectively, to
satisfy any obligation of either Obligor under this Agreement or any other Loan
Documents or to protect the Property or business of either Obligor or any of
its Subsidiaries or to collect any of the Warehouse Notes, or to enforce the
rights of any or all of the Agents or any Bank under this Agreement or any
other Loan Documents, which amounts will include all court costs, attorneys'
fees, fees of auditors and accountants and investigation expenses incurred by
any of the Agents or any Bank in connection with any such matters, together
with interest at a rate equal to the Stated Rate for LIBOR Rate Loans plus two
percent (2%) on each such amount from the date that the same is expended,
advanced or incurred by any of the Agents or any Bank until the date of
reimbursement to the Agents or that Bank.
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<PAGE> 97
The obligations of the Obligors under this Section shall survive the expiration
or termination of this Agreement.
SECTION 10.8 INDEMNIFICATION. THE OBLIGORS, JOINTLY AND SEVERALLY,
AGREE TO INDEMNIFY ADMINISTRATIVE AGENT AND EACH BANK, UPON DEMAND, FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES,
PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR
DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND
ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED
"LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT OR SUCH BANK
GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE
COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE
ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR
CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN TORT).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK,
provided only that neither Administrative Agent nor any Bank shall be entitled
under this section to receive indemnification for that portion, if any, of any
liabilities and costs which is proximately caused by its own individual gross
negligence or willful misconduct, as determined in a final judgment. If any
Person (including any Obligor or any of their Affiliates) ever alleges such
gross negligence or willful misconduct by Administrative Agent or any Bank, the
indemnification provided for in this section shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement, until such time as a
court of competent jurisdiction enters a final judgment as to the extent and
effect of the alleged gross negligence or willful misconduct. As used in this
section the terms "Administrative Agent" and "Bank" shall refer not only to
each Person designated as such in this Agreement but also to each director,
officer, agent, attorney, employee, representative and Affiliate of such
Person.
Section 10.9 Entire Agreement. This Agreement and the other Loan
Documents embody the entire agreement and understanding between (a) the
Obligors and (b) the Agents and the Banks, relating to the subject matter
hereof and thereof and supersede all prior proposals, agreements and
understandings relating to such subject matter. The other Loan Documents are
incorporated herein by reference; however, in the event and to the extent of
any conflict or inconsistency, the provisions of this Agreement shall control.
Section 10.10 Accounting Terms. All determinations of financial
amounts on a consolidated basis shall make due allowance for minority
interests.
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<PAGE> 98
Section 10.11 Severability. Whenever possible, each provision of the
Loan Documents shall be interpreted in such manner as to be effective and valid
under applicable Law. If any provision of any Loan Document shall be invalid,
illegal or unenforceable in any respect under any applicable Law, the validity,
legality and enforceability of the remaining provisions of such Loan Document
shall not be affected or impaired thereby.
Section 10.12 Domicile of Loan. The Banks may transfer and carry all
or any part of the Loans at, to or for the account of any branch office or
Affiliate.
Section 10.13 Disclosures. Every reference in this Agreement and the
other Loan Documents to disclosures of either Obligor to the Banks or the Agent
in writing, to the extent that such references refer to disclosures at or prior
to the execution of this Agreement, shall be deemed strictly to refer only to
written disclosures delivered to them made in an orderly manner concurrently
with the execution of this Agreement.
SECTION 10.14 RELEASE OF TRANSACTION CLAIMS. EACH OBLIGOR HEREBY
RELEASES, DISCHARGES AND ACQUITS FOREVER THE AGENT AND EACH BANK AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, TRUSTEES, AGENTS, EMPLOYEES AND COUNSEL (IN
EACH CASE, PAST, PRESENT OR FUTURE) FROM ANY AND ALL TRANSACTION CLAIMS
EXISTING AS OF THE EFFECTIVE DATE (OR THE DATE OF ACTUAL EXECUTION HEREOF BY
SUCH OBLIGOR, IF LATER). THE TERM "TRANSACTION CLAIM" SHALL MEAN ANY AND ALL
CLAIMS, ACTIONS, OBLIGATIONS, LIABILITIES AND DAMAGES (INCLUDING COURT COSTS,
PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT)
OF ANY KIND AND CHARACTER WHATSOEVER, INCLUDING CLAIMS FOR USURY, BREACH OF
CONTRACT, BREACH OF COMMITMENT, NEGLIGENT MISREPRESENTATION OR FAILURE TO ACT
IN GOOD FAITH, IN EACH CASE WHETHER NOW KNOWN (OR UNKNOWN, SUSPECTED OR
UNSUSPECTED, ASSERTED OR UNASSERTED OR PRIMARY OR CONTINGENT, AND WHETHER
ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS, COURSE OF CONDUCT,
TORT, VIOLATIONS OF LAWS OR REGULATIONS OR OTHERWISE.
Section 10.15 Notice Pursuant to Section 26.02 of the Tex. Bus. & Comm.
Code. THE OBLIGORS, THE AGENTS AND THE BANKS HEREBY AGREE THAT THIS AGREEMENT,
THE FEE LETTERS DESCRIBED HEREIN, AND THE OTHER LOAN DOCUMENTS (INCLUDING BUT
NOT LIMITED TO ALL FEE LETTERS) TOGETHER REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 10.16 Waiver of Jury Trial, Punitive Damages, etc.
OBLIGORS AND EACH BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION
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<PAGE> 99
WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED
THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
Section 10.17. Termination; Limited Survival. At any time after the
Warehouse Final Termination Date that no Obligations are owing, Obligors may
request that all Loan Documents be terminated and that the Collateral be
released from the Liens created thereby. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by Obligors or
Guarantor in any Loan Document, any Obligations under Article 3, and any
obligations which any Person may have to indemnify or compensate Administrative
Agent or Collateral Agent or any Bank shall survive any termination of this
Agreement or any other Loan Document. At the expense of Obligors,
Administrative Agent and Collateral Agent shall prepare and execute all
necessary instruments to reflect and effect such termination of the Loan
Documents. Each of Administrative Agent and Collateral Agent is hereby
authorized to execute all such instruments on behalf of all Banks, without the
joinder of or further action by any Bank.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 100
EXECUTED as of the date first above written.
HARBOR FINANCIAL MORTGAGE CORPORATION
By:
--------------------------------------
Rick R. Hagelstein
Chairman of the Board
NEW AMERICA FINANCIAL, INC.
By:
--------------------------------------
Rick R. Hagelstein
Chairman of the Board
FIRSTCITY FINANCIAL MORTGAGE
CORPORATION, as Guarantor
By:
--------------------------------------
Rick R. Hagelstein
Chairman of the Board
90
<PAGE> 101
GUARANTY FEDERAL BANK, F.S.B.,
as the Administrative Agent and a Bank
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
91
<PAGE> 102
BANK ONE, TEXAS, N.A.,
as Collateral Agent and a Bank
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
92
<PAGE> 103
BANK UNITED
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
93
<PAGE> 104
COMERICA BANK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
94
<PAGE> 105
PNC BANK KENTUCKY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
95
<PAGE> 106
HIBERNIA NATIONAL BANK
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
96
<PAGE> 107
NATIONAL CITY BANK OF KENTUCKY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
97
<PAGE> 108
US BANK NATIONAL ASSOCIATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
98
<PAGE> 109
ATTACHED:
Commitments Schedule
Exhibit A - Form of Warehouse Note
Exhibit B-1 - Form of [Wet Warehousing] [Mortgage Warehouse] Loan Request
Exhibit B-2 - Form of Second-Lien Loan Request
Exhibit B-3 - Form of P&I Loan Request
Exhibit B-4 - Form of T&I Loan Request
Exhibit B-5 - Form of Foreclosure Receivables Loan Request
Exhibit B-6 - Form of Foreclosed Properties Loan Request
Exhibit B-7 - Form of Mortgage Repurchase Loan Request
Exhibit B-8 - Form of Servicing Held for Sale Loan Request
Exhibit B-9 - Form of Servicing Sale Receivable Loan Request
Exhibit B-10 - Form of Other Loan Subline Loan Request
Exhibit C - Form of Opinion of Counsel
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Assignment and Assumption Agreement
Schedule 1 - List of Qualified Investors
Schedule 2 - Form of Standard Financial Statements
Schedule 3 - Form of management report
Schedule 4 - Persons authorized to issue Obligor Orders
Schedule 5 - [Intentionally Omitted]
Schedule 6 - Approved Servicing Purchasers
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<PAGE> 110
COMMITMENTS SCHEDULE TO CREDIT AGREEMENT
The Banks' Commitments from and after the effective date of this
Commitments Schedule and until it shall have been superseded (or amended and
restated) by a more recent Commitments Schedule in accordance with this
Agreement (as it may have been supplemented, amended or restated) of which this
Commitments Schedule is a part, each Facility and the sums of such Commitments,
by Bank, are as follows:
<TABLE>
<CAPTION>
WAREHOUSE WET WET RECEIVABLES
WAREHOUSE LINE SWING WAREHOUSING WAREHOUSING SECOND LIEN ADVANCES
BANK COMMITMENT SUBLIMIT SUBLIMIT(1) SUBLIMIT(2) SUBLIMIT SUBLIMIT
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
GFB $ 75,000,000 $ 45,000,000 $ 30,000,000 $ 18,750,000 $ 7,500,000 $ 5,625,000
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
BANK ONE, $221,000,000 $ 0 $ 88,400,000 $ 55,250,000 $ 22,100,000 $ 16,575,000
TEXAS, N.A.
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
PNC BANK $ 50,000,000 $ 0 $ 20,000,000 $ 12,500,000 $ 5,000,000 $ 3,750,000
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
COMERICA $ 44,000,000 $ 0 $ 17,600,000 $ 11,000,000 $ 4,400,000 $ 3,300,000
BANK
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
HIBERNIA $ 35,000,000 $ 0 $ 14,000,000 $ 8,750,000 $ 3,500,000 $ 2,625,000
BANK
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
BANK $ 30,000,000 $ 0 $ 12,000,000 $ 7,500,000 $ 3,000,000 $ 2,250,000
UNITED
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
US BANK $ 25,000,000 $ 0 $ 10,000,000 $ 6,250,000 $ 2,500,000 $ 1,875,000
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
NATIONAL $ 20,000,000 $ 0 $ 8,000,000 $ 5,000,000 $ 2,000,000 $ 1,500,000
CITY BANK
============= ============ ============ ============ ============ ============ ============
TOTALS $500,000,000 $ 45,000,000 $200,000,000 $125,000,000 $ 50,000,000 $ 37,500,000
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
- --------
(1) during first and last 5 Business Days
(2) during remainder of calendar month
100
<PAGE> 111
<TABLE>
<CAPTION>
SERVICING
FORECLOSURE FORECLOSED MORTGAGE HELD
P&I T&I RECEIVABLES PROPERTIES REPURCHASE FOR SALE
BANK SUB-SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUBLIMIT SUBLIMIT
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
GFB $ 1,875,000 $ 1,875,000 $ 2,250,000 $ 750,000 $ 750,000 $ 1,500,000
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
BANK ONE, $ 5,525,000 $ 5,525,000 $ 6,630,000 $ 2,210,000 $ 2,210,000 $ 4,420,000
TEXAS, N.A.
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
PNC BANK $ 1,250,000 $ 1,250,000 $ 1,500,000 $ 500,000 $ 500,000 $ 1,000,000
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
COMERICA $ 1,100,000 $ 1,100,000 $ 1,320,000 $ 440,000 $ 440,000 $ 880,000
BANK
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
HIBERNIA $ 875,000 $ 875,000 $ 1,050,000 $ 350,000 $ 350,000 $ 700,000
BANK
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
BANK $ 750,000 $ 750,000 $ 900,000 $ 300,000 $ 300,000 $ 600,000
UNITED
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
US BANK $ 625,000 $ 625,000 $ 750,000 $ 250,000 $ 250,000 $ 500,000
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
NATIONAL $ 500,000 $ 500,000 $ 600,000 $ 200,000 $ 200,000 $ 400,000
CITY BANK
=========== ============ ============ ============ ============ ============ ============
TOTALS $ 12,500,000 $ 12,500,000 $ 15,000,000 $ 5,000,000 $ 5,000,000 $ 10,000,000
- ----------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
101
<PAGE> 112
<TABLE>
<CAPTION>
SERVICING SALE
RECEIVABLE OTHER LOANS
BANK SUBLIMIT SUBLIMIT
- ------------------- -------------- -----------
<S> <C> <C>
GFB $ 5,625,000 $ 750,000
- ------------------- -------------- -----------
BANK ONE, $ 16,575,000 $ 2,210,000
TEXAS, N.A.
- ------------------- -------------- -----------
PNC BANK $ 3,750,000 $ 500,000
- ------------------- -------------- -----------
COMERICA $ 3,300,000 $ 440,000
BANK
- ------------------- -------------- -----------
HIBERNIA $ 2,625,000 $ 350,000
BANK
- ------------------- -------------- -----------
BANK $ 2,250,000 $ 300,000
UNITED
- ------------------- -------------- -----------
US BANK $ 1,875,000 $ 250,000
- ------------------- -------------- -----------
NATIONAL $ 1,500,000 $ 200,000
CITY BANK
=================== ============== ===========
TOTALS $ 37,500,000 $ 5,000,000
- ------------------- -------------- -----------
</TABLE>
102
<PAGE> 113
This Commitments Schedule is executed (in counterparts) by the
undersigned Banks, who are currently all of the Banks under this Agreement, to
be effective as of the date last above written.
GUARANTY FEDERAL BANK, F.S.B.,
as the Administrative Agent and a Bank
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
103
<PAGE> 114
BANK ONE, TEXAS, N.A.,
as Collateral Agent and a Bank
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
104
<PAGE> 115
BANK UNITED
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
105
<PAGE> 116
COMERICA BANK
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
106
<PAGE> 117
PNC BANK KENTUCKY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
107
<PAGE> 118
HIBERNIA NATIONAL BANK
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
108
<PAGE> 119
NATIONAL CITY BANK OF KENTUCKY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
109
<PAGE> 120
US BANK NATIONAL ASSOCIATION
By:
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Name:
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Title:
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The Banks' respective addresses for notices and their telephone and
telecopy numbers are as shown on the attached Addresses Annex to this
Commitments Schedule.
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ADDRESSES ANNEX TO COMMITMENTS SCHEDULE
DATED MAY 28, 1999
BANK ONE, TEXAS, N.A. HIBERNIA NATIONAL BANK
Mortgage Finance Group 313 Carondelet Street, 14th Floor
1717 Main Street, Fourth Floor New Orleans, Louisiana 70130
Dallas, Texas 75201 Attention: EDWARD (SKIP) SANTOS
Attention: MARK FREEMAN Telephone: 504/533-3661
Telephone: 214/290-2780 Telecopy: 504/533-6242
Telecopy: 214/290-2054
NATIONAL CITY BANK OF KENTUCKY
BANK UNITED 421 West Market Street
3200 Southwest Freeway, Suite 1325 Louisville, Kentucky 40202
Houston, Texas 77027 Attention: GARY SIEVEKING
Attention: JANET B. GROUE Telephone: 502/581-7660
Telephone: 713/543-6819 Telecopy: 502/581-4154
Telecopy: 713/543-6469
US BANK NATIONAL ASSOCIATION
COMERICA BANK 601 Second Avenue South
500 Woodward MPSP0508
Detroit, Michigan 48226-3256 Minneapolis, Minnesota 55402
Attention: DON HEATH Attention: KATHY CONNOR
Telephone: 313/222-5740 Telephone: 612/973-0306
Telecopy: 313/222-9295 Telecopy: 612/973-0826
PNC BANK KENTUCKY, INC.
500 West Jefferson St., Suite 1200
Louisville, Kentucky 40202
Attention: SLOANE GRAFF
Telephone: 502/581-4607
Telecopy: 502/581-3844
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AUGUST 11, 1999
TENTH AMENDMENT TO LOAN AGREEMENT
THIS TENTH AMENDMENT TO LOAN AGREEMENT (this "TENTH AMENDMENT"), is
dated for reference purposes only as of August 11, 1999 by and among lenders
party hereto from time to time ("LENDERS"), FirstCity Financial Corporation
("BORROWER"), a Delaware corporation, with its principal place of business at
6400 Imperial Drive, P.O. Box 8216, Waco, Texas 76714, and Bank of Scotland
("AGENT"), acting through its branch in New York, New York, a foreign banking
corporation incorporated under the laws of Scotland with its principal place of
business at 565 Fifth Avenue, New York, New York 10017, as administrative
agent, managing agent and collateral agent on behalf of Lenders.
RECITALS:
A. Borrower and Bank of Scotland have entered into that certain Loan
Agreement dated as of April 8, 1998, as amended by First Amendment to Loan
Agreement by and between Borrower and Bank of Scotland, as amended by Second
Amendment to Loan Agreement dated as of August 12, 1998 by and among Borrower,
Bank of Scotland, individually, Lenders and Agent, as amended by Third
Amendment to Loan Agreement dated as of September 29, 1998, as amended by
Fourth Amendment to Loan Agreement dated as of November 17, 1998, as amended by
Fifth Amendment to Loan Agreement dated as of February 17, 1999, as amended by
Sixth Amendment to Loan Agreement dated as of April 30, 1999, as amended by
Seventh Amendment to Loan Agreement dated as of June 30, 1999, as amended by
Eighth Amendment to Loan Agreement dated as of July 30, 1999, as amended by
Ninth Amendment to Loan Agreement dated as of August 6, 1999 (collectively, the
"EXISTING LOAN AGREEMENT") pursuant to which Lenders have agreed to provide
Borrower with a revolving credit facility.
B. Borrower and Lenders have agreed to amend the Existing Loan
Agreement to, inter alia, (i) extend the maturity date, (ii) increase the
maximum principal amount of the loans, (iii) adjust the Interest Rate, and (iv)
provide for an additional fee.
NOW THEREFORE, in consideration of any loan, advance, extension of
credit and/or other financial accommodation at any time made by Lenders to or
for the benefit of Borrower, and of the promises set forth herein, the parties
hereto agree as follows:
1. RECITALS, INCORPORATION.
(a) Recital Representations. Borrower hereby represents and warrants
to Lenders that the foregoing Recitals are (a) true and accurate and (b) an
integral part of this Tenth Amendment. Borrower, Lenders and Agent hereby agree
that all of the Recitals of this Tenth Amendment are hereby incorporated into
this Tenth Amendment and made a part hereof.
(b) Incorporation of Existing Loan Agreement. Any term not otherwise
defined herein shall have the meaning set forth in the Existing Loan Agreement.
2. AMENDMENTS TO EXISTING LOAN AGREEMENT. The Existing Loan Agreement is
hereby amended as follows:
(a) The definition of "COMMITMENT PERCENTAGE" in the Existing Loan
Agreement is hereby deleted in its entirety and the following is substituted
therefor:
<PAGE> 2
"COMMITMENT PERCENTAGE" SHALL HAVE THE MEANING SET FORTH IN
SECTION 2.3, AND SHALL BE COMPRISED OF THE TRANCHE A LOAN
COMMITMENT PERCENTAGE, THE TRANCHE B LOAN COMMITMENT PERCENTAGE
AND THE TRANCHE C LOAN COMMITMENT PERCENTAGE.
(b) The definition of "ELIGIBLE NOTES" in the Existing Loan Agreement
is hereby deleted in its entirety and the following is substituted therefor:
"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 AGENT, IN ITS SOLE AND
EXCLUSIVE DISCRETION, WHICH NOTE: (A) HAS BEEN PLEDGED TO AGENT
PURSUANT TO THE NOTE PLEDGE AGREEMENT BY AND BETWEEN BORROWER AND
AGENT; (B) HAS BEEN DELIVERED TO AGENT BY BORROWER; (C) HAS BEEN
ENDORSED BY BORROWER PAYABLE TO THE ORDER OF AGENT; (D) FOR WHICH
BORROWER HAS DELIVERED TO AGENT AN AGREEMENT AND ESTOPPEL
CERTIFICATE FROM THE MAKER THEREOF, ALL IN FORM AND SUBSTANCE
ACCEPTABLE TO AGENT IN ITS SOLE AND EXCLUSIVE DISCRETION; AND (E)
THE REPRESENTATIONS AND WARRANTIES WITH RESPECT TO WHICH MADE IN
THE APPLICABLE NOTE PLEDGE AGREEMENT ARE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS.
(c) The definition of "MATURITY DATE" in the Existing Loan Agreement
is hereby deleted in its entirety and the following is substituted therefor:
"MATURITY DATE": JUNE 30, 2000, OR SUCH EARLIER DATE AS ALL OF
BORROWER'S OBLIGATIONS SHALL BE DUE AND PAYABLE BY ACCELERATION OR
OTHERWISE.
(d) The definition of "PRIME INTEREST RATE" in the Existing Loan
Agreement is hereby deleted in its entirety and the following is substituted
therefor:
"PRIME INTEREST RATE": MEANS (I) ON ALL AMOUNTS OUTSTANDING UNDER
TRANCHE A LOANS, A VARIABLE INTEREST RATE EQUAL TO THE PRIME RATE
PLUS ONE AND ONE-HALF PERCENT (1.5%) PER ANNUM, AND (II) ON ALL
AMOUNTS OUTSTANDING UNDER THE TRANCHE B LOANS AND/OR THE TRANCHE C
LOANS, A VARIABLE INTEREST RATE EQUAL TO THE PRIME RATE PLUS FOUR
PERCENT (4%) PER ANNUM.
(e) Section 1.1 of the Existing Loan Agreement is hereby amended by
adding the following definitions:
"AMENDED AND RESTATED NOTED PLEDGE AGREEMENT": THAT CERTAIN NOTE
PLEDGE AGREEMENT BY AND BETWEEN BORROWER AND AGENT DATED AS OF
AUGUST 11, 1999.
"CONSUMER NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE MADE BY FC
CONSUMER LENDING, PAYABLE TO THE ORDER OF BORROWER IN THE AMOUNT
OF $5,000,000, AS SAID NOTE MAY HEREAFTER BE AMENDED, RESTATED,
MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED.
"EXTRAORDINARY TRANSACTION" SHALL MEAN: (A) A SALE, CONVEYANCE,
LEASE, OR OTHER TRANSFER BY BORROWER, ANY PRIMARY OBLIGOR, OR ANY
SECONDARY OBLIGOR OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS, NOT
IN THE ORDINARY COURSE OF ITS BUSINESS; (B) A SALE, CONVEYANCE, OR
OTHER TRANSFER OF ANY EQUITY INTERESTS (INCLUDING STOCK,
PARTNERSHIP INTERESTS, MEMBERSHIP INTERESTS, TRUST INTERESTS,
WARRANTS, OPTIONS OR DEBENTURES) IN ANY AFFILIATE BY BORROWER,
<PAGE> 3
ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR; (C) ANY SALE,
CONVEYANCE OR OTHER TRANSFER OF ANY INDEBTEDNESS DUE TO BORROWER,
ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR FROM ANY AFFILIATE,
INCLUDING BUT NOT LIMITED TO BONDS, NOTES, NOTE PURCHASE
AGREEMENTS OR ANY OTHER INDEBTEDNESS, HOWSOEVER EVIDENCED; (D) ANY
INDEBTEDNESS PERMITTED BY AGENT AND LENDERS (IN THEIR SOLE AND
EXCLUSIVE DISCRETION) TO BE INCURRED BY BORROWER, ANY PRIMARY
OBLIGOR OR ANY SECONDARY OBLIGOR, EXCEPT FOR (I) INDEBTEDNESS TO
BE INCURRED BY ANY SUBSIDIARY OF FC COMMERCIAL (WHICH SHALL ONLY
HAVE RECOURSE TO THE PURCHASING ENTITY) IN CONNECTION WITH
PURCHASE MONEY FINANCING (WHETHER SECURED OR UNSECURED) TO PARTIES
(OTHER THAN AFFILIATES) AND (II) INDEBTEDNESS INCURRED UNDER THE
EXISTING FACILITIES LISTED UNDER SCHEDULE 5.1(T) ATTACHED HERETO,
INCURRED IN THE ORDINARY COURSE OF BUSINESS; (E) THE ISSUANCE OF
ANY SECURITIES OF BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY
OBLIGOR; (F) THE SALE OR RETENTION OF IN EXCHANGE FOR CREDIT
THEREFORE BY NOMURA SECURITIES (BERMUDA) LTD. ("NOMURA") OF ANY
PURCHASED SECURITIES, AS DEFINED IN AND PURSUANT TO THE TERMS THE
MASTER REPURCHASE AGREEMENT BY AND BETWEEN FC CAPITAL CORP. AND
NOMURA (THE "FC CAPITAL REPURCHASE AGREEMENT") AND THE MASTER
REPURCHASE AGREEMENT BY AND BETWEEN FIRSTCITY CONSUMER LENDING
CORPORATION AND NOMURA (THE "FCCLC REPURCHASE AGREEMENT" AND,
TOGETHER WITH THE FC CAPITAL REPURCHASE AGREEMENT, THE "REPURCHASE
AGREEMENTS") ("SECURITIES SALE").
"EXTRAORDINARY TRANSACTION PROCEEDS" SHALL MEAN THE CONSIDERATION
PAID WITH RESPECT TO ANY EXTRAORDINARY TRANSACTION OR THE PROCEEDS
OF ANY LOAN RECEIVED FROM ANY EXTRAORDINARY TRANSACTION, MINUS
ONLY AMOUNTS FOR NECESSARY AND COMMERCIALLY REASONABLE EXPENSES
INCURRED WITH RESPECT TO SUCH EXTRAORDINARY TRANSACTION, INCLUDING
ATTORNEY'S FEES AND PAYMENT OF ANY INDEBTEDNESS SECURED TO BY
ASSETS BEING CONVEYED PAYABLE TO ANY INDEPENDENT THIRD PARTY
LENDER TO SECURE A RELEASE OF LIEN ON SUCH ASSETS BEING CONVEYED.
"TENTH AMENDMENT": THE TENTH AMENDMENT TO LOAN AGREEMENT DATED FOR
REFERENCE PURPOSES ONLY AS OF AUGUST 11, 1999 BY AND AMONG AGENT,
LENDERS AND BORROWER.
"TRANCHE A COMMITMENT": THE COMMITMENT OF LENDERS TO MAKE TRANCHE
A LOANS, AS FURTHER DESCRIBED IN SECTION 2.3(a), AS MAY BE REDUCED
PURSUANT TO THE TERMS OF SECTION 2.3(b).
"TRANCHE A LOANS": LOANS TO BE MADE BY LENDERS TO BORROWER, MADE
PURSUANT TO SECTION 2.1(a).
"TRANCHE A NOTES": THOSE CERTAIN REVOLVING PROMISSORY NOTES OF
BORROWER EXECUTED AND DELIVERED UNDER THIS AGREEMENT, PAYABLE TO
THE RESPECTIVE LENDERS, ON OR BEFORE JUNE 30, 2000, EVIDENCING
TRANCHE A LOANS MADE BY LENDERS TO BORROWER PURSUANT TO SECTION
2.1(a), AS SAID NOTES MAY HEREAFTER BE AMENDED, RESTATED,
MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED.
<PAGE> 4
"TRANCHE B COMMITMENT": THE COMMITMENT OF BANK OF SCOTLAND TO MAKE
TRANCHE B LOANS, AS FURTHER DESCRIBED IN SECTION 2.3(a).
"TRANCHE B LOANS": LOANS TO BE MADE BY BANK OF SCOTLAND TO
BORROWER, IN THE MAXIMUM AMOUNT OF $5,000,000, MADE PURSUANT TO
SECTION 2.1(b).
"TRANCHE B NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE MADE BY
BORROWER PAYABLE TO THE ORDER OF BANK OF SCOTLAND, EVIDENCING
TRANCHE B LOANS MADE PURSUANT TO SECTION 2.1(b), AS SAID NOTE MAY
HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED, EXTENDED
OR REPLACED.
"TRANCHE C COMMITMENT" : THE COMMITMENT OF BANK OF SCOTLAND TO
MAKE TRANCHE C LOANS, AS FURTHER DESCRIBED SECTION 2.3.
"TRANCHE C LOANS ": LOANS TO BE MADE BY BANK OF SCOTLAND PURSUANT
TO SECTION 2.1(c).
"TRANCHE C NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE OF
BORROWER EXECUTED AND DELIVERED UNDER THIS AGREEMENT, PAYABLE TO
THE ORDER OF BANK OF SCOTLAND, EVIDENCING TRANCHE C LOANS MADE BY
BANK OF SCOTLAND TO BORROWER PURSUANT TO SECTION 2.1(c), AS SAID
NOTE MAY HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED,
EXTENDED OR REPLACED.
"WARRANT AGREEMENT": THAT CERTAIN WARRANT AND REGISTRATION
AGREEMENT DATED AS OF AUGUST 11, 1999 GRANTING BANK OF SCOTLAND,
AS HOLDER, THE RIGHT TO PURCHASE 250,000 SHARES OF BORROWER'S
COMMON STOCK.
(f) Articles 2 and 3 of the Existing Loan Agreement are hereby deleted
in their entirety and the following is substituted therefor:
2. LOANS - GENERAL TERMS
2.1. CREDIT FACILITIES.
(a) TRANCHE A LOANS. SUBJECT TO THE TERMS AND CONDITIONS
HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN
SET FORTH, EACH LENDER, SEVERALLY AND NOT JOINTLY, AGREES TO MAKE
TRANCHE A LOANS TO BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER
THE DATE HEREOF TO BUT NOT INCLUDING THE MATURITY DATE. THE
COMMITMENT OF ALL LENDERS TO MAKE TRANCHE A LOANS SHALL BE THE
AMOUNT SET FORTH IN SECTION 2.3. A LENDER SHALL HAVE NO OBLIGATION
AT ANY TIME TO MAKE ANY TRANCHE A LOANS IN EXCESS OF SUCH LENDER'S
COMMITMENT SET FORTH IN SECTION 2.3. SUBJECT TO THE TERMS HEREOF,
BORROWER MAY BORROW, REPAY AND REBORROW THE TRANCHE A LOANS;
PROVIDED THAT, AT NO TIME SHALL THE OUTSTANDING PRINCIPAL BALANCE
OF THE TRANCHE A LOANS EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF
TRANCHE A LOANS DETERMINED IN ACCORDANCE WITH SECTION 2.2(a) NOR
SHALL THE UNPAID PRINCIPAL BALANCE OF THE
<PAGE> 5
TRANCHE A LOANS EXCEED THE OTHER LIMITATIONS SET FORTH HEREIN. THE
OBLIGATION OF BORROWER TO REPAY THE UNPAID PRINCIPAL BALANCE OF THE
TRANCHE A LOANS MADE TO IT BY EACH LENDER AND TO PAY INTEREST
THEREON IS FURTHER EVIDENCED, IN PART, BY THE TRANCHE A NOTES.
(b) TRANCHE B LOANS. SUBJECT TO THE TERMS AND CONDITIONS
HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN
SET FORTH, BANK OF SCOTLAND AGREES TO MAKE TRANCHE B LOANS TO
BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER THE DATE HEREOF TO
BUT NOT INCLUDING THE MATURITY DATE, IN AN AMOUNT NOT TO EXCEED
$5,000,000. SUBJECT TO THE TERMS HEREOF, BORROWER MAY BORROW,
REPAY AND REBORROW THE TRANCHE B LOANS; PROVIDED THAT, AT NO TIME
SHALL THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE B LOANS
EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE B LOANS DETERMINED
IN ACCORDANCE WITH SECTION 2.2(a), NOR SHALL THE UNPAID PRINCIPAL
BALANCE OF THE TRANCHE B LOANS EXCEED THE OTHER LIMITATIONS SET
FORTH HEREIN. THE OBLIGATION OF BORROWER TO REPAY THE UNPAID
PRINCIPAL BALANCE OF THE TRANCHE B LOANS MADE TO IT BY BANK OF
SCOTLAND AND TO PAY INTEREST THEREON IS FURTHER EVIDENCED, IN
PART, BY THE TRANCHE B NOTE. THE PROCEEDS OF THE TRANCHE B LOANS
SHALL BE USED SOLELY TO FUND ADVANCES BY BORROWER TO FC CONSUMER
PURSUANT TO THE CONSUMER NOTE.
(c) TRANCHE C LOANS. SUBJECT TO THE TERMS AND CONDITIONS
HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN
SET FORTH, BANK OF SCOTLAND AGREES TO MAKE TRANCHE C LOANS TO
BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER THE DATE HEREOF TO
BUT NOT INCLUDING THE MATURITY DATE, IN AN AMOUNT NOT TO EXCEED
$7,000,000. SUBJECT TO THE TERMS HEREOF, BORROWER MAY BORROW,
REPAY AND REBORROW THE TRANCHE C LOANS; PROVIDED THAT, AT NO TIME
SHALL THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE C LOANS
EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE C LOANS DETERMINED
IN ACCORDANCE WITH SECTION 2.2(a), NOR SHALL THE UNPAID PRINCIPAL
BALANCE OF THE TRANCHE C LOANS EXCEED THE OTHER LIMITATIONS SET
FORTH HEREIN. THE OBLIGATION OF BORROWER TO REPAY THE UNPAID
PRINCIPAL BALANCE OF THE TRANCHE C LOANS MADE TO IT BY BANK OF
SCOTLAND AND TO PAY INTEREST THEREON IS FURTHER EVIDENCED, IN
PART, BY THE TRANCHE C NOTE.
<PAGE> 6
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 OTHER PROVISIONS OF THIS AGREEMENT, THE
PRINCIPAL PORTION OF BORROWER'S LIABILITIES OUTSTANDING SHALL NOT
EXCEED THE FOLLOWING AMOUNTS (THE "MAXIMUM PRINCIPAL AMOUNT"): (i)
THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE A LOANS SHALL NOT EXCEED
AT ANY TIME AND FROM TIME TO TIME AN AMOUNT EQUAL TO EACH LENDER'S
COMMITMENT FOR TRANCHE A LOANS DETERMINED IN ACCORDANCE WITH
SECTION 2.3; (ii) THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE B
LOANS SHALL NOT EXCEED, AT ANY ONE TIME, THE LESSER OF (a)
$5,000,000 OR (b) THE OUTSTANDING PRINCIPAL AMOUNT OF THE CONSUMER
NOTE; AND (iii) UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS
SHALL NOT EXCEED, AT ANY ONE TIME, $7,000,000. THE UNPAID
PRINCIPAL BALANCE PLUS ALL ACCRUED BUT UNPAID INTEREST, FEES AND
ALL OTHER SECURED OBLIGATIONS SHALL BE DUE AND PAYABLE IN FULL ON
THE MATURITY DATE.
(b) IN THE EVENT THAT THE OUTSTANDING PRINCIPAL BALANCE OF
THE TRANCHE A LOANS, TRANCHE B LOANS OR TRANCHE C LOANS EXCEED THE
MAXIMUM PRINCIPAL AMOUNT THEREOF (INDIVIDUALLY AND NOT IN THE
AGGREGATE) DETERMINED IN ACCORDANCE WITH SECTION 2.2(a), BORROWER
SHALL PAY THE AMOUNT OF SUCH EXCESS TO AGENT (i) WITH RESPECT TO
AMOUNTS BORROWED FROM TRANCHE A LOANS FOR THE RATABLE BENEFIT OF
LENDERS AND (ii) WITH RESPECT TO AMOUNTS BORROWED UNDER TRANCHE B
LOANS AND/OR TRANCHE C LOANS FOR THE SOLE BENEFIT OF BANK OF
SCOTLAND, 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 AGENT THE AMOUNT OF THE UNPAID
PRINCIPAL BALANCE OF THE LOANS IN EXCESS OF SAID MAXIMUM PRINCIPAL
AMOUNT, REGARDLESS OF THE CAUSE OF SUCH EXCESS.
(c) LIMITATIONS ON TRANCHE B LOANS AND TRANCHE C LOANS.
(i) IN ADDITION TO THE LIMITATIONS SET FORTH IN
SECTION 2.2(a), NO PROCEEDS OF THE TRANCHE B LOANS OR THE
TRANCHE C LOANS SHALL BE ADVANCED AT ANY TIME THAT LENDERS HAVE
NOT FUNDED THEIR TOTAL TRANCHE A COMMITMENTS AND THAT THE
OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE A LOANS IS NOT THE
MAXIMUM OUTSTANDING PRINCIPAL BALANCE PERMITTED HEREUNDER.
(ii) NO ADVANCES OF THE TRANCHE B LOANS OR THE TRANCHE
C LOANS, IN THE AGGREGATE, SHALL BE MADE IN AN AMOUNT IN EXCESS
OF $3,000,000 DURING ANY ONE CALENDAR MONTH.
(iii) NO ADVANCES OF TRANCHE B LOANS OR THE TRANCHE C
LOANS IN EXCESS OF THE PRINCIPAL AMOUNT OF $3,000,000 SHALL BE
MADE AT ANY TIME THAT THE OUTSTANDING PRINCIPAL BALANCE
(DETERMINED IN DOLLAR EQUIVALENTS) UNDER THE INTERNATIONAL
FACILITY EXCEEDS $4,000,000. AS USED HEREIN, THE "INTERNATIONAL
FACILITY" MEANS THAT CERTAIN AMENDED AND RESTATED LOAN
AGREEMENT DATED AS OF DECEMBER 9, 1998 BY AND AMONG BANK OF
SCOTLAND, FIRST CITY INTERNATIONAL CORPORATION, AND CRINOLINE
INVESTMENTS, B.V., OF WHICH BORROWER IS A GUARANTOR OF PAYMENT
AND PERFORMANCE OF ALL LIABILITIES AND OBLIGATIONS THEREUNDER.
<PAGE> 7
2.3. LENDER'S COMMITMENTS.
(a) ON THE DATE HEREOF THE TOTAL COMMITMENT OF LENDERS IS
$93,000,000. THE TRANCHE A COMMITMENT, AS OF THE DATE HEREOF IS
$81,000,000, OF WHICH BANK OF SCOTLAND'S COMMITMENT IS $48,000,000 AND
NATIONSBANK'S COMMITMENT IS $33,000,000. THE TRANCHE B COMMITMENT IS
$5,000,000, AND THE TRANCHE C COMMITMENT IS $7,000,000. BANK OF
SCOTLAND'S COMMITMENT PERCENTAGE RELATING TO TRANCHE A LOANS SHALL BE
59.259% AND NATIONSBANK'S COMMITMENT PERCENTAGE RELATING TO TRANCHE A
LOANS SHALL BE 40.741%. BANK OF SCOTLAND'S COMMITMENT PERCENTAGE
RELATING TO THE TRANCHE B LOANS AND THE TRANCHE C LOANS SHALL BE 100%
AND NATIONSBANK SHALL HAVE NO COMMITMENT PERCENTAGE RELATING TO
TRANCHE B LOANS OR TRANCHE C LOANS. THE COMMITMENT PERCENTAGE OF EACH
LENDER MAY BE ADJUSTED IF A TRANSFER OCCURS IN ACCORDANCE WITH SECTION
9.27. LENDERS' COMMITMENTS ARE SUBJECT TO THE MANDATORY REDUCTIONS SET
FORTH IN SECTION 2.3(b).
(b) THE PAYMENT OF ANY EXTRAORDINARY TRANSACTION PROCEEDS PAID
PURSUANT TO SECTION 3.3 SHALL PERMANENTLY REDUCE THE LENDER'S
COMMITMENTS RELATING TO THE TRANCHE A LOANS, THE TRANCHE B LOANS OR
THE TRANCHE C LOANS, AS APPLICABLE, SUCH AMOUNT MAY NOT BE REBORROWED
AND THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A LOANS, THE TRANCHE B
LOANS, OR THE TRANCHE C LOANS, AS APPLICABLE, SHALL BE PERMANENTLY
REDUCED BY SUCH AMOUNT.
2.4. MATURITY DATE; TERMINATION OF LOANS. LENDERS' RESPECTIVE
OBLIGATIONS TO MAKE ANY ADVANCE TO BORROWER PURSUANT TO THE PROVISIONS
HEREOF SHALL BE IN EFFECT UNTIL THE MATURITY DATE, UNLESS SOONER
TERMINATED BY LENDERS UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, AN
UNMATURED DEFAULT, OR PURSUANT TO THE TERMS HEREOF.
2.5. AUTHORIZED DISBURSEMENT OF PROCEEDS. BORROWER HEREBY
AUTHORIZES AND DIRECTS EACH LENDER AND AGENT TO DISBURSE, FOR AND ON
BEHALF OF BORROWER AND FOR BORROWER'S ACCOUNT, THE PROCEEDS OF ANY
LOANS 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 EACH LENDER AND AGENT TO DISBURSE PROCEEDS OF
THE LOANS TO PAY: (a) INTEREST WHICH IS ACCRUED BUT UNPAID AND WHICH
IS DUE AND PAYABLE PURSUANT TO THE TERMS HEREOF AND OF THE NOTES UNTIL
THE LOANS ARE PAID IN FULL; AND (b) FOR ANY AND ALL COSTS. THE
EXECUTION OF THIS AGREEMENT BY BORROWER SHALL, AND HEREBY DOES,
CONSTITUTE AN IRREVOCABLE DIRECTION AND AUTHORIZATION TO EACH LENDER
AND AGENT 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 NOTES. NO FURTHER DIRECTION OR
AUTHORIZATION FROM BORROWER SHALL BE NECESSARY FOR LENDERS 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 NOTES. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, LENDERS ARE UNDER NO DUTY OR OBLIGATION TO MAKE SUCH
ADVANCES AND FAILURE TO MAKE SUCH ADVANCES SHALL NOT BE DEEMED TO BE A
DEFAULT BY LENDERS OR IMPAIR ANY OF LENDERS' RIGHTS OR REMEDIES
HEREUNDER.
2.6. BORROWING PROCEDURE.
(a) BORROWING REQUEST. IN ORDER TO REQUEST AN ADVANCE,
BORROWER SHALL HAND DELIVER OR TELECOPY TO AGENT A DULY COMPLETED
BORROWING REQUEST NOT LATER THAN 11:00 A.M. NEW YORK TIME AT
<PAGE> 8
LEAST ONE (1) BUSINESS DAY BEFORE A PROPOSED 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) WHETHER THE ADVANCE IS TO BE
TRANCHE A LOANS, TRANCHE B LOANS OR TRANCHE C LOANS; PROVIDED THAT
BORROWER MAY NOT MAKE A BORROWING REQUEST FOR ANY TRANCHE B LOANS OR
ANY TRANCHE C LOANS IF THE OUTSTANDING PRINCIPAL AMOUNT OF THE TRANCHE
A LOANS IS LESS THAN THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A
LOANS, DETERMINED IN ACCORDANCE WITH SECTION 2.2(a). EACH BORROWING
REQUEST RELATING TO A TRANCHE B LOANS SHALL BE ACCOMPANIED BY A
CERTIFICATE SETTING FORTH THE THEN OUTSTANDING PRINCIPAL BALANCE OF
THE CONSUMER NOTE.
(b) PRO RATA TREATMENT OF TRANCHE A LOANS. EACH BORROWING OF
TRANCHE A LOANS SHALL BE MADE FROM EACH LENDER PRO RATA IN ACCORDANCE
WITH ITS TRANCHE A LOAN COMMITMENT PERCENTAGE, DETERMINED IN
ACCORDANCE WITH SECTION 2.3.
(c) FAILURE TO LOAN. THE FAILURE OF ANY LENDER TO MAKE A LOAN
SHALL NOT RELIEVE ANY OTHER LENDER OF ITS OBLIGATION TO LEND ANY
HEREUNDER, BUT NEITHER AGENT NOR ANY LENDER SHALL BE RESPONSIBLE FOR
THE FAILURE OF ANY OTHER LENDER TO MAKE A LOAN.
2.7. INTEREST RATE. THE UNPAID PRINCIPAL BALANCE OF THE LOANS SHALL
BEAR INTEREST AT THE PRIME INTEREST RATE APPLICABLE THERETO. INTEREST
ON ALL PRIME RATE ADVANCES SHALL BE COMPUTED ON A 365-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 AGENT IN ACCORDANCE WITH THE PROVISIONS HEREOF, WHICH
DETERMINATION SHALL BE BINDING UPON BORROWER, ABSENT MANIFEST ERROR.
2.8. CHANGE OF LAWS. IF AGENT OR ANY LENDER 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 AGENT OR ANY
LENDER 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 AGENT'S OR ANY LENDER'S CAPITAL AS A
CONSEQUENCE OF ITS OBLIGATIONS HEREUNDER TO A LEVEL BELOW THAT WHICH
AGENT OR THE APPLICABLE LENDER COULD HAVE ACHIEVED BUT FOR SUCH
ADOPTION, CHANGE OR COMPLIANCE (TAKING INTO CONSIDERATION AGENT'S OR
SUCH LENDER'S POLICIES WITH RESPECT TO CAPITAL ADEQUACY) BY AN AMOUNT
DEEMED BY AGENT OR SUCH LENDER TO BE MATERIAL, AGENT OR SUCH LENDER,
AS APPLICABLE, SHALL GIVE NOTICE THEREOF TO BORROWER OF SUCH
DETERMINATION (AND ANY LENDER GIVING SUCH NOTICE SHALL NOTIFY AGENT),
IN WHICH EVENT BORROWER SHALL PAY TO AGENT FOR THE BENEFIT OF THE
APPLICABLE LENDER 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 AGENT OR SUCH LENDER, AS
APPLICABLE, FOR SUCH REDUCTION. DETERMINATIONS BY AGENT OR SUCH LENDER
FOR PURPOSES OF THIS SECTION OF THE ADDITIONAL AMOUNT OR AMOUNTS
REQUIRED TO COMPENSATE AGENT OR SUCH LENDER WITH RESPECT TO THE
FOREGOING SHALL BE CONCLUSIVE IN THE ABSENCE OF
<PAGE> 9
MANIFEST ERROR. IN DETERMINING SUCH AMOUNT OR AMOUNTS, AGENT OR SUCH
LENDER MAY USE ANY REASONABLE AVERAGING OR ATTRIBUTION METHODS.
NOTWITHSTANDING THE FOREGOING, NO AMOUNTS SHALL BE PAYABLE BY BORROWER
TO AGENT OR SUCH LENDER UNDER THE TERMS OF THIS SECTION 2.8 IF THE
SECURED OBLIGATIONS ARE PAID IN FULL ON OR BEFORE TEN (10) DAYS AFTER
THE DATE ON WHICH AGENT OR SUCH LENDER, AS APPLICABLE, SHALL HAVE
NOTIFIED BORROWER THAT AMOUNTS WILL BE DUE UNDER THIS SECTION 2.8.
2.9. FEES.
(a) FACILITY FEE. IN THE EVENT BORROWER REPAYS IN FULL THE
UNPAID PRINCIPAL BALANCE OF THE LOANS MADE TO IT AND ANY ACCRUED
INTEREST THEREON AND LENDERS' COMMITMENTS ARE CANCELLED (THE
"CANCELLATION DATE"), BORROWER SHALL PAY TO LENDERS A FACILITY FEE TO
BE ALLOCATED AMONG LENDERS' PRO RATA IN ACCORDANCE WITH THEIR
RESPECTIVE COMMITMENT PERCENTAGES WITH RESPECT TO AMOUNTS DISBURSED AS
TRANCHE A LOANS. THE AMOUNT OF THE FACILITY FEE IS DEPENDENT UPON THE
DATE OF THE CANCELLATION DATE AND SHALL BE PAID IN ACCORDANCE WITH THE
FOLLOWING SCHEDULE:
<TABLE>
<CAPTION>
IF THE CANCELLATION DATE IS: FACILITY FEE SHALL BE:
---------------------------- ----------------------
<S> <C>
ON OR BEFORE NOVEMBER 9, 1999 $0
ON OR BEFORE FEBRUARY 8, 2000 $500,000
ON OR BEFORE MAY 8, 2000 $1,650,000
AT ANY TIME THEREAFTER $2,500,000
</TABLE>
(b) UNUSED COMMITMENT. BORROWER SHALL PAY AN UNUSED COMMITMENT
FEE IN AN AMOUNT EQUAL TO .125% (ON AN ANNUAL BASIS, BASED ON THE
NUMBER OF DAYS ELAPSED ON A 365-DAY YEAR) OF THE DIFFERENCE BETWEEN
TOTAL COMMITMENT DETERMINED IN ACCORDANCE WITH SECTION 2.3 AND THE
DAILY OUTSTANDING PRINCIPAL BALANCE OF THE LOAN. SUCH FEE SHALL BE
PAYABLE QUARTERLY IN ARREARS ON THE LAST BUSINESS DAY OF EACH CALENDAR
QUARTER.
(c) INTEREST ON FEES. ANY FEE PAYABLE UNDER THIS SECTION 2.9
WHICH NOT PAID WHEN DUE SHALL BEAR INTEREST AT THE DEFAULT RATE.
2.10. 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. NONE OF LENDERS OR AGENT SHALL 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 LENDERS OR AGENT 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
<PAGE> 10
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, LENDERS AND AGENT 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, LENDERS
AND/OR AGENT SHALL REFUND TO BORROWER THE AMOUNT OF SUCH EXCESS AND,
IN SUCH EVENT, LENDERS AND/OR AGENT 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 LENDERS
AND/OR AGENT 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. AGENT SHALL MAINTAIN
A LOAN ACCOUNT ON ITS BOOKS IN WHICH SHALL BE RECORDED: (i) ALL LOANS
MADE BY LENDERS 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 AGENT'S CUSTOMARY ACCOUNTING PRACTICES, IN EFFECT FROM TIME TO
TIME. THE FAILURE OF AGENT TO RECORD ANY OF THE FOREGOING SHALL NOT IN
ANY WAY LIMIT BORROWER'S LIABILITIES OR BORROWER'S OBLIGATIONS UNDER
THIS AGREEMENT.
3.2. INTEREST PAYMENTS. ACCRUED INTEREST ON ALL LOANS SHALL BE
PAYABLE MONTHLY, IN ARREARS, ON THE LAST BUSINESS DAY OF EACH MONTH
DURING THE TERM HEREOF, WITHOUT NOTICE OR DEMAND.
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 TO AGENT, FOR THE RATABLE BENEFIT
OF LENDERS, IN FULL ON THE MATURITY DATE, WITHOUT NOTICE OR DEMAND.
SAID AMOUNT SHALL BE DUE AND PAYABLE, NOTWITHSTANDING ANY SEEMINGLY
CONTRADICTORY PROVISIONS IN THIS AGREEMENT.
(b) IN THE EVENT OF A PRINCIPAL PAYMENT ON ANY PLEDGED NOTE IN
AN AMOUNT IN EXCESS, IN THE AGGREGATE, OF $100,000, BORROWER AND THE
APPLICABLE LOAN PARTY SHALL GIVE IMMEDIATE NOTICE THEREOF TO AGENT AND
BORROWER SHALL PAY TO AGENT 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 TOTAL COMMITMENT.
(c) IF AT ANY TIME THE OUTSTANDING PRINCIPAL AMOUNT EXCEEDS
THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A LOAN, THE TRANCHE B LOAN
OR THE TRANCHE C LOAN, AS APPLICABLE, DETERMINED IN
<PAGE> 11
ACCORDANCE WITH SECTION 2.2, BORROWER SHALL PAY PRINCIPAL IN AN AMOUNT
NECESSARY TO REDUCE THE THEN OUTSTANDING PRINCIPAL AMOUNT TO AN AMOUNT
LESS THAN THE MAXIMUM PRINCIPAL AMOUNT OF THE APPLICABLE LOAN AND SAID
PAYMENT SHALL BE APPLIED TO THE TRANCHE A LOAN, THE TRANCHE B LOAN OR
THE TRANCHE C LOAN, AS APPLICABLE, TO REDUCE SUCH LOAN TO AN AMOUNT
BELOW THE MAXIMUM PRINCIPAL AMOUNT THEREOF DETERMINED IN ACCORDANCE
WITH SECTION 2.2.
(d) BORROWER SHALL PAY TO AGENT, FOR THE BENEFIT OF LENDERS,
100% OF ALL EXTRAORDINARY TRANSACTION PROCEEDS, TO BE APPLIED TO THE
SECURED OBLIGATIONS IN THE ORDER OF PRIORITY DETERMINED IN ACCORDANCE
WITH SECTION 3.6.
3.4. PLACE OF PAYMENT. ALL PAYMENTS TO AGENT 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 AGENT MAY DESIGNATE IN WRITING TO BORROWER.
ALL OF SUCH PAYMENTS TO PERSONS OTHER THAN AGENT SHALL BE PAYABLE AT
SUCH PLACE OR PLACES AS AGENT MAY DESIGNATE IN WRITING TO BORROWER.
BORROWER'S LIABILITIES AND THE OTHER SECURED OBLIGATIONS WILL BE
PAYABLE AS SET FORTH IN THE NOTES, 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 AGENT, IN
FULL, IN CASH OR OTHER IMMEDIATELY AVAILABLE FUNDS, THE OUTSTANDING
AMOUNT OF THE LOAN. THE LOANS MAY BE PREPAID IN FULL OR IN PART,
WITHOUT PREMIUM OR PENALTY, EXCEPT FOR THE FEES SET FORTH IN SECTION
2.9.
3.6. APPLICATION OF PAYMENTS.
(a) AGENT SHALL APPLY PAYMENTS MADE TO AGENT, FOR THE BENEFIT
OF LENDERS, FROM ANY SOURCE OTHER THAN EXTRAORDINARY TRANSACTION
PROCEEDS (THE "ORDINARY COURSE PREPAYMENTS") IN THE FOLLOWING ORDER OF
PRIORITY: (i) FIRST TO COSTS, INCLUDING THE PAYMENT OF ANY COSTS AND
EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY RIGHTS
HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS; (ii) THEN TO ACCRUED BUT
UNPAID INTEREST AND OTHER FEES AND EXPENSES THEN DUE AND PAYABLE
HEREUNDER; (iii) THEN TO THE PRINCIPAL AMOUNT OF THE TRANCHE C LOAN;
(iv) THEN TO THE PRINCIPAL AMOUNT OF THE TRANCHE B LOAN, AND (v) THEN
TO THE PRINCIPAL AMOUNT OF THE TRANCHE A LOAN IN ACCORDANCE WITH THE
FOLLOWING PROPORTIONS: 59.295% TO BANK OF SCOTLAND AND 40.741% TO
NATIONSBANK.
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN,
AGENT SHALL APPLY EXTRAORDINARY TRANSACTION PROCEEDS RECEIVED IN
CONNECTION WITH A SALE OF THE STOCK OR OTHER EQUITY INTERESTS OF FC
CONSUMER LENDING OR ANY OF FC CONSUMER LENDING'S ASSETS FIRST TO (i)
COSTS RELATING TO THE TRANCHE B LOAN; (ii) THEN TO INTEREST UNDER THE
TRANCHE B LOAN; (iii) THEN TO THE UNPAID PRINCIPAL AMOUNT OF THE
TRANCHE B LOAN; (iv) THEN TO ALL OTHER COSTS, INCLUDING THE PAYMENT OF
COSTS AND EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY
RIGHTS HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS; (v) THEN TO
ACCRUED BUT UNPAID INTEREST ON ALL OTHER LOANS; (vi) THEN TO PAYMENT
OF THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS AND THE
REDUCTION OF LENDERS' COMMITMENTS IN ACCORDANCE WITH THE FOLLOWING
PROPORTIONS: 62.50% TO BANK OF SCOTLAND AND 37.50% TO NATIONSBANK,
UNTIL BANK OF SCOTLAND IS
<PAGE> 12
PAID IN FULL ALL AMOUNTS DUE TO BANK OF SCOTLAND WITH RESPECT TO THE
TRANCHE A LOANS; (vii) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE
TRANCHE A LOANS UNTIL NATIONSBANK IS PAID IN FULL, AND (viii) THEN TO
THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS.
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN,
BUT SUBJECT TO THE PROVISIONS OF SECTION 3.6(b), THE AGENT SHALL APPLY
EXTRAORDINARY TRANSACTION PROCEEDS, INCLUDING BUT NOT LIMITED TO
EXTRAORDINARY TRANSACTION PROCEEDS RECEIVED IN CONNECTION WITH A
SECURITIES SALE, AS FOLLOWS: (i) TO COSTS INCLUDING PAYMENT OF ANY
COSTS AND EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY
RIGHTS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT; (ii) THEN TO
ACCRUED BUT UNPAID INTEREST THEN DUE AND PAYABLE, (iii) THEN TO THE
REPAYMENT OF THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS AND
THE REDUCTION OF LENDERS' TRANCHE A COMMITMENTS IN ACCORDANCE WITH THE
FOLLOWING PROPORTIONS: 64.52% TO BANK OF SCOTLAND AND 35.48% TO
NATIONSBANK, UNTIL BANK OF SCOTLAND IS PAID IN FULL ALL AMOUNTS DUE TO
BANK OF SCOTLAND WITH RESPECT TO THE TRANCHE A LOANS; (iv) THEN TO THE
UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS UNTIL NATIONSBANK IS
PAID IN FULL, (v) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE
C LOANS, AND (vi) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE
B LOANS.
(d) THE PROVISIONS OF THIS SECTION 3.6 SHALL CONTROL OVER ANY
INCONSISTENT PROVISION IN THIS AGREEMENT, INCLUDING THE PROVISIONS OF
SECTION 10.5.
3.7. ADVANCES TO CONSTITUTE ONE LOAN. ALL ADVANCES, LOANS,
INCLUDING TRANCHE A LOANS, TRANCHE B LOANS AND TRANCHE C LOANS, AND
ANY OTHER FINANCIAL ACCOMMODATIONS PROVIDED PURSUANT TO THE TERMS
HEREOF BY LENDERS TO BORROWER SHALL CONSTITUTE ONE LOAN AND ALL
INDEBTEDNESS AND OBLIGATIONS OF BORROWER TO LENDERS AND/OR AGENT UNDER
THIS AGREEMENT, THE OTHER AGREEMENTS OR OTHERWISE SHALL CONSTITUTE ONE
GENERAL OBLIGATION SECURED BY THE COLLATERAL.
3.8. REAPPLICATION OF PAYMENTS. TO THE EXTENT THAT AGENT 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
AGENT AND APPLIED ON ACCOUNT OF THE SECURED OBLIGATIONS.
3.9. MONTHLY STATEMENTS. ALL ADVANCES TO BORROWER AND ALL OTHER
DEBITS AND CREDITS PROVIDED FOR IN THIS AGREEMENT SHALL BE EVIDENCED
BY ENTRIES MADE BY EACH LENDER AND AGENT IN ITS INTERNAL DATA CONTROL
SYSTEMS SHOWING THE DATE, AMOUNT AND REASON FOR EACH SUCH DEBIT OR
CREDIT. UNTIL SUCH TIME AS EACH LENDER AND AGENT SHALL HAVE RENDERED
TO BORROWER WRITTEN STATEMENTS OF ACCOUNT AS PROVIDED HEREIN, THE
BALANCE IN THE LOAN ACCOUNT, AS SET FORTH ON EACH LENDER'S AND AGENT'S
RESPECTIVE MOST RECENT STATEMENTS, SHALL BE REBUTTABLY PRESUMPTIVE
EVIDENCE OF THE AMOUNTS DUE AND OWING TO EACH LENDER AND/OR AGENT BY
BORROWER. AT EACH LENDER'S AND AGENT'S OPTION, EACH LENDER AND AGENT
SHALL RENDER A
<PAGE> 13
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 EACH LENDER AND AGENT AND EACH LENDER'S AND AGENT'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 STATEMENT
UNLESS, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF ANY STATEMENT FROM
ANY LENDER AND/OR AGENT, BORROWER SHALL DELIVER TO THE APPROPRIATE
LENDER AND/OR AGENT WRITTEN OBJECTION THERETO, SPECIFYING THE ERROR OR
ERRORS, IF ANY, CONTAINED IN SUCH STATEMENT.
3.10. TIME OF PAYMENT OF EXTRAORDINARY TRANSACTION PROCEEDS. ANY
PAYMENT DUE PURSUANT TO THE TERMS OF SECTION 3.3(d) SHALL BE MADE ON
THE DATE OF CLOSING OF SUCH TRANSACTION AND BORROWER SHALL DIRECT
PURCHASER AND/OR LENDER TO MAKE PAYMENT BY WIRE TRANSFER OF
IMMEDIATELY AVAILABLE FUNDS DIRECTLY TO AGENT. NO PORTION OF THE
CONSIDERATION PAID FOR SUCH TRANSFER SHALL BE MADE IN KIND, IN
SECURITIES, OR BY DELIVERY OF PROMISSORY NOTE OR OTHER FORM OF
INDEBTEDNESS OR OBLIGATION, WITHOUT, IN EACH INSTANCE THE PRIOR
WRITTEN CONSENT OF LENDERS, WHICH CONSENT MAY BE WITHHELD BY LENDERS
IN THEIR SOLE AND EXCLUSIVE DISCRETION.
(g) The following Section 4.5 is hereby added to the Existing Loan
Agreement:
4.5 WARRANT AGREEMENT. CONCURRENTLY HEREWITH, BORROWER SHALL ENTER
INTO AND DELIVER TO BANK OF SCOTLAND THAT CERTAIN WARRANT AND
REGISTRATION AGREEMENT, GRANTING WARRANTS IN THE STOCK OF BORROWER TO
BANK OF SCOTLAND. NATIONSBANK SHALL HAVE NO INTEREST THEREIN.
(h) Sections 6.3(k), (l), (m), (n) and (o) of the Existing Loan Agreement
are hereby deleted in their entirety and the following is substituted therefor:
(k) INDEBTEDNESS. NEITHER BORROWER NOR ANY PRIMARY OBLIGOR 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 AND UNSECURED INDEBTEDNESS OF BORROWER TO AN
AFFILIATE, INCURRED IN THE ORDINARY COURSE OF BUSINESS .
(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.
(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
<PAGE> 14
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 LENDERS' PRIOR WRITTEN CONSENT.
(i) Section 7.1 is hereby deleted in its entirety and the following is
substituted therefor:
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 FIVE (5) DAYS AFTER AGENT 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 AGENT 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;
(d) IF BORROWER SHALL DEFAULT UNDER THE TERMS OF ANY
INDEBTEDNESS INSTRUMENT, OTHER THAN THE LOAN DOCUMENTS.
(e) EXCEPT AS PROVIDED IN ANY OTHER SECTION OF THIS SECTION
7.1 AND EXCEPT FOR THOSE DEFAULTS BY HARBOR FINANCIAL MORTGAGE
CORPORATION LISTED ON EXHIBIT B ATTACHED HERETO WHICH SHALL CONSTITUTE
AN IMMEDIATE EVENT OF DEFAULT FOR WHICH THE TEN DAY CURE PERIOD
REFERENCED BELOW SHALL NOT BE APPLICABLE IF SUCH DEFAULTS ARE NOT
CURED ON OR BEFORE SEPTEMBER 15, 1999, IF ANY SUBSIDIARY OF BORROWER
SHALL DEFAULT UNDER THE TERMS OF ANY INDEBTEDNESS INSTRUMENT AND SUCH
DEFAULT IS NOT CURED WITHIN TEN (10) DAYS AFTER THE OCCURRENCE
THEREOF; PROVIDED THAT SUCH CURE PERIOD SHALL NOT APPLY IF: (i) A
DEFAULT OCCURS BY SUCH SUBSIDIARY UNDER THE TERMS OF ANY OTHER
INDEBTEDNESS INSTRUMENT SECURING OR EVIDENCING A DIFFERENT BORROWING,
OR (ii) IF ANY OTHER SUBSIDIARY DEFAULTS UNDER THE TERMS OF ANY
INDEBTEDNESS INSTRUMENT DURING SUCH TEN (10) 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).
<PAGE> 15
(f) IF THERE IS A TRIGGER EVENT, A SEQUENTIAL TRIGGER EVENT, A
TERMINATION EVENT, A DEFAULT, AN EVENT OF DEFAULT AND/OR ANY OTHER
OCCURRENCE HAVING A SIMILAR RESULT AS ANY OF THE FOREGOING, AS
APPLICABLE, AS DEFINED IN AND/OR UNDER THE TERMS OF ANY ONE OR MORE OF
THE AGREEMENTS LISTED ON EXHIBIT A ATTACHED HERETO.
(g) 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 AGENT GIVES BORROWER NOTICE OF SUCH DEFAULT.
(h) A BREACH OF THE REPRESENTATION, WARRANTY AND COVENANT SET
FORTH IN SECTION 6.2(i).
(i) 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;
(j) 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;
(k) 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;
(l) 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;
(m) 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;
(n) 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;
<PAGE> 16
(o) 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 AGENT, 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 AGENT ON BEHALF OF LENDERS 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;
(p) 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;
(q) 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;
(r) IF ANY FINAL NON-APPEALABLE JUDGMENT FOR THE PAYMENT OF
MONEY IN EXCESS OF $100,000 (AFTER GIVING EFFECT TO ANY AMOUNT COVERED
BY INSURANCE AS TO WHICH THE INSURER SHALL NOT HAVE DENIED 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 $100,000 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;
(s) 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 COULD SUBJECT EITHER BORROWER OR ANY ERISA AFFILIATE TO
LIABILITY;
(t) 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 COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE FINANCIAL CONDITIONS OR BUSINESS OPERATIONS OF SUCH LOAN
PARTY;
<PAGE> 17
(u) 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 AGENT.
(k) Schedules 1.1(xxx), 2.2(c), 4.2, 4.3, 5.1(e), 5.1(f), 5.1(g), 5.1(j),
5.1(l), 5.1(s), 5.1(t), 5.1(u) and 6.3(l) attached to the Existing Loan
Agreement are hereby deleted in their entirety and the Schedules attached
hereto are substituted therefor.
3. ADDITIONAL COVENANTS.
(a) Borrower hereby covenants that no Advances of Loan proceeds made after
the date hereof shall be loaned to, contributed as capital to, used to pay the
debts or obligations of or otherwise expended (either directly or indirectly)
by Borrower, and that Borrower shall not allow any Subsidiary to allow any
Advances of Loan proceeds made after the date hereof to be loaned to,
contributed as capital to, used to pay the debts or obligations of or otherwise
expended (either directly or indirectly) for the benefit of or on behalf of
FirstCity Financial Mortgage Corporation, Harbor Financial Mortgage
Corporation, or New America Financial Inc., or any Subsidiary thereof.
(b) Borrower hereby covenants that it will not, without the prior written
consent of Lenders, pay any dividends, with respect to its equity interests,
including any Preferred Stock.
(c) Borrower shall use its best efforts to and shall fully cooperate with
Agent and Lenders to amend and restate the Existing Loan Agreement on or before
September 15, 1999.
4. MISCELLANEOUS.
(a) This Tenth Amendment is supplementary to the Existing Loan Agreement
and the other Loan Documents as amended by the amendments and assignments
thereto. All of the provisions of the Loan Documents, including without
limitation, the right to declare principal and accrued interest due for any
cause specifically in the Loan Documents, shall remain in full force and
effect, except as herein or concurrently herewith expressly modified. The Loan
Documents and all rights and powers created thereby and thereunder are in all
respects ratified and confirmed. From and after the date hereof, the Existing
Loan Agreement shall be deemed to be amended and modified as herein provided,
but, except as so amended and modified, the Existing Loan Agreement shall
continue in full force and effect and the Existing Loan Agreement and this
Tenth Amendment shall be read, taken and construed as one and the same
instrument. On and after the date hereof, the term "LOAN AGREEMENT" as used in
all of the other Loan Documents and "THIS AGREEMENT" as used in the Existing
Loan Agreement and this Tenth Amendment shall mean the Existing Loan Agreement
as amended hereby.
(b) Representations and Warranties of Borrower. This Tenth Amendment shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. To induce Agent and Lenders to enter into
this Tenth Amendment, Borrower hereby represents and warrants to Agent and
Lenders that:
(i) The execution and delivery of this Tenth Amendment, and the
performance by Borrower of its obligations under this Tenth 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 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;
(ii) This Tenth 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,
<PAGE> 18
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);
(iii) Except for the existing defaults by Harbor Financial Mortgage
Corporation listed on Exhibit B attached hereto, 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.
(iv) 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
provisions of the Agreement and the other Loan Documents.
(v) All material agreements relating to auto receivables or home
equity loan receivables to which Borrower or a Subsidiary thereof is a party
are listed on Exhibit A attached hereto.
(c) Reimbursement for Expenses. Upon demand by Agent therefor, Borrower
shall reimburse Bank of Scotland and/or Agent for all reasonable costs, fees
and expenses incurred by Bank of Scotland and/or Agent or for which any Lender
and/or Agent becomes obligated, in connection with the negotiation, preparation
and conclusion of this Tenth Amendment, including without limitation,
reasonable attorney's fees, costs and expenses, search fees, title insurance
policy fees, costs and expenses, filing and recording fees, LIBOR Breakage Fees
and all taxes payable in connection with this Tenth Amendment.
(d) 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 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 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.
(e) Severability. If any provision (in whole or in part) of this Tenth
Amendment 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 Tenth Amendment or the other Loan Documents, as the case may require,
and this Tenth Amendment and such other Loan Documents 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 Tenth Amendment
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 Tenth Amendment and the other Loan Documents shall be severable in any
such instance.
(f) Governing Law. THIS TENTH AMENDMENT HAS BEEN DELIVERED FOR ACCEPTANCE
BY AGENT AND LENDERS 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
<PAGE> 19
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 TENTH AMENDMENT;
(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 AGENT, LENDERS OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER
ARISING OUT OF OR RELATING TO THIS TENTH AMENDMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR
IMPAIR AGENT'S OR LENDERS' RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED
BY LAW OR AGENT'S OR LENDERS' RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
(g) Representation by Counsel. Borrower hereby represents that it has
been represented by competent counsel of its choice in the negotiation and
execution of this Tenth 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 Tenth
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 Tenth Amendment.
(h) Headings. The descriptive headings of the various provisions of this
Tenth Amendment 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. Section references in the Existing Loan Agreement
shall be deemed to refer to the applicable Section set forth in this Amendment.
(i) Counterparts. This Tenth 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; all the counterparts
for each such Loan Document shall together constitute one and the same
agreement.
(j) Fax Execution. For purposes of negotiating and finalizing this Tenth
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 Tenth 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 Tenth Amendment.
(k) No Third Party Beneficiaries. This Tenth Amendment is solely for the
benefit of Agent, Lenders, Borrower and their respective successors and assigns
(except as otherwise expressly provided herein) and nothing contained herein
shall be deemed to confer upon any other Person 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 Lenders to make the Loans
hereunder are imposed solely and exclusively for the benefit of Lenders and
their respective successors and assigns and no other Person shall have standing
to require satisfaction of such conditions in accordance with their terms and
no other Persons shall under any circumstances be deemed to be a beneficiary of
such conditions.
(l) Domicile of Loans. Each Lender may make, maintain or transfer any of
its Loans hereunder to, or for the account of, any branch office, subsidiary or
affiliate of such Lender.
<PAGE> 20
(m) Modification. Borrower expressly agrees that for purposes of this
Tenth Amendment and each and every other Loan Document: (i) this Tenth
Amendment, the Agreement and each and every 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 Tenth Amendment, the Existing Loan Agreement,
as amended hereby, and each and every other Loan Document; and (iii) any action
on or in any way related to this Tenth Amendment, the Existing Loan Agreement,
as amended hereby, and each and every other Loan Document shall be governed by
the Act.
(n) Texas Language.
(i) THIS WRITTEN AGREEMENT (TOGETHER WITH THE OTHER LOAN DOCUMENTS)
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE
MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
(ii) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO.
(o) WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY LAW, BORROWER,
AGENT AND/OR LENDERS 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 TENTH AMENDMENT, THE EXISTING
LOAN AGREEMENT, AS AMENDED HEREBY, 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 LENDERS TO MAKE THE LOAN.
The remainder of this page has been left intentionally blank.
<PAGE> 21
IN WITNESS WHEREOF, this Tenth Amendment to Loan Agreement has been
duly executed and dated for reference purposes only as of August 11, 1999.
BORROWER:
FIRSTCITY FINANCIAL CORPORATION,
a Delaware corporation
By:
---------------------------------------
Title:
------------------------------------
LENDERS:
BANK OF SCOTLAND
By:
---------------------------------------
Title:
------------------------------------
NATIONSBANK, N.A.
By:
---------------------------------------
Title:
------------------------------------
AGENT:
BANK OF SCOTLAND
By:
---------------------------------------
Title:
------------------------------------
<PAGE> 22
EXHIBIT A
<PAGE> 23
EXHIBIT B
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,940
<SECURITIES> 68,021
<RECEIVABLES> 694,552
<ALLOWANCES> 0
<INVENTORY> 126,016
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,109,651
<CURRENT-LIABILITIES> 0
<BONDS> 930,969
26,323
0
<COMMON> 83
<OTHER-SE> 89,706
<TOTAL-LIABILITY-AND-EQUITY> 1,109,651
<SALES> 11,018
<TOTAL-REVENUES> 92,452
<CGS> 8,971
<TOTAL-COSTS> 8,971
<OTHER-EXPENSES> 106,452
<LOSS-PROVISION> 5,562
<INTEREST-EXPENSE> 11,001
<INCOME-PRETAX> (39,534)
<INCOME-TAX> 5,032
<INCOME-CONTINUING> (44,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 835
<NET-INCOME> (46,667)
<EPS-BASIC> (5.63)
<EPS-DILUTED> (5.63)
</TABLE>
