<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 MARCH 31, 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)
</TABLE>
(254) 751-1750
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of common stock, par value $.01 per share, outstanding
at May 14, 1999 was 8,299,252.
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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>
MARCH 31, DECEMBER 31,
1999 1998
-------------- -----------------
<S> <C> <C>
Cash and cash equivalents................................... $ 20,022 $ 13,677
Portfolio Assets, net....................................... 56,399 69,717
Loans receivable, net....................................... 84,215 46,187
Mortgage loans held for sale................................ 1,028,934 1,207,679
Residual interests in securitizations....................... 64,585 65,242
Equity investments in and advances to Acquisition
Partnerships.............................................. 40,261 41,466
Mortgage servicing rights, net.............................. 47,436 91,440
Receivable for servicing advances and accrued interest...... 112,203 58,977
Deferred tax benefit, net................................... 32,113 32,162
Other assets, net........................................... 24,900 37,430
---------- ----------
Total Assets...................................... $1,511,068 $1,663,977
========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable............................................. $1,286,616 $1,462,231
Other liabilities......................................... 63,671 38,472
---------- ----------
Total Liabilities................................. 1,350,287 1,500,703
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; 1,222,701 shares issued and
outstanding)........................................... 26,319 26,319
Shareholders' equity:
Optional preferred stock (par value $.01 per share;
98,000,000 shares authorized; no shares issued or
outstanding)........................................... -- --
Common stock (par value $.01 per share; 100,000,000 shares
authorized; issued and outstanding: 8,299,252 and
8,287,959 shares, respectively)........................ 83 83
Paid in capital........................................... 78,568 78,456
Retained earnings......................................... 55,917 58,061
Accumulated other comprehensive income (loss)............. (106) 355
---------- ----------
Total Shareholders' Equity........................ 134,462 136,955
---------- ----------
Total Liabilities, Redeemable Preferred Stock and
Shareholders' Equity............................ $1,511,068 $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
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Gain on sale of mortgage and other loans.................. $26,641 $20,269
Net mortgage warehouse income............................. 5,756 1,722
Gain (loss) on sale of mortgage servicing rights.......... (2,395) --
Servicing fees:
Mortgage............................................... 6,143 4,694
Other.................................................. 2,076 1,113
Gain on resolution of Portfolio Assets.................... 1,369 3,097
Equity in earnings of Acquisition Partnerships............ 2,643 3,214
Interest income........................................... 5,217 3,799
Other income.............................................. 2,193 4,118
------- -------
Total revenues.................................... 49,643 42,026
Expenses:
Interest on notes payable................................. 5,590 3,418
Salaries and benefits..................................... 25,793 16,017
Amortization of mortgage servicing rights................. 4,723 3,176
Provision for loan losses and impairment on residual
interests.............................................. 23 2,352
Provision (credit) for valuation of mortgage servicing
rights................................................. (2,695) --
Occupancy, data processing, communication and other....... 17,219 12,123
------- -------
Total expenses.................................... 50,653 37,086
Earnings (loss) before minority interest, accounting change
and income taxes.......................................... (1,010) 4,940
Benefit (provision) for income taxes........................ (21) 641
------- -------
Earnings (loss) before minority interest and accounting
change.................................................... (1,031) 5,581
Minority interest........................................... 364 215
Cumulative effect of accounting change...................... (835) --
------- -------
Net earnings (loss)............................... (1,502) 5,796
Preferred dividends......................................... (642) (1,515)
------- -------
Net earnings (loss) to common shareholders........ $(2,144) $ 4,281
======= =======
Earnings (loss) before accounting change per common
share -- basic............................................ $ (0.16) $ 0.66
Earnings (loss) before accounting change per common
share -- diluted.......................................... $ (0.16) $ 0.64
Cumulative effect of accounting change -- basic............. $ (0.10) $ --
Cumulative effect of accounting change -- diluted........... $ (0.10) $ --
Net earnings (loss) per common share -- basic............... $ (0.26) $ 0.66
Net earnings (loss) per common share -- diluted............. $ (0.26) $ 0.64
Weighted average common shares outstanding -- basic......... 8,288 6,531
Weighted average common shares outstanding -- diluted....... 8,288 6,678
</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.................. 11,293 -- 112 -- -- 112
Comprehensive loss:
Net loss for the first quarter
of 1999..................... -- -- -- (1,502) -- (1,502)
Foreign currency items........... -- -- -- -- (461) (461)
--------
Total comprehensive loss......... (1,963)
--------
Preferred dividends.............. -- -- -- (642) -- (642)
--------- --- ------- -------- ----- --------
BALANCES, MARCH 31, 1999......... 8,299,252 $83 $78,568 $ 55,917 $(106) $134,462
========= === ======= ======== ===== ========
</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>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ (1,502) $ 5,796
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........... 5,035 16,976
Gain on resolution of Portfolio Assets................. (1,369) (3,097)
Purchase of Portfolio Assets and loans receivable,
net................................................... (1,566) (7,532)
Origination of automobile receivables, net of purchase
discount.............................................. (46,123) (29,000)
Loss on sale of mortgage servicing rights.............. 2,395 --
Decrease (increase) in mortgage loans held for sale.... 178,745 (515,105)
Decrease (increase) in construction loans receivable... 4,355 (2,815)
Originated mortgage servicing rights................... (41,225) (21,845)
Purchases of mortgage servicing rights................. -- (46)
Proceeds from sale of mortgage servicing rights........ 80,807 --
Provision (credit) for loan losses, residual interests
and valuation of mortgage servicing rights............ (2,672) 2,352
Equity in earnings of Acquisition Partnerships......... (2,643) (3,214)
Proceeds from performing Portfolio Assets and loans
receivable, net....................................... 15,242 45,712
(Increase) decrease in net deferred tax asset.......... 49 (1,768)
Depreciation and amortization.......................... 6,461 4,070
Increase in other assets............................... (32,134) (4,649)
Increase (decrease) in other liabilities............... 17,503 10,183
----------- -----------
Net cash provided by (used in) operating
activities...................................... 181,358 (503,982)
----------- -----------
Cash flows from investing activities, net of effect of
acquisitions:
Property and equipment, net............................... (2,443) (1,529)
Contributions to Acquisition Partnerships................. (831) (7,597)
Distributions from Acquisition Partnerships............... 3,732 8,053
----------- -----------
Net cash provided by (used in) investing
activities...................................... 458 (1,073)
----------- -----------
Cash flows from financing activities, net of effect of
acquisitions:
Borrowings under notes payable............................ 3,005,933 2,445,245
Payments of notes payable................................. (3,180,874) (1,928,127)
Proceeds from issuance of common stock.................... 112 153
Preferred dividends paid.................................. (642) (1,515)
----------- -----------
Net cash provided by (used in) financing
activities...................................... (175,471) 515,756
----------- -----------
Net increase in cash........................................ $ 6,345 $ 10,701
Cash, beginning of period................................... 13,677 31,605
----------- -----------
Cash, end of period......................................... $ 20,022 $ 42,306
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 21,975 $ 16,818
Income taxes........................................... $ 77 $ 94
Non-cash investing activities:
Investment securities received as a result of sales of
loans through securitizations.......................... $ -- $ 14,234
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March
31, 1999, the results of operations and the cash flows for the three month
periods ended March 31, 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 and in securitization trusts, 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 resulting from 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 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>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Non-performing Portfolio Assets........................... $ 86,958 $93,716
Performing Portfolio Assets............................... 22,137 24,759
Real estate Portfolios.................................... 11,325 12,561
-------- -------
Total Portfolio Assets.......................... 120,420 131,036
Discount required to reflect Portfolio Assets at carrying
value................................................... (64,021) (61,319)
-------- -------
Portfolio Assets, net........................... $ 56,399 $69,717
======== =======
</TABLE>
Portfolio Assets are pledged to secure non-recourse notes payable.
(3) LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Construction loans receivable............................ $ 20,235 $24,590
Residential mortgage and other loans held for
investment.......................................... 8,072 11,016
Automobile and consumer finance receivables.............. 69,059 16,475
Allowance for loan losses................................ (13,151) (5,894)
-------- -------
Loans receivable, net.......................... $ 84,215 $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>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Balances, beginning of period............................... $ 5,894 $ 9,282
Provision for loan losses................................. 23 2,352
Discounts acquired........................................ 7,621 4,474
Allocation of reserves to sold loans...................... -- (2,802)
Charge off activity:
Principal balances charged off......................... (1,081) (4,589)
Recoveries............................................. 694 926
------- -------
Net charge offs................................... (387) (3,663)
------- -------
Balances, end of period..................................... $13,151 $ 9,643
======= =======
</TABLE>
(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>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Residential mortgage loans.................................. $1,014,413 $1,190,585
Unamortized premiums and discounts, net..................... 14,521 17,094
---------- ----------
$1,028,934 $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 all attributable to loans sold
through securitization transactions by the Company. Residual interests are
comprised of the following as of the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Rated securities............................................ $ 1,766 $ 2,073
Residual interests.......................................... 64,824 66,473
Accrued interest............................................ 2,445 1,146
Allowance for losses........................................ (4,450) (4,450)
------- -------
$64,585 $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>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Balance, beginning of period................................ $65,242 $ 6,935
Cost allocated from securitizations......................... -- 14,234
Interest accreted........................................... 2,063 270
Increase in other securities, net........................... -- 200
Cash received from trusts................................... (2,720) (301)
------- -------
Balance, end of period...................................... $64,585 $21,338
======= =======
</TABLE>
(6) INVESTMENTS IN ACQUISITION PARTNERSHIPS
The Company has investments in Acquisition Partnerships and their general
partners that are accounted for on the equity method. The condensed combined
financial position and results of operations of the Acquisition Partnerships,
which include the domestic and foreign Acquisition Partnerships and their
general partners, are summarized below:
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Assets...................................................... $267,604 $295,114
======== ========
Liabilities................................................. $178,453 $190,590
Net equity.................................................. 89,151 104,524
-------- --------
$267,604 $295,114
======== ========
Company's equity in Acquisition Partnerships................ $ 40,261 $ 41,466
======== ========
</TABLE>
CONDENSED COMBINED SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Proceeds from resolution of Portfolio Assets................ $29,645 $57,558
Gross margin................................................ 10,731 18,533
Interest income on performing Portfolio Assets.............. 3,336 2,453
Net earnings................................................ $ 6,383 $ 9,123
======= =======
Company's equity in earnings of Acquisition
Partnerships........................................... $ 2,643 $ 3,214
======= =======
</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 based on products and
services offered by each. The following is a summary of results of operations
for each of
8
<PAGE> 9
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the segments and a reconciliation to net earnings (loss) for the quarters ended
March 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1999 1998
------- -------
<S> <C> <C>
MORTGAGE BANKING:
Revenues:
Net mortgage warehouse income.......................... $ 5,756 $ 1,722
Gain on sale of mortgage loans......................... 26,641 20,269
Servicing fees......................................... 6,143 4,694
Other.................................................. 346 2,004
------- -------
Total............................................. 38,886 28,689
Expenses:
Salaries and benefits.................................. 21,897 12,935
Amortization of mortgage servicing rights.............. 4,723 3,176
Provision (credit) for valuation of mortgage servicing
rights................................................ (2,695) --
Interest on notes payables............................. 2,049 501
Occupancy, data processing, communication and other.... 12,222 8,104
------- -------
Total............................................. 38,196 24,716
------- -------
Operating contribution before direct taxes................ $ 690 $ 3,973
======= =======
Operating contribution, net of direct taxes................. $ 1,706 $ 3,884
======= =======
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets................. $ 1,369 $ 3,097
Equity in earnings of Acquisition Partnerships......... 2,643 3,214
Servicing fees......................................... 1,003 729
Other.................................................. 1,221 1,998
------- -------
Total............................................. 6,236 9,038
Expenses:
Salaries and benefits.................................. 1,420 1,167
Interest on notes payable.............................. 1,050 1,476
Asset level expenses, occupancy, data processing and
other................................................. 1,549 2,212
------- -------
Total............................................. 4,019 4,855
------- -------
Operating contribution before direct taxes................ $ 2,217 $ 4,183
======= =======
Operating contribution, net of direct taxes............... $ 1,487 $ 4,169
======= =======
CONSUMER LENDING:
Revenues:
Interest income........................................ $ 3,405 $ 2,566
Servicing fees and other............................... 1,087 390
------- -------
Total............................................. 4,492 2,956
</TABLE>
9
<PAGE> 10
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1999 1998
------- -------
<S> <C> <C>
Expenses:
Salaries and benefits.................................. 1,533 1,112
Provision for loan losses and residual interests....... 23 2,352
Interest on notes payable.............................. 668 880
Occupancy, data processing and other................... 2,041 1,107
------- -------
Total............................................. 4,265 5,451
------- -------
Operating income (loss) before direct taxes............... $ 227 $(2,495)
======= =======
Operating income (loss), net of direct taxes.............. $ 278 $(2,495)
======= =======
Total operating contribution, net of direct
taxes.......................................... $ 3,471 $ 5,558
======= =======
CORPORATE OVERHEAD:
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... $(4,973) $ (512)
Deferred tax benefit from NOLs............................ -- 750
------- -------
Net earnings (loss)....................................... $(1,502) $ 5,796
======= =======
</TABLE>
Total assets for each of the segments and a reconciliation to total assets
is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
Mortgage assets............................................. $1,237,524 $1,413,799
Portfolio acquisition and resolution assets................. 99,422 114,596
Consumer assets............................................. 96,594 52,029
Deferred tax benefit........................................ 32,113 32,162
Other assets................................................ 45,415 51,391
---------- ----------
Total assets...................................... $1,511,068 $1,663,977
========== ==========
</TABLE>
(8) PREFERRED STOCK AND SHAREHOLDERS' EQUITY
In May 1998, the Company closed the public offering of 1,542,150 shares of
FirstCity common stock, of which 341,000 shares were sold by selling
shareholders. Net proceeds (after expenses) of $34.1 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 March 31, 1999, there have been
no securities issued under this registration statement. At March 31, 1999,
accrued dividends on adjusting rate preferred stock totaled $.6 million, or
10
<PAGE> 11
FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$.525 per share, and were paid on April 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
MARCH 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Net earnings (loss) to common shareholders.................. $(2,144) $4,281
======= ======
Weighted average common shares outstanding -- basic......... 8,288 6,531
Effect of dilutive securities:
Assumed exercise of stock options......................... -- 73
Assumed exercise of warrants.............................. -- 74
------- ------
Weighted average common shares outstanding -- diluted....... 8,288 6,678
======= ======
Earnings (loss) before accounting change per common
share -- basic............................................ $ (0.16) $ 0.66
Earnings (loss) before accounting change per common
share -- diluted.......................................... $ (0.16) $ 0.64
Cumulative effect of accounting change -- basic............. $ (0.10) $ --
Cumulative effect of accounting change -- diluted........... $ (0.10) $ --
Net earnings (loss) per common share -- basic............... $ (0.26) $ 0.66
Net earnings (loss) per common share -- diluted............. $ (0.26) $ 0.64
Weighted average common shares outstanding -- basic......... 8,288 6,531
Weighted average common shares outstanding -- diluted....... 8,288 6,678
</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. During the
first three months of 1999, FirstCity recognized no deferred tax benefit from
NOLs (compared to $.8 million in the first three months of 1998). Realization of
the resulting net deferred tax asset is dependent upon generating sufficient
taxable income prior to expiration of the net operating loss carry forwards.
Although realization is not assured, management believes it is more likely than
not that all of the recorded deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be adjusted in the
future if estimates of future taxable income during the carry forward period
change.
(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 March 31, 1999, advances of $.7 million had been
made under the obligation.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a diversified financial services company engaged in
residential and commercial mortgage banking ("Mortgage Corp."), Portfolio Asset
acquisition and resolution ("Commercial Corp.") and consumer lending ("Consumer
Corp."). The mortgage banking business involves the origination, acquisition and
servicing of residential and commercial mortgage loans and the subsequent
warehousing, sale or securitization of such loans through various public and
private secondary markets. The Portfolio Asset acquisition and resolution
business involves acquiring Portfolio Assets at a discount to Face Value and
servicing and resolving such Portfolios in an effort to maximize the present
value of the ultimate cash recoveries. The Company also seeks opportunities to
originate and retain high yield commercial loans to businesses and to finance
real estate projects that are unable to access traditional lending sources. The
consumer lending business involves the acquisition, origination, warehousing,
securitization and servicing of consumer receivables. The Company's current
consumer lending operations are focused on the acquisition of sub-prime
automobile receivables.
FirstCity Financial Corporation posted a net loss for the quarter ended
March 31, 1999 of $1.5 million. After dividends on the Company's preferred
stock, the loss was $2.1 million, or $.26 per share on a fully diluted basis.
The loss for the quarter resulted primarily from the following:
- No securitizations of automobile or home equity assets
- Slow collections in the portfolio asset acquisition group, as is
historically typical in the first quarter
- Minimal profit contribution from mortgage operations
- Change in accounting principle
In addition, the anticipated liquidation of certain unprofitable assets and
future costs associated with the restructuring of the mortgage subsidiary is
expected to generate a loss for the second quarter of 1999.
Subsequent to March 31, 1999, Mortgage Corp. sold its $55 million portfolio
of GNMA buyback loans for a loss of $1.5 million which will be recognized during
the quarter ending June 30, 1999. This sale represents the last of the GNMA
portfolio held by Mortgage Corp. and is included in mortgage loans held for sale
in the accompanying consolidated balance sheet.
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.
12
<PAGE> 13
ANALYSIS OF REVENUES AND EXPENSES
The following table summarizes the revenues and expenses of each of the
Company's business lines and presents the contribution that each business makes
to the Company's operating margin.
ANALYSIS OF REVENUES AND EXPENSES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1999 1998
---------- ----------
<S> <C> <C>
MORTGAGE BANKING:
Revenues:
Net mortgage warehouse income.......................... $ 5,756 $ 1,722
Gain on sale of mortgage loans......................... 26,641 20,269
Servicing fees......................................... 6,143 4,694
Other.................................................. 346 2,004
---------- ----------
Total............................................. 38,886 28,689
Expenses:
Salaries and benefits.................................. 21,897 12,935
Amortization of mortgage servicing rights.............. 4,723 3,176
Provision (credit) for valuation of mortgage servicing
rights............................................... (2,695) --
Interest on notes payables............................. 2,049 501
Occupancy, data processing, communication and other.... 12,222 8,104
---------- ----------
Total............................................. 38,196 24,716
---------- ----------
Operating contribution before direct taxes................ $ 690 $ 3,973
========== ==========
Operating contribution, net of direct taxes............... $ 1,706 $ 3,884
========== ==========
PORTFOLIO ASSET ACQUISITION AND RESOLUTION:
Revenues:
Gain on resolution of Portfolio Assets................. $ 1,369 $ 3,097
Equity in earnings of Acquisition Partnerships......... 2,643 3,214
Servicing fees......................................... 1,003 729
Other.................................................. 1,221 1,998
---------- ----------
Total............................................. 6,236 9,038
Expenses:
Salaries and benefits.................................. 1,420 1,167
Interest on notes payable.............................. 1,050 1,476
Asset level expenses, occupancy, data processing and
other................................................ 1,549 2,212
---------- ----------
Total............................................. 4,019 4,855
---------- ----------
Operating contribution before direct taxes................ $ 2,217 $ 4,183
========== ==========
Operating contribution, net of direct taxes............... $ 1,487 $ 4,169
========== ==========
CONSUMER LENDING:
Revenues:
Interest income........................................ $ 3,405 $ 2,566
Servicing fees and other............................... 1,087 390
---------- ----------
Total............................................. 4,492 2,956
Expenses:
Salaries and benefits.................................. 1,533 1,112
Provision for loan losses and residual interests....... 23 2,352
Interest on notes payable.............................. 668 880
Occupancy, data processing and other................... 2,041 1,107
---------- ----------
Total............................................. 4,265 5,451
---------- ----------
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
FIRST FIRST
QUARTER QUARTER
1999 1998
---------- ----------
<S> <C> <C>
Operating income (loss) before direct taxes............... $ 227 $ (2,495)
========== ==========
Operating income (loss), net of direct taxes.............. $ 278 $ (2,495)
========== ==========
Total operating contribution, net of direct
taxes........................................... $ 3,471 $ 5,558
========== ==========
CORPORATE OVERHEAD:
Salaries and benefits, occupancy, professional and other
income and expenses, net............................... $ (4,973) $ (512)
Deferred tax benefit from NOLs............................ -- 750
---------- ----------
Net earnings (loss)....................................... (1,502) 5,796
Preferred dividends....................................... (642) (1,515)
---------- ----------
Net earnings (loss) to common shareholders........ $ (2,144) $ 4,281
========== ==========
SHARE DATA:
Earnings (loss) before accounting change per common
share -- basic......................................... $ (0.16) $ 0.66
Earnings (loss) before accounting change per common
share -- diluted....................................... $ (0.16) $ 0.64
Cumulative effect of accounting change -- basic........... $ (0.10) $ --
Cumulative effect of accounting change -- diluted......... $ (0.10) $ --
Net earnings (loss) per common share -- basic............. $ (0.26) $ 0.66
Net earnings (loss) per common share -- diluted........... $ (0.26) $ 0.64
Weighted average common shares outstanding -- basic....... 8,288 6,531
Weighted average common shares outstanding -- diluted..... 8,288 6,678
ORIGINATION AND OTHER FINANCIAL DATA:
Mortgage Corp.:
Origination of residential mortgage loans:
Conventional......................................... $1,431,796 $1,360,865
Agency............................................... 597,238 331,228
Home equity.......................................... 62,344 58,261
Other................................................ 30,428 19,913
---------- ----------
Total............................................. $2,121,806 $1,770,267
========== ==========
Origination of commercial mortgage loans:
Correspondent........................................ $ 122,628 $ 113,265
Construction......................................... 18,062 15,596
---------- ----------
Total............................................. $ 140,690 $ 128,861
========== ==========
Capital Corp.:
Acquisition of Home Equity Loans....................... $ 99,741 $ 36,416
Commercial Corp.:
Aggregate purchase price of assets acquired............ $ 9,817 $ 51,971
Proceeds from resolution............................... 34,680 74,534
Consumer Corp.:
Aggregate acquisition of automobile and other consumer
receivables.......................................... $ 53,736 $ 33,810
</TABLE>
MORTGAGE BANKING
During the first quarter of 1999, Harbor, the Company's mortgage
subsidiary, continued to see strong originations totaling $2.4 billion. However,
mortgage operations were only marginally profitable during the quarter as a
result of the costs associated with the previously announced strategy to reduce
the investment in mortgage servicing rights.
14
<PAGE> 15
The transition to a production-only platform mitigates interest rate risk
and reduces capital requirements associated with owning servicing assets. During
this transition period, profits are negatively impacted by reduced servicing
revenues during the two to three month period that Harbor subservices the loans
for the buyers of the servicing, the third party costs associated with the
actual sale and transfer of the servicing, and the additional internal costs
related to sorting and shipping of servicing files to the buyers of the
servicing. During the quarter, the mortgage subsidiary completed two bulk sales
of mortgage servicing. These sales, combined with the flow sales of current
production, reduced the size of the owned residential mortgage servicing
portfolio from $5.5 billion at December 31, 1998 to $2.3 billion at March 31,
1999, and reduced the Company's investment in residential mortgage servicing
rights from $88 million at December 31, 1998 to $44 million at March 31, 1999.
The combined proceeds to the Company from these bulk sales aggregated $40
million (comprised of $32 million of cash and $8 million of accounts
receivable), allowing Harbor to reduce debt by $22 million and to reduce the
capital commitment to Harbor by $5 million.
The Company has taken and continues to take steps to reduce overhead at the
mortgage subsidiary. During the second quarter of 1999, the mortgage subsidiary
expects to complete a plan to restructure its balance sheet, organization, and
cost structure. Members of senior management of FirstCity and Harbor, working
with outside consultants, are currently evaluating the cost and profitability of
each operating unit within Harbor. Management expects the resulting changes to
positively impact the future cost and profitability structure of the mortgage
subsidiary. Harbor is expected to report a one-time charge during the second
quarter when the plan for restructuring and reorganizing the mortgage subsidiary
is finalized.
As previously disclosed in FirstCity's 1998 Annual Report, the mortgage
subsidiary's warehouse funding facility of $490 million matured on March 31,
1999. The Company has extended the existing facility, with expectation of
finalizing the renewal by May 31, 1999. The renewed facility is expected to
include new sub-limits for working capital and servicing sale accounts
receivable financing to facilitate the mortgage subsidiary's production-only
platform strategy.
Capital Corp., FirstCity's home equity mortgage conduit, acquired $100
million of home equity loans during the quarter. At quarter end, the Company
held $140 million of home equity loans in inventory and $24.5 million in home
equity residual interests in securitizations. Driven by capital and liquidity
priorities, FirstCity closely monitors its capital commitment to this business
line, and will continue the selective origination of product, while at the same
time effecting a strategic realignment of the platform.
15
<PAGE> 16
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>
FIRST QUARTER FIRST QUARTER
1999 1998
------------- -------------
<S> <C> <C>
WAREHOUSE INVENTORY:
Average inventory balance................................. $1,056,300 $ 229,533
Net mortgage warehouse income:
Dollar amount.......................................... 5,756 1,722
Percentage of average inventory balance................ 0.54% 0.75%
GAIN ON SALE OF MORTGAGE LOANS:
Gain on sale of mortgage loans as a percentage of loans
sold:
Residential............................................ 1.06% 1.46%
Home Equity............................................ 2.08% 4.54%
SERVICING REVENUES:
Average servicing portfolios:
Residential............................................ $5,466,733 $4,553,543
Commercial............................................. 1,387,053 1,470,923
Sub-serviced........................................... 4,926,673 813,040
Servicing fees:
Residential............................................ $ 5,531 $ 4,284
Commercial............................................. 261 238
Sub-serviced........................................... 351 172
---------- ----------
Total............................................. $ 6,143 $ 4,694
Annualized servicing fee percentage:
Residential............................................ 0.40% 0.38%
Commercial............................................. 0.08% 0.06%
Sub-serviced........................................... 0.03% 0.08%
Gain (loss) on sale of servicing rights................... (2,395) --
Amortization of servicing rights:
Servicing rights amortization.......................... $ 4,723 $ 3,176
Servicing rights amortization as a percentage of
average residential servicing portfolio
(annualized)......................................... 0.35% 0.28%
PERSONNEL:
Personnel expenses........................................ $ 21,897 $ 12,935
Number of personnel (at period end):
Production............................................. 435 442
Servicing.............................................. 274 119
Other.................................................. 765 602
---------- ----------
Total............................................. 1,474 1,163
========== ==========
</TABLE>
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
The portfolio asset acquisition and resolution business acquired assets of
$10 million during the first quarter of 1999 comprised of a $8 million portfolio
in Japan and a $2 million portfolio in France. Collections during the quarter
totaled $35 million. Collections and returns achieved on assets acquired in
France and Mexico continue to exceed expectations.
16
<PAGE> 17
The following table presents selected information regarding the revenues
and expenses of the Company's Portfolio Asset acquisition and resolution
business.
ANALYSIS OF SELECTED REVENUES AND EXPENSES
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
1999 1998
------------- -------------
<S> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Average investment:
Nonperforming Portfolios............................... $32,870 $49,619
Performing Portfolios.................................. 21,357 14,212
Real estate Portfolios................................. 12,175 18,307
Gain on resolution of Portfolio Assets:
Nonperforming Portfolios............................... $ 961 $ 2,263
Performing Portfolios.................................. -- 299
Real estate Portfolios................................. 408 535
------- -------
Total............................................. $ 1,369 $ 3,097
======= =======
Interest income on performing Portfolios.................. $ 890 $ 1,070
Gross profit percentage on resolution of Portfolio Assets:
Nonperforming Portfolios............................... 25.73% 22.40%
Performing Portfolios.................................. -- 7.99%
Real estate Portfolios................................. 31.48% 17.08%
Weighted average gross profit percentage............... 27.19% 18.24%
Interest yield on performing Portfolios (annualized)... 16.67% 30.12%
SERVICING FEE REVENUES:
Acquisition partnerships.................................. $ 948 $ 660
Affiliates................................................ 55 69
------- -------
Total............................................. $ 1,003 $ 729
======= =======
PERSONNEL:
Personnel expenses........................................ $ 1,420 $ 1,167
Number of personnel (at period end):
Production............................................. 10 10
Servicing.............................................. 62 64
------- -------
Total............................................. 72 74
======= =======
INTEREST EXPENSE:
Average debt.............................................. $59,970 $76,547
Interest expense.......................................... 1,045 1,466
Average yield (annualized)................................ 6.97% 7.66%
</TABLE>
17
<PAGE> 18
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>
FIRST QUARTER FIRST QUARTER
1999 1998
------------- -------------
<S> <C> <C>
GAIN ON RESOLUTION OF PORTFOLIO ASSETS:
Gain on resolution of Portfolio Assets.................... $10,731 $18,533
Gross profit percentage on resolution of Portfolio
Assets................................................. 36.20% 32.20%
Interest income........................................... 3,336 2,453
Other interest income..................................... 161 170
INTEREST EXPENSE:
Interest expense.......................................... $ 3,161 $ 3,941
Average yield (annualized)................................ 8.15% 7.17%
OTHER EXPENSES:
Servicing fees............................................ $ 1,438 $ 1,421
Legal..................................................... 557 408
Property protection....................................... 1,385 1,036
Other..................................................... 1,304 5,227
------- -------
Total other expenses.............................. 4,684 8,092
------- -------
Net earnings.............................................. $ 6,383 $ 9,123
======= =======
</TABLE>
CONSUMER LENDING
FirstCity Funding, the Company's auto finance unit, experienced a strong
production quarter, purchasing auto receivables with an unpaid principal balance
of $52 million during the quarter, up 62% over the fourth quarter 1998. Loans
were purchased at an average discount to face value of 14.7% and carried a
weighted average coupon in excess of 19%. The defaults to date on assets
acquired through March 31, 1999 have totaled 7.8% of the total loans acquired.
Actual losses on these defaults have totaled 3.0% of the original loan balances
at the time of default. Delinquencies at quarter-end were 3.2% of the total
serviced portfolio of FirstCity Funding acquired loans. At the end of the
period, the Company's consolidated balance sheet reflected $40.1 million of auto
finance residual interests in securitizations. FirstCity Funding originated $28
million of these residual interests with the remainder originated by NAF, the
discontinued consumer platform. Additionally, during the quarter, the Company
finalized the placement of a $100 million commercial paper conduit warehouse
facility arranged through NationsBanc Montgomery Securities, LLC. The facility
increases FirstCity Funding's warehouse capacity and lowers the cost of funds
for carrying its auto loan receivables. Subsequent to quarter end, the Company
completed a securitization of $56 million of auto receivables.
18
<PAGE> 19
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>
FIRST QUARTER FIRST QUARTER
1999 1998
------------- -------------
<S> <C> <C>
INTEREST INCOME:
Average loans and investments:
Auto................................................... $32,206 $48,130
Investments............................................ 38,728 13,819
Interest income:
Auto................................................... $ 1,998 $ 2,249
Investments............................................ 1,269 298
Average yield (annualized):
Auto................................................... 24.82% 18.69%
Investments............................................ 13.11% 8.63%
SERVICING FEE REVENUES:
Affiliates................................................ $ 1,073 $ 384
PERSONNEL:
Personnel expenses........................................ $ 1,533 $ 1,112
Number of personnel (at period end):
Production............................................. 133 56
Servicing.............................................. 123 79
------- -------
Total............................................. 256 135
======= =======
INTEREST EXPENSE:
Average debt.............................................. $33,101 $40,791
Interest expense.......................................... 668 880
Average yield (annualized)................................ 8.07% 8.63%
</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. Such 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.
19
<PAGE> 20
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.
First Quarter 1999 Compared to First Quarter 1998
The Company reported a net loss of $1.5 million in 1999 compared to
earnings of $5.8 million in 1998 (including a $0.8 million deferred tax benefit
from NOLs). Net loss to common shareholders was $2.1 million in 1999 compared to
earnings of $4.3 million in 1998. On a per share basis, basic net loss
attributable to common shareholders was $.26 in 1999 compared to earnings of
$.66 in 1998. Diluted net loss per common share was $.26 in 1999 compared to
earnings of $.64 in 1998. An accounting change related to SOP 98-5 resulted in a
loss of $.8 million in the first quarter of 1999 or $0.10 per share.
MORTGAGE BANKING
Gain on sale of mortgage loans. Gain on sale of mortgage loans increased by
31% to $26.6 million in 1999 from $20.3 million in 1998. This increase was the
result of growth in the levels of residential mortgage loan origination
generated principally by the Broker Retail network of Mortgage Corp. and, to a
lesser extent, the Direct Retail network of Mortgage Corp., and the resulting
sales of such loans to government agencies and other investors. This is
evidenced by the sale of approximately $2.5 billion of mortgage loans in first
quarter 1999 (compared to $1.3 billion in the first quarter 1998).
Net mortgage warehouse income. Net mortgage warehouse income increased by
234% to $5.8 million in 1999 from $1.7 million in 1998. This is the result of a
significant increase in the average balance of loans held in inventory during
the quarter, although partially offset by a lower spread earned between the
interest rate on the underlying mortgages and the interest cost of the warehouse
credit facility.
Servicing fee revenues. Servicing fee revenues increased by 31% to $6.1
million in 1999 from $4.7 million in 1998 as a result of an increase in the size
of the servicing portfolio.
Other revenues. Other revenues decreased by 83% to $.3 million in 1999 from
$2.0 million in 1998 because of a $2.4 million loss on sale of mortgage
servicing rights.
Operating expenses. Operating expenses of Mortgage Corp. increased by 55%
to $38.2 million in 1999 from $24.7 million in 1998. The expansion of the Broker
Retail and Direct Retail operation contributed to the period to period
increases.
Salaries and benefits increased by $9.0 million or 69% in 1999 reflecting
the additional staff required to support the increase in origination volumes
derived principally from the Broker Retail network and, to a lesser extent, the
Direct Retail network, and the increase in the size and number of loans in the
residential and commercial servicing portfolios in 1999.
Amortization of mortgage servicing rights increased by $1.5 million or 49%
in 1999 as a result of the substantially larger investment in mortgage servicing
rights at the beginning of 1999. 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 credit of $2.7 million for
valuation of mortgaging servicing rights was recorded in the first quarter of
1999.
Occupancy expense increased by $1.1 million 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 the substantial increases in production and
servicing volumes.
20
<PAGE> 21
PORTFOLIO ASSET ACQUISITION AND RESOLUTION
Commercial Corp. purchased $9.8 million of Portfolio Assets during 1999 for
its own account and through the Acquisition Partnerships compared to $52.0
million in acquisitions in 1998. Commercial Corp.'s quarter end investment in
Portfolio Assets decreased to $56.4 million in 1999 from $69.7 million in 1998.
Commercial Corp. invested $2.5 million in equity in Portfolio Assets in 1999
compared to $8.7 million in 1998.
Net gain on resolution of Portfolio Assets. Proceeds from the resolution of
Portfolio Assets decreased by 70% to $5.0 million in 1999 from $17.0 million in
1998. The net gain on resolution of Portfolio Assets decreased by 56% to $1.4
million in 1999 from $3.1 million in 1998 as the result of lower collections.
The gross profit percentage on the resolution of Portfolio Assets in 1999 was
27.2% as compared to 18.2% in 1998.
Equity in earnings of Acquisition Partnerships. Proceeds from the
resolution of Portfolio Assets for the Acquisition Partnerships decreased by 48%
to $29.6 million in 1999 from $57.6 million in 1998 while the gross profit
percentage increased to 36.2% in 1999 from 32.2% in 1998. Other expenses of the
Acquisition Partnerships decreased by $3.4 million in 1999 generally reflecting
costs associated with the resolution of Portfolio Assets in Europe which
generated proceeds of $13.8 million. The net result was an overall decrease in
the net income of the Acquisition Partnerships of 30% to $6.4 million in 1999
from $9.1 million in 1998. As a result, Commercial Corp.'s equity earnings from
Acquisition Partnerships decreased by 18% to $2.6 million in 1999 from $3.2
million in 1998.
Servicing fee revenues. Servicing fees increased by 38% to $1.0 million in
1999 from $0.7 million in 1998 primarily as a result of collections from the
acquisition partnership in Mexico formed at year-end 1998.
Other revenues. Other revenues decreased by 39% to $1.2 million in 1999
compared to $2.0 million in 1998 principally as a result of fewer acquisitions
during the quarter (which would generate lower due diligence recovery income).
Operating expenses. Operating expenses declined by 17% to $4.0 million in
1999 from $4.9 million in 1998 primarily as a result of reduced interest expense
and lower asset level expenses.
Salaries and benefits increased by $0.3 million or 22% in 1999 as a result
of increased cost of personnel related to supporting the Company's foreign
operations.
Interest on notes payable declined $.4 million or 29% due to overall lower
cost of funds and lower debt levels.
Asset level expenses, occupancy, data processing and other expenses
decreased by 30% to $1.5 million in 1999 from $2.2 million in 1998 as a result
of lower investments in Portfolio Assets and the consolidation of servicing
offices in 1999.
CONSUMER LENDING
Interest and other income. Interest income on consumer loans increased by
33% to $3.4 million in 1999 from $2.6 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 $.7 million or 179% due to increased service fee revenue from
securitization trusts.
Interest expense. Interest expense decreased by 24% to $0.7 million in 1999
from $0.9 million in 1998 as a result of a reduced level of debt due to the sale
and securitization of automobile loans at the end of 1998.
Operating expenses. Operating expenses decreased by 22% to $4.3 million in
1999 from $5.5 million in 1998 primarily as a result of a significant decrease
in the provision for loan losses, but was partially offset by increased
operating activity.
Provision for loan losses on automobile receivables decreased by $2.3
million from 1998 as a result of lower levels of outstanding unpaid principal
balance of loans originated under the discontinued NAF platform ($0.4 million in
1999 compared to $23.4 million in 1998).
21
<PAGE> 22
Salaries and benefits increased by $0.4 million or 38% and other expenses
increased $.9 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 225% to
$1.8 million in 1999 from $0.6 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 increased 17% to $.9 million in 1999, loan
fees and professional fees account for the majority of the $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 quarter of 1998 the Company recognized $1.3 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 no deferred tax benefit from NOLs in 1999 as
compared to a benefit of $0.8 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.
In the future, the Company anticipates being able to raise capital through
a variety of sources including, but not limited to, public debt or equity
offerings (subject to limitations related to the preservation of the Company's
NOLs), thus enhancing the investment and growth opportunities of the Company.
The Company believes that these and other sources of liquidity, including
refinancing and expanding the Company's revolving credit facility to the extent
necessary, securitizations, and funding from senior lenders for Acquisition
Partnership investments and direct portfolio and business acquisitions, should
prove adequate to continue to fund the Company's contemplated activities and
meet its liquidity needs.
The Company and each of its major operating subsidiaries have entered into
one or more credit facilities to finance its respective operations. Each of the
operating subsidiary credit facilities is nonrecourse to the Company and the
other operating subsidiaries, except as discussed below.
22
<PAGE> 23
Excluding the term acquisition facilities of the unconsolidated Acquisition
Partnerships, as of March 31, 1999, the Company and its subsidiaries had credit
facilities providing for borrowings in an aggregate principal amount of $2.1
billion and outstanding borrowings of $1.3 billion. 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
May 11, 1999 and the outstanding borrowings under such facilities as of March
31, 1999.
CREDIT FACILITIES
<TABLE>
<CAPTION>
OUTSTANDING
BORROWINGS
PRINCIPAL AS OF
AMOUNT MARCH 31, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- -------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FIRSTCITY
Company Credit Facility..... $ 89 $ 80 Prime + 1.0% Secured by the assets of the Company,
to Prime + 4% expires June 30, 1999
or LIBOR +
2.625%
Term fixed asset facility... .7 .7 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........ 538 488 LIBOR + 1.375% Revolving line to warehouse residential
to 2.5% mortgage loans, expires May 31, 1999
Supplemental warehouse
facilities................ 134 94 LIBOR + 1.75% Revolving line to warehouse residential
to 2.75% mortgage loans and related receivables,
expires May 31, 1999
Gestation facilities........ 886 365 Fed Funds + Open facilities to fund committed loans
0.8% to 1.05% to FNMA and others
and LIBOR +
0.5% to 0.8%
CAPITAL CORP.
Warehouse facility.......... 200 135 LIBOR + 1.50% Acquisition facility to acquire Home
to 3.00% Equity Loans, expires March 31, 2000
Repurchase agreement........ 7 7 LIBOR + 4.00% Repurchase agreement secured by
residual interests in Home Equity
securitized loans, expires June 30,
1999
COMMERCIAL CORP.
Portfolio acquisition
facility.................... 100 52 LIBOR + 2.25% Acquisition facility to acquire
Portfolio Assets, repaid April 1999
(includes $41 million advanced to
unconsolidated Acquisition
Partnerships)
Term facility............... 62 -- LIBOR + 4.0% Term facility secured by existing
Portfolio Assets, expires April 30,
2000 (includes $51 million advanced to
unconsolidated Acquisition
Partnerships).
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
OUTSTANDING
BORROWINGS
PRINCIPAL AS OF
AMOUNT MARCH 31, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS
--------- -------------- ------------- --------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
French and Japanese
acquisition facility...... 15 10 French franc Acquisition facility to fund equity
LIBOR + 3.5% investments in French and Japanese
Japanese yen Portfolio Assets, expires March 31,
LIBOR + 3.5% 2000. Guaranteed by Commercial Corp.
and the Company.
Term acquisition 33 33 Fixed at 7.00% Acquisition facilities for existing
facilities................ to 7.66% Portfolio Assets. Secured by Portfolio
Assets. Expires February 25, 2003 and
June 5, 2002
CONSUMER CORP.
Warehouse facility.......... 70 44 LIBOR + 3% Revolving line secured by automobile
receivables, paid off April 1999
Warehouse facility.......... 100 -- Rate equal to Commercial paper conduit warehouse
the mixed rate facility secured by automobile
of LIBOR and receivables, expires March 30, 2000
commercial
paper rates
Repurchase Agreement........ 7 7 LIBOR + 3% Repurchase agreement secured by
residual interest in automobile
securitized loans, expires June 30,
1999
Term facility............... 4 4 Prime + 1% Term facility secured by residual
interests in automobile securitized
loans, expires March 15, 2000
UNCONSOLIDATED ACQUISITION
PARTNERSHIPS
Term acquisition 93 93 Fixed at 4.5% Senior and subordinated loans secured
facilities................ to 10.17%, by Portfolio Assets, various maturities
LIBOR + 2.25%
to 6.5% and
Prime + 1.0%
</TABLE>
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
24
<PAGE> 25
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.
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 three phases
comprised of assessment, remediation and testing. While there is considerable
overlap in the timing of the three phases, the assessment phase is the first
step in the initiative. In this phase, the objective is to identify the
components (i.e., hardware and software) of all internal systems and to assess
the readiness of each component. This information is then used to prepare a
comprehensive plan for remediation and testing. The information gathered during
this phase is also used to develop a more precise estimate of the costs of
remediation and testing.
Third party exposures are addressed by obtaining written representations of
Year 2000 readiness from the third parties and through cooperative testing
between the Company and certain of its significant third parties. The third
party initiative includes contingency planning which is based on the responses
to requests for representations of readiness and the results of cooperative
testing. Contingency plans also involve a comprehensive risk assessment in order
to maintain focus on critical business relationships. A contingency plan could
include replacement of a third party with a comparable firm believed to be
compliant.
The Company is in the process of completing the assessment phase for all of
its internal systems. Remediation and testing have already begun and complete
Year 2000 readiness for internal systems is scheduled to be achieved by July
1999. The Company does not anticipate any material difficulties in achieving
Year 2000 readiness within this time frame. The Company has not yet developed a
most reasonably likely worst case scenario with respect to Year 2000 issues, but
instead has focused its efforts on reducing uncertainties through the review
described above. The Company has not developed Year 2000 Contingency plans other
than as described above, and does not expect to do so unless merited by the
result of its continuing review.
With respect to third party exposure, the process of obtaining written
representation from third parties is still ongoing. Therefore, the Company has
not completed its contingency plan. Based on responses received and testing to
date, it is not anticipated that the Company will be materially affected by any
third party Year 2000 readiness issue. The Company expects to have a
comprehensive contingency plan in place by the third quarter of 1999. In
general, any significant third party service providers that have not completed
their Year 2000 initiative by the third quarter of 1999 and certified their
readiness to the Company will be replaced with comparable firms that are
believed to be compliant. Contingency planning with respect to third parties
will continue throughout the remainder of 1999.
In addition to the being included in the Company's initiative described
above, Mortgage Corp. is currently participating in the Year 2000 Inter-Industry
Test sponsored by the Mortgage Bankers Association ("MBA Test"). Other
participants in the MBA Test are 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,
are also participants. The objective of the test is to prove that the
interaction with common mortgage industry trading partners is acceptable in a
year 2000+ environment. The test covers 17 types of transactions that fall under
the three primary mortgage processes: origination, secondary marketing, and
servicing. The test is scheduled to conclude no later than June 30, 1999. 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.
The Company has increased its estimate of the cost of its Year 2000
initiative and now believes that it will be approximately $1,500,000, a majority
of which is being incurred during 1999. Of these costs, approximately $150,000
is for computer systems that must be replaced and the remainder is personnel
costs (employees and external consultants). The increase is due to the cost of
participation in the MBA Test and
25
<PAGE> 26
higher than anticipated costs for outside consultants. All estimated costs have
been budgeted and are expected to be funded by cash flows from operations.
The cost of the initiative and the date on which the Company plans to
complete the Year 2000 modifications 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 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," "anticipate," "estimate,"
"believe," "will be," "will continue," "will likely result," 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, general economic
conditions; interest rate risk; prepayment speeds; delinquency and default
rates; credit loss rates; changes (legislative and otherwise) in the asset
securitization industry; demand for the Company's services; residential and
commercial real estate values; the impact of certain covenants in loan
agreements of the Company; the degree to which the Company is leveraged; its
needs for financing; the continued availability of the Company's credit
facilities; capital markets conditions, including the markets for asset-backed
securities and commercial
26
<PAGE> 27
mortgage-backed securities; the performance of the Company's subsidiaries and
affiliates; changes in foreign political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, the ability
to attract and retain qualified personnel, the Company's Year 2000 issues; the
factors 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 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 are 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 and 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 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 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 are based on a
weighted average service fee rates and an 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.
27
<PAGE> 28
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. There have been no material changes in the quantitative and qualitative
risks of the Company since December 31, 1998.
28
<PAGE> 29
PART II
OTHER INFORMATION
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).
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)
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
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).
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).
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
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).
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).
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
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 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 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.
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.
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, LLC and
NationsBank, N.A..
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..
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
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 March
31, 1999.
33
<PAGE> 34
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 and
accounting officer of the
Registrant)
Dated: May 17, 1999
34
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.1 -- Joint Plan of Reorganization by First City Bancorporation
of Texas, Inc., Official Committee of Equity Security
Holders and J-Hawk Corporation, with the Participation of
Cargill Financial Services Corporation, Under Chapter 11
of the United States Bankruptcy Code, Case No.
392-39474-HCA-11 (incorporated herein by reference to
Exhibit 2.1 of the Company's Current Report on Form 8-K
dated July 3, 1995 filed with the Commission on July 18,
1995).
2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995,
by and between First City Bancorporation of Texas, Inc.
and J-Hawk Corporation (incorporated herein by reference
to Exhibit 2.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
3.1 -- Amended and Restated Certificate of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated July 3,
1995 filed with the Commission on July 18, 1995).
3.2 -- Bylaws of the Company (incorporated herein by reference
to Exhibit 3.2 of the Company's Current Report on Form
8-K dated July 3, 1995 filed with the Commission on July
18, 1995).
4.1 -- Certificate of Designations of the New Preferred Stock
($0.01 par value) of the Company.(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)
10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated
July 3, 1995 (incorporated herein by reference to Exhibit
10.1 of the Company's Current Report on Form 8-K dated
July 3, 1995 filed with the Commission on July 18, 1995).
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.2 -- Investment Management Agreement, dated July 3, 1995,
between the Company and FirstCity Liquidating Trust
(incorporated herein by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated July 3, 1995
filed with the Commission on July 18, 1995
10.3 -- Lock-Box Agreement, dated July 11, 1995, among the
Company, NationsBank of Texas, N.A., as lock-box agent,
FirstCity Liquidating Trust, FCLT Loans, L.P., and the
other Trust-Owned Affiliates signatory thereto, and each
of NationsBank of Texas, N.A. and Fleet National Bank, as
co-lenders (incorporated herein by reference to Exhibit
10.3 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet
National Bank, as custodian, Fleet National Bank, as
agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and
the Company (incorporated herein by reference to Exhibit
10.4 of the Company's Form 8-A/A dated August 25, 1995
filed with the Commission on August 25, 1995).
10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among
the Company, as custodian, Fleet National Bank, as agent,
FCLT Loans, L.P., FirstCity Liquidating Trust, and the
Company, as servicer (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 8-A/A dated August 25,
1995 filed with the Commission on August 25, 1995).
10.6 -- 12/97 Amended and Restated Facilities Agreement, dated
effective as of December 3, 1997, among Harbor Financial
Mortgage Corporation, New America Financial, Inc., Texas
Commerce Bank National Association and the other
warehouse lenders party thereto. (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).
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
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).
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).
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
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 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 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.
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.
10.31 -- Note purchase agreement, dated March 30, 1999 among
Enterprise Funding Corporation, FCAR Receivables, LLC and
NationsBank, N.A..
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..
10.33 -- 100,000,000 dollar form of note, dated March 30, 1999
among FCAR Receivables LLC, Enterprise Funding
Corporation and Nationsbank, N.A.
</TABLE>
<PAGE> 39
<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
EXHIBIT 10.4
- --------------------------------------------------------------------------------
CUSTODIAN AGREEMENT
among
FCAR RECEIVABLES LLC
(the "Debtor")
FIRSTCITY FUNDING CORPORATION
(the "Servicer")
NATIONSBANK, N.A.
(the "Collateral Agent")
CHASE BANK OF TEXAS, N.A.
(the "Custodian")
and
ENTERPRISE FUNDING CORPORATION
(the "Company")
Dated as of March 30, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
CUSTODIAN AGREEMENT
This CUSTODIAN AGREEMENT (as amended, restated supplemented or otherwise
modified from time to time, this "Custodian Agreement") is made and entered into
as of March 30, 1999, among FCAR RECEIVABLES LLC (together with its successors
and assigns in such capacity, the "Debtor"), FirstCity Funding Corporation
(together with its successors and assigns in such capacity, the "Servicer"),
NationsBank, N.A. as collateral agent (together with its successors and assigns
in such capacity, the "Collateral Agent"), Enterprise Funding Corporation
(together with its successors and assigns in such capacity, the "Company"), and
Chase Bank of Texas, N.A. (together with its successors and assigns in such
capacity, the "Custodian").
PRELIMINARY STATEMENT
Pursuant to the Security Agreement dated as of March 30, 1999 (as amended,
the "Security Agreement") among the Debtor, the Company, MBIA Insurance
Corporation (the "Insurance Provider"), the Servicer, NationsBank, N.A., as
Collateral Agent and as a Bank Investor and Loan Servicing Enterprise, as
Back-Up Servicer, the Debtor pledged and assigned the Collateral to the
Collateral Agent, for the benefit of the Secured Parties, to secure the Note and
the obligations of the Debtor to the Insurance Provider.
A. The Collateral Agent on behalf of the Secured Parties desires to provide
for the custody and management of the Receivable Files relating to the
Receivables.
B. The Collateral Agent has requested that the Custodian act as custodian
to hold all Receivable Files relating to the Receivables as bailee of, and agent
for the benefit of the Collateral Agent and the Secured Parties.
C. The Custodian is willing to act in such capacity as custodian.
NOW, THEREFORE, the parties to this Custodian Agreement hereby agree as
follows:
1. Definitions, Incorporation by Reference. Capitalized terms used herein
and not defined herein shall have the meanings specified in the Security
2
<PAGE> 3
Agreement or in the Note Purchase Agreement (as defined in the Security
Agreement), as applicable.
2. Appointment of the Custodian. The Collateral Agent hereby appoints the
Custodian, and the Custodian hereby accepts its appointment, to act as the
bailee of and agent for the Collateral Agent for the benefit of the Secured
Parties and their respective successors and assigns for the purpose of taking
custody of the Receivable Files and to act on behalf of the Collateral Agent
under this Custodian Agreement and, in the absence of other written instructions
from the Collateral Agent, to exercise such powers hereunder as are specifically
delegated to or required of the Custodian by the terms hereof. Any successor
Custodian under this Custodian Agreement shall at all times be organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia and have capital and surplus in excess of
$50,000,000. In case at any time the Custodian shall cease to be eligible in
accordance with the provisions of this Section 2, the Custodian, upon direction
from the Collateral Agent, shall resign immediately in the manner and with the
effect specified in Section 7.
3. Deposit of Receivable Files.
(a) The applicable Receivable Files, together with the Receivables
Schedule relating to such Receivable Files, are to be delivered to the Custodian
by the Servicer on behalf of the Debtor within one (1) Business Day preceding
the date of a Subsequent Funding.
(b) The Custodian shall within five (5) Business Days after receipt,
review 100% of the Receivable Files so received to verify the presence of the
original retail installment contract and security agreement and a copy of the
Certificate of Title or an application for the Certificate of Title with respect
to each Receivable and issue a receipt executed by the Custodian on behalf of
the Collateral Agent, (a) acknowledging delivery to the Custodian of (i) the
executed original counterpart of the Contract evidencing the Receivable; and
(ii) a copy of the Certificate of Title or an application for the Certificate of
Title; or (b) stating that one or more of the foregoing documents has not been
delivered to the Custodian or is mutilated or damaged in any material respect.
(c) The Custodian agrees to maintain the Receivable Files which are
delivered to it at the offices of the Custodian located at 700 North Pearl,
North Tower, 18th Floor, Dallas, Texas 75201, and the Custodian shall notify the
3
<PAGE> 4
Collateral Agent and the Insurance Provider by written notice of any change in
the location of the Receivable Files. Subject to the foregoing, the Custodian
may temporarily move individual Receivable Files or any portion thereof without
notice as necessary to allow the Servicer to conduct collection and other
servicing activities in accordance with its customary practices and procedures.
(d) The Custodian shall have and perform the following powers and
duties:
(i) hold the Receivable Files for the benefit of the Collateral
Agent and Secured Parties, and maintain a current inventory
thereof;
(ii) carry out such policies and procedures in accordance with its
customary actions with respect to the handling and custody of
the Receivable Files so that the integrity and physical
possession of the Receivable Files will be maintained; and
(iii) promptly release any Receivable File then held by it to the
Servicer upon receipt of a written request for re lease of
such Receivable File signed by an Authorized Officer of the
Servicer with respect to the matters therein; provided,
however, that the Custodian shall be deemed to have received
proper instructions with respect to the Receivable Files upon
its receipt of such a written request from an Authorized
Officer of the Servicer. "Authorized Officer of the Servicer"
shall mean an officer certified by the Secretary of the
Servicer as an officer who is authorized to give instructions
to the Custodian as set forth on a certificate delivered to
the Custodian, the Insurance Provider and the Collateral Agent
on the Closing Date or on any such subsequent certificate
delivered to the Custodian, the Insurance Provider and the
Collateral Agent.
4. Access to Receivable Files.
4
<PAGE> 5
(a) The Custodian shall permit inspection at all reasonable times upon
at least two Business Days prior notice during regular business hours by the
Insurance Provider or the Collateral Agent (or by its auditors when requested by
the Insurance Provider or Collateral Agent, as applicable) of the Receivable
Files and the records of the Custodian relating to this Custodian Agreement and
the Collateral Agent (or its auditors when requested by the Insurance Provider
or Collateral Agent, as applicable) to make copies of the Receivable Files and
the records of the Custodian relating to this Custodian Agreement.
(b) The Custodian shall promptly deliver to the Collateral Agent or its
designee any or all Receivable Files and other items of Collateral in the
Custodian's custody upon the written request of an Authorized Officer of the
Collateral Agent. The Collateral Agent shall provide the Debtor and the
Servicer with a copy of any such request delivered to the Custodian. Written
instructions as to the method of shipment and shipper(s) the Custodian is
directed to utilize in connection with the delivery of Receivable Files in the
performance of the Custodian's duties hereunder shall be delivered by the
Collateral Agent to the Custodian prior to any shipment of Receivable Files
pursuant to the request of Collateral Agent hereunder. The Collateral Agent will
arrange for the provision of such services at its sole cost and expense (or, at
the Custodian's option, reimburse the Custodian for all costs and expenses
incurred by the Custodian consistent with such instructions) and will maintain
such insurance against loss or damage to the Receivable Files as the Debtor and
the Servicer reasonably deem appropriate. "Authorized Officer of the Collateral
Agent" shall mean an officer certified by the Secretary of the Collateral Agent
as an officer who is authorized to give instructions to the Custodian as set
forth on a certificate delivered to the Custodian and the Insurance Provider on
the Closing Date or on any such subsequent certificate delivered to the
Custodian and the Insurance Provider.
5. Further Obligations of the Custodian. The Custodian acknowledges and
accepts its appointment as Custodian hereunder and acknowledges that it is bound
by the terms and conditions of this Custodian Agreement and agrees that it shall
hold all Receivable Files delivered to it or otherwise in its possession
pursuant to this Custodian Agreement for the benefit of the Collateral Agent and
the Secured Parties under the terms of this Custodian Agreement as agent for the
Collateral Agent for purposes of perfecting the Collateral Agent's interest in
the Receivable Files.
(a) The Custodian shall hold the Receivable Files in its fire rated
storage vault under its exclusive custody and control in accordance with
customary
5
<PAGE> 6
standards for such custody and shall maintain a fidelity bond plus document
hazard insurance in such amounts and against such risks as customarily are
maintained by custodians acting in a similar capacity to the Custodian hereunder
with respect to receivables similar to the Receivables. If the Insurance
Provider suffers losses or damages as a result of the destruction or loss of any
of the Receivable Files or any item therein, the Custodian shall, (i) at the
request of the Collateral Agent, make any appropriate claim under such bond or
insurance, and (ii) to the extent of the Insurance Provider's losses or
damages, pay the proceeds thereof to the Insurance Provider unless the Custodian
has replaced the lost or destroyed items or has otherwise reimbursed the
Insurance Provider for such losses or damages. The Custodian shall maintain the
Receivable Files segregated from and not commingled with any other files of the
Custodian.
(b) The Custodian shall not deliver physical possession of, or otherwise
transfer, assign, pledge, mortgage, convey or dispose of any Receivable Files in
its possession to any Person except (i) as provided in Section 3(e)(iii) and
4(b), and (ii) upon termination of this Custodian Agreement.
(c) All of the Custodian's records pertaining to the Receivable Files
shall contain an indication that such records and the Receivables which are the
subject of such records are owned by the Debtor and pledged to the Collateral
Agent for the benefit of the Secured Parties. The Custodian hereby waives any
and all rights of offset with respect to any and all Receivable Files in the
Custodian's possession, whether such right of offset arises by contract,
operation of law or otherwise.
(d) The Custodian specifically acknowledges and agrees that in the event
that the Custodian shall either be terminated or resign pursuant to this
Custodian Agreement, the Custodian (i) shall deliver the Receivable Files to the
successor Custodian appointed pursuant to the terms of this Custodian Agreement
at such place as the successor Custodian may reasonably designate, and (ii)
shall maintain the Receivable Files and continue in the performance of its
duties and the enjoyment of its rights under this Custodian Agreement, until the
due appointment of a successor custodian and the orderly transfer of the
Receivable Files to the successor Custodian, notwithstanding that such
appointment and/or transfer may occur after the effective date of the
termination or resignation of the Custodian designated in the written notice of
termination or resignation from or to the Custodian, as the case may be.
6
<PAGE> 7
(e) Except for actions expressly authorized by this Custodian Agreement,
the Custodian shall take no action which would or would be likely to impair the
security interests created or existing under any Receivable or Financed Vehicle
or to impair the value of any Receivable or Financed Vehicle.
(f) All information obtained by the Custodian regarding the Obligors and
the Receivables, whether upon the exercise of its rights under this Custodian
Agreement or otherwise, shall be maintained by the Custodian in confidence and
shall not be disclosed to any other Person, unless such disclosure is reasonably
incident to the performance of its duties under this Custodian Agreement or is
required under any applicable law or regulation.
(g) The Custodian hereby agrees not to assert (in its individual
capacity or otherwise) any liens of any kind with respect to the Receivable
Files held by it or the related Receivables and hereby releases and waives any
such liens.
6. Compensation and Indemnification of Custodian.
(a) The Custodian shall be compensated for its activities hereunder and
reimbursed for reasonable out-of-pocket expenses (including reasonable
compensation and expenses of its counsel and agents) pursuant to a separate
letter agreement among the Custodian and the Debtor. Subject to the terms of
such letter agreement, the Custodian shall be required to pay the overhead
expenses incurred by it in connection with its activities hereunder from its own
account.
(b) The Debtor shall indemnify the Custodian, its officers, directors,
employees and agents for, and hold it harmless against any loss, liability or
expense incurred ("Section 6 Liabilities and Costs") without willful misconduct,
gross negligence or bad faith on its part, arising out of or in connection with
(i) the acceptance or administration of this Custodian Agreement, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties under
this Custodian Agreement and (ii) the negligence, willful misconduct or bad
faith of the Debtor in the performance of its duties hereunder. All such amounts
shall be payable in accordance with Section 5.1 (a)(viii) of the Security
Agreement. The provisions of this Section 6(b) shall survive the termination of
this Custodian Agreement. Notwithstanding any other provisions in this
Agreement, the Custodian shall not be liable for any liabilities, costs or
expenses of the Debtor arising under any tax law, including without limitation
any Federal, state or local income or franchise taxes or any other
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<PAGE> 8
tax imposed on or measured by income (or any interest or arising penalties with
respect thereto or arising from a failure to comply therewith).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH SECTION 6
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 ARE CAUSED, IN WHOLE OR IN
PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY THE CUSTODIAN.
(c) Notwithstanding anything to the contrary in this Custodian
Agreement, in the event that a Person is entitled to indemnification pursuant to
the terms of this Custodian Agreement, such Person (hereinafter called the
"Indemnified Party") shall promptly notify the person against whom such
indemnity may be sought (hereinafter called the "Indemnifying Party") in writing
and the Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel reasonably satisfactory to the Indemnified Party or, at the Indemnified
Party's option, such Indemnified Party may select its own counsel with the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed, to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. It is
understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm at any one time (in
addition to any local counsel) for all such Indemnified Parties (unless
necessary because of conflicts of interest), and all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by the Indemnified Party. The Indemnifying Party shall not be liable for
any settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed, but if settled with such
consent or if there be a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment.
7. Termination.
(a) The Custodian may terminate its obligations as Custodian under this
Custodian Agreement (subject to Sections 7(b) and (d) below) upon at least
thirty (30) days' prior written notice to the Debtor, the Servicer, the
Insurance Provider, and the Collateral Agent. The Custodian may be removed at
any time (i)
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<PAGE> 9
before an Insurance Provider Default, by written demand of the Insurance
Provider or the Collateral Agent with the consent of the Insurance Provider and
(ii) after an Insurance Provider Default, by written demand of the Collateral
Agent, in each case delivered to the Custodian, the Debtor and the Servicer; the
Custodian's appointment will terminate as of the date specified in such notice.
In the event of such resignation or termination, the Debtor shall appoint a
successor custodian. If no successor Custodian shall have been so appointed and
have accepted its appointment within 30 days after the giving of such notice of
resignation, the Collateral Agent shall appoint a successor Custodian. Upon the
effectiveness of any such resignation or termination, the Custodian shall
promptly transfer to the successor custodian, as directed by the Collateral
Agent, all Receivable Files and other items of Collateral being held by the
Custodian under this Custodian Agreement. If, however, a successor custodian is
not appointed by the Debtor or the Collateral Agent within ninety (90) days
after the giving of notice of resignation, the Custodian may petition a court of
competent jurisdiction for the appointment of a successor Custodian. Any
resignation of the Custodian pursuant to any of the provisions of this Custodian
Agreement shall not become effective until acceptance of appointment by the
successor Custodian pursuant to Section 7(b).
(b) Any successor Custodian appointed pursuant to Section 7(a) shall
execute, acknowledge, and deliver to the Servicer, the Collateral Agent and to
the predecessor Custodian an instrument accepting such appointment under this
Custodian Agreement, and thereupon the resignation or removal of the predecessor
Custodian shall become effective and such successor Custodian, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties, and obligations of its predecessor as Custodian under this
Custodian Agreement, with like effect as if originally named as Custodian. The
predecessor Custodian shall upon payment of its fees and expenses deliver to the
successor Custodian all documents and statements and monies held by it under
this Custodian Agreement; and the Servicer, the Collateral Agent and the
predecessor Custodian shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Custodian all such rights, powers, duties, and
obligations.
No successor Custodian shall accept appointment as provided in this Section
7 unless at the time of such acceptance such successor Custodian shall be
eligible pursuant to Section 2 and shall have been approved by the Collateral
Agent and the Insurance Provider.
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<PAGE> 10
(c) Any Person (i) into which the Custodian may be merged or
consolidated, (ii) which may result from any merger or consolidation to which
the Custodian shall be a party, or (iii) which may succeed to the properties and
assets of the Custodian substantially as a whole, shall execute an agreement of
assumption to perform every obligation of the Custodian hereunder, and whether
or not such assumption agreement is executed, shall be the successor to the
Custodian under this Custodian Agreement without further act on the part of any
of the parties to this Custodian Agreement; provided, however, that such Person
shall be acceptable to the Collateral Agent and the Insurance Provider and that
nothing herein shall be deemed to release the predecessor Custodian from any
obligation.
(d) In the event the Custodian's appointment hereunder is terminated
without cause, the Servicer shall reimburse the Custodian for the reasonable
expenses of the Custodian incurred in transferring the Receivable Files to the
successor Custodian.
8. Representations of the Custodian. The Custodian hereby represents and
warrants to the Debtor, the Servicer and the Collateral Agent that it does not
have (in its individual capacity or otherwise), and will not assert, any
security interest, lien, claim or other adverse interest against the Receivable
Files or any other Collateral. However, the Custodian makes no representations
as to the title thereto, or as to the validity or adequacy of the security
afforded thereby or hereby (except as to the Custodian's authority to enter into
this Custodian Agreement and the legality, validity, binding effect and
enforceability of this Custodian Agreement with respect to the Custodian), and
the Custodian shall incur no liability or responsibility in respect of any such
matters.
The Custodian makes the following representations and warranties to the
Debtor, the Servicer and the Collateral Agent:
(a) The Custodian is a national banking association duly organized,
validly existing and in good standing under the laws of the United States of
America, and has full corporate power, authority and legal right to own its
properties and conduct its business as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform its
obligations under this Custodian Agreement.
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<PAGE> 11
(b) The execution, delivery, and performance of this Custodian Agreement
have been duly authorized by the Custodian by all necessary corporate action on
the part of the Custodian.
(c) The Custodian Agreement constitutes a legal, valid and binding
obligation of the Custodian, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereinafter in effect,
affecting the enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity).
(d) The execution and delivery of the Custodian Agreement by the
Custodian, and the performance of the transactions contemplated thereby and the
fulfillment of the terms thereof applicable to the Custodian, will not conflict
with, violate, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default under,
any Requirement of Law applicable to the Custodian or any indenture, contract,
agreement, mortgage, deed of trust or other instrument to which the Custodian is
a party or by which it is bound.
(e) No proceeding of any kind, including but not limited to litigation,
arbitration, judicial or administrative, is pending or threatened against or
contemplated by the Custodian which would under any circumstance have a material
adverse effect on the execution, delivery, performance or enforceability of this
Custodian Agreement.
(f) The Custodian hereby represents and warrants to the Collateral Agent
that the Custodian is not controlled by, under common control with or otherwise
affiliated with the Debtor or the Servicer, and covenants and agrees with the
Collateral Agent that prior to any such affiliation in the future, the Custodian
shall promptly notify the Collateral Agent.
9. Certain Matters Affecting the Custodian. The Custodian shall have no
duties or responsibilities except those that are specifically set forth herein,
and no implied covenants or obligations shall be read into this Custodian
Agreement against the Custodian. The Custodian shall be under no responsibility
or duty with respect to the disposition of any Receivable Files while such
Receivable Files are not in its possession. If the Custodian shall request
instructions from the Collateral Agent, the Servicer or the Insurance Provider
with respect to any act, action or failure to act in
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<PAGE> 12
connection with and as set forth in this Custodian Agreement, the Custodian
shall be entitled to refrain from taking such action and continue to refrain
from acting unless and until the Custodian shall have received written
instructions from the Collateral Agent, without incurring any liability therefor
to the Collateral Agent, the Debtor, the Servicer or any other person.
The Custodian may act in reliance upon any written communication of the
Collateral Agent concerning the delivery of the Receivable Files and other items
of Collateral pursuant to this Custodian Agreement. The Custodian does not
assume and shall have no responsibility for, and makes no representation as to,
monitoring the value of the Receivable Files and other Collateral. The Custodian
shall not be liable for any action or omission to act hereunder, except for its
own gross negligence or willful misconduct. In no event shall the Custodian
have any responsibility to ascertain or take action with respect to the
Receivable Files or other Collateral, except as expressly provided herein.
THE FOREGOING PARAGRAPH SHALL APPLY WHETHER OR NOT SUCH LIABILITIES ARE IN
ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, 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 THE CUSTODIAN.
If the Custodian shall at any time receive conflicting instructions from
the Collateral Agent and the Servicer or any other party to this Custodian
Agreement and the conflict between such instructions cannot be resolved by
reference to the terms of this Custodian Agreement, the Custodian shall be
entitled to rely on the instructions of the Collateral Agent. In the absence of
bad faith, gross negligence or willful misconduct on the part of the Custodian,
the Custodian may rely and shall be protected in acting or refraining from
acting upon any resolution, officer's certificate, any Monthly Servicer's
Certificate, certificate of auditors, or any other certificate, statement,
instrument, opinion, report, notice request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Custodian may rely upon the
validity of documents delivered to it, without investigation as to their
authenticity or legal effectiveness, and the Servicer and the other parties to
this Custodian Agreement will hold the Custodian harmless from any claims that
may arise or be asserted against the Custodian because of the invalidity of any
such documents or their failure to fulfill their intended purpose. The Custodian
shall not be bound to ascertain or inquire as to the performance or observance
of any of the terms of this Custodian
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<PAGE> 13
Agreement or any other agreement on the part of any party, except as may
otherwise be specifically set forth herein. The Custodian may consult with
counsel of its choice with regard to legal questions arising out of or in
connection with this Custodian Agreement and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, omitted or suffered by the Custodian in good faith in
accordance therewith.
In the event the Custodian loses or misplaces any Receivable File or
portion thereof, or if any such instruments, documents, or certificates are
destroyed or damaged while in the possession of the Custodian, then, in addition
to any other liability the Custodian may have in respect thereof pursuant to the
terms of this Custodian Agreement or otherwise, the Custodian agrees to execute
and deliver to the Collateral Agent, upon the Collateral Agent's written
request, an affidavit stating that such instrument, document, or certificate has
been lost or destroyed, as applicable, and, if necessary, such other affidavits
or certificates as may be reasonably necessary to obtain replacement
certificates of title.
The Custodian is authorized, in its sole discretion, to disregard any and
all notices or instructions given by any other party hereto or by any other
person, firm or corporation, except only such notices or instructions as are
herein provided for and orders or process of any court entered or issued with or
without jurisdiction. If any property subject hereto is at any time attached,
garnished or levied upon under any court order or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by any court affecting such property or any part
hereof, then and in any of such events the Custodian is authorized, in its sole
discretion, to rely upon and comply with any such order, writ, judgment or
decree with which it is advised by legal counsel of its own choosing is binding
upon it, and if it complies with any such order, writ, judgment or decree it
shall not be liable to any other party hereto or to any other person, firm or
corporation by reason of such compliance even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
10. Severability. If any provision of this Custodian Agreement is declared
invalid by any court of competent jurisdiction, such invalidity shall not affect
any other provision, and this Custodian Agreement shall be enforced to the
fullest extent permitted by law.
11. Liability of Custodian.
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(a) The Custodian shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Custodian in such
capacity herein. In the absence of bad faith on the part of the Custodian, the
Custodian may conclusively rely on the truth of the statements and the
correctness of the opinions expressed in any certificates or opinions furnished
to the Custodian and conforming to the requirements of this Custodian Agreement.
(b) The Custodian shall not be liable for an error of judgment made in
good faith by any officer of the Custodian, unless it shall be proved that the
Custodian shall have been grossly negligent in ascertaining the pertinent facts.
(c) The Custodian shall not be liable with respect to any action taken,
suffered or omitted to be taken in good faith in accordance with this Custodian
Agreement or at the direction of the Servicer, the Insurance Provider or the
Collateral Agent relating to the exercise of any power conferred upon the
Custodian under this Custodian Agreement.
(d) Without limiting the generality of this Section 11, the Custodian
shall have no duty (i) to see to any recording, filing or depositing of this
Custodian Agreement or the Security Agreement or any agreement referred to
herein or any financing statement or continuation statement evidencing a
security interest in the Receivables or the Financed Vehicles, or to see to the
maintenance of any such recording or filing or depositing or to any recording,
refiling or redepositing of any thereof, (ii) to see to any insurance of the
Financed Vehicles or Obligors or to effect or maintain any such insurance, (iii)
to see to the payment or discharge of any tax, assessment or other governmental
charge or any Lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Receivables, (iv) to confirm or verify the
contents of any reports or certificates of the Servicer, the Debtor or the
Collateral Agent delivered to the Custodian pursuant to this Custodian Agreement
believed by the Custodian to be genuine and to have been signed or presented by
the proper party or parties, (v) to inspect the Financed Vehicles at any time or
ascertain or inquire as to the performance or observance of any of the Debtor's,
the Servicer's or the Collateral Agent's representations, warranties or
covenants or the Servicer's duties and obligations as Servicer and as custodian
of books, records, files and computer records relating to the Receivables under
this Custodian Agreement, or (vi) to see that the documents contained in the
Receivable Files conform to anything other than what is specified in Section
3(b) and to what is listed on the Receivables Schedule with respect to such
Receivable File.
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(e) The Custodian shall not be required to expend or risk its own funds
(other than overhead) or otherwise incur financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable ground for believing that the repayment of
such funds or adequate indemnity against such risk or liability shall not be
reasonably assured to it, and none of the provisions contained in this Custodian
Agreement shall in any event require the Custodian to perform, or be responsible
for the manner of performance of, any of the obligations of the Servicer, the
Collateral Agent or any other party under this Custodian Agreement.
(f) The Custodian may execute any of the trusts or powers hereunder or
perform any duties under this Custodian Agreement either directly or by or
through agents or attorneys or a custodian. The Custodian shall remain primarily
liable for the performance of any duties by an agent, attorney or custodian
appointed by the Custodian pursuant to this Section 11(f).
(g) The Custodian shall not be charged with knowledge of any event
unless an officer of the Custodian obtains actual knowledge of such event or the
Custodian receives written notice of such event from the Servicer, the
Collateral Agent or the Insurance Provider, as the case may be.
(h) The Custodian shall be under no obligation to exercise any of the
rights or powers vested in it by this Custodian Agreement or to institute,
conduct or defend any litigation under this Custodian Agreement or in
relationship to this Custodian Agreement, at the request, order or direction of
the Collateral Agent, the Servicer or the Insurance Provider, as the case may
be, pursuant to the terms of this Custodian Agreement, unless such party shall
have offered to the Custodian reason able security or indemnity against the
costs, expenses and liabilities that may be incurred therein or thereby.
12. Binding Effect; Amendments; Governing Law. This Custodian Agreement
shall be binding and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that none of the Servicer,
the Debtor nor the Custodian may assign this Custodian Agreement or any of its
rights or obligations hereunder, except with the prior written consent of the
Collateral Agent. THIS CUSTODIAN AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER (i) MAY NOT BE CHANGED ORALLY BUT ONLY BY AN INSTRUMENT IN
WRITING SIGNED BY THE PARTY AGAINST WHICH ENFORCEMENT IS SOUGHT AND (ii) SHALL
BE CONSTRUED IN
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ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. THE PARTIES
HEREUNDER AGREE THAT THEY WILL NOT AMEND, MODIFY, WAIVER, OR TERMINATE ANY
PROVISION OF THIS CUSTODIAN AGREEMENT WITHOUT THE PRIOR WRITTEN CONSENT OF EACH
PARTY.
13. Notices. Except where telephonic instructions or notices are
authorized herein to be given, all notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing by messenger, overnight courier or shall be sent by
facsimile transmission with a confirmation of the receipt thereof by messenger
or overnight courier and shall be deemed to be given for purposes of this
Custodian Agreement on the day that the receipt of such facsimile transmission
is confirmed in accordance with the provisions of this Section 13. Unless
otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 13, notices, demands, instructions and
other communications in writing shall be given to or made upon the respective
parties hereto at their respective addresses indicated below, and, in the case
of telephonic instructions or notices, by calling the telephone number or
numbers indicated for such party below:
If to the Company:
Enterprise Funding Corporation
c/o Global Securitization Services, LLC
25 West 43rd St., Suite 704
New York, New York 10036
Attention: Kevin Burns
Telephone: (212) 302-8331
Telecopy: (212) 302-8767
If to the Debtor:
FCAR RECEIVABLES LLC
6400 Imperial Drive (express delivery only)
P.O. Box 8216 (mail)
Waco, Texas 76714-8216
Attention: Richard Vander Woude
Telephone: (254) 751-1750
Telecopy: (254) 751-7725
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If to the Servicer:
FirstCity Funding Corporation
6400 Imperial Drive (express delivery only)
P.O. Box 8216 (mail)
Waco, Texas 76714-8216
Telephone: (254) 751-1750
Telecopy: (817) 751-7725
Attention: Richard Vander Woude
If to the Custodian:
Chase Bank of Texas, N.A.
2200 Ross Avenue, Suite 500
Dallas, Texas 75201
Attention: Capital Market Fiduciary Services
Telephone: (214) 965-3531
Telecopy: (214) 965-3577
If to the Insurance Provider:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio
Management - SF (FCAR RECEIVABLES LLC
Warehouse Facility 1999)
Telephone: (914) 273-4545
Telecopy: (914) 765-3810
14. Duties of the Collateral Agent. The Collateral Agent shall promptly
provide copies of all notices and documents received by the Collateral Agent
under the terms of any Transaction Document to which the Collateral Agent is a
party which affect or relate to the obligations of the Custodian under this
Custodian Agreement including, but not limited to, notices or documents received
by the Collateral Agent under the Security Agreement, the Note Purchase
Agreement or the Insurance Agreement.
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15. Duties of the Servicer. The Servicer shall deliver the Receivables
Schedule to the Custodian at the same time such Receivables Schedule is
delivered to the Collateral Agent under the Security Agreement.
16. Non-Petition Covenant. The Custodian hereby agrees that it shall
not institute against, join any other Person in instituting against, or
knowingly or intentionally cooperate with or encourage an other Person in
instituting against the Debtor, any bankruptcy, reorganization, arrangement,
insolvency, or liquidation proceedings, or other proceedings under any federal
or state bankruptcy or similar law unless one year and one day has passed
following the final payment on the Note and payment of all amounts due to the
Insurance Provider. The Custodian hereby agrees that it shall not institute
against, join any other Person in instituting against, or knowingly or
intentionally cooperate with or encourage another Person in instituting against
the Company or a Conduit Assignee, any bankruptcy, reorganization, arrangement,
insolvency, or liquidation proceedings, or other proceedings under any federal
or state bankruptcy or similar law until one year and one day after the payment
in full of all Commercial Paper issued by the Company or a Conduit Assignee.
17. Third Party Beneficiary. The Insurance Provider shall be an express
third-party beneficiary of this Custodian Agreement.
18. Counterparts. This Custodian Agreement may be executed in any
number of copies, and by the different parties hereto on the same or separate
counter parts, each of which shall be deemed to be an original instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Custodian Agreement as of the date and year first above written.
FCAR RECEIVABLES LLC, as Debtor
By:
---------------------------------
Name:
Title:
FIRSTCITY FUNDING CORPORATION, as
Servicer
By:
---------------------------------
Name:
Title:
CHASE BANK OF TEXAS, N.A., as
Custodian
By:
---------------------------------
Name:
Title:
NATIONSBANK, N.A., as Collateral
Agent
By:
---------------------------------
Name:
Title:
<PAGE> 20
ENTERPRISE FUNDING CORPORATION, as
the Company
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of OCTOBER 1,
1998, by and between FIRSTCITY FINANCIAL MORTGAGE CORPORATION, a Texas
corporation (the "Employer"), and BUDDY L. TERRELL, an individual (the
"Executive"). The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT" means this Employment Agreement, as amended from time to
time.
"BASIC COMPENSATION" means Salary and Benefits.
"BENEFITS" has the meaning as defined in Section 3.1(c).
"BOARD OF DIRECTORS" means the board of directors of the Employer.
"CONFIDENTIAL INFORMATION" means any and all of the following, but
only to the extent such information or documents were created, learned and/or
obtained during the Employment Period (defined below) and only to the extent
any such information, at the time of its disclosure as contemplated by Section
7 hereunder has been treated as confidential by Employer: (A) trade secrets
concerning the business and affairs of the Employer; (B) non-public information
concerning the business and affairs of the Employer (which includes historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel, personnel training and techniques and materials) however
documented; and (C) notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Employer containing or based, in whole or
in part, on any information included in the foregoing.
"CONSULTING FEE" has the meaning as defined in Section 3.1(b).
"CONSULTING PERIOD" has the meaning as defined in Section 2.3.
"DISABILITY" has the meaning as defined in Section 6.2.
"EFFECTIVE DATE" means October 1, 1998.
"EMPLOYEE INVENTION" means any invention, technique, modification,
process, or improvement (whether patentable or not) and any work of authorship
(whether or not copyright protection may be obtained for it) created,
conceived, or developed by the Executive, either solely or in conjunction with
others, during the Employment Period, or a period that includes a portion of
the Employment Period, that relates in any way to, the mortgage business as now
conducted or then being conducted by the Employer.
<PAGE> 2
"EMPLOYMENT PERIOD" means the term of the Executive's employment under
this Agreement commencing on the Effective Date and ending on September 30,
2003.
"EMPLOYER" means FirstCity Financial Mortgage Corporation.
"EQUITY DISTRIBUTION" means the amounts available for distribution to
FirstCity Financial Corporation, as equity holder, from the net sales proceeds
of the sale of stock or all of the assets of the specified affiliate of
FirstCity Financial Corporation after payment of all amounts payable to
creditors of Employer, FirstCity Financial Corporation and/or the subsidiaries
of Employer and all other liabilities or debt of Employer (including, without
limitation, the Capital Note), and further reduced by the amount of any capital
contributions made by FirstCity Financial Corporation to the Employer or its
subsidiaries after September 30, 1998.
"FISCAL YEAR" means the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE" has the meaning as defined in Section 6.3.
"FOR GOOD REASON" has the meaning as defined in Section 6.4.
"INITIAL PERIOD" has the meaning as defined in Section 2.3.
"PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
"PROPRIETARY ITEMS" has the meaning as defined in Section 7.2(a)(iv).
"SALARY" has the meaning as defined in Section 3.1(a).
"SUCCESS/SALE BONUS" has the meaning as defined in Section 3.2.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT. The Employer hereby employs the Executive, and the
Executive hereby accepts employment by the Employer, upon the terms and
conditions set forth in this Agreement.
2.2 TERM. Subject to the provisions of Section 6, the term of the
Executive's employment under this Agreement will be five (5) years, beginning
on the Effective Date and ending on September 30, 2003.
2.3 DUTIES. During the period beginning on the Effective Date and
ending on April 30, 2000 (the "Initial Period"), the Executive will devote a
substantial portion of his business time, attention, skill, and energy to the
business of the Employer, will use his best efforts to promote the success of
the Employer's business, and will cooperate with the Board of Directors in the
advancement of the best interests of the Employer. The Executive will have such
duties as are assigned or delegated to the Executive by the Board of Directors
which are generally those common to the position of Vice Chairman of a mortgage
company. During the period beginning on May 1,
<PAGE> 3
2000 and ending on September 30, 2003 (the "Consulting Period"), the Executive
shall assume the role of a consultant to Employer and will be available for
consultation to the Employer. During the Consulting Period, the Executive will
be available for consultation to the Employer and will continue to be subject
to the non-competition provisions of Section 8; it being the intent of the
Employer and the Executive that the Executive will have additional free time
available to him to pursue activities that are not in competition with the
business of the Employer or any of the subsidiaries or affiliates of the
Employer. During the Consulting Period, the Executive will only be entitled to
receive the Consulting Fee and Benefits. The Executive will be reimbursed for
reasonable travel and related expenses incurred in connection with such
consultation services. Consultant will not be entitled to receive the Salary
during the Consulting Period. Nothing in this Section 2.3, however, will
prevent the Executive from engaging in additional activities that are not
inconsistent with the Executive's duties under this Agreement.
3. COMPENSATION
3.1 BASIC COMPENSATION. Subject to the terms of this Agreement, the
Executive will receive compensation as set forth in subparts (a), (b), and (c)
of this Section 3.1.
(a) SALARY. The Executive will be paid an annual salary of $300,000.00
per year (or a pro-rata portion thereof during any period which is
shorter than a full year), commencing October 1, 1998, and continuing
during the Initial Period (the "Salary"). The Salary will be payable
in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly.
(b) CONSULTING FEE. The Executive will be paid an annual consulting
fee of $600,000.00 per year (or a pro-rata portion thereof during any
period which is shorter than a full year), commencing October 1, 1998,
and continuing during the Employment Period (the "Consulting Fee").
The Consulting Fee will be payable in equal periodic installments
according to the Employer's customary payroll practices, but no less
frequently than monthly. The Consulting Fee will be payable
notwithstanding termination of this Agreement; provided, that the
Executive is not in breach of Section 8 at the time the Consulting Fee
is payable.
(c) BENEFITS. The Executive will, during the Employment Period, be
permitted to participate in the profit sharing, stock option,
hospitalization, and major medical plans of the Employer that may be
in effect from time to time, to the extent the Executive is eligible
subject to the terms of those plans. In the event Executive is not
eligible to participate in Employer's hospitalization and major
medical plans, Employer will provide equivalent coverage to Executive
at no cost to Executive. (All of the foregoing collectively referred
to as "Benefits"). During the Initial Period the Executive will be
entitled to receive life insurance benefits based upon his Salary. The
Executive will not be entitled to receive life insurance benefits
during the Consulting Period.
3.2 SUCCESS/SALE BONUS. In addition to the Salary and Consulting Fee,
the Executive shall, provided he is employed pursuant to the terms of this
Agreement on the date that an event takes place which entitles the Executive to
a bonus under this Section 3.2, be entitled to a bonus (the "Success/Sale
Bonus") upon the earliest to occur of:
<PAGE> 4
(a) a sale of all of the stock of the Employer or all of the stock of
Harbor Financial Mortgage Corporation; or
(b) a sale of substantially all of the assets or stock of New America
Financial, Inc.
Executive shall only be entitled to be paid for one Success/Sale Bonus
(i.e., in the event there is a sale of all of the stock of New America
Financial, Inc., or substantially all of its assets, the Executive will be paid
a Success/Sale Bonus and thereafter the Executive shall not be entitled to the
payment of a Success/Sale Bonus in the event of the subsequent sale of all of
the stock of Harbor Financial Mortgage Corporation or of the Employer). The
Success/Sale Bonus shall be an amount equal to 1.0% of the Equity Distribution
from the sale if the sale price is greater than $75,000,000.00 but less than
$100,000,000.00, 1.5% of the Equity Distribution from the sale if the price is
between $100,000,000.00 and $150,000,000.00, or 2% of the Equity Distribution
from the sale if the price is in excess of $150,000,000.00.
4. FACILITIES AND EXPENSES
4.1 GENERAL. The Employer will furnish the Executive office space,
equipment, supplies, and such other facilities and personnel as the Employer
deems necessary or appropriate for the performance of the Executive's duties
under this Agreement. The Employer will pay on behalf of the Executive (or
reimburse the Executive for) reasonable expenses incurred by the Executive at
the request of, or on behalf of, the Employer in the performance of the
Executive's duties pursuant to this Agreement, and in accordance with the
Employer's employment policies, including reasonable expenses incurred by the
Executive in attending conventions, seminars, and other business meetings,
appropriate business entertainment activities, and for promotional expenses.
The Executive must file expense reports with respect to such expenses in
accordance with the Employer's policies.
5. INTENTIONALLY OMITTED
6. TERMINATION
6.1 EVENTS OF TERMINATION. During the Employment Period, the
Executive's Salary and the Success/Sale Bonus, and any and all other rights of
the Executive under this Agreement or otherwise as an employee of the Employer
will terminate (except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in Section 6.2)
immediately upon notice from either party to the other;
(c) For Cause (as defined in Section 6.3), immediately upon notice
from the Employer to the Executive, or at such later time as such
notice may specify; or
(d) For Good Reason (as defined in Section 6.4) upon not less than
fifteen (15) days prior written notice from the Executive to the
Employer and the failure of the Employer to cure the breach or
reduction which constitutes Good Reason during such fifteen (15) day
period. In the event Executive exercises his right to terminate the
Agreement under this
<PAGE> 5
subparagraph, all rights of the Employer under this Agreement,
including those set forth in paragraphs 7 and 8 and all subparagraphs
thereof, will terminate and will not be enforceable against Executive.
6.2 DEFINITION OF "DISABILITY". For purposes of Section 6.1, the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days, or 180 days during any twelve (12) month
period, as determined in accordance with this Section 6.2. The disability of
the Executive will be determined by a medical doctor selected by written
agreement of the Employer and the Executive upon the request of either party by
notice to the other. If the Employer and the Executive cannot agree on the
selection of a medical doctor, each of them will select a medical doctor and
the two medical doctors will select a third medical doctor who will determine
whether the Executive has a disability. The determination of the medical doctor
selected under this Section 6.2 will be binding on both parties. The Executive
must submit to a reasonable number of examinations by the medical doctor making
the determination of disability under this Section 6.2, and the Executive
hereby authorizes the disclosure and release to the Employer of such
determination and all supporting medical records. If the Executive is not
legally competent, the Executive's legal guardian or duly authorized
attorney-in-fact will act in the Executive's stead, under this Section 6.2, for
the purposes of submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE". For purposes of Section 6.1, the phrase
"For Cause" shall have the meaning as determined under common law, and shall
include, without limitation: (A) the Executive's material breach of this
Agreement; (B) the Executive's failure to adhere to any written Employer policy
if the Executive has been given a reasonable opportunity to comply with such
policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement); (C)
the Executive's appropriation (or attempted appropriation) of a material
business opportunity of the Employer, including attempting to secure or
securing any personal profit in connection with any transaction entered into on
behalf of the Employer; (D) the Executive's misappropriation (or attempted
misappropriation) of any of the Employer's funds or property or commission of
any act of fraud or embezzlement by the Executive; (E) willful misconduct by
the Executive in the performance of his duties hereunder; (F) any breach by the
Executive of any fiduciary duty to the Employer; or (G) the Executive's
conviction of, the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is a
possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON". For purposes of Section 6.1, the
phrase "For Good Reason" means the Employer's material breach of this
Agreement.
6.5 TERMINATION PAY. Effective upon the termination of this Agreement,
the Employer will be obligated to pay the Executive (or, in the event of his
death, his designated beneficiary as defined below) only such compensation as
is provided in this Section 6.5. For purposes of this Section 6.5, the
Executive's designated beneficiary will be such individual beneficiary or
trust, located at such address, as the Executive may designate by notice to the
Employer from time to time or, if the Executive fails to give notice to the
Employer of such a beneficiary, the Executive's estate. Notwithstanding the
preceding sentence, the Employer will have no duty, in any circumstances, to
attempt to open an estate on behalf of the Executive, to determine whether any
beneficiary designated by the Executive is alive or to ascertain the address of
any such
<PAGE> 6
beneficiary, to determine the existence of any trust, to determine whether any
person or entity purporting to act as the Executive's personal representative
(or the trustee of a trust established by the Executive) is duly authorized to
act in that capacity, or to locate or attempt to locate any beneficiary,
personal representative, or trustee.
(a) SALARY. Upon the termination of this Agreement, the Executive will
be entitled to receive his Salary only through the date such
termination is effective.
(b) BENEFITS. The Executive's accrual of, or participation in plans
providing for, the Benefits will cease at the effective date of the
termination of this Agreement, and the Executive will be entitled to
accrued Benefits pursuant to such plans only as provided in such plans
or by operation of law. Notwithstanding the termination of this
Agreement, during any period that the Consulting Fee is payable
Employer will provide hospitalization and major medical coverage for
the Executive which is equivalent to that provided to other employees
at no cost to Executive.
(c) CONSULTING FEE. The Consulting Fee shall be payable
notwithstanding termination of this Agreement; provided that the
Executive is not in breach of Section 8 at any time that the
Consulting Fee is payable. In the event that the Employer determines
at any time that the Executive is in breach of Section 8, the Employer
may discontinue payment of the Consulting Fee in addition to pursuing
any other remedy available to Employer under this Agreement, by
statute or under common law.
(d) BONUS. The Success/Sale Bonus is only payable in the event that
the Executive is actively employed by Employer on the date the
Success/Sale Bonus is payable. Upon the termination of this Agreement,
the Executive will not be entitled to any Success/Sale Bonus.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that
(A) during the Employment Period and as a part of his employment, the Executive
will be afforded access to Confidential Information; (B) public disclosure of
such Confidential Information could have an adverse effect on the Employer and
its business; (C) because the Executive possesses substantial technical
expertise and skill with respect to the Employer's business, the Employer
desires to obtain exclusive ownership of each Employee Invention, and the
Employer will be at a substantial competitive disadvantage if it fails to
acquire exclusive ownership of each Employee Invention; (D) Employer has
required that the Executive make the covenants in this Section 7 as a condition
to entering into this Agreement; and (E) the provisions of this Section 7 are
reasonable and necessary to prevent the improper use or disclosure of
Confidential Information and to provide the Employer with exclusive ownership
of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE. In consideration of the compensation
and benefits to be paid or provided to the Executive by the Employer under this
Agreement, the Executive covenants as follows:
(a) CONFIDENTIALITY.
(i) During the Employment Period and the Post-Employment
Period (as defined below), the Executive will hold in
confidence the Confidential Information and will
<PAGE> 7
not disclose it to any person except with the specific prior
written consent of the Employer or except as otherwise
expressly permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under applicable law. If
any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a
trade secret for purposes of this Agreement, such information
can, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Executive hereby waives any
requirement that Employer submit proof of the economic value
of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information that the
Executive demonstrates was or became generally available to
the public other than as a result of a disclosure by the
Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for purposes
of the performance of the Executive's duties at home or while
traveling, or except as otherwise specifically authorized by
the Employer) any document, record, notebook, plan, model,
component, device, or computer software or code owned by the
Employer, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive
recognizes that, as between the Employer and the Executive,
all of the Proprietary Items, whether or not developed by the
Executive, are the exclusive property of the Employer. Upon
termination of this Agreement by either party, or upon the
request of the Employer during the Employment Period, the
Executive will return to the Employer all of the Proprietary
Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any
copies, abstracts, sketches, or other physical embodiment of
any of the Proprietary Items.
(b) EMPLOYEE INVENTIONS. Each Employee Invention will belong
exclusively to the Employer. If it is determined that any such works
are not works made for hire, the Executive hereby assigns to the
Employer all of the Executive's right, title and interest, including
all rights of copyright, patent, and other intellectual property
rights, to or in such Employee Inventions. The Executive covenants
that he will promptly:
(i) disclose to the Employer any Employee Invention;
(ii) assign to the Employer or to a party designated by the
Employer, at the Employer's request and without additional
compensation, all of the Executive's rights to the Employee
Invention for the United States and all foreign
jurisdictions;
(iii) execute and deliver to the Employer such applications,
assignments, and other documents as the Employer may request
in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above
obligations; and
<PAGE> 8
(v) give testimony and render any other assistance but
without expense to the Executive in support of the Employer's
rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES. The Executive recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized. In
the event any arbitration or court proceeding is instigated relating to this
Agreement, the parties to this Agreement agree to make good faith efforts to
preserve the secrecy of any Confidential Information.
8. NON-COMPETITION
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE. The Executive acknowledges that:
(A) the services to be performed by him under this Agreement are of a special,
unique, unusual, extraordinary, and intellectual character; (B) the Employer's
business is international in scope and its products are marketed throughout
North America; (C) the Employer competes with other businesses that are or could
be located in any part of North America; (D) Employer has required that the
Executive make the covenants set forth in this Section 8 as a condition to
entering into this Agreement; and (E) the provisions of this Section 8 are
reasonable and necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE. In consideration of the
acknowledgments by the Executive, and in consideration of the compensation and
benefits to be paid or provided to the Executive by the Employer, the Executive
covenants that he will not, directly or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder engage or invest in, own, manage, operate,
finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, associated with,
or in any manner connected with, lend the Executive's name or any
similar name to, lend Executive's credit to or render services or
advice to, any business whose products or activities compete in whole
or in part with the products or activities of the Employer's mortgage
business as conducted by Employer anywhere within North America where
the Employer conducts or markets its business or products; provided,
however, that the Executive may purchase or otherwise acquire up to
(but not more than) five percent (5%) of any class of securities of
any enterprise (but without otherwise participating in the activities
of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934; or
(b) whether for the Executive's own account or for the account of any
other person, at any time during the Employment Period solicit
business of the same or similar type being carried on by the Employer,
from any person known by the Executive to be a customer of the
Employer, whether or not the Executive had personal contact with such
person during and by reason of the Executive's employment with the
Employer.
For purposes of this Section 8 only, the term "Employer" means the
Employer and/or any of the Employer's subsidiaries or affiliates.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic
<PAGE> 9
area, and such lesser scope, time, or geographic area, or all of them, as a
court of competent jurisdiction may determine to be reasonable, not arbitrary,
and not against public policy, will be effective, binding, and enforceable
against the Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten (10) days after accepting any
other employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY. The Executive
acknowledges that the injury that would be suffered by the Employer as a result
of a breach of the provisions of this Agreement (including any provision of
Sections 7 and 8) would be irreparable and that an award of monetary damages to
the Employer for such a breach would be an inadequate remedy. Consequently, the
Employer will have the right, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach or
otherwise to specifically enforce any provision of this Agreement, and the
Employer will not be obligated to post bond or other security in seeking such
relief. Without limiting the Employer's rights under this Section 9 or any other
remedies of the Employer, if the Executive breaches any of the provisions of
Section 7 or 8, the Employer will have the right to cease making any payments
otherwise due to the Executive under this Agreement.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS. The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Employer would not have entered into this Agreement or
employed or continued the employment of the Executive. The Employer and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise, or against the Buyer, will not excuse the
Executive's breach of any covenant in Section 7 or 8 unless the Agreement is
terminated pursuant to paragraph 6.1(d) hereof.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8
unless the Agreement is terminated pursuant to paragraph 6.1(d) hereof.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE. The Executive
represents and warrants to the Employer that the execution and delivery by the
Executive of this Agreement do not, and the performance by the Executive of the
Executive's obligations hereunder will not, with or without the giving of notice
or the passage of time, or both: (a) violate
<PAGE> 10
any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result
in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which the Executive is a party or by which the
Executive is or may be bound.
9.4 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement will
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any
other right, power or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement.
9.5 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
including any entity with which the Employer may merge or consolidate or to
which all or substantially all of its assets may be transferred. The duties and
covenants of the Executive under this Agreement, being personal, may not be
assigned.
9.6 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer: FirstCity Financial Mortgage Corporation
340 N. Sam Houston Pkwy., Suite 100
Houston, Texas 77060
Attention: Board of Directors
Facsimile No. 281-931-1771
With a copy to: FirstCity Financial Corporation
P.O. Box 8216
Waco, Texas 76714-8216
Attention: Rick R. Hagelstein
Facsimile No. 254-751-1208
If to the Executive: Buddy L. Terrell
3747 Cole Avenue, #139
Dallas, Texas 75204
<PAGE> 11
With a copy to: Buddy L. Terrell
P.O. Box 170
Sointula, B.C.
Canada VON 3EO
9.7 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Agreement
may not be amended orally, but only by an agreement in writing signed by the
parties hereto.
9.8 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
9.9 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement unless otherwise
specified. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
9.10 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.12 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors, permitted assigns, heirs and legal representatives.
9.13 NO CONSTRUCTION AGAINST PREPARER. No provision of this Agreement
shall be construed against or interpreted to the disadvantage of any party by
any court or other governmental or judicial authority by reason of such party's
having or being deemed to have prepared or imposed such provision.
9.14 COUNSEL. Each party hereto warrants and represents that each
party has been afforded the opportunity to be represented by counsel of its
choice in connection with the execution of this Agreement, and has had ample
opportunity to read, review, and understand the provisions of this Agreement.
9.15 ATTORNEYS' FEES. In the event of any litigation between Employer
and the Executive arising under or in connection with this Agreement, the
prevailing party shall be entitled to recover from the other party the expenses
of litigation (including reasonable attorneys' fees, expenses and
disbursements) incurred by the prevailing party.
<PAGE> 12
9.16 NON-WAIVER. Failure by any party to complain of any action,
non-action or breach of any other party shall not constitute a waiver of any
aggrieved party's rights hereunder. Waiver by any party of any right arising
from any breach of any other party shall not constitute a waiver of any other
right arising from a subsequent breach of the same obligation or for any other
default, past, present or future.
9.17 TIME OF ESSENCE; DATES. Time is of the essence of this Agreement.
Anywhere a day certain is stated for payment or for performance of any
obligation, the day certain so stated enters into and becomes a part of the
consideration for this Agreement. If any date set forth in this Agreement shall
fall on, or any time period set forth in this Agreement shall expire on, a day
which is a Saturday, Sunday, federal or state holiday, or other non-business
day, such date shall automatically be extended to, and the expiration of such
time period shall automatically be extended to, the next day which is not a
Saturday, Sunday, federal or state holiday or other non-business day. The final
day of any time period under this Agreement or any deadline under this
Agreement shall be the specified day or date, and shall include the period of
time through and including such specified day or date.
9.18 FACSIMILE AS WRITING. The parties expressly acknowledge and agree
that, notwithstanding any statutory or decisional law to the contrary, the
printed product of a facsimile transmittal shall be deemed to be "written" and
a "writing" for all purposes of this Agreement.
9.19 ARBITRATION. The parties agree that any controversy or claim
arising out of or relating to this Agreement, the Executive's employment or
termination, including all statutory and common law claims (except for workers'
compensation and unemployment claims) will be settled exclusively by final and
binding arbitration. Arbitration will be governed by the Federal Arbitration
Act and administered by the Judicial Arbitration and Mediation Services Rules
for the Resolution of Employment Disputes (JAMS). The arbitrator is empowered
to award all appropriate remedies under Texas or federal law. The arbitrator
shall have exclusive authority to resolve any dispute relating to the validity,
interpretation, application and enforcement of this Agreement. Judgment on the
arbitrator's award may be enforced in any court with proper jurisdiction. Each
party will equally bear all costs and legal fees of arbitration, unless
otherwise required by law. The parties further agree that the arbitration will
occur in Dallas County, Texas.
9.20 TERMINATION OF PRIOR AGREEMENTS. EMPLOYER AND EXECUTIVE
ACKNOWLEDGE AND AGREE THAT THIS AGREEMENT IS THE ONLY AGREEMENT RELATING TO THE
TERMS OF EMPLOYMENT, COMPENSATION, BONUSES, RIGHTS TO ANY PROFITS (OR INTEREST
THEREIN) OR ANY OTHER CLAIM TO PAYMENTS OF ANY KIND OF THE EXECUTIVE RELATING
TO THE EMPLOYER, NEW AMERICA FINANCIAL, INC., HARBOR FINANCIAL MORTGAGE
CORPORATION, OR ANY OF THEIR AFFILIATES OR SUBSIDIARIES COVERING THE EMPLOYMENT
PERIOD OR ANY PERIOD OF TIME PRIOR TO THE EFFECTIVE DATE. ANY AND ALL OTHER
AGREEMENTS BETWEEN THE PARTIES TO THIS AGREEMENT RELATING TO THE TERMS OF
EMPLOYMENT, COMPENSATION, BONUSES, RIGHTS TO ANY PROFITS (OR INTEREST THEREIN)
OR ANY OTHER CLAIM TO PAYMENTS OF ANY KIND (WHETHER DEFERRED OR OTHERWISE), OR
OTHER EMPLOYMENT MATTERS BETWEEN THE EXECUTIVE AND EMPLOYER, FIRSTCITY
FINANCIAL CORPORATION, OR ANY OF THEIR AFFILIATES OR SUBSIDIARIES ARE HEREBY
TERMINATED.
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER:
FIRSTCITY FINANCIAL MORTGAGE CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
EXECUTIVE:
-------------------------------------------
BUDDY L. TERRELL
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 10.31
NOTE PURCHASE AGREEMENT
between
FCAR RECEIVABLES LLC
as Issuer,
ENTERPRISE FUNDING CORPORATION,
as Company,
and NATIONSBANK, N.A.,
as Agent and as a Bank Investor
Dated as of March 30, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
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SECTION 1.1. Definitions................................................................................1
ARTICLE II
FUNDINGS; THE NOTE
SECTION 2.1. Funding; The Note..........................................................................5
SECTION 2.2. The Insurance Policy......................................................................13
SECTION 2.3. Sharing of Payments, Etc..................................................................13
SECTION 2.4. Fees......................................................................................14
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.1. Representations, Warranties and Covenants of the Issuer...................................14
ARTICLE IV
INDEMNIFICATION
SECTION 4.1. Indemnity.................................................................................15
SECTION 4.2. Indemnity for Taxes, Reserves
and Expenses................................................................17
SECTION 4.3. Other Costs, Expenses
and Related Matters.........................................................20
ARTICLE V
THE AGENT; BANK COMMITMENT
SECTION 5.1. Authorization and Action..................................................................21
SECTION 5.2. Agent's Reliance, Etc.....................................................................22
SECTION 5.3. Non-Reliance..............................................................................22
SECTION 5.4. Indemnification of the Agent..............................................................23
SECTION 5.5. Termination Events........................................................................23
SECTION 5.6. Rights as Bank Investor...................................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
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<S> <C> <C>
SECTION 5.7. Resignation of Agent......................................................................24
SECTION 5.8. Payments by the Agent.....................................................................25
SECTION 5.9. Bank Commitment; Assignment to Bank Investors.............................................25
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Notices, etc..............................................................................31
SECTION 6.2. Successors and Assigns....................................................................32
SECTION 6.3. Severability Clause.......................................................................34
SECTION 6.4. Amendments; Governing Law.................................................................35
SECTION 6.5. No Bankruptcy Petition
Against the Company.........................................................36
SECTION 6.6. No Proceedings............................................................................36
SECTION 6.7. Setoff....................................................................................36
SECTION 6.8. No Recourse Against Issuer................................................................36
SECTION 6.9. Further Assurances........................................................................37
SECTION 6.10. No Recourse Against Company..............................................................37
SECTION 6.11. Governing Law; Submission to
Jurisdiction; Integration..................................................37
SECTION 6.12. Counterparts.............................................................................38
SECTION 6.13. Headings.................................................................................38
SECTION 6.14. Subrogation..............................................................................38
</TABLE>
EXHIBITS
EXHIBIT A Form of Assignment and Assumption Agreement
EXHIBIT B Form of Funding Request
EXHIBIT C Form of Note
ii
<PAGE> 4
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of March
30, 1999, among ENTERPRISE FUNDING CORPORATION, a Delaware corporation, as
purchaser (together with its successors and assigns, the "Company"), for itself
and as agent for the Liquidity Provider, FCAR RECEIVABLES LLC, a Texas limited
liability company, as issuer (together with its successors and assigns, the
"Issuer") and NATIONSBANK, N.A., a national association ("NationsBank"), as
agent for the Company and the Bank Investors (in such capacity, the "Agent") and
as a Bank Investor.
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of this Agreement
and the Security Agreement, the Issuer desires to obtain funds from time to time
from the Company or the Bank Investors, as applicable, and to evidence the
obligation to repay such amounts together with interest thereon through the
issuance of the Note;
WHEREAS, pursuant to the Security Agreement, the Issuer will
pledge to the Collateral Agent, for the benefit of the Secured Parties, its
interest in the Receivables and related Collateral including the Issuer's
security interest in the Financed Vehicles;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. All capitalized terms not otherwise
defined herein shall have the meanings specified in the Security Agreement. The
following terms shall have the meaning specified below and shall include in the
singular number the plural and in the plural number the singular:
<PAGE> 5
"Administrative Agent" shall mean NationsBank,
N.A., as administrative agent for the Company.
"Agent" means NationsBank, N.A., in its capacity as agent for
the Company and the Bank Investors, and any successor thereto appointed pursuant
to Article V of this Agreement.
"Agreement" shall mean this Note Purchase Agreement, as it may
from time to time be amended, supplemented or otherwise modified in accordance
with the terms hereof.
"Assignment Amount" with respect to a Bank Investor shall mean
at any time an amount equal to the lesser of (i) such Bank Investor's Pro Rata
Share of the Net Investment at such time, (ii) such Bank Investor's unused
Commitment, and (iii) such Bank Investor's Pro Rata Share of the Borrowing Base
(excluding Defaulted Receivables) at such time.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement substantially in the form of Exhibit A attached hereto.
"Bank Investors" shall mean NationsBank, N.A. and each other
financial institution identified as such on the signature pages hereof and their
respective successors and assigns.
"Commitment" means (i) with respect to each Bank Investor
party hereto, the commitment of such Bank Investor to advance funds to the
Issuer or to acquire interests in the Note from the Company in accordance
herewith in an amount not to exceed the dollar amount set forth opposite such
Bank Investor's signature on the signature page hereto under the heading
"Commitment", minus the dollar amount of any Commitment or portion thereof
assigned pursuant to an Assignment and Assumption Agreement plus the dollar
amount of any increase to such Bank Investor's Commitment consented to by such
Bank Investor prior to the time of determination, and (ii) with respect to any
Bank Investor which becomes a party hereto pursuant to an Assignment and
Assumption Agreement, the commitment of such assignee to advance funds to the
Issuer or to acquire interests in the Note from the Company not to exceed the
amount set forth in such
2
<PAGE> 6
Assignment and Assumption Agreement minus the dollar amount of any Commitment or
portion thereof assigned pursuant to an Assignment and Assumption Agreement
prior to such time of determination; provided, however, that in the event that
the Facility Limit is reduced, the aggregate Commitment of all the Bank
Investors shall be reduced in a like amount and the Commitment of each Bank
Investor shall be reduced in proportion to such reduction.
"Commitment Termination Date" shall mean March 28, 2000 unless
extended in writing by the parties hereto and the Insurance Provider.
"Company" shall mean Enterprise Funding Corporation, a
Delaware corporation, together with its successors and assigns.
"Conduit Assignee" shall mean any commercial paper conduit
administered by NationsBank or Bank of America National Trust and Savings
Association and designated by NationsBank from time to time to accept an
assignment from the Company of all or a portion of the
Net Investment.
"Funding" shall have the meaning specified in
Section 2.1(a) hereof.
"Funding Request" shall have the meaning specified in Section
2.1(a) of this Agreement.
"Indemnified Amounts" shall have the meaning
set forth in Section 4.1 hereof.
"Indemnified Parties" shall have the meaning
set forth in Section 4.1 hereof.
"Initial Funding" shall have the meaning specified in Section
2.1(a) of this Agreement.
"Issuer" shall mean FCAR RECEIVABLES LLC, a Texas limited
liability company, and its successors and permitted assigns.
"Majority Investors" shall mean, at any time, the Agent and
those Bank Investors which hold Commitments aggregating in excess of 51% of the
Facility Limit as of such date.
3
<PAGE> 7
"Note" shall mean the note issued to the Company pursuant to
Section 2.1(e)(i) of this Agreement.
"Other Transferor" means any Person other than the Issuer that
has entered into a transfer and administration agreement, security agreement,
receivables purchase agreement or other similar agreement with the Company and
which is not a party to any Transaction Document.
"Pro Rata Share" means, for a Bank Investor, the Commitment of
such Bank Investor divided by the sum of the Commitments of all Bank Investors.
"Section 4.2 Costs" shall have the meaning set forth in
Section 4.2(d) hereof.
"Securities Act" shall mean The Securities Act
of 1933, as amended.
"Security Agreement" shall mean the Security Agreement dated
as of March 30, 1999, among the Servicer, the Issuer, the Back-up Servicer, the
Collateral Agent, the Company and the Insurance Provider, as amended, modified
and supplemented from time to time in accordance with its terms.
"Subsequent Funding" shall have the meaning specified in
Section 2.1(a) of this Agreement.
4
<PAGE> 8
ARTICLE II
FUNDING; THE NOTE
SECTION 2.1. Funding; The Note. (a) Initial Funding. Upon the
terms and subject to the conditions herein set forth, prior to the Termination
Date and provided that an Amortization Period is not occurring (x) the Company
may, and (y) the Bank Investors shall, if requested, make an advance (any such
advance, a "Funding," the first such advance, the "Initial Funding," each such
additional funding, a "Subsequent Funding") to the Issuer from time to time on
or after the Closing Date. In connection with the Initial Funding, the Issuer
shall request such Funding at least one Business Day prior to the proposed date
of such Initial Funding. Such request shall specify the proposed amount of such
Funding (which shall be $1,000,000 or integral multiples of $100,000 in excess
thereof) and the proposed date of the Initial Funding. On any Business Day
occurring after the Initial Funding under this Section 2.1(a), upon one Business
Day's notice to the Agent and the Insurance Provider, which shall be in the form
of Exhibit B hereto and satisfy the requirements of Section 2.1(b)(iv) below
(each, a "Funding Request"), the Issuer may request that the Company or the Bank
Investors, as appropriate, make Subsequent Fundings (which shall be $1,000,000
or integral multiples of $100,000 in excess thereof). No more than one
Subsequent Funding shall be permitted each calendar week, unless the Agent or
the Bank Investors, as applicable, shall have agreed to more frequent Fundings.
It is understood that the obligations of the Bank Investors to make Fundings
under this Section 2.1(a) are not affected by whether the Bank Investors (or any
of them) have fulfilled their obligations to acquire an interest in the Note
pursuant to Section 5.9 hereof.
(b) Conditions to Funding. Neither the Company nor the Bank
Investors shall advance any funds to the Issuer in connection with any Funding
unless on the date of such Funding:
(i) either (a) the sum of the Net Investment, plus
the aggregate Interest Component, if the Net Investment is funded by
the Company, or (b) the Net Investment, if the Net Investment is funded
by the Bank Investors,
5
<PAGE> 9
would not (after giving effect to such Funding) exceed the Facility
Limit;
(ii) the Net Investment, after giving effect to such
Funding, would not be greater than the Noteholder's Percentage of the
Borrowing Base;
(iii)the Insurance Policy is in full force and effect
and no Insurance Provider Default has occurred and is continuing;
(iv) the Issuer has provided a Funding Request to the
Agent and the Insurance Provider, which shall include the calculations
necessary to satisfy the requirements set forth in clauses (i) and (ii)
above and shall also include certifications by authorized officers of
the Issuer and each Seller that to the best of such officer's
knowledge, no event has occurred since the most recent Funding (or, the
Closing Date, in the case of the Initial Funding) that would constitute
a Termination Event;
(v) the Issuer shall have deposited in the Reserve
Account, or shall have given irrevocable instructions to the Agent to
withhold from the proceeds of such Funding and to deposit in the
Reserve Account, an amount equal to the amount necessary to cause the
amount on deposit in the Reserve Account to at least equal the Required
Reserve Account Balance (calculated as if such Funding shall have
occurred);
(vi) each representation and warranty of the Issuer
herein, in the Security Agreement or in any other Transaction Document
shall be true and correct;
(vii) a Potential Termination Event or a Termination
Event shall not have occurred and be continuing (both before and after
giving effect to such Funding);
6
<PAGE> 10
(viii) an Amortization Period shall not have occurred
and be continuing (both before and after giving effect to such
Funding);
(ix) the conditions set forth in Section 2.4 of the
Security Agreement shall have been satisfied; and
(x) in connection with the Initial Funding, the
conditions precedent set forth in paragraph (f) of this Section shall
have been satisfied.
(c) Funding Request Irrevocable. The notice of the proposed
Initial Funding and any Subsequent Funding shall be irrevocable and binding on
the Issuer and the Issuer shall indemnify the Company and the Bank Investors
against any loss or expense incurred by the Company or the Bank Investors,
either directly or indirectly (including through the Liquidity Agreement) as a
result of any failure by the Issuer to complete the requested Funding including,
without limitation, any direct loss or expense incurred by the Company,
(including pursuant to the Liquidity Agreement), by reason of the liquidation or
reemployment of funds acquired by the Company (or the Liquidity Provider)
(including, without limitation, funds obtained by issuing commercial paper or
promissory notes or obtaining deposits or loans from third parties) for the
Company or the Bank Investors to complete the requested Funding.
(d) Disbursement of Funds. No later than 4:30 p.m. (New York
City time) on the date on which a Funding is to be made, the Company or the Bank
Investors, as applicable, will make available to the Issuer in immediately
available funds the amount of the Funding to be made on such day as set forth in
the related Funding Request by remitting the required amount thereof to an
account of the Issuer as designated in the related Funding Request.
(e) The Note.
(i) The Issuer's obligation to pay the principal of
and interest on all amounts advanced by the Company pursuant to any
Funding shall be evidenced by a single note of
7
<PAGE> 11
the Issuer (the "Note") which shall (1) be dated the Closing Date; (2)
be in the stated principal amount equal to the Facility Limit (as
reflected from time to time on the grid attached thereto); (3) bear
interest as provided therein; (4) be payable to the order of the Agent
for the account of the Company or the Bank Investors and mature on the
Remittance Date occurring in the fourth calendar month following the
calendar month in which the latest maturing Receivable (determined as
of the Termination Date) is scheduled to mature (without regard to
extensions subsequently granted on any Receivable by the Issuer or any
servicing agent); (5) be entitled to the benefits of the Insurance
Policy and the Security Agreement; and (6) be in the form of Exhibit C
to this Agreement, with blanks appropriately completed in conformity
herewith. The Agent shall, and is hereby authorized to, make a notation
on the schedule attached to the Note of the date and the amount of each
Funding and the date and amount of the payment of principal thereon,
and prior to any transfer of the Note, the Agent shall endorse the
outstanding principal amount of the Note on the schedule attached
thereto; provided, however, that failure to make such notation shall
not adversely affect the Company's or any Bank Investor's rights with
respect to the Note.
(ii) Although the Note shall be dated the Closing
Date, interest in respect thereof shall be payable only for the periods
during which amounts are outstanding thereunder. In addition, although
the stated principal amount of the Note shall be equal to the Facility
Limit, the Note shall be enforceable with respect to the Issuer's
obligation to pay the principal thereof only to the extent of the
unpaid principal amount of the Fundings outstanding thereunder at the
time such enforcement shall be sought.
(iii) The Note shall initially be held by the Agent
for the benefit of the Company. Upon an assignment by the Company of
its
8
<PAGE> 12
interest in the Note to the Bank Investors pursuant to Section 5.9(a)
hereof, the Agent shall hold the Note for the benefit of the Bank
Investors.
(f) Conditions Precedent. The Company's and the Bank
Investors' obligations under this Agreement are subject to the accuracy of the
representations and warranties on the part of the Issuer contained herein and in
the other Transaction Documents to which it is a party, as of the date hereof,
and as of the Closing Date (as if made on such date), to the performance by the
Issuer of its obligations under this Agreement and the other Transaction
Documents to which it is a party and to the delivery to the Agent and the
Insurance Provider of the following documents, each of which shall be in form
and substance acceptable to the Agent and the Insurance Provider on the Closing
Date:
(i) A copy of the resolutions of the Board of
Directors of each of the Issuer, each Seller and the Servicer,
certified by its Secretary approving the execution, delivery and
performance by the Issuer, each Seller and the Servicer, respectively,
of this Agreement and the other Transaction Documents to which such
Person is a party;
(ii) The Articles of Organization of the Issuer,
certified by the Secretary of State or other similar official of the
Issuer's jurisdiction of incorporation dated a date reasonably prior to
the Closing Date;
(iii) The Articles of Incorporation of each Seller
and the Servicer, certified by the Secretary of State or other similar
official of such Person's jurisdiction of incorporation dated a date
reasonably prior to the Closing Date;
(iv) A Good Standing Certificate for each of the
Issuer, each Seller and the Servicer, issued by the Secretary of State
or a similar official of such Person's jurisdiction of incorporation or
organization and certificates of qualification as a foreign corporation
9
<PAGE> 13
or limited liability company issued by the Secretaries of State or
other similar officials of each jurisdiction where such qualification
is material to the transactions contemplated by this Agreement and the
other Transaction Documents to which such Person is a party, in each
case, dated a date reasonably prior to the Closing Date;
(v) A Certificate of the Secretary of each of the
Issuer, each Seller and the Servicer certifying as to organizational
documents, bylaws, resolutions, good standing certificates, foreign
qualifications and incumbencies;
(vi) A Certificate of the Secretary of the Collateral
Agent certifying as to organizational documents, bylaws and a good
standing certificate;
(vii) A Certificate of the Secretary of each of the
Custodian, the Insurance Provider and the Back-Up Servicer certifying
as to organizational documents, bylaws, resolutions, good standing
certificates, foreign qualifications and incumbencies;
(viii) Copies of proper financing statements (Form
UCC-1) naming the Issuer as the debtor in favor of the Agent, for the
benefit of the Secured Parties, as secured party or other similar
instruments or documents as may be necessary or in the reasonable
opinion of the Agent or the Insurance Provider desirable under the UCC
of all appropriate jurisdictions or any comparable law to perfect the
Agent's undivided percentage interest in all Receivables and the
Related Security and Collections relating thereto;
(ix) Copies of proper financing statements (Form
UCC-1) naming each Seller as the debtor/seller in favor of the Issuer
as secured party/purchaser or other similar instruments or documents as
may be necessary or in the reasonable opinion of the Agent or the
10
<PAGE> 14
Insurance Provider desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Issuer's interest in
all Receivables;
(x) Copies of proper financing statements (Form
UCC-3), if any, necessary to terminate all security interests and other
rights of any person in Receivables previously granted by the Issuer;
(xi) Copies of proper financing statements (Form
UCC-3), if any, necessary to terminate all security interests and other
rights of any person in Receivables previously granted by either
Seller;
(xii) Certified copies of request for information or
copies (Form UCC-11) (or a similar search report certified by parties
acceptable to the Agent and the Insurance Provider) dated a date
reasonably near the Closing Date listing all effective financing
statements which name the Issuer or either Seller (under their
respective present names and any previous names) as debtor or seller
and which are filed in jurisdictions in which the filings were made
pursuant to items (vi) or (vii) above together with copies of such
financing statements (none of which shall cover any Receivables or
Contracts related thereto);
(xiii) An opinion of Haley & Davis, counsel to
FirstCity Funding, FCF and the Issuer, addressing certain corporate and
enforceability matters relating to FirstCity, FCF and the Issuer;
(xiv) An opinion of Haley & Davis, counsel to
FirstCity Funding, FCF and the Issuer, addressing certain security
interest matters;
(xv) An opinion of Haley & Davis, counsel to
FirstCity Funding, FCF and the Issuer, addressing the "true sale" of
the
11
<PAGE> 15
Receivables from FirstCity Funding and FCF to the Issuer;
(xvi) An opinion of Haley & Davis, counsel to
FirstCity Funding, FCF and the Issuer, addressing the
"non-consolidation" of the Issuer and FirstCity Funding, FCF and the
Parent;
(xvii) An opinion of Haley & Davis, counsel to the
FirstCity Funding, FCF and the Issuer, addressing the enforceability of
security interests against the related Financed Vehicles under Texas
law;
(xviii) An opinion of Haley & Davis, counsel to the
FirstCity Funding, FCF and the Issuer, addressing the enforceability of
security interests against the related Financed Vehicles under
California law;
(xix) An opinion of Strasburger & Price, L.L.P.,
counsel to Chase Bank of Texas, addressing certain corporate and
enforceablility matters relating to Chase as Custodian;
(xx) An opinion of Skadden, Arps, Slate, Meagher &
Flom, counsel to NationsBank, addressing certain corporate and
enforceablility matters relating to NationsBank as Collateral Agent;
(xxi) An opinion of Kutak Rock, counsel to the
Insurance Provider, addressing enforceability of the Insurance Policy;
(xxii) An opinion of Jones, Allen, & Fuquay counsel
to CSC Logic/MSA LLP d/b/a Loan Servicing Enterprise, addressing
certain corporate and enforceablility matters relating to its capacity
as Back-Up Servicer;
(xxiii) The Receivables Schedule;
(xxiv) An executed copy of this Agreement, the
Receivables Purchase
12
<PAGE> 16
Agreement(s), the Note Purchase Agreement, the Custodian Agreement, the
Note, the Insurance Agreement, the Insurance Policy, the Fee Letter and
each of the other Transaction Documents;
(xxv) An executed copy of that certain letter
agreement, dated as of March 30, 1999, by and among FirstCity Funding,
the Parent, and the Agent; and
(xxvi) Such other documents, instruments,
certificates and opinions as the Agent or the Administrative Agent,
shall reasonably request.
SECTION 2.2. The Insurance Policy. The Issuer has obtained the
Insurance Policy for the benefit of the Agent on behalf of the Company and the
Bank Investor. The Issuer acknowledges that the Agent is entitled, in accordance
with the terms thereof, to demand funds thereunder for the benefit of the
Company and the Bank Investors. The Agent shall have no liability to the Issuer,
and the Issuer shall indemnify and hold the Agent harmless, in connection with
any demands made by the Agent under the Insurance Policy except to the extent
that the Agent shall have acted with gross negligence or willful misconduct in
making any such demand. Such indemnified amounts shall be paid to the extent and
in the priority set forth in Section 5.1(a)(xi) of the Security Agreement.
SECTION 2.3. Sharing of Payments, Etc. If the Company or any
Bank Investor (for purposes of this Section only, being a "Recipient") shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of setoff, or otherwise) on account of any interest in the Note owned by
it in excess of its ratable share of payments on account of any interest in the
Note obtained by the Company and/or the Bank Investors entitled thereto, such
Recipient shall forthwith purchase from the Company and/or the Bank Investors
entitled to a share of such amount participations in the percentage interests
owned by such Persons as shall be necessary to cause such Recipient to share the
excess payment ratably with each such other Person entitled thereto; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such Recipient, such
13
<PAGE> 17
purchase from each such other Person shall be rescinded and each such other
Person shall repay to the Recipient the purchase price paid by such Recipient
for such participation to the extent of such recovery, together with an amount
equal to such other Person's ratable share (according to the proportion of (a)
the amount of such other Person's required payment to (b) the total amount so
recovered from the Recipient) of any interest or other amount paid or payable by
the Recipient in respect of the total amount so recovered.
SECTION 2.4. Fees. The Issuer shall pay, in accordance with
the Fee Letter and subject to the priority set forth in Section 5.1(a) of the
Security Agreement, the following non-refundable fees on each Remittance Date,
(i) to the Company, the Program Fee, (ii) to the Administrative Agent, the
Administrative Fee and (iii) to the Agent, the Facility Fee and (iv) to the
Agent, any accrued and unpaid commercial paper dealer or placement agent fees
described in clause (i)(d) of the definition of Carrying Costs.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.1. Representations, Warranties and Covenants of the
Issuer. The Issuer hereby makes to the Agent, the Company, the Insurance
Provider and the Bank Investors all of the representations and warranties set
forth in Section 3.1 of the Security Agreement as if each of them were set forth
in full herein, as of the Closing Date and, except as otherwise provided in any
such representation and warranty, as of each date of any Subsequent Funding.
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<PAGE> 18
ARTICLE IV
INDEMNIFICATION
SECTION 4.1. Indemnity. Without limiting any other rights
which the Agent, the Company or the Bank Investors may have hereunder or under
applicable law, the Issuer agrees to indemnify the Company, the Agent, the
Administrative Agent, the Bank Investors, the Collateral Agent, the Back-up
Servicer, the Liquidity Provider and the Credit Support Provider and any
permitted assigns and their respective agents, officers, directors and employees
(collectively, "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, costs and expenses, including reasonable attorneys'
fees (which such attorneys may be employees of the Company, any Bank Investor,
the Agent, the Collateral Agent, the Back-up Servicer, the Administrative Agent,
the Liquidity Provider or the Credit Support Provider) and disbursements (all of
the foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them arising out of or as a result of this
Agreement or the ownership, either directly or indirectly, by the Company, the
Bank Investors, the Agent, the Administrative Agent, the Liquidity Provider or
the Credit Support Provider of the Note excluding, however, (i) Indemnified
Amounts to the extent resulting from gross negligence or willful misconduct on
the part of an Indemnified Party or (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables. Such
Indemnified Amounts shall be paid solely from amounts distributed to the Issuer
in accordance with Section 5.1(a)(xiv) of the Security Agreement. Without
limiting the generality of the foregoing, the Issuer shall indemnify each
Indemnified Party for Indemnified Amounts relating to or resulting from:
(a) any representation or warranty made by the Issuer
or the Servicer (or any officers of the Issuer or the Servicer) under or in
connection with this Agreement, the Security Agreement, any Funding Request, any
Monthly Servicer's Certificate, any other Transaction Document or any other
information or report delivered by the Issuer or the Servicer pursuant hereto or
thereto, which shall have been false or incorrect in any material respect when
made or deemed made;
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(b) the failure by the Issuer or the Servicer to
comply with any applicable law, rule or regulation with respect to the
Collateral, or the nonconformity of the Collateral with any such applicable law,
rule or regulation;
(c) the failure to vest and maintain vested in the
Collateral Agent a first priority perfected security interest in the Collateral,
free and clear of any Lien;
(d) the failure to file, or any delay in filing,
financing statements, continuation statements, or other similar instruments or
documents under the UCC of any applicable jurisdiction or other applicable laws
with respect to all or any part of the Collateral in order to maintain the first
priority perfected security interest of the Collateral Agent in such Collateral;
(e) any dispute, claim, offset or defense (other than
discharge in bankruptcy of the Obligor) of the Obligor to the payment of any
Receivable (including, without limitation, a defense based on such Receivable
not being the legal, valid and binding obligation of such Obligor enforceable
against it in accordance with its terms), or any other claim resulting from the
sale of a Financed Vehicle or services related to such Receivable or the
furnishing or failure to furnish such Financed Vehicle or services;
(f) any failure of the Issuer to perform its duties
or obligations in accordance with the provisions of Articles IV and V of the
Security Agreement; or
(g) any products liability claim or personal injury
or property damage suit or other similar or related claim or action of whatever
sort arising out of or in connection with the related Financed Vehicle or
related merchandise or services which are the subject of any Receivable;
provided, however, that if the Company enters into agreements for the purchase
or financing of interests in receivables from one or more Other Transferors, the
Company shall allocate such Indemnified Amounts which are in connection with the
Liquidity Agreement or the Credit Support Agreement to the Issuer and each Other
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Transferor; and provided, further, that if such Indemnified Amounts are
attributable to the Issuer and not attributable to any Other Transferor, the
Issuer shall be solely liable for such Indemnified Amounts or if such
Indemnified Amounts are attributable to Other Transferors and not attributable
to the Issuer, such Other Transferors shall be solely liable for such
Indemnified Amounts.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED
AMOUNTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OR ANY KIND BY ANY INDEMNIFIED PARTY.
SECTION 4.2. Indemnity for Taxes, Reserves and Expenses. (a)
If, after the date hereof, the adoption of any Law or bank regulatory guideline
or any amendment or change in the interpretation of any existing or future Law
or bank regulatory guideline by any Official Body charged with the
administration, interpretation or application thereof, or the compliance with
any directive of any Official Body (in the case of any bank regulatory
guideline, whether or not having the force of Law):
(1) shall subject any Indemnified Party to any tax,
duty or other charge with respect to this Agreement, the Security Agreement, the
Note, the Net Investment, the Collateral or payments of amounts due hereunder,
or shall change the basis of taxation of payments to any Indemnified Party of
amounts payable in respect of this Agreement, the Security Agreement, the Note,
the Net Investment, the Collateral or payments of amounts due hereunder or its
obligation to advance funds under the Liquidity Agreement, the Credit Support
Agreement or otherwise in respect of this Agreement, the Security Agreement, the
Note, the Net Investment or the Collateral (except for changes in the rate of
general corporate, franchise, net income or other income tax imposed on such
Indemnified Party by the jurisdiction in which such Indemnified Party's
principal executive office is located);
(2) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
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System) against assets of, deposits with or for the account of, or credit
extended by, any Indemnified Party or shall impose on any Indemnified Party or
on the United States market for certificates of deposit or the London interbank
market any other condition affecting this Agreement, the Security Agreement, the
Note, the Net Investment, the Collateral or payments of amounts due hereunder or
its obligation to advance funds under the Liquidity Agreement, the Credit
Support Agreement or otherwise in respect of this Agreement, the Note, the Net
Investment or the Collateral; or
(3) imposes upon any Indemnified Party any other
expense (including, without limitation, reasonable attorneys' fees and expenses,
and expenses of litigation or preparation therefor in contesting any of the
foregoing) with respect to this Agreement, the Security Agreement, the Note, the
Net Investment, the Collateral or payments of amounts due hereunder or its
obligation to advance funds under the Liquidity Agreement or the Credit Support
Agreement or otherwise in respect of this Agreement, the Note, the Net
Investment or the Collateral;
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the Security Agreement, the
Note, the Net Investment, the Collateral, the obligations hereunder, the funding
of any purchases hereunder, the Liquidity Agreement or the Credit Support
Agreement, by an amount deemed by such Indemnified Party to be material, then
within 10 days after demand by the Company, the Issuer shall pay to the Company
such additional amount or amounts as will compensate such Indemnified Party for
such increased cost; provided, that no such amount shall be payable with respect
to any period commencing more than 90 days prior to the date the Company first
notifies the Issuer of its intention to demand compensation therefor under this
Section 4.2(a).
(b) If any Indemnified Party shall have determined
that after the date hereof, the adoption of any applicable Law or bank
regulatory guideline regarding capital adequacy, or any change therein, or any
change in the interpretation thereof by any Official Body, or any directive
regarding capital adequacy (in the case of any bank regulatory guideline,
whether or not having the force of law) of any such Official Body, has or would
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have the effect of reducing the rate of return on capital of such Indemnified
Party (or its parent) as a consequence of such Indemnified Party's obligations
hereunder or with respect hereto to a level below that which such Indemnified
Party (or its parent) could have achieved but for such adoption, change, request
or directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Indemnified Party to be material, then
from time to time, within 10 days after demand by the Company, the Issuer shall
pay to the Company such additional amount or amounts as will compensate such
Indemnified Party (or its parent) for such reduction; provided that no such
amount shall be payable with respect to any period commencing less than 90 days
after the date the Company first notifies the Issuer of its intention to demand
compensation under this Section 4.2(b).
(c) The Company will promptly notify the Issuer of
any event of which it has knowledge, occurring after the date hereof, which will
entitle an Indemnified Party to compensation pursuant to this Section 4.2. A
notice by the Company claiming compensation under this Section and setting forth
the additional amount or amounts to be paid to it hereunder shall be conclusive
in the absence of manifest error. In determining such amount, the Company may
use any reasonable averaging and attributing methods.
(d) Anything in this Section 4.2 to the contrary
notwithstanding, if the Company enters into agreements for the acquisition of
interests in receivables from one or more Other Transferors, the Company shall
allocate the liability for any amounts under this Section 4.2 ("Section 4.2
Costs") ratably to the Issuer and each Other Transferor; and provided, further,
that if such Section 4.2 Costs are attributable to the Issuer and not
attributable to any Other Transferor, the Issuer shall be solely liable for such
Section 4.2 Costs or if such Section 4.2 Costs are attributable to Other
Transferors and not attributable to the Issuer, such Other Transferors shall be
solely liable for such Section 4.2 Costs.
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SECTION 4.3. Other Costs, Expenses and Related Matters. The
Issuer agrees, upon receipt of a written invoice, to pay or cause to be paid
solely from amounts distributed to the Issuer, in accordance with Section
5.1(a)(xiv) of the Security Agreement and to save the Company, the Bank
Investors, the Agent, the Collateral Agent, the Back-up Servicer and the
Administrative Agent harmless against liability for the payment of, all
reasonable out-of-pocket expenses (including, without limitation, attorneys',
accountant's and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of the Company or any Bank Investor)
incurred by or on behalf of the Company, any Bank Investor, the Agent, the
Collateral Agent, the Back-up Servicer and the Administrative Agent (i) in
connection with the negotiation, execution, delivery and preparation of this
Agreement, the Note and the Security Agreement and any documents or instruments
delivered pursuant hereto or thereto and the transactions contemplated hereby
and thereby and (ii) from time to time (a) relating to any amendments, waivers
or consents under this Agreement, the Note and the Security Agreement, (b)
arising in connection with the Company's, any Bank Investor's or their agent's
enforcement or preservation of rights (including, without limitation, the
perfection and protection of the Collateral Agent's security interest in the
Collateral), or (c) arising in connection with any audit, dispute, disagreement,
litigation or preparation for litigation involving this Agreement (all of such
amounts, collectively, "Transaction Costs").
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ARTICLE V
THE AGENT; BANK COMMITMENT
SECTION 5.1. Authorization and Action. (a) The Company and
each Bank Investor hereby irrevocably appoints and authorizes the Agent to act
as its agent under this Agreement and the other Transaction Documents with such
powers and discretion as are specifically delegated to the Agent by the terms of
this Agreement and the other Transaction Documents, together with such other
powers as are reasonably incidental thereto. The Agent (which term as used in
this sentence and in Section 5.4 and the first sentence of Section 5.3 hereof
shall include its affiliates and its own and its affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Agreement and shall
not be a trustee or fiduciary for the Company or any Bank Investor; (b) shall
not be responsible to the Company or any Bank Investor for any recital,
statement, representation, or warranty (whether written or oral) made in or in
connection with any Transaction Document or any certificate or other document
referred to or provided for in, or received by any of them under, any
Transaction Document, or for the value, validity, effectiveness, genuineness,
enforceability, or sufficiency of any Transaction Document, or any other
document referred to or provided for therein or for any failure by any of the
Issuer, either Seller or the Servicer or any other Person to perform any of its
obligations thereunder; (c) shall not be responsible for or have any duty to
ascertain, inquire into, or verify the performance or observance of any
covenants or agreements by any of the Issuer, either Seller or the Servicer or
the satisfaction of any condition or to inspect the property (including the
books and records) of any of the Issuer, either Seller or the Servicer or any of
their Subsidiaries or affiliates; (d) shall not be required to initiate or
conduct any litigation or collection proceedings under any Transaction Document;
and (e) shall not be responsible for any action taken or omitted to be taken by
it under or in connection with any Transaction Document, except for its own
gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
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SECTION 5.2. Agent's Reliance, Etc. The Agent shall be
entitled to rely upon any certification, notice, instrument, writing, or other
communication (including, without limitation, any thereof by telephone or
telecopy) believed by it to be genuine and correct and to have been signed, sent
or made by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel for any of the Issuer, either
Seller or the Servicer), independent accountants, and other experts selected by
the Agent. As to any matters not expressly provided for by this Agreement, the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Majority
Investors, and such instructions shall be binding on the Company and all of the
Bank Investors; provided, however, that the Agent shall not be required to take
any action that exposes the Agent to personal liability or that is contrary to
any Transaction Document or applicable law or unless it shall first be
indemnified to its satisfaction by the Bank Investors against any and all
liability and expense which may be incurred by it by reason of taking any such
action.
SECTION 5.3. Non-Reliance. The Company and each Bank Investor
agrees that it has, independently and without reliance on the Agent or the
Company or any Bank Investor, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Issuer, each Seller
and the Servicer and their Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent,
the Company or any Bank Investor, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Transaction Documents. Except
for notices, reports, and other documents and information expressly required to
be furnished to the Company and the Bank Investors by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide the Company or any
Bank Investor with any credit or other information concerning the affairs,
financial condition, or business of any of the Issuer, the Sellers or the
Servicer or any of their Subsidiaries or affiliates that may come into the
possession of the Agent or any of its affiliates.
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SECTION 5.4. Indemnification of the Agent. The Bank Investors
agree to indemnify the Agent (to the extent not reimbursed by the Issuer),
ratably in accordance with their Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including attorneys' fees), or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent (including by the Company or any Bank Investor) in any way relating to or
arising out of this Agreement or any other Transaction Document or the
transactions contemplated thereby or any action taken or omitted by the Agent
under this Agreement or any other Transaction Document; provided that no Bank
Investors shall be liable for any of the foregoing to the extent they arise from
the gross negligence or willful misconduct of the Person indemnified. Without
limitation of the foregoing, the Bank Investors agree to reimburse the Agent,
ratably in accordance with their Pro Rata Shares, promptly upon demand for any
out-of-pocket expenses (including attorneys' fees) incurred by the Agent in
connection with the administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement and the
other Transaction Documents, to the extent that such expenses are incurred in
the interests of or otherwise in respect of the Bank Investors hereunder and/or
thereunder and to the extent that the Agent is not reimbursed for such expenses
by the Issuer. The agreements contained in this Section shall survive payment in
full of the Net Investment and all other amounts payable under this Agreement.
SECTION 5.5. Termination Events. The Agent shall not be deemed
to have knowledge or notice of the occurrence of a Potential Termination Event
or a Termination Event unless the Agent has received written notice from the
Company, any Bank Investor, the Servicer or the Issuer specifying such Potential
Termination Event or Termination Event and stating that such notice is a "Notice
of Termination Event". In the event that the Agent receives such a notice of the
occurrence of a Potential Termination Event or Termination Event, the Agent
shall give prompt notice thereof to the Company and each Bank Investor. The
Agent shall (subject to Section 5.2 hereof) take such action with respect to
such Potential Termination Event or Termination Event as shall reasonably be
directed by the Majority Investors;
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provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Potential Termination Event or
Termination Event as it shall deem advisable in the best interest of the Company
and the Bank Investors.
SECTION 5.6. Rights as Bank Investor. With respect to its
Commitment, NationsBank (and any successor acting as Agent) in its capacity as a
Bank Investor hereunder shall have the same rights and powers hereunder as any
other Bank Investor and may exercise the same as though it were not acting as
the Agent, and the term "Bank Investor" or "Bank Investors" shall, unless the
context otherwise indicates, include the Agent in its individual capacity.
NationsBank (and any successor acting as Agent) and its affiliates may (without
having to account therefor to the Company or any Bank Investor) accept deposits
from, lend money to, make investments in, provide services to, and generally
engage in any kind of lending, trust, or other business with any of the Issuer,
the Sellers and the Servicer or any of their Subsidiaries or affiliates as if it
were not acting as Agent, and NationsBank (and any successor acting as Agent)
and its affiliates may accept fees and other consideration from any of the
Issuer, the Sellers and the Servicer or any of their Subsidiaries or affiliates
for services in connection with this Agreement or otherwise without having to
account for the same to the Company or any Bank Investor.
SECTION 5.7. Resignation of Agent. The Agent may resign at any
time by giving notice thereof to the Company, the Bank Investors and the Issuer.
Upon any such resignation, the Bank Investors which hold Commitments aggregating
in excess of 51% of the Facility Limit as of such date shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
and shall have accepted such appointment within thirty (30) days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Company and the Bank Investors, appoint a successor Agent which
shall be a commercial bank organized under the laws of the United States of
America having combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor, such successor
shall thereupon succeed to and become vested with all the rights, powers,
discretion, privileges, and duties of the retiring Agent, and the retiring Agent
shall be
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discharged from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article V shall continue
in effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
SECTION 5.8. Payments by the Agent. Unless specifically
allocated to a Bank Investor pursuant to the terms of this Agreement, all
amounts received by the Agent on behalf of the Bank Investors shall be paid by
the Agent to the Bank Investors (at their respective accounts specified in their
respective Assignment and Assumption Agreements) in accordance with their
respective related pro rata interests in the Net Investment on the Business Day
received by the Agent, unless such amounts are received after 12:00 noon on such
Business Day, in which case the Agent shall use its reasonable efforts to pay
such amounts to the Bank Investors on such Business Day, but, in any event,
shall pay such amounts to the Bank Investors in accordance with their respective
related pro rata interests in the Net Investment not later than the following
Business Day.
SECTION 5.9. Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment. At any time on or prior to the
Termination Date, in the event that the Company does not make a Subsequent
Funding as requested under Section 2.1, then at any time, the Issuer shall have
the right to require the Company to assign its interest in the Note in whole to
the Bank Investors pursuant to this Section 5.9. In addition, at any time on or
prior to the Commitment Termination Date (i) upon the occurrence of a
Termination Event, (ii) upon the occurrence of an event which would cause a
Termination Date but for the fact that the Company shall have assigned its
interest in the Note to the Bank Investors, or (iii) the Company elects to give
notice to the Issuer and the Insurance Provider that it elects to cease making
Fundings under this Agreement, the Issuer hereby requests and directs that the
Company assign its interest in the Note in whole to the Bank Investors pursuant
to this Section 5.9 and the Issuer hereby agrees to pay the amounts described in
Section 5.9(d) below. No further documentation or action on the part of the
Company shall be required to exercise the rights set forth in the immediately
preceding sentence, other than, in the case of clause (i) of such sentence,
receipt of notice by the
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Bank Investors from the Agent that a Termination Event has occurred or, in the
case of clause (ii) of such sentence, the giving of the notice set forth in such
clause and the delivery by the Agent of a copy of such notice to each Bank
Investor (the date of the receipt of a notice referred to in such clauses being
the "Effective Date"). Each Bank Investor hereby agrees, unconditionally and
irrevocably and under all circumstances, without setoff, counterclaim or defense
of any kind, to pay the full amount of its Assignment Amount on such Effective
Date to the Company in immediately available funds to an account designated by
the Agent. Upon payment of its Assignment Amount, each Bank Investor shall
acquire its Pro Rata Share of the Note and shall assume its respective portion
of the Company's obligations hereunder, and the Company shall be released from
such portion of such obligations. If, by 2:00 P.M. (New York time) on the
Effective Date, one or more Bank Investors (each, a "Defaulting Bank Investor",
and each Bank Investor other than any Defaulting Bank Investor being referred to
as a "Non-Defaulting Bank Investor") fails to pay its Assignment Amount (the
aggregate amount not so made available to the Company being herein called the
"Assignment Amount Deficit"), then the Agent shall, by no later than 2:30 P.M.
(New York time) on the Effective Date, instruct each Non-Defaulting Bank
Investor to pay, by no later than 3:00 P.M. (New York time) on the Effective
Date, in immediately available funds, to the account designated by the Company,
an amount equal to the lesser of (x) such Non-Defaulting Bank Investor's
proportionate share (based upon the relative Commitments of the Non-Defaulting
Bank Investors) of the Assignment Amount Deficit and (y) its unused Commitment.
A Defaulting Bank Investor shall forthwith, upon demand, pay to the Agent for
the ratable benefit of the Non-Defaulting Bank Investors all amounts paid by
each Non-Defaulting Bank Investor on behalf of such Defaulting Bank Investor,
together with interest thereon for each day from the date a payment was made by
a Non-Defaulting Bank Investor until the date such Non- Defaulting Bank Investor
has been paid such amounts in full at a rate per annum equal to the rate
determined in accordance
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with clause (i) of the definition of "Base Rate" plus two percent (2%). In
addition, if, after giving effect to the provisions of the immediately preceding
sentence, any Assignment Amount Deficit continues to exist, each such Defaulting
Bank Investor shall pay interest to the Agent on such Defaulting Bank Investor's
portion of such remaining Assignment Amount Deficit, at a rate per annum equal
to the rate determined in accordance with clause (i) of the definition of "Base
Rate" plus two percent (2%), for each day from the Effective Date until the date
such Defaulting Bank Investor shall pay its portion of such remaining Assignment
Amount Deficit in full to the Company. Upon any assignment by the Company to the
Bank Investors contemplated hereunder, the Company shall cease to make any
additional Fundings hereunder.
(b) Assignment by a Bank Investor. No Bank Investor
may assign all or any portion of its interest in the Note and its rights and
obligations hereunder to any Person unless approved in writing by the
Administrative Agent on behalf of the Company and the Agent. In connection with
any such assignment by a Bank Investor to another Person, the assignor shall
deliver to the assignee(s) an Assignment and Assumption Agreement, duly
executed, assigning to the assignee all or any portion of (A) such assignor's
Commitment and other obligations hereunder and (B) such assignor's pro rata
interest in the Note and the assignor's rights and obligations hereunder and the
assignor shall promptly execute and deliver all further instruments and
documents, and take all further action, that the assignee may reasonably
request, in order to protect, or more fully evidence the assignee's right, title
and interest in and to such interest and to enable the Agent, on behalf of such
assignee, to exercise or enforce any rights hereunder and under the other
Transaction Documents to which such assignor is or, immediately prior to such
assignment, was a party. Upon any such assignment, (i) the assignee shall have
all of the rights and obligations of the assignor hereunder and under the other
Transaction Documents to which such assignor is or, immediately prior to such
assignment, was a party with respect to such assignor's Commitment and interest
in the Note for all purposes of this Agreement and under the other Transaction
Documents to which such assignor is or, immediately prior to such assignment,
was a party, and (ii) the assignor shall have no further obligations with
respect to the portion of its Commitment hereunder which has been assigned and
shall relinquish its rights with respect to the portion of its interest in the
Note which has been assigned for all purposes of this Agreement and under the
other Transaction Documents to which such assignor is or, immediately prior to
such assignment, was a party. No such assignment shall be effective unless a
fully executed copy of the related Assignment and Assumption Agreement shall be
delivered to the Agent and the Issuer. All reasonable costs and expenses of the
Agent and the
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assignor incurred in connection with any assignment hereunder shall be borne by
the Issuer and not by the assignor or any such assignee. No Bank Investor shall
enter into any Assignment and Assumption Agreement hereunder without also
simultaneously assigning an equal portion of its interest in the Liquidity
Agreement.
(c) Effects of Assignment. By executing and
delivering an Assignment and Assumption Agreement, the assignor and assignee
thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Assumption Agreement,
the assignor makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with this Agreement, the other Transaction Documents or any other
instrument or document furnished pursuant hereto or thereto or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, the other Transaction Documents or any such other instrument or
document; (ii) the assignor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Issuer, the
Sellers or the Insurance Provider or the performance or observance by the
Issuer, the Sellers or the Insurance Provider of any of its obligations under
this Agreement, the Security Agreement, the Receivables Purchase Agreement(s) or
any other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, the Security Agreement,
the Receivables Purchase Agreement(s), the Insurance Policy and such other
instruments, documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Assumption
Agreement and to purchase such interest; (iv) such assignee will, independently
and without reliance upon the Agent, or any of its Affiliates, or the assignor
and based on such agreements, Transaction Documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Transaction
Documents; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement,
the other Transaction Documents and any other instrument or document furnished
pursuant hereto or thereto as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto and to
enforce its
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respective rights and interests in and under this Agreement, the Security
Agreement and the other Transaction Documents; (vi) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Transaction Documents are required to be
performed by it as the assignee of the assignor; and (vii) such assignee agrees
that it will not institute against the Company any proceeding of the type
referred to in Section 6.6 prior to the date which is one year and one day after
the payment in full of all Commercial Paper issued by the Company or Conduit
Assignee.
(d) Issuer's Obligation to Pay Certain Amounts;
Additional Assignment Amount. The Issuer shall pay to the Agent, for the account
of the Company, in connection with any assignment by the Company to the Bank
Investors pursuant to this Section 5.9, an aggregate amount equal to all
Carrying Costs to accrue with respect to obligations already entered into by the
Company as a result of or in connection with this Agreement. If the Issuer fails
to make payment of such amounts at or prior to the time of assignment by the
Company to the Bank Investors, such amount shall be paid by the Bank Investors
(in accordance with their respective Pro Rata Shares) to the Company as
additional consideration for the interests assigned to the Bank Investors and
the amount of the Net Investment hereunder held by the Bank Investors shall be
increased by an amount equal to the additional amount so paid by the Bank
Investors. Amounts paid by the Issuer pursuant to this Section 5.9(d) shall only
be paid to the extent of the Collateral.
(e) Administration of Agreement After Assignment.
After any assignment by the Company to the Bank Investors pursuant to this
Section 5.9 (and the payment of all amounts owing to the Company in connection
therewith), all rights of the Administrative Agent and the Collateral Agent set
forth herein shall be deemed to be afforded to the Agent on behalf of the Bank
Investors instead of any such party.
(f) Payments. After any assignment by the Company to
the Bank Investors pursuant to this Section 5.9, all payments to be made
hereunder by the Issuer to the Bank Investors shall be made to the Agent's
account as such account shall have been notified to the Issuer. In the event
that the aggregate of the Assignment Amounts paid by the Bank Investors pursuant
to
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Section 5.9(a) is less than the Net Investment of the Company on the date of
such assignment, then to the extent payments made hereunder in respect of the
Net Investment exceed the aggregate of the Assignment Amounts, such excess shall
be remitted by the Agent to the Company.
(g) Downgrade of Bank Investor. If at any time prior
to any assignment by the Company to the Bank Investors as contemplated pursuant
to this Section 5.9, the short term debt rating of any Bank Investor shall be
"A-2" or "P-2" from S&P or Moody's, respectively, such Bank Investor, upon
request of the Agent, shall, within 30 days of such request, assign its rights
and obligations hereunder to another financial institution (which institution's
short term debt shall be rated at least "A-2" and "P-2" from S&P and Moody's,
respectively, and which shall not be so rated with negative credit implications
and which is acceptable to the Company and the Agent). If the short term debt
rating of a Bank Investor shall be "A-3" or "P-3", or lower, from S&P or
Moody's, respectively (or such rating shall have been withdrawn by S&P's or
Moody's), such Bank Investor, upon request of the Agent, shall, within five (5)
Business Days of such request, assign its rights and obligations hereunder to
another financial institution (which institution's short term debt shall be
rated at least "A-2" and "P-2" from S&P and Moody's, respectively, and which is
acceptable to the Company and the Agent). In either such case, if any such Bank
Investor shall not have assigned its rights and obligations under this Agreement
within the applicable time period described above, the Company shall have the
right to require such Bank Investor to pay to the Agent an amount equal to such
Bank Investor's Commitment for deposit by the Agent into an account, in the name
of the Agent, which shall be in satisfaction of such Bank Investor's obligations
to make Subsequent Fundings and to pay its Assignment Amount upon an assignment
in accordance with the applicable provisions of this Section 5.9. The amount on
deposit in such account shall be invested by the Agent in Eligible Investments
and such Eligible Investments shall be selected by the Agent in its sole
discretion. The Agent shall remit to such Bank Investor, monthly, the income
thereon. Nothing in the two preceding sentences shall affect or diminish in any
way any such downgraded Bank Investor's commitment to the Issuer or the Company
or such downgraded Bank Investor's other obligations and liabilities hereunder
and under the other Transaction Documents.
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<PAGE> 34
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Notices, etc. Except where telephonic
instructions or notices are authorized herein to be given, all notices, demands,
instructions and other communications required or permitted to be given to or
made upon any party hereto shall be in writing and shall be sent by facsimile
transmission with a confirmation of the receipt thereof and shall be deemed to
be given for purposes of this Agreement on the day that the receipt of such
facsimile transmission is confirmed in accordance with the provisions of this
Section 6.1. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses indicated below,
and, in the case of telephonic instructions or notices, by calling the telephone
number or numbers indicated for such party below:
If to the Company:
Enterprise Funding Corporation
c/o Global Securitization Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: Kevin Burns
Telephone: (212) 302-8331
Telecopy: (212) 302-8767
(with a copy to the Administrative Agent)
If to the Issuer:
FCAR RECEIVABLES LLC
6400 Imperial Drive (express delivery only)
P.O. Box 8216 (mail)
Waco, Texas 76714
Attention: Richard Vander Woude
Telephone: (254) 751-1750
Telecopy: (254) 751-7725
31
<PAGE> 35
If to the Collateral Agent or the Agent:
NationsBank N.A.
Bank of America Corporate
Center - 10th Floor
100 North Tryon Street
NC1-007-10-01
Charlotte, North Carolina 28255-0001
Attention: Michelle M. Heath
Global Asset Backed Securitization
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Insurance Provider:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio
Management - SF (FCAR
RECEIVABLES LLC
Warehouse Facility 1999)
Telephone: (914) 273-4545
Telecopy: (914) 765-3810
SECTION 6.2. Successors and Assigns. (a) This Agreement shall
be binding upon the Issuer and the Company and their respective successors and
assigns and shall inure to the benefit of the Issuer, and the Company and their
respective successors and assigns including the Liquidity Provider; provided
that the Issuer shall not assign any of its rights or obligations hereunder
without the prior written consent of the Company, the Collateral Agent and the
Surety Bond Provider. The Issuer hereby acknowledges that the Company has
assigned and granted a security interest in all of its rights hereunder and
under the Note to the EFC Collateral Agent. In addition, the Issuer hereby
acknowledges that the Company may at any time and from time to time assign all
or a portion of its rights hereunder to the Liquidity Provider pursuant to the
Liquidity Agreement. Except as expressly permitted hereunder or in the
agreements establishing the Company's commercial paper program, the Company
shall not assign any of its rights or obligations hereunder without the prior
written consent of the Issuer.
32
<PAGE> 36
(b) Without limiting the foregoing, the Company may,
from time to time, with prior or concurrent notice to Issuer and Servicer, in
one transaction or a series of transactions, assign all or a portion of the Net
Investment and its rights and obligations under this Agreement and any other
Transaction Documents to which it is a party to a Conduit Assignee. Upon and to
the extent of such assignment by the Company to a Conduit Assignee, (i) such
Conduit Assignee shall be the owner of the assigned portion of the Net
Investment, (ii) the related administrative agent for such Conduit Assignee will
act as the administrative agent for such Conduit Assignee, with all
corresponding rights and powers, express or implied, granted to the
Administrative Agent hereunder or under the other Transaction Documents, (iii)
such Conduit Assignee and its liquidity support provider(s) and credit support
provider(s) and other related parties shall have the benefit of all the rights
and protections provided to the Company and its Liquidity Provider(s) and Credit
Support Provider(s), respectively, herein and in the other Transaction Documents
(including, without limitation, any limitation on recourse against such Conduit
Assignee or related parties, any agreement not to file or join in the filing of
a petition to commence an insolvency proceeding against such Conduit Assignee,
and the right to assign to another Conduit Assignee as provided in this
paragraph), (iv) such Conduit Assignee shall assume all (or the assigned or
assumed portion) of the Company's obligations, if any, hereunder or any other
Transaction Document, and the Company shall be released from such obligations,
in each case to the extent of such assignment, and the obligations of the
Company and such Conduit Assignee shall be several and not joint, (v) all
distributions in respect of the Net Investment shall be made to the applicable
agent or administrative agent, as applicable, on behalf of the Company and such
Conduit Assignee on a pro rata basis according to their respective interests,
(vi) the defined terms and other terms and provisions of this Agreement and the
other Transaction Documents shall be interpreted in accordance with the
foregoing, and (vii) if requested by the Agent or administrative agent with
respect to the Conduit Assignee, the parties will execute and deliver such
further agreements and documents and take such other actions as the Agent or
such administrative agent may reasonably request to evidence and give effect to
the foregoing. No Assignment by the Company to a Conduit Assignee of all or any
portion of the Net Investment shall in any way diminish the related Bank
Investors' obligation under Section
33
<PAGE> 37
2.1 to make any Funding not made by the Company or such Conduit Assignee or
under Section 5.9 to acquire from the Company or such Conduit Assignee all or
any portion of the Net Investment.
(c) In the event that the Company makes
an assignment to a Conduit Assignee in accordance with Section 6.2(b) hereof,
the Bank Investors: (i) if requested by NationsBank, shall terminate their
participation in the Liquidity Agreement to the extent of such assignment, (ii)
if requested by NationsBank, shall execute a participation agreement with
respect to the liquidity provider agreement related to such Conduit Assignee, to
the extent of such assignment, the terms of which shall be substantially similar
to those of the participation agreement entered into by such Bank Investor with
respect to the Liquidity Agreement (or which shall be otherwise reasonably
satisfactory to NationsBank and the Bank Investors), (iii) if requested by the
Company, shall enter into such agreements as requested by the Company pursuant
to which they shall be obligated to provide funding to the Conduit Assignee on
substantially the same terms and conditions as is provided for in this Agreement
in respect of the Company (or which agreements shall be otherwise reasonably
satisfactory to the Company and the Bank Investors), and (iv) shall take such
actions as the Agent shall reasonably request in connection therewith.
(d) Each of the Issuer and each Seller hereby agrees
and consents to the assignment by the Company from time to time of all or any
part of its rights under, interest in and title to this Agreement, the Net
Investment and the Note to any Liquidity Provider. In addition, each of the
Issuer and each Seller hereby consents to and acknowledges the assignment by the
Company of all of its rights under, interest in and title to this Agreement, the
Net Investment and the Note to the Agent. No such assignment shall in any way
diminish the Bank Investors' obligation under Section 2.1 to make any Funding
not made by the Company or under Section 5.9 to acquire from the Company all or
any portion of the Net Investment.
SECTION 6.3. Severability Clause. Any provisions of this
Agreement which are prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
34
<PAGE> 38
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 6.4. Amendments; Governing Law. THIS AGREEMENT AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER MAY NOT BE CHANGED ORALLY BUT
ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTIES HERETO PROVIDED; THAT THE
WRITTEN CONSENT OF THE INSURANCE PROVIDER SHALL BE REQUIRED PRIOR TO ANY
AMENDMENT OR MODIFICATION OF SECTIONS 2.1(b), 4.2, 4.3, 5.8, 6.4, 6.6 OR 6.8 OF
THIS AGREEMENT AND PRIOR TO ANY AMENDMENT OR MODIFICATION WHICH SHALL MATERIALLY
AND ADVERSELY AFFECT THE RIGHTS OR OBLIGATIONS OF THE INSURANCE PROVIDER;
PROVIDED, FURTHER, THAT THE PARTIES HEREUNDER MAY AMEND OR MODIFY ANY PROVISION
OF THIS AGREEMENT UPON THE OCCURRENCE AND CONTINUANCE OF AN INSURANCE PROVIDER
DEFAULT WITHOUT THE WRITTEN CONSENT OF THE INSURANCE PROVIDER; PROVIDED, THAT NO
SUCH AMENDMENT SHALL INCREASE THE AMOUNT OUTSTANDING UNDER THE NOTE OR THE
AMOUNT DUE AND PAYABLE AS ENHANCED YIELD THEREUNDER; PROVIDED THAT NO SUCH
AMENDMENT SHALL, UNLESS SIGNED BY EACH BANK INVESTOR DIRECTLY AFFECTED THEREBY,
(A) INCREASE THE COMMITMENT OF A BANK INVESTOR, (B) REDUCE THE NET INVESTMENT OR
RATE OF INTEREST TO ACCRUE THEREON OR ANY FEES OR OTHER AMOUNTS PAYABLE
HEREUNDER, (C) POSTPONE ANY DATE FIXED FOR THE PAYMENT OF ANY SCHEDULED
DISTRIBUTION IN RESPECT OF THE NET INVESTMENT OR INTEREST WITH RESPECT THERETO
OR ANY FEES OR OTHER AMOUNTS PAYABLE HEREUNDER OR FOR TERMINATION OF ANY
COMMITMENT, (D) CHANGE THE PERCENTAGE OF THE COMMITMENTS OR THE NUMBER OF BANK
INVESTORS, WHICH SHALL BE REQUIRED FOR THE BANK INVESTORS OR ANY OF THEM TO TAKE
ANY ACTION UNDER THIS SECTION OR ANY OTHER PROVISION OF THIS AGREEMENT, (E)
RELEASE ALL OR SUBSTANTIALLY ALL OF THE PROPERTY WITH RESPECT TO WHICH A
SECURITY OR OWNERSHIP INTEREST THEREIN HAS BEEN GRANTED HEREUNDER TO THE
COLLATERAL AGENT OR (F) EXTEND OR PERMIT THE EXTENSION OF THE COMMITMENT
TERMINATION DATE. IN THE EVENT THE COLLATERAL AGENT REQUESTS THE COMPANY'S OR A
BANK INVESTOR'S CONSENT PURSUANT TO THE FOREGOING PROVISIONS AND THE COLLATERAL
AGENT DOES NOT RECEIVE A CONSENT (EITHER POSITIVE OR
35
<PAGE> 39
NEGATIVE) FROM THE COMPANY OR SUCH BANK INVESTOR WITHIN 10 BUSINESS DAYS OF THE
COMPANY'S OR BANK INVESTOR'S RECEIPT OF SUCH REQUEST, THEN THE COMPANY OR SUCH
BANK INVESTOR (AND ITS PERCENTAGE INTEREST HEREUNDER) SHALL BE DISREGARDED IN
DETERMINING WHETHER THE COLLATERAL AGENT SHALL HAVE OBTAINED SUFFICIENT CONSENT
HEREUNDER.
SECTION 6.5. No Bankruptcy Petition Against the Company. The
Issuer covenants and agrees that, prior to the date which is one year and one
day after the payment in full of all Commercial Paper issued by the Company or
Conduit Assignee, it will not institute against, join any other Person in
instituting against, or knowingly or intentionally cooperate with or encourage
any other Person in instituting against, the Company or Conduit Assignee, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any federal or state bankruptcy or similar law.
SECTION 6.6. No Proceedings. Each party hereto hereby agrees
that it will not institute against, join any other Person in instituting
against, or knowingly or intentionally cooperate with or encourage any other
Person in instituting against, the Issuer, any bankruptcy or insolvency
proceeding so long as there shall not have elapsed one year plus one day after
payment in full of the Note and payment in full of all amounts due to the
Insurance Provider under the Transaction Documents.
SECTION 6.7. Setoff. The Issuer hereby irrevocably and
unconditionally waives all right of setoff that it may have under contract
(including this Agreement), applicable law or otherwise with respect to any
funds or monies of the Company at any time held by or in the possession of the
Company in the accounts established pursuant to the Security Agreement.
SECTION 6.8. No Recourse Against Issuer. The Issuer shall not
be liable for any amounts due under this Agreement, the Note, the Insurance
Agreement or the Security Agreement, except to the extent of the Collateral, or
for any losses suffered by the Company in respect of the Note. The foregoing
sentence shall not relieve the Issuer from any liability hereunder or under the
Security Agreement with respect to its representations and warranties. All
amounts due from the Issuer
36
<PAGE> 40
under this Agreement shall be payable solely in accordance with Section 5.1(a)
of the Security Agreement.
SECTION 6.9. Further Assurances. The Issuer agrees to do such
further acts and things and to execute and deliver to the Company or the
Collateral Agent such additional assignments, agreements, powers and instruments
as are required by the Company to carry into effect the purposes of this
Agreement or the Security Agreement or to better assure and confirm unto the
Company or the Collateral Agent its rights, powers and remedies hereunder or
thereunder.
SECTION 6.10. No Recourse Against Company. Notwithstanding
anything to the contrary contained in this Agreement, the obligations of the
Company under this Agreement and all other Transaction Documents are solely the
corporate obligations of the Company and shall be payable solely to the extent
of funds received from the Issuer in accordance herewith or from any party to
any Transaction Document in accordance with the terms thereof in excess of funds
necessary to pay matured and maturing Commercial Paper.
SECTION 6.11. Governing Law; Submission to Jurisdiction;
Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE ISSUER HEREBY SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE
CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Issuer
hereby irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 6.11 shall affect the right of the Company to bring any action or
proceeding against the Issuer or its property in the courts of other
jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY
37
<PAGE> 41
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE AMONG ANY OF THEM
ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION
DOCUMENTS.
(c) This Agreement contains the final and complete integration
of all prior expressions by the parties hereto with respect to the subject
matter hereof and shall constitute the entire Agreement among the parties hereto
with respect to the subject matter hereof superseding all prior oral or written
understandings.
SECTION 6.12. Counterparts. This Agreement may be executed in
any number of copies, and by the different parties hereto on the same or
separate counterparts, each of which shall be deemed to be an original
instrument.
SECTION 6.13. Headings. Section headings used in this
Agreement are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement.
SECTION 6.14. Subrogation. The parties hereto each acknowledge
that, to the extent of any payment made under the Insurance Policy, the
Insurance Provider shall be fully subrogated to the extent of such payment, to
the rights of the Agent, the Company and the Bank Investors to any moneys paid
or payable to such holder in respect of the corresponding amounts due on such
Note and under this Agreement (it being understood that the Insurance Provider
shall be entitled to payments in respect of such subrogation only to the extent
that no amounts are at such time due and payable to the Agent, for the benefit
of the Company or the Bank Investors, under the Note). The parties hereto each
agree to such subrogation and each further agree to execute such instruments and
to take such actions as, in the reasonable judgment of the Insurance Provider,
are necessary to evidence such subrogation and to perfect the rights of the
Insurance Provider to receive any money paid or payable hereunder, under the
Note, this Agreement and the Insurance Agreement.
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Note
Purchase Agreement to be executed and delivered as of the day first written
above.
FCAR RECEIVABLES LLC
as Issuer
By: _____________________________
Name:
Title:
ENTERPRISE FUNDING CORPORATION,
as Company
By: _____________________________
Name:
Title:
NATIONSBANK, N.A., as Agent and
as a Bank Investor
$100,000,000 By: _____________________________
Commitment Name:
Title:
<PAGE> 43
EXHIBIT 10.30
- -------------------------------------------------------------------------------
SECURITY AGREEMENT
among
FCAR RECEIVABLES LLC,
as Debtor,
ENTERPRISE FUNDING CORPORATION,
as Company,
CSC LOGIC/MSA LLP d/b/a/LOAN SERVICING ENTERPRISE
as Back-Up Servicer,
MBIA INSURANCE CORPORATION,
as Insurance Provider,
NATIONSBANK, N.A.,
individually and as Collateral Agent,
and
FIRSTCITY FUNDING CORPORATION,
as Servicer
Dated as of March 30, 1999
- -------------------------------------------------------------------------------
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Definitions.............................................2
ARTICLE II
GRANT OF SECURITY INTEREST
SECTION 2.1 Grant of Security Interest.............................43
SECTION 2.2 Re-Liening Trigger.....................................46
SECTION 2.3 Subrogation............................................46
SECTION 2.4 Increase in Principal Amount of Note...................47
SECTION 2.5 Release of Contracts...................................49
SECTION 2.6 Collection Account.....................................51
SECTION 2.7 Reserve Account; Withdrawals; Releases;
Draws on Policy........................................53
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEBTOR, THE SERVICER AND THE SUBSERVICER
SECTION 3.1 Representations and Warranties of the
Debtor.................................................56
SECTION 3.2 Covenants of the Debtor................................60
SECTION 3.3 Representations and Warranties of the
Servicer...............................................73
SECTION 3.4 Covenants of the Servicer..............................76
SECTION 3.5 Representations and Warranties of the
Back-Up Servicer.......................................85
SECTION 3.6 Covenants of the Back-Up Servicer......................87
ARTICLE IV
SERVICING AND ADMINISTRATION
SECTION 4.1 Servicing..............................................89
SECTION 4.2 Duties of the Servicer.................................94
SECTION 4.3 Servicer Events of Default............................100
SECTION 4.4 Indemnity by the Servicer.............................101
SECTION 4.5 Merger or Consolidation of, or Assumption
of Obligations of, or Resignation of
Servicer..............................................102
</TABLE>
i
<PAGE> 45
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 4.6 Rights Prior to Assumption of Duties by
Back-Up Servicer or Designation of
Successor Servicer......................................104
SECTION 4.7 Rights After Assumption of Duties by
Back-Up Servicer or Designation of
Successor Servicer......................................106
SECTION 4.8 Liability of the Back-Up Servicer.......................107
SECTION 4.9 Responsibilities of the Debtor..........................108
SECTION 4.10 Monthly Servicer's Certificate..........................108
SECTION 4.11 Monthly Back-Up Servicer's Certificate..................109
SECTION 4.12 Servicer Expenses.......................................109
ARTICLE V
ALLOCATION AND APPLICATION
OF COLLECTIONS; RESERVE ACCOUNT
SECTION 5.1 Collections.............................................110
SECTION 5.2 Remittances to the Secured Parties......................114
ARTICLE VI
TERMINATION EVENTS; SERVICING TERMINATION
SECTION 6.1 Termination Events......................................115
SECTION 6.2 Remedies................................................118
SECTION 6.3 Application of Proceeds.................................120
ARTICLE VII
THE COLLATERAL AGENT
SECTION 7.1 Duties of the Collateral Agent..........................122
SECTION 7.2 Compensation and Indemnification of
Collateral Agent........................................123
SECTION 7.3 Representations, Warranties and
Covenants of the Collateral Agent.......................124
SECTION 7.4 Liability of the Collateral Agent.......................125
SECTION 7.5 Merger, Conversion, Consolidation of,
or Succession to Business of, the
Collateral Agent........................................128
SECTION 7.6 Limitation on Liability of the
Collateral Agent and Others.............................129
</TABLE>
ii
<PAGE> 46
<TABLE>
<CAPTION>
ARTICLE VIII
MISCELLANEOUS
Page
<S> <C> <C>
SECTION 8.1 Notices, etc...........................................131
SECTION 8.2 Waivers; Amendments....................................133
SECTION 8.3 Successors and Assigns.................................134
SECTION 8.4 Severability Clause....................................134
SECTION 8.5 Governing Law; Submission to
Jurisdiction; Integration..............................135
SECTION 8.6 No Bankruptcy Petition Against the
Company or the Debtor..................................136
SECTION 8.7 Setoff.................................................136
SECTION 8.8 No Recourse............................................136
SECTION 8.9 No Recourse Against Stockholders,
Officers or Directors..................................137
SECTION 8.10. Further Assurances.....................................137
SECTION 8.11 Other Costs, Expenses and Related
Matters................................................138
SECTION 8.12 Indemnification Procedures.............................138
SECTION 8.13 Exercise of Rights by Insurance
Provider...............................................139
SECTION 8.14 Counterparts...........................................139
SECTION 8.15 Headings...............................................140
EXHIBITS
EXHIBIT A Forms of Contracts
EXHIBIT B Credit and Collection Policy
EXHIBIT C Form of Insurance Policy
EXHIBIT D Form of Originator Agreement
EXHIBIT E Receivables Schedule
EXHIBIT F Form of Monthly Servicer's Certificate
EXHIBIT G Form of Monthly Back-Up Servicer's Certificate
EXHIBIT H Back-Up Servicing Agreement
EXHIBIT I Charge Off Policy
</TABLE>
iii
<PAGE> 47
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of March 30, 1999
among ENTERPRISE FUNDING CORPORATION, a Delaware corporation, as a secured
party (together with its successors and assigns, the "Company"), FCAR
RECEIVABLES LLC, a Texas limited liability company, as debtor (together with
its successors and assigns, the "Debtor"), MBIA INSURANCE CORPORATION, a New
York stock insurance company, as a secured party and as Insurance Provider (in
such capacity, the "Insurance Provider"), FIRSTCITY FUNDING CORPORATION, a
Texas corporation, as servicer hereunder (in such capacity, the "Servicer"),
NATIONSBANK, N.A. ("NationsBank"), a national banking association, individually
and as collateral agent for the Secured Parties (together with its successors
and assigns in such capacity, the "Collateral Agent") and CSC LOGIC/MSA LLP
d/b/a LOAN SERVICING ENTERPRISE ("LSE"), a Texas limited liability partnership,
as back-up servicer hereunder (together with its successors and assigns in such
capacity, the "Back-Up Servicer").
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of this Agreement, the
Debtor desires to grant a security interest in and to the Receivables and
related property, including the Debtor's security interest in the Financed
Vehicles and the Collections derived therefrom during the full term of this
Agreement;
WHEREAS, pursuant to the Insurance Agreement, the Insurance Provider
has issued its Insurance Policy to provide for the full and timely payment of a
portion of the interest due on and all principal of the Note as specified in
the Insurance Policy;
WHEREAS, pursuant to the Note Purchase Agreement, the Debtor has
issued the Note to the Agent, on behalf of the Company and the Bank Investors,
and will be obligated to the holder of such Note to pay the principal
<PAGE> 48
of and interest on such Note in accordance with the terms thereof;
WHEREAS, the Debtor is granting a security interest in the Collateral
to the Collateral Agent, for the benefit of the Secured Parties, to secure the
payment and performance of the Debtor of its obligations under this Agreement,
the Note, the Note Purchase Agreement and the Insurance Agreement;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. All capitalized terms used herein shall have
the meanings herein specified, and shall include in the singular number the
plural and in the plural number the singular:
"Accrued Interest Component" shall mean for any Collection Period, the
Interest Component of all Related Commercial Paper outstanding at any time
during such Collection Period which has accrued from the first day through the
last day of such Collection Period whether or not such Related Commercial Paper
matures during such Collection Period. For purposes of the immediately
preceding sentence, the portion of the Interest Component of Related Commercial
Paper accrued in a Collection Period in which Related Commercial Paper either
(a) was issued on a day other than the first day of such Collection Period or
(b) has a stated maturity date on a day other than the last day of such
Collection Period shall be based on the actual number of days elapsed in such
Collection Period during which such Related Commercial Paper was outstanding.
"Additional Amounts" shall mean (i) any refunds or other payments
received under any Extended Service Agreement, extended warranty plan or any
other item included in the Amount Financed with respect to a Fi-
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<PAGE> 49
nanced Vehicle; (ii) refunds received in connection with (a) physical damage,
credit life or disability policies relating to Financed Vehicles or Obligors
and (b) accident and health policies relating to Obligors and (iii) sales tax
refunds relating to Financed Vehicles.
"Adjusted EBITDA Coverage Ratio" means the ratio of earnings of the
Parent before interest, taxes, depreciation, amortization, less the gain on
sale of automobile installment loan agreements or contracts, divided by the
interest expense.
"Adjusted LIBOR Rate" means, with respect to any Collection Period, a
rate per annum equal to the sum (rounded upwards, if necessary, to the next
higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable
LIBOR Rate by (ii) a percentage equal to 100% minus the reserve percentage used
for determining the maximum reserve requirement as specified in Regulation D
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) that is applicable to the Agent during such Collection
Period in respect of eurocurrency or eurodollar funding, lending or
liabiities (or, if more than one percentage shall be so applicable, the daily
average of such percentage for those days in such Collection Period during
which any such percentage shall be applicable) plus (B) the then daily net
annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of
1%) as estimated by the Agent for determining the current annual assessment
payable by the Agent to the Federal Deposit Insurance Corporation in respect of
eurocurrency or eurodollar funding, lending or liabilities.
"Administrative Agent" shall mean NationsBank, as administrative agent
for the Company.
"Administrative Fee" shall have the meaning specified in the Fee
Letter.
"Adverse Claim" shall mean a lien, security interest, charge or
encumbrance, or other right or claim in, of or on any Person's assets or
properties in favor of any other Person.
3
<PAGE> 50
"Affiliate" shall mean, with respect to a Person, any other Person
which directly or indirectly controls, is controlled by or is under common
control with such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" shall have the meaning specified in the Note Purchase
Agreement.
"Agreement" shall mean this Security Agreement, as it may from time to
time be amended, supplemented or otherwise modified in accordance with the
terms hereof.
"Amortization Period" means any time during which the Net Yield
(calculated as of the most recent Determination Date) is less than 2.0% or the
Net Investment exceeds the Noteholder's Percentage of the Borrowing Base plus
the amount on deposit in the Reserve Account.
"Amount Financed" with respect to a Receivable means the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs exclusive of any amount allocable to the premium of
force-placed physical damage insurance covering the Financed Vehicle.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
rate of finance charges stated in the Receivable.
"Available Collections" shall mean, with respect to each Remittance
Date, all Collections received by the Servicer, from whatever source, during or
with respect to the prior Collection Period.
"Back-Up Servicer" shall mean LSE, in its capacity as back-up servicer
hereunder, and its successors and assigns in such capacity.
4
<PAGE> 51
"Back-Up Servicing Agreement" shall mean that certain Servicing
Assumption Agreement attached hereto as Exhibit H.
"Back-Up Servicing Fee" shall mean the greater of (A) 0.06% of the
aggregate principal balance of all Receivables, calculated as of the first
Business Day of each Collection Period, and (B) $1,250.
"Bank Investors" shall have the meaning specified in the Note
Purchase Agreement.
"Base Rate" shall mean a rate per annum equal to the greater of (i)
the prime rate of interest announced by the Liquidity Provider (or, if more
than one Liquidity Provider, then by NationsBank) from time to time, changing
when and as said prime rate changes (such rate not necessarily being the lowest
or best rate charged by the Liquidity Provider (or NationsBank, as applicable))
and (ii) the sum of (a) 1.50% and (b) the rate equal to the weighted average of
the rates on over night Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day for
such transactions received by the Liquidity Provider (or, if more than one
Liquidity Provider, then by NationsBank) from three Federal funds brokers of
recognized standing selected by it.
"Borrowing Base" shall mean, at any time, the aggregate Principal
Balance of all Eligible Receivables.
"Business Day" means any day (excluding Saturday or Sunday) on which
banks are open for business in New York, New York, Charlotte, North Carolina
and Dallas, Texas.
"Carrying Costs" shall mean for any Collection Period the sum of:
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(i) the sum of the dollar amount of the Company's
obligations for such Collection Period deter mined on an accrual basis in
accordance with generally accepted accounting principles consistently
applied:
(a) to pay interest with respect to Purchased Interests pursuant to
the provisions of the Liquidity Agreement (such interest to be calculated based
on the Adjusted LIBOR Rate), outstanding at any time during such Collection
Period accrued from the day of the acquisition of the related Purchased
Interest through the last day of such Collection Period whether or not such
interest is payable during such Collection Period;
(b) without duplication of the amounts described in clause (a) above,
to pay interest, calculated at the Base Rate, with respect to amounts disbursed
by the Credit Support Provider in respect of Defaulted Receivables, if the
Insurance Provider shall have failed to make any required payment under the
Insurance Policy in respect of such Defaulted Receivables, outstanding at any
time during such Collection Period accrued from the first day through the last
day of such Collection Period whether or not such interest is payable during
such Collection Period;
(c) to pay the Accrued Interest Component of Related Commercial Paper
with respect to any Collection Period (it being understood that to the extent
the Company has obtained funding under the Liquidity Agreement or a Credit
Support Agreement, the Company will not obtain duplicative funding in the
commercial paper markets);
(d) to pay a dealer fee (the "Dealer Fee") of 0.05% per annum of the
face amount of Related Commercial Paper issued during such Collection Period
based on the actual term of such Related Commercial Paper whether or not
maturing in such Collection Period;
(e) any past due amounts not paid in clause (a), (b), (c) and (d) with
respect to prior Collection Periods; and
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(f) to pay the costs of the Company with respect to the operation of
the Yield Protection Provision, which amounts paid pursuant to this clause (f)
shall not exceed 1.00% per annum of the Net Investment; and
(ii) the Program Fee, the Administrative Fee, and Facility Fee
accrued from the first day through the last day of such Collection Period
whether or not such amount is payable during such Collection Period the sum
of which amounts shall not exceed 0.75% per annum of the Net Investment.
During any Collection Period during which the Bank Investors have (x) advanced
funds with respect to a Funding or (y) acquired an interest in the Note, in
lieu of the amounts described in clauses (i)(c) and (i)(d) above, Carrying
Costs shall include interest on the daily aver age Net Investment for the
related Collection Period at the Adjusted LIBOR Rate, or if such rate is
unavailable, at the Base Rate, or if an Insurance Provider Default and a
Termination Event shall have occurred and be continuing, at the Base Rate plus
2.00%.
"Certificate of Title" shall mean, with regard to each Financed
Vehicle (i) the original certificate of title relating thereto, or copies of
correspondence to the appropriate state title registration agency, and all
enclosures thereto, for issuance of its original certificate of title or (ii)
if the appropriate state title registration agency issues a letter or other
form of evidence of lien in lieu of a certificate of title, the original lien
entry letter or form or copies of correspondence to such state title
registration agency, and all enclosures thereto, for issuance of the original
lien entry letter or form, which, in either case, shall name the related
Obligor as the owner of such Financed Vehicle and the applicable Seller or the
Collateral Agent as secured party.
"Closing Date" shall mean March 30, 1999.
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"Charged-Off Contract" shall mean a Contract charged-off by the
Servicer in accordance with the Charge-Off Policy attached hereto as Exhibit I.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time (including any successor statute), and the regulations
promulgated and the rulings issued thereunder.
"Collateral" shall have the meaning set forth in Section 2.1 of this
Agreement; provided, that this definition of "Collateral" shall not include any
Receivable, Contract or related property released from the Collateral pursuant
to Section 2.5 or with respect to which a Refund Price has been paid.
"Collateral Agent" shall mean NationsBank, as collateral agent
hereunder, or any successor thereto in such capacity.
"Collection Account" shall mean the account established pursuant to
Section 2.6 hereof.
"Collection Period" shall mean with respect to any Remittance Date,
the calendar month immediately preceding the month of such Remittance Date (and
with respect to the initial Remittance Date, the time period from the Cut-Off
Date to April 30, 1999).
"Collections" shall mean all Principal Collections and Finance Charge
Collections received by the Servicer in respect of the Collateral in the form
of cash, checks, wire transfers or other form of payment.
"Commercial Paper" shall mean promissory notes of the Company issued
by the Company in the commercial paper market.
"Commitment Termination Date" shall have the meaning specified in the
Note Purchase Agreement.
"Company" shall mean Enterprise Funding Corporation, a Delaware
corporation, together with its successors and assigns.
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"Contract" shall mean each retail installment loan agreement,
substantially in the form of Exhibit A hereto, and the security agreement
between an Obligor and an Originator or an Obligor and FCF relating to the sale
or refinancing of a Financed Vehicle, an interest in which has been assigned or
transferred by a Seller to the Debtor pursuant to the Receivables Purchase
Agreement, whether constituting an account, chattel paper, instrument,
mortgage, deed of trust or general intangible; provided, that this definition
of "Contract" shall not include any contract released from the Collateral
pursuant to Section 2.5 or with respect to which a Refund Price has been paid.
"Credit and Collection Policy" shall mean the credit, collection and
loan servicing policies and procedures of the Servicer attached as Exhibit B
hereto.
"Credit Support Agreement" means any agreement between the Company and
the Credit Support Provider evidencing the obligation of the Credit Support
Provider to provide credit support to the Company in connection with the
issuance of Commercial Paper.
"Credit Support Provider" means the Person or Persons who will provide
credit support to the Company in connection with the issuance by the Company of
its Commercial Paper.
"Cumulative Net Loss Ratio" means, the ratio (expressed as a
percentage) of (i) the sum of the Principal Balances of Receivables that were
charged-off in accordance with the Charge-Off Policy during the period from the
Closing Date through the end of the related Collection Period reduced by the
amount of all Recoveries received by the Servicer during the period from the
Closing Date through the end of the related Collection Period to (ii) the
aggregate Principal Balances of all Receivables as of the Closing Date.
"Custodian" means Chase Bank of Texas, N.A., as custodian of the
Receivables for the Collateral Agent and the Secured Parties, and its
successors and assigns in such capacity.
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"Custodian Bank" means a "custodian bank" as defined in Section
8-102(4) of the New York or North Carolina UCC.
"Cut-Off Date" shall mean with respect to the Initial Funding, two
Business Days prior to the date of such Initial Funding and with respect to
each Subsequent Funding, the Subsequent Funding Cut-Off Date.
"DCR" means Duff & Phelps Credit Rating Co..
"Debtor" shall mean FCAR and its successors and permitted assigns.
"Deemed Cured," with respect to a Reserve Event, shall mean either of
the following:
(a) in the case of the Reserve Event described in (a) of the
definition thereof, the average Delinquency Ratio for the three Collection
Periods preceding such Remittance Date is less than or equal to 10.00% for two
consecutive Collection Periods;
(b) in the case of the Reserve Event described in (b) of the
definition thereof, the average Default Ratio for the three preceding
Collection Periods preceding such Remittance Date is less than or equal to
2.50% for two consecutive Collection Periods; or
(c) in the case of the Reserve Event described in clause (c) of the
definition thereof, the average Recovery Rate for the three Collection Periods
preceding such Remittance Date is greater than or equal to 60% for two
consecutive Collection Periods.
"Default Ratio" shall mean a fraction, ex pressed as a percentage
calculated as of the last day of the related Collection Period, the numerator
of which is the aggregate Principal Balance of all Defaulted Receivables
defaulted in that Collection Period, and the denominator of which is the
aggregate Principal Balance of all Receivables.
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"Defaulted Receivable" shall mean, with respect to any Remittance
Date, each Receivable with respect to which the earlier of the following has
occurred: (i) the related Obligor is contractually delinquent on a scheduled
payment or any portion thereof for greater than sixty (60) days, or (ii) the
mandatory redemption period, if any, has expired for the Contract with respect
to which the related Financed Vehicle has been repossessed.
"Delinquency Ratio" shall mean, with respect to any date of
determination, the ratio (expressed as a percentage) of (i) the aggregate
Principal Balance of all automobile installment sales contracts and automobile
installment loan agreements in the Parent's total servicing portfolio which
meet the criteria set forth in Delinquent Receivables as of such date to (ii)
the aggregate principal balance of all automobile installment sales contracts
and automobile installment loan agreements in the Parent's total servicing
portfolio.
"Delinquent Receivable" shall mean each Receivable (i) as to which
any payment, or part thereof, re mains unpaid for more than 30 days from the
original due date for such payment and (ii) is not a Defaulted Receivable.
"Determination Date" shall mean with respect to any Remittance Date,
the second Business Day preceding such Remittance Date.
"Dollar," "Dollars" and the symbol "$" shall mean lawful money of the
United States of America.
"EFC Collateral Agent" shall mean NationsBank, as collateral agent in
respect of the Company's Commercial Paper program.
"Eligible Account" shall mean either (A) a segregated account or
accounts maintained with an institution whose deposits are insured by the
FDIC, the unsecured and uncollateralized long-term debt obligations of which
institution shall be rated AA or higher by S&P and Aa2 or higher by Moody's and
in the highest short-term rating category by each of the Rating Agencies, and
which
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is (i) a federal savings and loan association duly organized, validly existing
and in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws, (iv) a principal
subsidiary of a bank holding company, or (v) approved in writing by the
Insurance Provider and each of the Rating Agencies or (B) a chartered
depository institution acceptable to each Rating Agency and the Insurance
Provider, having capital and surplus of not less than $100,000,000, acting in
its fiduciary capacity.
"Eligible Investments" means any one or more of the following types of
investments:
(i) (a) direct interest-bearing obligations of, and
interest-bearing obligations guaranteed as to timely payment of principal
and interest by, the United States or any agency or instrumentality of the
United States the obligations of which are backed by the full faith and
credit of the United States; and (b) direct interest-bearing obligations
of, and interest-bearing obligations guaranteed as to timely payment of
principal and interest by, the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation, but only if, at the time of
investment, such obligations are rated AAA by DCR (if rated by DCR), AAA by
S&P and Aaa by Moody's;
(ii) demand or time deposits in, certificates of deposit of,
or bankers' acceptances issued by, any depository institution or trust
company organized under the laws of the United States or any state and
subject to supervision and examination by federal and/or state banking
authorities (including, if applicable, the Collateral Agent or any agent of
the Collateral Agent acting in its commercial capacities); provided that
the commercial paper or other short-term unsecured debt obligations of such
depository institution or trust company at the time of such investment, or
contractual commitment providing
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for such investment, are rated D-1+ by DCR (if rated by DCR), A-1+ by S&P
and P-1 by Moody's;
(iii) repurchase obligations pursuant to a written agreement
(1) with respect to any obligation described in clause (i) above, where the
Collateral Agent has taken actual or constructive delivery of such
obligation, and (2) entered into with a depository institution or trust
company organized under the laws of the United States or any state thereof,
the deposits of which are insured by the Federal Deposit Insurance
Corporation and the short-term unsecured debt obligations of which are
rated D-1+ by DCR (if rated by DCR), A-1+ by S&P and P-1 by Moody's
(including, if applicable, the Collateral Agent or any agent of the
Collateral Agent acting in its respective commercial capacities);
(iv) securities bearing interest or sold at a discount issued
by any corporation incorporated under the laws of the United States or any
state whose long-term unsecured debt obligations are rated AAA by DCR, AAA
by S&P and Aaa by Moody's at the time of such investment or contractual
commitment providing for such investment; provided, however, that
securities issued by any particular corporation will not be Eligible
Investments to the extent that an investment therein will cause the then
outstanding principal amount of securities issued by such corporation and
held as part of the Collection Account or Reserve Account, as applicable,
to exceed 10% of the Eligible Investments held in the Collection Account
or Reserve Account, as applicable, (with Eligible Investments held in the
Collection Account or Reserve Account, as applicable, valued at par);
(v) commercial paper that (1) is payable in Dollars and (2)
is rated at least D-1+ by DCR (if rated by DCR), A-1+ by S&P and P-1 by
Moody's;
(vi) any money market fund that has been rated AAA "plus or
minus" by DCR (if rated by DCR), Aaa by Moody's and AAAm or AAAm-G by S&P
and numerical
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gradations within such rating category (or the equivalent long-term rating
of such rating agency) for such money market funds; and
(vii) any other demand or time deposit, obligation, security
or investment as may be acceptable to the Rating Agencies and, prior to an
Insurance Provider Default, the Insurance Provider.
Any of the foregoing Eligible Investments may be purchased from, by or
through the Collateral Agent or any of its Affiliates.
"Eligible Receivables" shall mean, as of any day, each Receivable of
the Debtor:
(a) which is payable in Dollars in the United States or one of its
territories;
(b) which at the time of origination, the Obligor on which provided as
its most recent billing address, an address located in the United States;
(c) which is not a Defaulted Receivable at the time such Receivable
first becomes part of the Collateral;
(d) which has been created in accordance with, or under standards no
less stringent than, and which satisfies in all material respects, the Credit
and Collection Policy;
(e) which, at the time such Receivable first becomes part of the
Collateral and at the time immediately following any Take-Out, is neither more
than 30 days contractually delinquent from the due date, nor is due from an
Obligor who has defaulted under a previous retail installment loan agreement
with a Seller;
(f) which was sold to or originated in the United States by a Seller
in the ordinary course of such Seller's business pursuant to a transaction
constituting a bona fide sale (in the case of a Receivable related to
FirstCity Funding) and which was created as a result of
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an advance by such Seller (if such Seller is FCF) or by an Originator (in the
case of a Receivable related to FirstCity Funding) in the ordinary course of
its business, directly to or for the benefit of an Obligor for the purchase or
refinancing of the purchase of an automobile, light truck, van or mini-van;
(g) as to which the Debtor will have good and marketable title thereto
and which is not subject to any Lien or claim or other encumbrance on the
related Financed Vehicle which are Liens prior to, or equal or coordinate with,
the security interest in the Financed Vehicle granted by the Receivable, and as
to which at any time, the Collateral Agent, for the benefit of the Secured
Parties, shall have a valid and perfected first priority security interest,
free and clear of all Liens, encumbrances, security interests and rights of
others;
(h) which provides for level monthly payments (provided that the
payment in the first and last months of the Receivable may be minimally
different from the level payment) that fully amortize the Amount Financed and
yield interest at the related APR over an original term of no less than 12
months and no greater than 60 months; provided, that 3.0% of the aggregate
Principal Balance of the related Contracts may have an original term greater
than 60 months but no more than 72 months;
(i) which provides for, in the event that such Receivable is prepaid
by the Obligor, a prepayment that fully pays the Principal Balance of such
Receivable and any interest accrued at the related APR through the date of
prepayment;
(j) which, if not originated by FCF, was originated in the United
States by an Originator approved by FirstCity Funding and which was sold to
FirstCity Funding pursuant to an Originator Agreement;
(k) which provides the Debtor with a clear right of repossession on
the Financed Vehicle securing such Receivable and contains customary and
enforceable provisions such that the rights and remedies of the
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holder thereof shall be adequate for realization against the collateral of the
benefits of the security;
(l) the purchase of which with the proceeds of Commercial Paper would
constitute a "current transaction" within the meaning of Section 3(a)(3) of the
Securities Act of 1933, as amended;
(m) which was not, at the time such Receivable first became part of
the Collateral, subject to any right of rescission, cancellation, set-off,
claim, counterclaim or defense (including the defense of usury) of the Obligor
or, to the best of the Debtor's knowledge, any proceedings pending or
threatened, wherein the Obligor or any governmental agency has alleged the
related Contract is illegal or unenforceable;
(n) which arises pursuant to a Contract with respect to which each of
the applicable Seller and the Debtor has performed all obligations required to
be performed by it thereunder, including without limitation shipment of the
related Financed Vehicle in good repair, without defects and in satisfactory
order and/or the performance of the services purchased thereunder;
(o) which has an APR of at least 12.75%;
(p) which is secured by a valid, subsisting, and enforceable first
priority perfected security interest in favor of the Debtor in the related
Financed Vehicle, which security interest has been validly as signed by the
Debtor to the Collateral Agent on behalf of the Secured Parties;
(q) which arises under a Contract which has been properly executed by
the parties thereto and which represents the genuine, legal, valid and binding
payment obligation in writing of the Obligor, enforceable by the holder thereof
in accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally;
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(r) which shall have complied with, at the time of its origination,
and shall remain in compliance with, all Requirements of Law;
(s) with respect to which there is only one Contract related thereto
and such Contract has not been sold, transferred, assigned or pledged by the
applicable Seller to any Person other than the Debtor;
(t) the Obligor of which is required to make payments to a lockbox
under the control of the Servicer;
(u) which, at the time such Receivable first became part of the
Collateral, the related Contract had not been waived or modified;
(v) as to which the applicable Seller and the Debtor has done nothing,
at the time such Receivable first became part of the Collateral, to impair the
rights of the Secured Parties therein;
(w) with respect to which the related Financed Vehicle is required by
the terms of the related Contract to be covered by an individual physical
damage insurance policy and the related Contract requires such Obligor to pay
all sales, use, property, excise and other similar taxes imposed on or with
respect to the related Financed Vehicle and makes such Obligor liable for all
payments required to be made thereunder, without any setoff, counterclaim or
defense for any reason whatsoever, subject only to such Obligor's right of
quiet enjoyment;
(x) which constitutes "chattel paper" under and as defined in Article
9 of the UCC as then in effect in the Relevant UCC;
(y) the related Obligor of which is not the U.S. government or any
state or any agency, department or instrumentality of the U.S. government or
any state or other government entity;
(z) with respect to which the Contract evidencing such Receivable,
including but not limited to,
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the description of the motor vehicle and/or services contained therein is in
all respects complete, accurate and represents the entire agreement between the
Originator or FCF, as applicable, and the Obligor;
(aa) with respect to which the Custodian is holding the related
Receivable File for the benefit of the Secured Parties;
(ab) which is an "eligible asset" as defined in Rule 3a-7 under the
Investment Company Act of 1940, as amended;
(ac) which (A) satisfies all applicable requirements of the Credit and
Collection Policy, (B) is assignable without the consent of, or notice to, the
Obligor thereunder and (C) has not been originated in, or is subject to the
laws of, any jurisdiction under which the sale, transfer and assignment of such
Receivable under this Agreement or pursuant to a transfer of the Note shall be
unlawful, void or voidable;
(ad) which has not been compromised, adjusted or modified (including
by the extension of time for payment or the granting of any discounts,
allowances or credits);
(ae) with respect to which the related Contract is a Simple Interest
Contract;
(af) with respect to which the information set forth in the
Receivables Schedule is true and correct in all material respects as of the
opening of business on the related Cut-Off Date and for which no selection
procedures adverse to the interests of the Secured Parties have been utilized;
(ag) with respect to which, to the knowledge of the Debtor, at the
time of the related Cut-Off Date, the related Obligor was not the subject of a
bankruptcy proceeding since the origination of the related Contract;
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(ah) with respect to which all filings (including, without limitation,
UCC filings) necessary in any jurisdiction to give the Collateral Agent a first
priority perfected security interest in such Receivable have been made;
(ai) which has a Principal Balance of at least $1,000 and not greater
than $35,000 as of the related Cut-Off Date; provided that a Principal Balance
greater than $35,000; provided, that up to 1% of the Eligible Receivables may
have a Principal Balance greater than $35,000 but not more than $40,000;
(aj) with respect to which the related Financed Vehicle has not been
repossessed from the Obligor on or prior to the related Cut-Off Date;
(ak) with respect to which the related Contract satisfies in all
material respects the requirements of the Credit and Collection Policy that
was in effect as of the related Cut-Off Date and if such Contract was
originated by an Originator, it was underwritten by FirstCity Funding in
accordance with the Credit and Collection Policies;
(al) with respect to which the applicable Seller has fulfilled all
obligations to be fulfilled on such Seller's part under or in connection with
the origination, acquisition and assignment of such Receivable, including
giving notices or consents necessary to effect the acquisition of the
Receivable;
(am) with respect to which the sale, transfer, assignment and
conveyance of by the applicable Seller is not subject to and will not result in
any tax, fee or governmental charge payable by such Seller or the Debtor to any
federal, state or local government ("Transfer Taxes") other than Transfer
Taxes which have or will be paid by such Seller as due and in the event the
Debtor or the Collateral Agent receives actual notice of any Transfer Taxes
arising out of the transfer, assignment and conveyance of such Receivable;
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(an) with respect to which the applicable Seller used no selection
procedures that identified such Receivable as being less desirable or valuable
than other comparable motor vehicle loans originated or acquired by such
Seller;
(ao) as to which there is no Lien against the related Financed Vehicle
for any delinquent taxes;
(ap) with respect to which, at the time of origination, all proceeds
on the related Contract were fully disbursed and there is no requirement for
future advances thereunder and all fees and expenses in connection with the
origination of the Receivable have been paid;
(aq) which does not provide for the substitution, exchange or
addition of any Financed Vehicle to such Receivable;
(ar) with respect to which, to the best of the Debtor's knowledge, no
Obligor is a Person involved in the business of leasing or selling equipment of
a type similar to the Financed Vehicle;
(as) with respect to which the Servicer holds the Certificate of Title
or the application for a Certificate of Title for the related Financed Vehicle
or the Servicer will obtain within 180 days of the related Cut-Off Date a
Certificate of Title with respect to the Financed Vehicle as to which the
Servicer holds only such application;
(at) with respect to which, if originated by an Originator, such
Originator (i) was selected by FirstCity Funding based on FirstCity Funding's
underwriting criteria, its financial operating history and record of
compliance with requirements under applicable Federal and state law, (ii) has
entered into an agreement with FirstCity Funding providing for the sale of
motor vehicle loans from time to time by such Originator to FirstCity Funding,
(iii) is authorized to originate such Receivable for sale to FirstCity Funding
and is authorized to originate such Receivable for sale to FirstCity Funding
under
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FirstCity Funding's underwriting guidelines and (iv) has not engaged in any
conduct constituting fraud or misrepresentation with respect to such
Receivable; and
(au) with respect to which, if not originated by FCF, (i) the
Originator that sold the related Contract to FirstCity Funding has entered into
an Originator Agreement and such Originator Agreement constitutes the entire
agreement between FirstCity Funding and such Originator with respect to the
sale of such Contract to FirstCity Funding, and (ii) each such Originator
Agreement is in full force and effect and is the legal, valid and binding
obligation of such Originator; there have been no material defaults by such
Originator or by FirstCity Funding under such Originator Agreement; FirstCity
Funding has fully performed all of its obligations under such Originator
Agreement; FirstCity Funding has not made any statements or representations to
such Originator (whether written or oral) inconsistent with any term of such
Originator Agreement; the purchase price (as specified in such Originator
Agreement, if any) for such Contract has been paid in full by FirstCity
Funding; there is no other payment due to such Originator from FirstCity
Funding for the purchase of such Contract; such Originator has no right, title
or interest in or to such Contract; there is no prior course of dealing between
such Originator and FirstCity Funding which will affect the terms of such
Originator Agreement; any payment owed to such Originator by FirstCity Funding
is a corporate obligation of FirstCity Funding in the nature of a bonus for
amounts collected by FirstCity Funding in excess of the purchase price for such
Contract.
"Enhanced Yield" shall mean the amount of Carrying Costs calculated
pursuant to such definition, provided, however, that the dollar amounts
described in (i)(a) of the definition of Carrying Costs shall be limited to
7.05% of the Purchased Interest and the dollar amount described in (i)(c) of
the definition of Carrying Costs shall be limited to 7.00% of the Net
Investment funded to the extent of Related Commercial Paper; provided,
further, that the Adjusted LIBOR Rate or the Base Rate, as applicable and each
as described in the last paragraph of the definition of carrying costs shall be
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limited to 7.05% of the Net Investment. All such limitations shall only be
applicable when used in relation to this definition. Upon the occurrence and
continuance of an Insurance Provider Default, there shall be no limit on the
Enhanced Yield.
"Entitlement Order" shall have the meaning specified in Section 8-102
of the Relevant UCC.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean with respect to the Debtor, at any time,
each trade or business (whether or not incorporated) that would, at the time,
be treated together with the Debtor as a single employer under Section 4001 of
ERISA or Sections 414(b), (c), (m) or (o) of the Code.
"Event of Bankruptcy" shall mean, with respect to any Person, (i) that
such Person (a) shall generally not pay its debts as such debts become due or
(b) shall admit in writing its inability to pay its debts generally or (c)
shall make a general assignment for the benefit of creditors; (ii) any
proceeding shall be instituted by or against such Person seeking to adjudicate
it as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or any substantial part of its property or (iii) if such Person is a
corporation, such Person or any Subsidiary shall take any corporate action to
authorize any of the actions set forth in the preceding clauses (i) or (ii).
"Extended Service Agreement" shall mean a service contract covering
repairs to a Financed Vehicle.
"Extension Ratio" means, the fraction (ex pressed as a percentage)
calculated as of the last day of the related Collection Period, the numerator
of which is
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the aggregate number of Contracts included in the Borrowing Base for which an
extension or a payment deferment was made in accordance with the Servicer's
stated extension policy and the denominator of which is the aggregate number
of Contracts included in the Borrowing Base. "Extension," for the purposes of
this definition, does not include either (i) a change of an Obligor's scheduled
due date within a month (i.e. from the 10th of each month to the 15th) or (ii)
the Servicer's treatment of an Obligor who makes at least one-half of his
scheduled payment as current (provided that such Obligor continues to make all
scheduled payments which follow).
"Facility Fee" shall mean a fee payable by the Debtor to the Agent,
the terms of which are set forth in the Fee Letter.
"Facility Limit" shall mean $100,000,000.
"FCAR" shall mean FCAR Receivables LLC, a Texas limited liability
company, and its successors and assigns.
"FCF" shall mean FirstCity Consumer Finance Corporation, a Texas
corporation, and its successors and assigns.
"Fee Letter" shall mean the letter agreement, dated the Closing Date,
between or among the Company, the Agent and the Debtor in respect of the
payment by the Debtor of certain fees.
"Finance Charge Collections" shall mean, with respect to any
Collection Period, the sum of the following amounts: (i) that portion of all
collections on Receivables allocable to interest, late fees, insufficient
funds check charges and related charges assessed against Obligors, (ii)
Liquidation Proceeds to the extent allocable to interest due thereon in
accordance with the Servicer's customary servicing procedures, (iii) the amount
paid by the Debtor with respect to any Refund Price to the extent allocable to
interest, and (iv) interest and investment earnings on amounts on deposit in
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the Collection Account on or with respect to the Remittance Date related to
such Collection Period.
"Financed Vehicle" shall mean a new or used automobile, light truck,
van or mini-van, together with all accessions thereto, securing an Obligor's
indebtedness under the respective Receivable.
"Financed Vehicle Insurance Policies" means any insurance policies
covering the Financed Vehicles or the related Obligor.
"FirstCity Funding" shall mean FirstCity Funding Corporation, a Texas
corporation, and its successors and permitted assigns.
"Funding" shall have the meaning specified in the Note Purchase
Agreement.
"Funding Review" means the procedures specified in Section 3.2(k)(vi)
of this Agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
accounting profession, which are in effect as of the date of this Agreement.
"Governmental Authority" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Indebtedness" means, with respect to any Person, (i) indebtedness for
borrowed money (other than trade accounts payable incurred in the ordinary
course of business that do not bear interest if paid on or before the due date
thereof and which are not in fact overdue), (ii) obligations evidenced by
bonds, debentures, notes or other similar instruments, (iii) obligations to pay
the
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deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, and (v) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above.
"Indemnified Parties" shall have the meaning specified in Section 4.4
hereof.
"Independent Public Accounts" shall mean any of (a) Arthur Andersen
LLP, (b) Deloitte & Touche, (c) Ernst & Young LLP, (d) KPMG Peat Marwick LLP,
(e) PriceWaterhouse Coopers LLP, (f) any successor to any of the foregoing or
(g) any other firm approved by the Insurance Provider.
"Ineligible Receivable" shall mean any Receivable for which any
representation or warranty made by the Debtor set forth in Section 3.1(o)
hereof shall be untrue.
"Initial Funding" shall have the meaning specified in Section 2.1(a)
of the Note Purchase Agreement.
"Insurance Agreement" shall mean that certain Insurance Agreement
dated as of March 30, 1999 among the Insurance Provider, the Debtor, the
Sellers, the Servicer, the Back-Up Servicer and the Collateral Agent.
"Insurance Policy" shall mean that certain surety bond, substantially
in the form annexed hereto as Exhibit C to be issued by the Insurance Provider
and naming the Agent as beneficiary.
"Insurance Provider" shall mean MBIA Insurance Corporation, a New York
stock insurance company, and any successor or assign.
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"Insurance Provider Default" shall mean the failure and the
continuation of such failure of the Insurance Provider to make any payment
under the Insurance Policy.
"Insurance Provider Insolvency" shall mean, with respect to the
Insurance Provider, the existence and continuation of any of the following:
(a) the Insurance Provider fails to make a payment required under the
Insurance Policy in accordance with its terms; or
(b) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Insurance Provider in an
involuntary case or proceedings under any applicable United States federal or
state bankruptcy, insolvency, rehabilitation, reorganization or other similar
law, or (ii) a decree or order adjudging the Insurance Provider as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Insurance Provider, under any applicable United States federal or state law,
or appointing a custodian, receiver, liquidator, rehabilitator, assignee,
trustee, sequestrator or other similar official of any substantial part of the
Insurance Provider's property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 90 consecutive
days; or
(c) the commencement by the Insurance Provider of a voluntary case or
proceeding under any applicable United States federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent by the
Insurance Provider to the entry of a decree or order for relief in respect of
the Insurance Provider in an involuntary case or proceeding under any
applicable United States federal or state bankruptcy, insolvency case or
proceeding against the Insurance Provider, or the filing by the Insurance
Provider of a
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petition or an answer or consent seeking reorganization or relief
under any applicable United State federal or state law, or the consent by the
Insurance Provider to the filing of such petition or to the appointment of or
the taking of possession by the custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Insurance Provider of any
substantial part of its property, or the making by the Insurance Provider of an
assignment for the benefit of its creditor, or the failure by the Insurance
Provider to pay debts generally as they become due, or the admission by the
Insurance Provider in writing of its inability to pay its debts generally as
they become due, or the taking of any corporate action by the Insurance
Provider in furtherance of any such action.
"Interest Component" shall mean, (i) with respect to any Related
Commercial Paper issued on an interest-bearing basis, the interest payable on
such Related Commercial Paper at its maturity (including any dealer
commissions) and (ii) with respect to any Related Commercial Paper issued on a
discount basis, the portion of the face amount of such Related Commercial Paper
representing the discount incurred in respect thereof (including any dealer
commissions to the extent included as part of such discount).
"Law" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree
or award of any Official Body.
"LIBOR Rate" means, with respect to any Collection Period, the rate
determined by NationsBank to be (i) the per annum rate for deposits in U.S.
Dollars for a term of one month which appears on the Telerate Page 3750 Screen
on the day that is two London Business Days prior to the first day of such
Collection Period except, that if such first day of the Collection Period is
not a Business Day, then the first preceding day that is a Business Day
(rounded upwards, if necessary, to the nearest 1/100,000 of 1%), (ii) if such
rate does not appear on the Telerate Page 3750 Screen, the term "LIBOR Rate"
with respect to that Collection Period shall be the
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arithmetic mean (rounded upwards, if necessary, to the nearest 1/100,000 of 1%)
of the offered quotations obtained by NationsBank from four major banks in the
London interbank market selected by NationsBank (the "Reference Banks") for
deposits in U.S. Dollars to leading banks in the London interbank market as of
approximately 11:00 a.m. (London time) on the day that is two London Business
Days prior to the first day of such Collection Period, unless such first day of
the Collection Period is not a Business Day, in which case, the first preceding
day that is a Business Day or (iii) if fewer than two Reference Banks provide
NationsBank with such quotations, the LIBOR Rate shall be the rate per annum
which NationsBank determines to be the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/100,000 of 1%) of the offered quotations which
leading banks in New York City selected by NationsBank are quoting in the New
York interbank market on such date for deposits in U.S. dollars to the
Reference Banks or; if fewer than two such quotations are available, to leading
European and Canadian Banks.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever for the purpose of security, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the Uniform
Commercial Code (other than any such financing statement filed for
informational purposes only) or comparable law of any juris diction to evidence
any of the foregoing.
"Liquidation Proceeds" shall mean (i) proceeds of any claim under any
credit insurance and (ii) all monies collected in connection with the
disposition of any Financed Vehicle, from whatever source, securing a Defaulted
Receivable, net of the sum of (x) any "out-of-pocket" expenses reasonably
expended by the Servicer in connection with the liquidation of such Financed
Vehicle
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for the account of the Obligor and (y) any such amounts required by law to be
remitted to the Obligor.
"Liquidity Agreement" shall mean the agreement between the Company and
any Liquidity Provider evidencing the obligation of the Liquidity Provider to
provide liquidity support to the Company in connection with the issuance of
Commercial Paper.
"Liquidity Provider" shall mean the Person or Persons who will provide
liquidity support to the Company in connection with the issuance by the Company
of its Commercial Paper, and shall include any Person acquiring a participation
interest therein.
"London Business Day" shall mean any day which is a Business Day and
also is a day on which commercial banks are open for international business
(including dealings in U.S. Dollar deposits) in London.
"LSE" shall mean CSC Logic/MSA LLP d/b/a Loan Servicing Enterprise,
and its successors and assigns.
"Majority Investors" shall have the meaning specified in the Note
Purchase Agreement.
"Manager" shall have the meaning specified in the Texas Limited
Liability Company Act.
"Monthly Servicer's Certificate" shall have the meaning specified in
Section 4.10.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which contributions are or have been made by the
Debtor or any ERISA Affiliate of the Debtor.
"NationsBank" shall have the meaning specified in the preamble hereto.
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"Net Investment" shall mean with respect to any date of determination,
(i) the amount of the Initial Funding and any Subsequent Funding occurring on
or prior to such date of determination less (ii) all Collections distributed to
the Agent in reduction of the Net Investment pursuant to Section 2.5 or
Section 5.1 hereof on or prior to such date of determination, less (iii) draws
from the Reserve Account distributed to the Agent in reduction of the Net
Investment, and less (iv) draws on the Insurance Policy distributed to the
Agent in reduction of the Net Investment; provided however, that the Net
Investment for the first day of the first Collection Period shall equal the
initial Net Investment, and provided further, that as to the Insurance
Provider, draws made under the Insurance Policy will not reduce the principal
amount due under the Note.
"Net Receivables Balance" shall mean, at any time, the aggregate
Principal Balance of all Eligible Receivables.
"Net Yield" shall mean, as calculated on each Determination Date, the
product of (i) 12 and (ii) a fraction, the numerator of which is (x) the
Available Collections less the aggregate amount of Carrying Costs accrued
during the related Collection Period less the aggregate Outstanding Balance of
all Receivables which became Defaulted Receivables during the related
Collection Period net of the aggregate amount of recoveries received during
such Collection Period, and the denominator of which is (y) the average daily
Net Investment for such Collection Period. The Net Yield shall be expressed as
a percentage.
"Note" shall mean the note issued by the Debtor to the Company
pursuant to Section 2.1 of the Note Purchase Agreement, as the same may be
amended from time to time and any other notes issued in replacement therefor in
accordance with the Note Purchase Agreement and this Agreement.
"Note Purchase Agreement" shall mean the Note Purchase Agreement dated
as of March 30, 1999 among NationsBank N.A., as Agent and Bank Investor, the
Debtor
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and the Company, as such agreement may be amended, modified and supplemented
from time to time in accordance with the terms thereof.
"Noteholder's Percentage" shall mean 79.50%.
"Obligor" shall mean, for any Receivable, each and every Person who
purchased or co-purchased a Financed Vehicle or any other person who owes
payments under such Receivable.
"Official Body" shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator,
in each case whether foreign or domestic.
"Opinion of Counsel" shall mean a written opinion of counsel in form
and substance acceptable to each party to whom such opinion is to be rendered
and from counsel who shall be satisfactory to each party to whom such opinion
is to be rendered.
"Originator" shall mean a bank, finance company, car rental company
or factory authorized dealer or its Affiliates or any other originator approved
in writing by the Insurance Provider which has entered into an Originator
Agreement with FirstCity Funding.
"Originator Agreement" shall mean each agreement between FirstCity
Funding and an Originator relating to the purchase by FirstCity Funding of a
Receivable, the form of which is attached hereto as Exhibit D.
"Originator Recourse" shall mean, with respect to a Contract, all
monies received in respect of recourse rights against the Originator (or
successor thereof) of such Contract.
"Parent" shall mean FirstCity Financial Corporation, a Delaware
corporation, and its successors and assigns.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
other entity succeeding to the functions currently performed by the Pension
Benefit Guaranty Corporation.
"Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture or other entity or a government or
an agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan that (a) is or has
been maintained by the Debtor or any ERISA Affiliate of the Debtor, or to which
contributions by any such Person are or have been required to be made, (b) is
subject to the provisions of Title IV of ERISA and (c) is not a Multiemployer
Plan.
"Plan Event" shall mean (a) the provisions of a notice of intent to
terminate any Plan under Section 4041 of ERISA other than in a "standard
termination", or the treatment of a Plan amendment as a distress termination
under Section 4041 of ERISA, (b) the receipt of any notice by any Plan to the
effect that the PBGC intends to apply for the appointment of a trustee to
administer any Plan, (c) the termination of any Plan which may result in a
material liability to the Debtor, (d) the withdrawal of the Debtor or any ERISA
Affiliate of the Debtor from any Plan described in Section 4063 of ERISA which
may result in a material liability of the Debtor, (e) the complete or partial
withdrawal of the Debtor or any ERISA Affiliate of the Debtor from any
Multiemployer Plan which may result in a material liability of the Debtor, (f)
a "reportable event" described in Section 4043 of ERISA (other than a
"reportable event" not subject to the provision for 30-day notice to the PBGC)
or an event described in Section 4068(f) of ERISA which may result in a
material liability of the Debtor, and (g) any other event or condition which
under ERISA or the Code may constitute grounds for the imposition of a lien on
the assets of the Debtor in respect of any Plan or Multiemployer Plan which is
not corrected within 30 days.
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"Potential Termination Event" means an event which, but for the lapse
of time or the giving of any required notice, or both, would constitute a
Termination Event.
"Principal Balance" of a Receivable as of the close of business on any
date means the Amount Financed minus (i) all Collections collected by the
Servicer to and including such day with respect to such Receivable and applied
by the Servicer in accordance with the Servicer's customary servicing
procedures and the terms of the related Receivable to reduce the principal
balance thereof and (ii) any Additional Amounts received by the Servicer with
respect to such Receivable, to the extent such amounts have been applied by the
Servicer in accordance with the Servicer's customary servicing procedures to
reduce the Principal Balance thereof provided, how ever, that the Principal
Balance of any Receivable which (i) is a Defaulted Receivable, (ii) is an
Ineligible Receivable, (iii) is a State Concentration Receivable, or (iv) with
respect to which the related Obligor has defaulted on the first Scheduled
Payment due on the related Contract shall be zero.
"Principal Collections" means, for any Remittance Date, the sum of
the following amounts with respect to the preceding Collection Period: (i) that
portion of all collections on Receivables allocable in accordance with the
Servicer's customary servicing procedures and the terms of the related
Receivable to principal, (ii) Liquidation Proceeds attributable to principal in
accordance with the Servicer's customary servicing procedures, (iii) all
Additional Amounts received by the Servicer and applied in accordance with the
Servicer's customary servicing procedures to reduce the Principal Balance of a
Receivable (iv) amounts paid by the Debtor to the extent allocable to principal
in respect of a Refund Price in accordance with Section 3.2(o), and (v) all
other amounts applied by the Servicer in accordance with its customary
servicing procedures to reduce the Principal Balance of Receivables.
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"Program Fee" shall mean a fee payable monthly to the Company by the
Debtor, the terms of which are set forth in the Fee Letter.
"Purchased Interest" shall mean the interest in the Note acquired by
the Liquidity Provider, if any.
"Rating Agencies" shall mean Moody's and S&P.
"Receivable" shall mean any indebtedness owed under any Contract
(including any Additional Amounts), whether constituting an account, chattel
paper, instrument, mortgage, deed of trust or general intangible, whether
arising out of or in connection with the sale of new or used cars, light trucks,
vans or mini-vans, including the rendering of services by the Originator or any
other party in connection therewith, under an Ex tended Service Agreement or
otherwise, and including the right of payment of any finance charges and other
obligations of the Obligor with respect thereto; provided, that this definition
of "Receivable" shall not include any Receivable released from the Collateral
pursuant to Section 2.5 or with respect to which a Refund Price has been paid.
"Receivable File" means, with respect to each Receivable, the original
Contract, either a copy of the application to the appropriate state authorities
for a Certificate of Title to the related Financed Vehicle or a standard
assurance in the form commonly used in the industry relating to the provision of
a Certificate of Title and when issued by the appropriate state authorities, a
copy of the related Certificate of Title, all original instruments modifying the
terms and conditions of the Receivable or the related Contract and the original
endorsements or assignments of such Contract.
"Receivables Purchase Agreement" shall mean the Master Purchase
Agreement, dated as of March 30, 1999, between the Debtor, as purchaser
thereunder, and the Sellers, as sellers thereunder, as the same may be amended,
modified and supplemented from time to time in accordance with the terms
thereof and hereof.
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"Receivables Schedule" shall mean the schedule of Receivables (which
schedule may be in the form of a computer file, microfiche or printed list)
attached as Exhibit E to this Agreement, as amended and modified from time to
time pursuant to the terms of this Agreement.
"Receivables Systems" means those computer applications which are
related to or involved in the origination, collection, management or servicing
of the Receivables.
"Recoveries" means, with respect to a Charged- Off Contract and for
any Collection Period occurring after the date on which such Contract becomes a
Charged-Off Contract, all payments, including insurance proceeds, that the
Servicer received from or on behalf of an Obligor regarding such Charged-Off
Contract, or from liquidation of the related Financed Vehicle, net of any
reasonably incurred out-of-pocket expenses incurred by the Servicer in
enforcing such Charged-Off Contract.
"Recovery Rate" means, with respect to Defaulted Receivables that are
not skips (an account for which the Servicer has been unsuccessful in locating
either the borrower or the Financed Vehicle), bankruptcies or insurance
losses, and each Collection Period occurring after the date on which such
Defaulted Receivable becomes a Defaulted Receivable, a fraction (expressed as
a percentage), the numerator of which is equal to all Liquidation Proceeds
received by the Servicer before or during such Collection Period, and the
denominator of which is equal to the aggregate outstanding principal balance
of all Defaulted Receivables that are not skips, bankruptcies or insurance
losses for which Liquidation Proceeds were realized during such Collection
Period.
"Refund Price" shall mean 100% of the outstanding Principal Balance
of a Receivable (without giving effect to any reduction in the Principal
Balance thereof as a result of such Receivable becoming a Defaulted Receivable
or an Ineligible Receivable) on the date of refund plus accrued interest, if
any, thereon at the related APR, to such date.
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"Regulations" shall mean the regulations of the Debtor required by The
Texas Limited Liability Company Act, Tex. Rev. Civ. Stat. Ann. Art. 1528n,
Sections 1.01-9.02 (Vernon Supp. 1992).
"Related Commercial Paper" shall mean Commercial Paper the proceeds
of which were used to acquire, or refinance, the Net Investment.
"Relevant UCC" shall mean the UCC in effect in the States of New York,
Texas and North Carolina.
"Re-Liening Trigger" means the occurrence of one or more of the
following:
(a) an Event of Bankruptcy shall occur with respect to a Seller or the
Debtor;
(b) one or more courts of competent jurisdiction have issued final,
non-appealable orders to the effect that the Collateral Agent is not the
secured party with respect to Financed Vehicles financed under Receivables
with an initial aggregate Principal Balance (as of the date upon which such
Receivables were acquired by the applicable Seller), equal to 5.0% or more of
the aggregate Principal Balance of the Receivables as of the prior Remittance
Date or in the case of the first Collection Period, the Closing Date; or
(c) a Termination Event.
"Remittance Date" shall mean the 15th day of each month beginning May
15, 1999, or, if such 15th day is not a Business Day, the next succeeding
Business Day.
"Removal Date" shall have the meaning specified in Section 2.5 hereof.
"Required Reserve Account Balance" shall mean an amount equal to the
product of (a) 1.00% and (b) the Net Investment divided by the Noteholder's
Percentage; provided, that in the event that a Reserve Event has occurred and
has not been Deemed Cured, the Required Reserve Account Balance shall be equal
to the product of
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(x) 6.00% and (y) the Net Investment divided by the Noteholder's Percentage.
"Requirements of Law" for any Person shall mean the certificate of
incorporation, certificate of limited partnership, partnership agreement or
articles of association and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each case
applicable to or binding upon such Person or to which such Person is subject,
whether Federal, state or local (including, without limitation, usury laws, the
Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of
Governors of the Federal Reserve System).
"Reserve Account" shall mean the account established pursuant to
Section 2.7 hereof.
"Reserve Advance" shall have the meaning set forth in Section 5.1(b)
hereof.
"Reserve Event" shall occur, with respect to any Remittance Date, when
either of the following occurs:
(a) the Delinquency Ratio averaged over three consecutive Collection
Periods exceeds 10.00%;
(b) the Default Ratio averaged over three consecutive Collection
Periods exceeds 2.50%; or
(c) the Recovery Rate averaged over three consecutive Collection
Periods is less than 60%.
"Review Firm" means a firm of independent certified public accountants
or other third-party accept able to the Insurance Provider and engaged by the
Debtor to perform the Funding Reviews.
"S&P" shall mean Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies.
"Secondary Servicer Advance" shall have the meaning specified in that
certain letter agreement dated
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as of March 30, 1999, among FirstCity Funding, the Parent and the Agent.
"Secured Parties" shall mean the Company, the Bank Investors and the
Insurance Provider and their respective successors and assigns.
"Sellers" means FirstCity Funding Corporation, a Texas corporation,
and its successor and permitted assigns, and FirstCity Consumer Finance
Corporation, a Texas corporation, and its successors and the Agent, assigns.
"Seller" means either of the Sellers, as the context may require.
"Servicer" shall mean FirstCity Funding as servicer hereunder or any
successor Servicer acceptable to the Insurance Provider and the Agent,
subsequent to the occurrence of an Insurance Provider Default, as set forth in
Article IV hereof.
"Servicer Advance" shall have the meaning set forth in Section 5.1(b)
hereof.
"Servicer Event of Default" has the meaning set forth in Section 4.3
hereof.
"Servicer File" shall mean, collectively, all of the instruments and
documents described in Section 4.2(h)(i) with respect to a Receivable together
with such other instruments or documents that modify or supplement the terms or
conditions of any of the foregoing, and all other instruments, documents,
correspondence and memoranda generated by or come into the possession of the
Servicer (including, but not limited to, insurance premium receipts, ledger
sheets, payment records, insurance claims, correspondence and current and
historical computerized data files) that are required to document or service
any Receivable.
"Servicing Fee" shall mean, for any Collection Period, (i) an amount
equal to 3.00% per annum on the aggregate outstanding Principal Balance of
Receivables as of the first day of such Collection Period, and (ii) all amounts
remitted during such Collection Period from or on
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behalf of Obligors with respect to the Receivables which represent late fees,
prepayment charges, administrative charges or similar charges allowed by
applicable law.
"Simple Interest Contract" means any Contract under which the portion
of a payment allocable to interest and the portion allocable to principal is
determined in accordance with the Simple Interest Method.
"Simple Interest Method" means the method of allocating a fixed level
payment on an obligation between principal and interest, pursuant to which the
portion of such payment that is allocated to interest is equal to the product
of the fixed rate of interest on such obligation multiplied by the unpaid
Principal Balance multiplied by the period of time (expressed as a fraction of
a year, based on the actual number of days in the calendar month and 365 days
in the calendar year) elapsed since the preceding payment under which the
obligation was made and the remainder of such payment is allocable to principal.
"State Concentration Receivable" shall have the meaning specified in
Section 3.2(n) hereof.
"Subsequent Funding" shall have the meaning specified in the Section
2.1(a) of the Note Purchase Agreement.
"Subsequent Funding Cut-Off Date" shall mean with respect to each
Subsequent Funding, the close of business two (2) days prior to the date of
such Funding.
"Subservicer" shall have the meaning set forth in Section 4.1(g)
hereof.
"Subsidiary" means, with respect to any entity any corporation more
than 50% of the outstanding voting securities of which shall at any time be
owned or controlled, directly or indirectly, by such entity or by one or more
Subsidiaries of such entity, or any similar business organization which is so
owned or controlled.
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"Surety Bond Premium" shall have the meaning specified in the
Insurance Agreement.
"Take-Out" shall have the meaning specified in Section 2.5(b) hereof.
"Tangible Net Worth" means, the difference between:
(a) the tangible assets of the Parent and its Affiliates and
Subsidiaries calculated in accordance with GAAP, as reduced by adequate
reserves in each case where a reserve is appropriate; and
(b) all Indebtedness, including subordinated debt, of the Parent and
its Affiliates and Subsidiaries; provided, that: (i) intangible assets such as
patents, trademarks, trade names, copyrights, licenses, good will, organization
costs, advances or loans to, or receivables from directors, officers,
employees or Affiliates, prepaid assets, amounts relating to covenants not to
compete, pension assets, deferred charges or treasury stock of any securities
unless the same are readily marketable in the United States or are entitled to
be used as a credit against federal income tax liabilities, shall not be
included in the calculation of (a) above; and (ii) securities included as
tangible assets shall be valued at their current market price or costs,
whichever is lower, and (iii) any write-up in book value of any assets shall
not be taken into account.
"Telerate Page 3750 Screen" shall mean the display designated as "Page
3750" on the Telerate Service (or such other page as may replace Page 3750 on
that service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purposes of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"Termination Date" shall mean the earlier of (i) March 28, 2000 unless
such date shall be extended by the Debtor, the Agent, the Company and the
Insurance Provider pursuant to a written document, (ii) the date of termination
of the Company's program liquidity facilities
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provided by any Liquidity Agreement (unless the Company shall have assigned its
interest in the Note to the Bank Investors pursuant to Section 5.9 of the Note
Purchase Agreement), (iii) the date of the termination of the Company's credit
support facilities provided by any Credit Support Agreement (unless the Company
shall have assigned its interest in the Note to the Bank Investors pursuant to
Section 5.9 of the Note Purchase Agreement), (iv) the date designated by the
Debtor as the Termination Date following not less than 90 Business Days' prior
written notice to the Company, the Insurance Provider and the Agent, (v) the
date on which any Termination Event has occurred that has not been waived in
writing by the Insurance Provider and the Agent, (vi) two Business Days prior
to the Commitment Termination Date, (vii) the date on which the Receivables
Purchase Agreement shall terminate, (viii) the date on which the Liquidity
Provider or the Credit Support Provider shall have given notice that an event
of default has occurred and is continuing under any of their respective
agreements with the Company (unless the Company shall have assigned its
interest in the Note to the Bank Investors pursuant to Section 5.9 of the Note
Purchase Agreement), and (ix) the date on which the Company's Commercial Paper
shall be downgraded below "A-2" by S&P or "P-2" by Moody's (unless the Company
shall have assigned its interest in the Note to the Bank Investors pursuant to
Section 5.9 of the Note Purchase Agreement).
"Termination Event" shall have the meaning specified in Section 6.1
hereof.
"Transfer Taxes" shall have the meaning provided in paragraph (am) of
the definition of Eligible Receivables.
"Transaction Documents" shall mean this Agreement, the Receivables
Purchase Agreement, the Note Purchase Agreement, the Insurance Agreement, the
Note, each Assignment and Assumption Agreement (as defined in the Note Purchase
Agreement), each Assignment (as defined in the Receivables Purchase Agreement),
any Originator Agreement, the Back-Up Servicing Agreement, the Custodian
Agreement and the Insurance Policy.
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"Transition Expenses" shall have the meaning specified in Section 4.1
hereof.
"Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial
Code as adopted in the Relevant UCC.
"Year 2000 Compliant" means, with respect to any Person, the ability
of such Person's computer applications to perform properly date-sensitive
functions for all dates before and after January 1, 2000.
"Year 2000 Problem" means, with respect to any Person, the risk that
computer applications used by the such Person may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999.
"Yield Protection Provision" shall mean the compensation of the
Company and each Bank Investor by the Debtor of the Company's and the Bank
Investors' costs due to increased taxes, reserves and funding costs of the
Company as described in Section 4.2 of the Note Purchase Agreement.
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ARTICLE II
GRANT OF SECURITY INTEREST
SECTION 2.1 Grant of Security Interest. As security for the prompt and
complete payment of the Note and the performance of all of the Debtor's
obligations under the Note, the Note Purchase Agreement, the Insurance
Agreement, this Agreement and the other Transaction Documents, the Debtor
hereby grants to the Collateral Agent, for the benefit of the Secured Parties,
a security interest in and continuing Lien on all of the Debtor's now existing
and hereafter acquired right, title and interest in, to and under all accounts,
contract rights, general intangibles, chattel paper, instruments, documents,
money, cash, deposit accounts, certificates of deposit, goods, letters of
credit, securities, investment property, financial assets or security
entitlements (all of the foregoing, collectively, the "Collateral"), which
Collateral includes, but is not limited to; (i) all Contracts and the
Receivables related thereto, all monies due or to become due with respect
thereto on or after the related Cut-Off Date, whether accounts, chattel paper,
general intangibles or other property, all monies or remittances on deposit in
any lockbox account which constitute proceeds of such Receivables and the
Contracts and all monies on deposit
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in the Collection Account and the Reserve Account and any investments made with
amounts on deposit in such accounts and all financial assets (as defined in
Section 8-102(a)(9) of the Relevant UCC) credited thereto; (ii) the security
interests in the Financed Vehicles granted by Obligors pursuant to the related
Receivables and any accessions thereto and the Certificates of Title to such
Financed Vehicles; (iii) any proceeds from claims on any physical damage,
credit life, credit disability, lender's single interest, hospitalization or
other insurance policies covering Financed Vehicles or Obligors and any
Liquidation Proceeds; (iv) all documents relating to such Receivables including
without limitation all documents contained in each related Receivables File;
and (v) the proceeds of any and all of the foregoing; in addition, the Debtor
hereby assigns to the Collateral Agent all of its rights under the Receivables
Purchase Agreement and each Originator Agreement with respect to such Contracts
and the Receivables related thereto. Further, as security for the prompt and
complete payment of the Note and the performance of all of the Debtor's
obligations under the Note, the Note Purchase Agreement, the Insurance
Agreement, this Agreement and the other Transaction Documents, the Debtor
hereby grants to the Collateral Agent for the benefit
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of the Secured Parties, a security interest in and continuing Lien on all of
the Debtor's right, title and interest in, to and under the Reserve Account,
and all Eligible Investments, securities, instruments and other financial
assets (as defined in Section 8-102(a)(9) of the Relevant UCC) credited to the
Reserve Account and the proceeds thereof. The foregoing pledge does not
constitute an assumption by the Collateral Agent of any obligations of the
Debtor to Obligors or any other Person in connection with the Collateral or
under any agreement and instrument relating to the Collateral, including
without limitation any obligation to make future advances to or on behalf of
such Obligors.
(a) Perfection of Security Interest. In connection with such pledge,
the Servicer, on behalf of the Debtor, agrees to record and file, at its own
expense, financing statements with respect to the Collateral now existing and
hereafter created for the transfer of chattel paper (as defined in Article 9 of
the Relevant UCC) meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect the first priority
security interest of the Collateral Agent in the Collateral, and to deliver a
file-stamped copy of such financing statements or other evidence of such filing
(which may, for purposes of this Section 2.1, consist of telephone confirmation
of such filing) to the Collateral Agent, the Agent and the Insurance Provider
on or prior to the Closing Date. In addition, on or prior to the Closing Date
and the date of each Subsequent Funding, the Debtor and the Servicer each
agrees to clearly and unambiguously mark its general ledger and all accounting
records and documents and all computer tapes and records to show that the
Contracts and
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the Receivables related thereto have been pledged to the Collateral Agent
hereunder.
(b) Protection of Security Interest. In connection with the grant of
the security interest pursuant to this Section 2.1, the Debtor agrees to
direct the Servicer to and the Servicer shall, on or prior to the Closing Date
and the date of each Subsequent Funding, indicate clearly and unambiguously in
its computer tapes and computer records described in the preceding paragraph
that the Contracts and Receivables have been sold by the applicable Seller to
the Debtor and pledged to the Collateral Agent by the Debtor pursuant to this
Agreement.
(c) Receivables Schedule. On or before the Closing Date, the
Debtor shall deliver to the Collateral Agent and the Insurance Provider a
computer file, microfiche list or printed list containing a true and complete
list of all Contracts and Receivables which are subject to the security
interest granted pursuant to Section 2.1(a), identified by account number and
Principal Balance. Such file or list shall be delivered to the Collateral
Agent as confidential and proprietary information, and is hereby incorporated
into and made a part of this Agreement as the "Receivables Schedule". The
Debtor agrees to deliver to the Collateral Agent and the Insurance Provider on
or before the date of each Subsequent Funding and at such times as requested by
the Collateral Agent or the Insurance Provider in connection with a
third-party's request to review the financing statement filed by or on behalf
of the Debtor under the UCC, a computer file, microfiche list or printed list
containing a true and complete list of all Receivables which are subject to the
security interest granted pursuant to Section 2.1(a), identified by account
number and by outstanding Principal Balance as of such day or date. Such
updated and revised file or list shall be delivered to the Collateral Agent as
confidential and proprietary information, shall replace the previously
delivered file or list and shall be incorporated into and made a part of this
Agreement as the "Receivables Schedule" after giving effect to such Funding.
The Debtor agrees to direct the Servicer to and the Servicer shall, on or prior
to any Funding, indicate clearly and unambiguously in its com-
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puter files that the Receivables pledged by the Debtor to the Collateral Agent
pursuant to the related Funding have been pledged to the Collateral Agent
pursuant to this Agreement.
SECTION 2.2 Re-Liening Trigger. Upon the occurrence of a Re-Liening
Trigger, the Servicer, the Sellers, the Debtor and the Collateral Agent shall,
at the request of the Insurance Provider, take all steps necessary to cause the
Certificate of Title or other evidence of ownership of the related Financed
Vehicle to be revised to name the Collateral Agent on behalf of the Secured
Parties as lienholder. Any costs associated with such revision of the
Certificate of Title shall be paid by the Servicer, and to the extent such
costs are not paid by the Servicer such unpaid costs shall be recovered as
described in Section 5.1(a)(viii) hereof.
In addition, with respect to any state in which Obligors are located
with respect to Receivables that account for greater than or equal to 10% of
the aggregate Principal Balance of all Receivables, the Servicer shall be
required to deliver an Opinion of Counsel to the Collateral Agent, the
Insurance Provider and to S&P as to the status of the security interest of the
Collateral Agent, on behalf of the Secured Parties, in the related Financed
Vehicles or cause the Certificate of Title or other evidence of ownership of
the related Financed Vehicle to be revised to name the Collateral Agent on
behalf of the Secured Parties as lienholder.
The Servicer irrevocably appoints the Collateral Agent as its
attorney-in-fact, such appointment being coupled with an interest, to take any
and all steps required to be performed by it pursuant to this Section
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2.2 including execution of Certificates of Title or any other documents in the
name and stead of the Servicer. If at any time a Person other than FirstCity
Funding becomes the Servicer, FirstCity Funding shall execute a power of
attorney with respect to such successor Servicer promptly after its appointment
as such, naming such successor Servicer as its attorney-in-fact for the purposes
described in the preceding sentence.
SECTION 2.3 Subrogation. The parties hereto each acknowledge that, to
the extent of any payment made under the Insurance Policy, the Insurance
Provider shall be fully subrogated to the extent of such payment, to the rights
of the Company and the Bank Investors to any moneys paid or payable to such
holder in respect of the corresponding amounts due on such Note and under the
Note Purchase Agreement (it being understood that the Insurance Provider shall
be entitled to payments in respect of such subrogation only to the extent that
no amounts are at such time due and payable to the Agent, for the benefit of
the Company or the Bank Investors, under the Note). The parties hereto each
agree to such subrogation and each further agree to execute such instruments
and to take such actions as, in the reasonable judgment of the Insurance
Provider, are necessary to evidence such subrogation and to perfect the rights
of the Insurance Provider to receive any moneys paid or payable hereunder,
under the Note, the Note Purchase Agreement and the Insurance Agreement.
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SECTION 2.4 Increase in Principal Amount of Note. The Debtor may
increase the outstanding principal amount of the Note only upon satisfaction of
the following conditions:
(i) (x) neither a Termination Event, a Potential Termination
Event or the Termination Date shall have occurred and be continuing or
would result from such increase, and (y) no Amortization Period is
occurring or would result from such increase;
(ii) after giving effect to any such increase, the Net
Investment shall not be greater than the Noteholder's Percentage of the
Borrowing Base;
(iii) after giving effect to any such increase, the sum of
the Net Investment and the Interest Component of Related Commercial Paper
shall not exceed the Facility Limit;
(iv) the Insurance Provider shall have received an executed
certification by an authorized officer of the Servicer showing the
calculations necessary to support the calculation required pursuant to
clause (ii) above;
(v) each representation and warranty of the Debtor herein or
in the Note Purchase Agreement shall be true and correct with respect to
the Debtor and each Receivable included in the Borrowing Base is an
Eligible Receivable as of the date of such Funding;
(vi) the Debtor shall have deposited in the Reserve Account,
or shall have given irrevocable instructions to the Agent to withhold from
the proceeds of such Funding and to deposit in the Reserve Account, an
amount equal to the amount necessary to cause the amount on deposit in the
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Reserve Account to at least equal the Required Reserve Account Balance
(calculated as if such increase shall have occurred);
(vii) the Insurance Policy shall be in full force and effect
and no Insurance Provider Default shall have occurred;
(viii) the Debtor shall have delivered on or prior to the
related Cut-Off Date to the Custodian the sole original, executed Contracts
evidencing the Receivables;
(ix) the Debtor shall have delivered to the Custodian on or
prior to the related CutOff Date a copy of the Certificate of Title or
other evidence of Lien issued by the relevant state department of motor
vehicles for each Financed Vehicle related to a Receivable indicating the
applicable Seller's position as first lienholder; and
(x) the conditions to Funding as set forth in Section 2.1(b)
of the Note Purchase Agreement shall have been satisfied.
SECTION 2.5 Release of Contracts. The Debtor shall have the right to
require the Collateral Agent to release all of the Collateral Agent's right,
title and interest in and to all or certain specified Contracts and all
Receivables thereunder and all related property on the terms and conditions set
forth herein (the effective date of any such release, the "Removal Date"). It
shall be a condition precedent to any such release that (i) after giving effect
to any such release, the Net Investment shall not exceed the Noteholder's
Percentage of the Borrowing Base, such determina-
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tion to be based on the most recent Monthly Servicer's Certificate delivered
by the Servicer on behalf of the Debtor, (ii) such release does not result in a
Termination Event, (iii) the Debtor shall (y) pay to the Collateral Agent for
deposit into the Collection Account on the day of receipt from the Debtor, an
amount equal to the lesser of (A) the Principal Balance of the Receivables to
be re leased on such Removal Date or (B) the amount necessary, if any, to
reduce the Net Investment such that the Net Investment does not exceed the
Noteholder's Percentage of the Borrowing Base after giving effect to such
release and (z) pay to the Collateral Agent for deposit into the Collection
Account on the day of receipt from the Debtor, an amount equal to all unpaid
Carrying Costs (including Carrying Costs not yet accrued) to the extent
reasonably determined by the Agent to be attributable to that portion of the
Net Investment to be reduced as a result of the payment referred to in clause
(y) above, (iv) the Debtor shall have given the Collateral Agent, the Insurance
Provider and the Agent at least five (5) days prior written notice of its
intention to request the release of such Receivables, and (v) all amounts due
under this Agreement, the Note Purchase Agreement and the Insurance Agreement,
to the extent accrued
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to the date of such release, shall be fully paid. It is the intention of the
parties that, to the extent the Company has an interest in the Note and the
Company is funding such interest in the Note through Related Commercial Paper,
the Debtor shall pay to the Collateral Agent such amounts as are required under
this Section 2.5 no later than 12:00 noon (New York time) on the Business Day
which is the maturity date of the Related Commercial Paper, which is funding
the Receivables to be released, issued by the Company to fund its interest in
the Note.
The amount described in clause (iii) above upon receipt by the
Collateral Agent shall be remitted to the Agent, for the benefit of the Company
or the Bank Investors as applicable.
The Debtor shall also be obligated to pay to the Collateral Agent, the
Company, the Insurance Provider and the Agent the reasonable legal fees and
expenses of the Collateral Agent, the Insurance Provider, the Agent and each
Bank Investor and the Company arising in connection with any such release.
(a) The Debtor shall at least once in each twelve month period, the
first such period to commence on the Closing Date, pay to the Collateral Agent
an amount equal to 100% by aggregate Principal Balance of Receivables in
existence as of a date not more than 31 days prior to the proposed date of
release (such a release, a "Take-Out"), and shall make the requisite payments
described above and satisfy the requisite conditions precedent described
above.
Upon (i) the deposit to the Collection Account and the payment to the
respective parties of the amounts described in this Section, and (ii) the
receipt by the
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Collateral Agent and the Insurance Provider of a certificate of the Servicer
stating that all conditions precedent contained in this Section 2.5 have been
satisfied, the Collateral Agent shall execute and deliver to the Debtor, at the
Debtor's expense, such documents or instruments as are reasonably necessary to
terminate the Collateral Agent's security interest in the Receivables and
related Contracts subject to such Take-Out and the proceeds thereof; provided,
that the Collateral Agent shall not terminate its security interest in any such
Receivable if such Receivable is intended by the Debtor to be included in the
calculation of Borrowing Base to be calculated immediately after such Take-Out.
Any such documents shall be prepared by the Servicer on behalf of the Debtor
and shall specifically identify (by loan or account number and outstanding
Principal Balance) the Receivables in which the Collateral Agent's security
interest is to be released.
On or prior to each Removal Date, the Debtor shall deliver to the
Collateral Agent, the Insurance Provider and the Administrative Agent a
computer file, microfiche list or printed list containing a true and complete
list of all such Receivables to be released, identified by account number and
principal balance as of the related Removal Date. Such file or list, when taken
together with the list provided pursuant to Section 2.1 hereof, shall
constitute the Receivables Schedule as of such Removal Date after giving effect
to such removal.
SECTION 2.6 Collection Account. There shall be established on or
before the Closing Date and maintained, for the benefit of the Secured Parties,
with NationsBank, a segregated account (the "Collection Account"), bearing a
designation clearly indicating that the funds deposited therein are held by
NationsBank as Collateral Agent for the benefit of the Secured Parties. The
Collection Account shall be an Eligible
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Account. If the Collection Account ceases to be an Eligible Account, the
Insurance Provider shall have the right to direct transfer of the Collection
Account to another financial institution which satisfies the criteria within
the definition of Eligible Account. Subject to the terms hereof, the Collateral
Agent shall possess all right, title and interest in and to all funds deposited
from time to time in the Collection Account. The Servicer shall remit daily,
within two (2) Business Days of receipt, to the Collection Account all
Collections received with respect to any Receivables. On each Remittance Date,
all interest and earnings (net of losses and in vestment expenses) on funds on
deposit in the Collection Account shall be considered to be Finance Charge
Collections and shall be distributed hereunder as such. On the date subsequent
to the Termination Date on which the Net Investment is zero and all amounts
payable hereunder by the Debtor have been paid in full, any funds remaining on
deposit in the Collection Account shall be paid to the Debtor.
(a) Funds on deposit in the Collection Account shall be invested in
Eligible Investments by or at the written direction of the Servicer (which
written direction may be in the form of standing instructions); provided,
that if a Termination Event shall have occurred and be continuing, such
investments shall be made as directed by the Collateral Agent. Any such written
directions shall specify the particular investment to be
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made and shall certify that such investment is an Eligible Investment and is
permitted to be made under this Agreement. The Servicer agrees that it shall
not accept for credit to the Collection Account any investment as to which it
has knowledge of any Adverse Claim thereto. NationsBank hereby agrees to comply
with all Entitlement Orders received by it with respect to the Collection
Account from the Collateral Agent. NationsBank also agrees with the parties
hereto that all property credited to the Collection Account is a "financial
asset" as defined in Section 8-102(9) of the Relevant UCC.
(b) Funds on deposit in the Collection Account (other than investment
earnings) shall be invested by the Collateral Agent in Eligible Investments
that will mature so that such funds will be available on the Remittance Date
with respect to the Collection Period during which such funds were received. No
Eligible Investment may be liquidated or disposed of prior to its maturity. All
proceeds of any such Eligible Investment shall be deposited in the Collection
Account. Investments may be made in the Collection Account on any date
(provided such investments mature in accordance herewith), only after giving
effect to deposits to and withdrawals from the Collection Account on such date.
Realized losses, if any, on amounts invested in such Eligible Investments shall
be charged against investment earnings on amounts on deposit in the Collection
Account
(c) The Servicer shall provide the Collateral Agent on the date hereof
and from time to time an incumbency certificate or the substantial equivalent
with respect to each officer of the Servicer that is authorized to provide
instructions relating to investments in Eligible Investments in the Collection
Account.
(d) Eligible Investments shall be maintained by the Collateral Agent
in the Collection Account in such manner as may be necessary to maintain the
first priority perfected security interest in favor of the Collateral Agent on
behalf of the Secured Parties. NationsBank, agrees (and any other Eligible
Institution holding the Collection Account shall so agree) that it shall not
agree to comply with Entitlement Orders with
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respect to the Collection Account given to it by any Person other than the
Collateral Agent.
SECTION 2.7 Reserve Account; Withdrawals; Releases; Draws on Policy.
(a) There shall be established on the Closing Date and maintained, for
the benefit of the Secured Parties, with NationsBank, a segregated account (the
"Reserve Account"), bearing a designation clearly indicating that the funds
deposited therein are held by NationsBank as Collateral Agent for the benefit
of the Secured Parties. The Reserve Account shall be an Eligible Account. If
the Reserve Account ceases to be an Eligible Account, the Insurance Provider
shall have the right to direct the transfer of the Reserve Account to another
financial institution which satisfies the criteria within the definition of
Eligible Account. Subject to the terms hereof, the Collateral Agent shall
possess all right, title and interest in and to all funds deposited from time
to time in the Reserve Account. On each Funding Date the Debtor shall deposit
(or cause to be withheld from proceeds from the issuance of Related Commercial
Paper) to the credit of the Reserve Account an amount equal to an amount
necessary to fund the Reserve Account to the Required Reserve Account Balance.
(1) Funds on deposit in the Reserve Account shall be invested
in Eligible Investments by or at the written direction of the Servicer
(which written directions may be in the form of standing instructions);
provided, that if a Termination Event shall have occurred, such
investments shall be made as directed by the Collateral Agent. Any such
written directions shall specify the particular investment to be made and
shall certify that such investment is an Eligible Investment and is
permitted to be made
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under this Agreement. The Collateral Agent agrees that it shall not accept
for credit to the Reserve Account any investment as to which it has
knowledge of any Adverse Claim thereto. NationsBank hereby agrees to comply
with all Entitlement Orders received by it with respect to the Reserve
Account from the Collateral Agent. NationsBank also agrees with the parties
hereto that all property credited to the Reserve Account is a "financial
asset" as defined in Section 8-102(9) of the Relevant UCC. No Eligible In
vestment in the Reserve Account may be liquidated or disposed of prior to
its maturity. All proceeds of any such Eligible Investment shall be
deposited in the Re serve Account. Investments may be made in the Reserve
Account on any date (provided such investments mature in accordance
herewith), only after giving effect to deposits to and withdrawals from
such account on such date. Realized losses, if any, on amounts invested in
such Eligible Investments shall be charged against investment earnings on
amounts on deposit in the Reserve Account, as applicable.
(2) The Servicer shall provide the Collateral Agent on the
date hereof and from time to time an incumbency certificate or the
substantial equivalent with respect to each officer of the Servicer that is
authorized to
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provide instructions relating to investments in Eligible Investments in
the Reserve Account.
(3) Eligible Investments shall be maintained by the
Collateral Agent in such manner as may be necessary to maintain the first
priority perfected security interest in favor of the Collateral Agent on
behalf of the Secured Parties. NationsBank agrees (and any other Eligible
Institution holding the Reserve Account shall so agree) that it shall not
agree to comply with Entitlement Orders with respect to the Reserve Account
given to it by any Person other than the Collateral Agent.
(b) Funds on deposit in the Reserve Account shall be invested by the
Collateral Agent in Eligible Investments with maturities such that all funds on
deposit in the Reserve Account will be available on the next succeeding
Remittance Date following such investment. The Collateral Agent shall maintain
possession of the negotiable instruments or securities, if any, evidencing the
Eligible Investments from the time of purchase thereof until the time of sale
or maturity. Such investments shall be held in the name of the Collateral
Agent, for the benefit of the Secured Parties.
(c) In the event that on any Remittance Date or day on which a
Take-Out occurs, after giving effect to such Take-Out, the amount on deposit in
the Reserve Account (calculated as of the related Determination Date or the
date of the Take-Out, as applicable) exceeds the Required Reserve Account
Balance, the Collateral Agent shall (x) if no Termination Event shall have
occurred, an amount equal to the excess of the amount on deposit in the Reserve
Account over the Required Reserve Account Balance shall be withdrawn from the
Reserve Account by the Collateral Agent and deposited by the
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Collateral Agent in the Collection Account and shall constitute part of
Available Collections for the related Remittance Date and (y) if a Termination
Event shall have occurred, apply such amounts pursuant to Section 5.1(e).
(d) Funds may be released from the Reserve Account in accordance with
Sections 2.7(c) and (e) and Sections 5.1(b), (c) and (e) hereof.
(e) After the occurrence of the Termination Date upon the day on which
the Net Investment is zero and the Secured Parties shall have received all
amounts due to them hereunder and under the other Transaction Documents, the
Collateral Agent shall release to the Debtor all amounts on deposit in the
Reserve Account.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE DEBTOR, THE SERVICER AND THE SUBSERVICER
SECTION 3.1 Representations and Warranties of the Debtor. The Debtor
represents and warrants to the Agent, the Collateral Agent, the Secured Parties
and the Back-Up Servicer as of the Closing Date and, except as otherwise
provided herein, as of each date of any Subsequent Funding that:
(a) Organization, Etc. The Debtor is a limited liability company duly
organized under the laws of the State of Texas pursuant to its Articles of
Organization and is validly existing as a limited liability company and is in
good standing under the laws of the State of Texas, and has full power and
authority to execute and deliver this Agreement and each other Trans action
Documents to which it is a party and the Debtor has full power and authority to
perform the terms and provisions under this Agreement and each other Transaction
Document to which it is a party. The Debtor is duly qualified to do
business as a foreign business entity in good standing and has obtained all
required licenses and approvals, if any, in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires such
qualifications except those jurisdictions in which failure to be so qualified
would not have a material adverse effect on the business or operations of the
Debtor or the Debtor's performance hereunder or under any other Transaction
Document to which it is a party.
(b) Due Authorization, etc. The execution, delivery and performance by
the Debtor of this Agreement and each other Transaction Document to which it is
a party have been duly authorized by all necessary action by the Debtor, do not
require any approval or consent of any governmental agency or authority, do not
and will not conflict with any material provision of its Articles of
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Organization, and do not and will not conflict with or result in a breach which
would constitute a material default under any agreement for borrowed money
binding upon or applicable to it or such of its property which is material to
it, or any law or governmental regulation or court decree applicable to it or
such material property, and this Agreement and each other Transaction Document
to which the Debtor is a party is the legal, valid and binding obligation of
the Debtor enforceable in accordance with its terms except as the same may be
limited by insolvency, bankruptcy, reorganization or other laws relating to or
affecting the enforcement of creditors' rights or by general equity principles.
(c) No Conflict. The execution and delivery of each Transaction
Document to which it is a party, the performance of the transactions
contemplated by each Transaction Document to which it is a party and the
fulfillment of the terms thereof will not conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any Requirement of Law applicable to
the Debtor or any indenture, contract, agreement, mortgage, deed of trust, or
other material instrument to which the Debtor is a party or by which it or any
of its properties are bound.
(d) No Litigation. No litigation or administrative proceeding of or
before any court, tribunal or governmental body is presently pending, or to the
knowledge of the Debtor threatened, against the Debtor or its respective
properties or with respect to this Agreement or any other Transaction Document
to which such Person is a party which, if adversely determined would, in the
opinion of the Debtor, have a material adverse effect on the transactions
contemplated by any Transaction Document.
(e) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any governmental body or official
required to be obtained on or prior to the date hereof in connection with the
execution and delivery of each Transaction Document to which it is a party, the
performance by the
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Debtor of the transactions contemplated by the Transaction Documents to which
it is a party and the fulfillment by the Debtor of the terms hereof and
thereof, have been obtained.
(f) Solvency. The Debtor is not insolvent and will not be rendered
insolvent immediately following the consummation on the Closing Date and each
Funding of the transactions contemplated by the Transaction Documents to which
it is a party, including the pledge by the Debtor to the Collateral Agent of
the Collateral specified in Section 2.1 hereof.
(g) No Termination Event. After giving effect to each Funding, no
Termination Event or Potential Termination Event shall have occurred.
(h) Information Furnished. All information furnished by or on behalf
of the Debtor to the Agent, the Collateral Agent or any Secured Party is true
and complete in all material respects.
(i) Taxes. The Debtor has filed all tax returns required to be filed
and has paid or made adequate provision for the payment of all its taxes,
assessments and other governmental charges.
(j) Compliance. The Debtor has complied in all material respects with
all Requirements of Law in respect of the conduct of its business and ownership
of its property.
(k) Investment Company. The Debtor is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or is
exempt from the provisions of such act.
(l) ERISA. The Debtor and each ERISA Affiliate thereof is in
compliance with ERISA in all material respects. No Plan Event has occurred or
is expected to occur that might result, directly or indirectly, in any lien
being imposed on the property of the Debtor.
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(m) Business Purpose. The Debtor will acquire Receivables from either
Seller for a bona fide business purpose and has undertaken the transactions
contemplated herein as principal rather than as agent for either Seller or any
other person.
(n) Purchaser's Records. This Agreement and all related documents
describe the sale of the Receivables to the Debtor as a purchase by the Debtor
from the applicable Seller and evidence the clear intention by the Debtor to
effectuate a purchase of such Receivables. The financial statements and tax
returns of the Debtor will disclose that, under generally accepted accounting
principles and for tax purposes, respectively, the Debtor acquired ownership
of such Receivables.
(o) Nature of Receivables. Each Receivable represented by the Debtor
or the Servicer as an Eligible Receivable hereunder or in any report, document
or instrument delivered hereunder or in connection with the other Transaction
Documents is an Eligible Receivable at the time of such representation. The
inclusion of a Receivable in the calculation of the Borrowing Base shall be
deemed to be a representation that such Receivable is an Eligible Receivable.
(p) Year 2000 Compliance. The Debtor (i) has initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers, vendors and customers), (ii) is in the process of
developing a plan and timeline for addressing the Year 2000 Problem on a timely
basis, and (iii) will implement that plan in accordance with that timetable.
Based on the foregoing, the Debtor believes that all computer applications
(including those of its suppliers, vendors and customers) that are material to
its business and operations are reasonably expected on a timely basis to be
Year 2000 Compliant, except to the extent that a failure to do so could not be
reasonably expected to have a material adverse effect on the Debtor or on the
trans actions contemplated by this Agreement, or to result in a Termination
Event or a Potential Termination Event.
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Subject to the following paragraph, the Debtor (i) has completed a
review and assessment of all Receivables Systems (including, but not limited
to, those of its suppliers, vendors and third-party servicers), and (ii) has
determined that the Receivable Systems are Year 2000 Compliant or will be Year
2000 Compliant on or before June 1, 1999, and thereafter.
The costs of all assessment, remediation, testing and integration
related to the Debtor's plan for becoming Year 2000 Compliant will not have a
material adverse effect on the financial condition or operations of the Debtor.
The representations and warranties set forth in this Section 3.1 shall
survive the pledge and grant of a lien in the respective Receivables to the
Collateral Agent as agent for the Secured Parties. Upon discovery by the
Debtor, the Company, the Collateral Agent, a Bank Investor or the Insurance
Provider of a breach of any of the foregoing representations and warranties,
the party discovering such breach shall give prompt written notice to the
others.
SECTION 3.2 Covenants of the Debtor.
The Debtor hereby covenants to the Collateral Agent and the Secured
Parties, so long as any amounts shall be outstanding under the Note, the Note
Purchase Agreement or the Insurance Agreement or the Insurance Policy is in
effect, that:
(a) Corporate Existence. The Debtor will preserve and maintain its
existence as a limited liability company duly organized and existing under the
laws of the jurisdiction of its formation and will remain duly qualified as a
foreign business entity under the laws of each other jurisdiction in which the
failure to so qualify would have a material adverse effect on the ability of
the Debtor to perform its obligations under this Agreement and each Transaction
Document to which it is a party.
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(b) Losses, Etc. In any suit, proceeding or action brought by the
Collateral Agent or any Secured Party for any sum owing thereto, the Debtor
will save, indemnify and keep the Collateral Agent and such Secured Party
harmless from and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction of liability whatsoever
of an Obligor under any Receivable, arising out of a breach by the Debtor of
any obligation under a Receivable or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of an Obligor or its
successor from the Debtor, and all such obligations of the Debtor shall be and
remain enforceable against and only against the Debtor and shall not be
enforceable against the Collateral Agent or any Secured Party.
(c) Compliance With Law. The Debtor will comply in all material
respects with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Receivables or any part thereof;
provided, however, that the Debtor may contest any act, rule, regulation,
order, decree or direction in any reasonable manner which will not materially
and adversely affect the rights of the Collateral Agent or any Secured Party in
the Receivables or the collectability of the Receivables.
(d) No Instruments. The Debtor will take no action to cause any
Receivable to be evidenced by any instrument (as defined in the Relevant UCC).
(e) No Liens. Except for the conveyances contemplated hereunder, the
Debtor will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on any Receivable or any
interest therein; the Debtor will notify each of the Collateral Agent and the
Insurance Provider in writing of the existence of any Lien on any Receivable
immediately upon discovery thereof; and the Debtor shall defend the right,
title and interest of the Collateral Agent on behalf of the Secured Parties in,
to and under any Receivables against all claims of third parties claiming
through or under the Debtor or of which it is
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otherwise aware; provided, however, that nothing in this Section 3.2(e) shall
prevent or be deemed to prohibit the Debtor from suffering to exist upon any of
the Receivables any Liens for municipal or other local taxes and other
governmental charges if such taxes or governmental charges shall not at the
time be due and payable or if the Debtor shall currently be contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves with respect thereto.
(f) Notice to Collateral Agent. The Debtor shall advise the Collateral
Agent and the Insurance Provider promptly, in writing and in reasonable detail,
(i) of any Lien asserted or claim made against any of the Receivables, (ii) of
the occurrence of any breach by the Debtor of any of its representations,
warranties and covenants contained herein and (iii) of the occurrence of any
other event which would have a material adverse effect on the Collateral
Agent's security interest on behalf of the Secured Parties in the Receivables
or the collectability thereof, or which would have a material adverse effect on
the interests of any of the Secured Parties.
(g) Books and Records. The Collateral Agent, the Back-Up Servicer and
the Secured Parties and their agents and representatives shall at all times
have full and free access during normal business hours to all the computer
tapes, books, correspondence and records of the Debtor insofar as they relate
to the Receivables, and the Collateral Agent, the Back-Up Servicer and the
Insurance Provider and their respective agents and representatives may examine
the same, take extracts therefrom and make photocopies thereof, and the Debtor
agrees to render to the Collateral Agent, the Back-Up Servicer and the
Insurance Provider or their respective agents and representatives, at the
Debtor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. The Debtor hereby assigns to the
Collateral Agent, the Back-Up Servicer and the Insurance Provider and their
respective agents and representatives all rights the Debtor has or shall have
to examine computer tapes, books, correspondence and records
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relating to Receivables and receivables serviced by the Servicer or any
successor servicer thereto.
(h) Administrative Procedures. The Debtor will maintain and implement
administrative operating procedures (including, without limitation, an ability
to recreate records evidencing the Receivables in the event of the destruction
of the originals thereof) and keep and maintain all documents, books, records
and other information maintained in the servicing of sub-prime auto loans.
(i) UCC Filings. The Debtor shall execute such continuation statements
and any other documents prepared by, the Servicer, the Agent, the Insurance
Provider or the Collateral Agent or which may be required by law to fully
preserve and protect the interest of the Collateral Agent and the Secured
Parties hereunder in and to the Receivables and the Financed Vehicles related
thereto, as requested.
(j) Change of Location. The Debtor will not without providing 30 days'
written notice to the Collateral Agent, the Insurance Provider and the Back-Up
Servicer and without filing such amendments to any previously filed financing
statements as the Collateral Agent (upon the occurrence and continuance of a
Insurance Provider Default) or the Insurance Provider may require, (A) change
the location of its principal executive office or the location of the offices
where the records relating to the accounts are kept, or (B) change its name,
identity or corporate structure in any manner which would, could or might make
any financing statement or continuation statement filed by the Debtor in
accordance with this Agreement seriously misleading within the meaning of
Section 9-402(7) of the Relevant UCC.
(k) Reporting. The Debtor will furnish, or cause to be furnished to
the Agent, the Insurance Provider, and the Collateral Agent (unless otherwise
provided to the Collateral Agent):
(i) Notice of Termination Event or Potential Termination
Event. As soon as possible
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and in any event within two (2) Business Days of becoming aware of the
occurrence of a Termination Event or a Potential Termination Event, or a
Servicer Event of Default, a statement of the chief financial officer or
chief accounting officer of the Debtor setting forth details of such
Termination Event or Potential Termination Event or Servicer Event of
Default and the action which the Debtor proposes to take with respect
thereto.
(ii) Change in Credit and Collection Policy. Within ten (10)
days after the date of any material change in or amendment to the Credit
and Collection Policy, a copy of the Credit and Collection Policy then in
effect indicating such change or amendment.
(iii) Annual Reporting. Within one hundred twenty (120) days
after the close of each of its fiscal years, audited financial statements,
prepared in accordance with GAAP on a consolidated basis for the Parent and
its Subsidiaries, including balance sheets as of the end of such period,
related statements of operations, shareholder's equity and cash flows,
accompanied by an audit report of a nationally recognized firm of
independent certified public accountants (or such other firm of independent
certified public accountants acceptable to the Collateral Agent and the
Insurance Provider) which report shall be unqualified as to going concern
and scope of audit and shall state that such consolidated financial
statements present fairly the financial position of the Parent and each of
its Subsidiaries at the dates indicated and the results of their
operations and their cash flow for the periods indicated is in conformity
with GAAP and that the examination had been made in accordance with
generally accepted auditing standards.
(iv) Quarterly Reporting. Within ninety (90) days after the
close of the first three quarterly periods of each of its fiscal years,
for the Parent and its Subsidiaries, consolidated unaudited balance sheets
as of the close of each such
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period and consolidated related statements of operations, shareholder's
equity and cash flows for the period from the beginning of such fiscal year
to the end of such quarter, all certified by the Parent's chief financial
officer.
(v) Compliance Certificate. Concurrently with the delivery by
the Debtor of the financial statements with respect to the Parent and its
Subsidiaries including the Debtor required hereunder, a compliance
certificate signed by an appropriate officer reasonably familiar with the
applicable provisions of this Agreement stating that no Termination Event
or Potential Termination Event or Servicer Event of Default exists, or if
any of the above exists, stating the nature and status thereof.
(vi) Funding Review. The Debtor will engage the Review Firm
to conduct the Funding Re views. In each Funding Review, the Review Firm,
as directed by the Insurance Provider, but in no event more than four times
per calendar year, will:
(1) compare the Receivable Files with respect to a
randomly selected sample (not to exceed 200 of
such Receivables) to the information in the
electronic data tape representing such
Receivables, and shall check to see that items
such as original term, first and last payment
date, Principal Balance, scheduled payment,
Amount Financed, vehicle identification number,
interest rate, etc., are the same on the tape as
in the files;
(2) review the Receivable File with respect to each
Receivable to verify the existence of (i) a copy
of an original executed
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retail installment contract and security
agreement relating to such Receivable and (ii) a
copy of the Certificate of Title for the related
Financed Vehicle or other evidence of lien
issued by the applicable Department of Motor
Vehicles ("DMV"), indicating the applicable
Seller's position as first lienholder (or, in
the case of a recently originated loan for which
the Servicer has not yet received a definitive
Certificate of Title or other evidence of lien
noting such Seller's position as lienholder a
copy of a properly completed and signed
application to such DMV requesting the issuance
of a Certificate of Title noting the Seller's
position as lienholder);
(3) check a randomly selected sample of Receivables,
not to exceed 200, for compliance with certain
of the applicable Seller's origination and under
writing guidelines, as specified in the Credit
and Collection Policy.
The Debtor has instructed or shall instruct the Review Firm to deliver
copies of the results of each Funding Review to the Insurance Provider, each
Seller, the Collateral Agent, the Servicer, the Agent and the Rating Agencies
with respect to the related Funding Review.
(l) The Debtor shall not, without the prior written consent of the
Agent, the Collateral Agent and the Insurance Provider (so long as no Insurance
Provider Default has occurred and is continuing):
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(i) engage in any business or activity other than those set
forth in Article Three of the Debtor's Articles of Organization or do
anything in contravention of its Articles of Organization or the
Regulations;
(ii) incur any indebtedness, or assume or guaranty an
indebtedness of any other entity, other than any indebtedness contemplated
by Article Three of the Debtor's Articles of Organization, which
indebtedness shall be subordinated to all other obligations of the Debtor;
(iii) voluntarily institute, without the unanimous consent of
the Managers any proceedings to adjudicate the Debtor bankrupt or
insolvent, consent to the institution of bankruptcy or insolvency
proceedings against the Debtor, file a petition seeking or consenting to
reorganization or relief under any applicable federal or state law relating
to bankruptcy, consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Debtor
or a substantial part of its property or admit its inability to pay its
debts generally as they become due or authorize any of the foregoing to be
done or taken on behalf of the Debtor;
(iv) (a) pay less than fair market rent for its executive
office space located in the offices of the Parent or any Affiliate of the
Parent to the extent the Debtor's office is located in the offices of the
Parent or any Affiliate of the Parent, (b) fail to maintain the Debtor's
books, financial statements, accounting records and other documents and
records separate from those of either Seller, the Parent or any other
entity, (c) commingle the Debtor's assets with those of the Parent, either
Seller or any other entity (it being under stood that certain Collections
on Receivables owned by the Debtor may be temporarily commingled with
collections on other receivables serviced by the Servicer); (d) fail to act
solely in its limited liability company name and through its own autho-
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rized officers and agents, (e) make investments other than directly or by
brokers engaged and paid by the Debtor or its agents (provided that if any
such agent is an Affiliate of the Debtor it shall be compensated at a fair
market rate for its services), (f) fail to separately manage the Debtor's
liabilities from those of the Parent, either Seller or any Affiliates of
the Parent or either Seller and pay its own liabilities, including all
administrative expenses, from its own separate assets, and (g) fail to pay
from the Debtor's assets all obligations and indebtedness of any kind
incurred by the Debtor. The Debtor shall abide by all legal formalities,
including the maintenance of current minute books, and the Debtor shall
cause its financial statements to be prepared in accordance with generally
accepted accounting principles in a manner that indicates the separate
existence of the Debtor and its assets and liabilities. The Debtor shall
(i) pay all its liabilities, (ii) not assume the liabilities of the Parent
or either Seller or any Affiliate of the Parent or either Seller, and (iii)
not guarantee the liabilities of the Parent or either Seller or any
Affiliate of the Parent or either Seller. The officers and Managers of the
Debtor (as appropriate) shall make decisions with respect to the business
and daily operations of the Debtor independent of and not dictated by any
controlling entity;
(v) amend, alter, change or repeal its Articles of
Organization as in effect on the date hereof without the prior written
consent of the Collateral Agent and the Insurance Provider;
(vi) fail to keep in full effect the Debtor's existence,
rights and franchises as a limited liability company under the laws of the
State of Texas;
(vii) consolidate or merge with or into any other entity or
convey or transfer its proper ties and assets substantially as an entirety
to any entity;
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(viii) commingle its funds and other assets with those of any
other Person;
(ix) be, become or hold itself out as being liable for the
debts of any other Person;
(x) form, or cause to be formed, any Subsidiaries;
(xi) fail to act solely in its own name and through its duly
authorized officers or agents in the conduct of its business, and shall
conduct its business so as not to mislead others as to the identity of the
entity with which they are concerned. The Debtor shall not have any
employees;
(xii) fail to take all actions through a duly authorized
officer of the Debtor;
(xiii) amend, alter, change or repeal any provision contained
in this Section 3.2(l);
(xiv) dissolve or liquidate, in whole or in part, except with
the unanimous vote of the Managers and the prior written consent of the
Insurance Provider;
(xv) fail to have at least two Independent Managers. An
Independent Manager shall be any person who (A) is not and has not been (1)
a stock holder, officer, director (except in its capacity as Independent
Manager of the Debtor), partner, member or employee of the Debtor's
ultimate parent or any Subsidiaries or Affiliates thereof or of a
significant customer, creditor, supplier or independent contractor of the
Debtor, its ultimate parent or any Subsidiaries or Affiliates thereof, and
is not himself such a significant customer, creditor, supplier or
independent contractor, or (ii) a member of the immediate family of any
person described above, and (B) does not directly or indirectly own any
class of voting stock or membership interests of the Debtor or any of its
Subsidiaries or Affiliates. As used herein, the term "signifi-
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cant" means any Person described above (A) who, in the preceding fiscal
year, received compensation from the Debtor, its ultimate parent or any
Subsidiaries or Affiliates thereof, in excess of 5% of such Person's
consolidated gross revenues and who reasonably expects to receive revenues
from the Debtor, its ultimate parent or any Subsidiaries or Affiliates
thereof, in the current fiscal year in excess of such amount, or (B) from
whom, in the preceding fiscal year, the Debtor, its ultimate parent or any
Subsidiaries or Affiliates thereof, received revenues in excess of 5% of
such Person's consolidated gross revenues and from whom the Debtor, its
ultimate parent or any Subsidiaries or Affiliates thereof, reasonably
expects to receive revenues in excess of such amount in the current fiscal
year.
If an Independent Manager resigns, dies or becomes
incapacitated, or such position is otherwise vacant, no action requiring
the unanimous affirmative vote of the Managers shall be taken until a
successor Independent Manager is elected and qualified and approves such
action. In the event of the death, incapacity, or resignation of an
Independent Manager, or a vacancy for any other reason, a successor
Independent Manager shall be appointed by the remaining Managers. Pursuant
to the terms of the Debtor's Articles of Organization, the Independent
Managers, in voting on matters subject to the approval of the Managers,
shall at all times take into account the interests of creditors of the
Debtor in addition to the interests of the Sellers. No Independent Manager
may be removed unless his or her successor is appointed;
(xvi) fail to disclose the effects of the transactions
contemplated by any of the Transaction Documents in accordance with GAAP.
Any consolidated financial statements which consolidate the assets and
earnings of a stockholder, the Parent or either Seller with those of the
Debtor will contain a footnote stating that the assets of the Debtor
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will not be available to creditors of such stockholder, the Parent or such
Seller;
(xvii) fail to have all business correspondences of the
Debtor conducted in the Debtor's own name;
(xix) do any act which would make it impossible to carry on
the ordinary business of the Debtor, except as otherwise provided in the
Articles of Organization and the Regulations;
(xx) confess a judgment against the Debtor;
(xxi) possess Debtor property, or assign rights in specific
Debtor property, for other than a Debtor purpose; or
(xxii) knowingly perform any act that would subject any
member to liabilities of the Debtor in any jurisdiction or the Debtor to
taxation as a corporation under relevant provisions of the Code.
(m) The Note. The Debtor shall not amend, and shall not permit any
amendment to the Note, except in accordance with the Note Purchase Agreement,
and with the prior written consent of the Agent and the Insurance Provider.
(n) Opinion of Counsel. At the end of each calendar quarter,
commencing on June 30, 1999, with respect to any state in which Obligors are
located with respect to Eligible Receivables that account for more than 10% of
the Borrowing Base and with respect to such state the Debtor has not previously
delivered a security interest opinion relating to the Collateral Agent's
interest in the Financed Vehicles securing such Receivables, the Servicer, on
behalf of the Debtor, shall deliver to the Insurance Provider an Opinion of
Counsel satisfactory to the Insurance Provider and counsel for the Insurance
Provider as to the status of the security interest of the Collateral Agent, on
behalf of the Secured Parties, in Financed Vehicles related to such
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Receivables; provided, that any such Eligible Receivable the Obligor of which
is located in a state that accounts for more than 10% of the Borrowing Base and
with respect to such state the Debtor has failed to deliver the security
interest opinion described above, to the extent that the aggregate Principal
Balance of such Eligible Receivables exceeds 10% of the Borrowing Base, the
Principal Balance for each such Eligible Receivable (each, a "State
Concentration Receivable") that causes such Principal Balance to be in excess
of 10% of the Borrowing Base will be deemed to be zero and the Debtor shall be
required to deposit the Refund Price for the related Receivable in the
Collection Account if such payment would be required pursuant to the conditions
set forth in Section 3.2(o)(i), (ii) or (iii).
(o) Refund of Receivable. If, as a result of the representation and
warranty made by the Debtor set forth in Section 3.1(o) hereof being untrue,
either (i) as a result thereof the Noteholder's Percentage of the Borrowing
Base shall be less than the Net Investment, or (ii) a Termination Event shall
have occurred, or (iii) the amount on deposit in the Reserve Account is less
than the Required Reserve Account Balance, then the Debtor shall deposit, with
respect to each Receivable affected by such representation and warranty, the
Refund Price in the Collection Account within three (3) Business Days after the
discovery of such breach. In addition, the Debtor shall deposit into the
Collection Account the Refund Price for any Eligible Receivable with respect to
which either (A) the Custodian shall have failed to receive, within the time
limits imposed by this Agreement and the Custodian Agreement, a Receivable File
with all of the documents required to be delivered by the definition of
"Receivable File", or (B) the related Obligor has failed to pay make the first
scheduled payment under the related Contract on or before sixty (60) days after
the due date of such payment, unless such failure shall have been waived, in
writing, by the Insurance Provider (it is understood by the parties hereto that
clause (B) is for the sole purpose of protecting against fraud and is not
included for credit-related purposes). Upon the discovery of any such breach
by the Debtor of a representation and warranty by the Debtor, the Servicer, the
Collateral
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Agent, the Back-Up Servicer or the Insurance Provider, such Person shall
promptly inform the other parties hereto of such breach.
(p) Year 2000 Compliance. The Debtor will promptly notify the
Collateral Agent and the Insurance Provider in the event it discovers or
determines (i) that any Receivables Systems will not be Year 2000 Compliant on
or before June 1, 1999, and thereafter, or (ii) that any computer application
is otherwise material to its business and operations will not be Year 2000
Compliant on a timely basis, except to the extent that, in the case of (ii)
above, such failure could not reasonably be expected (a) to have a material
adverse effect, or (b) to result in a Termination Event or a Potential
Termination Event.
Further, the Debtor will deliver simultaneously with any quarterly or
annual financial statements or reports to be delivered under this Agreement, a
letter, report, certificate or statement signed by the chief financial officer
or chief accounting officer of the Debtor, as appropriate, that no material
event, problems or conditions have occurred which in the opinion of management
would (i) prevent or materially delay the Debtor's plan to become Year 2000
Compliant or (ii) cause or be likely to cause the Debtor's representations and
warranties set forth herein with respect to being or becoming Year 2000
Compliant to no longer be true; provided, however, that such letter, report,
certificate or statement need not be delivered after June 1, 1999, for so long
as the Debtor remains Year 2000 Compliant.
SECTION 3.3 Representations and Warranties of the Servicer. The
Servicer hereby represents and war rants to the Collateral Agent, the Secured
Parties, the Agent, the Back-Up Servicer and the Debtor, that as of the date of
this Agreement and, for so long as such Servicer shall continue to act as
Servicer hereunder:
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(a) Corporate Existence. The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation;
(b) Full Power and Authority. All necessary corporate, regulatory or
other similar action has been taken to authorize and empower the Servicer and
the officers or representatives acting on the Servicer's behalf, and the
Servicer has full power and authority to execute, deliver and perform this
Agreement;
(c) Due Authorization. The execution, delivery and performance by the
Servicer of this Agreement and each other Transaction Document to which it is a
party have been duly authorized by all necessary action by the Servicer, do not
require any approval or consent of any governmental agency or authority, do not
and will not conflict with any material provision of the Servicer's certificate
of incorporation, and do not and will not conflict with or result in a breach
which would constitute a material default under any agreement for borrowed
money binding upon or applicable to it or such of its property which is
material to it, or any law or govern mental regulation or court decree
applicable to it or such material property, and this Agreement and each other
Transaction Document to which the Servicer is a party is the legal, valid and
binding obligation of the Servicer enforceable in accordance with its terms
except as the same may be limited by insolvency, bankruptcy, reorganization or
other laws relating to or affecting the enforcement of creditors' rights or by
general equity principles;
(d) Due Qualification. The Servicer is duly licensed and qualified to
perform as specified herein and this Agreement and each other Transaction
Document to which the Servicer is a party constitutes a valid, legal and
binding obligation of the Servicer, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the enforcement of creditors' rights generally and to
general principles of equity;
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(e) No Conflict. The execution and delivery of each Transaction
Document to which it is a party, the performance of the transactions
contemplated by each Transaction Document to which it is a party and the
fulfillment of the terms thereof will not conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any Requirement of Law applicable to
the Servicer or any indenture, contract, agreement, mortgage, deed of trust, or
other material instrument to which the Servicer is a party or by which it or
any of its properties are bound;
(f) No Litigation. No litigation or administrative proceeding of or
before any court, tribunal or governmental body is presently pending, or to the
knowledge of the Servicer threatened, against the Servicer or their respective
properties or with respect to this Agreement or any other Transaction Document
to which such Person is a party which, if adversely determined would, in the
opinion of the Servicer, have a material adverse effect on the transactions
contemplated by any Transaction Document;
(g) Information Furnished. All information furnished by the Servicer
to the Agent, the Collateral Agent or any Secured Party is true and complete in
all material respects.
(h) Servicer's Performance. The Servicer has the knowledge, the
experience and the systems, financial and operational capacity available to
timely perform each of its obligations hereunder; and
(i) Compliance With Credit and Collection Policy. The Servicer has,
with respect to the Receivables, complied in all material respects with the
Credit and Collection Policy.
(j) Year 2000 Compliance. The Servicer (i) has initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers, vendors and customers), (ii)
is in the process of developing a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) will implement that plan in
accordance with that timetable. Based on the foregoing, the Servicer believes
that all computer applications (including those of its suppliers, ven-
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dors and customers) that are material to its or any of its Subsidiaries'
business and operations are reasonably expected on a timely basis to be Year
2000 Compliant, except to the extent that a failure to do so could not be
reasonably expected to have a material adverse effect on the Servicer or on the
transactions contemplated under this Agreement, or to result in a Termination
Event or a Potential Termination Event.
Subject to the following paragraph, the Servicer (i) has completed a
review and assessment of all Receivables Systems (including, but not limited to
those of its Subsidiaries, suppliers, vendors and third-party servicers), and
(ii) has determined that the Receivable Systems are Year 2000 Compliant or will
be Year 2000 Compliant on or before June 1, 1999, and thereafter.
The costs of all assessment, remediation, testing and integration
related to the Servicer's plan for becoming Year 2000 Compliant will not have a
material adverse effect on the financial condition or operations of the
Servicer.
(k) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any governmental body or official
required to be obtained on or prior to the date hereof in connection with the
execution and delivery of each Transaction Document to which it is a party, the
performance by the Servicer of the transactions contemplated by the Transaction
Documents to which it is a party and the fulfillment by the Servicer of the
terms hereof and thereof, have been obtained.
SECTION 3.4 Covenants of the Servicer.
The Servicer hereby covenants to the Collateral Agent, the Back-Up
Servicer and the Secured Parties, so
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long as any amounts shall be outstanding under the Note, the Note Purchase
Agreement or the Insurance Agreement or the Insurance Policy is in effect,
that:
(a) Corporate Existence. The Servicer will preserve and maintain its
existence as a corporation duly organized and existing under the laws of the
jurisdiction of its incorporation and will remain duly qualified as a foreign
corporation under the laws of each other jurisdiction in which the failure to
so qualify would have a material adverse effect on the ability of the Servicer
to perform its obligations under this Agreement and each other Transaction
Document to which it is a party.
(b) Losses, Etc. In any suit, proceeding or action brought by the
Agent, the Collateral Agent or any Secured Party for any sum owing thereto, the
Servicer shall save, indemnify and keep the Agent, the Collateral Agent and the
Secured Parties harmless from and against all expense, loss or damage suffered
by reason of any defense, setoff, counterclaim, recoupment or reduction of
liability whatsoever of the Obligor under such Receivable, arising out of a
breach by the Servicer of any obligation under the related Receivable or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such Obligor or its successor from the Servicer, and all
such obligations of the Servicer shall be and remain enforceable against and
only against the Servicer and shall not be enforceable against the Collateral
Agent or any Secured Party.
(c) Compliance With Law. The Servicer shall comply in all material
respects with all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Receivables or any part thereof;
provided, however, that the Servicer may contest any act, rule, regulation,
order, decree or direction in any reasonable manner which will not materially
and adversely affect the rights of the Collateral Agent or any Secured Party in
the Receivables or the collectability of the Receivables.
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(d) No Instruments. The Servicer shall take no action to cause any
Receivable to be evidenced by any instrument (as defined in the UCC as in
effect in the Relevant UCC).
(e) No Liens. The Servicer shall not sell, pledge, assign or transfer
to any other Person, or grant, create, incur, assume or suffer to exist any
Lien (other than the Lien created by this Agreement) on any Receivable or any
interest therein; the Servicer will notify the Collateral Agent and the
Insurance Provider of the existence of any Lien on any Receivable immediately
upon discovery thereof; and the Servicer shall defend the right, title and
interest of the Collateral Agent on behalf of the Secured Parties in, to and
under the Receivables against all claims of third parties claiming through or
under the Servicer.
(f) Notice to Collateral Agent. The Servicer shall advise the
Collateral Agent and the Insurance Provider promptly, in reasonable detail, (i)
of any Lien asserted or claim made against any of the Receivables, (ii) of the
occurrence of any breach by the Servicer of any of its representations,
warranties and covenants contained herein and (iii) of the occurrence of any
other event which would have a material adverse effect on the Collateral
Agent's security interest on behalf of the Secured Parties in the Receivables
or the collectability thereof, or which would have a material adverse effect on
the interests of any of the Secured Parties.
(g) Books and Records.
(i) The Collateral Agent, the Agent, the Back-Up Servicer and
the Insurance Provider and their agents and representatives shall at all
times have full and free access during normal business hours to all the
computer tapes, books, correspondence and records of the Servicer insofar
as they relate to the Receivables, and the Collateral Agent, the Agent, the
Back-Up Servicer and the Secured Parties and their respective agents and
representation may examine the same, take extracts therefrom
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and make photocopies thereof, and the Servicer agrees to render to the
Collateral Agent, the BackUp Servicer and the Secured Parties or their
respective agents and representatives, at the Servicer's cost and expense,
such clerical and other assistance as may be reasonably requested with
regard thereto. The Servicer shall, upon request, promptly, but no later
than two Business Days after receipt of such request provide, or cause to
be provided, to the Back-Up Servicer, the Agent and the Insurance Provider,
copies of all monthly bank statements, notices, reports or other
documents received from the Collateral Agent regarding funds held in or
transferred to or from all applicable accounts.
(ii) On the eighth day of each calendar month, the Servicer
shall send to the Back-Up Servicer and the Insurance Provider a computer
tape, detailing the payments on the Receivables and related Contracts
during the prior Collection Period (the, "Servicer's Data File"). Such
computer tape shall be in the form and have the specifications as may be
agreed to between the Servicer, the Back-Up Servicer and the Insurance
Provider from time to time.
(iii) No later than five (5) Business Days prior to each
Determination Date, provided that the Servicer shall have furnished to the
Back-Up Servicer the Monthly Servicer's Certificate, the Back-Up Servicer
shall review the information contained in the Monthly Servicer's
Certificate against the information on the Servicer's Data File, on an
aggregate basis. No later than four (4) Business Days after the Back-Up
Servicer's receipt of the above mentioned information, the Back-Up Servicer
shall notify the Servicer, the Agent and the Insurance Provider of any
inconsistencies between the Monthly Servicer's Certificate and the
Servicer's Data File, but in the absence of a reconciliation, the Monthly
Servicer's Certificate shall control for the purpose of calculations and
distributions with respect to the related Remittance Date. If the Back-Up
Servicer and the Servicer are unable to
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reconcile discrepancies with respect to a Monthly Servicer's Certificate by
the related Remittance Date, the Servicer shall cause a firm of independent
accountants, at the Servicer's expense, to audit the Monthly Servicer's
Certificate and reconcile the discrepancies. The effect, if any, of such
reconciliation shall be reflected in the Monthly Servicer's Certificate
for such next Remittance Date. The Back-Up Servicer shall only review the
information provided by the Servicer in the Monthly Servicer's Certificate
and in the Servicer's Data File and its obligation to report any
inconsistencies shall be limited to those apparent from the Back-Up
Servicer's review thereof.
(iv) The Back-Up Servicer and the Servicer shall attempt to
reconcile any such material inconsistencies and/or to furnish any such
omitted information and the Servicer shall amend the Monthly Servicer's
Certificate to reflect the BackUp Servicer's computations or to include the
omitted information. The Back-Up Servicer shall in no event be liable to
the Servicer with respect to any failure of the Back-Up Servicer to
discover or detect any errors, inconsistencies, or omissions by the
Servicer with respect to the Monthly Servicer's Certificate and Servicer's
Data File except as specifically set forth in this Section.
(v) The Servicer shall provide monthly, or as otherwise
requested, to the Back-Up Servicer, or its agent, information on the
Receivables and related Contracts sufficient to enable the Back-Up Servicer
to assume the responsibilities as successor Servicer and collect on the
Receivables and related Contracts.
(h) Administrative Procedures. The Servicer will maintain and
implement administrative operating procedures (including, without limitation,
an ability to recreate records evidencing the Receivables in the event of the
destruction of the originals thereof) and keep and maintain all documents,
books, records and other information maintained in the servicing of sub-
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prime auto loans and will record information with respect to each Receivable
in its loan management and accounts system.
(i) Change of Location. The Servicer will not without providing 30
days' written notice to the Agent, the Insurance Provider, and the Collateral
Agent and without filing such amendments to any previously filed financing
statements as the Collateral Agent or the Insurance Provider may require, (A)
change the location of its principal executive office or the location of the
offices where the records relating to the accounts are kept, or (B) change its
name, identity or corporate structure in any manner which would, could or might
make any financing statement or continuation statement filed by the Servicer in
accordance with this Agreement seriously misleading within the meaning of
Section 9-402(7) of the Relevant UCC or any applicable enactment of the
Relevant UCC.
(j) Further Assurances. The Servicer shall deliver to the Agent, the
Insurance Provider, and the Collateral Agent within twelve months of the
Closing Date and each twelve months thereafter an Opinion of Counsel to the
Servicer, dated as of a date during such twelve month period, either (a)
stating that, in the opinion of such counsel, (1) such action has been taken
with respect to the recording, registering, filing, re-recording, re-
registering and re-filing of financing statements, continuation statements or
other instruments or documents as is necessary to preserve and protect the
interest of the Collateral Agent, on behalf of the Secured Parties, in and to
the Receivables and the Financed Vehicles related thereto and reciting the
details of such action or refer ring to prior opinions of counsel in which such
details are given, and (2) all financing statements, continuation statements
and any other necessary documents have been executed and filed that are
necessary fully to preserve and protect the perfected interest of the
Collateral Agent, on behalf of the Secured Parties, in and to such Receivables
and the Financed Vehicles related thereto, and reciting the details of such
filings or referring to prior opinions of counsel in which such details are
given, or (b) stating that, in the opinion of
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such counsel, no such action is necessary to preserve and protect such
interest.
(k) Reporting. The Servicer shall furnish, or cause to be furnished to
the Agent, the Insurance Provider, the Back-Up Servicer and the Collateral
Agent (unless otherwise provided to the Collateral Agent):
(i) Notice of Termination Event or Potential Termination
Event. As soon as possible and in any event within two (2) Business Days of
becoming aware of the occurrence of a Termination Event or a Potential
Termination Event hereunder, or a Servicer Event of Default (as defined in
herein) under Article IV of this Agreement, a statement of the chief
financial officer or chief accounting officer of the Servicer setting forth
details of such Termination Event or Potential Termination Event or
Servicer Event of Default and the action which the Servicer proposes to
take with respect thereto.
(ii) Credit and Collection Policy. Within 10 days after the
date of any material change in or amendment to the Credit and Collection
Policy, a copy of the Credit and Collection Policy then in effect
indicating such change or amendment. Any change that will materially and
adversely affect the Insurance Provider shall be approved in writing by the
Insurance Provider.
(iii) Compliance Certificate. Annual Statements to
Compliance; Notice of Default. (a) The Servicer shall deliver to the
Collateral Agent, the Rating Agencies, the Insurance Provider, the Debtor,
the Company and the Bank Investors, on or before March 31st of each year
beginning in the year 2000, an officer's certificate, dated as of the
preceding December 31st, stating that (i) a review of the activities of the
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Servicer during the preceding 12-month (or for the initial certificate,
for such shorter period as may have elapsed from the Closing Date to such
December 31st) period and of its performance under this Agreement has been
made under such officer's supervision and (ii) to the best of such
officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof.
(b) The Servicer shall deliver to the Collateral Agent, the Rating
Agencies, the Insurance Provider, the Debtor, the Company and the Bank
Investors, promptly after having obtained knowledge thereof, but in no event
later than 5 Business Days thereafter, written notice in an officer's
certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Event of Default under Section 4.3.
(l) Extended Service Agreements. The Servicer shall not amend, and
shall not permit any amendment to any Extended Service Agreement relating to
any Financed Vehicle which would adversely affect its ability and right to
receive refunds under such contracts, or which would adversely affect the
position of the Insurance Provider.
(m) Realization on Receivables. In the event that the Servicer
realizes upon any Receivable, the methods utilized by the Servicer to realize
upon such Receivable or otherwise enforce any provisions of such Receivable
will not subject the Servicer, the Debtor, the Insurance Provider the Agent,
any Secured Party or the Collateral Agent to liability under any federal, state
or local law, and that such enforcement by the Servicer will
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be conducted in accordance with the provisions of this Agreement, the Credit
and Collection Policy and applicable law.
(n) Capacity. The Servicer has the knowledge, the experience and the
systems, financial and operational capacity available to timely perform each of
its obligations hereunder.
(o) Release; Additional Covenants. The Servicer shall (i) not release
any Financed Vehicle securing any Receivable from the security interest granted
therein by such Receivable in whole or in part except in the event of payment
in full by the Obligor thereunder or upon transfer of such Financed Vehicle to
a successor purchaser following repossession by the Servicer, (ii) not impair
the rights of the Debtor, the Company, the Bank Investors, the Insurance
Provider or the Collateral Agent in the Receivables, (iii) not in crease the
number of scheduled payments due under a Receivable except as permitted herein,
(iv) prior to the payment in full, not sell, pledge, assign, or transfer to any
other Person, or grant, create, incur, assume, or suffer to exist any Lien on
any Receivable or any interest therein, (v) immediately notify the Debtor, the
BackUp Servicer, the Insurance Provider and the Collateral Agent of the
existence of any Lien on any Receivable (other than the Lien of the Collateral
Agent) if the Servicer has actual knowledge thereof, (vi) defend the right,
title, and interest of the Debtor, the Company, the Bank Investors, the
Insurance Provider and the Collateral Agent in, to and under the Receivables,
against all claims of third parties claiming through or under the Servicer,
(vii) transfer to the Collateral Agent for deposit into the Collection Account
all payments received by the Servicer with respect to the Receivables in
accordance with this Agreement, (viii) comply, in all respects with the terms
and conditions of this Agreement relating to the obligation of the Debtor to
remove Receivables from the Collateral pursuant to this Agreement and the
obligation of the applicable Seller to reacquire Receivables from the Debtor
pursuant to the Receivables Purchase Agreement, (ix) promptly notify the
Debtor, the Back-Up Servicer, the Insurance Provider and the Collat-
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eral Agent of the occurrence of any Servicer Event of Default and any breach by
the Servicer of any of its covenants or representations and warranties
contained herein pursuant to Section 3.4(k)(iii), (x) promptly notify the
Debtor, the Insurance Provider, the Back-Up Servicer and the Collateral Agent
of the occurrence of any event which, to the knowledge of the Servicer, would
require that the Debtor make or cause to be made any filings, reports, notices,
or applications or seek any consents or authorizations from any and all
government agencies, tribunals, or authorities in accordance with the Relevant
UCC and any state vehicle license or registration authority as may be
necessary or advisable to create, maintain, and protect a first-priority
security interest of the Collateral Agent in, to, and on the Financed Vehicles
and a first-priority security interest of the Collateral Agent in, to, and on
the Receivables, (xi) take all reasonable action necessary to maximize the
returns pursuant to the Financed Vehicle Insurance Policies, (xii) deliver or
cause to be delivered to the Debtor no later than one (1) Business Day
preceding the Cut-Off Date or any Funding Date, as the case may be, the
Receivables Schedule, and (xiii) deliver or cause to be delivered to the
Custodian within one (1) Business Day preceding the Closing Date or the date of
such Subsequent Funding, as the case may be, the documents to be included in
the Receivable Files with respect to the Receivables, as the case may be.
The Servicer shall, within two (2) Business Days of its receipt
thereof, respond to reasonable writ ten directions or written requests for
information that the Back-Up Servicer, the Debtor, the Agent, the Collateral
Agent or the Insurance Provider might have with respect to the administration
of the Receivables.
The Servicer will promptly advise the Debtor, the Insurance Provider,
the Back-Up Servicer and the Collateral Agent of any inquiry received from an
Obligor which requires the consent of the Debtor or the Collateral Agent.
(p) Year 2000 Compliance. The Servicer will promptly notify the
Collateral Agent and the Insurance
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Provider in the event it discovers or determines (i) that any Receivables
Systems will not be Year 2000 Compliant on or before June 1, 1999, and
thereafter, or (ii) that any computer application is otherwise material to its
business and operations will not be Year 2000 Compliant on a timely basis,
except to the extent that, in the case of (ii) above, such failure could not
reasonably be expected (a) to have a material adverse effect, or (b) to result
in a Termination Event or a Potential Termination Event.
Further, the Servicer will deliver simultaneously with any quarterly
or annual financial statements or reports to be delivered under this Agreement,
a letter, report, certificate or statement signed by the chief financial
officer or chief accounting officer of the Servicer, as appropriate, that no
material event, problems or conditions have occurred which in the opinion of
management would (i) prevent or materially delay the Servicer's plan to become
Year 2000 Compliant, or (ii) cause or be likely to cause the Servicer's
representations and warranties set forth herein with respect to being or
becoming Year 2000 Compliant to no longer be true; provided, that such letter,
report, certificate or statement need not be delivered after June 1, 1999, for
so long as the Servicer remains Year 2000 Compliant.
SECTION 3.5 Representations and Warranties of the Back-Up Servicer.
The Back-Up Servicer, hereby represents, warrants and covenants to the
Servicer, the Debtor, the Agent, the Collateral Agent and each Secured Party
that as of the date of this Agreement and, for so long as the Back-Up Servicer
shall continue to act as Back-Up Servicer hereunder:
(a) Corporate Existence. The Back-Up Servicer is a registered limited
liability partnership duly organized and validly existing under the laws of
the
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State of Texas with power and authority to conduct its business as such is
presently being conducted;
(b) Full Power and Authority. All necessary partnership, regulatory or
other similar action has been taken to authorize and empower the Back-Up
Servicer and the officers or representatives acting on the Back-Up Servicer's
behalf to perform and comply with the Back-Up Servicer's obligations under this
Agreement and the BackUp Servicing Agreement, and the Back-Up Servicer has full
power and authority to execute, deliver and perform this Agreement and the
Back-Up Servicing Agreement;
(c) Due Authorization. The execution and delivery of this Agreement
and the Back-Up Servicing Agreement has been duly authorized, executed, and
delivered by the Back-Up Servicer, and its performance and compliance with the
terms of this Agreement and the BackUp Servicing Agreement will not violate the
Back-Up Servicer's partnership agreement or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, indenture, loan,
lease, credit agreement or any other agreement or instrument to which the
Back-Up Servicer is a party or which may be applicable to the Back-Up Servicer
or any of its assets;
(d) Valid, Legal and Binding. This Agreement and the Back-Up Servicing
Agreement constitutes a valid, legal and binding obligation of the Back-Up
Servicer, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
the enforcement of creditors' rights generally and to general principles of
equity;
(e) Compliance With Law. The Back-Up Servicer is not in violation of,
and the execution, delivery and performance of this Agreement and the Back-Up
Servicing Agreement by the Back-Up Servicer will not constitute a violation
with respect to any order or decree of any court or any order, regulation or
demand of any federal, state municipal or governmental agency, which violation
might have consequences that would mate-
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rially and adversely affect the condition (financial or other) or operations of
the Back-Up Servicer or its properties or might have consequences that would
affect the performance of its duties hereunder; and
(f) No Proceedings. No proceeding of any kind, including but not
limited to litigation, arbitration, judicial or administrative, is pending or
threatened against or contemplated by the Back-Up Servicer which would under
any circumstance have an adverse effect on the execution, delivery, performance
or enforceability of this Agreement and the Back-Up Servicing Agreement.
SECTION 3.6 Covenants of the Back-Up Servicer.
The Back-Up Servicer hereby covenants to the Servicer, the Debtor, the
Agent, the Collateral Agent and each Secured Party, so long as any amounts
shall be outstanding under the Note, the Note Purchase Agreement or the
Insurance Agreement or the Insurance Policy is in effect, that:
(a) Corporate Existence. The Back-Up Servicer shall preserve and
maintain its existence as a registered limited liability partnership duly
organized and existing under the laws of the jurisdiction of its formation.
(b) Compliance With Law. The Back-Up Servicer shall comply in all
material respects with all acts, rules, regulations, orders, decrees and
directions of any governmental authority applicable to the Receivables or any
part thereof; provided, however, that the Back-Up Servicer may contest any act,
rule, regulation, order, decree or direction in any reasonable manner which
will not materially and adversely affect the rights of the Servicer, the
Collateral Agent or any Secured Party in the Receivables or the collectability
of such Receivables.
(c) Notice to Servicer. The Back-Up Servicer shall advise the Servicer
and the Insurance Provider promptly, in reasonable detail, of the occur-
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rence of any breach by the Back-Up Servicer of any of its representations,
warranties and covenants contained herein.
(d) Books and Records. The Servicer, the Collateral Agent, the Agent
and the Secured Parties and their agents and representatives shall at all times
have full and free access during normal business hours in a manner that does
not interfere with Back-Up Servicer's normal business operation to all the
computer tapes, books, correspondence and records of the Back-Up Servicer
insofar as they relate to the Receivables, and the Servicer, the Collateral
Agent and the Secured Parties and their agents and representatives may examine
the same, take extracts therefrom and make photocopies thereof, and the Back-Up
Servicer agrees to render to the Servicer, the Collateral Agent and the Secured
Parties or their agents and representatives, at the Servicer's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto.
(e) Resignation of Back-Up Servicer. The Back-Up Servicer shall not
resign hereunder unless it arranges for a successor Back-Up Servicer reasonably
acceptable to the Debtor, the Agent, the Collateral Agent and the Insurance
Provider.
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ARTICLE IV
SERVICING AND ADMINISTRATION
SECTION 4.1 Servicing. (a) The Debtor and the Collateral Agent on
behalf of the Secured Parties hereby appoint FirstCity Funding, as Servicer, to
manage, collect and administer each of the Receivables. In the event of a
Servicer Event of Default, the Collateral Agent, shall, upon the written
direction of the Insurance Provider, terminate FirstCity Funding as the
Servicer hereunder, but in any event shall notify the Insurance Provider and
the Rating Agencies of such Servicer Event of Default. The Insurance Provider
shall also have the right to remove the Servicer for cause, which shall include
the material breach of any obligation or covenant hereunder; provided, that no
Insurance Provider Default has occurred and is continuing, in which case the
Agent shall have the right to remove the Servicer for cause and the Insurance
Provider shall provide notice of such removal to each of S&P and Moody's. Upon
the termination of FirstCity Funding as Servicer and with the prior written
consent of the Insurance Provider, or the Agent, if an Insurance Provider
Default has occurred and be continuing, LSE, as Back-Up Servicer shall act as
the successor Servicer and LSE shall service the Receivables in accordance with
the terms of the
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Back-Up Servicing Agreement. The Agent and the Insurance Provider (so long as
no Insurance Provider Default shall have occurred and is continuing) shall have
the same rights of removal and termination for cause with respect to the
Back-Up Servicer or any other successor Servicer as with respect to FirstCity
Funding as the Servicer. Upon the termination and removal of the Servicer, the
predecessor Servicer shall cooperate with the successor Servicer and the
Back-Up Servicer in effecting the termination of the rights and
responsibilities of the predecessor Servicer under this Agreement, including
the transfer to the BackUp Servicer or the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
predecessor Servicer for deposit, or shall there after be received, with
respect to a Receivable, and the related accounts and records maintained by the
Servicer. All reasonable costs and expenses (including attorney's fees and
disbursements) incurred in connection with the transferring of Receivables to
the successor Servicer, converting the Servicer's data to the successor
Servicer's computer system and amending this Agreement to reflect such
succession as Servicer pursuant to this Section 4.1 shall be paid by the
predecessor Servicer upon presentation of reasonable
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Transition Expenses (the "Transition Expenses"); provided, however, that such
Transition Expenses shall not exceed $75,000. If such Transition Expenses are
not paid by the predecessor Servicer to the successor Servicer, such Transition
Expenses shall be paid by the Parent pursuant to Section 2.02(q) of the
Insurance Agreement. In no event shall the Back-Up Servicer, if it becomes
Servicer, be responsible for any Transition Expenses. If both the predecessor
Servicer and the Parent shall fail to pay the Transition Expenses, the
Transition Expenses shall be payable pursuant to Section 5.1(a) of this
Agreement. Upon the termination or removal of the Back-Up Servicer, the
Insurance Provider (so long as no Insurance Provider Default shall have
occurred and is continuing) or the Agent, if an Insurance Provider Default has
occurred and is continuing, may select a successor Servicer and such successor
Servicer shall service the Receivables in accordance with the Credit and
Collection Policy and this Agreement. The Servicer and the Back-Up Servicer
shall resign only with the prior written consent of the Insurance Provider or
if the Servicer or the Back-Up Servicer, as the case may be, provides an
Opinion of Counsel to the Insurance Provider to the effect that such Servicer
or the Back-Up Servicer, as the case may be, is no longer permitted by law to
act as Servicer hereunder. No termination or resignation of the Servicer or
the Back-Up Servicer, as the case may be, hereunder shall be effective until a
successor Servicer or Back-Up Servicer, as the case
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may be, acceptable to the Insurance Provider has accepted its appointment as
successor Servicer or Back-Up Servicer, as the case may be, hereunder and has
agreed to be bound by the terms of this Agreement, and the Credit and
Collection Policy. In the case that the Back-Up Servicer or any other successor
Servicer shall not agree to perform any duties or obligations of the Servicer
hereunder, such duties or obligations may be performed or delegated by the
Insurance Provider, if an Insurance Provider Default shall not have occurred,
or otherwise by the Collateral Agent.
(a) The Servicer shall deposit all Collections to the Collection
Account no later than two (2) Business Days after receipt thereof in a lockbox
or otherwise.
(b) The Servicer shall be responsible for collection of payments
called for under the terms and provisions of the Contracts related to the
Receivables, as and when the same shall become due. The Servicer, in making
collection of such Receivable payments pursuant to this Agreement, shall be
acting as agent for the Collateral Agent, on behalf of the Secured Parties,
and shall be deemed to be holding such funds in trust on behalf of and as agent
for the Collateral Agent. The Servicer, consistent with the Credit and
Collection Policy, shall
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service, manage, administer and make collections on the Receivables on behalf
of the Debtor and shall have full power and authority to do any and all things
which it may deem necessary or desirable in connection therewith which are
consistent with this Agreement. The Servicer may in its discretion grant
extensions, rebates, or adjustments on a Contract, and amend or modify any
Contract but shall not modify the APR or the number or amounts of the Scheduled
Payments; provided, that in no event shall a Contract be extended such
that any payment thereon would be due later than nine months after the
Contract's scheduled maturity date at origination; provided, further that no
extensions may be granted by the Servicer until at least six Scheduled Payments
have been received by the Servicer under the related Contract and thereafter
only one extension not to exceed one month may be granted every twelve months
for one of the following reasons: major repair, major medical or other major
events or catastrophes such as house fire, flood, hurricane or tornado damage
or similar occurrences; provided, however that no more than three extensions
shall be permitted on any Contract. The Servicer may in its discretion waive
any late payment charge or any other fees, not including interest on the
outstanding Principal Balance, that may be collected in the ordinary course of
servicing a Contract. The Servicer shall also enforce all rights of the Debtor
under the Originator Agreements including, but not limited to, the right to
require Originators to repurchase Receivables for breaches of representations
and warranties made by the respective Originators.
(c) If the full amount of a scheduled payment due under a Receivable
is not received within three (3) Business Days after its due date, the Servicer
will make reasonable and customary efforts to contact the Obligor by telephone.
The Servicer shall continue its efforts to obtain payment from an Obligor whose
payment has not been made within three (3) Business Days after the due date for
such payment until the Financed Vehicle with respect to such Receivable is
repossessed and sold or the Servicer has determined that all amounts
collectable on the Receivable have been collected. The Servicer shall use its
best efforts, consistent with the Credit and Collection Policy, to collect
funds on a Defaulted
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Receivable; such collections shall be deposited into the Collection Account by
the close of business on the Business Day following receipt thereof.
(d) In the event a Receivable becomes or is reasonably anticipated to
become a Defaulted Receivable, the Servicer, itself or through the use of
independent contractors or agents shall, consistent with the Credit and
Collection Policy, repossess or otherwise convert the ownership of the Financed
Vehicle securing any such Receivable as to which the Servicer shall have
determined eventual payment in full is unlikely. In accordance with the
priority of payment set forth in Section 5.1(a) hereof, all costs and expenses
incurred by the Servicer in connection with the repossession of the Financed
Vehicles securing such Receivables shall be reimbursed to the Servicer to the
extent not previously recouped by the Servicer from Liquidation Proceeds on the
Remittance Date immediately succeeding the Collection Period in which the
Servicer delivered to the Collateral Agent an itemized statement of such costs
and expenses. Notwithstanding the foregoing and consistent with the terms of
this Agreement, the Servicer shall not be obligated to repossess or take any
action with respect to a Defaulted Receivable if, in its reasonable judgment
consistent with the Credit and Collection Policy, the Liquidation Proceeds
would be increased.
(e) The Servicer, itself or through the use of independent contractors
or agents, shall follow practices consistent with the Credit and Collection
Policy, in its servicing of automotive receivables, which may include
reasonable efforts to realize on any Originator Recourse, selling a Financed
Vehicle, or requesting a Subservicer to sell a Financed Vehicle, at public or
private sale; provided, however, that the Servicer, itself or through the use
of independent contractors or agents shall, in accordance with its Credit and
Collection Policy, maximize the sales proceeds for each repossessed Financed
Vehicle. The foregoing shall be subject to the provision that, in any case in
which a Financed Vehicle shall have suffered damage, the Servicer shall not
expend funds for the repair or the repossession of such Financed Vehicle unless
the Servicer shall determine
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in its discretion that such repair or repossession would increase the
Liquidation Proceeds.
(f) The Servicer may delegate in the ordinary course of business any
or all of its duties and obligations hereunder to one or more subservicers
(each, a "Subservicer") for the servicing and administration of the
Receivables; provided, however, that the Servicer shall at all times remain
responsible for the performance of such duties and obligations.
(g) On or before one hundred twenty (120) days after the end of each
fiscal year of the Servicer, beginning with the fiscal year ending December
31, 1999, the Servicer shall cause a firm of Independent Public Accountants
(who may also render other services to the Servicer or the Debtor) to furnish a
report relating to the Servicer's procedures and operations in form and sub
stance reasonably satisfactory to the Insurance Provider, the Collateral Agent
and the Agent to the effect that (A) such accountants have examined the
accounts and records of the Servicer relating to the Collateral and the col
lateral in all securitizations sponsored by the Debtor or an Affiliate thereof
(which records shall be described in one or more schedules to such statement),
(B) such firm has compared the information contained in the Monthly Servicer's
Certificates and similar reports for other securitizations sponsored by the
Debtor or an affiliate thereof delivered in the relevant period with
information contained in the accounts and records for such period, (C) on the
basis of the procedures performed, whether the information contained in the
Monthly Servicer's Certificates and similar reports for other securitizations
sponsored by the Debtor or an affiliate thereof delivered on the relevant
period reconciles with the information contained in the accounts and records
and (D) based on random sampling procedure such firm has confirmed that (i) the
Receivables have satisfied the requirements to be Eligible Receivables, and
(ii) the servicing was conducted in compliance with this Agreement, except for
such exceptions as such Independent Public Accountants believe to be immaterial
and such other exceptions as shall be set forth in such statement.
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SECTION 4.2 Duties of the Servicer.
(a) The Servicer shall take or cause to be taken all such action as
may be necessary or advisable to collect each Receivable from time to time, all
in accordance with applicable laws, rules and regulations, with reasonable
care and diligence, and in accordance with the Credit and Collection Policy.
Each of the Debtor, the Agent and the Collateral Agent, on behalf of Secured
Parties, hereby appoints as its agent the Servicer, from time to time
designated pursuant to Section 4.1, to enforce its respective rights and
interests in and under the Collateral. The Servicer shall hold in trust for the
Secured Parties all records which evidence or relate to all or any part of the
Collateral. In the event that the Back-Up Servicer assumes servicing
responsibilities or a successor Servicer, as applicable, is appointed, the
outgoing Servicer shall promptly deliver to the Back-Up Servicer or the
successor Servicer, as applicable, and the Back-Up Servicer or the successor
Servicer, as applicable, shall hold in trust for the Debtor and the Secured
Parties all records which evidence or relate to all or any part of the
Collateral.
(b) If FirstCity Funding or any Affiliate thereof is not the Servicer,
the Collateral Agent, with the consent of the Insurance Provider, solely for
purposes of establishing the fee to be paid to the Back-up Servicer or any
other Successor Servicer after a notice of removal of the Servicer pursuant to
this Article IV, shall solicit written bids, with a copy to the Insurance
Provider (such bids to include a proposed servicer fee and servicing transfer
costs) from not less than three entities experienced in the servicing of
subprime automobile receivables similar to the Receivables and that are not
Affiliates of the Collateral Agent, the Back-up Servicer, the Servicer or the
Debtor and are reasonably acceptable to the Insurance Provider. The Debtor may
also solicit additional bids from other such entities. Any such written
solicitation shall prominently indicate that bids should specify any applicable
subservicing fees required to be paid from the Servicing Fee and that any fees
and transfer costs in excess of the Servicing Fee shall be paid by the Debtor
from amounts received pursu-
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ant to Section 5.1(a)(xiv) of this Agreement. The successor Servicer shall act
as Servicer hereunder and shall, subject to the availability of sufficient
funds in the Collection Account pursuant to Section 5.1(a)(ii) (up to the
Servicer Fee) of this Agreement, receive as compensation therefor a fee equal
to the fee proposed in the bid so solicited which provides for the lowest
combinations of servicing fee and transition costs, as reason ably determined
by the Insurance Provider and may revise the percentage used to calculate the
Servicing Fee so long as the revised percentage will not result in a Servicing
Fee that exceeds 3.00% per annum. The Servicer, if other than FirstCity
Funding, shall as soon as practicable upon demand, deliver to the Debtor all
records in its possession which evidence or relate to indebtedness of an
Obligor which is not a Receivable.
(c) The Servicer, on behalf of the Debtor, shall administer and
enforce all rights and responsibilities of the holder of the Receivables
provided for in the Financed Vehicle Insurance Policies relating to the
Receivables.
The Servicer, in accordance with prudent servicing procedures, shall
require that each Obligor shall have obtained physical damage insurance
covering the Financed Vehicle as of the date of execution of the Contract. The
Servicer shall, in accordance with its customary servicing procedures, monitor
physical damage insurance coverage. The Servicer will administer the filings of
claims under the Financed Vehicle Insurance Policies by filing the appropriate
notices related to claims, including initial notices of loss, as well as claims
with the respective carriers or their authorized agents all in accordance with
the terms of the Insurance Policies. The Servicer shall use reasonable efforts
to file such claims on a timely basis after obtaining knowledge of the events
giving rise to such claims. The Servicer will utilize such notices, claim forms
and claim procedures as are required by the respective insurance carriers.
The Servicer shall not be required to pay any premiums or, other than
administering the filing of
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claims and performing reporting requirements specified in the Financed Vehicle
Insurance Policies in connection with filing such claims, perform any
obligations of the named insured under such Financed Vehicle Insurance
Policies. The Servicer shall not be responsible to the Debtor, the Insurance
Provider, the Company, the Bank Investors or the Collateral Agent (i) for any
act or omission to act done in order to comply with the requirements or
satisfy any provisions of the Financed Vehicle Insurance Policies or (ii) for
any act, absent willful misconduct or negligence, or omission to act done in
compliance with this Agreement. In the case of any inconsistency between this
Agreement and the terms of any Financed Vehicle Insurance Policy, the Servicer
shall comply with the latter.
(d) The Servicer shall obtain within thirty (30) days of the Closing
Date and shall maintain, at its own expense, a fidelity bond in the amount of
$50,000, each naming the Collateral Agent, in its capacity as Collateral Agent,
as an additional loss payee or beneficiary of each such fidelity bond, with
responsible companies on all officers, employees or other persons acting on
behalf of the Servicer in any capacity with regard to the Collateral to handle
funds, money, documents and papers relating to the Collateral. Any such
fidelity bond shall protect and insure the Servicer against losses, including
forgery, theft, embezzlement, fraud, and errors and omissions and negligent
acts of such persons and shall be maintained in a form and amount that would
meet the requirements of prudent servicers engaged in the business of servicing
prime, sub-prime and non-prime motor vehicle loan agreements similar to the
Receivables. No provision of this Section 4.2(d) requiring such fidelity bond
shall diminish or relieve the Servicer from its duties and obligations as set
forth in this Agreement. The Servicer shall be deemed to have complied with
this provision if one of its respective Affiliates has such fidelity bond and,
by the terms of such fidelity bond, the coverage afforded thereunder extends to
the Servicer. The Servicer shall cause each and every Subservicer for it to
maintain a fidelity bond which would meet such requirements. Annually and more
frequently upon request of the Debtor, the Insurance Pro-
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vider, the Collateral Agent or the Back-Up Servicer, the Servicer shall cause
to be delivered to the Collateral Agent a certification evidencing coverage
(with respect to itself and any Subservicer) under such fidelity bond. Any such
fidelity bond shall not be cancelled or modified in a materially adverse manner
without thirty (30) days' prior written notice to the Debtor, the Agent, the
Insurance Provider, the Collateral Agent and the Rating Agencies.
(e) The Servicer shall, upon receipt of notice that an Obligor's
physical damage insurance covering a Financed Vehicle related to a Receivable
has lapsed or is otherwise not in force, send written notice to such Obligor
stating that each Obligor is required to maintain physical damage insurance
covering a Financed Vehicle throughout the term of the related Receivable.
In the event of any physical loss or damage to a Financed Vehicle
related to a Receivable from any cause, whether through accidental means or
otherwise, the Servicer shall have no obligation to cause the affected Financed
Vehicle to be restored or repaired. However, the Servicer shall comply with the
provisions of any insurance policy or policies directly or indirectly related
to any physical loss or damage to a Financed Vehicle.
(f) The Debtor hereby directs the Servicer to (i) provide written
notice to the Debtor promptly upon its discovery of the relocation of a
Financed Vehicle related to a Receivable, (ii) take or cause to be taken such
steps as are necessary, to maintain perfection of the security interest created
by each such Receivable in the related Financed Vehicle and (iii) within one
(1) Business Day of its receipt thereof forward to the Custodian, via
reputable overnight courier, a copy of any Certificate of Title to such a
Financed Vehicle received by the Servicer with respect to such a Receivable
serviced hereunder, whether such copy of the Certificate of Title was not
previously delivered to the Collateral Agent in connection with the Closing
Date or date of a Subsequent Funding, as the case may be, or for any other
reason.
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The Servicer shall, at the direction of the Debtor, the Collateral
Agent or the Insurance Provider, take any action necessary to preserve and
protect the security interests of the Debtor and the Collateral Agent in the
Receivables, including any action specified in any Opinion of Counsel delivered
to the Servicer.
(g) The Servicer warrants, represents and covenants that in the event
that the Servicer realizes upon any Financed Vehicle, the methods utilized by
the Servicer to realize upon such Receivable or otherwise enforce any
provisions of such Receivable, will not subject the Servicer, the Debtor, the
Insurance Provider, the Back-Up Servicer or the Collateral Agent to liability
under any federal, state or local law, and that such enforcement by the
Servicer will be conducted in accordance with the provisions of this
Agreement, the Credit and Collection Policy and applicable law.
(h) The Servicer shall:
(i) maintain legible copies (in electronic or hard-copy
form, in the discretion of the Servicer) or originals of the following
documents in its files with respect to each Receivable and the Financed
Vehicle related thereto:
(1) application of the Obligor for credit;
(2) a copy (but not the original) of the retail installment
contract and security agreement and any amendments thereto, provided,
however, that the Servicer shall deliver any original amendments to the
retail installment contract and security agreement to the Custodian
immediately following execution thereof;
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(3) the original Certificate of Title with a lien notation or
an application therefor;
(4) a certificate of insurance or application therefor with
respect to the Financed Vehicle securing such Receivable;
(5) the invoice for each Financed Vehicle related thereto;
(6) Obligor's order for each Financed Vehicle related
thereto and the proof of down payment;
(7) a copy of the service contract, if any, on each Financed
Vehicle related thereto;
(8) a copy of the credit life insurance policy, if any, and
the credit disability insurance policy, if any, on the Obligor relating to
each Financed Vehicle related thereto; and
(9) such other documents as the Servicer may reasonably
determine in order to accomplish its duties under this Agreement.
(ii) keep books and records, satisfactory to the Insurance
Provider, pertaining to each Receivable and shall make periodic reports in
accordance with this Agreement. Such records may not be destroyed or
otherwise disposed of except as provided herein and as allowed by
applicable laws, regulations or decrees. All documents, whether developed
or originated by the Servicer or not, reasonably required to document or to
properly administer any loan shall remain at all times the property of the
Debtor and shall be held in trust by the Servicer. The Servicer shall not
acquire any
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property rights with respect to such records, and shall not have the right
to possession of them except as subject to the conditions stated in this
Agreement. The Servicer shall bear the entire cost of restoration in the
event any Servicer File shall become damaged, lost or destroyed while in
the Servicer's possession or control.
SECTION 4.3 Servicer Events of Default. Any of the following events
shall constitute a "Servicer Event of Default":
(a) the Servicer shall fail to make any payment, transfer or deposit
as required under the Note Purchase Agreement, this Agreement or any other
Transaction Document;
(b) the Servicer shall fail to observe or perform in any material
respect any other covenant or agreement of the Servicer as set forth in the
Note Purchase Agreement, this Agreement or any other Transaction Document;
(c) a material breach of a representation, warranty or certification
by the Servicer pursuant to the Note Purchase Agreement, this Agreement or any
other Transaction Document;
(d) an Event of Bankruptcy shall occur with respect to the Servicer;
(e) the occurrence of a Termination Event which has not been waived by
the Insurance Provider; and
(f) a failure by the Servicer to service the Receivables in accordance
with its Credit and Collection Policy.
The Insurance Provider or, if an Insurance Provider Default has
occurred and is continuing, the Agent may, on behalf of the Company and the
Bank Investors, waive any Servicer Event of Default. Upon any such waiver of a
Servicer Event of Default, such default shall
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cease to exist, and any default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereon except
to the extent expressly so waived.
SECTION 4.4 Indemnity by the Servicer. The Servicer shall be liable to
the Debtor, the Collateral Agent, the Back-Up Servicer, the Insurance Provider,
the Agent, and each Bank Investor (collectively, the "Indemnified Parties") to
the extent of the following:
(a) The Servicer shall indemnify, defend and hold harmless the
Indemnified Parties and any officers and directors, employees and agents of the
Indemnified Parties from and against any and all costs, expenses, losses,
damages, claims and liabilities including reason able fees and expenses of
counsel and expenses of litigation ("Section 4.4 Liabilities and Costs"),
arising out of or resulting from the use, ownership or operation by the
Servicer or any affiliate thereof of a Financed Vehicle.
(b) The Servicer shall indemnify, defend and hold harmless the
Indemnified Parties and any officers and directors, employees and agents of the
Indemnified Parties from and against any and all Section 4.4 Liabilities and
Costs to the extent that such Section 4.4 Liabilities and Costs arose out of,
or were imposed upon any such Person through the breach of this Agreement by
the Servicer, the negligence, misfeasance or bad faith of the Servicer in the
performance of its duties under this Agreement or by reason of reckless
disregard of its obligations and duties under this Agreement.
(c) The Servicer shall be strictly accountable for all payments
actually received on the Receivables.
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(d) In no case shall the Servicer be liable, either directly or
indirectly, for the acts and omissions of the Back-Up Servicer, whenever such
acts or omissions occur or whenever such liability is imposed.
(e) The Servicer shall indemnify, defend, and hold harmless the
Indemnified Parties from and against any taxes that may at any time be asserted
against the Collateral Agent or the Collateral with respect to the transactions
contemplated herein, including, without limitation, any sales, gross receipts,
general corporation, tangible personal property, privilege, or license taxes
(but, in the case of the Collateral, not including any taxes asserted with
respect to, and as of the date of, the pledge of the Receivables of the
Contracts to the Collateral Agent or the issuance and original sale of the
Note, or asserted with respect to ownership of the Receivables, or federal or
other income taxes arising out of the transactions contemplated by this
Agreement) and costs and expenses in defending against the same.
(f) The Servicer shall indemnify, defend, and hold harmless the
Indemnified Parties from and against all Transfer Taxes, calculated on an
after-tax basis (it being understood that no Indemnified Party has any
obligation to pay any such Transfer Taxes).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH SECTION
4.4 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 ARE CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OR ANY KIND BY ANY INDEMNIFIED PARTY.
SECTION 4.5 Merger or Consolidation of, or Assumption of Obligations
of, or Resignation of Servicer.
Any Person (a) into which the Servicer may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Servicer may
be a party, (c) which may succeed to the properties and assets of the Servicer
substantially as a whole or (d) which may
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succeed to the duties and obligations of the Servicer under this Agreement
following the resignation of the Servicer subject to Article IV, which Person
executes an agreement of assumption acceptable to the Insurance Provider to
perform every obligation of the Servicer hereunder, shall, with the prior
written consent of the Insurance Provider, be the successor to the Servicer
under this Agreement without further act on the part of any of the parties to
this Agreement; provided, however, that (i) prior written notice of such
merger, consolidation or assumption of liabilities shall be delivered by the
Servicer to the Insurance Provider and the Collateral Agent, (ii) immediately
after giving effect to such transaction, no Servicer Event of Default and no
event which after notice or lapse of time, or both, would become a Servicer
Event of Default shall have occurred and is continuing, (iii) no Termination
Event or Potential Termination Event or Re-Liening Trigger would occur as
result of such merger, consolidation or assumption of liability, (iv) the
Servicer shall have delivered to the Debtor, the Insurance Provider, the
Back-Up Servicer and the Collateral Agent, an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, succession or
resignation and such agreement of assumption comply with this Section 4.5 and
that all conditions precedent provided for in this Agreement and the other
Transaction Documents to which it is a party relating to such transaction have
been complied with, (v) the Servicer shall have delivered to the Debtor, the
Insurance Provider, the Back-Up Servicer and the Collateral Agent, an Opinion
of Counsel, either (A) stating that, in the opinion of such counsel, all
financing statements, continuation statements and amendments and notations on
Certificates of Title thereto have been executed and filed that are necessary
fully to preserve and protect the interest of the Debtor, the Company, the Bank
Investors, the Insurance Provider and the Collateral Agent in the Receivables
and reciting the details of such filings, or (B) stating that, in the opinion
of such counsel, no such action shall be necessary to preserve and protect such
interest and (vi) the Rating Agencies shall have confirmed the "shadow ratings"
of the Note without regard to the Insurance Policy.
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SECTION 4.6 Rights Prior to Assumption of Duties by Back-Up Servicer
or Designation of Successor Servicer.
(a) On or before one (1) Business Day prior to each Determination
Date, the Servicer, the Agent and the Collateral Agent shall provide sufficient
data to the Back-Up Servicer to allow the Back-Up Servicer to review the
Monthly Servicer's Certificate related thereto and determine the following:
(i) that such Monthly Servicer's Certificate is complete on
its face;
(ii) that the amounts credited to and withdrawn from the
Collection Account and the balance of such account, as set forth in the
records of the Collateral Agent are the same as the amount set forth in the
Monthly Servicer's Certificate; and
(iii) the amount on deposit in the Re serve Account.
(b) The Back-Up Servicer shall, within thirty (30) days of the receipt
thereof, load the computer tape or diskette received from the Servicer pursuant
to Section 3.4(g)(ii) hereof, confirm such computer tape or diskette is in
readable form and verify the following:
(i) the aggregate Principal Balance of all Receivables as of
the most recent Determination Date;
(ii) the Delinquency Ratio, the Default Ratio, the Recovery
Rate, the Cumulative Net Loss Ratio and the Extension Ratio as of the
related Determination Date, each as set forth in the Monthly Servicer's
Certificate; and
(iii) the Borrowing Base as of the most recent Remittance
Date.
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(c) In the event of any discrepancy between the information set forth
in subparagraphs (a) and (b), as calculated by the Servicer, from that
determined or calculated by the Back-Up Servicer, the Back-Up Servicer shall
promptly notify the Servicer and, if within five (5) days of such notice being
provided to the Servicer, the Back-Up Servicer and the Servicer are unable to
resolve such discrepancy, the Back-Up Servicer shall promptly notify the Rating
Agencies, the Insurance Provider, the Agent and the Collateral Agent of such
discrepancy.
(i) Other than as specifically set forth elsewhere in this
Agreement, the Back-Up Servicer shall have no obligation to supervise,
verify, monitor or administer the performance of the Servicer and shall
have no duty, responsibility, obligation, or liability (collectively
"Liability") for any action taken or omitted by the Servicer.
(ii) The Back-Up Servicer shall consult with the Servicer as
may be necessary from time to time to perform or carry out the Back-Up
Servicer's obligations hereunder, including the obligation, if requested in
writing by the Insurance Provider, to succeed within thirty (30) days to
the duties and obligations of the Servicer pursuant to the terms and
conditions of the Back-Up Servicing Agreement.
(iii) Continued Errors. Except as provided in this
Agreement, LSE may accept and reason ably rely on all accounting, records
and work of Servicer without audit, and LSE shall have no Liability for
the acts or omissions of the Servicer. If any error, inaccuracy or omission
(collectively, "Errors") exists in any information received from the
Servicer, and such Errors should cause or materially contribute to LSE
making or continuing any Errors (collectively, "Continued Errors"), LSE
shall have no Liability for such Continued Errors; provided, however, that
this provision shall not protect LSE against any Liability which would
otherwise be imposed by reason of willful misconduct, bad faith or gross
negligence in discovering or correct-
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ing any Error or in the performance of its or their duties hereunder or
under this Agreement. In the event LSE becomes aware of Errors or Continued
Errors, LSE shall; with the prior consent of the Insurer, use its best
efforts to reconstruct and reconcile such data as is commercially
reasonable to correct such Errors and Continued Errors and prevent future
Continued Errors. LSE shall be entitled to recover its costs thereby
expended from the Servicer.
(iv) The Back-Up Servicer shall be indemnified by the
Servicer, the Parent and the Debtor from and against all claims, damages,
losses or expenses reasonably incurred by the Back-Up Servicer (including
reasonable attorney's fees) arising out of claims asserted against the
Back-Up Servicer by third parties on any matter arising out of this
Agreement to the extent the act or omission giving rise to the claim
accrues before the date on which the Back-Up Servicer assumes the duties of
Servicer hereunder, except for any claims, damages, losses or expenses
arising from the Back-Up Servicer's own gross negligence, bad faith or
willful misconduct.
SECTION 4.7 Rights After Assumption of Duties by Back-Up Servicer or
Designation of Successor Servicer. At any time following the assumption of the
duties of the Servicer by the Back-Up Servicer or the designation of a Servicer
(other than FirstCity Funding) pursuant to Section 4.1 as a result of the
occurrence of a Servicer Event of Default:
(a) The Collateral Agent, upon instruction from the Agent or the
Insurance Provider, may direct that payment of all amounts payable under any
Receivable be made directly to the Collateral Agent or its designee, subject to
the consent of the successor Servicer.
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(b) The Servicer, on behalf of the Debtor, shall, at the Collateral
Agent's, the Agent's or the Insurance Provider's request, (A) assemble all of
the records relating to the Collateral, including all Receivables Files, and
shall make the same available to the Collateral Agent and the Insurance
Provider at a place selected by the Collateral Agent and the Insurance Provider
or its designee, and (B) segregate all cash, checks and other instruments
received by it from time to time constituting collections of Collateral in a
manner acceptable to the Agent and the Insurance Provider and shall, promptly
upon receipt but no later than one Business Day after receipt, remit all such
cash, checks and instruments, duly endorsed or with duly executed instruments
of transfer, to the Collateral Agent or its designee.
(c) The Debtor hereby authorizes the Collateral Agent to take any and
all steps in the Debtor's name and on behalf of the Debtor necessary or
desirable, in the determination of the Agent or the Insurance Provider, to
collect all amounts due under any and all of the Collateral with respect
thereto, including, without limitation, endorsing the Debtor's name on checks
and other instruments representing Collections and enforcing the Receivables.
SECTION 4.8 Liability of the Back-Up Servicer.
(a) The Back-Up Servicer shall be liable in accordance herewith only
to the extent of the obligations specifically undertaken by the Back-Up
Servicer in such capacity herein. Such liability is limited to only those
actions taken or omitted to be taken by the Back-Up Servicer and caused through
its gross negligence, bad faith, or willful misconduct. No implied covenants or
obligations shall be read into this Agreement against the Back-Up Servicer and,
in the absence of bad faith on the part of the Back-Up Servicer, the Back-Up
Servicer may conclusively rely on the truth of the statements and the
correctness of the opinions expressed in any certificates or opinions furnished
to the Back-Up Servicer and conforming to the requirements of this Agreement.
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(b) The Back-Up Servicer shall not be charged with knowledge of any
Termination Event or Potential Termination Event unless an officer of the
Back-Up Servicer obtains actual knowledge of such event or the Back-Up Servicer
receives written notice of such event from the Debtor, the Servicer, the
Company, the Insurance Provider or the Agent, as the case may be.
(c) The Back-Up Servicer shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of its
duties hereunder, or in the exercise of any of its rights or powers, if the
repayment of such funds or adequate written indemnity against such risks or
liability is not reasonably assured to it in writing prior to the expenditure
of such funds or the incurrence of financial liability. Notwithstanding any
provision to the contrary the Back-Up Servicer, in its capacity as such, shall
not be liable for any obligation of the Servicer contained in this Agreement,
and the parties shall look only to the Servicer to perform such obligations.
SECTION 4.9 Responsibilities of the Debtor. Anything herein to the
contrary notwithstanding, the Debtor shall (i) perform all of its obligations
under the Receivables to the same extent as if a security interest in such
Receivables had not been granted hereunder, and the exercise by the Collateral
Agent of its rights here under shall not relieve the Debtor from such
obligations and (ii) pay when due any taxes, including without limitation, any
sales taxes payable in connection with the Receivables and their creation and
satisfaction. Neither the Collateral Agent nor any Secured Party shall have any
obligation or liability with respect to any
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Receivable, nor shall any of them be obligated to perform any of the
obligations of the Debtor thereunder.
SECTION 4.10 Monthly Servicer's Certificate. On each Determination
Date the Servicer shall deliver to the Agent, the Insurance Provider, the
Rating Agencies and the Collateral Agent a certificate in substantially the
form of Exhibit F attached hereto (the "Monthly Servicer's Certificate") for
the immediately preceding Collection Period. The Monthly Servicer's Certificate
shall have attached thereto the certificate of the Servicer with respect to the
Receivables relating to the immediately preceding Collection Period. The Agent
shall provide to the Debtor, by the 10th day of the calendar month following
the Collection Period to which such Monthly Servicer's Certificate relates,
information relating to the amount of each obligation of the Company which
comprises Carrying Costs for such Collection Period. The Monthly Servicer's
Certificate shall specify whether a Termination Event is deemed to have
occurred with respect to the Collection Period preceding such Determination
Date. Upon receipt of the Monthly Servicer's Certificate, the Collateral Agent
shall rely (and shall be fully protected in so relying) on the information
contained therein for the purposes of making distributions and allocations as
provided for herein.
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SECTION 4.11 Monthly Back-Up Servicer's Certificate. The Back-Up
Servicer shall provide monthly reports to the Collateral Agent, and the
Collateral Agent shall provide copies of such reports to the Rating Agencies,
the Insurance Provider, the Agent and the Debtor, substantially in the form of
Exhibit G hereto. Such report shall be dated as of the Determination Date for
each Remittance Date and delivered to the Collateral Agent on or before the
close of business on the earlier of fifteen (15) calendar days following the
Determination Date or two (2) Business Day prior to such Remittance Date. The
Back-Up Servicer, in its capacity as such, shall not be responsible for delays
attributable to the Servicer's failure to deliver information, defects in the
information supplied by the Servicer or other circumstances beyond the control
of the Back-Up Servicer.
SECTION 4.12 Servicer Expenses. The Servicer shall be required to pay
all expenses incurred by it in connection with its activities hereunder,
including fees and disbursements of independent accountants, taxes imposed on
the Servicer and expenses incurred in connection with distributions and
reports to the Agent, the Debtor, the Insurance Provider, the Rating Agencies
and the Collateral Agent.
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ARTICLE V
ALLOCATION AND APPLICATION
OF COLLECTIONS; RESERVE ACCOUNT
SECTION 5.1 Collections.
(a) On each Remittance Date, the Collateral Agent shall determine by
reference to the Monthly Servicer's Certificate the Available Collections with
respect to such Remittance Date and shall withdraw such amount from the
Collection Account and allocate and pay such amounts together with the amounts
withdrawn from the Reserve Account pursuant to this Section 5.1 or Section 2.7
or otherwise in the following order of priority:
(i) first, to the Reserve Account in an amount sufficient to
repay Reserve Advances or to the Servicer in an amount sufficient to repay
Servicer Advances;
(ii) second, first, to the Back-up Servicer, an amount equal
to the Back-up Servicing Fee, second, to the Servicer, an amount equal to
the Servicing Fee and third, to the Back-up Servicer or any successor
Servicer, to pay any and all Transition Expenses then due and payable
which have not been previously paid by the Servicer or the Parent, not to
exceed the amount set forth in the Back-Up Servicing Agreement, in the case
of the Back-Up Servicer and not to exceed the sum of $75,000, in the case
of a successor Servicer other than the Back-Up Servicer;
(iii) third, to the Agent, for the benefit of the Company or
the Bank Investors, as applicable, an amount equal to the Enhanced Yield
for the related Collection Period (net of any amounts paid pursuant to
Sections 2.5 and 5.1(b) hereof);
(iv) fourth, to the Agent, for the benefit of the Company or
the Bank Investors, as applicable, an amount sufficient to reduce the Net
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Investment to the Noteholder's Percentage of the Borrowing Base;
(v) fifth, to the Insurance Provider, an amount equal to the
Surety Bond Premium and any other amounts payable to the Insurance Provider
under the Insurance Agreement with accrued interest thereon at the Late
Payment Rate (as defined in the Insurance Agreement);
(vi) sixth, prior to the Termination Date, to the Reserve
Account in an amount sufficient to cause the funds on deposit in the
Reserve Account to equal the Required Reserve Account Balance;
(vii) seventh, after the occurrence of the Termination Date
or during an Amortization Period, to the Agent for the benefit of the
Company or the Bank Investors, as applicable, to reduce the Net Investment
until the Net Investment has been reduced to zero;
(viii) eighth, (A) to the Collateral Agent, an amount equal
to an Re-Liening Expenses and amounts due to the Collateral Agent pursuant
to Section 7.2(a) an in respect to Section 7.2 Liabilities and Cost and
(B) to the Custodian amounts due to the Custodian pursuant to Section 6.1
of the Custodian Agreement and in respect of Section 6 Liabilities and
Costs under the terms of the Custodian Agreement, which in each case shall
then be due and payable to the Collateral Agent or the Custodian, as the
case may be, and which have not previously been paid by or on behalf of
the Debtor;
(ix) ninth, to the Collateral Agent, an amount equal to any
and all Re-Liening Expenses and amounts due to the Collateral Agent
pursuant to Section 7.2(a) and in respect of Section 7.2 Liabilities and
Costs then due and payable which have not previously been paid by or on
behalf of the Debtor;
(x) tenth, to the Agent, for the benefit of the Company or
the Bank Investors, as applicable,
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an amount equal to the dollar amounts specified in paragraphs (i)(a),
(i)(c)(or by the last paragraph of the definition of "Carrying Costs," if
applicable) and (i)(e) of the definition of Carrying Costs remaining after
payment of the amounts described in clause (iii) above;
(xi) eleventh, to the Agent, any other amounts payable to the
Company or the Bank Investors under the Note Purchase Agreement;
(xii) twelfth, to the Servicer, an amount necessary to repay
any Secondary Servicer Advance; and
(xiii) thirteenth, to the Back-Up Servicer or any successor
Servicer other than the Back-Up Servicer, any expenses relating to a
Servicing Transfer not previously paid under clause (ii) above; and
(xiv) fourteenth, to the Debtor all remaining amounts.
(b) In the event that, on any Business Day other than a Remittance
Date, the Debtor does not have sufficient funds to pay the Interest Component
of Related Commercial Paper or the Dealer Fee due and payable on such day up to
the Enhanced Yield, the Collateral Agent shall make an advance from the Reserve
Account in an amount equal to such costs due and payable on such day (a
"Reserve Advance") and pay to the Agent for the account of the Company the
amount of such advance. To the extent that amounts available to be withdrawn by
the Collateral Agent, as specified above, are insufficient to pay the Interest
Component of Commercial Paper or the Dealer Fee due on such date up to the
Enhanced Yield, the Servicer, acting upon notice from the Agent, shall make an
advance in an amount equal to such costs due up to the Enhanced Yield and
payable on such day (a "Servicer Advance") and remit to the Agent, for the
account of the Company, the amount of such advance; provided, however, that the
Servicer shall not be obligated to make any Servicer Advance except to the
extent that the Servicer
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reasonably expects to be reimbursed for such advance on a succeeding Remittance
Date pursuant to Section 5.1(a)(i). Amounts remitted pursuant to this Section
5.1(b) to the Agent for the account of the Company shall be remitted in
immediately available funds to the Agent no later than 12:00 noon, New York
City time, on the date due. To the extent that amounts available in the Reserve
Account and with drawn as a Reserve Advance are insufficient to cover such
costs, the Debtor fails to make a payment to the Reserve Account in the amount
of such shortfall and the amount of any Servicer Advance is insufficient to
cover such costs, the Administrative Agent shall make a demand for payment
under the Insurance Policy in accordance with its terms. The Agent shall be
entitled to direct the Collateral Agent in writing to make a request for
payment upon the Debtor for shortfalls reasonably expected to occur in the
amount available to be withdrawn from the Reserve Account pursuant to this
Section 5.1(b), provided, that any such request shall be (i) based on the
maturity schedule of Related Commercial Paper and (ii) shall be made not more
than four (4) Business Days prior to the scheduled maturity date of the Related
Commercial Paper to which such expected shortfall relates. The Debtor may, but
shall not be obligated to, deposit to the credit of the Reserve Account, on the
Business Day following any such demand, the amount of such requested payment.
(c) If the Available Collections in respect of a Remittance Date are
insufficient to pay the sum of the amounts to be distributed on such Remittance
Date pursuant to clauses (i) through (iv) of Section 5.1(a), the Debtor shall
notify the Collateral Agent of such short fall and the Collateral Agent shall
cause the withdrawal of the amount of such shortfall from the Reserve Account,
to the extent of amounts available for withdrawal there from, and shall apply
such amount to the payment of the items described in clauses (i) through (iv)
of Section 5.1(a) on the related Remittance Date and in that order of priority.
The Agent shall be entitled to direct the Collateral Agent to make a demand for
payment upon the Debtor for shortfalls reasonably expected to occur in the
amount available to be withdrawn from the Reserve Account on any Remittance
Date pursuant
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to this Section 5.1(c), provided, that any such demands shall be (i) based on
the information contained in the related Monthly Servicer's Certificate and
(ii) shall be made not more than four (4) Business Days prior to the scheduled
maturity date of the Related Commercial Paper to which such expected shortfall
relates. The Debtor shall deposit to the credit of the Reserve Account, on the
Business Day following any such demand, the amount of such requested payment.
(d) If on any Remittance Date Available Collections and amounts
available to be withdrawn from the Reserve Account are insufficient to pay the
sum of the amounts to be distributed pursuant to clauses (ii), (iii) and (iv)
of Section 5.1(a) the Agent shall review the terms of the Insurance Policy, and
if a demand for payment may be made thereunder for any such shortfall, the
Agent shall make a demand thereunder in accordance with the terms of the
Insurance Policy and apply the payment in accordance with Section 5.1(a)
hereof.
(e) On or after the occurrence of any Termination Event, the
Collateral Agent shall withdraw all amounts on deposit in the Reserve Account
and distribute such amount as principal on the Note to the Agent, for the
benefit of the Company or the Bank Investors, as applicable, in reduction of
the Net Investment until reduced to zero and thereafter to pay any other
amounts due in the priority set forth in Section 5.1(a) hereof.
SECTION 5.2 Remittances to the Secured Par ties. On each Remittance
Date, the Collateral Agent shall remit Available
Collections in accordance with the provisions of Section
5.1. The foregoing notwithstanding, the final remittance
in respect of the Note shall be made in the applicable
manner specified above only upon presentation and
surrender of the Note at the office of the Debtor
specified by it in the notice of such final remittance or
repurchase.
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ARTICLE VI
TERMINATION EVENTS; SERVICING TERMINATION
SECTION 6.1 Termination Events. The occurrence of any one of the
following events shall be a "Termination Event" under this Agreement:
(a) a material breach by the Servicer, a Seller, the Parent or the
Debtor of any representation and warranty made hereunder or the failure of the
Servicer, a Seller, the Parent or the Debtor to perform or observe any material
term or covenant of any Transaction Document to which it is a party;
(b) an Event of Bankruptcy with respect to the Servicer, a Seller, the
Debtor, the Parent or any of their Subsidiaries;
(c) a Servicer Event of Default shall have occurred;
(d) the Servicer, a Seller, the Parent or the Debtor shall default in
the performance of any payment or material covenant or undertaking under any
Transaction Document to which it is a party;
(e) the Collateral Agent, on behalf of the Secured Parties, shall for
any reason fail to have a valid, perfected, first priority security interest in
the Receivables and the proceeds thereof;
(f) the Net Investment exceeds either (i) the Noteholder's Percentage
of the Borrowing Base for thirty (30) consecutive days, or (ii) the Net
Receivables Balance plus the amounts on deposit in the Reserve Account at any
time;
(g) the Net Investment plus the Interest Component of all outstanding
Related Commercial Paper exceeds the Facility Limit;
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(h) the Parent, the Servicer, a Seller or the Debtor shall enter into
any transaction or merger whereby it is not the surviving entity or the Debtor
shall enter into any merger;
(i) any material adverse change in the operations of the Servicer, a
Seller, the Debtor or any other event which materially affects the Servicer's,
such Seller's or the Debtor's ability to either collect the Receivables or to
perform under any Transaction Document to which it is a party;
(j) the three month rolling average Delinquency Ratio for the
Parent's total serviced portfolio exceeds 12.00%;
(k) the three month rolling average Default Ratio for the Receivables
included in the Collateral exceeds 3.00%;
(l) the three month rolling average Recovery Rate for the Servicer's
total serviced portfolio falls below 55.00%;
(m) the weighted average static pool Cumulative Net Loss Ratio for
the three most recent monthly static pools (for the Servicer's entire serviced
portfolio) exceeds: for pools outstanding six months, 3.00%; for pools
outstanding nine months, 5.85%; for pools outstanding twelve months, 8.75%; for
pools outstanding fifteen months, 12.50%; and for pools outstanding eighteen
months, 16.50%;
(n) the quarterly Funding Reviews by the Insurance Provider (or its
designee) uncovers Receivables representing more than 10% of the sample (not to
exceed 200 for any one quarter) which display material adverse non-compliance
with the Credit and Collection Policy;
(o) the weighted average APR of the Receivables is less than 18.30%;
(p) a material event of default or potential default occurs under any
agreement of the Servicer,
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a Seller, the Parent the Debtor or any one of its Subsidiaries in connection
with any Indebtedness of $1,000,000 or more;
(q) the weighted average remaining term to maturity on the Receivables
is greater than 55 months;
(r) the Parent, a Subsidiary or any Affiliate thereof shall fail to
maintain at least one uninsured line of credit in amount equal to or exceeding
$75,000,000 which the Parent has the ability to access;
(s) the Parent, its Subsidiaries and Affiliates shall fail to
maintain, on a consolidated basis, a combination of cash, liquid investments
and/or borrowing capacity, available at the end of each month, in the amount of
$20,000,000 or more on or after June 30, 1999;
(t) the Parent's Tangible Net Worth is less than the sum of (i)
$115,000,000 and (ii) 75% of cumulative after tax net income since September
30, 1998, as reported on a quarterly basis in the Parent's Form 10-Q or 10-K,
without taking into account any reduction for net losses during such period;
(u) the Parent shall realize a net loss, as determined in accordance
with GAAP, of $15,000,000 or more in any one quarter, or $7,500,000 or more in
each of any two consecutive quarters, in each case starting with the quarter
ended March 31, 1999;
(v) the Adjusted EBITDA Coverage Ratio falls below 1.5:1 on a
quarterly basis;
(w) the Parent shall fail to own or control at least 80% of the voting
stock of the Servicer;
(x) a final nonappealable judgment shall be entered against, or
settlements by, any of the Servicer, a Seller, the Debtor, the Parent or any of
their Subsidiaries by a court of competent jurisdiction assessing monetary
damages in excess of $1,000,000 and,
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in the case of a judgment, such judgment shall not have been discharged or
stayed within 60 days;
(y) a Take-Out does not occur at least once every twelve months;
(z) the term of the Insurance Policy is not at least equal to the term
of the latest maturing Receivable plus 120 days);
(aa) a drawing occurs under the Insurance Policy or an Insurance
Provider Default or an event of default under the Insurance Agreement occurs;
(bb) the transaction contemplated by this Agreement no longer is of
investment grade risk to the Insurance Provider as determined by either of the
Rating Agencies;
(cc) the Insurance Provider shall be rated below Aa or AA by either of
the Rating Agencies;
(dd) the Extension Ratio for three Collection Periods preceding the
date of determination exceeds 2%; and
(ee) a third party credit enhancer other than the Insurance Provider
provides credit enhancement for a securitization which includes Receivables
from a Take-Out unless the Insurance Provider has declined to provide credit
enhancement upon substantially similar terms as such third party credit
enhancer for such securitization.
SECTION 6.2 Remedies. If a Termination Event as specified in Section
6.1 shall have occurred, the Collateral Agent, at the
written direction of the Insurance Provider shall, or the
Agent on behalf of the Company and the Bank Investors may,
with the prior written consent of the Insurance Provider,
declare by
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written notice to the Debtor any date as the date upon which
the Note shall become due and payable and, the Collateral
Agent shall have all of the rights and remedies provided to
a secured creditor under the UCC by applicable law in
respect thereto. In addition, the Company shall have the
right to cease issuing Related Commercial Paper. The Company
or the Bank Investors, as applicable, may, at its/their
option, determine that its/their Carrying Costs with respect
to the Net Investment after the occurrence of a Termination
Event are calculated by reference to the Adjusted LIBOR
Rate, if available and if the Insurance Provider has not
failed to make a required payment under the Insurance
Policy, otherwise, the Company or the Bank Investors, as
applicable, may determine that such Carrying Costs are to be
calculated by reference to the Base Rate plus 2.0%. There
shall be no Subsequent Fundings after the occurrence of any
Termination Event or Potential Termination Event.
No waiver of any Termination Event or Potential Termination Event
shall be effective without the prior written consent of the Insurance Provider
(so long as no Insurance Provider Default has occurred and is continuing) or
the Agent.
If the Note is declared due and payable in accordance with this
Section 6.2, the Collateral Agent shall, at the written direction of the
Insurance Provider, do any one or more of the following:
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(a) take all necessary action to foreclose upon the Collateral;
(b) cause the Servicer to take all steps necessary to cause the
Certificate of Title or other evidence of ownership of the Financed Vehicles
related to the Receivables to be revised to name the Collateral Agent on behalf
of the Secured Parties as first lienholder and to effect any filings or take
any actions necessary under applicable Certificate of Title statutes to perfect
the Collateral Agent's interest as first lienholder in the Financed Vehicle if
a Termination Date has occurred or upon the occurrence of a Termination Event
upon the discretion of the Insurance Provider, if the Insurance Provider shall
have determined that such action is prudent to protect the interest of the
Secured Parties hereunder. Any costs associated with such revision of the
certificate of title or other evidence of ownership shall be paid by the
Servicer and to the extent such costs are not paid by or on behalf of the
Servicer such unpaid costs shall be recovered as described in Section 5.1
hereof.
(c) cause the Debtor to cease purchasing Receivables from either or
both Sellers, and retain in satisfaction of any amounts owed by the Debtor all
amounts otherwise payable to the Debtor pursuant to this Agreement to the
extent necessary to pay in full all amounts (including principal and interest)
(i) due and payable under the Note, (ii) due and payable by the Debtor under
the Note Purchase Agreement, and (iii) all amounts due and payable by the
Debtor under the Insurance Agreement;
(d) pursue any available remedy by proceeding at law or in equity
including complete or partial foreclosure of the lien upon the Collateral and
sale of the Collateral or any portion thereof or rights or interest therein as
may appear necessary or desirable (i) to collect amounts owed pursuant to the
Note and any other payments then due and thereafter to become due under the
Note or (ii) to enforce the performance and observance of any obligation,
covenant, agreement or provision con-
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tained in this Agreement to be observed or performed by the Debtor; or
(e) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and enforce
the rights and remedies of the Collateral Agent on behalf of the Secured
Parties, subject to Section 8.6 hereof.
SECTION 6.3 Application of Proceeds. Any proceeds received by the
Collateral Agent from the sale, disposition or liquidation of the Collateral,
including as a result of any sale or foreclosure thereon as contemplated by
Section 6.2 above, shall be applied as follows:
(a) to the payment of (i) all accrued and unpaid Enhanced Yield and
(ii) principal on the Note;
(b) to the reimbursement of all unpaid premium and draws made on the
Insurance Policy and the payment of all accrued and unpaid interest related
thereto;
(c) to the payment of all accrued and unpaid Carrying Cost, in excess
of Enhanced Yield, in accordance with Section 5.1 hereof;
(d) to the payment of all other amounts due hereunder, under the Note
Purchase Agreement or the Insurance Agreement to the Agent, the Collateral
Agent, the Company, the Insurance Provider or the Bank Investors (pro rata
among them in the event sufficient funds are not available to pay such Persons
in full); and
(e) any remainder after the payment in full of all of the foregoing,
to the Debtor.
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ARTICLE VII
THE COLLATERAL AGENT
SECTION 7.1 Duties of the Collateral Agent. The Secured Parties hereby
appoint NationsBank, to act solely on their behalf as Collateral Agent
hereunder, and NationsBank hereby accepts such appointment. The Collateral
Agent shall undertake to perform such duties and only such duties as are
specifically set forth in this Agreement.
The Collateral Agent shall only resign if it shall (i) become
incapable of acting as Collateral Agent in accordance with the terms of this
Agreement, (ii) be adjudicated insolvent or bankrupt or otherwise become
subject to any bankruptcy, insolvency, reorganization or liquidation
proceeding, (iii) be no longer qualified as the Collateral Agent as such term
is defined in the agreement governing its responsibility as Collateral Agent or
otherwise be subject to replacement pursuant to or such agreement governing its
responsibility as Collateral Agent or (iv) materially breach any of the
provisions of this Agreement; provided, further, that, without the consent of
the Agent and the Insurance Provider, such resignation shall not be effective
until a successor Collateral Agent acceptable to the Insurance Provider shall
have accepted appointment as Collateral Agent hereunder and shall have agreed
to be bound by the terms of this Agreement.
Except as otherwise provided herein, the Collateral Agent shall not
resign from the obligations and duties hereby imposed on it except upon
determination that (i) the performance of its duties hereunder is no longer
permissible under applicable law and (ii) there is no reasonable action which
the Collateral Agent could take to make the performance of its duties hereunder
permissible under applicable law. Any such determination permitting the
resignation of the Collateral Agent shall
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be evidenced as to clause (i) above by an Opinion of Counsel to such effect
delivered to the Secured Parties.
The Collateral Agent shall maintain fidelity bond coverage insuring
against losses through wrongdoing of its officers and employees who are
involved in the administration of Collections covering such actions and in such
amounts as the Collateral Agent in good faith believes to be reasonable in
light of industry standards from time to time.
SECTION 7.2 Compensation and Indemnification of Collateral Agent.
The Collateral Agent shall be compensated for its activities hereunder and
reimbursed for reasonable out-of-pocket expenses (including (i) securities
transaction charges not waived due to the Collateral Agent's receipt of a
payment from a financial institution with respect to certain Eligible
Investments, as specified by the Debtor and (ii) the reasonable compensation
and expenses of its counsel and agents) pursuant to the Fee Letter. Subject to
the terms of such letter agreement, the Collateral Agent shall be required to
pay the expenses incurred by it in connection with its activities hereunder
from its own account. Notwithstanding any other provisions in this Agreement,
the Collateral Agent shall not be liable for any liabilities, costs or
expenses of the Debtor arising under any tax law, including without limitation
any Federal, state or local income or franchise taxes or any other tax imposed
on or measured by
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income (or any interest or arising penalties with respect thereto or arising
from a failure to comply therewith).
(a) The Debtor shall indemnify the Collateral Agent, its officers,
directors, employees and agents for, and hold it harmless against any loss,
liability or expense incurred ("Section 7.2 Liabilities and Costs") without
willful misconduct, gross negligence or bad faith on its part, arising out of
or in connection with (i) the acceptance or administration of this Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties under this Agreement and (ii) the negligence, willful misconduct or
bad faith of the Debtor in the performance of its duties hereunder. All such
amounts shall be payable from amounts paid to the Debtor in accordance with
Section 5.1(a)(viii) hereof. The provisions of this Section 7.2 shall survive
the termination of this Agreement.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH SECTION
7.2 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 ARE CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OR ANY KIND BY THE COLLATERAL AGENT.
SECTION 7.3 Representations, Warranties and Covenants of the
Collateral Agent. The Collateral Agent makes the following representations,
warranties and covenants, and further agrees that the Secured Parties shall be
deemed to have relied upon such representations, warranties and covenants in
entering into this Agreement, the Note Purchase Agreement and the Insurance
Agreement.
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(a) Organization and Good Standing. The Collateral Agent is a national
banking association duly organized, validly existing and in good standing under
the laws of the United States of America, and has full corporate power,
authority and legal right to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted,
and to execute, deliver and perform its obligations under the Transaction
Documents to which it is a party.
(b) Due Authorization. The execution, delivery, and performance of
the Transaction Documents to which it is a party have been duly authorized by
the Collateral Agent by all necessary corporate action on the part of the
Collateral Agent.
(c) Binding Obligation. Each of the Transaction Documents to which it
is a party constitutes a legal, valid and binding obligation of the Collateral
Agent, enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect, affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited
by general principles of equity (whether considered in a proceeding at law or
in equity).
(d) No Conflict. The execution and delivery of the Transaction
Documents to which it is a party by the Collateral Agent, and the performance
of the transactions contemplated thereby and the fulfillment of the terms
thereof applicable to the Collateral Agent, will not conflict with, violate,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time or both) a default under, any Requirement of
Law applicable to the Collateral Agent or any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Collateral Agent is a
party or by which it is bound.
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SECTION 7.4 Liability of the Collateral Agent.
(a) The Collateral Agent shall be liable in accordance herewith only
to the extent of the obligations specifically undertaken by the Collateral
Agent in such capacity herein. No implied covenants or obligations shall be
read into this Agreement against the Collateral Agent and, in the absence of
bad faith on the part of the Collateral Agent, the Collateral Agent may
conclusively rely on the truth of the statements and the correctness of the
opinions expressed in any certificates or opinions furnished to the Collateral
Agent and conforming to the requirements of this Agreement.
(b) The Collateral Agent shall not be liable for an error of judgment
made in good faith by one of its officers, unless it shall be proved that the
Collateral Agent shall have been negligent in ascertaining the pertinent facts.
(c) The Collateral Agent shall not be liable with respect to any
action taken, suffered or omitted to be taken in good faith in accordance with
this Agreement or at the direction of a Secured Party relating to the exercise
of any power conferred upon the Collateral Agent under this Agreement.
(d) The Collateral Agent shall not be charged with knowledge of any
Termination Event unless an officer of the Collateral Agent obtains actual
knowledge of such event or the Collateral Agent receives written notice of such
event from the Debtor, the Servicer, the Company, the Insurance Provider or the
Agent, as the case may be.
(e) Without limiting the generality of this Section 7.4, the
Collateral Agent shall have no duty (i) to see to any recording, filing or
depositing of this Agreement or any agreement referred to herein or any
financing statement or continuation statement evidencing a security interest in
the Receivables or the Financed Vehicles, or to see to the maintenance of any
such recording or filing or depositing or to any recording, refiling or
redepositing of any thereof, (ii) to see to any insurance of the Financed
Vehicles or Obligors or to
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effect or maintain any such insurance, (iii) to see to the payment or discharge
of any tax, assessment or other governmental charge or any Lien or encumbrance
of any kind owing with respect to, assessed or levied against, any part of the
Receivables, (iv) to confirm or verify the contents of any reports or
certificates of the Servicer or the Debtor delivered to the Collateral Agent
pursuant to this Agreement believed by the Collateral Agent to be genuine and
to have been signed or presented by the proper party or parties or (v) to
inspect the Financed Vehicles at any time or ascertain or inquire as to the
performance or observance of any of the Debtor's or the Servicer's
representations, warranties or covenants or the Servicer's duties and
obligations as Servicer and as custodian of books, records, files and computer
records relating to the Receivables under this Agreement.
(f) The Collateral Agent shall not be required to expend or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if
there shall be reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability shall not be reasonably
assured to it, and none of the provisions contained in this Agreement shall in
any event require the Collateral Agent to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement.
(g) The Collateral Agent may rely and shall be protected in acting or
refraining from acting upon any resolution, officer's certificate, any Monthly
Servicer's Certificate, certificate of auditors, or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document reasonably believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(h) The Collateral Agent may consult with counsel and any opinion of
such counsel shall be full and complete authorization and protection in respect
of any
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action taken or suffered or omitted by it under this Agreement in good faith
and in accordance with such opinion of counsel.
(i) The Collateral Agent shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement or to institute, conduct
or defend any litigation under this Agreement or in relation to this Agreement,
at the request, order or direction of a Secured Party pursuant to the
provisions of this Agreement, unless such Secured Party shall have offered to
the Collateral Agent reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred therein or thereby;
(j) The Collateral Agent shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Agreement.
(k) Prior to the occurrence of a Termination Event and before the
Collateral Agent has received notice of such Termination Event and after the
occurring (except with respect to a Termination Event) or waiver of any
Termination Event that may have occurred, the Collateral Agent shall not be
bound to make any investigation into the facts of matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond or other paper or document, unless
requested in writing so to do by a Secured Party; provided, that if the payment
within a reasonable time to the Collateral Agent of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation
shall be, in the opinion of the Collateral Agent, not reasonably assured by the
Debtor, the Collateral Agent may require reasonable indemnity against such
cost, expense or liability as a condition to so proceeding. The reasonable
expense of every such examination shall be paid by the Debtor or, if paid by
the Collateral Agent, shall be reimbursed by the Debtor upon demand.
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(l) The Collateral Agent may execute any of the trusts or powers
hereunder or perform any duties under this Agreement either directly or by or
through agents or attorneys or a custodian. The Collateral Agent shall not be
responsible for any misconduct or negligence of any such agent or custodian
appointed with due care by it hereunder.
SECTION 7.5 Merger, Conversion, Consolidation of, or Succession to
Business of, the Collateral Agent. The Collateral Agent shall not consolidate
with or merge into any other corporation or convey or transfer its properties
and assets substantially as an entirety to any Person, unless:
(i) any corporation or national banking association into
which the Collateral Agent may be merged on converted or with which it may
be consolidated, or any corporation, bank, trust company or national
banking association resulting from any merger, conversion, or consolidation
to which the Collateral Agent shall be a party, or any corporation, bank,
trust company or national banking association succeeding to all or
substantially all of the corporate trust business of the Collateral Agent,
shall be successor of the Collateral Agent hereunder if such corporation,
bank, trust company or national banking association shall be otherwise
qualified and eligible under clause (ii) below, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto; and
(ii) the Collateral Agent and/or its parent shall at all
times have a combined capital and surplus of at least $100,000,000. The
Collateral Agent shall always be a bank or trust company with corporate
trust powers organized under the laws of the United States or any state
thereof which is a member of the Federal Reserve System and shall be rated
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at least "Baa1" by Moody's. Each successor Collateral Agent must be
approved in writing by the Insurance Provider
SECTION 7.6 Limitation on Liability of the Collateral Agent and
Others. The directors, officers, employees or agents of the Collateral Agent
shall not be under any liability to the Collateral Agent, any Secured Party or
any other Person hereunder or pursuant to any document delivered hereunder,
INCLUDING LIABILITY ARISING FROM ITS OWN NEGLIGENCE OF ANY KIND, it being
expressly understood that all such liability is expressly waived and released
as a condition of, and as consideration for, the execution of this Agreement
INCLUDING LIABILITY ARISING FROM ITS OWN NEGLIGENCE OF ANY KIND; provided,
however, that this provision shall not protect the directors, officers,
employees and agents of the Collateral Agent against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. Except as provided in Section 7.4, the
Collateral Agent shall not be under any liability to any Secured Party or any
other Person for any action taken or for refraining from the taking of any
action in its capacity as Collateral Agent pursuant to this Agreement whether
arising from express or
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implied duties under this Agreement; provided, however, that this provision
shall not protect the Collateral Agent against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Collateral Agent shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to administer the Collections, the Collection Account
and the Reserve Account in accordance with this Agreement which in its
reasonable opinion may involve it in any expense or liability unless the
Collateral Agent receives reasonable indemnity against such expense or
liability.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices, etc. Except where telephonic instructions or
notices are authorized herein to be given, all notices, demands, instructions
and other communications required or permitted to be given to or made upon any
party hereto and shall be in writing by messenger, overnight courier or shall
be sent by facsimile transmission with a confirmation of the receipt thereof
by messenger or overnight courier, and shall be deemed to be given for purposes
of this Agreement on the day that the receipt of such facsimile transmission is
confirmed in accordance with the provisions of this Section 8.1. Notice to S&P
will be provided for all waivers, consents, approvals, amendments and
extensions with respect to or under the Transaction Documents. Unless otherwise
specified in a notice sent or delivered in accordance with the foregoing
provisions of this Section 8.1, notices, demands, instructions and other
communications in writing shall be given to or made upon the respective parties
hereto at their respective ad dresses indicated below, and, in the case of
telephonic instructions or notices, by calling the telephone number or numbers
indicated for such party below:
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<PAGE> 187
If to the Company:
Enterprise Funding Corporation
c/o Global Securitization Services, LLC
25 West 43rd St., Suite 704
New York, New York 10036
Attention: Kevin Burns
Telephone: (212) 302-8331
Telecopy: (212) 302-8767
(with a copy to the Administrative Agent)
If to the Debtor:
FCAR Receivables LLC
6400 Imperial Drive (express delivery only)
P.O. Box 8216 (mail)
Waco, Texas 76714-8216
Attention: Richard Vander Woude
Telephone: (254) 751-1750
Telecopy: (254) 751-7725
If to the Servicer:
FirstCity Funding Corporation
6400 Imperial Drive (express delivery only)
P.O. Box 8216 (mail)
Waco, Texas 76714-8216
Attention: Richard Vander Woude
Telephone: (254) 751-1750
Telecopy: (254) 751-7725
If to the Back-Up Servicer:
CSC Logic/MSA LLP d/b/a Loan Servicing
Enterprise
9330 LBJ Freeway, Suite 500
Dallas, Texas 75243
Attention: Mr. John F. Kilgore
Telephone: (972) 783-3507
Telecopy: (972) 783-3532
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<PAGE> 188
If to the Administrative Agent, Collateral Agent or the Agent:
NationsBank N.A.
Bank of America Corporate
Center - 10th Floor
100 North Tryon Street
NC1-007-10-01
Charlotte, North Carolina 28255-0001
Attention: Michelle M. Heath
Global Asset Backed
Securitization
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Insurance Provider:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio
Management - SF (FCAR Receiv-
ables LLC Warehouse Facility
1999)
Telephone: (914) 273-4545
Telecopy: (914) 765-3810
SECTION 8.2 Waivers; Amendments. (a) No failure or delay on the part
of the Agent, the Company, the Administrative Agent, the Collateral Agent, the
Insurance Provider or any Bank Investor in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any
other further exercise thereof or the exercise of any other power, right or
remedy. The rights and remedies herein provided shall be cumulative and
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nonexclusive of any rights or remedies provided by law.
Any provision of this Agreement or any other Transaction Document may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the Debtor, the Servicer, the Company, the Insurance Provider
and the Majority Investors (and, (x) if Article VII or the rights or duties of
the Collateral Agent are affected thereby, by the Collateral Agent and (y) if
the rights or duties of the Back-Up Servicer are affected thereby, by the
Back-Up Servicer); provided that no such amendment or waiver shall, unless
signed by each Bank Investor directly affected thereby, (i) increase the
Commitment of a Bank Investor, (ii) reduce the Net In vestment or rate of
interest to accrue thereon or any fees or other amounts payable hereunder,
(iii) postpone any date fixed for the payment of any scheduled distribution in
respect of the Net Investment or interest with respect thereto or any fees or
other amounts payable hereunder or for termination of any Commitment, (iv)
change the percentage of the Commitments or the number of Bank Investors, which
shall be required for the Bank Investors or any of them to take any action
under this Section or any other provision of this Agreement, (v) release all or
substantially all of the property with respect to which a security or ownership
interest therein has been granted hereunder to the Collateral Agent or (vi)
extend or permit the extension of the Commitment Termination Date. In the event
the Collateral Agent requests the Company's or a Bank Investor's consent
pursuant to the foregoing provisions and the Collateral Agent does not receive
a consent (either positive or negative) from the Company or such Bank Investor
within 10 Business Days of the Company's or Bank Investor's receipt of such
request, then the Company or such Bank Investor (and its percentage interest
hereunder) shall be disregarded in determining whether the Collateral Agent
shall have obtained sufficient consent hereunder.
SECTION 8.3 Successors and Assigns. This Agreement shall be binding
upon the Debtor, the Collateral Agent, the Secured Parties, the
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Servicer, the BackUp Servicer and their respective successors and permitted
assigns and shall inure to the benefit of the Debtor, the Servicer, the
Collateral Agent, the Agent, the Secured Parties and their respective
successors and permitted assigns including the Liquidity Provider; provided
that neither the Servicer nor the Debtor shall assign any of its rights or
obligations hereunder without the prior written consent of the Collateral Agent
acting upon written instruction of each of the Secured Parties. The Debtor and
the Collateral Agent hereby acknowledge that the Agent has granted a security
interest in all of its rights hereunder to the EFC Collateral Agent. In
addition, the Debtor hereby acknowledges that the Agent may at any time and
from time to time assign all or a portion of its rights hereunder to the
Liquidity Provider pursuant to the Liquidity Agreement. Except as expressly
permitted hereunder or in the agreements establishing the Company's commercial
paper program, the Company shall not assign any of its rights or obligations
hereunder without the prior written consent of the Debtor.
SECTION 8.4 Severability Clause. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of
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such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION 8.5 Governing Law; Submission to Jurisdiction; Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE DEBTOR HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW
YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Debtor hereby
irrevocably waives, to the fullest extent it may effectively do so, any
objection which it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Nothing in
this Section 8.5 shall affect the right of the Company to bring any action or
proceeding against the Debtor or its property in the courts of other
jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the
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parties hereto with respect to the subject matter hereof superseding all prior
oral or written understandings.
SECTION 8.6 No Bankruptcy Petition Against the Company or the Debtor.
The Debtor and each of the other parties hereto covenant and agree that, and
each such Person agrees that they shall cause any successor Servicer appointed
pursuant to Section 4.1 to covenant and agree that, prior to the date which is
one year and one day after the payment in full of the later of (i) all amounts
due under the Note and all amounts due to the Insurance Provider or (ii) all
Commercial Paper issued by the Company (or, if the Net Investment (or any
portion thereof) has been assigned to a Conduit Assignee, one year and one day
after the payment in full of all Commercial Paper issued by such Conduit
Assignee); it will not institute against, join any other Person in instituting
against, or knowledge or intentionally cooperate or encourage any other Person
in instituting against, the Company, any Conduit Assignee or the Debtor any
bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any federal or state bankruptcy or
similar law. The Company, the Secured Parties, each Seller and the Collateral
Agent hereby agree that they shall not institute against, or join any other
Person in
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instituting against, the Debtor any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law unless one year and one day has passed following
the final payment on the Note and payment of all amounts due to the Insurance
Provider.
SECTION 8.7 Setoff. The Debtor hereby irrevocably and unconditionally
waives all right of setoff that it may have under contract (including this
Agreement), applicable law or otherwise with respect to any funds or monies of
the Debtor at any time held by or in the possession of the Collateral Agent in
the accounts established pursuant to this Agreement.
SECTION 8.8 No Recourse. It is understood and agreed that the Debtor
shall not be liable for amounts due under this Agreement, the Note, the
Insurance Agreement or the Note Purchase Agreement, except to the extent of
the Collateral. The preceding sentence shall not relieve the Debtor from any
liability hereunder with respect to its representations and warranties herein
described. All amounts due from the Debtor under this Agreement shall be
payable solely in accordance with Section 5.1(a) and/or Section 6.3 of the this
Agreement.
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SECTION 8.9 No Recourse Against Stockholders, Officers or Directors.
Notwithstanding anything to the contrary contained in this Agreement, the
obligations of the Company under this Agreement and all other Transaction
Documents are solely the corporate obligations of the Company and shall be
payable solely to the extent of funds received from Debtor in accordance
herewith or from any party to any Transaction Document in accordance with the
terms thereof in excess of funds necessary to pay matured and maturing
Commercial Paper. No recourse under any obligation, covenant or agreement of
the Company contained in this Agreement shall be had against Global
Securitization Services (or any affiliate thereof), or any stockholder, officer
or director of the Company, as such, by the enforcement of any assessment or by
any legal or equitable proceeding, by virtue of any statute or otherwise; it
being expressly agreed and understood that this Agreement is solely a corporate
obligation of the Company, and that no personal liability whatsoever shall
attach to or be incurred by Global Securitization Services (or any affiliate
thereof), or the stockholders, officers or directors of the Company, as such,
or any of them, under or by reason of any of the obligations, covenants or
agreements of the Company contained in this Agreement, or implied therefrom,
and that any and all personal liability for breaches by the Company of any of
such obligations, covenants or agreements, either at common law or at equity,
or by statute or constitution, of Global Securitization Services (or any
affiliate thereof) and every such stockholder, officer or director of the
Company is hereby expressly waived as a condition of and consideration for the
execution of this Agreement.
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SECTION 8.10. Further Assurances. Each of the Servicer and the Debtor
agrees to do such further acts and things and to execute and deliver to the
Secured Parties, the Back-Up Servicer, the Administrative Agent, the Agent or
the Collateral Agent such additional assignments, agreements, powers and
instruments as are required by the Collateral Agent or the Insurance Provider
to carry into effect the purposes of this Agreement or to better assure and
confirm unto the Collateral Agent, the Back-Up Servicer or the Insurance
Provider its rights, powers and remedies hereunder.
SECTION 8.11 Other Costs, Expenses and Related Matters. (a) The
Debtor agrees, upon receipt of a written invoice, to pay or cause to be paid,
and to save the Collateral Agent, the Back-Up Servicer, and the Secured Parties
harmless against liability for the payment of, all reasonable
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<PAGE> 196
out-of-pocket expenses (including, without limitation, reasonable attorneys',
accountant's and other third parties' fees and expenses, any filing fees and
expenses incurred by officers or employees of the Collateral Agent) incurred
by or on behalf of the Collateral Agent, the Back-Up Servicer or such Secured
Party (i) in connection with the negotiation, execution, delivery and
preparation of this Agreement and any documents or instruments delivered
pursuant hereto and the transactions contemplated hereby (including, without
limitation, the perfection or protection of the Collateral Agent's security
interest in the Collateral) and (ii) from time to time (a) relating to any
amendments, waivers or consents under this Agreement, (b) arising in
connection with the Collateral Agent's, the Back-Up Servicer's or such Secured
Party's or their respective agent's enforcement or preservation of rights
(including, without limitation, the perfection and protection of the
Collateral Agent's security interest in the Collateral under this Agreement),
or (c) arising in connection with any audit, dispute, disagreement, litigation
or preparation for litigation involving this Agreement.
SECTION 8.12 Indemnification Procedures. Notwithstanding anything to
the contrary in this Agreement, in the event that an Indemnified
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Party is entitled to indemnification pursuant to the terms of this Agreement,
such Indemnified Party shall promptly notify the person against whom such
indemnity may be sought (herein after called the "Indemnifying Party") in
writing and the Indemnifying Party, upon request of the Indemnified Party,
shall retain counsel reasonably satisfactory to the Indemnified Party or, at
the Indemnified Party's option, such Indemnified Party may select its own
counsel with the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed, to represent the Indemnified Party and any
others the Indemnifying Party may designate in such proceeding and shall pay
the reasonable fees and disbursements of such counsel related to such
proceeding. It is understood that the Indemnifying Party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate
firm at any one time (in addition to any local counsel) for all such
Indemnified Parties (unless necessary because of conflicts of interest), and
all such fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by the Indemnified Party. The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent, which consent
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shall not be unreasonably withheld or delay, but if settled with such consent
or if there be a final judgment for the plaintiff, the Indemnifying Party
agrees to indemnify the Indemnified Party from and against any loss or
liability by reason of such settlement or judgment.
SECTION 8.13 Exercise of Rights by Insurance Provider. All rights
granted to the Insurance Provider pursuant to this Agreement shall be suspended
during the pendency of a payment default by the Insurance Provider under the
Insurance Policy or during the pendency of an Insurance Provider Insolvency and
during such time the Insurance Provider's rights may be exercised by the Agent,
provided, however, the Insurance Provider's rights shall be reinstated in full,
immediately upon the cure of such default; provided, further, that
notwithstanding anything to the contrary herein, Article III, Article V,
Article VI and this Section 8.13 of this Agreement may not be modified without
the prior written consent of the Insurance Provider.
SECTION 8.14 Counterparts. This Agreement may be executed (which
execution may be by facsimile) in any number of copies, and by the different
parties hereto on the same or separate counterparts, each of which shall be
deemed to be an original instrument.
SECTION 8.15 Headings. Section headings used in this Agreement are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed and delivered as of the date first written above.
FCAR RECEIVABLES LLC
as Debtor
By:
-----------------------------------------------
Name:
Title:
FIRSTCITY FUNDING CORPORATION,
as Servicer
By:
-----------------------------------------------
Name:
Title:
ENTERPRISE FUNDING CORPORATION,
as Company
By:
-----------------------------------------------
Name:
Title:
NATIONSBANK, N.A., as the Collateral Agent
By:
-----------------------------------------------
Name:
Title:
<PAGE> 200
MBIA INSURANCE CORPORATION,
as Insurance Provider
By:
-----------------------------------------------
Name:
Title:
CSC LOGIC/MSA LLP d/b/a LOAN SERVICING
ENTERPRISE,
as Back-Up Servicer
By:
-----------------------------------------------
Name:
Title:
<PAGE> 1
FORM OF NOTE
THIS OBLIGATION HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT.
March 30, 1999
$100,000,000
Reference is hereby made to that certain Note Purchase Agreement dated as
of March 30, 1999 (as amended, supplemented or otherwise modified in accordance
with the terms thereof and in effect from time to time, the "Note Purchase
Agreement") by and among FCAR RECEIVABLES LLC, a Texas limited liability company
(the "Issuer"), Enterprise Funding Corporation, a Delaware corporation (the
"Company") and NationsBank, N.A., as Agent (in such capacity, the "Agent") and
as a Bank Investor (in such capacity, a "Bank Investor") and to that certain
Security Agreement dated as of March 30, 1999 (as amended, supplemented or
otherwise modified and in effect from time to time, the "Security Agreement") by
and among the Issuer, the Company, FirstCity Funding Corporation, as Servicer,
CSC Logic/MSA LLP d/b/a Loan Servicing Enterprise, as Back-Up Servicer,
NationsBank, N.A., as Collateral Agent and MBIA Insurance Corporation. All
capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Note Purchase Agreement or the Security Agreement.
FOR VALUE RECEIVED, the Issuer hereby promises to pay to the order of the
Agent, for the account of the Company or the Bank Investors, as applicable, at
the principal office of the Agent at Bank of America Corporate Center, 100 N.
Tryon Street, Charlotte, North Carolina 28255 a principal sum equal to ONE
HUNDRED MILLION DOLLARS ($100,000,000.00), in lawful money of the United States
of America and in immediately available funds.
The date and amount of each Funding extended by the Company or the Bank
Investors, as the case may be, to the Issuer under the Note Purchase Agreement,
and each payment of principal thereof, shall be recorded by the Company, or the
Bank Investors, as appropriate, on its books and, prior to any transfer of this
Note (or, at the discretion of the Company and/or the Bank Investor, as
appropriate, at any other time), endorsed by the Agent, on behalf of the Company
or the Bank Investor on the
<PAGE> 2
schedule attached hereto or any continuation thereof. Although the stated
principal amount of this Note is as stated above, this Note shall be enforceable
only with respect to the Issuer's obligation to pay the principal hereof only to
the extent of the unpaid principal amount of the Fundings outstanding under the
Note Purchase Agreement at the time such enforcement shall be sought.
Interest on the outstanding principal amount of this Note shall accrue at
the rate or rates necessary for the payment to the holder hereof, on the dates
provided for in the Security Agreement, of Carrying Costs payable to the holder
hereof on such date or dates, in all events interest hereunder in an amount
equal to the Interest Component of all Related Commercial Paper maturing on any
day shall be due and payable on such day. Interest due and payable hereunder
shall be payable in accordance with the priorities set forth in Section 5.1 of
the Security Agreement.
Principal will be due and payable as specified in and in accordance with
the priorities set forth in Section 5.1 of the Security Agreement.
The entire outstanding principal amount of this Note and accrued interest
thereon will be due and payable on the Remittance Date occurring in the calendar
month following the fourth calendar month in which the latest maturing
Receivable (determined as of the Termination Date) is scheduled to mature
(without regard to extensions subsequently granted on any Receivable by the
Issuer or any servicing agent).
After the occurrence of a Termination Event that has not been waived in
writing by the Insurance Provider and the Agent, the Insurance Provider or the
holder hereof may (with the prior written consent of the Insurance Provider,
subject to the terms of the Security Agreement) declare all amounts due
hereunder to be immediately due and payable.
The Issuer's obligation to make payments hereunder shall be a limited
recourse obligation of the Issuer, payable solely from the Collateral; provided,
however, that the foregoing shall not affect the right of the Agent on behalf of
the holder hereof to make a demand for payment under the Insurance Policy of
amounts due hereunder, in accordance with the provisions thereof.
The Issuer shall pay all costs of collection of any amount due hereunder
when incurred, including without limitation, reasonable attorney's fees and
expenses, and including all costs and expenses actually incurred in connection
with the pursuit by
<PAGE> 3
the holder of any of its rights or remedies referred to herein or in the
Security Agreement or the protection of or realization upon collateral, and all
such costs shall be payable in accordance with Section 5.1(a)(x) of the Security
Agreement.
The Issuer waives presentment, notice of dishonor, protest and other
notice or formality with respect to this Note.
Each holder of any interest in this Note (including any holder by
assignment) hereby agrees that it will not institute against, join any other
Person in instituting against, or knowingly or intentionally cooperate with or
encourage any other Person in instituting against, the Issuer, any bankruptcy or
insolvency proceeding so long as there shall not have elapsed one year plus one
day after payment in full of the Note and payment in full of all amounts due to
the Insurance Provider under the Transaction Documents.
THIS NOTE SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
FCAR RECEIVABLES LLC
By:
-------------------------------
Name:
Title:
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,022
<SECURITIES> 64,585
<RECEIVABLES> 1,028,934
<ALLOWANCES> 0
<INVENTORY> 140,614
<CURRENT-ASSETS> 0
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<TOTAL-ASSETS> 1,511,068
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26,319
0
<COMMON> 83
<OTHER-SE> 134,379
<TOTAL-LIABILITY-AND-EQUITY> 1,511,068
<SALES> 5,035
<TOTAL-REVENUES> 53,309
<CGS> 3,666
<TOTAL-COSTS> 3,666
<OTHER-EXPENSES> 47,735
<LOSS-PROVISION> (2,672)
<INTEREST-EXPENSE> 5,590
<INCOME-PRETAX> (1,010)
<INCOME-TAX> 21
<INCOME-CONTINUING> (1,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 835
<NET-INCOME> (2,144)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
