-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CLi9/a7LAPDhMc7XaoWOeupV03C/iZSeMP2GzEzYajhnQ35v22QacUTcOqzApcmf DKLUHfdQnM1BKu0Ku+Ry5g== 0000950129-99-003721.txt : 19990817 0000950129-99-003721.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950129-99-003721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTCITY FINANCIAL CORP CENTRAL INDEX KEY: 0000828678 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 760243729 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-19694 FILM NUMBER: 99690388 BUSINESS ADDRESS: STREET 1: 6400 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 BUSINESS PHONE: 2547511750 MAIL ADDRESS: STREET 1: 6400 IMPERIAL DRIVE CITY: WACO STATE: TX ZIP: 76712 FORMER COMPANY: FORMER CONFORMED NAME: FIRST CITY BANCORPORATION OF TEXAS INC/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST CITY ACQUISITION CORP DATE OF NAME CHANGE: 19880523 10-Q 1 FIRSTCITY FINANCIAL CORPORATION - DATED 06/30/1999 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 JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-26500 FIRSTCITY FINANCIAL CORPORATION (Exact name of Registrant as Specified in Its Charter) DELAWARE 76-0243729 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6400 IMPERIAL DRIVE, WACO, TX 76712 (Address of Principal Executive Offices) (Zip Code) (254) 751-1750 (Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The number of shares of common stock, par value $.01 per share, outstanding at August 13, 1999 was 8,314,239. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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
JUNE 30, DECEMBER 31, 1999 1998 ---------- ------------ Cash and cash equivalents................................... $ 17,940 $ 13,677 Portfolio Assets, net....................................... 48,157 69,717 Loans receivable, net....................................... 77,859 46,187 Mortgage loans held for sale................................ 694,552 1,207,679 Residual interests in securitizations....................... 68,021 65,242 Equity investments in Acquisition Partnerships and Servicing Entities.................................................. 40,092 41,466 Mortgage servicing rights, net.............................. 15,241 91,440 Receivable from sale of mortgage servicing rights........... 53,103 10,313 Receivable for servicing advances and accrued interest...... 44,034 48,664 Deferred tax benefit, net................................... 27,098 32,162 Other assets, net........................................... 23,554 37,430 ---------- ---------- Total Assets...................................... $1,109,651 $1,663,977 ========== ========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY Liabilities: Notes payable............................................. $ 930,969 $1,462,231 Other liabilities......................................... 62,570 38,468 ---------- ---------- Total Liabilities................................. 993,539 1,500,699 Commitments and contingencies............................... -- -- Redeemable preferred stock: Adjusting rate preferred stock, including dividends of $642 (redemption value of $21 per share; 2,000,000 shares authorized; 1,222,901 shares issued and outstanding)........................................... 26,323 26,323 Shareholders' equity: Optional preferred stock (par value $.01 per share; 98,000,000 shares authorized; no shares issued or outstanding)........................................... -- -- Common stock (par value $.01 per share; 100,000,000 authorized; issued and outstanding: 8,314,239 and 8,287,959 shares, respectively)........................ 83 83 Paid in capital............................................. 78,651 78,456 Retained earnings........................................... 11,394 58,061 Accumulated other comprehensive income (loss)............... (339) 355 ---------- ---------- Total Shareholders' Equity........................ 89,789 136,955 ---------- ---------- Total Liabilities, Redeemable Preferred Stock and Shareholders' Equity............................ $1,109,651 $1,663,977 ========== ==========
See accompanying notes to consolidated financial statements. 2 3 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1999 1998 1999 1998 -------- ------- -------- ------- Revenues: Gain on sale of mortgage loans........................ $ 13,233 $28,303 $ 39,874 $48,572 Gain on sale of automobile loans...................... 6,445 2,434 6,445 2,434 Net mortgage warehouse income......................... 3,529 2,395 9,486 4,117 Loss on sale of mortgage servicing rights............. (6,298) -- (8,693) -- Servicing fees: Mortgage........................................... 4,227 5,588 10,370 10,282 Other.............................................. 2,165 1,250 4,278 2,363 Gain on resolution of Portfolio Assets................ 745 2,839 2,047 5,936 Equity in earnings of Acquisition Partnerships and servicing entities................................. 2,798 1,523 5,442 4,737 Interest income....................................... 4,989 2,898 10,196 6,697 Other income.......................................... 1,816 2,314 4,036 6,432 -------- ------- -------- ------- Total revenues................................ 33,649 49,544 83,481 91,570 Expenses: Interest on notes payable............................. 5,431 3,304 11,001 6,722 Salaries and benefits................................. 25,847 20,447 51,640 36,464 Amortization of mortgage servicing rights............. 2,431 4,126 7,154 7,302 Provision for loan losses and impairment on residual interests.......................................... 3,597 575 3,268 2,927 Provision for valuation of mortgage servicing rights............................................. 4,638 500 2,294 500 Occupancy, data processing, communication and other... 30,230 13,494 47,658 25,617 -------- ------- -------- ------- Total expenses................................ 72,174 42,446 123,015 79,532 Earnings (loss) before minority interest, accounting change and income taxes............................... (38,525) 7,098 (39,534) 12,038 Benefit (provision) for income taxes.................. (5,010) 755 (5,032) 1,396 -------- ------- -------- ------- Earnings (loss) before minority interest and accounting change..................................... (43,535) 7,853 (44,566) 13,434 Minority interest..................................... (346) (229) 18 (14) Cumulative effect of accounting change................ -- -- (835) -- -------- ------- -------- ------- Net earnings (loss)..................................... (43,881) 7,624 (45,383) 13,420 Preferred dividends................................... (642) (1,515) (1,284) (3,030) -------- ------- -------- ------- Net earnings (loss) to common shareholders.............. $(44,523) $ 6,109 $(46,667) $10,390 ======== ======= ======== ======= Earnings (loss) before accounting change per common share -- basic........................................ $ (5.36) $ 0.84 $ (5.53) $ 1.51 Earnings (loss) before accounting change per common share -- diluted...................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47 Cumulative effect of accounting change -- basic......... $ -- $ -- $ (0.10) $ -- Cumulative effect of accounting change -- diluted....... $ -- $ -- $ (0.10) $ -- Net earnings (loss) per common share -- basic........... $ (5.36) $ 0.84 $ (5.63) $ 1.51 Net earnings (loss) per common share -- diluted......... $ (5.36) $ 0.83 $ (5.63) $ 1.47 Weighted average common shares outstanding -- basic..... 8,299 7,243 8,294 6,889 Weighted average common shares outstanding -- diluted... 8,299 7,401 8,294 7,045
See accompanying notes to consolidated financial statements. 3 4 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS) (UNAUDITED)
ACCUMULATED NUMBER OF OTHER TOTAL COMMON COMMON PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS' SHARES STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY --------- ------ ------- -------- ------------- ------------- BALANCES, JANUARY 1, 1998....... 6,526,510 $65 $29,509 $ 83,140 $ 44 $112,758 Exercise of warrants, options and employee stock purchase plan.......................... 519,299 5 12,675 -- -- 12,680 Issuance of common stock to acquire the minority interest of subsidiary................. 41,000 1 2,149 -- -- 2,150 Issuance of common stock in public offering............... 1,201,150 12 34,123 -- -- 34,135 Comprehensive loss: Net loss for 1998............. -- -- -- (20,192) -- (20,192) Foreign currency items........ -- -- -- -- 311 311 -------- Total comprehensive loss........ (19,881) -------- Preferred dividends............. -- -- -- (5,186) -- (5,186) Other........................... -- -- -- 299 -- 299 --------- --- ------- -------- ----- -------- BALANCES, DECEMBER 31, 1998..... 8,287,959 83 78,456 58,061 355 136,955 Exercise of employee stock purchase plan................. 26,280 -- 195 -- -- 195 Comprehensive loss: Net loss for the six months ended June 30, 1999........ -- -- -- (45,383) -- (45,383) Foreign currency items........ -- -- -- -- (694) (694) -------- Total comprehensive loss........ (46,077) -------- Preferred dividends............. -- -- -- (1,284) -- (1,284) --------- --- ------- -------- ----- -------- BALANCES, JUNE 30, 1999......... 8,314,239 $83 $78,651 $ 11,394 $(339) $ 89,789 ========= === ======= ======== ===== ========
See accompanying notes to consolidated financial statements. 4 5 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1999 1998 ----------- ------------ Cash flows from operating activities: Net earnings (loss)....................................... $ (45,383) $ 13,420 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities, net of effect of acquisitions: Proceeds from resolution of Portfolio Assets........... 11,018 30,032 Gain on resolution of Portfolio Assets................. (2,047) (5,936) Purchase of Portfolio Assets and loans receivable, net................................................... (2,108) (11,827) Origination of automobile receivables, net of purchase discount.............................................. (94,159) (57,762) Loss on sale of mortgage servicing rights.............. 8,693 -- (Increase) decrease in mortgage loans held for sale.... 513,127 (487,528) (Increase) decrease in construction loans receivable... 7,942 (9,569) Originated mortgage servicing rights................... (77,934) (62,409) Purchases of mortgage servicing rights................. -- (69) Proceeds from sale of mortgage servicing rights........ 151,023 -- Provision for loan losses, residual interests and valuation of mortgage servicing rights................ 5,562 3,427 Equity in earnings of Acquisition Partnerships......... (5,442) (4,737) Proceeds from performing Portfolio Assets and loans receivable, net....................................... 57,083 51,884 (Increase) decrease in net deferred tax asset.......... 5,064 (1,571) Depreciation and amortization.......................... 11,984 9,185 Increase in other assets............................... (22,784) (26,506) Increase in other liabilities.......................... 13,477 38,775 ----------- ------------ Net cash provided by (used in) operating activities..................................... 535,116 (521,191) ----------- ------------ Cash flows from investing activities, net of effect of acquisitions: Property and equipment, net............................... (4,391) (3,269) Contributions to Acquisition Partnerships and servicing entities............................................... (10,939) (13,581) Distributions from Acquisition Partnerships and servicing entities............................................... 15,760 15,653 ----------- ------------ Net cash provided by (used in) investing activities..................................... 430 (1,197) ----------- ------------ Cash flows from financing activities, net of effect of acquisitions: Borrowings under notes payable............................ 4,813,259 10,630,721 Payments of notes payable................................. (5,343,453) (10,152,827) Proceeds from issuance of common stock.................... 195 46,450 Preferred dividends paid.................................. (1,284) (3,030) ----------- ------------ Net cash provided by (used in) financing activities..................................... (531,283) 521,314 ----------- ------------ Net increase (decrease) in cash............................. 4,263 (1,074) Cash, beginning of period................................... 13,677 31,605 ----------- ------------ Cash, end of period......................................... $ 17,940 $ 30,531 =========== ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest............................................... $ 47,492 $ 33,188 Income taxes........................................... $ 87 $ 231 Non-cash investing activities: Investment securities received as a result of sales of loans through securitizations......................... $ 11,957 $ 37,175
See accompanying notes to consolidated financial statements. 5 6 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) BASIS OF PRESENTATION The unaudited consolidated financial statements of FirstCity Financial Corporation ("FirstCity" or the "Company") reflect, in the opinion of management, all adjustments, consisting only of normal and recurring adjustments, necessary to present fairly FirstCity's financial position at June 30, 1999, the results of operations and the cash flows for the three month and six month periods ended June 30, 1999 and 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the estimation of future collections on purchased portfolio assets used in the calculation of net gain on resolution of portfolio assets, interest rate environments, prepayment speeds of loans in servicing portfolios, collectibility on loans held in inventory, securitization trusts and for investment. Actual results could differ materially from those estimates. Certain amounts in the financial statements for prior periods have been reclassified to conform with current financial statement presentation. An accounting change due to the adoption of SOP 98-5, which requires previously capitalized start-up costs including organization costs to be written off and future costs related to start-up entities to be charged to expense as incurred, resulted in a loss of $.8 million for the first quarter of 1999 and has been reflected as a cumulative effect of a change in accounting principle. (2) PORTFOLIO ASSETS Portfolio Assets are summarized as follows:
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Non-performing Portfolio Assets............................. $ 82,430 $ 93,716 Performing Portfolio Assets................................. 19,750 24,759 Real estate Portfolios...................................... 9,707 12,561 -------- -------- Total Portfolio Assets............................ 111,887 131,036 Discount required to reflect Portfolio Assets at carrying value..................................................... (63,730) (61,319) -------- -------- Portfolio Assets, net............................. $ 48,157 $ 69,717 ======== ========
Portfolio Assets are pledged to secure non-recourse notes payable. (3) LOANS RECEIVABLE Loans receivable are summarized as follows:
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Construction loans receivable............................... $ 16,648 $24,590 Residential mortgage and other loans held for investment.... 7,317 11,016 Automobile and consumer finance receivables................. 65,831 16,475 Allowance for loan losses................................... (11,937) (5,894) -------- ------- Loans receivable, net............................. $ 77,859 $46,187 ======== =======
6 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:
SIX MONTHS ENDED JUNE 30, ----------------- 1999 1998 ------- ------- Balances, beginning of period............................... $ 5,894 $ 9,282 Provision for loan losses................................. (36) 2,852 Discounts acquired........................................ 14,582 8,649 Allocation of reserves to sold loans...................... (7,890) (7,602) Charge off activity: Principal balances charged off......................... (1,723) (8,956) Recoveries............................................. 1,110 2,266 ------- ------- Net charge offs................................... (613) (6,690) ------- ------- Balances, end of period..................................... $11,937 $ 6,491 ======= =======
The provision for loan losses during the six months ended June 30, 1998, was predominantly for automobile finance receivables generated by the NAF platform that was discontinued in January 1998. (4) MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale include loans collateralized by first lien mortgages on one-to-four family residences as follows:
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Residential mortgage loans.................................. $683,854 $1,190,585 Unamortized premiums and discounts, net..................... 10,698 17,094 -------- ---------- $694,552 $1,207,679 ======== ==========
(5) RESIDUAL INTERESTS IN SECURITIZATIONS The Company has residual interests in securitizations consisting of rated securities, retained interests and related interest only strips (collectively referred to as residual interests) which are attributable to loans sold through securitization transactions by the Company. Residual interests are comprised of the following as of the dates indicated.
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Rated securities............................................ $ 1,523 $ 2,073 Residual interests.......................................... 72,067 66,473 Accrued interest............................................ 2,234 1,146 Allowance for losses........................................ (7,803) (4,450) ------- ------- $68,021 $65,242 ======= =======
7 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:
SIX MONTHS ENDED JUNE 30, ------------------ 1999 1998 -------- ------- Balance, beginning of period................................ $ 65,242 $ 6,935 Cost allocated from securitizations......................... 11,957 37,175 Interest accreted........................................... 4,345 688 Increase in other securities, net........................... -- 88 Cash received from trusts................................... (10,170) (1,840) Provision for permanent impairment of value................. (3,353) -- -------- ------- Balance, end of period...................................... $ 68,021 $43,046 ======== =======
(6) EQUITY INVESTMENTS IN ACQUISITION PARTNERSHIPS AND SERVICING ENTITIES The Company has investments in Acquisition Partnerships and their general partners that are accounted for on the equity method. The Company also has investments in servicing entities that are accounted for on the equity method. The condensed combined financial position and results of operations of the Acquisition Partnerships (excluding the servicing entities), which include the domestic and foreign Acquisition Partnerships and their general partners, are summarized below. CONDENSED COMBINED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1999 1998 -------- ------------ Assets...................................................... $269,810 $295,114 ======== ======== Liabilities................................................. $161,389 $190,590 Net equity.................................................. 108,421 104,524 -------- -------- $269,810 $295,114 ======== ======== Equity investment in Acquisition Partnerships............... $ 36,491 $ 41,466 Equity investment in servicing entities..................... 3,601 -- -------- -------- $ 40,092 $ 41,466 ======== ========
CONDENSED COMBINED SUMMARY OF EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ----------------- 1999 1998 1999 1998 -------- -------- ------- ------- Proceeds from resolution of Portfolio Assets... $37,539 $30,070 $67,184 $87,628 Gross margin................................... 13,626 9,110 24,357 27,643 Interest income on performing Portfolio Assets....................................... 3,248 2,169 6,584 4,622 Net earnings................................... $ 9,997 $ 3,860 $16,380 $12,982 ======= ======= ======= ======= Equity in earnings of Acquisition Partnerships................................. $ 2,792 $ 1,523 $ 5,463 $ 4,737 Equity in earnings of servicing entities....... 6 -- (21) -- ------- ------- ------- ------- $ 2,798 $ 1,523 $ 5,442 $ 4,737 ======= ======= ======= =======
(7) SEGMENT REPORTING The Company is engaged in three reportable segments i) residential and commercial mortgage banking; ii) portfolio asset acquisition and resolution; and iii) consumer lending. These segments have been segregated 8 9 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) based on products and services offered by each. The following is a summary of results of operations for each of the segments and a reconciliation to net earnings (loss) for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1999 1998 1999 1998 -------- ------- -------- ------- MORTGAGE BANKING: Revenues: Gain on sale of mortgage loans.................. $ 13,233 $28,303 $ 39,874 $48,572 Net mortgage warehouse income................... 3,529 2,395 9,486 4,117 Loss on sale of mortgage servicing rights....... (6,298) -- (8,693) -- Servicing fees.................................. 4,227 5,588 10,370 10,282 Other........................................... 2,562 1,552 5,245 3,556 -------- ------- -------- ------- Total...................................... 17,253 37,838 56,282 66,527 Expenses: Salaries and benefits........................... 23,232 17,216 45,128 30,151 Amortization of mortgage servicing rights....... 2,431 4,126 7,154 7,302 Provision for loan losses and residual interests..................................... 1,658 75 1,708 75 Provision for valuation of mortgage servicing rights........................................ 4,638 500 2,294 500 Interest on notes payables...................... 1,750 486 3,778 987 Occupancy, data processing, communication and other......................................... 24,926 9,335 36,903 17,439 -------- ------- -------- ------- Total...................................... 58,635 31,738 96,965 56,454 -------- ------- -------- ------- Operating contribution (loss) before direct taxes........................................... $(41,382) $ 6,100 $(40,683) $10,073 ======== ======= ======== ======= Operating contribution (loss), net of direct taxes........................................... $(41,382) $ 6,100 $(40,683) $ 9,984 ======== ======= ======== ======= PORTFOLIO ASSET ACQUISITION AND RESOLUTION: Revenues: Gain on resolution of Portfolio Assets.......... $ 745 $ 2,839 $ 2,047 $ 5,936 Equity in earnings of Acquisition Partnerships.................................. 2,798 1,523 5,442 4,737 Servicing fees.................................. 779 666 1,757 1,395 Other........................................... 719 512 2,009 2,510 -------- ------- -------- ------- Total...................................... 5,041 5,540 11,255 14,578 Expenses: Salaries and benefits........................... 613 1,100 2,034 2,267 Interest on notes payable....................... 1,038 1,336 2,090 2,812 Asset level expenses, occupancy, data processing and other..................................... 1,598 1,886 3,144 4,098 -------- ------- -------- ------- Total...................................... 3,249 4,322 7,268 9,177 -------- ------- -------- ------- Operating contribution before direct taxes......... $ 1,792 $ 1,218 $ 3,987 $ 5,401 ======== ======= ======== ======= Operating contribution, net of direct taxes........ $ 1,782 $ 1,223 $ 3,958 $ 5,392 ======== ======= ======== ======= CONSUMER LENDING: Revenues: Gain on sale of automobile loans................ $ 6,445 $ 2,434 $ 6,445 $ 2,434 Interest income................................. 3,445 2,659 6,850 5,225 Servicing fees and other........................ 1,426 653 2,590 1,043 -------- ------- -------- ------- Total...................................... 11,316 5,746 15,885 8,702 ======== ======= ======== =======
9 10 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1999 1998 1999 1998 -------- ------- -------- ------- Expenses: Salaries and benefits........................... 1,667 1,292 3,200 2,404 Provision for loan losses and residual interests..................................... 1,939 500 1,962 2,852 Interest on notes payable....................... 736 939 1,403 1,819 Occupancy, data processing and other............ 3,001 1,658 5,097 2,765 -------- ------- -------- ------- Total...................................... 7,343 4,389 11,662 9,840 -------- ------- -------- ------- Operating contribution (loss) before direct taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138) ======== ======= ======== ======= Operating contribution (loss), net of direct taxes........................................... $ 3,973 $ 1,357 $ 4,223 $(1,138) ======== ======= ======== ======= Total operating contribution (loss), net of direct taxes............................. $(35,627) $ 8,680 $(32,502) $14,238 ======== ======= ======== ======= CORPORATE OVERHEAD: Corporate interest expense, salaries and benefits, occupancy, professional and other income and expenses, net................................... $ (3,254) $(1,806) $ (7,878) $(2,318) Deferred tax benefit (provision) from NOLs......... (5,000) 750 (5,003) 1,500 -------- ------- -------- ------- Net earnings (loss)................................ $(43,881) $ 7,624 $(45,383) $13,420 ======== ======= ======== =======
Total assets for each of the segments and a reconciliation to total assets is as follows:
JUNE 30, DECEMBER 31, 1999 1998 ---------- ------------ Mortgage assets............................................. $ 849,727 $1,413,799 Portfolio acquisition and resolution assets................. 88,175 114,596 Consumer assets............................................. 99,377 52,029 Deferred tax benefit........................................ 27,098 32,162 Other assets................................................ 45,274 51,391 ---------- ---------- Total assets...................................... $1,109,651 $1,663,977 ========== ==========
10 11 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) PREFERRED STOCK AND SHAREHOLDERS' EQUITY In May 1998, the Company closed the public offering of 1,542,150 shares of FirstCity common stock, of which 341,000 shares were sold by selling shareholders. Net proceeds (after expenses) of $34.1 million were used to retire debt. On May 11, 1998, the Company notified holders of its outstanding warrants to purchase shares of common stock that it was exercising its option to repurchase such warrants for $1.00 each. In June 1998, as a result of such notification, warrants representing 471,380 shares of common stock were exercised for an aggregate warrant purchase price of $11.8 million. On July 17, 1998 the Company filed a shelf registration statement with the Securities and Exchange Commission which allows the Company to issue up to $250 million in debt and equity securities from time to time in the future. The registration statement became effective July 28, 1998. As of June 30, 1999, there have been no securities issued under this registration statement. At June 30, 1999, accrued dividends on adjusting rate preferred stock totaled $.6 million, or $.525 per share, and were paid on July 15, 1999. A reconciliation between the weighted average shares outstanding used in the basic and diluted EPS computations is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------ 1999 1998 1999 1998 --------- ------- -------- ------- Net earnings (loss) to common shareholders............ $(44,523) $6,109 $(46,667) $10,390 ======== ====== ======== ======= Weighted average common shares outstanding -- basic... 8,299 7,243 8,294 6,889 Effect of dilutive securities: Assumed exercise of stock options................... -- 78 -- 76 Assumed exercise of warrants........................ -- 80 -- 80 -------- ------ -------- ------- Weighted average common shares outstanding -- diluted.............................. 8,299 7,401 8,294 7,045 ======== ====== ======== ======= Earnings (loss) before accounting change per common share -- basic...................................... $ (5.36) $ 0.84 $ (5.53) $ 1.51 Earnings (loss) before accounting change per common share -- diluted.................................... $ (5.36) $ 0.83 $ (5.53) $ 1.47 Cumulative effect of accounting change -- basic....... $ -- $ -- $ (0.10) $ -- Cumulative effect of accounting change -- diluted..... $ -- $ -- $ (0.10) $ -- Net earnings (loss) per common share -- basic......... $ (5.36) $ 0.84 $ (5.63) $ 1.51 Net earnings (loss) per common share -- diluted....... $ (5.36) $ 0.83 $ (5.63) $ 1.47
(9) INCOME TAXES Federal income taxes are provided at a 35% rate. Net operating loss carry forwards ("NOLs") are available to FirstCity and are recognized as an offset to the provision in the period during which the benefit is realized. The Company accounts for the benefit of the NOLs by recording the benefit as an asset and then establishing an allowance to value the net deferred tax asset at a value commensurate with the Company's expectation of being able to utilize the recognized benefit in the next three to four year period. Such estimates are reevaluated on a quarterly basis with the adjustment to the allowance recorded as an adjustment to the income tax expense generated by the quarterly earnings. Significant events that change the Company's view of its currently estimated ability to utilize the tax benefits result in substantial changes to the estimated allowance required to value the deferred tax benefits recognized in the Company's periodic financial statements. The Company's analysis for the quarter ended June 30, 1999 resulted in an increase in the valuation allowance of $5 million. Additional events could occur in the future, and would impact the quarterly recognition of the Company's estimate of the required valuation allowance associated with its NOLs. Although realization is not assured, management believes it is more likely than not that all of the recorded deferred tax asset will be realized. 11 12 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings in the ordinary course of business. In the opinion of management, the resolution of such matters will not have a material adverse impact on the consolidated financial condition, results of operations or liquidity of the Company. The Company is a 50% owner in an entity that is obligated to advance up to $2.5 million toward the acquisition of Portfolio Assets from financial institutions in California. At June 30, 1999, advances of $.7 million had been made under the obligation. (11) MORTGAGE BANKING OPERATIONS Over the past nine months, the Company explored numerous strategic alternatives regarding its mortgage banking operations, which is comprised of FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included obtaining a joint venture partner, new funding sources and/or sale or liquidation of the businesses. Ultimately, the Company made the decision that the operations of the mortgage segment do not fit the Company's long-term strategy. As a result, the Company engaged independent advisory firms subsequent to quarter end to assist with the sale of Mortgage Corp. and Capital Corp. The due diligence process by prospective buyers has already begun at Mortgage Corp. There can be no assurance that a satisfactory contract to sell either entity will be received. To date, an exit plan has not been adopted. Accordingly, other options, including liquidation, may be required in the future. In the second quarter of 1999, the mortgage operations operating loss was $41.4 million, comprised of a $6.6 million loss on sale of FHA/VA buyout assets (netted against gain on sale of mortgage loans), an $11.3 million loss on sale of mortgage servicing rights (including the provision for valuation of mortgage servicing rights), $8.1 million in operating losses at Mortgage Corp., $9.1 million in writeoffs and reserves, including $1.8 million of goodwill related to the 1997 acquisition of a commercial mortgage origination platform (included in other expense), and a $1.4 million impairment in Home Equity residuals. (12) LIQUIDITY AND CAPITAL RESOURCES Generally, the Company requires liquidity to fund its operations, working capital, payment of debt, equity for acquisition of Portfolio Assets, investments in and advances to the Acquisition Partnerships, investments in expanding businesses to support their growth, retirement of and dividends on preferred stock, and other investments by the Company. The potential sources of liquidity are funds generated from operations, equity distributions from the Acquisition Partnerships, interest and principal payments on subordinated intercompany debt and dividends from the Company's subsidiaries, short-term borrowings from revolving lines of credit, proceeds from equity market transactions, securitization and other structured finance transactions and other special purpose short-term borrowings. In August, the Company completed the extension and renewal of its working capital revolving line of credit with its revolving lenders ("Revolving Lenders") in the amount of $93 million. In consideration of the additional funding provided under the revolving line of credit, warrants for the purchase of 250,000 shares of the Company's common stock were issued which are exercisable over a ten year period at a strike price equal to the average closing price for the Company's common stock for the month of August 1999. This renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer") and matures June 30, 2000. This facility requires the approval of the lenders prior to payment of common and preferred dividends. Previously, the Company announced that certain trigger and termination events had occurred under the agreements with its credit enhancement provider on the Consumer residual assets and the Consumer warehouse facility. The credit enhancement provider has given the Company a waiver until September 15, 1999, of the trigger and termination events subject to the following conditions: (1) all excess cash flows 12 13 FIRSTCITY FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) payable to affiliates of Consumer under the securitizations will be escrowed by the credit provider, (2) advances under the warehouse line will be reduced from 79.5% to 77% of the principal balances of the loans funded with total fundings under the line limited to $11,500,000 for the thirty day period, (3) the Corporate revolving lenders must agree to waive the default under the revolving loan agreement related to the trigger event for a thirty day period, (4) the Company and its subsidiaries will be required to cross-collateralize the securitizations wrapped by the credit provider, (5) the servicing agreements related to the wrapped securitizations will be made subject to thirty day renewal periods. Additionally, these trigger events were events of default under a $4.3 million credit facility secured by certain automobile residual assets. The Company is currently working with this lender to waive such defaults. Mortgage Corp. is currently in default on a payment in the approximate amount of $5 million on a $14 million gestation facility and is working with the lender to cure such defaults. As a result of this payment default and the net worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of its covenants contained in the $500 million warehouse facility. These defaults also create defaults in Mortgage Corp's other credit facilities. Mortgage Corp. is currently working with the syndicate lenders to receive waivers of these defaults. If such waivers or cures are not obtained, funding under Mortgage Corp's warehouse facilities could be halted. The Company's revolving credit facility provides that the defaults by Mortgage do not constitute a default under the Company's revolving credit facility unless they are not cured or waived on or before September 15, 1999. In the event these defaults are not waived or cured by September 15, 1999, they could have an adverse impact on the Company's liquidity. As described above, the Company has recently engaged independent advisory firms to assist with the sale of Mortgage Corp. and Capital Corp. Assuming the Company sells or liquidates its mortgage segment, and is able to cure or obtain waivers of the defaults in its loan facilities described above, the Company believes that the liquidity provided by its revolving credit facility, funding from senior lenders in Acquisition Partnership investments, direct portfolio investments and business acquisitions, securitizations of loans made by Consumer, and other revenue generated by Consumer and Commercial Corp. will be adequate to fund the Company's contemplated activities and liquidity needs. In addition, the Company believes that after it has exited the mortgage business that it will be able to raise capital through public debt equity offerings (subject to limitations related to the preservation of the Company's NOLS). 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a diversified financial services company engaged in residential and commercial mortgage banking ("Mortgage Banking"), Portfolio Asset acquisition and resolution ("Commercial Corp.") and consumer lending ("Consumer Corp."). The mortgage banking business involves the origination, acquisition and servicing of residential and commercial mortgage loans and the subsequent warehousing, sale or securitization of such loans through various public and private secondary markets. The Portfolio Asset acquisition and resolution business involves acquiring Portfolio Assets at a discount to Face Value and servicing and resolving such Portfolios in an effort to maximize the present value of the ultimate cash recoveries. The consumer lending business involves the acquisition, origination, warehousing, securitization and servicing of consumer receivables. The Company's current consumer lending operations are focused on the acquisition of sub-prime automobile receivables. The Company posted a loss of $43.9 million for the quarter ended June 30, 1999 and $45.4 million for the year-to-date. After dividends on the preferred stock, the loss was $44.5 million or $5.36 per common share on a fully diluted basis for the quarter and $46.7 million or $5.63 per common share on a fully diluted basis year-to-date. Over the past nine months, the Company explored numerous strategic alternatives regarding its mortgage banking operations, which are comprised of FirstCity Financial Mortgage Corporation and subsidiaries ("Mortgage Corp.") and FirstCity Capital Corporation ("Capital Corp."). Alternatives explored included obtaining a joint venture partner, new funding sources and/or sale or liquidation of the business. Ultimately, the Company made a decision that the operations of the mortgage segment do not fit the Company's long-term strategy. As a result, the Company engaged independent advisory firms to assist with the sale of Mortgage Corp. and Capital Corp. The due diligence process by prospective buyers has already begun at Mortgage Corp. There can be no assurance that a satisfactory contract to sell either entity will be received. To date, an exit plan has not been adopted. Accordingly, other options, including liquidation, may be required in the future. The major factors contributing to the second quarter loss were (dollars in thousands): Loss on the sale of FHA/VA buyout assets (reduces gain on sale of mortgage loans)................................... $ 6,630 Loss on sale of mortgage servicing rights (includes provision for valuation of mortgage servicing rights)..... 11,329 Operating losses at Mortgage................................ 8,085 Write-offs and reserves at Mortgage including goodwill (included in other expense)............................... 9,107 Impairment in NAF originated Auto Receivable residuals...... 1,990 Impairment in Home Equity residuals......................... 1,363 An increase in the valuation allowance of the deferred tax asset..................................................... 5,000
The Company's financial results are affected by many factors including levels of and fluctuations in interest rates, fluctuations in the underlying values of real estate and other assets, and the availability and prices for loans and assets acquired in all of the Company's businesses. The Company's business and results of operations are also affected by the availability of financing with terms acceptable to the Company and the Company's access to capital markets, including the securitization markets. As a result of the significant period to period fluctuations in the revenues and earnings of the Company's Portfolio Asset acquisition and resolution business, and the strategic changes in Mortgage Corp., period to period comparisons of the Company's results of operations may not be meaningful. 14 15 ANALYSIS OF REVENUES AND EXPENSES The following table summarizes the revenues and expenses of each of the Company's business lines and presents the operating contribution (loss) of each business. ANALYSIS OF REVENUES AND EXPENSES (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- MORTGAGE BANKING: Revenues: Gain on sale of mortgage and other loans... $13,233.... $ 28,303 $ 39,874 $ 48,572 Net mortgage warehouse income.............. 3,529 2,395 9,486 4,117 Loss on sale of mortgage servicing rights................................... (6,298) -- (8,693) -- Servicing fees............................. 4,227 5,588 10,370 10,282 Other...................................... 2,562 1,552 5,245 3,556 ---------- ---------- ---------- ---------- Total................................. 17,253 37,838 56,282 66,527 Expenses: Salaries and benefits...................... 23,232 17,216 45,128 30,151 Amortization of mortgage servicing rights................................... 2,431 4,126 7,154 7,302 Provision for loan losses and residual interests................................ 1,658 75 1,708 75 Provision for valuation of mortgage servicing rights......................... 4,638 500 2,294 500 Interest on notes payables................. 1,750 486 3,778 987 Occupancy, data processing, communication and other................................ 24,926 9,335 36,903 17,439 ---------- ---------- ---------- ---------- Total................................. 58,635 31,738 96,965 56,454 ---------- ---------- ---------- ---------- Operating contribution (loss) before direct taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 10,073 ========== ========== ========== ========== Operating contribution (loss), net of direct taxes...................................... $ (41,382) $ 6,100 $ (40,683) $ 9,984 ========== ========== ========== ========== PORTFOLIO ASSET ACQUISITION AND RESOLUTION: Revenues: Gain on resolution of Portfolio Assets..... $ 745 $ 2,839 $ 2,047 $ 5,936 Equity in earnings of Acquisition Partnerships and Servicing Entities...... 2,798 1,523 5,442 4,737 Servicing fees............................. 779 666 1,757 1,395 Other...................................... 719 512 2,009 2,510 ---------- ---------- ---------- ---------- Total................................. 5,041 5,540 11,255 14,578 Expenses: Salaries and benefits...................... 613 1,100 2,034 2,267 Interest on notes payable.................. 1,038 1,336 2,090 2,812 Asset level expenses, occupancy, data processing and other..................... 1,598 1,886 3,144 4,098 ---------- ---------- ---------- ---------- Total................................. 3,249 4,322 7,268 9,177 ---------- ---------- ---------- ---------- Operating contribution before direct taxes.... $ 1,792 $ 1,218 $ 3,987 $ 5,401 ========== ========== ========== ========== Operating contribution, net of direct taxes... $ 1,782 $ 1,223 $ 3,958 $ 5,392 ========== ========== ========== ==========
15 16
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- CONSUMER LENDING: Revenues: Gain on sale of automobile loans........... $ 6,445 $ 2,434 $ 6,445 $ 2,434 Interest income............................ 3,445 2,659 6,850 5,225 Servicing fees and other................... 1,426 653 2,590 1,043 ---------- ---------- ---------- ---------- Total................................. 11,316 5,746 15,885 8,702 Expenses: Salaries and benefits...................... 1,667 1,292 3,200 2,404 Provision for loan losses and residual interests................................ 1,939 500 1,962 2,852 Interest on notes payable.................. 736 939 1,403 1,819 Occupancy, data processing and other....... 3,001 1,658 5,097 2,765 ---------- ---------- ---------- ---------- Total................................. 7,343 4,389 11,662 9,840 ---------- ---------- ---------- ---------- Operating contribution (loss) before direct taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138) ========== ========== ========== ========== Operating contribution (loss), net of direct taxes...................................... $ 3,973 $ 1,357 $ 4,223 $ (1,138) ========== ========== ========== ========== Total operating contribution (loss), net of direct taxes................. $ (35,627) $ 8,680 $ (32,502) $ 14,238 ========== ========== ========== ========== CORPORATE OVERHEAD: Corporate interest expense, salaries and benefits, occupancy, professional and other income and expenses, net................... $ (3,254) $ (1,806) $ (7,878) $ (2,318) Deferred tax benefit (provision) from NOLs.... (5,000) 750 (5,003) 1,500 ---------- ---------- ---------- ---------- Net earnings (loss)........................ (43,881) 7,624 (45,383) 13,420 Preferred dividends........................ (642) (1,515) (1,284) (3,030) ---------- ---------- ---------- ---------- Net earnings (loss) to common shareholders........................ $ (44,523) $ 6,109 $ (46,667) $ 10,390 ========== ========== ========== ========== SHARE DATA: Earnings (loss) before accounting change per common share -- basic...................... $ (5.36) $ 0.84 $ (5.53) $ 1.51 Earnings (loss) before accounting change per common share -- diluted.................... $ (5.36) $ 0.83 $ (5.53) $ 1.47 Cumulative effect of accounting change -- basic............................ $ -- $ -- $ (0.10) $ -- Cumulative effect of accounting change -- diluted.......................... $ -- $ -- $ (0.10) $ -- Net earnings (loss) per common share -- basic............................. $ (5.36) $ 0.84 $ (5.63) $ 1.51 Net earnings (loss) per common share -- diluted........................... $ (5.36) $ 0.83 $ (5.63) $ 1.47 Weighted average common shares outstanding -- basic...................................... 8,299 7,243 8,294 6,889 Weighted average common shares outstanding -- diluted.................................... 8,299 7,401 8,294 7,045 ORIGINATION AND OTHER FINANCIAL DATA: Mortgage Corp.: Origination of residential mortgage loans: Conventional............................. $1,031,658 $1,584,727 $2,463,453 $2,945,592 Agency................................... 460,537 377,364 1,057,774 708,592 Home equity.............................. 53,062 89,022 115,406 147,284 Other.................................... 18,551 37,075 48,979 56,987 ---------- ---------- ---------- ---------- Total................................. $1,563,808 $2,088,188 $3,685,612 $3,858,455 ========== ========== ========== ==========
16 17
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Origination of commercial mortgage loans: Correspondent............................ $ 91,725 $ 67,985 $ 214,353 $ 181,250 Construction............................. 6,724 12,767 24,786 28,363 ---------- ---------- ---------- ---------- Total................................. $ 98,449 $ 80,752 $ 239,139 $ 209,613 ========== ========== ========== ========== Capital Corp.: Acquisition of Home Equity Loans........... $ 46,908 $ 69,312 $ 146,648 $ 105,728 Commercial Corp.: Aggregate purchase price of assets acquired................................. $ 58,017 $ 17,869 $ 67,996 $ 69,840 Proceeds from resolution................... 43,590 43,126 78,202 117,660 Consumer Corp.: Aggregate acquisition of automobile and other consumer receivables............... $ 55,008 $ 33,250 $ 108,744 $ 67,061
MORTGAGE BANKING The Company continued its efforts to "right-size" Mortgage Corp. Additional sales of mortgage servicing rights occurred, including bulk sales totaling $1.1 billion and flow sales totaling $1.6 billion. Losses of $11.3 million were recognized as a result of such sales. Additionally, Mortgage Corp. must incur the cost to subservice the loans for the period between sale date and delivery date, which averages approximately 90 days. At quarter end, Mortgage Corp. was subservicing $4.5 billion, down from $5.1 billion at the end of the first quarter. Additionally, Mortgage Corp. was able to sell or close the majority of its retail origination offices during the quarter, with a nominal gain realized on the sales. Such offices generated operating losses of $1.2 million for the quarter and $2.9 million year-to-date. Sales and closings of such offices and other reductions resulted in a decrease of personnel in the mortgage operations. This action allowed Mortgage Corp. to focus its originations solely from the broker retail network at New America. Originations for the second quarter of $1.7 billion dropped by 24% from the first quarter of 1999. The decrease resulted from the elimination of the retail origination offices, as well as, a significant rise in interest rates during the quarter. Monthly broker retail production for the months of April, May and June were $544, $429 and $437 million, respectively. During the second quarter Capital had originations of $46.9 million of home equity loans, down from $100 million during the first quarter of 1999. Such decrease is consistent with the Company's planned reduction in the level of capital commitment to the mortgage business, as previously announced by the Company at the end of the first quarter. At quarter end, the Capital held $184 million of home equity loans in inventory, and $23 million in home equity residuals. No securitization transaction was planned or completed during the quarter. 17 18 The following table presents selected information regarding the revenues and expenses of the Company's mortgage banking business. ANALYSIS OF SELECTED REVENUES AND EXPENSES MORTGAGE BANKING (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- WAREHOUSE INVENTORY: Average inventory balance.................. $ 809,869 $1,103,779 $ 919,391 $ 907,195 Net mortgage warehouse income: Dollar amount........................... 3,529 2,395 9,486 4,117 Annualized percentage of average inventory balance..................... 1.74% 0.87% 2.06% 0.91% GAIN ON SALE OF MORTGAGE LOANS: Gain on sale of mortgage loans as a percentage of loans sold: Residential............................. 0.55% 1.15% 0.81% 1.26% Home Equity............................. 1.14% 4.43% 1.55% 4.59% Securitized Home Equity................. -- 1.24% -- 1.24% SERVICING REVENUES: Average servicing portfolios: Residential............................. $2,483,094 $5,621,502 $4,166,526 $5,119,061 Commercial.............................. 1,369,427 1,388,470 1,376,720 1,433,898 Sub-serviced............................ 5,085,168 1,099,795 4,936,430 960,261 Servicing fees: Residential............................. $ 3,748 $ 5,123 $ 9,279 $ 9,407 Commercial.............................. 196 247 457 485 Sub-serviced............................ 283 218 634 390 ---------- ---------- ---------- ---------- Total.............................. $ 4,227 $ 5,588 $ 10,370 $ 10,282 Annualized servicing fee percentage: Residential............................. 0.60% 0.36% 0.45% 0.37% Commercial.............................. 0.06% 0.07% 0.07% 0.07% Sub-serviced............................ 0.02% 0.08% 0.03% 0.08% Loss on sale of servicing rights........... $ 6,298 $ -- $ 8,693 $ -- Amortization of servicing rights: Servicing rights amortization........... $ 2,431 $ 4,126 $ 7,154 $ 7,302 Servicing rights amortization as a percentage of average residential servicing portfolio (annualized)...... 0.39% 0.29% 0.34% 0.29% PERSONNEL: Personnel expense.......................... $ 23,232 $ 17,216 $ 45,128 $ 30,151 Number of personnel (at period end): Production.............................. 232 511 Servicing............................... 302 146 Other................................... 576 710 ---------- ---------- Total.............................. 1,110 1,367 ========== ==========
18 19 PORTFOLIO ASSET ACQUISITION AND RESOLUTION Commercial Corp. acquired assets of $58 million during the quarter comprised of one French portfolio and five domestic portfolios. Collections during the quarter totaled $43.6 million. Collections and returns achieved on assets acquired in France and Mexico continue to exceed expectations. Commercial Corp. also acquired an interest in the French entity that performs the servicing on the French portfolios. This move is expected to solidify Commercial Corp.'s servicing relationship in France. Additionally, Japan's Minister of Finance approved the servicing license for Commercial Corp.'s Japanese joint venture, which should facilitate increased portfolio acquisition activity in the future. Commercial Corp. also made its first bid in Korea. Although unsuccessful, this represents an entrance, with a significant New York based capital partner, into a promising market. The following table presents selected information regarding the revenues and expenses of Commercial Corp. ANALYSIS OF SELECTED REVENUES AND EXPENSES PORTFOLIO ASSET ACQUISITION AND RESOLUTION (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- GAIN ON RESOLUTION OF PORTFOLIO ASSETS: Average investment: Nonperforming Portfolios.......................... $29,319 $42,201 $31,074 $46,005 Performing Portfolios............................. 15,554 13,177 19,166 14,956 Real estate Portfolios............................ 10,372 17,639 10,851 18,053 Gain on resolution of Portfolio Assets: Nonperforming Portfolios............................. $ 545 $ 1,626 $ 1,439 $ 3,889 Performing Portfolios............................. -- -- -- 299 Real estate Portfolios............................ 200 1,213 608 1,748 ------- ------- ------- ------- Total........................................ $ 745 $ 2,839 $ 2,047 $ 5,936 ======= ======= ======= ======= Interest income on performing Portfolios............. $ 599 $ 455 $ 1,487 $ 1,186 Gross profit percentage on resolution of Portfolio Assets: Nonperforming Portfolios.......................... 11.66% 20.37% 17.25% 21.97% Performing Portfolios........................... -- -- -- 7.99% Real estate Portfolios.......................... 14.45% 22.26% 22.69% 20.35% Weighted average gross profit percentage........ 12.31% 21.74% 18.58% 19.77% Interest yield on performing Portfolios (annualized)................................. 15.40% 13.81% 15.52% 15.86% SERVICING FEE REVENUES: Acquisition partnerships........................ $ 760 $ 648 $ 1,693 $ 1,308 Affiliates...................................... 19 18 64 87 ------- ------- ------- ------- Total........................................ $ 779 $ 666 $ 1,757 $ 1,395 ======= ======= ======= ======= PERSONNEL: Personnel expenses................................... $ 613 $ 1,100 $ 2,034 $ 2,267 Number of personnel (at period end): Production........................................ 10 11 Servicing......................................... 63 70 ------- ------- Total........................................ 73 81 ======= ======= INTEREST EXPENSE: Average debt................................. $56,012 $70,641 $58,664 $73,589 Interest expense............................. 1,038 1,336 2,090 2,812 Average yield (annualized)................... 7.41% 7.56% 7.13% 7.64%
19 20 The following chart presents selected information regarding the revenues and expenses of the Acquisition Partnerships. ANALYSIS OF SELECTED REVENUES AND EXPENSES ACQUISITION PARTNERSHIPS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- REVENUES: Gain on resolution of Portfolio Assets................ $13,626 $9,110 $24,357 $27,643 Gross profit percentage on resolution of Portfolio Assets............................................. 36.30% 30.30% 36.25% 31.55% Interest income....................................... $ 3,248 $2,169 $ 6,584 $ 4,622 Other interest income................................. 978 163 1,139 333 INTEREST EXPENSE: Interest expense...................................... $ 2,703 $3,016 $ 5,855 $ 6,957 Average yield (annualized)............................ 10.50% 7.03% 9.24% 7.04% OTHER EXPENSES: Servicing fees........................................ $ 1,071 $1,364 $ 2,509 $ 2,785 Legal................................................. 662 577 1,219 985 Property protection................................... 645 958 2,030 1,994 Other................................................. 2,774 1,667 4,087 6,895 ------- ------ ------- ------- Total other expenses.......................... 5,152 4,566 9,845 12,659 ------- ------ ------- ------- Net earnings.................................. $ 9,997 $3,860 $16,380 $12,982 ======= ====== ======= =======
CONSUMER LENDING Consumer Corp. continued to perform as expected. In April, Consumer Corp. completed a planned securitization of $55.8 million of auto receivables resulting in a gain of $6.4 million. The loans purchased during the quarter were purchased at an average discount to face value of 13.8% and carry a weighted average coupon in excess of 19%. The defaults to date on assets acquired through June 30, 1999 have totaled 8.7% of the total loans acquired. Actual losses on these defaults have totaled 3.3% of the original loan balances at the time of default. Delinquencies at quarter-end were 5.8% of the total serviced portfolio of FirstCity Funding Corp. acquired loans. At the end of the quarter Consumer Corp.'s balance sheet reflected $45 million of auto finance residuals. FirstCity Funding Corp. originated $36 million of these residuals with the remainder originated by NAF, the discontinued auto finance platform. 20 21 The following chart presents selected information regarding the revenues and expenses of Consumer Corp.'s consumer lending business. ANALYSIS OF SELECTED REVENUES AND EXPENSES CONSUMER LENDING (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED SECOND SECOND JUNE 30, QUARTER QUARTER ------------------ 1999 1998 1999 1998 ------- ------- ------- ------- INTEREST INCOME: Average loans and investments: Auto........................................... $32,556 $45,697 $32,597 $51,085 Investments.................................... 46,480 22,677 45,430 18,278 Interest income: Auto........................................... $ 1,900 $ 2,221 $ 3,898 $ 4,470 Investments.................................... 1,435 392 2,703 689 Average yield (annualized): Auto........................................... 23.34% 19.44% 23.92% 17.50% Investments.................................... 12.35% 6.91% 11.90% 7.54% SERVICING FEE REVENUES.............................. $ 1,386 $ 584 $ 2,521 $ 968 PERSONNEL: Personnel expenses................................ $ 1,667 $ 1,292 $ 3,200 $ 2,404 Number of personnel (at period end): Production..................................... 130 67 Servicing...................................... 122 97 ------- ------- Total..................................... 252 164 ======= ======= INTEREST EXPENSE: Average debt................................. $43,678 $41,521 $38,418 $41,158 Interest expense............................. 736 939 1,403 1,819 Average yield (annualized)................... 6.74% 9.05% 7.30% 8.84%
BENEFIT (PROVISION) FOR INCOME TAXES The Company has substantial federal NOLs, which can be used to offset the tax liability associated with the Company's pre-tax earnings until the earlier of the expiration or utilization of such NOLs. The Company accounts for the benefit of the NOLs by recording the benefit as an asset and then establishing an allowance to value the net deferred tax asset at a value commensurate with the Company's expectation of being able to utilize the recognized benefit in the next three to four year period. Such estimates are reevaluated on a quarterly basis with the adjustment to the allowance recorded as an adjustment to the income tax expense generated by the quarterly earnings. Significant events that change the Company's view of its currently estimated ability to utilize the tax benefits result in substantial changes to the estimated allowance required to value the deferred tax benefits recognized in the Company's periodic financial statements. The Company's analysis for the quarter ended June 30, 1999 resulted in an increase in the valuation allowance of $5 million. Additional events could occur in the future, and would impact the quarterly recognition of the Company's estimate of the required valuation allowance associated with its NOLs. Although realization is not assured, management believes it is more likely than not that all of the recorded deferred tax asset will be realized. 21 22 RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company (including the Notes thereto) included elsewhere in this Quarterly Report on Form 10-Q. SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998 The Company reported a net loss of $43.9 million (including a deferred tax provision of $5.0 million) in 1999 compared to earnings of $7.6 million in 1998 (including a $0.8 million deferred tax benefit from NOLs). Net loss to common shareholders was $44.5 million in 1999 compared to earnings of $6.1 million in 1998. On a per share basis, basic net loss attributable to common shareholders was $5.36 in 1999 compared to earnings of $.84 in 1998. Diluted net loss per common share was $5.36 in 1999 compared to earnings of $.83 in 1998. Mortgage Banking Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by 53% to $13.2 million in 1999 from $28.3 million in 1998. Although loan sales were flat, the percentage gain declined from 1.23% in 1998 to 0.57% in 1999 because of increases in interest rates during the quarter and a $6.6 million loss on sale of FHA/VA buyout assets. Net mortgage warehouse income. Net mortgage warehouse income increased by 47% to $3.5 million in 1999 from $2.4 million in 1998. This is the result of a significant increase in the spread between the interest rate on the underlying mortgages and the interest cost of the warehouse credit facility. Servicing fee revenues. Servicing fee revenues decreased by 24% to $4.2 million in 1999 from $5.6 million in 1998 as a result of a decrease in the size of the owned residential servicing portfolio. Other revenues. A $6.3 million loss on sale of mortgage servicing rights was realized in the second quarter. Other revenues increased by 65% to $2.6 million in 1999 from $1.6 million in 1998 because of an increase in interest income. Operating expenses. Operating expenses of Mortgage Corp. increased by 85% to $58.7 million in 1999 from $31.7 million in 1998 primarily as a result of significant increases in the provision for mortgage servicing rights, personnel and other costs. Salaries and benefits increased by $6.0 million or 35% in 1999 reflecting a growth in the platform from 1998. During the quarter, the majority of the retail production offices were sold or closed. Amortization of mortgage servicing rights decreased by $1.7 million or 41% in 1999 as a result of the Company's strategy to reduce investment in servicing rights. A provision of $4.6 million for valuation of mortgage servicing rights was recorded during the second quarter 1999. Interest on notes payable (the portion not associated with Mortgage Corp.'s warehouse credit facility) increased by $1.3 million or 260% due to higher working capital borrowings during 1999. Occupancy expense increased by $.8 million or 22% in 1999 as the result of the opening or acquisition of several new offices in 1998 in the Broker Retail and Direct Retail networks. Increases in data processing, communication and other expenses in 1999 resulted primarily from $9.1 million for the write down of assets deemed to be uncollectible and reserves for potential losses on assets and $8.1 million of charges relating to the closing of retail offices. Portfolio Asset Acquisition and Resolution Commercial Corp. purchased $58.2 million of Portfolio Assets during 1999 for its own account and through the Acquisition Partnerships compared to $17.9 million in acquisitions in 1998. Commercial Corp.'s quarter end investment in Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998. 22 23 Commercial Corp. invested $4.5 million in equity in Portfolio Assets in 1999 compared to $8.4 million in 1998. Net gain on resolution of Portfolio Assets. Proceeds from the resolution of Portfolio Assets decreased by 54% to $6.1 million in 1999 from $13.1 million in 1998. The net gain on resolution of Portfolio Assets decreased by 74% to $.7 million in 1999 from $2.8 million in 1998 as the result of lower collections and a lower gross profit percentage. The gross profit percentage on the resolution of Portfolio Assets in 1999 was 12.3% as compared to 21.7% in 1998. Equity in earnings of Acquisition Partnerships. Proceeds from the resolution of Portfolio Assets for the Acquisition Partnerships increased by 25% to $37.5 million in 1999 from $30.1 million in 1998 and the gross profit percentage increased to 36.3% in 1999 from 30.3% in 1998. Interest income rose $1.9 million. Other expenses of the Acquisition Partnerships increased by $.6 million in 1999 generally reflecting costs associated with the resolution of Portfolio Assets in Mexico which generated proceeds of $1.5 million. The net result was an overall increase in the net income of the Acquisition Partnerships of 159% to $10.0 million in 1999 from $3.9 million in 1998. As a result, Commercial Corp.'s equity earnings from Acquisition Partnerships increased by 84% to $2.8 million in 1999 from $1.5 million in 1998. Servicing fee revenues. Servicing fees increased by 17% to $.8 million in 1999 from $.7 million in 1998 primarily as a result of collections from the acquisition partnership in Mexico formed at year-end 1998. Other revenues. Other revenues increased by 40% to $.7 million in 1999 compared to $.5 million in 1998 principally as a result of higher interest income. Operating expenses. Operating expenses declined by 25% to $3.2 million in 1999 from $4.3 million in 1998 primarily as a result of reduced personnel and interest expense. Salaries and benefits decreased by $.5 million or 44% in 1999 as a result of staff reductions during the quarter. Interest on notes payable declined $.3 million or 22% due to overall lower cost of funds and lower debt levels. Asset level expenses, occupancy, data processing and other expenses decreased by 15% to $1.6 million in 1999 from $1.9 million in 1998 as a result of lower investments in Portfolio Assets and the consolidation of servicing offices in 1999. Consumer Lending Gain on sale of automobile loans. Consumer Corp. sold $55.8 million of automobile loans in the second quarter and realized a gain of $6.4 million. Interest and other income. Interest income increased by 30% to $3.4 million in 1999 from $2.7 million in 1998, reflecting increased levels of loan origination activity and an increase in the average balance of aggregate loans and investments held by Consumer Corp. during 1999. Other income increased $.8 million or 118% due to increased service fee revenue from securitization trusts. Interest expense. Interest expense decreased by 22% to $.7 million in 1999 from $.9 million in 1998 as a result of lower funding rates. Operating expenses. Operating expenses increased by 67% to $7.3 million in 1999 from $4.4 million in 1998 primarily as a result of a significant increase in the provision for impairment on residual interests and increased operating activity. Provision for impairment on residual interest increased by $2.0 million from 1998 as a result of increased losses in NAF originated Auto Receivable residuals. Salaries and benefits increased by $.4 million or 29% and other expenses increased $1.3 million or 81% as a result of the increased levels of operating activity. 23 24 Other Items Affecting Net Earnings The following items affect the Company's overall results of operations and are not directly related to any one of the Company's businesses discussed above. Corporate overhead. Company level interest expense increased by 251% to $1.9 million in 1999 from $.5 million in 1998 as a result of higher volumes of debt associated with the equity required to purchase Portfolio Assets, equity interests in Acquisition Partnerships and capital support to operating subsidiaries. Salaries and benefits decreased 60% to $.3 million in 1999. Loan fees and professional fees account for the majority of the $.2 million increase in other overhead expenses, which increased due to higher borrowings and other costs associated with outsourcing projects related to the Company's year 2000 initiative and other operational reviews. Additionally, during the second quarter of 1998 the Company recognized $.4 million of deferred premium income related to the redemption of Special Preferred Stock. Income taxes. Federal income taxes are provided at a 35% rate applied to taxable income and are offset by NOLs that the Company believes are available. The tax benefit of the NOLs is recorded in the period during which the benefit is realized. The Company recorded a deferred tax provision from NOLs of $5.0 million in 1999 as compared to a benefit of $.8 million in 1998. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 The Company reported a net loss of $45.4 million in 1999 (including a deferred tax provision of $5.0 million) compared to earnings of $13.4 million in 1998 (including a $1.5 million deferred tax benefit from NOLs). Net loss to common shareholders was $46.7 million in 1999 compared to earnings of $10.4 million in 1998. On a per share basis, basic net loss attributable to common shareholders was $5.63 in 1999 compared to earnings of $1.51 in 1998. Diluted net loss per common share was $5.63 in 1999 compared to earnings of $1.47 in 1998. An accounting change related to SOP 98-5 resulted in a loss of $.8 million in the first six months of 1999 or $0.10 per share. Mortgage Banking Gain on sale of mortgage loans. Gain on sale of mortgage loans decreased by 18% to $39.9 million in 1999 from $48.6 million in 1998. Although loan sales increased from $3.6 billion in 1998 to $4.8 billion in 1999, the percentage gain declined from 1.35% in 1998 to 0.84% in 1999 because of a $6.6 million loss on sale of FHA/VA buyout assets. Net mortgage warehouse income. Net mortgage warehouse income increased by 130% to $9.5 million in 1999 from $4.1 million in 1998. This is the result of a significant increase in the spread between the interest rate on the underlying mortgages and the interest cost of the warehouse credit facility. Servicing fee revenues. Servicing fee revenues were flat period to period. Other revenues. An $8.7 million loss on sale of mortgage servicing rights was realized in the first six months of 1999. Other revenues increased by 47% to $5.2 million in 1999 from $3.6 million in 1998 because of a boost in interest income. Operating expenses. Operating expenses of Mortgage Corp. increased by 72% to $97.0 million in 1999 from $56.5 million in 1998 primarily as a result of significant increases in the provision for mortgage servicing rights, personnel and other costs. Salaries and benefits increased by $15.0 million or 50% in 1999 reflecting a growth in the platform from 1998. During the period, the majority of the retail production offices were sold or closed. Amortization of mortgage servicing rights decreased as a result of the sale of mortgage servicing rights. Interest on notes payable (the portion not associated with Mortgage Corp.'s warehouse credit facility) increased due to higher working capital borrowings during 1999. A provision of $2.3 million for valuation of mortgaging servicing rights was recorded in the first six months of 1999. 24 25 Occupancy expense increased by $2.1 million or 31% in 1999 as the result of the opening or acquisition of several new offices in 1998 in the Broker Retail and Direct Retail networks. Increases in data processing, communication and other expenses in 1999 resulted from $9.1 million for the write down of assets deemed to be uncollectible and reserves for potential losses on assets and $8.1 million of one-time charges relating to the closing of retail offices. Portfolio Asset Acquisition and Resolution Commercial Corp. purchased $68.0 million of Portfolio Assets during 1999 for its own account and through the Acquisition Partnerships compared to $69.8 million in acquisitions in 1998. Commercial Corp.'s quarter end investment in Portfolio Assets decreased to $48.2 million in 1999 from $68.5 million in 1998. Commercial Corp. invested $7.0 million in equity in Portfolio Assets in 1999 compared to $17.1 million in 1998. Net gain on resolution of Portfolio Assets. Proceeds from the resolution of Portfolio Assets decreased by 63% to $11.0 million in 1999 from $30.0 million in 1998. The net gain on resolution of Portfolio Assets decreased by 66% to $2.0 million in 1999 from $5.9 million in 1998 as the result of lower collections. The gross profit percentage on the resolution of Portfolio Assets in 1999 was 18.6% as compared to 19.8% in 1998. Equity in earnings of Acquisition Partnerships. Proceeds from the resolution of Portfolio Assets for the Acquisition Partnerships decreased by 23% to $67.2 million in 1999 from $87.6 million in 1998 while the gross profit percentage increased to 36.3% in 1999 from 31.6% in 1998. Interest income rose $2.0 million in 1999. Other expenses of the Acquisition Partnerships decreased by $2.8 million in 1999 generally reflecting costs associated with the resolution of Portfolio Assets in Europe which generated proceeds of $37.4 million. The net result was an overall increase in the net income of the Acquisition Partnerships of 26% to $16.4 million in 1999 from $13.0 million in 1998. As a result, Commercial Corp.'s equity earnings from Acquisition Partnerships increased by 15% to $5.4 million in 1999 from $4.7 million in 1998. Servicing fee revenues. Servicing fees increased by 26% to $1.8 million in 1999 from $1.4 million in 1998 primarily as a result of collections from the acquisition partnership in Mexico formed at year-end 1998. Other revenues. Other revenues decreased by 20% to $2.0 million in 1999 compared to $2.5 million in 1998 principally as a result of fewer acquisitions during the year (which would generate lower due diligence recovery income). Operating expenses. Operating expenses declined by 21% to $7.3 million in 1999 from $9.2 million in 1998 primarily as a result of reduced interest expense and lower asset level expenses. Salaries and benefits were relatively flat period to period. Interest on notes payable declined $.7 million or 26% due to overall lower cost of funds and lower debt levels. Asset level expenses, occupancy, data processing and other expenses decreased by 23% to $3.1 million in 1999 from $4.1 million in 1998 as a result of lower investments in Portfolio Assets and the consolidation of servicing offices in 1999. Consumer Lending Gain on sale of automobile loans. In the first six months of 1999, Consumer Corp. realized a gain of $6.4 million on the sale of automobile loans as compared to $2.4 million in 1998. Interest and other income. Interest income increased by 31% to $6.9 million in 1999 from $5.2 million in 1998, reflecting increased levels of loan origination activity and an increase in the average balance of aggregate loans and investments held by Consumer Corp. during 1999. Other income increased $1.5 million or 148% due to increased service fee revenue from securitization trusts. Interest expense. Interest expense decreased by 23% to $1.4 million in 1999 from $1.8 million in 1998 as a result of lower funding costs. 25 26 Operating expenses. Operating expenses increased by 19% to $11.7 million in 1999 from $9.8 million in 1998 primarily as a result of increased operating activity. Provision for loan losses and impairment on residual interests decreased by $.9 million or 31% from 1998 as a result of a reduction in loan loss provision of $2.9 million when compared to 1998, offset by the provision on impairments on residual assets increased by $2.0 million over 1998. Salaries and benefits increased by $.8 million or 33% and other expenses increased $2.3 million or 84% as a result of the increased levels of operating activity. Other Items Affecting Net Earnings The following items affect the Company's overall results of operations and are not directly related to any one of the Company's businesses discussed above. Corporate overhead. Company level interest expense increased by 238% to $3.7 million in 1999 from $1.1 million in 1998 as a result of higher volumes of debt associated with the equity required to purchase Portfolio Assets, equity interests in Acquisition Partnerships and capital support to operating subsidiaries. Salary and benefits decreased 22% to $1.3 million in 1999. Loan fees and professional fees account for the majority of the $1.1 million increase in other overhead expenses, which increased due to higher borrowings and other costs associated with outsourcing projects related to the Company's year 2000 initiative and other operational reviews, as well as a write-off of $.5 million of organization costs in accordance with SOP 98-5. Additionally, during the first six months of 1998 the Company recognized $1.7 million of deferred premium income related to the redemption of Special Preferred Stock. Income taxes. Federal income taxes are provided at a 35% rate applied to taxable income and are offset by NOLs that the Company believes are available. The tax benefit of the NOLs is recorded in the period during which the benefit is realized. The Company recorded a deferred tax provision from NOLs of $5.0 million in 1999 as compared to a benefit of $1.5 million in 1998. LIQUIDITY AND CAPITAL RESOURCES Generally, the Company requires liquidity to fund its operations, working capital, payment of debt, equity for acquisition of Portfolio Assets, investments in and advances to the Acquisition Partnerships, investments in expanding businesses to support their growth, retirement of and dividends on preferred stock, and other investments by the Company. The potential sources of liquidity are funds generated from operations, equity distributions from the Acquisition Partnerships, interest and principal payments on subordinated intercompany debt and dividends from the Company's subsidiaries, short-term borrowings from revolving lines of credit, proceeds from equity market transactions, securitization and other structured finance transactions and other special purpose short-term borrowings. The Company has completed the extension and renewal of its working capital revolving line of credit with its revolving lenders ("Revolving Lenders") in August 1999 in the amount of $93 million. In consideration of the additional funding provided under the revolving line of credit, warrants for the purchase of 250,000 shares of the Company's common stock were issued which are exercisable over a ten year period at a strike price equal to the average closing price for the Company's common stock for the month of August 1999. This renewed facility includes a sub-line for FirstCity Consumer Lending ("Consumer") and matures June 30, 2000. This facility requires the approval of the lenders prior to payment of common and preferred dividends. Previously, the Company announced that certain trigger and termination events had occurred under the agreements with its credit enhancement provider on the Consumer residual assets and the Consumer warehouse facility. The credit enhancement provider has given the Company a waiver until September 15, 1999, of the trigger and termination events subject to the following conditions: (1) all excess cash flows payable to affiliates of Consumer under the securitizations will be reserved by the credit enhancement provider, (2) advances under the warehouse line will be reduced from 79.5% to 77% of the principal balances of the loans funded with total fundings under the line limited to $11,500,000 for the thirty day period, (3) the Corporate revolving lenders must agree to waive the default under the revolving loan agreement related to the 26 27 trigger event for a thirty day period, (4) the Company and its subsidiaries will be required to cross-collateralize the securitizations wrapped by the credit enhancement provider, (5) the servicing agreements related to the wrapped securitizations will be made subject to thirty day renewal periods. Additionally, these trigger events were events of default under a $4.3 million credit facility secured by certain automobile residual assets. The Company is currently working with this lender to waive such defaults. Mortgage Corp. is currently in default on a payment in the approximate amount of $5 million on a $14 million gestation facility and is working with the lender to cure such defaults. As a result of this payment default and the net worth of Harbor Financial Mortgage Corporation, Mortgage Corp. is in default of its covenants contained in the $500 million warehouse facility. These defaults also create defaults in Mortgage Corp.'s other credit facilities. Mortgage Corp. is currently working with the syndicate lenders to receive waivers of these defaults. If such waivers or cures are not obtained, funding under the Mortgage Corp. warehouse facilities could be halted. The Company's revolving credit facility provides that the defaults by Mortgage do not constitute a default under the Company's revolving credit facility unless they are not cured or waived on or before September 15, 1999. In the event these defaults are not waived or cured by September 15, 1999, they could have an adverse impact on the Company's liquidity. As described above, the Company has recently engaged independent advisory firms to assist with the sale of Mortgage Corp. and Capital Corp. Assuming the Company sells or liquidates its mortgage segment, and is able to cure or obtain waivers of the defaults in its loan facilities described above, the Company believes that the liquidity provided by its revolving credit facility, funding from senior lenders in Acquisition Partnership investments, direct portfolio investments and business acquisitions, securitizations of loans made by Consumer, and other revenue generated by Consumer and Commercial Corp. will be adequate to fund the Company's contemplated activities and liquidity needs. In addition, the Company believes that after it has exited the mortgage business that it will be able to raise capital through public debt equity offerings (subject to limitations related to the preservation of the Company's NOLS). The Company and each of its major operating subsidiaries have entered into one or more credit facilities to finance its respective operations. Each of the operating subsidiary credit facilities is nonrecourse to the Company and the other operating subsidiaries, except as discussed below. Excluding the term acquisition facilities of the unconsolidated Acquisition Partnerships, as of June 30, 1999, the Company and its subsidiaries had credit facilities providing for borrowings in an aggregate principal amount of $1.9 billion and outstanding borrowings of $931 million. The following table summarizes the material terms of the credit facilities to which the Company, its major operating subsidiaries and the Acquisition Partnerships were parties as of August 13, 1999 and the outstanding borrowings under such facilities as of June 30, 1999. CREDIT FACILITIES
OUTSTANDING PRINCIPAL BORROWINGS AS OF AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS --------- ---------------- ------------- -------------------------- (DOLLARS IN MILLIONS) FIRSTCITY Company Credit Facility.............. $ 93 $ 76 Prime + 1.0% to Secured by the assets of the Company, expires Prime + 4% June 30, 2000* Term fixed asset facility.............. 1 1 Prime + 1.0% Secured by certain fixed assets, expires January 1, 2001 Term credit facility.... 10 10 LIBOR + 5.0% Secured by stock of an acquisition partnership and certain residual interests, expires February 20, 2000 MORTGAGE CORP. Warehouse facilities.... 500 364 LIBOR + 1.375% Revolving line to warehouse residential to 2.5% mortgage loans, expires May 27, 2000* Supplemental warehouse facilities............ 62 41 LIBOR + 1.75% Revolving line to warehouse residential to 2.75% mortgage loans and related receivables, expires May 27, 2000 Gestation facilities.... 860 148 Fed Funds + 0.8% Open facilities to fund committed loans to FNMA to 1.05% and and others* LIBOR + 0.5% to 0.8%
27 28
OUTSTANDING PRINCIPAL BORROWINGS AS OF AMOUNT JUNE 30, 1999 INTEREST RATE OTHER TERMS AND CONDITIONS --------- ---------------- ------------- -------------------------- (DOLLARS IN MILLIONS) CAPITAL CORP. Warehouse facility...... 200 177 LIBOR + 1.50% Acquisition facility to acquire Home Equity to 3.00% Loans, expires March 31, 2000 Repurchase agreement.... 7 7 LIBOR + 4.00% Repurchase agreement secured by residual interests in Home Equity securitized loans, expires November 10, 1999 COMMERCIAL CORP. Term facility........... 65 65 LIBOR + 4.0% Term facility secured by existing Portfolio Assets, expires April 30, 2000 (includes $55 million advanced to unconsolidated Acquisition Partnerships). French and Japanese acquisition facility.............. 4 14 French franc Acquisition facility to fund equity investments LIBOR + 3.5% in French and Japanese Portfolio Assets, Japanese yen expires March 31, 2000. Guaranteed by LIBOR + 3.5% Commercial Corp. and the Company. Paid down and curtailed to $4 million in August, 1999. Term acquisition facilities............ 30 30 Fixed at 7.00% Acquisition facilities for existing Portfolio to 7.66% Assets. Secured by Portfolio Assets. Expires February 25, 2003 and June 5, 2002 and November 7, 2002
CONSUMER CORP. Warehouse facility...... 100 44 Rate equal to the Commercial paper conduit warehouse facility mixed rate of secured by automobile receivables, expires LIBOR and March 30, 2000* commercial paper rates Repurchase Agreement.... 3 3 LIBOR + 3% Repurchase agreement secured by residual interests in automobile securitized loans, expires November 10, 1999 Term facility........... 6 6 Prime + 1% Term facility secured by residual interests in automobile securitized loans, expires March 15, 2000 Unconsolidated Acquisition Partnerships Term acquisition facilities............ 74 74 Fixed at 4.5% to Senior and subordinated loans secured by 13%, LIBOR + Portfolio Assets, various maturities 3.0% to 5.0% and Prime + 1.0%
- --------------- * See discussions above. RELIANCE ON SYSTEMS; YEAR 2000 ISSUES The Year 2000 Issue consists of shortcomings of many electronic data processing systems that make them unable to process year-date data accurately beyond the year 1999. The primary shortcoming arises because computer programmers have abbreviated dates by eliminating the first two digits of the year under the assumption that these digits would always be 19. Another shortcoming is caused by the routine used by some computers for calculating leap year does not detect that the year 2000 is a leap year. This inability to process dates could potentially result in a system failure or miscalculation causing disruptions in the Company's operations or performance. The potential problems posed by this issue affect the Company's internal business-critical systems ("internal systems") upon which the Company depends. This includes information technology systems and applications ("IT"), as well as non-IT systems and equipment with embedded technology, such as fax machines and telephone systems. Examples of internal IT systems includes accounting systems such as general ledger, loan servicing systems, cash management systems and loan origination systems. In addition to the internal systems, the Company may be at risk from Year 2000 failures caused by or occurring to third parties. Some third parties have significant direct business relationships with the Company. These parties include borrowers, lenders, investors who buy the Company's loan products and outside system vendors such as Alltel, Inc., the primary data processing provider for the servicing of Mortgage Corp's loans. 28 29 The Company's Year 2000 Initiative The Company, with the assistance of a consulting firm that specializes in Year 2000 readiness, is conducting an enterprise-wide Year 2000 initiative that encompasses both the internal systems and exposure to third parties. For the Company's internal systems, the initiative is being approached in four phases comprised of assessment, remediation, testing and contingency planning. While there is considerable overlap in the timing of the four phases, the internal assessment phase was completed in March 1999 within the $135,000 budget allocated for this phase. The components (i.e., hardware and software) of all internal systems have been identified and the Year 2000 readiness assessed. The Company has identified its third party business relationships and is conducting a letter writing campaign to obtain written representations of Year 2000 readiness from the mission critical and significant third party business relationships. At present, approximately 1000 letters have been mailed with 42% of the entities responding including both mission critical and non-mission critical relationships. At this time 59% of the mission critical business relationships have responded with 92% of those indicating that they are Year 2000 ready or have Year 2000 plans in place and 8% responded with insufficient data regarding Year 2000 readiness. The letter writing campaign to assess third party relationships will continue throughout the remainder of 1999 and it is anticipated that a significant number of positive Year 2000 readiness responses will be received in the third and fourth quarters. A comprehensive remediation and testing plan along with a budget of approximately $1,500,000 for the remainder of the Year 2000 project was presented and approved by the Board of Directors of the Company on April 15, 1999. Within this budget, approximately $165,000 is for computer hardware and software that must be replaced or upgraded and the remainder is for personnel costs (employees, external consultants and travel expenses). All estimated costs have been budgeted and will be funded by cash flows from operations. Remediation of mission critical infrastructure components began in January 1999 and has been completed as of June 30, 1999. Infrastructure is defined as Servers, Workstations, Operating Systems and Network Operating Systems. Mission critical vendor supplied applications have been upgraded to the vendor's disclosed Year 2000 ready release with the exception of the Company's PC based General Ledger software packages. The Year 2000 ready versions of the General Ledger packages are scheduled for implementation in July and September 1999. The PC General Ledger accounting systems will be replaced by the implementation of PeopleSoft Financials in the third quarter of 1999. Mission critical custom applications written and/or maintained by the Company have been remediated and are in the process of verification testing. Test plans have been written for these applications and testing will be completed by August 31, 1999. Non IT systems, including fax machines, copiers and building mechanical systems are also being addressed. Fax and copy machines have been identified by model number and manufacturer have been contacted using the third party/vendor letters requesting their for Year 2000 readiness. Properties owned or occupied by the Company's business units are managed by individual property management companies who have been contacted as to the readiness of the mechanical systems within those buildings. To date no critical Non-IT systems or equipment with embedded technology have been identified as having Year 2000 related issues that will have a significant impact on business operations. In addition to being included in the Company's initiative described above, Mortgage Corp. participated in the Year 2000 Inter-Industry Test sponsored by the Mortgage Bankers Association ("MBA Test"). Other participants in the MBA Test were from a cross section of the top industry participants including originators, servicers, mortgage insurers, service bureaus, investors and software vendors. Mortgage Corp.'s primary data processing vendor, Alltel, Inc., and FNMA, Mortgage Corp.'s primary investor, were also participants. The objective of the test was to prove that the interaction with common mortgage industry trading partners is acceptable in a year 2000+ environment. The test covered 17 types of transactions that fall under the three primary mortgage processes: origination, secondary marketing, and servicing. The test was completed April 30, 29 30 1999 within the $102,400 budget allotted. While this test will not replace internal testing, it does provide additional assurance to Mortgage Corp. and the other participants that the readiness of their systems, many of which are directly interfaced, are subjected to independent verification. Based on the Company's remediation efforts, responses received and testing to date, it is not anticipated that any internal or third party Year 2000 readiness issues will materially affect the Company. The Company expects to have a comprehensive Year 2000 contingency plan in place by the third quarter of 1999. In general, contingency plans will be developed to replace any significant third party service providers or internal systems that have not completed their Year 2000 initiative and disclosed their readiness to the Company by the third quarter of 1999. Contingency planning also involves a comprehensive risk assessment in order to maintain focus on critical business relationships and systems. Contingency planning with respect to third parties will continue throughout the remainder of 1999. The cost of the Year 2000 initiative and the dates by which the Company anticipates completion of its Year 2000 plan are based on management's best estimates, which are derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. Unanticipated failures by critical third parties, as well as the failure by the Company to execute its own remediation and testing efforts, could have a material adverse effect on the cost of the initiative and its completion date. As a result, there can be no assurance that these forward-looking estimates will be achieved and the actual cost and third party compliance could differ materially from those plans, resulting in material financial risk. Potential Risks Currently, there is uncertainty as to the ultimate success of global remediation efforts, including the efforts of entities that provide services to large segments of society such as airlines, utilities and securities exchanges. There could be short term or longer-term disruptions in segments of the economy that could impact the Company. Due to the uncertainty with respect to how the Year 2000 issue will affect business and government, it is not possible to list all potential problems or risks to the Company. The Company believes that the most reasonably likely worst case scenarios that could have adverse effects on the Company are the failures of third parties, particularly residential mortgage loan borrowers, its lenders and the investors who purchase its mortgage and consumer loan products. The Company's residential mortgage and consumer loan borrowers could be affected by any adverse impact on the general economy that could cause a rise in delinquencies. Lenders, who provide funds used by the Company to acquire assets, might be adversely affected, disrupting the flow of funds, which could have an adverse impact on the Company's ability to make new loans. Likewise, a disruption in services by investors such as FNMA could have an adverse impact on the Company's ability to sell loans, which would result in significant reductions in operating activities. Any Year 2000 factors that might impact borrowers' abilities to repay their obligations relate to the failure of global remediation efforts over which the Company has no influence. The Company's lenders and investors, most of which operate in highly regulated industries, are among the largest such institutions in the world. These institutions are under government regulatory mandates to achieve full readiness prior to the end of 1999. The Company believes that it is unlikely that these institutions will fail to achieve readiness within a reasonable time frame; however, the Company will continue to monitor their readiness and maintain an ongoing contingency plan. FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report on Form 10-Q or incorporated by reference from time to time, including, but not limited to, statements relating to the Company's strategic objectives and future performance, which are not historical fact, may be deemed to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, performance or achievements, and may contain the words "expect", "intend", "plan", "estimate", "believe", "will be", "will continue", "will likely result", 30 31 and similar expressions. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. There are many important factors that could cause the Company's actual results to differ materially from those indicated in the forward-looking statements. Such factors include, but are not limited to, the impact of certain covenants in loan agreements of the Company and its subsidiaries; the degree to which the Company is leveraged; its need for financing; the continued availability of the Company's credit facilities; capital markets conditions, including the markets for asset-backed securities and commercial mortgage-backed securities; the performance of the Company's subsidiaries and affiliates; availability of net operating loss carryforwards; risks associated with rapid growth and entry into new businesses; general economic conditions; interest rate risk; prepayment speeds; delinquency and default rates; credit loss rates; changes (legislative and otherwise) in the asset securitization industry; risk of securitization; demand for the Company's services; residential and commercial and other real estate values; changes in foreign political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to attract and retain qualified and key personnel; dependence on independent mortgage brokers and automobile dealership relationships, the Company's Year 2000 issues; factors more fully discussed and identified under Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, risk factors and other risks identified in the Company's current report on Form 10-K, filed March 31, 1999 and other Securities and Exchange Commission filings. Many of these factors are beyond the Company's control. In addition, it should be noted that past financial and operational performance of the Company is not necessarily indicative of future financial and operational performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements in this Report speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company's earnings are materially impacted by net gains on sales of loans and net interest margins. The level of gains from loan sales the Company achieves is dependent on demand for the products originated. Net interest margins are dependent on the Company to maintain the spread or interest differential between the interest it charges the customer for loans and the interest the Company is charged for the financing of those loans. The following describes each component of interest bearing assets held by the Company and how each could be effected by changes in interest rates. Portfolio assets consist of investments in pools of non-homogenous assets that predominantly consist of loan and real estate assets. Earnings from these assets are based on the estimated future cash flows from such assets and recorded when those cash flows occur. The underlying loans within these pools bear both fixed and variable rates. Due to the non-performing nature and history of these loans, changes in prevailing bench-mark rates (such as the prime rate or LIBOR) generally have a nominal effect on the ultimate future cash flow to be realized from the loan assets. Furthermore, these pools of assets are held for sale, not for investment; therefore, the disposition strategy is to liquidate these assets as quickly as possible. The sub-prime loans the Company sells generally are included in asset backed securities the investor or purchaser issues. These securities are priced at spreads over the LIBOR or an equivalent term treasury security. These spreads are determined by demand for the security. Demand is affected by the perception of credit quality and prepayment risk associated with the loans the Company originates and sells. Interest rates offered to customers also affect prices paid for loans. These rates are determined by review of competitors rate offerings to the public and current prices being paid to the Company for the products. The Company does not hedge these price risks. Prices paid for prime loans, primarily mortgage loans held for sale, are impacted by movements in interest rates. The Company mitigates this risk by locking in prices with its investors as the customer locks in the price with the Company, thus allowing the Company to maintain its margin. Generally, if interest rates rise 31 32 significantly, home sales and refinancing will decline adversely affecting the Company's prime mortgage loan production. The Company's residual interests in securitizations represent the present value of the excess cash flows the Company expects to receive over the life of the underlying sub-prime mortgage or automobile loans. The value of the sub-prime mortgage residual interest is adversely affected by prepayment, losses and delinquencies due to the longer term of the underlying assets and the value would be negatively impacted by an increase in short-term rates, as a portion of the cash flows fluctuate monthly based upon the one-month LIBOR. The sub-prime automobile residual interests is affected less by prepayment speeds due to the shorter term of the underlying assets and the fact that the loans are fixed rate, generally at the highest rate allowable by law. The Company's investment in mortgage servicing rights is based on weighted average service fee rates and assumed prepayment speeds. Changes in prevailing mortgage interest rates contribute to changes in the prepayment assumptions of servicing rights, thus causing increases to the value of the servicing rights when mortgage rates increase and decreases in value when mortgage rates decrease. Additionally the Company has various sources of financing which have been previously described in the Liquidity Capital Resources section of Item 2. In summary, the Company would be negatively impacted by rising interest rates and declining prices for its sub-prime loans. Rising interest rates would negatively impact prime mortgage production and the value of the residual interests in the securitization and declining prices for the Company's sub-prime loans would adversely effect the levels of gains achieved upon the sale of those loans. 32 33 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of shareholders (the "Annual Meeting") on May 12, 1999. The following items of business were considered at the Annual Meeting. (a) Election of Directors The following were elected as directors to serve as members of the Company's Board of Directors until the Company's 2000 annual meeting of shareholders. The number of votes cast for each nominee was as follows:
VOTES CAST VOTES NOMINEE FOR AGAINST ABSTAINED ------- ---------- ------- --------- James R. Hawkins............................................ 5,674,587 0 129,912 C. Ivan Wilson.............................................. 5,674,591 0 120,908 James T. Sartain............................................ 5,674,591 0 120,908 Rick R. Hagelstein.......................................... 5,674,591 0 120,908 Buddy L. Terrell............................................ 5,618,204 0 177,295 Richard E. Bean............................................. 5,674,475 0 121,024 Dane Fulmer................................................. 5,674,591 0 120,908 Robert E. Garrison II....................................... 5,674,591 0 120,908 David W. MacLennan.......................................... 5,674,591 0 120,908 Thomas E. Smith............................................. 5,674,591 0 120,908
(b) Ratification of Appointment of Auditors A proposal to ratify the Board of Directors' appointment of KPMG LLP as the Company's independent auditors for 1999 was approved by the shareholders. The number of votes for the proposal: 5,748,525; votes witheld: 39,528; abstentions: 7,446. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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).
33 34
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.2 -- Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 4.1 -- Certificate of Designations of the New Preferred Stock ($0.01 par value) of the Company. (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.2 -- Warrant Agreement, dated July 3, 1995, by and between the Company and American Stock Transfer & Trust Company, as Warrant Agent (incorporated herein by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 4.3 -- Registration Rights Agreement, dated July 1, 1997, among the Company, Richard J. Gillen, Bernice J. Gillen, Harbor Financial Mortgage Company Employees Pension Plan, Lindsey Capital Corporation, Ed Smith and Thomas E. Smith. (incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.4 -- Stock Purchase Agreement, dated March 24, 1998, between the Company and Texas Commerce Shareholders Company. (incorporated herein by reference to Exhibit 4.4 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.5 -- Registration Rights Agreement, dated March 24, 1998, between the Company and Texas Commerce Shareholders Company. (incorporated herein by reference to Exhibit 4.5 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 24, 1998). 9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995, among ATARA I Ltd., James R. Hawkins, James T. Sartain and Cargill Financial Services Corporation. (incorporated herein by reference to Exhibit 9.1 of the Company's Form 10-K dated March 24,1998 filed with the Commission on March 26, 1998). 10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated July 3, 1995 (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 10.2 -- Investment Management Agreement, dated July 3, 1995, between the Company and FirstCity Liquidating Trust (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995 10.3 -- Lock-Box Agreement, dated July 11, 1995, among the Company, NationsBank of Texas, N.A., as lock-box agent, FirstCity Liquidating Trust, FCLT Loans, L.P., and the other Trust-Owned Affiliates signatory thereto, and each of NationsBank of Texas, N.A. and Fleet National Bank, as co-lenders (incorporated herein by reference to Exhibit 10.3 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995). 10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet National Bank, as custodian, Fleet National Bank, as agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and the Company (incorporated herein by reference to Exhibit 10.4 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995). 10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among the Company, as custodian, Fleet National Bank, as agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and the Company, as servicer (incorporated herein by reference to Exhibit 10.5 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995).
34 35
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.6 -- 12/97 Amended and Restated Facilities Agreement, dated effective as of December 3, 1997, among Harbor Financial Mortgage Corporation, New America Financial, Inc., Texas Commerce Bank National Association and the other warehouse lenders party thereto. (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.7 -- Modification Agreement, dated January 26, 1998, to the Amended and Restated Facilities Agreement, dated as of December 3, 1997, among Harbor Financial Mortgage Corporation, New America Financial, Inc. and Chase Bank of Texas, National Association (formerly known as Texas Commerce Bank National Association). (incorporated herein by reference to Exhibit 10,7 of the company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional Warehouse Note, dated March 17, 1998, by Harbor Financial Mortgage Corporation and New America Financial, Inc., in favor of Chase Bank of Texas, National Association. (incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.9 -- Employment Agreement, dated as of July 1, 1997, by and between Harbor Financial Mortgage Corporation and Richard J. Gillen. (incorporated herein by reference to Exhibit 10.9 of the Company's 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.10 -- Employment Agreement, dated as of September 8, 1997, by and between FirstCity Funding Corporation and Thomas R. Brower, with similar agreements between FC Capital Corp. and each of James H. Aronoff and Christopher J. Morrissey. (incorporated herein by reference to Exhibit 10.10 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.11 -- Shareholder Agreement, dated as of September 8, 1997, among FirstCity Funding Corporation, FirstCity Consumer Lending Corporation, Thomas R. Brower, Scot A. Foith, Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent and Blake P. Bozman. (incorporated herein by reference to Exhibit 10.11 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.12 -- Revolving Credit Loan Agreement, dated as of March 20, 1998, by and between FC Properties, Ltd. and Nomura Asset Capital Corporation. (incorporated herein by reference to Exhibit 10.12 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.13 -- Revolving Credit Loan Agreement, dated as of February 27, 1998, by and between FH Partners, L.P. and Nomura Asset Capital Corporation. (incorporated herein by reference to Exhibit 10.13 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment Realty Partners, L.P. and Bankers Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.14 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated September 25, 1997, by J-Hawk International Corporation in favor of the Bank of Scotland. (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998).
35 36
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.16 -- Loan Agreement, dated as of September 25, 1997, by and between Bank of Scotland and J-Hawk International Corporation. (incorporated herein reference to Exhibit 10.16 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.17 -- Guaranty Agreement, dated as of September 25, 1997, by J-Hawk (incorporated herein by reference to Exhibit 10.17 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.18 -- Guaranty Agreement, dated as of September 25, 1997, by FirstCity Financial Corporation in favor of Bank of Scotland. (incorporated herein by reference to Exhibit 10.18 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996, among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust and National Auto Funding Corporation. (incorporated herein by reference to Exhibit 10.19 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.20 -- Funding Commitment, dated as of May 17, 1996 by and between ConiTrade Services L.L.C. and The Company. (incorporated herein by reference to Exhibit 10.20 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.21 -- Revolving Credit Agreement, dated as of December 29, 1995, by and between the Company and Cargill financial Services Corporation, as amended by the Eighth Amendment to Revolving Credit Agreement dated February 1998. (incorporated herein by reference to Exhibit 10.21 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.22 -- Master Repurchase Agreement Governing Purchased and Sales of Mortgage Loans, dated as of July 1998, between Lehman Commercial Paper Inc. and FHB Funding Corp. (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission August 18, 1998). 10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998 among ContiTrade Services, L.L.C., FirstCity Consumer Lending Corporation, FirstCity Auto Receivables L.L.C. and FirstCity Financial Corporation. (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q dated dated August 14, 1998, filed with the Commission August 16, 1998). 10.24 -- Servicing Agreement, dated as of April 30, 1998 among FirstCity Auto Receivables L.L.C. , FirstCity Servicing Corporation of California, FirstCity Consumer Lending Corporation and ContiTrade Services L.L.C. (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-Q dated dated August 14, 1998, filed with the Commission August 16, 1998). 10.25 -- Security and Collateral Agreement, dated as of April 30, 1998 among FirstCity Auto Receivables L.L.C., ContiTrade Services L.L.C. and Chase Bank of Texas, National Association. (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission August 16, 1998). 10.26 -- Loan Agreement, dated as of July 24, 1998, between FirstCity Commercial Corporation and CFSC Capital Corp. XXX (incorporated herein by reference Exhibit 10.5 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998). 10.27 -- Loan Agreement, dated April 8, 1998 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998)
36 37
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.28 -- First Amendment to Loan Agreement, dated July 20, 1998, between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998). 10.29 -- Employment Agreement, dated October 1, 1998, by and between FirstCity. Financial Mortgage Corporation, and Buddy L. Terrell (incorporated herein by reference to Exhibit 10.29 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.30 -- Security Agreement, dated as of April 30, 1998 among Enterprise Funding Corporation, FCAR Receivables L.L.C., MBIA Insurance Corporation, FirstCity Funding Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a Loan Servicing enterprise (incorporated herein by reference to Exhibit 10.30 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.31 -- Note purchase agreement, dated March 30, 1999 among Enterprise Funding Corporation, FCAR Receivables, LLC and NationsBank , N.A. (incorporated herein by reference to Exhibit 10.31 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR Receivables LLC, FirstCity Funding Corporation, NationsBank, N.A., Enterprise Funding Corporation and Chase Bank of Texas, N.A. (incorporated herein by reference to Exhibit 10.32 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.33 -- Credit agreement dated effective as of May 28, 1999 made by and among Harbor Financial Mortgage, New America Financial, Inc., FirstCity Financial Mortgage Corporation, and Guaranty Federal Bank F.S.B. as Administrative Agent and Bank One, Texas, N.A. as Collateral Agent. 10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999 between Bank of Scotland and the Company. 27.1 -- Financial Data Schedule. (Exhibit 27.1 is being submitted as an exhibit only in the electronic format of this Quarterly Report on Form 10-Q being submitted to the Securities and Exchange Commission. Exhibit 27.1 shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933, Section 18 of the Securities Act of 1934, as amended, or Section 323 of the Trust Indenture Act of 1939, as amended, or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of any registration statement to which it relates.)
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant with the Securities Exchange Commission during the quarterly period ended June 30, 1999. 37 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRSTCITY FINANCIAL CORPORATION By /s/ JAMES T. SARTAIN ----------------------------------- Name: James T. Sartain Title: President and Chief Operating Officer and Director (Duly authorized officer of the Registrant) By /s/ GARY H. MILLER ----------------------------------- Name: Gary H. Miller Title: Senior Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer of the Registrant) By /s/ JAMES B. BAKER ----------------------------------- Name: James B. Baker Title: Vice President and Controller (Duly authorized officer and principal accounting officer of the Registrant) Dated: August 16, 1999 38 39 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Joint Plan of Reorganization by First City Bancorporation of Texas, Inc., Official Committee of Equity Security Holders and J-Hawk Corporation, with the Participation of Cargill Financial Services Corporation, Under Chapter 11 of the United States Bankruptcy Code, Case No. 392-39474-HCA-11 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 2.2 -- Agreement and Plan of Merger, dated as of July 3, 1995, by and between First City Bancorporation of Texas, Inc. and J-Hawk Corporation (incorporated herein by reference to Exhibit 2.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 3.1 -- Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 3.2 -- Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 4.1 -- Certificate of Designations of the New Preferred Stock ($0.01 par value) of the Company. (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.2 -- Warrant Agreement, dated July 3, 1995, by and between the Company and American Stock Transfer & Trust Company, as Warrant Agent (incorporated herein by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 4.3 -- Registration Rights Agreement, dated July 1, 1997, among the Company, Richard J. Gillen, Bernice J. Gillen, Harbor Financial Mortgage Company Employees Pension Plan, Lindsey Capital Corporation, Ed Smith and Thomas E. Smith. (incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.4 -- Stock Purchase Agreement, dated March 24, 1998, between the Company and Texas Commerce Shareholders Company. (incorporated herein by reference to Exhibit 4.4 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 26, 1998). 4.5 -- Registration Rights Agreement, dated March 24, 1998, between the Company and Texas Commerce Shareholders Company. (incorporated herein by reference to Exhibit 4.5 of the Company's Form 10-K dated March 24, 1998 filed with the Commission on March 24, 1998). 9.1 -- Shareholder Voting Agreement, dated as of June 29, 1995, among ATARA I Ltd., James R. Hawkins, James T. Sartain and Cargill Financial Services Corporation. (incorporated herein by reference to Exhibit 9.1 of the Company's Form 10-K dated March 24,1998 filed with the Commission on March 26, 1998). 10.1 -- Trust Agreement of FirstCity Liquidating Trust, dated July 3, 1995 (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995). 10.2 -- Investment Management Agreement, dated July 3, 1995, between the Company and FirstCity Liquidating Trust (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated July 3, 1995 filed with the Commission on July 18, 1995
40
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.3 -- Lock-Box Agreement, dated July 11, 1995, among the Company, NationsBank of Texas, N.A., as lock-box agent, FirstCity Liquidating Trust, FCLT Loans, L.P., and the other Trust-Owned Affiliates signatory thereto, and each of NationsBank of Texas, N.A. and Fleet National Bank, as co-lenders (incorporated herein by reference to Exhibit 10.3 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995). 10.4 -- Custodial Agreement, dated July 11, 1995, among Fleet National Bank, as custodian, Fleet National Bank, as agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and the Company (incorporated herein by reference to Exhibit 10.4 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995). 10.5 -- Tier 3 Custodial Agreement, dated July 11, 1995, among the Company, as custodian, Fleet National Bank, as agent, FCLT Loans, L.P., FirstCity Liquidating Trust, and the Company, as servicer (incorporated herein by reference to Exhibit 10.5 of the Company's Form 8-A/A dated August 25, 1995 filed with the Commission on August 25, 1995). 10.6 -- 12/97 Amended and Restated Facilities Agreement, dated effective as of December 3, 1997, among Harbor Financial Mortgage Corporation, New America Financial, Inc., Texas Commerce Bank National Association and the other warehouse lenders party thereto. (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.7 -- Modification Agreement, dated January 26, 1998, to the Amended and Restated Facilities Agreement, dated as of December 3, 1997, among Harbor Financial Mortgage Corporation, New America Financial, Inc. and Chase Bank of Texas, National Association (formerly known as Texas Commerce Bank National Association). (incorporated herein by reference to Exhibit 10,7 of the company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.8 -- $50,000,000 3/98 Chase Texas Temporary Additional Warehouse Note, dated March 17, 1998, by Harbor Financial Mortgage Corporation and New America Financial, Inc., in favor of Chase Bank of Texas, National Association. (incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.9 -- Employment Agreement, dated as of July 1, 1997, by and between Harbor Financial Mortgage Corporation and Richard J. Gillen. (incorporated herein by reference to Exhibit 10.9 of the Company's 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.10 -- Employment Agreement, dated as of September 8, 1997, by and between FirstCity Funding Corporation and Thomas R. Brower, with similar agreements between FC Capital Corp. and each of James H. Aronoff and Christopher J. Morrissey. (incorporated herein by reference to Exhibit 10.10 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.11 -- Shareholder Agreement, dated as of September 8, 1997, among FirstCity Funding Corporation, FirstCity Consumer Lending Corporation, Thomas R. Brower, Scot A. Foith, Thomas G. Dundon, R. Tyler Whann, Bradley C. Reeves, Stephen H. Trent and Blake P. Bozman. (incorporated herein by reference to Exhibit 10.11 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998).
41
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12 -- Revolving Credit Loan Agreement, dated as of March 20, 1998, by and between FC Properties, Ltd. and Nomura Asset Capital Corporation. (incorporated herein by reference to Exhibit 10.12 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.13 -- Revolving Credit Loan Agreement, dated as of February 27, 1998, by and between FH Partners, L.P. and Nomura Asset Capital Corporation. (incorporated herein by reference to Exhibit 10.13 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.14 -- Note Agreement, dated as of June 6, 1997, among Bosque Asset Corp., SVD Realty, L.P., SOWAMCO XXII, LTD., Bosque Investment Realty Partners, L.P. and Bankers Trust Company of California, N.A. (incorporated herein by reference to Exhibit 10.14 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.15 -- 60,000,000 French Franc Revolving Promissory Note, dated September 25, 1997, by J-Hawk International Corporation in favor of the Bank of Scotland. (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.16 -- Loan Agreement, dated as of September 25, 1997, by and between Bank of Scotland and J-Hawk International Corporation. (incorporated herein reference to Exhibit 10.16 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.17 -- Guaranty Agreement, dated as of September 25, 1997, by J-Hawk (incorporated herein by reference to Exhibit 10.17 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.18 -- Guaranty Agreement, dated as of September 25, 1997, by FirstCity Financial Corporation in favor of Bank of Scotland. (incorporated herein by reference to Exhibit 10.18 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.19 -- Warehouse Credit Agreement, dated as of May 17, 1996, among ContiTrade Services L.L.C., N.A.F. Auto Loan Trust and National Auto Funding Corporation. (incorporated herein by reference to Exhibit 10.19 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.20 -- Funding Commitment, dated as of May 17, 1996 by and between ConiTrade Services L.L.C. and The Company. (incorporated herein by reference to Exhibit 10.20 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.21 -- Revolving Credit Agreement, dated as of December 29, 1995, by and between the Company and Cargill financial Services Corporation, as amended by the Eighth Amendment to Revolving Credit Agreement dated February 1998. (incorporated herein by reference to Exhibit 10.21 of the Company's Form 10-K dated March 24, 1998 filed with the Commission March 26, 1998). 10.22 -- Master Repurchase Agreement Governing Purchased and Sales of Mortgage Loans, dated as of July 1998, between Lehman Commercial Paper Inc. and FHB Funding Corp. (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission August 18, 1998). 10.23 -- Warehouse Credit Agreement, dated as of April 30, 1998 among ContiTrade Services, L.L.C., FirstCity Consumer Lending Corporation, FirstCity Auto Receivables L.L.C. and FirstCity Financial Corporation. (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q dated dated August 14, 1998, filed with the Commission August 16, 1998).
42
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.24 -- Servicing Agreement, dated as of April 30, 1998 among FirstCity Auto Receivables L.L.C. , FirstCity Servicing Corporation of California, FirstCity Consumer Lending Corporation and ContiTrade Services L.L.C. (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-Q dated dated August 14, 1998, filed with the Commission August 16, 1998). 10.25 -- Security and Collateral Agreement, dated as of April 30, 1998 among FirstCity Auto Receivables L.L.C., ContiTrade Services L.L.C. and Chase Bank of Texas, National Association. (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission August 16, 1998). 10.26 -- Loan Agreement, dated as of July 24, 1998, between FirstCity Commercial Corporation and CFSC Capital Corp. XXX (incorporated herein by reference Exhibit 10.5 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998). 10.27 -- Loan Agreement, dated April 8, 1998 between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998) 10.28 -- First Amendment to Loan Agreement, dated July 20, 1998, between Bank of Scotland and the Company (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-Q dated August 14, 1998, filed with the Commission on August 18, 1998). 10.29 -- Employment Agreement, dated October 1, 1998, by and between FirstCity. Financial Mortgage Corporation, and Buddy L. Terrell (incorporated herein by reference to Exhibit 10.29 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.30 -- Security Agreement, dated as of April 30, 1998 among Enterprise Funding Corporation, FCAR Receivables L.L.C., MBIA Insurance Corporation, FirstCity Funding Corporation, NationsBank N.A. and CSC Logic/MSA LLP d/b/a Loan Servicing enterprise (incorporated herein by reference to Exhibit 10.30 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.31 -- Note purchase agreement, dated March 30, 1999 among Enterprise Funding Corporation, FCAR Receivables, LLC and NationsBank , N.A. (incorporated herein by reference to Exhibit 10.31 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.32 -- Custodian Agreement, dated March 30, 1999, among FCAR Receivables LLC, FirstCity Funding Corporation, NationsBank, N.A., Enterprise Funding Corporation and Chase Bank of Texas, N.A. (incorporated herein by reference to Exhibit 10.32 of the Company's Form 10-Q dated May 17, 1999, filed with the commission on May 17, 1999). 10.33 -- Credit agreement dated effective as of May 28, 1999 made by and among Harbor Financial Mortgage, New America Financial, Inc., FirstCity Financial Mortgage Corporation, and Guaranty Federal Bank F.S.B. as Administrative Agent and Bank One, Texas, N.A. as Collateral Agent. 10.34 -- Tenth Amendment to Loan Agreement, dated August 11, 1999 between Bank of Scotland and the Company.
43
EXHIBIT NUMBER DESCRIPTION ------- ----------- 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.)
EX-10.33 2 LOCK-BOX AGREEMENT - DATED JULY 11, 1995 1 - ------------------------------------------------------------------------------- HARBOR FINANCIAL MORTGAGE CORPORATION AND NEW AMERICA FINANCIAL, INC. ("Obligors"), FIRSTCITY FINANCIAL MORTGAGE CORPORATION ("Guarantor") and GUARANTY FEDERAL BANK, F.S.B., in its capacity as one of the Banks and as Administrative Agent for the other Banks, BANC ONE CAPITAL MARKETS, INC., as Syndication Agent, Lead Arranger and Sole Book Runner, BANK ONE, TEXAS, N.A., in its capacity as one of the Banks and as Collateral Agent for the other Banks PNC BANK KENTUCKY, INC., in its capacity as one of the Banks and as Co-Agent for the other Banks COMERICA BANK in its capacity as one of the Banks and as Co-Agent for the other Banks CREDIT AGREEMENT Effective as of May 28, 1999 - ------------------------------------------------------------------------------- 2 INDEX OF DEFINED TERMS "Acquisition Cost".............................................................15 "Adjusted Balances".............................................................1 "Adjusted LIBOR Rate"...........................................................1 "Adjusted Tangible Net Worth"...................................................1 "Administrative Agent".......................................................1, 2 "Affiliate" ....................................................................2 "Agents" .......................................................................2 "Agreement" ....................................................................1 "Allocated Commitment Price"...................................................15 "Applicable Margin".............................................................2 "Approved Servicing Purchaser"..................................................3 "Approved Servicing Sale Contract"..............................................3 "Bank One" ..................................................................1, 3 "Banks" ........................................................................1 "Business Day" .................................................................3 "Ceiling Rate" .................................................................3 "Change of Control".............................................................4 "Chapter 1D" ...................................................................3 "Claim Under Loan Guaranty"....................................................38 "CLTV" ......................................................................5, 9 "Collateral"....................................................................5 "Collateral Agent"..............................................................5 "Collateral Proceeds".......................................................5, 79 "Commitments Lapse Provision"...............................................5, 48 "Commitments Schedule"..........................................................5 "Committed Sum" ................................................................5 "Company" ......................................................................1 "Compliance Certificate"........................................................5 "Conventional Mortgage Loan"....................................................5 "Current SR Appraisal"..........................................................1 "Current SR Appraisal Date".....................................................1 "Debt" .........................................................................6 "Default" ..................................................................6, 48 "Defective Mortgage"............................................................6 "EDI" ......................................................................6, 38 "Effective Date" ...............................................................1 "Eligible Mortgage".........................................................6, 81 "Eligible Other Loan"...........................................................8 "Eligible Receivables"......................................................9, 37 "Eligible Servicing Held for Sale ".............................................9 "Eligible Servicing Portfolio"..................................................9
i 3 "Eligible Servicing Portfolio Balance".........................................9 "Eligible Servicing Sale Receivables"..........................................9 "ERISA"........................................................................9 "ERISA Affiliate" ............................................................10 "Eurodollar Base Rate"........................................................10 "Eurodollar Rate".............................................................10 "Eurodollar Rate Loan"........................................................10 "Eurodollar Reserve Requirement"..............................................10 "Facility"....................................................................10 "Facility Limit" ........................................................10, 28 "Federal Funds Effective Rate"................................................10 "FHA"..........................................................................7 "FHA Loans" ..................................................................11 "FHLMC" .......................................................................6 "Financial Statements"........................................................11 "FNMA" ........................................................................6 "Foreclosed Properties Loans".............................................11, 31 "Foreclosed Properties Mortgages".........................................11, 35 "Foreclosed Properties Sub-subline".......................................11, 31 "Foreclosed Properties Sublimit"..........................................11, 31 "Foreclosed Property".....................................................11, 31 "Foreclosure Receivables Loans"...........................................11, 31 "Foreclosure Receivables Sub-subline".....................................11, 31 "Foreclosure Receivables Sublimit"........................................11, 31 "Free Adjusted Balances"......................................................11 "Funding Accounts"............................................................11 "Funding Share" ..............................................................11 "GAAP" .......................................................................11 "GFB"..........................................................................1 "GFB Balances" ...............................................................12 "GNMA" ........................................................................6 "Governmental Authority"......................................................12 "Guarantor" ...............................................................1, 12 "Guaranty" ...................................................................12 "Harbor Funding Account"......................................................12 "HUD" ........................................................................12 "ICF Agreement" ..............................................................12 "In Default" .................................................................12 "Interest Period" ............................................................12 "Investments" ............................................................13, 68 "Investor Commitment".........................................................13 "Jumbo Mortgage Loan".........................................................13 "Laws" .......................................................................13 "LIBOR".......................................................................13
ii 4 "LIBOR Rate Loan" .........................................................................13 "Lien" ....................................................................................13 "Loan".....................................................................................13 "Loan Documents" ..........................................................................13 "Loan Request" ............................................................................14 "Loan Servicing Agreement".................................................................14 "Loan Servicing Rights"....................................................................14 "Majority Banks" ..........................................................................14 "Market Value" ............................................................................14 "Master Warehouse Notes"...............................................................14, 33 "Material Adverse Effect"..................................................................15 "Mortgage-Backed Security".................................................................15 "Mortgage Loans"...........................................................................15 "Mortgage Loan Value"......................................................................15 "Mortgage Repurchase Loans"............................................................16, 31 "Mortgage Repurchase Loan Value"...........................................................16 "Mortgage Repurchase Sublimit".........................................................16, 31 "Mortgage Repurchase Subline"..........................................................16, 31 "Mortgages"............................................................................16, 35 "Mortgage Warehouse Loan"..................................................................16 "Net Worth" ...............................................................................16 "New Am Funding Account"...................................................................16 "New Am Inc." ..............................................................................1 "Nonconforming Mortgage Loan"..............................................................16 "Notice for Election to Convey and/or Invoice for Transfer of Property.....................38 "Obligations" .............................................................................16 "Obligor Order" ...........................................................................16 "Obligors" .................................................................................1 "Order" ...............................................................................17, 72 "Other Loan Sublimit"......................................................................32 "Other Loan Subline"...................................................................17, 32 "Other Loan Subline Loan"..............................................................17, 32 "Other Loan Value".........................................................................17 "Owned Servicing Rights"...................................................................17 "P&I Loans" ...........................................................................17, 30 "P&I Sub-subline" .....................................................................17, 31 "P&I Sublimit" ........................................................................17, 31 "Par Value" ...........................................................................15, 17 "PBGC" ....................................................................................17 "Permitted Facilities Agreements"..........................................................17 "Person" ..................................................................................18 "Plan" ....................................................................................18 "Pledged Mortgages"........................................................................18 "PMI" ......................................................................................7
iii 5 "Pool" ................................................................................18, 28 "Potential Default"....................................................................18, 48 "Property" ................................................................................18 "Qualified Investment Securities"..........................................................18 "Qualified Investor".......................................................................19 "Ratably" .................................................................................19 "Rate Designation Date"....................................................................20 "Receivables Advances Loans"...........................................................20, 30 "Receivables Advances Sublimit"........................................................20, 30 "Receivables Advances Subline".........................................................20, 30 "Receivables Claim"........................................................................20 "Receivables Loan Values"..................................................................20 "Receivables Security Agreement"...........................................................21 "Regulation Q" ............................................................................21 "Released Persons".....................................................................21, 71 "Replacement Date".........................................................................82 "Reportable Event".........................................................................21 "Repurchased Defaulted Mortgage"...........................................................21 "Required Documents".......................................................................21 "Residential Mortgage File".................................................................6 "Residential Mortgage Note".................................................................6 "Residential Mortgage".....................................................................21 "Retiring Bank" ...........................................................................21 "Seasoned Pledged Mortgage"................................................................15 "Second-Lien Loans"....................................................................22, 30 "Second-Lien Sublimit".................................................................22, 30 "Second-Lien Subline"..................................................................22, 30 "Secondary Syndication"....................................................................76 "Serviced Mortgages".......................................................................22 "Servicing Held for Sale Loans"........................................................22, 32 "Servicing Held for Sale Loan Value".......................................................22 "Servicing Held for Sale Sublimit".........................................................32 "Servicing Held for Sale Subline"..........................................................32 "Servicing Rights".........................................................................22 "Servicing Rights Security Agreement"......................................................22 "Servicing Sale Receivable Loans"......................................................22, 32 "Servicing Sale Receivable Loan Value".....................................................22 "Servicing Sale Receivable Sublimit".......................................................32 "Servicing Sale Receivable Subline"........................................................32 "Settlement Account".......................................................................22 "Single Family Application for Insurance Benefits".........................................38 "Special Damages" .........................................................................89 "Standard Financial Statements"............................................................23 "Stated Rate" .............................................................................23
iv 6 "Stock Pledge Agreement"...................................................................23 "Sub-sublines" ........................................................................23, 28 "Sublines" ............................................................................23, 28 "Subordinated Debt"........................................................................23 "Subsidiary" ..............................................................................24 "Super Jumbo Mortgage Loan"................................................................24 "Swing Loans" .........................................................................24, 29 "Swing Sublimit" ......................................................................24, 29 "Swing Subline" .......................................................................24, 29 "T&I Loans" ...........................................................................24, 30 "T&I Sub-subline" .....................................................................24, 31 "T&I Sublimit" ........................................................................24, 31 "Tangible Net Worth".......................................................................24 "Texas Finance Code"....................................................................3, 25 "Total Debt" ..............................................................................25 "Transaction Claim"....................................................................25, 88 "UCC" .....................................................................................25 "Uniform Single Audit Program for Mortgage Bankers"........................................58 "VA"........................................................................................7 "VA Loans" ................................................................................25 "Warehouse Collateral".................................................................25, 35 "Warehouse Facility Fee"...............................................................25, 35 "Warehouse Facility Fee Rate"..............................................................25 "Warehouse Final Termination Date".....................................................25, 35 "Warehouse Line".......................................................................25, 27 "Warehouse Line Commitments"...........................................................25, 35 "Warehouse Loan Value".................................................................25, 36 "Warehouse Note".......................................................................25, 33 "Warehouse Notes" .........................................................................26 "Warehouse Pledge Agreement"...............................................................26 "Warehouse Termination Date"...........................................................26, 28 "weekly ceiling" ...........................................................................3 "Wet Mortgage Loan"........................................................................26 "Wet Warehousing Loans"................................................................26, 29 "Wet Warehousing Sublimit".............................................................26, 29 "Wet Warehousing Subline"..............................................................26, 29
v 7 TABLE OF CONTENTS Article 1. Certain Definitions...................................................................1 Article 2. The Warehouse Line...................................................................27 Section 2.1 General Terms for the Warehouse Line and its Sublines and Sub-sublines..........................................................27 Section 2.2 The Warehouse Line....................................................28 Section 2.3 Sublines and Sub-subline defined......................................29 Section 2.4 Warehouse Line Term...................................................32 Section 2.5 Master Warehouse Notes................................................33 Section 2.6 Warehouse Notes Interest Accrual and Payment..........................33 Section 2.7 Warehouse Notes' Due Date.............................................33 Section 2.8 Warehouse Notes Voluntary Prepayments.................................33 Section 2.9 Warehouse Notes Mandatory Payments....................................33 Section 2.10 Warehouse Line Security...............................................35 Section 2.11 Warehouse Facility Fee................................................35 Section 2.12 Agency and Syndication Fees...........................................36 Section 2.13 Amount the Obligors May Borrow Against Each Eligible Mortgage; Investor Commitment Coverage and Weekly Reports of Coverages Required; Mortgage Loan Value.........................................36 Section 2.14 Borrowing Procedures..................................................36 Section 2.15 Determination Assumptions.............................................41 Section 2.16 Refinancings of Swing-Line Loans......................................41 Section 2.17 Releases of Sold or Securitized Pledged Mortgages.....................42 Section 2.18 Mandatory Prepayments or Collateral Substitutions for Ineligible Mortgages.............................................................43 Section 2.19 Mandatory Prepayments or Collateral Substitutions for Ineligible Foreclosed Property Collateral........................................43 Section 2.20 Title Insurance, Recording Foreclosed Properties Mortgages............44 Section 2.21 Disposition of Foreclosed Properties..................................44 Section 2.22 Partial Releases of Foreclosed Properties.............................44 Article 3. Interest Rate Election Provisions....................................................45 Section 3.1 Interest Rate Elections...............................................45 Section 3.2 Inadequacy of Pricing and Rate Determination..........................45 Section 3.3 Funding Losses........................................................46 Section 3.4 Determinations........................................................46 Section 3.5 Affiliates............................................................46 Section 3.6 Funding Decision......................................................46 Section 3.7 Rate of Return Maintenance Covenant...................................46 Section 3.8 Illegality of Eurodollar Rate Loans; Inability to Determine LIBOR Rate............................................................47
i 8 Article 4. Funding Provisions..............................................................47 Section 4.1 Commitments Lapse Provision......................................47 Section 4.2 Application of Proceeds of Realization on Collateral.............48 Section 4.3 Application of Setoff Proceeds...................................48 Section 4.4 Conditions Precedent.............................................48 Article 5. The Obligors' Warranties and Representations....................................51 Section 5.1 Organization.....................................................51 Section 5.2 Corporate Action.................................................52 Section 5.3 No Violations....................................................52 Section 5.4 Approved Lender, Seller and Servicer.............................52 Section 5.5 Obligors are not an Investment Company or Controlled by One......52 Section 5.6 Obligors' Legal Compliance.......................................52 Section 5.7 Financial Statements Accurate....................................52 Section 5.8 Litigation.......................................................53 Section 5.9 Payment of Taxes.................................................53 Section 5.10 Title to Properties..............................................53 Section 5.11 Eligibility of Collateral........................................53 Section 5.12 Year 2000 Compliance.............................................54 Article 6. Defaults and Remedies...........................................................54 Section 6.1 Note Payment Default.............................................54 Section 6.2 Covenant Default.................................................54 Section 6.3 Default on Other Obligation......................................54 Section 6.4 Violation of Law.................................................54 Section 6.5 False Representation or Warranty.................................54 Section 6.6 Undischarged Final Judgment......................................55 Section 6.7 Lien Claimed or Held Invalid.....................................55 Section 6.8 Disposition, Encumbrance or Loss of Collateral...................55 Section 6.9 Liquidation, Etc. Order..........................................55 Section 6.10 Default under Other Loan Documents...............................55 Section 6.11 Assignment for the Benefit of Creditors, Voluntary Bankruptcy....55 Section 6.12 Involuntary Proceeding...........................................55 Section 6.13 General Failures, Writ of Attachment, Etc. ......................56 Section 6.14 Fraudulent Concealment or Removal................................56 Section 6.15 Dissolution, Etc.................................................56 Section 6.16 Change of Control................................................56 Section 6.17 Material Adverse Change..........................................56 Article 7. Affirmative Covenants...........................................................57 Section 7.1 Use of Proceeds..................................................57 Section 7.2 Promptly Correct Escrow Imbalances...............................57 Section 7.3 Financial Statements and Other Reports...........................57 Section 7.4 Maintenance of Existence, Conduct of Business....................60
ii 9 Section 7.5 Compliance with Applicable Laws..................................60 Section 7.6 Perform Agreement................................................60 Section 7.7 Books............................................................60 Section 7.8 Investor Commitments.............................................61 Section 7.9 Notice...........................................................61 Section 7.10 Pay Debt, Taxes, Etc. ...........................................61 Section 7.11 Insurance........................................................62 Section 7.12 Other Loan Obligations...........................................62 Section 7.13 Covenants Concerning Collateral..................................62 Section 7.14 Employee Benefit Plans...........................................63 Section 7.15 Benefit Plan Obligations.........................................64 Section 7.16 Further Assurances...............................................64 Article 8. Negative Covenants..............................................................65 Section 8.1 No Change of Business............................................65 Section 8.2 No Other Investments.............................................65 Section 8.3 No Other Debt....................................................65 Section 8.4 Limitation on Dividends..........................................65 Section 8.5 Minimum Adjusted Tangible Net Worth..............................66 Section 8.6 Maximum Debt to Adjusted Tangible Net Worth......................66 Section 8.7 Limitations on Transactions with Affiliates......................66 Section 8.8 Limitation on Unmarketable Loans.................................67 Section 8.9 No Uncovered Commercial Loans, Etc...............................68 Section 8.10 Loss of Eligibility..............................................68 Section 8.11 Fiscal Year Accounting...........................................68 Section 8.12 Loans, Advances and Investments..................................68 Section 8.13 Actions with Respect to Pledged Mortgages........................69 Section 8.14 Cancellation of Loan Servicing Rights............................69 Section 8.15 Continuous Compliance............................................69 Article 9. Agreements Concerning the Administrative Agent and the Banks....................70 Section 9.1 Authorization and Action.........................................70 Section 9.2 Employment of Others by the Administrative Agent.................71 Section 9.3 No Liability.....................................................71 Section 9.4 Reliance.........................................................72 Section 9.5 Qualifications of the Administrative Agent.......................72 Section 9.6 Resignation of the Administrative Agent..........................73 Section 9.7 Removal of the Administrative Agent..............................73 Section 9.8 Effective Date of Resignation or Removal.........................74 Section 9.9 Successor Agent..................................................74 Section 9.10 Merger of the Administrative Agent...............................74 Section 9.11 Banks' Credit Decisions..........................................75 Section 9.12 Indemnification..................................................75 Section 9.13 Rights as Bank...................................................76 Section 9.14 Benefit of Article IX............................................76
iii 10 Section 9.15 No Representations...............................................76 Section 9.16 Participation; Assignment........................................76 Section 9.17 Loan Requests; Payments..........................................78 Section 9.18 Application of Collateral Proceeds...............................79 Section 9.19 Information Concerning Other Banks...............................79 Section 9.20 Expense Reimbursement............................................79 Section 9.21 Rights of Individual Banks.......................................80 Section 9.22 Notice to the Administrative Agent...............................81 Section 9.23 No Partnership...................................................81 Section 9.24 Amendments and Modifications.....................................81 Section 9.25 Replacement of Retiring Bank.....................................82 Section 9.26 Replacement Banks Replace Retiring Banks.........................82 Section 9.27 Termination of Retiring Bank's Commitment........................83 Section 9.28 Syndication Agent................................................83 Article 10. Miscellaneous..................................................................83 Section 10.1 No Waiver........................................................83 Section 10.2 Notices..........................................................83 Section 10.3 Governing Law, Jurisdiction and Venue............................84 Section 10.4 Survival; Successors and Assigns.................................85 Section 10.5 Counterparts.....................................................85 Section 10.6 Usury Not Intended; Credit or Refund of Any Excess Payments......85 Section 10.7 Expenses.........................................................86 Section 10.8 Indemnification..................................................87 Section 10.9 Entire Agreement.................................................87 Section 10.10 Accounting Terms.................................................87 Section 10.11 Severability.....................................................88 Section 10.12 Domicile of Loan.................................................88 Section 10.13 Disclosures......................................................88 Section 10.14 Release of Transaction Claims....................................88 Section 10.15 Notice Pursuant to Section 26.02 of the Tex. Bus. & Comm. Code...88 Section 10.16 Waiver of Jury Trial, Punitive Damages, etc......................88
iv 11 CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") dated effective as of May 28, 1999 (the "Effective Date") made by and among (a) HARBOR FINANCIAL MORTGAGE CORPORATION (the "Company"), a Texas corporation; (b) NEW AMERICA FINANCIAL, INC. ("New Am Inc."), a Texas corporation that is a wholly-owned subsidiary of the Company (the Company and New Am Inc. being the "Obligors"); (c) GUARANTY FEDERAL BANK, F.S.B. ("GFB"), a federal savings bank, in its capacity as one of the Banks and as Administrative Agent (it and its successors in that capacity being called the "Administrative Agent") for the other Banks; (d) BANK ONE, TEXAS, N.A. ("Bank One"), in its capacity one of the Banks and as Collateral Agent, (e) the other lenders (together with GFB and Bank One, the "Banks") that are signatories and parties to this Agreement from time to time, and (f) FIRSTCITY FINANCIAL MORTGAGE CORPORATION ("Guarantor"), a Delaware corporation; The parties hereto hereby agree as follows: ARTICLE 1. CERTAIN DEFINITIONS In addition to the terms defined elsewhere in the text of this Agreement, these terms are defined as follows: "Adjusted Balances" means, for any calendar month that month's daily average of all collected balances in all non-interest bearing accounts maintained by the Obligors with GFB during that month (although the Obligors shall have no obligation whatsoever to maintain any deposits with GFB) less amounts necessary (a) to satisfy reserve and deposit insurance requirements allocable to that month and (b) to compensate GFB for services rendered to the Obligors for that month, with each element calculated in accordance with GFB's system of allocating reserve and deposit insurance requirements and charges for services and as that system may be changed from time to time without notice, excluding the Funding Account. "Adjusted LIBOR Rate" means for any day a rate per annum that on any day is equal to the quotient of (a) LIBOR for that day divided by (b) 1.00 minus the Eurodollar Reserve Requirement (if any) for one (1) day loans, rounded upwards, if necessary, to the nearest 1/100 of 1%. "Adjusted Tangible Net Worth" means, with respect to the Obligors and on any day: (a) the Obligors' aggregate Tangible Net Worth on that day; plus: (b) one hundred percent (100%) of the aggregate appraised value, as determined in accordance with Section 7.3(e)(2) by the most recent quarterly independent appraisal (the "Current SR Appraisal") of the Obligors' Eligible Servicing Portfolio as it existed on the effective date of such appraisal (the "Current SR Appraisal Date"). 12 "Administrative Agent" means GFB as Administrative Agent hereunder and its permitted successors and assigns. "Affiliate" means and includes, with respect to a specified Person, any other Person: (a) that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the specified Person; (b) that is a director, trustee, general partner or executive officer of the specified Person or serves in a similar capacity in respect of the specified Person; (c) that, directly or indirectly through one or more intermediaries, is the beneficial owner of ten percent (10%) or more of any class of equity securities of the specified Person; or (d) of which the specified Person is directly or indirectly the owner of ten percent (10%) or more of any class of equity securities. "Agents" means the Administrative Agent and the Collateral Agent. "Applicable Margin" means: (a) for outstanding Mortgage Warehouse Loans that are not Wet Warehousing Loans, plus one and three-eighths percent (+1.375%); (b) for outstanding Wet Warehousing Loans, plus one and five-eighths percent (+1.625%); (c) for Swing Loans, plus the Applicable Margin for the actual type of Loan requested, which is initially deemed to be a Swing Loan; (d) for Second-Lien Loans, plus one and five-eighths percent (+1.625%); (e) for P&I Loans, plus one and five-eighths percent (+1.625%); (f) for T&I Loans, plus one and five-eighths percent (+1.625%); (g) for Foreclosure Receivables Loans, plus one and five-eighths percent (1.625%); (h) for Foreclosed Properties Loans, plus one and five-eighths percent (+1.625%); and 2 13 (i) for Mortgage Repurchase Loans, plus one and five-eighths percent (+1.625%); (j) for Servicing Held for Sale Loans, plus two percent (+2.000%); (k) for Servicing Sale Receivable Loans, plus one and three-fourths percent (+1.750%); and (l) for Other Loans, plus three percent (+3.000%); PROVIDED THAT IF AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, THE APPLICABLE MARGIN FOR EACH TYPE OF LOAN DESCRIBED ABOVE SHALL BE INCREASED BY TWO PERCENT (2%) PER ANNUM. "Approved Servicing Purchaser" means any of the Persons listed on Schedule 6 or any other Person which meets the credit guidelines established by Majority Banks and which is approved in writing by Administrative Agent. "Approved Servicing Sale Contracts" means the flow contracts for the sale of Servicing Rights for Mortgage Loans to each Approved Servicing Purchaser as in effect on the date hereof, and any other such contracts hereafter approved by Majority Banks. "Bank One" means Bank One, Texas, N.A., in its individual capacity. "Business Day" means any day other than Saturday, Sunday or a day (a) which is a legal holiday in Dallas, Texas, (b) on which neither Agent nor any of the Banks is authorized or obligated by Law or executive order to close or (c) when dealings in dollar deposits are not carried out in the relevant interbank dollar market. "Ceiling Rate" means on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas law permits the higher interest rate, stated as a rate per annum. On each day, if any, that applicable Texas law establishes the Ceiling Rate, the Ceiling Rate shall be the "weekly ceiling" as defined in Chapter 303 of the Texas Finance Code (the "Texas Finance Code") and Chapter 1D of Title 79, Texas Rev. Civ. Stats. 1925 ("Chapter 1D"), as amended, respectively, for that day. The Banks may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code or Chapter 1D by the Administrative Agent's giving notice to the Company if and to the extent permitted by the Texas Finance Code or Chapter 1D. "Chapter 1D" is defined in the definition of "Ceiling Rate". 3 14 "Change of Control" means and includes: (a) in respect of the Company: (1) a sale of the Company's stock or a sale of substantially all of the Company's assets to any Person or related group of Persons; (2) without the Administrative Agent's and the Majority Banks' prior written consent, any merger or consolidation of the Company with or into (A) another Person with the effect that the Guarantor holds less than one hundred percent (100%) of the total voting power entitled to vote in the election of directors, managers or trustees of the survivor of such merger or consolidation or (B) the Guarantor; (3) the occurrence of any event after which the Guarantor no longer owns at least the majority of the total voting power entitled to vote in the election of the Company's directors; (4) Rick R. Hagelstein is no longer the chairman of the board of the Company; or (5) Company's liquidation or dissolution; and (b) in respect of New Am Inc.: (1) a sale of New Am Inc.'s stock or a sale of substantially all of New Am Inc.'s assets to any Person or related group of Persons; (2) without the Administrative Agent's and the Majority Banks' prior written consent, any merger or consolidation of New Am Inc. with or into (A) another Person with the effect that the Company holds less than the majority of the total voting power entitled to vote in the election of directors, managers or trustees of the survivor of such merger or consolidation or (B) the Company; (3) the occurrence of any event after which the Company no longer owns at least the majority of the total voting power entitled to vote in the election of New Am Inc.'s directors; (4) Rick R. Hagelstein is no longer the chairman of the board and chief executive officer of New Am Inc; or (5) New Am Inc.'s liquidation or dissolution; and (c) in respect of the Guarantor: 4 15 (1) a sale of the Guarantor's stock or a sale of substantially all of the Guarantor's assets to any Person or related group of Persons; (2) FirstCity Financial Corporation no longer directly or indirectly owns and controls at least ninety percent (90%) of the total voting power entitled to vote in the election of directors, managers or trustees of the survivor of such merger or consolidation; or (3) Rick R Hagelstein is no longer the chairman of the board of Guarantor; or (4) the Guarantor's liquidation or dissolution. "CLTV" is defined in the definition of Eligible Other Loan. "Collateral" means, on any day, the Obligors' or Guarantor's Property deposited with or held by or for the Collateral Agent, the Administrative Agent or any Bank in which the Collateral Agent or the Administrative Agent, for the benefit of the Banks, is granted a Lien pursuant to this Agreement or any other Loan Documents or any guaranties of the Obligations. "Collateral Agent" means Bank One, in its capacity as Collateral Agent hereunder, and its permitted successors and assigns. "Collateral Proceeds" is defined in Section 9.18. "Commitments Lapse Provision" is defined in Section 4.1. "Commitments Schedule" means the dated schedule of the Banks' respective Commitments attached to this Agreement, as it may be superseded (or amended and restated) from time to time by a later-dated schedule approved in writing by Bank One, on behalf of Banc One Capital Markets, Inc. as Syndication Agent, the Administrative Agent and the Obligors. "Committed Sum" means the maximum amount a Bank has committed to lend to the Obligors under this Agreement. The amount of each Bank's Committed Sum for each Facility is stated on that Bank's dated signature page to this Agreement or the latest amendment, supplement or restatement of this Agreement which it has signed, whichever is the latest dated signature page signed by that Bank. "Compliance Certificate" means the document in the form of Exhibit F, to be completed from time to time by the Obligors pursuant to Section 7.3(f). "Conventional Mortgage Loan" means a Residential Mortgage evidenced by a Residential Mortgage Note, the payment of which is not guaranteed by VA or insured by FHA. 5 16 "Debt" means, with respect to any Person and on any day the sum (without duplication) on that day of (a) all of that Person's debt (1) for borrowed money, (2) for the deferred purchase price of Property or services, or (3) that is evidenced by a bond, debenture, note or other instrument plus (b) any debt secured by any Lien existing on any interest of that Person in Property owned subject to such Lien whether or not that Person is liable for the debt secured thereby, plus (c) all of that Person's obligations under all capitalized leases, (d) all of that Person's obligations under all guaranties, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Debt of others (other than Mortgage Loans) and (e) all of that Person's obligations in respect of letters of credit, acceptances, or similar obligations issued or created for the account of such Person. "Default" is defined in Section 4.1. "Defective Mortgage" is a Residential Mortgage that was initially sold to a Qualified Investor in connection with the sale of the related Mortgage Loan and that is required to be repurchased by such Obligor from such Qualified Investor and that is otherwise acceptable to Agents for inclusion in Mortgage Repurchase Loan Value. "EDI" is defined in Section 2.14(d)(2)(A). "Eligible Mortgage" means a Residential Mortgage that is: (a) evidenced by a promissory note (the "Residential Mortgage Note") payable (either originally or by one or more endorsements) to the order of and owned and held by either Obligor (whichever is pledging it to borrow against it under the Warehouse Line) and duly endorsed in blank or if the Collateral Agent shall request it, endorsed to be payable to the order of the Collateral Agent subject to no pledge, security interest, collateral assignment, Lien, charge or claim held by any Person other than the Collateral Agent. In addition, such promissory note must not have been borrowed against under the Warehouse Line for more than 180 days; provided, that up to Seven Million Five Hundred Thousand Dollars ($7,500,000) of Residential Mortgages borrowed against under the Warehouse Line at any time may have been advanced against for more than one hundred eighty (180) days but not more than three hundred sixty (360) days; (b) covered by currently-effective policies of mortgagee title insurance and casualty insurance, covered by a sufficient and current appraisal and having all documentation, characteristics and elements complete and packaged so as to satisfy every requirement of the issuer (whether the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or another Qualified Investor) of the Investor Commitment covering such Residential Mortgage, with all such documentation placed in a file (a "Residential Mortgage File") organized so as to satisfy such issuer's requirements for file content, form and order, but in any event including at least (1) the original executed Residential Mortgage Note, (2) a certified copy of the Residential Mortgage and 6 17 (3) an original assignment of the Residential Mortgage Note in blank (including any applicable intervening assignments), in recordable form; provided, that (1) up to 20% of the aggregate Committed Sums of all Banks for the Warehouse Line of Residential Mortgages borrowed against under the Warehouse Line at any time may be Jumbo Mortgage Loans and (2) up to 5% of the aggregate Committed Sums of all Banks for the Warehouse Line of Residential Mortgages borrowed against under the Warehouse Line at any time may be Super Jumbo Mortgage Loans; (c) either (i) eligible for guaranty or insurance by the Veterans Administration ("VA") or the Federal Housing Administration ("FHA"), or for insurance (as to the portion of the Residential Mortgage that initially exceeds an 80% loan-to-collateral value ratio) by private mortgage insurance ("PMI") by an insurer rated "A" or better by a nationally recognized rating agency, or (ii) an uninsured conventional mortgage loan conforming to the maximum loan amount and loan-to-collateral value ratio standards for guaranty by FNMA or FHLMC and with both an initial and a current loan-to-collateral value ratio no greater than 80%; (d) in a face amount that, when aggregated with all of the other warehoused Mortgage Loans (wherever warehoused) owned by whichever Obligor is pledging it to borrow against it under the Warehouse Line, will not exceed the hedging coverage provided by Investor Commitments then owned by such Obligor as determined by the Collateral Agent based on such Obligor's most current weekly report to the Collateral Agent listing all Investor Commitments held by such Obligor; (e) accompanied by (1) a duly executed assignment (and any intervening assignments) recordable (but not recorded) in the U.S. jurisdiction where the real property securing such Residential Mortgage Note is located, duly completed, signed, notarized, attested (if necessary for recording in that Jurisdiction) and otherwise adequate to be recorded and, by recording, to perfect an assignment of that Residential Mortgage so as to receive the full benefit of the recording Laws of that jurisdiction and (2) all other instruments and documents, if any, required to provide the Collateral Agent with all the information and authority it would need (assuming its qualification to the extent, if any, required under the applicable guide as a servicer) to service such Residential Mortgage and collect all sums due under it when due and either (A) unilaterally sell that Residential Mortgage to any Qualified Investor and receive full payment for it, in accordance with such Qualified Investor's Investor Commitment to purchase it or otherwise, or (B) by recording the assignment, unilaterally clothe the Collateral Agent with full authority to demand and receive all sums due under that Residential Mortgage from any obligor (including guarantors) for its payment and from any servicer of that Residential Mortgage, including, without limitation, transferring full record title to the Collateral Agent; and (f) otherwise satisfactory to the Collateral Agent in its sole reasonable discretion in all other respects. 7 18 WITHOUT LIMITING ANY OF THE FOREGOING PROVISIONS, A RESIDENTIAL MORTGAGE THAT OTHERWISE QUALIFIES AS AN ELIGIBLE MORTGAGE SHALL FAIL OR IMMEDIATELY CEASE TO BE SO QUALIFIED IF: (1) it fails or ceases for any reason to be the subject of a valid and enforceable Investor Commitment which is and remains satisfactory to the Collateral Agent; (2) an obligor on or under it has failed to perform an obligation under such obligor's papers and such default has continued for thirty (30) days; (3) foreclosure proceedings have been commenced with respect to it; (4) it is not (A) secured by a first Lien (or a second Lien for up to the Second-Lien Sublimit only) against the real property originally securing it (or that was purported to secure it) or if the title to the real property securing it ceases or fails for any reason to be currently insured by a title insurer acceptable to the Collateral Agent for at least the outstanding principal balance of such Residential Mortgage, or such insurer denies coverage or liability in whole or in part or fails to assume defense of any attack on such title for any reason, (B) in full force and effect or (C) (excluding only Residential Mortgages whose servicing is transferred by the applicable Obligor to another servicer with the Collateral Agent's express written consent) fully serviced (including collection of all amounts due on or for such Residential Mortgage Note, including both loan and escrow payments) by the applicable Obligor; or (5) it has been borrowed against under the Warehouse Line (including, if applicable, its Sublines and Sub-sublines) for more than one hundred eighty (180) days (subject to the proviso in clause (a) in this definition of Eligible Mortgage). (6) it has a cumulative loan to collateral ratio that exceeds 100%, unless it is a VA guaranteed or FHA insured mortgage. (7) it is subject to a Trust Receipt issued by the Collateral Agent pursuant to Warehouse Pledge Agreement under which it has been in the possession of an Obligor for more than seven (7) days. (8) it is subject to a Bailee Letter issued by the Collateral Agent pursuant to the Warehouse Pledge Agreement under which is has been in the possession of a Qualified Investor for more than forty-five (45) days; and "Eligible Other Loan" means a first-lien or second-lien Conventional Mortgage Loan, FHA Loan or VA Loan that is evidenced by a promissory note payable (either originally or by 8 19 one or more endorsements) to the order of and owned and held by either Obligor (whichever is pledging it to borrow against it under the Other Loan Subline) and duly endorsed in blank or if the Collateral Agent shall request it, endorsed to be payable to the order of the Collateral Agent, and that is subject to no pledge, security interest, collateral assignment, Lien, charge or claim held by any Person other than the Collateral Agent and, if a second-lien loan, the holder of the first lien. In addition, such loan (i) must not have been originated more than 365 days before the date it was first included in Other Loan Value, (ii) must not have been borrowed against under the Other Loan Subline for more than 180 days, (iii) must not be more than 60 days past due, (iv) must have a combined loan-to-value ratio, taking into account first and second liens ("CLTV"), of nor more than 100% and (v) must otherwise be acceptable to Agents for inclusion in Other Loan Value. "Eligible Receivables" is defined in Section 2.14(d)(1). "Eligible Servicing Portfolio" means, on any day, all Serviced Mortgages excluding those (i) as to which either Obligor is the subservicer, (ii) for which any payment is delinquent for more than ninety (90) days or (iii) for which any maker or mortgagor is the subject of a case in bankruptcy or as to which the first step in foreclosure proceedings has been taken. "Eligible Servicing Held for Sale " means rights to service residential Mortgage Loans originated within 120 days of the date first included in Servicing Held for Sale Loan Value that are eligible to be sold under Approved Servicing Sale Contracts and that have not been included in Servicing Held for Sale Loan Value for more than 120 days. "Eligible Servicing Portfolio Balance" means the sum of the principal balances of all Serviced Mortgages comprising the Eligible Servicing Portfolio. "Eligible Servicing Sale Receivables" are receivables (i) which arise from either Obligor's sale of Servicing Rights to Approved Servicing Purchasers pursuant to Approved Servicing Sale Contracts, (ii) which are due and payable within 120 days after the date first included in Servicing Sale Receivable Loan Value; provided that up to ten percent (10%) of the Servicing Sale Receivables Subline may be due and payable within 180 days after the date first included in Servicing Sale Receivable Loan Value, and (iii) which are not past due. Servicing Sale Receivables shall not include any "holdback" amounts determined by Administrative Agent in its discretion, or deferred installments of the purchase price payable by such Approved Servicing Purchaser which are subject to withholding or offset on account of the performance of the servicing being sold or any failure, breach or other deficiency in the performance of the Obligors, including documentary deficiencies. "ERISA" means the Employee Retirement Income Security Act of 1974 and any successor statute, as amended from time to time, and all rules and regulations promulgated under it. 9 20 "ERISA Affiliate" means any trade or business (whether or not incorporated) which, together with either Obligor, would be treated as a single employer under Section 4001 of ERISA. "Eurodollar Base Rate" means, for any Interest Period, the rate per annum, (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Bloomberg (or, if not available, any other nationally recognized trading screen reporting offered rates for Eurodollar deposits in United States Dollars) at 10:00 a.m. (Dallas, Texas time) as the offered rate for Eurodollar deposit rates in United States dollars, for a term comparable to such Interest Period and in an amount comparable to the relevant Loan. Any rate of interest based on Eurodollar Base Rate shall be (a) computed on the basis of a year of three hundred sixty (360) days applied for the actual number of days for which the borrowing to which it applies is outstanding and bears interest in accordance with this Agreement at such rate of interest based on Eurodollar Base Rate (i.e., on the 365/360 (366/360 in a leap year) day basis) and (b) adjusted as of the effective date of each change in Eurodollar Base Rate. The Administrative Agent's determination of Eurodollar Base Rate for each day shall be conclusive and binding, absent manifest error. "Eurodollar Rate" means, for any Interest Period, rounded up, if necessary, to the nearest 1/100 of 1%, the quotient of (a) the Eurodollar Base Rate divided by (b) 1.00 minus the Eurodollar Reserve Requirement (if any), in each case for such Interest Period. "Eurodollar Rate Loan" means any Loan at the Eurodollar Rate plus the Applicable Margin. "Eurodollar Reserve Requirement" means, for the Interest Period for each Eurodollar Rate Loan and for the time that each Adjusted LIBOR Rate Loan is outstanding, respectively, the maximum rate (expressed as a decimal) for all reserves required to be maintained by the Administrative Agent against any category of liabilities that includes deposits by reference to which any Eurodollar Base Rate or Adjusted LIBOR Rate is determined, adjusted automatically (and without notice to the Obligors) on and as of the effective date of any change therein. "Facility" means a credit or financial line, subline or facility provided for in this Agreement (under this Agreement, the term means and includes each of the Warehouse Line, its five Sublines and its eight Sub-sublines). "Facility Limit" is defined in Section 2.2(a). "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three (3) federal funds brokers of recognized standing selected by the Administrative 10 21 Agent. Any rate of interest based on the Federal Funds Effective Rate shall be adjusted as of the effective date of each change in the Federal Funds Effective Rate. "FHA Loans" means Mortgage Loans evidenced by Residential Mortgage Notes, payment of which is insured by FHA or which is covered by a current, binding and enforceable commitment for such insurance issued by FHA or its delegated underwriter. "Financial Statements" means (a) balance sheets, (b) statements of operations and (c) statements of cash flow. Whenever any of the Loan Documents calls for an Obligor to provide unaudited financial statements (or any element of them), such Obligor agrees to provide them (or the element called for) in the form and manner used for the Standard Financial Statements (although all audited Financial Statements shall be prepared in accordance with GAAP). "Foreclosed Properties Loans" is defined in Section 2.3(d)(1). "Foreclosed Properties Mortgages" is defined in Section 2.10. "Foreclosed Properties Sub-subline" is defined in Section 2.3(d)(6). "Foreclosed Properties Sublimit" is defined in Section 2.3(d)(6). "Foreclosed Property" is defined in Section 2.3(d)(1). "Foreclosure Receivables Loans" is defined in Section 2.3(d)(1). "Foreclosure Receivables Sub-subline" is defined in Section 2.3(d)(4). "Foreclosure Receivables Sublimit" is defined in Section 2.3(d)(4). "Free Adjusted Balances" means, for any calendar month, the sum of that month's Adjusted Balances less the portion of them (if any) already used to reduce the interest or fee charged by GFB on any Debt to GFB (in its individual capacity) other than the Obligations. "Funding Accounts" means the Harbor Funding Account and the New Am Funding Account. "Funding Share" means, for each Bank, that proportion of each Loan under a particular Facility which bears the same ratio to the total amount of the Loan under that Facility as the portion of that Bank's Committed Sum which is applicable to that Facility bears to the aggregate Committed Sums of all Banks for that Facility. "GAAP" means generally accepted accounting principles, applied on a consistent basis, stated in opinions of the Accounting Principles Board of the American Institute of Certified 11 22 Public Accountants or in statements of the Financial Accounting Standards Board which are applicable in the circumstances as of the date in question. The requirement that such principles be applied on a consistent basis means that the accounting principles observed in a current period shall be comparable in all material respects to those applied in an earlier period, with the exception of changes in application to which the applicable Obligor's independent certified public accountants shall have agreed and which changes and their effects are summarized in the Financial Statements following such changes. "GFB Balances" means, for any calendar month, the aggregate principal balances of all Warehouse Notes held by GFB. "Governmental Authority" means any foreign governmental authority, the United States of America, any state of the United States and any political subdivision of any of them, and any agency, central bank, department, commission, board, bureau, court or other tribunal. "Guarantor" means FirstCity Financial Mortgage Corporation, a Delaware corporation. "Guaranty" means the Guaranty of even date herewith executed by Guarantor in favor of the Administrative Agent, for the benefit of the Banks, as the same may be amended, supplemented, modified and/or restated from time to time. "Harbor Funding Account" means the non-interest bearing demand checking account established by Harbor with Administrative Agent to be used for (i) the initial deposit of proceeds of Loans; and (ii) the funding or purchase of mortgages by Harbor; provided that the Funding Account shall be pledged to Administrative Agent for the benefit of Banks and that Obligors shall not be entitled to withdraw funds from the Funding Account and provided further that Administrative Agent will transfer funds as directed by Harbor. "HUD" means the U.S. Department of Housing and Urban Development. "ICF Agreement" is defined in the definition of Permitted Facilities Agreements. "In Default" means a default has occurred under a Residential Mortgage Note or its related Residential Mortgage and has remained in existence for at least thirty (30) days. "Interest Period" means the period beginning on the date a Loan at the Eurodollar Rate plus the Applicable Margin is designated to begin and ending on the numerically corresponding day that is one (1), two (2) or three (3) months thereafter as the Obligors may select as provided herein; except (a) if an Interest Period begins on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month, then that Interest Period shall end on the last Business Day of such calendar month; (b) an Interest Period that would otherwise end on a day that is not a Business Day shall end on the next Business Day (or, if such next Business Day is in the next calendar month, on the preceding Business Day), and (c) no Interest Period shall end after the maturity of the applicable Note. 12 23 "Investments" is defined in Section 8.12. "Investor Commitment" means a binding commitment from a Qualified Investor in favor of the applicable Obligor to purchase Pledged Mortgages, subject to no condition which cannot be reasonably anticipated to be satisfied before its expiration, and acceptable in form and substance to the Collateral Agent. "Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the principal balance of which does not exceed Six Hundred Fifty Thousand Dollars ($650,000). "Laws" means all applicable statutes, laws, ordinances, regulations, orders, writs, injunctions or decrees of any Governmental Authority. "LIBOR" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Bloomberg (or, if not available, any other nationally recognized trading screen reporting on-line trading in London interbank offered rates) as the London interbank offered rate for deposits in United States dollars (BBA USD LIBOR) in the amount of $1,000,000, on that day for a period of one month. Any rate of interest based on LIBOR shall be (a) computed on the basis of a year of three hundred sixty (360) days applied for the actual number of days for which the borrowing to which it applies is outstanding and bears interest in accordance with this Agreement at such rate of interest based on LIBOR Rate (i.e., on the 365/360 (366/360 in a leap year) day basis) and (b) adjusted as of the effective date of each change in LIBOR. The Administrative Agent's determination of LIBOR for each day shall be conclusive and binding, absent manifest error. For purposes of this Agreement and all Warehouse Notes and other Loan Documents, LIBOR shall fluctuate upward and downward automatically and concurrently with day-to-day changes in such arithmetic mean, and in the amount of the change. "LIBOR Rate Loan" means any Loan bearing interest at the Adjusted LIBOR Rate plus the Applicable Margin. "Lien" means any lien, mortgage, deed of trust, deed to secure debt, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature of a mortgage or security agreement and any agreement to give any mortgage or security interest). "Loan" means a sum or sums lent to an Obligor by any one or more of the Banks pursuant to this Agreement in accordance with the applicable borrowings procedures set forth in Section 2.14 including readvances of funds previously advanced to or for the Obligors and repaid to the Banks; if permitted. "Loan Documents" means (a) this Agreement and (b) any and all promissory notes, mortgages, deeds of trust, deeds to secure debt and other real estate mortgage instruments, security agreements and all other instruments, documents and agreements or other papers 13 24 (including the Warehouse Notes, the Guaranty, the Warehouse Pledge Agreement, the Receivables Security Agreement, the Servicing Rights Security Agreement, the Foreclosed Properties Mortgages, if any, and the Stock Pledge Agreements) executed or delivered pursuant to the terms of, to guarantee or secure, or which otherwise relate to, this Agreement, and any and all future amendments, supplements, renewals, extensions, rearrangements or restatements of any of them. "Loan Request" means an Obligor Order requesting a Loan, substantially in the form of Exhibit B-1 for Mortgage Warehouse Loans or Wet Warehousing Loans, B-2 for Second-Lien Loans, B-3 for P&I Loans, B-4 for T&I Loans, B-5 for Foreclosure Receivables Loans, B-6 for Foreclosed Properties Loans, B-7 for Mortgage Repurchase Loans, B-8 for Servicing Held for Sale Loans, B-9 for Servicing Sale Receivable Loans, and B-10 for Other Loans. "Loan Servicing Agreement" means any contract, agreement or account, whether or not in writing, now existing or hereafter established between either Obligor (or any predecessor in interest) and any Person (including any Governmental Authority) providing for or contemplating such Obligor's (or any predecessor in interest's) collection, disbursement and other servicing or management of any Mortgage Loans or portfolio of Mortgage Loans, irrespective of whether such loan or loans are owned or held by or for the account of a direct investor (or any pledgee of, or trustee or bailee for, any direct investor) or pooled and/or pledged with other loans to directly or indirectly secure, provide a source of funds to pay or otherwise support or back any collateral mortgage obligation or other security (whether certificated or book-entry), and whether or not such security is issued, guaranteed, insured or bonded by GNMA, FNMA, FHLMC, an insurance company, a private issuer or any other investor. "Loan Servicing Rights" means and includes all of each Obligor's rights under any of its Loan Servicing Agreements, including the rights to service Serviced Mortgages and to be compensated, directly or indirectly, for doing so. "Majority Banks" means, for any day, the holders of Warehouse Notes evidencing sixty-six and two-thirds percent (662/3%) or more of (a) the sum of the aggregate Committed Sums of all Banks for the Warehouse Line if on that day the Banks are committed to lend under this Agreement or (b) the aggregate Loans outstanding under the Warehouse Line if on or before that day the Banks' commitments to lend under this Agreement have expired or been terminated and have not been reinstated. "Market Value" at any time shall be determined by the Collateral Agent, in its sole discretion, based upon information then available to the Collateral Agent regarding quotes to dealers for the purchase of mortgage loans similar to the Residential Mortgages that have been delivered to the Collateral Agent pursuant to this Agreement. "Master Warehouse Notes" is defined in Section 2.5. 14 25 "Material Adverse Effect" means any material adverse effect on (a) the validity or enforceability of this Agreement, any Note or any of the other Loan Documents, (b) the Guarantor's or either Obligor's ability to continue in business as a going concern, (c) the Guarantor's or either Obligor's operations, Property or financial condition, (d) any material item or part of the Collateral or its value, (e) the priority or perfection of the Collateral Agent's Liens in any material item or part of the Collateral or (f) the Guarantor's or either Obligor's ability to timely repay any of its debt or guaranty obligations to the Banks or timely perform any of its other material obligations under this Agreement or any of the other Loan Documents. "Mortgage-Backed Security" means and includes (a) a security issued by FHLMC or (b) a security guaranteed by GNMA or FNMA or (c) a security issued by any other Person acceptable to the Collateral Agent, (1) which is based on and backed by an underlying pool of Residential Mortgage Notes and Residential Mortgages or Qualified Mortgage Loans, as applicable and (2) provides for payment by its issuer to its holder of specified principal installments and a fixed rate of interest on the unpaid balance and for all prepayments to be passed through to the holder, whether issued in certificated or book-entry form. "Mortgage Loans" means one-to-four family residential Conventional Mortgage Loans, Nonconforming Mortgage Loans, FHA Loans and VA Loans, or any combination of them. "Mortgage Loan Value" means, on any day, for each Residential Mortgage that qualifies as an Eligible Mortgage, is fully covered by Investor Commitments and is pledged by such Obligor to the Collateral Agent so as to give the Collateral Agent a first and prior or perfected security interest therein and in its proceeds the least of (a) ninety-eight percent (98%) of its "Acquisition Cost" which is the amount the Obligor that is pledging it to the Collateral Agent to borrow against it under the Warehouse Line paid for it, i.e., the net amount actually funded against a Residential Mortgage originated by the applicable Obligor or the net purchase price of an Eligible Mortgage purchased by it (prorated according to their original principal amounts for Residential Mortgages in any Pool purchased by it), (b) ninety-eight percent (98%) of its "Allocated Commitment Price", which, is the investor commitment price stated in the Investor Commitment covering that Residential Mortgage (similarly prorated), (c) ninety-eight percent (98%) of Market Value, or (d) one hundred percent (100%) of its "Par Value" which is hereby defined to mean, (1) in the case of a residential Mortgage Loan refinanced by either Obligor, an amount equal to the unpaid principal balance of the residential Mortgage Loan refinanced or, (2) in the case of a purchased residential Mortgage Loan, its unpaid principal balance on the date first included in Mortgage Loan Value, even though the applicable Obligor funded or paid more than its Par Value for it and even if the Investor Commitment covering it specifies a purchase price for it greater than its Par Value; provided further, that if on any day the aggregate Mortgage Loan Values of all Pledged Mortgages whose Mortgage Notes are dated earlier than one hundred eighty (180) days before the date such Mortgage Notes were first included in Mortgage Loan Value (the "Seasoned Pledged Mortgage") shall exceed an amount equal to five percent (5%) of the aggregate Committed Sums for that same day of all Banks for the Warehouse Line of Residential Mortgages (the "5% Limit"), then the Mortgage Loan Values of all such Seasoned Pledged Mortgages shall be deemed equal to the 5% Limit; and provided further, that each 15 26 Residential Mortgage that fails or ceases to qualify as an Eligible Mortgage for any reason shall automatically have a Mortgage Loan Value of zero from and after the date when the first disqualifying event occurs and for so long as it remains disqualified. "Mortgage Repurchase Loans" is defined in Section 2.3(e). "Mortgage Repurchase Loan Value" means seventy percent (70%) of the lesser of (i) Par Value of the related residential Mortgage Loan or (ii) the value of the subject property as reflected in a brokers price opinion rendered within sixty (60) days of the date of repurchase. "Mortgage Repurchase Sublimit" is defined in Section 2.3(e). "Mortgage Repurchase Subline" is defined in Section 2.3(e). "Mortgages" is defined in Section 2.10. "Mortgage Warehouse Loan" means a Loan advanced against Mortgage Loan Value. "Net Worth" means the excess of a Person's total assets over that Person's total liabilities as each is determined in accordance with GAAP. "New Am Funding Account" means the non-interest bearing demand checking account established by New Am with Administrative Agent to be used for (i) the initial deposit of proceeds of Loans; and (ii) the funding or purchase of mortgages by New Am; provided that the Funding Account shall be pledged to Administrative Agent for the benefit of Banks and that Obligors shall not be entitled to withdraw funds from the Funding Account and provided further that Administrative Agent will transfer funds as directed by New Am. "Nonconforming Mortgage Loan" means a Mortgage Loan which is neither an FHA Loan nor a VA Loan and which (a) complied at origination with all applicable requirements for purchase under the FNMA or FHLMC standard form of conventional mortgage purchase contract and any supplement to it then in effect, except only that the amount of the loan exceeded the maximum loan amount under such requirements or all of another Qualified Investor's requirements for its purchase and (b) currently complies with all applicable requirements for purchase under a valid and binding Investor Commitment covering it. "Obligations" means and includes all of the Obligors' present and future debts, obligations and liabilities to the Banks and all renewals and extensions of all or any part of them, arising pursuant to this Agreement or any of the other Loan Documents and all interest accrued on them, regardless of whether such debts, obligations or liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several. "Obligor Order" means an Obligor's written or electronic order (including a telegram, telex, teletype, telecopy or cablegram), signed or presented in the Obligor's name by the 16 27 Chairman or any Vice Chairman of its Board of Directors, its President or any Senior Vice President, or by any other Obligor officer who has been designated as authorized to execute Obligor Orders in a writing executed by any of them and delivered to the Administrative Agent and as to whom such designation has not subsequently been revoked by the same means. The Persons authorized to issue Obligor Orders shall be listed in a written schedule furnished by each Obligor to the Administrative Agent, and each Obligor shall update such schedule from time to time so that the current schedule in the Administrative Agent's possession at all time is a correct list of only those Persons currently authorized to issue Obligor Orders. The schedule for the Effective Date and for each day thereafter until the Obligors deliver a revised schedule to the Administrative Agent is Schedule 4 to this Agreement. "Order" is defined in Section 9.4. "Other Loan Subline" is defined in Section 2.3(h). "Other Loan Subline Loan" is defined in Section 2.3(h). "Other Loan Value" means for any Eligible Other Loan (i) if the CLTV for such Eligible Other Loan is less than seventy-five percent (75%), seventy percent (70%) of the aggregate unpaid principal balance of such Eligible Other Loan and (ii) if the CLTV of such Eligible Other Loan is greater than seventy-five percent (75%), fifty percent (50%) of the aggregate unpaid principal balance of such Eligible Other Loan. "Owned Servicing Rights" means the Obligors' rights under Loan Servicing Agreements where the relevant Obligor is the owner of the Loan Servicing Rights that are the subject matter thereof and not merely a subservicer. "P&I Loans" is defined in Section 2.3(d)(1). "P&I Sub-subline" is defined in Section 2.3(d)(2). "P&I Sublimit" is defined in Section 2.3(d)(2). "Par Value" is defined in the definition of "Mortgage Loan Value." "PBGC" means the Pension Benefit Guaranty Corporation and any successor to any or all of its functions under ERISA. "Permitted Facilities Agreements" means Coastal Banc Savings Association up to $ 42,000,000 3/96 Senior ICF Credit Agreement up to $ 15,000,000 (the "ICF Agreement") 17 28 Servicing Sale Accounts Receivable Line of Credit with Matrix Bancorp and its Subsidiaries up to $ 7,500,000 Servicing Sale Accounts Receivable Line of Credit with Bank United up to $ 7,500,000 Non-conforming Warehouse Line of Credit with GMAC-RFC under which RFC will act as Collateral Custodian (in process) up to $ 50,000,000 Warehouse Line of Credit with Morgan Stanley under which Bank One will act as Custodian. Bank One to be document custodian (in process) up to $ 200,000,000 "Person" means and includes (a) any natural person, corporation, limited partnership, general partnership, limited liability partnership or company, joint stock company, joint venture, association, company, trust, estate, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, (b) any Governmental Authority or (c) any other organization or entity whatsoever. "Plan" means an employee benefit plan of a type described in Section 3(3) of ERISA in respect of which either Obligor or the Guarantor is an "employer" as defined in Section 3(5) of ERISA. "Pledged Mortgages" means, for any day, all of the Obligors' Mortgage Loans pledged to the Collateral Agent and in which the Collateral Agent has a first and prior perfected Lien on that day to secure the Obligations. "Pool" is defined in Section 2.2(a). "Potential Default" is defined in Section 4.1. "Property" means any interest in any kind of tangible or intangible property or asset, whether real, personal or mixed, including the Collateral. "Qualified Investment Securities" means: (a) readily marketable securities issued or fully guaranteed by the United States of America with remaining maturities of not more than one (1) year, (b) commercial paper or any other debt instrument rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Ratings Group with remaining maturities of not more than two hundred seventy (270) days; (c) FNMA and FHLMC discount notes with remaining maturities of not more than one (1) year; (d) certificates of deposit fully insured by the FDIC -- or, if not, that are issued by financial institutions acceptable to the Administrative Agent -- with remaining maturities of not more than one (1) year; (e) banker's acceptances with remaining 18 29 maturities of not more than one (1) year issued by banks whose short-term credit is rated P-1 by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Ratings Group; (f) securities received in settlement of liabilities created in the ordinary course of business and (g) other investment quality securities with remaining maturities of not more than one (1) year and which are specifically approved by the Administrative Agent. "Qualified Investor" means GNMA, FNMA, FHLMC, any of the Persons listed on Schedule 1 or any other financially responsible Person which the Obligors have added to a copy of a new Schedule 1 dated (to show it is new) and sent to the Administrative Agent with that Person's name (and any other newly-added Persons' names) highlighted or otherwise marked to clearly indicate the addition(s) and which the Administrative Agent has not disapproved (either on its own initiative or because the Majority Banks have disapproved them) by notice given to the Obligors within thirty (30) days of the Administrative Agent's receipt of such revised Schedule 1; provided that until any such new Qualified Investor has been approved by the Majority Banks, either affirmatively or by their failing to notify the Collateral Agent of their disapproval within thirty (30) days after the Administrative Agent's receipt from the Obligors of the Obligors' addition of such new Qualified Investor to Schedule 1 (the Administrative Agent shall promptly notify the Banks of the name of each such new Qualified Investor) the Collateral Agent shall not ship Pledged Mortgages having aggregate Mortgage Loan Value of more than Five Million Dollars ($5,000,000) to that Qualified Investor; and provided further that at any time by written notice to the Collateral Agent (stating their reason or reasons) the Majority Banks may disapprove any Qualified Investor because they have determined in their sole discretion and for any reason that they are no longer comfortable with that Person's being a Qualified Investor, whether or not that Person is named as a Qualified Investor in this definition or on Schedule 1 or has previously been approved as a Qualified Investor by the Majority Banks. Upon receipt of such a notice from the Majority Banks, the Collateral Agent shall give written notice to the Obligors of the Majority Banks' disapproval of all Qualified Investors named in the notice, whereupon the Persons named in the Collateral Agent's notice to the Obligors shall no longer be Qualified Investors from and after the time when the Administrative Agent sends that notice to the Obligors. "Ratably" means in accordance with the Banks' respective ownership interests in a particular Facility. On any day, the Banks will each own that portion of each Facility, both principal and accrued interest (and will each have an undivided interest in each guaranty of that Facility, all other Collateral for that Facility and all rights to proceeds of all guarantees of and other Collateral for that Facility, equal to that Bank's ownership interest in that Facility), which bears the same ratio to the entire advanced and unpaid principal of that Facility then outstanding as that Bank's Committed Sum for that Facility bears to the aggregate Committed Sums of all Banks for that Facility as provided in this Agreement, subject to this adjustment: if at any time or times, any Bank fails or refuses to fund its Funding Share of any Loan under a Facility when such Bank is obligated to do so, and one or more of the other Banks elect (in the sole discretion of each Bank and for such amount, if any, as each Bank shall itself determine) to fund it, then: 19 30 (a) the respective ownership interests in that Facility and its Collateral of (1) the Bank which failed or refused to fund its Funding Share and (2) the Bank (or Banks) which funded that Funding Share, shall be proportionately decreased and increased, respectively, to the same extent as if their respective Committed Sums for that Facility were changed in direct proportion to the unreimbursed principal balance of the amount so funded that is thereafter outstanding from time to time; (b) the nonfunding Bank's share of all future distributions of any payments and prepayments on the Note payable to the nonfunding Bank and evidencing the Obligations under that Facility shall be paid to the Bank (or Banks) which funded its Funding Share until such funding or purchasing Bank(s) have been fully repaid the amount so funded by such funding or purchasing Bank(s); and (c) such adjustment shall remain in effect until such time as the Bank (or Banks) which funded the nonfunding or nonpurchasing Bank's Funding Share have been so fully repaid. "Rate Designation Date" means the Business Day which is in the case of Loans (a) at the Eurodollar Rate plus the Applicable Margin, 10:00 a.m. on the date two (2) Business Days preceding the first day of any proposed Interest Period and (b) at any other interest rate, on the date of such Loan. "Receivables Advances Loans" is defined in Section 2.3(d). "Receivables Advances Sublimit" is defined in Section 2.3(d). "Receivables Advances Subline" is defined in Section 2.3(d). "Receivables Loan Values" means the following percentages of the following categories of Eligible Receivables: (a) ninety-five percent (95%) of the value of the borrowing Obligor's equity in accounts or general intangibles owned by such Obligor under which such Obligor has an enforceable and liquidated claim ("Receivables Claim") against obligors and their accounts, an insurer or another identified Person under any Serviced Mortgage for reimbursement of advances made by such Obligor that qualify for P&I Loans; (b) eighty-five percent (85%) of the value of the borrowing Obligor's Receivables Claim against obligors and their accounts, an insurer or another identified Person under any Serviced Mortgage for reimbursement of advances made by such Obligor that qualify for T&I Loans; (c) ninety percent (90%) of the value of the borrowing Obligor's Receivables Claim against obligors and their accounts, an insurer, a guarantor or another identified 20 31 Person under any Serviced Mortgage for reimbursement of advances made by such Obligor that qualify for Foreclosure Receivables Loans; (d) seventy percent (70%) of the current (as of the time of borrowing) fair value of each unit of Foreclosed Property as set forth on a current appraisal satisfactory to the Collateral Agent; provided, that each account, general intangible or Foreclosed Properties Mortgage that fails or ceases to qualify as an Eligible Receivable for any reason shall automatically have a Receivables Loan Value of zero from and after the date when the first disqualifying event occurs and for so long as it remains disqualified. "Receivables Security Agreement" means the Receivables Security Agreement dated of even date herewith by and among the Obligors and the Collateral Agent, for the benefit of the Banks, covering all of Obligors' rights to reimbursement or compensation for Obligors' advancement on loans which Obligors service, as the same may be amended, supplemented, modified and/or restated from time to time. "Regulation Q" means Part 217 of Title 12 of the Code of Federal Regulations, as in effect on December 1, 1996 and as it may be amended or modified from time to time. "Released Persons" is defined in Section 9.3. "Reportable Event" means a reportable event described in Section 4043 of ERISA or the regulations thereunder for which the 30-day notice is not waived by such regulations, a withdrawal from a Plan described in Section 4063 or 4064 of ERISA or a cessation of operations described in Section 4062(f) of ERISA. "Repurchased Defaulted Mortgage" means a defaulted Residential Mortgage repurchased by an Obligor from a Qualified Investor or out of a GNMA, FNMA or FHLMC Pool pursuant to such Obligor's contractual obligation as its servicer to do so. "Required Documents" has the meaning given to such term in the Warehouse Pledge Agreement. "Residential Mortgage" means a Mortgage Loan secured by a first Lien (or second Lien for up to the Second Lien Sublimit only) Mortgage appropriate to the U. S. jurisdiction where the real estate securing the Mortgage Loan is located, covering real estate improved by one single-, two-, three- or four-family dwelling and the land on which it is located, or a single one family residential condominium unit and its related easements and proportionate interest in common elements. "Retiring Bank" means a bank or other lending institution that ceases to be a Bank under this Agreement pursuant to operation of Section 9.25. 21 32 "Second-Lien Loans" is defined in Section 2.3(c). "Second-Lien Sublimit" is defined in Section 2.3(c). "Second-Lien Subline" is defined in Section 2.3(c). "Serviced Mortgages" means Mortgage Loans which either Obligor has the right or obligation to service under any Loan Servicing Agreement. "Servicing Held for Sale Loans" is defined in Section 2.3(f). "Servicing Held for Sale Loan Value" means seventy percent (70%) of the value of Eligible Servicing Held for Sale, as determined by prices indicated in Approved Servicing Sale Contracts which can be discounted at the reasonable discretion of the Administrative Agent or Majority Banks, but in no event to exceed the appraised value of the Eligible Servicing Held for Sale if an appraisal is available. "Servicing Rights" means rights to service and to be compensated for servicing residential Mortgage Loans from time to time and all related accounts, general intangibles, rights, interests and proceeds pursuant to Loan Servicing Agreements. "Servicing Rights Security Agreement" means the Servicing Rights Security Agreement dated of even date herewith by and among the Obligors and the Collateral Agent, for the benefit of the Banks, as the same may be amended, supplemented, modified and/or restated from time to time. "Servicing Sale Receivable Loans" is defined in Section 2.3(g). "Servicing Sale Receivable Loan Value" means seventy-five percent (75%) of Eligible Servicing Sale Receivables; provided that an acknowledgment letter must be received by the Administrative Agent from the Approved Servicing Purchaser thereunder, within five (5) Business Days after first included in Servicing Sale Receivable Loan Value, acknowledging the amount of the receivable, the pledge of the receivable to the Collateral Agent, and agreeing to make payment of such receivable to the Settlement Account. "Servicing Sale Receivables Subline" is defined in Section 2.3(g). "Settlement Account" means the non-interest bearing demand checking account established by each Obligor with Administrative Agent to be used for (a) the deposit of proceeds from the sale of Collateral, and (b) the payment of the Obligations; provided that (i) the Settlement Account shall be pledged to Administrative Agent for the benefit of the Banks, and (ii) no Obligor shall be entitled to withdraw funds from the Settlement Account. 22 33 "Standard Financial Statements" means financial statements substantially in the form of the Obligors' December 31, 1998 financial statements reproduced as Schedule 2, including each schedule and all of the detail provided in the Obligors' financial statements previously furnished to the Administrative Agent, including the monthly management reports, with only such changes to format, schedules and presentation as are acceptable to the Administrative Agent or are required by GAAP. "Stated Rate" means, for each Loan on any day, either of the following rates, as designated by the borrowing Obligor in the related Loan Request, (a) the Adjusted LIBOR Rate for that day plus the Applicable Margin for that day and for that Loan or (b) the Eurodollar Rate for that day plus the Applicable Margin for that day and for that Loan, each computed in accordance with the provisions of this Agreement; provided, that if on any day any rate so designated for any Loan shall exceed the Ceiling Rate for that day, then the Stated Rate for that Loan shall be fixed at the Ceiling Rate on that day and on each day thereafter until the total amount of interest accrued at the Stated Rate on the unpaid balance of that Loan equals the total amount of interest that would have accrued on it if there were no Ceiling Rate; and provided further, that the Obligors may elect as the Stated Rate to be applied for that day to a designated portion of the then-outstanding Loans owing to GFB which portion is both (1) not past due and (2) less than or equal to the Free Adjusted Balances, a rate per annum equal to the Applicable Margin (only) for that day and for those respective Loans; however, to the extent that the portion so designated exceeds the GFB Balances, the Administrative Agent will pay to the Banks other than GFB, Ratably, interest on such excess at a rate per annum equal to the Applicable Margin plus the Federal Funds Effective Rate although if doing so would violate Regulation Q, on demand made by the Administrative Agent, the Obligors shall gross-up and pay to the Administrative Agent the interest on that designated portion so that the Administrative Agent will have the funds to pay the interest due to the other Banks without violating Regulation Q. In no event will the Administrative Agent ever be obligated to pay any amount that would violate Regulation Q. "Stock Pledge Agreements" means (i) the Stock Pledge Agreement dated of even date herewith by and between Guarantor and the Collateral Agent, for the benefit of the Banks, covering all of Guarantor's rights, titles and interests in the stock of the Company, as the same may be amended, supplemented, modified and/or restated from time to time, and (ii) the Stock Pledge Agreement dated of even date herewith by and between the Company and the Collateral Agent, for the benefit of the Banks, covering all of the Company's rights, titles and interests in the stock of the New Am, Inc., as the same may be amended, supplemented, modified and/or restated from time to time. "Sub-sublines" is defined in Section 2.1. "Sublines" is defined in Section 2.1. "Subordinated Debt" means Debt that is (a) is owed to Persons other than one or more of the Banks, (b) is fully subordinated to all present and future Obligations owing to the Banks by 23 34 written subordination provisions that are in form and substance approved by the Agent and (c) has been consented to in a writing signed by the Agent. "Subsidiary" means any Person (other than a natural person) in which any other Person (directly or through one or more other Subsidiaries or other types of intermediaries), owns or controls: (a) more than fifty percent (50%) of the total voting power or shares of stock entitled to vote in the election of its directors, managers or trustees; or (b) more than fifty percent (50%) of the total assets and more than fifty percent (50%) of the total equity through the ownership of capital stock (which may be nonvoting) or a similar device or indicia of equity ownership. "Super Jumbo Mortgage Loan" means a Nonconforming Mortgage Loan, the principal balance of which exceeds Six Hundred Fifty Thousand Dollars ($650,000) but is no greater than One Million Dollars ($1,000,000). "Swing Loans" is defined in Section 2.3(a)(1). "Swing Sublimit" is defined in Section 2.3(a). "Swing Subline" is defined in Section 2.3(a). "T&I Loans" is defined in Section 2.3(d)(1). "T&I Sub-subline" is defined in Section 2.3(d)(3). "T&I Sublimit" is defined in Section 2.3(d)(3). "Tangible Net Worth" means with respect to any Person on any day: (a) that Person's Net Worth on that day; less (b) the sum of (1) aggregate advances to shareholders, officers or Affiliates in excess of Five Hundred Thousand Dollars ($500,000), (2) investments in Subsidiaries (provided that the portion of such investment reasonably allocable to tangible assets of Subsidiaries, as determined in accordance with GAAP, to the extent acceptable to HUD for the purpose of calculating adjusted net worth in accordance with its requirement in effect as of such day and as detailed in a note to such Obligor's financial statements forwarded to the Administrative Agent, shall not be required to be deducted from Net Worth) and other Affiliates, (3) Loan Servicing Rights, (4) intangibles and (5) capitalized excess service fees, goodwill and all other assets that would be deemed by HUD to be 24 35 unacceptable for the purpose of calculating adjusted net worth in accordance with its requirements in effect as of such day. "Texas Finance Code" is defined in the definition of "Ceiling Rate". "Total Debt" means the Obligors' aggregate Debt, calculated on a consolidated basis in accordance with GAAP. "Transaction Claim" is defined in Section 10.14. "UCC" means the Uniform Commercial Code of any relevant jurisdiction. "VA Loans" means Mortgage Loans evidenced by a Residential Mortgage Note, payment of which is either partially or completely guaranteed by the VA or which is covered by a current, binding and enforceable commitment for a guaranty issued by the VA. "Warehouse Collateral" is defined in Section 2.10. "Warehouse Facility Fee" is defined in Section 2.11. "Warehouse Facility Fee Rate" means:
Commitment Facility Fee Amount Percentage ---------- ---------- $ 60,000,000 or greater .37% equal to or greater than $40,000,000 but less than $60,000,000 .30% equal to or greater than $25,000,00 but less than $40,000,000 .25% less than $25,000,000 .20%.
"Warehouse Final Termination Date" is defined in Section 2.11. "Warehouse Line" is defined in Section 2.1. "Warehouse Line Commitments" is defined in Section 2.11. "Warehouse Loan Value" is defined in Section 2.13. "Warehouse Note" is defined in Section 2.5. 25 36 "Warehouse Notes" means and includes each and all of the Obligors' promissory notes (including the Master Warehouse Notes) made payable to the order of a Bank pursuant to this Agreement and also includes all renewals, extensions, rearrangements, modifications, increases and replacements of such promissory notes made from time to time with the consent and approval of the respective holders of such Warehouse Notes. "Warehouse Pledge Agreement" means the Security and Collateral Agency Agreement dated of even date herewith by and among the Obligors and the Collateral Agent, for the benefit of the Banks, covering all of Obligors' rights, titles and interest in and to all promissory notes and all documents and instruments securing, guaranteeing or otherwise relating to such promissory notes, as the same may be amended, supplemented, modified and/or restated from time to time. "Warehouse Termination Date" is defined in Section 2.2(a). "Wet Mortgage Loan" means a Mortgage Loan newly originated or purchased by the Obligors: (a) which would qualify as an Eligible Mortgage (including having been funded) except that some or all of the papers evidencing, securing or otherwise relating to it have not been delivered to the Collateral Agent so as to satisfy all requirements to permit the applicable Obligor to borrow against such Mortgage Loan under the Warehouse Line without restriction; (b) which the applicable Obligor actually and reasonably expects to fully qualify as an Eligible Mortgage when the original Residential Mortgage Note, Residential Mortgage and all other documents in the Residential Mortgage File have been executed and delivered; and (c) as to which the applicable Obligor actually and reasonably expects that such full qualification can and will be achieved on or before seven (7) Business Days after the day when a Loan against such Wet Mortgage Loan is requested and made under this Agreement, excluding, however, the day on which such Wet Mortgage Loan is so requested or made; provided that up to the aggregate amount of $10,000,000 of Wet Mortgage Loans may be delivered on or before ten (10) Business Days after the day when a Loan against such Wet Mortgage Loan is requested and made under this Agreement. "Wet Warehousing Loans" is defined in Section 2.3(b). "Wet Warehousing Sublimit" is defined in Section 2.3(b). "Wet Warehousing Subline" is defined in Section 2.3(b). Except where specifically otherwise provided: 26 37 (a) Wherever the term "including" or any of its correlatives appears in this Agreement or any other Loan Documents, it shall be read as if it were written, "including (by way of example and without limiting the generality of the subject or concept referred to)", unless it is already followed by words to that effect. (b) Except where otherwise specified, all times of day used in the Loan Documents mean local time in Dallas, Texas. (c) References in any of the Loan Documents to any property's being pledged to the Collateral Agent or any Lien's or security interest's being granted to or held by the Collateral Agent (or required so to be) shall mean, respectively, pledged to, granted to or held by the Collateral Agent, for itself as a Bank and as agent for and on behalf of the other Banks. (d) References in any of the Loan Documents to Article or Section numbers are references to the Articles and Sections of that Loan Document. (e) References in any of the Loan Documents to Exhibits, Schedules, Annexes and Appendices are references to the Exhibits, Schedules, Annexes and Appendices to that Loan Document and they shall be deemed incorporated into that Loan Document as if set forth verbatim at each such reference. (f) Wherever the word "herein" of "hereof" is used in any of the Loan Documents, it is a reference to that entire Loan Document and not just to the Section, clause or subdivision of it in which the word is used. (g) Words and phrases used or defined in the UCC in force in the State of Texas on the effective date of this Agreement that are not redefined in this Agreement have the same meanings here as there. (h) Accounting terms not otherwise defined shall have the meanings given them under GAAP. (i) Defined terms may be used in the singular or the plural, as the context requires. ARTICLE 2. THE WAREHOUSE LINE Section 2.1 General Terms for the Warehouse Line and its Sublines and Sub-sublines. This Article sets forth terms and conditions governing the Obligors' mortgage warehousing revolving credit facility (the "Warehouse Line"), its Swing Subline, its Wet Warehousing Subline, its Second-Lien Subline, its Receivables Advances Subline (and its four Sub-sublines: (a) the P&I Sub-subline; (b) the T&I Sub-subline; (c) the Foreclosure Receivables Sub-subline, 27 38 (d) the Foreclosed Properties Sub-subline), (e) its Mortgage Repurchase Subline, (f) its Servicing Held for Sale Subline, (g) its Servicing Sale Receivable Subline and (h) its Other Loan Subline (the Swing Subline, the Wet Warehousing Subline, the Second-Lien Subline, the Receivables Advances Subline, the Mortgage Repurchase Subline, the Servicing Held for Sale Subline, the Servicing Sale Receivable Subline and the Other Loan Subline being the "Sublines") and the P&I Sub-subline, the T&I Sub-subline, the Foreclosure Receivables Sub-subline and the Foreclosed Properties Sub-subline of the Receivables Advances Subline being the "Sub-sublines") requested by the Obligors and approved by the Banks. Its provisions are subject to the other terms and conditions of this Agreement. Section 2.2 The Warehouse Line. (a) Subject to the provisions of Section 2.13 and the other terms and conditions of this Agreement, the Banks agree to make and continue loans to the Obligors under the Warehouse Line in aggregate principal amounts outstanding on any day of up to Five Hundred Million Dollars ($500,000,000) (the "Facility Limit") for each day until May 27, 2000 (the "Warehouse Termination Date") solely (1) to finance each Obligor's funding of such Obligor's own Residential Mortgages that are Eligible Mortgages originated by such Obligor to (or for the account of) the obligor(s) on such Eligible Mortgages, (2) to finance such Obligor's own purchase of Eligible Mortgages that were not originated by such Obligor, and (3) for the other purposes set forth in Section 2.3 and for no other applications or purposes. (b) Each Obligor agrees to use the credit extended to it as a Mortgage Warehouse Loan to carry each Residential Mortgage only for so long as (x) it continues to satisfy all of the requirements to be an Eligible Mortgage and (y) the borrowing Obligor is diligently taking all steps necessary to complete either (i) the sale of that Residential Mortgage (if the Investor Commitment covering it contemplates its purchase as a whole loan), or (ii) its securitization as part of a pool of Residential Mortgages (a "Pool") and the sale of the resulting Mortgage-Backed Securities (if the Investor Commitment covering it contemplates securitization of a Pool that includes such Eligible Mortgage and the Qualified Investors purchase of the resulting Mortgaged-Backed Securities). (c) The Banks' commitments are several and not joint, no Bank has any obligation under this Agreement to fund any part of any other Bank's commitment for the Warehouse Line or otherwise, and the respective commitments of the Banks and the sublimits applicable to those commitments are set forth on the Commitments Schedule. (d) The failure of any Bank to fund any part of its commitment for the Warehouse Line shall not in itself relieve any other Bank of its obligation to fund its commitment for the Warehouse Line; provided, that no Bank shall be responsible or incur any liability whatsoever for the failure of any other Bank to fund any of its Funding Shares or make any Loan that such other Bank is obligated to fund or make. 28 39 (e) The maximum credit henceforth available on any day under the Warehouse Line (including credit under the Sublines and Sub-sublines) is and shall be: (1) the Facility Limit for that day; minus (2) the aggregate principal amount of Loans outstanding. Section 2.3 Sublines and Sub-subline defined. (a) The "Swing Subline" is a sublimit under the Warehouse Line under which Subline the Obligors may borrow, repay and reborrow from GFB only up to an aggregate amount equal to $45,000,000 (the "Swing Sublimit"), against Eligible Mortgages and/or Wet Mortgage Loans and in conformity with all other applicable limits or sublimits: (1) for the purpose of promptly funding Loans under the Warehouse Line or its Wet Warehousing Subline which either are requested by the Obligors after the deadline for submitting Loan Requests specified in Section 2.14 or for which the Banks other than GFB do not receive notice of the Loan Request by the deadline specified in Section 2.14 ("Swing Loans"); (2) so long as the Swing Sublimit is never exceeded; (3) provided that the Loan Request deemed to be a request for the Swing Loan is received by each Agent by no later than 1:15 p.m. on the Business Day the Swing Loan is to be made and the Administrative Agent has received a collateral added report in form agreed upon by Agents from the Collateral Agent no later than 2:30 p.m.; and (4) provided that neither the requesting Obligor nor GFB is aware of any reason why the Swing Loan requested by the Loan Request cannot or will not be fully funded by the Banks within five (5) or fewer Business Days following the Business Day on which such Loan Request is received by GFB. (b) The "Wet Warehousing Subline" is a sublimit under the Warehouse Line under which Subline the Obligors may borrow, repay and reborrow up to an amount equal to, at any one time outstanding, (i) forty percent (40%) of the aggregate Committed Sums of all Banks for the Warehouse Line during the first five (5) Business Days and last five (5) Business Days of any calendar month or (ii) twenty-five percent (25%) of the aggregate Committed Sums of all Banks for the Warehouse Line during the remainder of each calendar month (the "Wet Warehousing Sublimit", which term shall refer to the dollar limit for the applicable period of each calendar month) against Wet Mortgage Loans ("Wet Warehousing Loans") each of which: (1) is originated by the borrowing Obligor, or is purchased by the borrowing Obligor substantially concurrently with its origination by another Person; 29 40 (2) is funded by the borrowing Obligor substantially concurrently with the borrowing Obligor's borrowing against it under the Wet Warehousing Subline; and (3) is set out on the list of Wet Warehousing Loans more fully described in Section 2.14(b). When the Residential Mortgage File, including the original Residential Mortgage Note for such a Pledged Mortgage duly endorsed (as required by clause (a) in the definition of "Eligible Mortgage") has been actually received and certified by the Collateral Agent in accordance with the Warehouse Pledge Agreement (provided, of course, that it qualifies under all other requirements of this Agreement to constitute an Eligible Mortgage) it will no longer be considered as being borrowed against under the Wet Warehousing Subline, but will instead thenceforth be treated as being borrowed against under the Warehouse Line itself. (c) The "Second-Lien Subline" is a sublimit under the Warehouse Line under which Subline the Obligors may borrow, repay and reborrow up to an aggregate amount equal to ten percent (10%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Second-Lien Sublimit") from time to time solely for the acquisition or funding of such Obligor's own second-lien Residential Mortgages that satisfy every requirement of GNMA, FNMA or FHLMC or another Investor acceptable to the Collateral Agent under its Investor Commitment covering such second-lien Residential Mortgages ("Second-Lien Loans"). (d) The "Receivables Advances Subline" is a sublimit under the Warehouse Line under which Subline the Obligors may borrow, repay and reborrow up to an aggregate principal amount equal to seven and one-half percent (7.5%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Receivables Advances Sublimit") from time to time solely to finance the applicable Obligor's fundings of any of the following ("Receivables Advances Loans"): (1) The applicable Obligor's advances required pursuant to the applicable Obligor's obligations as servicer under the relevant guide (or its equivalent where such Obligor is servicer for another Qualified Investor) to cover (A) shortfalls between (i) principal and interest installments collected from the obligors on serviced Residential Mortgages and (ii) the scheduled principal and interest payments due to the owners of such Residential Mortgages or the holders of the Mortgage-Backed Securities based on and backed by such serviced Pool ("P&I Loans"), (B) shortfalls between (i) property tax and property insurance escrow payments collected from the obligors on serviced Residential Mortgages and (ii) the property tax and property insurance premiums actually due for the real estate described in such Residential Mortgages ("T&I Loans"); (C) (i) foreclosure expenses for defaulted Residential Mortgages serviced by the Obligors where the Obligors are obligated by their Loan Servicing Agreements to advance such foreclosure expenses; or (ii) purchases out of such serviced Pools of Repurchased Defaulted Mortgages that are either guaranteed or insured by VA, FHA or PMI companies as may be approved by the Administrative Agent pending payment of the guaranty or 30 41 insurance claims under their VA mortgage guaranties or their FHA or PMI insurance, or payment of the guaranty claims by FNMA or FHLMC as to mortgages repurchased out of FNMA or FHLMC mortgage pools for which FNMA or FHLMC accepted the default and foreclosure risk ("Foreclosure Receivables Loans"), or (D) purchase of land improved by one single-, two-, three- or four-family dwelling, or a single one-family residential condominium unit and its related easements and proportionate interests in common elements acquired by the applicable Obligor through successfully bidding for it at a proper and lawful foreclosure of the first Lien Mortgage on that Property owned and held by the applicable Obligor in its own investment portfolio ("Foreclosed Property") with the concurrent and continuing intent of such Obligor to dispose of such Foreclosed Property as promptly as is reasonable and prudent (the "Foreclosed Properties Loans"). (2) The "P&I Sub-subline" is a Sub-subline of the Receivables Advances Subline under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "P&I Sublimit") from time to time for P&I Loans. (3) The "T&I Sub-subline" is a Sub-subline of the Receivables Advances Subline under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to two and one-half percent (2-1/2%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "T&I Sublimit") from time to time for T&I Loans. (4) The "Foreclosure Receivables Sub-subline" is a Sub-subline of the Receivables Advances Subline under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to three percent (3%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Foreclosure Receivables Sublimit") from time to time for Foreclosure Receivables Loans. (5) The "Foreclosed Properties Sub-subline" is a Sub-subline of the Receivables Advances Subline under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to one percent (1%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Foreclosed Properties Sublimit") from time to time for Foreclosed Properties Loans. Neither Obligor shall be entitled to receive any Loan under a Sub-subline of the Receivables Advances Subline even if all other requirements and conditions for such Loan have been satisfied if after giving effect to such Loan, the total of all Loans outstanding under the Sub-sublines would exceed the Receivables Advances Sublimit. (e) the "Mortgage Repurchase Subline" is a subline under the Warehouse Line under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to one percent (1%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Mortgage Repurchase Sublimit") from time to time solely for the repurchase of Defective Mortgages ("Mortgage Repurchase Loans"). 31 42 (f) the "Servicing Held for Sale Subline" is a subline under the Warehouse Line under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to $10,000,000 (the "Servicing Held for Sale Sublimit") from time to time solely to finance newly originated GNMA, FNMA and FHLMC Servicing Rights until sold on a monthly, bi-monthly or quarterly basis, and for which a purchase agreement is in place pursuant to which such servicing is to be sold ("Servicing Held for Sale Loans"). Upon the sale of any Eligible Servicing Held for Sale to an Approved Servicing Purchaser, the Administrative Agent shall, within three (3) Business Days after receiving a written request of Obligors (and at Obligors' expense) notify the Collateral Agent of such sale describing in such notice the servicing rights so sold and, upon receiving such notice, the Collateral Agent shall release (at Obligors' expense) its security interest in such servicing rights without consent by any Bank. Such servicing rights shall no longer be included in Servicing Held for Sale Loan Value. (g) the "Servicing Sale Receivable Subline" is a subline under the Warehouse Line under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to seven and one-half percent (7.5%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Servicing Sale Receivable Sublimit") from time to time for general corporate purposes ("Servicing Sale Receivable Loans"). (h) the "Other Loan Subline" is a subline under the Warehouse Line under which the Obligors may borrow, repay and reborrow up to an aggregate amount equal to one percent (1%) of the aggregate Committed Sums of all Banks for the Warehouse Line (the "Other Loan Sublimit") from time to time solely to finance or refinance the origination or acquisition of Eligible Other Loans ("Other Loan Subline Loan"). (i) Notwithstanding any other provision of this Agreement to the contrary, for each day when, for any reason: (1) the sum of the Banks' commitments is less than the amount of the Facility Limit stated in Section 2.2(a), the Facility Limit shall be that lesser amount; and (2) the sum of the Banks' Sublimit or Sub-sublimit for any Facility, as shown on the most recent signature pages to the Commitment Schedule (or any supplement, amendment or restatement of it), is less than the amount of the Sublimit for the relevant Subline or Sub-subline stated in Section 2.3, such Sublimit or Sub-sublimit shall be that lesser amount. Section 2.4 Warehouse Line Term. Subject to the Commitments Lapse Provisions, credit under the Warehouse Line (including its Sublines and Sub-sublines) shall be available to the Obligors until the Warehouse Termination Date. Upon expiration or any earlier termination of the Warehouse Line (including its Sublines and Subsublines), the Warehouse Notes shall automatically be and become due and payable on demand, the Warehouse Facility Fee shall automatically cease to accrue and any accrued but unpaid portion of it shall be immediately due and payable to the Administrative Agent (for the accounts of the Banks) without notice or demand. 32 43 Section 2.5 Master Warehouse Notes. The Obligors' borrowings under the Warehouse Line (including in each instance its Sublines and Sub-sublines) shall be evidenced by promissory notes (the "Master Warehouse Notes") dated as of the Effective Date (or by the promissory notes, if any, from time to time in the future issued by the Obligors to renew, extend, rearrange, increase or replace the Master Warehouse Notes, each of which, as well as each such future note, being called a "Warehouse Note") substantially in the form of Exhibit A, executed by the Obligors, one payable to the order of each respective Bank in the face principal amount of such Bank's Committed Sum of the Warehouse Line. All borrowings under the Sublines and Sub- sublines pursuant to this Agreement are and shall be evidenced by the Warehouse Notes. Section 2.6 Warehouse Notes Interest Accrual and Payment. Each Warehouse Note shall bear interest on its advanced and unpaid principal balance outstanding on each day at the applicable Stated Rate for the types of Loans outstanding under the Warehouse Notes; provided that all past due amounts, both principal and accrued interest, shall be due and payable upon demand. Unpaid interest accrued on each Warehouse Note to the end of each calendar month, as well as all unpaid interest on past due amounts for which no demand has been sooner made, will be automatically due and payable without demand on the fifteenth (15th) day of the next succeeding calendar month commencing with July 15, 1999; provided that all interests accruing in May 1999 shall be due and payable on July 15 and provided further that all unpaid principal and accrued interest on each Warehouse Note shall be finally due and payable in full at the maturity of such Warehouse Note, however such maturity may occur or be brought about. All interest calculations under the Warehouse Notes shall be computed on the basis of the actual number of days elapsed over a year of 360 days unless that would produce a usurious interest rate under applicable Law, in which event such rate shall be computed on the basis of the actual number of days elapsed over a year of 365 days, or 366 days in a leap year, to the extent required to prevent or minimize usury. Section 2.7 Warehouse Notes' Due Date. All principal and accrued interest on the Warehouse Notes will be due and payable on the earlier of the Warehouse Termination Date or the final maturity of any of the Warehouse Notes, however such maturity may occur or be brought about. Section 2.8 Warehouse Notes Voluntary Prepayments. The Obligors may elect to prepay the Warehouse Notes in whole or in part at any time without notice, penalty or fee other than the payment of any breakage costs described in the Warehouse Notes with respect to Loans thereunder bearing interest at the Eurodollar Rate plus the Applicable Margin, and all such prepayments shall be applied Ratably to the Warehouse Notes; provided that each such prepayment must be in the amount of $5,000,000 or any higher integral multiple of $1,000,000. Section 2.9 Warehouse Notes Mandatory Payments. (a) The principal amount of each Swing Loan shall be due and payable without grace, notice or demand on or before the fifth (5th) Business Day next following the Business Day on which it is funded by GFB unless already repaid with proceeds of an advance 33 44 made by the Banks. The principal amount of each Wet Warehousing Loan shall be due and payable without grace, notice or demand on or before the seventh (7th), or with respect to up to $10,000,000 of Wet Warehousing Loans, the tenth (10th), Business Day following the Business Day on which it is funded, or at such earlier date as is required to prevent the balance of outstanding Wet Warehousing Loans from at any time exceeding the Wet Warehousing Sublimit. (b) The principal amount of each P&I Loan shall be due and payable without grace, notice or demand on the first (1st) Business Day of the calendar month succeeding the calendar month in which it is made. (c) As and when the Obligors receive recoveries or reimbursements of any Eligible Receivables under any guides, insurance, guaranties or contract, or recoveries, reimbursements or compensation from any source whatsoever for advances made by the Obligors for any such Residential Mortgages or Pools serviced by the Obligors, the Obligors will promptly prepay to the Administrative Agent, for application Ratably on the Warehouse Notes, the amount so recovered, collected or received, as a mandatory prepayment of principal on the Warehouse Notes. (d) The borrowing Obligor agrees to pay a mandatory payment of principal against the Warehouse Notes promptly after: (1) collecting on any guaranty, insurance or deficiency claim in respect of the Foreclosed Property or the Mortgage Loan which it secured or collecting any rentals, other income or any sale, condemnation or other disposition proceeds from or in respect of such Foreclosed Property or any casualty, claim, tax rebate or refund of any other source of funds relative to such Foreclosed Property, in an amount equal to one hundred percent (100%) of the amount so collected, but not less than the principal amount which the borrowing Obligor received under the Foreclosed Properties Sub-subline against such Foreclosed Property; (2) receiving any current appraisal of any Foreclosed Property borrowed against under the Foreclosed Properties Sub-subline which indicates that the principal amount which the borrowing Obligor received under the Foreclosed Properties Sub-subline against that Foreclosed Property is greater than seventy percent (70%) of the value indicated by such appraisal, in an amount sufficient to reduce the principal amount of such Foreclosed Properties Loan to seventy percent (70%) of such appraised value; or (3) any Foreclosed Property borrowed against under the Foreclosed Properties Sub-subline ceases for any reason to be an Eligible Receivable, in an amount equal to the principal amount which the borrowing Obligor received against such Foreclosed Property under the Foreclosed Properties Sub-subline. (e) If on any day, a Loan proposed to be made under the Warehouse Line (including its Sublines and Sub-sublines) would cause all outstanding Loans of that type (including the requested Loan) to exceed the applicable limit(s) or sublimit(s) on such type of 34 45 Loans as described in the applicable Loan Request, then the Obligors shall immediately repay the Warehouse Notes as necessary to eliminate such excess. (f) In addition, the Obligors shall make all mandatory prepayments required by Sections 2.16, 2.17, 2.18, 2.19, 2.21 and 2.22. Section 2.10 Warehouse Line Security. The Collateral Agent holds and shall hold the pledgee's interest and the security interests granted by the Obligors to the Collateral Agent for the benefit of the Banks in all of the Obligors' Mortgage Loans, now or hereafter pledged to the Collateral Agent for the benefit of the Banks, pursuant to this Agreement including all of the Collateral covered by (1) the Warehouse Pledge Agreement, (2) the Servicing Rights Security Agreement, (3) the Receivables Security Agreement, (4) all mortgages, deeds of trust, deeds to secure debt or other forms of mortgage instruments that are intended to grant a Lien against real property ("Mortgages") now or hereafter held by the Collateral Agent for the benefit of the Banks, as mortgagee (as they may have been or may be supplemented, amended or restated from time to time, the "Foreclosed Properties Mortgages") and (4) all other pledge agreements and security agreements executed by either Obligor to secure the Obligations except for (5) the Pledge Agreement (Deposit Account) covering the Settlement Accounts and the Funding Accounts which shall be held by Administrative Agent (all of the foregoing collectively, the "Warehouse Collateral"), to Ratably secure all of the Obligors' present and future Obligations to the Banks under this Agreement. Section 2.11 Warehouse Facility Fee. While the Obligors have no obligation to borrow or to maintain any minimum balance of borrowed funds outstanding under the Warehouse Line at any time. as compensation to the Banks for their agreements (the "Warehouse Line Commitments") to make the Warehouse Line's credit available to the Obligors between the Effective Date and the Warehouse Termination Date or the effective date of any earlier termination of the Warehouse Line (the "Warehouse Final Termination Date") and not as compensation for the use, forbearance or detention of money the Obligors, jointly and severally, hereby agree to pay to the order of the Administrative Agent for the account of the Banks a facility fee (the "Warehouse Facility Fee") for each day between the Effective Date and the Warehouse Final Termination Date equal to the Warehouse Facility Fee Rate of the amount of all Warehouse Line Commitments on each such day. The Warehouse Facility Fee shall be due and payable quarterly in advance on the Effective Date (prorated through the end of the calendar quarter) and on the first day of each succeeding April, July, October and January thereafter until the Warehouse Facility Fee has been fully paid and satisfied, provided that on the Warehouse Final Termination Date, the entire balance of the Warehouse Facility Fee then unpaid shall be finally due and payable without notice or demand. Provided further, that the amount of the Warehouse Facility Fee (although not itself interest) shall be absolutely limited to that amount which, when added to all interest contracted for, charged, reserved or received on the Warehouse Line, will not exceed an amount equal to the maximum amount of nonusurious interest on the advanced and unpaid balance of the Warehouse Line over its entire actual term allowed by whichever of applicable Texas or federal Law permits the higher nonusurious interest rate. If the amount of the Warehouse Facility Fee payable on any day calculated in accordance with the 35 46 immediately preceding sentence would exceed that limit, then the Warehouse Facility Fee due on that day shall automatically be reduced to the amount that will meet, but not exceed, that limit, and if on any day the Obligors have already paid any such excess, then the excess will be refunded to the Obligors or appropriately credited against the Obligors' then-outstanding, Warehouse Notes, whichever the Banks elect. Section 2.12 Agency and Syndication Fees. The Obligors, jointly and severally, also promise to pay to the agency and syndication fees described in (i) a fee letter among the Obligors, the Agents and Banc One Capital Markets, Inc., as Syndication Agent, dated May 14, 1999, (ii) a fee letter among the Obligors and the Collateral Agent dated May 14, 1999, and (iii) a fee letter among the Obligors and the Administrative Agent dated May 28, 1999. Section 2.13 Amount the Obligors May Borrow Against Each Eligible Mortgage; Investor Commitment Coverage and Weekly Reports of Coverages Required; Mortgage Loan Value. Each of the Obligors may obtain Loans of up to the sum (the "Warehouse Loan Value") of (i) the Mortgage Loan Value of Eligible Mortgages, (ii) the Receivables Loan Value of the Receivables, (iii) the Mortgage Repurchase Loan Value of the Defective Mortgages, (iv) the Servicing Held for Sale Loan Value of Eligible Servicing Held for Sale, (v) the Servicing Sale Receivable Loan Value of Eligible Servicing Sale Receivables, and (vi) the Other Loan Subline Loan Value of Eligible Other Loans (the sum of the foregoing being the "Warehouse Loan Value"). Each of the Obligors agree to provide each Agent a weekly report of all Investor Commitments held by such Obligor in a form agreed to by it and the Agents demonstrating that all warehoused Mortgage Loans (whether warehoused with the Collateral Agent as security for the Loans or elsewhere as security for other obligations) of such Obligor are fully covered and hedged by valid and enforceable Investor Commitments that either match such Obligor's warehoused Mortgage Loan portfolio or can be readily adjusted to match it under market and interest rate conditions then prevailing. Section 2.14 Borrowing Procedures. The borrowing Obligor agrees to notify each Agent of the amount and date of each proposed Loan, and the designated Stated Rate to apply thereto, under the Warehouse Line (including its Sublines and Sub-sublines other than the Swing Subline), either by electronic transmission or facsimile or other writing by no later than 11:30 a.m., Dallas time, on the date (which must also be a Business Day) of the desired funding (or such earlier Rate Designation Date, if required). The initial request, whether by electronic transmission or facsimile or other writing, shall identify the Obligor for which the Loan is being requested, and a separate request shall be made for each Loan to each Obligor. Neither Obligor may request funding of a P&I Loan to occur earlier than the day upon which such Obligor is obligated to make the advance for which it is borrowing such P&I Loan to the holders of the applicable Mortgage-Backed Securities. The borrowing Obligor will confirm or make the request for a Loan in writing by delivering to each Agent a Loan Request, with all blanks appropriately completed, including the designation of the Stated Rate on or before the applicable Rate Designation Date, signed by the borrowing Obligor, and accompanied by: 36 47 (a) with respect to Mortgage Warehouse Loans (other than Wet Warehouse Loans), (1) a list of Eligible Mortgages having aggregate current Mortgage Loan Values at least equal to the amount of the requested Mortgage Warehouse Loan and against which no other Mortgage Warehouse Loan is then pending or outstanding, and listing the borrowing Obligor's loan numbers or Pool numbers, the names of the obligors, Property address, the dates, face amounts, Acquisition Cost, Allocated Commitment Price and Par Value of the Residential Mortgages and Residential Mortgage Notes, the interest rate on the Residential Mortgage Note and the Mortgage Loan Value for each Eligible Mortgage listed; and (2) the Required Documents (as defined in the Warehouse Pledge Agreement) for each of the Eligible Mortgages listed. (b) with respect to Wet Warehousing Loans, a list of Wet Mortgage Loans having aggregate current Mortgage Loan Values at least equal to the amount of the requested Wet Warehousing Loan and against which no other Wet Warehousing Loan is then pending or outstanding. and listing the borrowing Obligor's loan numbers, Pool numbers (if applicable), the names of the obligors, Property address, the dates, face amounts, Acquisition Cost, Allocated Commitment Price and Par Value of the Residential Mortgages and Residential Mortgage Notes. the interest rate on the Residential Mortgage Note, the loan term and type and the Mortgage Loan Value for each Wet Mortgage Loan listed. (c) with respect to Second-Lien Loans, the documentation required by Section 2.14(a). (d) with respect to Receivables Advances Loans, (1) made under any Sub-subline, a list of the serviced Residential Mortgage(s) or Pool(s) for which the borrowing Obligor is obligated to make advances that qualify for Receivables Advances Loans as to which Receivables Claims no condition exists which the borrowing Obligor cannot satisfy timely so as not to impair or delay collection of such Receivables Claims and in which Receivables Claims the borrowing Obligor grants or has granted the Collateral Agent a first, prior, perfected and currently enforceable Lien having aggregate Receivables Loan Values at least equal to the amount of the requested Receivables Advances Loan and against which no other Receivable Advances Loan is then pending or outstanding (the "Eligible Receivables"), as described on the schedule of funding to be financed with the requested Receivables Advances Loan that is attached to the applicable Loan Request. (2) if applicable: (A) made under the Foreclosure Receivables Sub-subline only, in respect of Repurchased Defaulted Mortgages for which the borrowing Obligor has a valid and enforceable claim against VA on a VA mortgage guaranty or against FHA under an FHA 37 48 mortgage insurance policy, a true and correct copy of the appropriate fully completed VA form 26-1874, "Claim Under Loan Guaranty", VA form 26-8903, "Notice for Election to Convey and/or Invoice for Transfer of Property" or HUD form HUD-2701 1, "Single Family Application for Insurance Benefits", showing on such appropriate form the Agent as (i) the "Claimant" in Box 1 of each such VA form 26-18741, (ii) the "holder (or payee)" who the form is "from" on the top right box of each such VA form 26 8903 or (iii) the "holding mortgagee" (by the Collateral Agent's number in Block 12 of each such form HUD-27011, with each such form signed by such authorized officer(s) of the borrowing Obligor and the servicer of such Repurchased Defaulted Mortgage as such form requires (for each form that is submitted by Electronic Data Interchange ("EDI"), the borrowing Obligor shall deliver to the Collateral Agent a copy of the EDI file transmitted to the relevant agency on floppy diskette(s) (or by such means of electronic transmission as the Collateral Agent shall approve) on or before five (5) Business Days of the date of the EDI transmission); or (B) made under the Foreclosed Properties Sub-subline only, a copy of the recorded trustee's deed, sheriffs deed, warranty deed or other instrument by which title to such Foreclosed Property was conveyed to the borrowing Obligor. (3) made under the Foreclosed Properties Sub-subline only, unless the borrowing Obligor is submitting a completed VA form 26-8903, VA form 26-1874 or HUD form HUD-27011 for the affected Repurchased Defaulted Mortgage pursuant to Section 2- 14(d)(2)(A), if the borrowing Obligor has foreclosed the Repurchased Defaulted Mortgage, a signed and recordable original first Lien Foreclosed Properties Mortgage containing (or accompanied by) a security agreement and financing statement appropriate to the jurisdiction where the Foreclosed Property is located, sufficient in all respects to grant the Collateral Agent a first mortgage Lien and a first and prior security interest or chattel mortgage (whichever is appropriate to the jurisdiction) on the Foreclosed Property to be borrowed against and all related fixtures, equipment and other personal property. On each occasion when the borrowing Obligor proposes to borrow against new or additional Foreclosed Properties, all such Foreclosed Properties in that group which are located in the same county or parish shall themselves be grouped in a single Foreclosed Properties Mortgage instrument. A good, complete and sufficient legal description of the Foreclosed Property shall be set forth in the legally-appropriate place in its text or an exhibit to it, and the street address of each covered property shall also be included in the Foreclosed Properties Mortgage to assist the Collateral Agent in identifying it. (4) made under the Foreclosure Receivables Sub-subline and/or the Foreclosed Properties Sub-subline only, as applicable, a list of all unforeclosed Repurchased Defaulted Mortgages, and a separate list of any such Foreclosed Properties, to be borrowed against, in each case listed by the date, amount and maker of the Repurchased Defaulted Mortgage pledged and, if the Property securing it has been foreclosed, (A) the security Property's address, (B) the date and recording information of the recorded or registered trustee's deed (or equivalent instrument of foreclosure conveyance to the borrowing Obligor appropriate to the method of foreclosure and to the jurisdiction where the Foreclosed Property is located) by which the borrowing Obligor acquired such Foreclosed Property; (C) the purchase price paid for it; and 38 49 (D) its current appraised fair value according to a reasonably current appraisal or broker's price opinion which the borrowing Obligor is satisfied is substantially correct (and, by submitting a copy of it to the Collateral Agent, the borrowing Obligor will be deemed to make that representation to the Collateral Agent and to each of the Banks) -- a copy of an appraisal report or broker's price opinion for each Foreclosed Property listed shall accompany each such list. (5) made under the Foreclosed Receivables Sub-subline only, a copy of the VA guaranty or FHA or PMI insurance certificate applicable to each such Repurchased Defaulted Mortgage, whether or not yet foreclosed. (6) made under the Foreclosed Properties Sub-subline only, at the borrowing, Obligor's sole cost either a current commitment for title insurance issued in favor of the Collateral Agent or a copy of the existing title policy with an updated title search by a reputable and substantial title insurer in an amount at least equal to the amount of the borrowing Obligor's requested Foreclosed Properties Loan against such Foreclosed Property and showing no Liens against it other than the statutory Liens for ad valorem taxes and public improvements assessments that are not delinquent Liens. (e) with respect to Servicing Held for Sale Loans, list of the Mortgage Loans for which Servicing Rights are included in Eligible Servicing Held for Sale and the Approved Servicing Sales Contracts under which they are eligible to be sold in which the borrowing Obligor has granted the Collateral Agent a first, prior, perfected and currently enforceable Lien having aggregate Servicing Held for Sale Loan Value at least equal to the amount of the requested Servicing Held for Sale Loan and against which no other Servicing Held for Sale Loan is then pending or outstanding, as described on the schedule of funding to be financed with the requested Servicing Held for Sale Loan that is attached to the applicable Loan Request. Together with such Loan Request, the borrowing Obligor shall deliver to Administrative Agent a summary by flow sale contract of servicing to be delivered that month to each flow buyer with sufficient detail that the Administrative Agent may recalculate sales proceeds. Such information shall include, but not be limited to, principal and weighted average servicing fee by maturity term. (f) with respect to Servicing Sale Receivable Loans, list of the Eligible Servicing Sale Receivables included in Servicing Sale Receivable Loan Value and the Approved Servicing Sales Contracts under which they are due and payable in which the borrowing Obligor has granted the Collateral Agent a first, prior, perfected and currently enforceable Lien having aggregate Servicing Sale Receivable Loan Value at least equal to the amount of the requested Servicing Sale Receivable Loan and against which no other Servicing Sale Receivable Loan is then pending or outstanding, as described on the schedule of funding to be financed with the requested Servicing Sale Receivable Loan that is attached to the applicable Loan Request. Together with such Loan Request the borrowing Obligor shall included a schedule showing the calculation of the amount receivable on the sale date and calculating the amount receivable on the transfer date. Prior to any contract being included as an Approved Servicing Sale Contract, the respective Obligor shall deliver to the Administrative Agent an executed copy of such 39 50 contract and any other information regarding such contract that Administrative Agent may request. (g) with respect to Mortgage Repurchase Loans, (1) a list of Defective Mortgages having aggregate current Repurchased Mortgage Loan Values at least equal to the amount of the requested Mortgage Repurchase Loan and against which no other Mortgage Repurchase Loan is then pending or outstanding, and listing the borrowing Obligor's loan numbers or Pool numbers, the names of the obligors, Property address, the dates, face amounts and the Mortgage Repurchase Loan Value for each Defective Mortgage listed; and (2) the Required Documents for each of the Defective Mortgages listed. (h) with respect to Other Loan Subline Loans, (1) a list of Eligible Other Loans having aggregate current Other Loan Values at least equal to the amount of the requested Other Loan Subline Loan and against which no Other Loan Subline Loan is then pending or outstanding, and listing the borrowing Obligor's loan numbers or Pool numbers, the names of the obligors, Property address, the dates, face amounts and the Other Loan Subline Loan Value for each Eligible Other Loan listed; and (2) the Required Documents for each of the Eligible Other Loans listed. Delivery of a Loan Request may be by electronic transmission or telecopy if confirmed by the borrowing Obligor's mailing an originally-signed copy to each Agent on the same day. Upon each Agent's receipt of a Loan Request before 11:30 a.m. on a Business Day and the receipt of a collateral added report by Administrative Agent from Collateral Agent, no later than 1:15 p.m., the Administrative Agent shall notify each of the other Banks by no later than 2:00 p.m. on the same Business Day. Each Bank other than GFB shall make its Funding Share of the requested Loan available to the Administrative Agent in immediately available funds at the Administrative Agent's main office no later than 3:00 p.m. on the date such Loan is to be made. Upon satisfaction of all conditions precedent to the funding of a Loan, GFB shall make its Funding Share of the requested Loan available to the borrowing Obligor in immediately available funds at the Administrative Agent's main office in Dallas, and upon receipt by the Administrative Agent from each other Bank of its own Funding Share, the Administrative Agent shall make that portion of such Loan available to the borrowing Obligor in immediately available funds at the Administrative Agent's main office in Dallas. If, after any of the other Banks so provides funds to the Administrative Agent, the Administrative Agent does not fund the relevant Loan because a condition precedent is not satisfied or for any other reason, then the Administrative Agent shall return the funds so received to the 40 51 Bank(s) that provided them on the same Business Day that the Administrative Agent first determines that the Loan will not be funded if the Administrative Agent makes that determination before 2:00 p.m. on that Business Day, or on the next succeeding Business Day if such determination is not made until 2:00 p.m. or later. If the Administrative Agent fails to return such funds by the time specified, then the Administrative Agent shall be obligated to pay interest on them to, the Bank to which they are due from the day when they should have been returned to the day when they are returned at the Federal Funds Effective Rate. By submitting a Loan Request which is received by the Agents on any Business Day after the 11:30 a.m. deadline for submitting Loan Requests specified in this Section, or if for any reason the other Banks do not receive notice of the Loan Request by the 2:00 p.m. deadline specified in this Section, then the Loan Request shall automatically be deemed to be a request for both (a) a Swing Loan to be made by GFB on the Business Day GFB first received the Loan Request and (b) the Loan actually requested by the text of the Loan Request to be made by the Banks on or before the fifth (5th) following Business Day. GFB shall fund each Swing Loan that is deemed requested by operation of this Section on the same Business Day it is requested if the requirements of (a) Section 2.3(b) and (b) the applicable Subsection of Section 2.14 that relates to the type of Loan actually requested are satisfied (otherwise neither GFB nor the Banks shall have any obligation to fund either such Swing Loan or the Loan so requested by the Loan Request's text). Section 2.15 Determination Assumptions. In making any calculation involving a determination of all or any part of the Warehouse Loan Value either Agent shall be permitted to rely, without independent investigation of the correctness thereof, on: (A) The information supplied by any Obligor to such Agent on the related Loan Request, regarding (i) the outstanding principal balance of any Residential Mortgage, (ii) the Market Value of any Residential Mortgage, (iii) the amount at which a Qualified Investor has committed to purchase any Residential Mortgage, (iv) the Eligible Receivables and Receivables Claims, (v) any Foreclosed Properties, and (vi) any other component of Warehouse Loan Value. (B) Any information supplied by the Company, or any other custodian of any of the Collateral, to Agents unless the Agents have actual knowledge that such information is untrue or unreliable. Section 2.16 Refinancings of Swing-Line Loans. GFB, at any time in its sole and absolute discretion, may, upon notice given to each other Bank by not later than 11:30 a.m. (Dallas time) on any Business Day, request that each Bank (including GFB) make a Loan in an aggregate amount equal to its Funding Share of the aggregate unpaid principal amount of any outstanding Swing-Line Loans for the purpose of refinancing such Swing-Line Loans. In any event, not later than 11:30 am (Dallas time) on the penultimate Business Day of each week, GFB will notify each other Bank of the aggregate amount of Swing-Line Loans which are then outstanding and the amount of the Loans required to be made by each Bank (including GFB) to 41 52 refinance such outstanding Swing-Line Loans (the aggregate amount of such Loans to be made by each Bank shall equal such Bank's Funding Share of such outstanding Swing-Line Loans). Upon the giving of notices by GFB described above, each Bank (including GFB) shall promptly remit to Administrative Agent such Loans in the manner described above in Section, so long as (A) GFB believed in good faith that all conditions to making the subject Swing-Line Loan were satisfied at the time such Swing-Line Loan was made, or (B) if the conditions to such Swing- Line Loan were not satisfied, the satisfaction of such conditions have been waived in a writing by Majority Banks in accordance with the provisions of this Agreement. The proceeds of the Loans made pursuant to the preceding sentence shall be paid to GFB (and not to Obligors) and applied to the payment of principal of the outstanding Swing-Line Loans, and Obligors authorizes Administrative Agent to charge any account (other than escrow or custodial accounts) maintained by it with Administrative Agent (up to the amount available therein) in order to immediately pay GFB the principal amount of such Swing-Line Loans to the extent amounts received from the other Banks are not sufficient to repay in full the principal of the outstanding Swing-Line Loans requested or required to be refinanced. Each Bank's obligation to make Loans pursuant to this Section shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, (1) any setoff, counterclaim, recoupment, defense or other right which such Bank may have against GFB, Obligors or anyone else for any reason whatsoever; (2) the occurrence or continuance of an Event of Default or Default; (3) any adverse change in the condition (financial or otherwise) of Obligors; (4) any breach of this Agreement by Obligors, Administrative Agent or any Bank; or (5) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, that in no event shall a Bank be obligated to make a Loan pursuant to this Section if, after giving effect thereto, the outstanding principal balance of such Bank's Loans would exceed its Funding Share of the Facility. Section 2.17 Releases of Sold or Securitized Pledged Mortgages. When the sale is settled of any Pledged Mortgage, or of any Mortgage-Backed Securities created from a Pool that includes any Pledged Mortgage, the owning Obligor shall cause the Qualified Investor purchasing such Pledged Mortgage, Pool or Mortgaged-Backed Securities to pay directly to the Administrative Agent, for application Ratably as a mandatory prepayment on the Warehouse Notes, the amount the Banks together have lent against that sold Pledged Mortgage or against all Pledged Mortgages in that Pool, whichever the case may be. Each of the Obligors hereby GRANTS to the Collateral Agent, as secured party for itself and the other Banks, a security interest in all of such Obligor's present and future right, title and interest in the Mortgaged- Backed Securities created from each Pool that includes any Pledged Mortgages, up to the amount of such Pledged Mortgages, and in such Obligor's present and future rights to demand, have, receive receipt for them and their proceeds until the full amount of such mandatory prepayment for the sold Pledged Mortgages in that Pool shall have been made. Each of the Obligors agrees to take all steps necessary to cause all such Mortgaged-Backed Securities to be duly registered in the Collateral Agent's name and to be delivered to the Collateral Agent (meaning, in the case of uncertificated or book-entry securities, registered as owned by the Collateral Agent on the books of the securities intermediary that is shown as their record owner on the books of the fiscal agent for the issuer of such securities) until such mandatory prepayment for that securitized Pool has 42 53 been made. Each of the Obligors hereby APPOINTS the Collateral Agent as its attorney-in-fact to take all such steps in its name and behalf, and each such appointment shall be deemed a power coupled with an interest and shall be irrevocable. Upon payment in full of the amount the Banks have lent against such sold Pledged Mortgage(s), the Collateral Agent's security interest in such sold Pledged Mortgage(s) only shall terminate and shall be released by the Collateral Agent upon the owning Obligor's request and at its expense. Section 2.18 Mandatory Prepayments or Collateral Substitutions for Ineligible Mortgages. Each of the Obligors agrees that if at any time after any Mortgage Warehouse Loan is funded against the security of any Residential Mortgage, that Residential Mortgage ceases to be, or is discovered by the Obligors or any Bank not to be, an Eligible Mortgage, then its Mortgage Loan Value shall automatically become zero and whichever Obligor pledged it to the Collateral Agent will promptly either: (a) prepay to the Administrative Agent for application Ratably against the Warehouse Notes, the Mortgage Loan Value used for borrowing under the Warehouse Line against that ineligible Residential Mortgage, as a mandatory prepayment of principal on the Warehouse Notes; or (b) furnish the Collateral Agent substitute collateral having Mortgage Loan Value, as determined by the Collateral Agent, equal to or greater than the Mortgage Loan Value used for borrowing under the Warehouse Line against that ineligible Residential Mortgage, of a type, and by instruments all of which are, satisfactory to and approved by the Administrative Agent in accordance with the Loan Documents. Section 2.19 Mandatory Prepayments or Collateral Substitutions for Ineligible Foreclosed Property Collateral. Each of the Obligors agrees that if at any time any legal proceeding is instituted seeking to set aside or otherwise attacking the trustee's sale (or other mortgage Lien foreclosure sale) by whichever Obligor acquired any Foreclosed Property that is then mortgaged or proposed to be mortgaged to obtain or continue any Foreclosed Properties Loan, or if any Foreclosed Property suffers casualty damage or is threatened with condemnation, or if for any other reason it ceases to be an Eligible Receivable or is discovered by such Obligor or any Agent not to be an Eligible Receivable, then and in any such event the Receivables Loan Value of that particular Foreclosed Property shall automatically become zero, irrespective of the merits of any such legal proceeding, the extent or repairability of the damage or the extent, portion or configuration of the Property threatened to be condemned. Each of the Obligors agrees that on each occasion (if any) that such an event occurs, the applicable Obligor will notify the Agents in writing of such proceedings, casualty damage or condemnation threat promptly after the applicable Obligor learns of them or it, and the applicable Obligor will promptly either: (a) prepay to the Administrative Agent for application Ratably on the Warehouse Notes the Receivables Loan Value used for borrowing under the Foreclosed Properties Sub-subline against that ineligible Foreclosed Property, as a mandatory prepayment of principal on the Warehouse Notes; or 43 54 (b) furnish the Collateral Agent substitute collateral having Receivables Loan Values as determined by the Collateral Agent, equal to or greater than the Receivables Loan Value used for borrowing under the Foreclosed Properties Sub-subline against that ineligible Foreclosed Property, of a type, and by instruments all of which are, satisfactory to and approved by the Collateral Agent in accordance with the Loan Documents. Section 2.20 Title Insurance, Recording Foreclosed Properties Mortgages. The Obligors agree that the Collateral Agent may record or register any of the Obligors' Foreclosed Properties Mortgages, and the Obligors agree to pay for the fees and costs incurred in recording or registering such Foreclosed Properties Mortgages (and if the applicable Obligor fails or refuses to do so, then the Collateral Agent may pay such recording or registration cost, and the applicable Obligor will reimburse the Collateral Agent all such costs and expenses so incurred). If any Foreclosed Properties Loan made by the Banks is not paid in full on or before one (1) year after its funding date, the borrowing Obligor agrees to pay for and deliver to the Collateral Agent promptly after the expiration of that one (1) year period, without notice or demand, a mortgagee policy of title insurance in form and substance satisfactory to the Collateral Agent covering that Foreclosed Property and in the amount of its appraised value as represented by the borrowing Obligor to the Collateral Agent when the borrowing Obligor requested such Foreclosed Properties Loan. Section 2.21 Disposition of Foreclosed Properties. Each of the Obligors hereby agrees to dispose of all such Foreclosed Properties mortgaged to the Collateral Agent in the ordinary course of business as promptly as is reasonable and prudent and to apply the net proceeds of such dispositions to reduce the Warehouse Notes. Section 2.22 Partial Releases of Foreclosed Properties. The Foreclosed Properties shall be partially released from the Foreclosed Properties Mortgages covering them from time to time upon the borrowing Obligor's written request, provided that: (a) no Default or Potential Default has occurred and is continuing; (b) the Warehouse Notes have not matured (however such maturity may have occurred or been brought about); and (c) the aggregate principal of all Foreclosed Properties Loans outstanding after giving effect to the requested release would not (in the Collateral Agent's reasonable judgment) exceed the aggregate Receivables Loan Value of all other Foreclosed Properties then mortgaged to the Collateral Agent. Any such request shall be in writing, shall identify each Foreclosed Property proposed to be partially released by its address and the date of the Foreclosed Properties Mortgage held by the Collateral Agent which covers it, and (unless all outstanding Foreclosed Properties Loans would remain fully and adequately secured after such release, in the Collateral Agent's judgment, and the Collateral Agent shall have therefore waived this requirement) shall be accompanied by a 44 55 principal payment on the Warehouse Notes in an amount equal to the aggregate Receivables Loan Values of all such Foreclosed Properties proposed to be partially released. If that Foreclosed Properties Mortgage instrument has not yet been registered or recorded, then the partial release, if granted, shall be effected by the Collateral Agent's striking out the description of such Foreclosed Property in the Foreclosed Properties Mortgage instrument covering it, making a marginal notation beside such description, "partially released on [date]", initialing the change and notifying the borrowing Obligor in writing that action has been taken. If such Foreclosed Properties Mortgage instrument has been registered or recorded, then such partial release, if granted, shall be made by written partial release in recordable form executed by the Collateral Agent and paid for by and made available to the borrowing Obligor. Upon both payment in full of all of the borrowing Obligor's other Obligations under the Facility, and expiration or termination of the Warehouse Line, all unrecorded Foreclosed Properties Mortgage instruments (if any) shall be returned to the borrowing Obligor and all registered or recorded Foreclosed Properties Mortgage instruments shall be released at the borrowing Obligor's expense and upon its written request. ARTICLE 3. INTEREST RATE ELECTION PROVISIONS Section 3.1 Interest Rate Elections. If no Default exists, the Obligors may elect to have a Eurodollar Rate plus the Applicable Margin or the Adjusted LIBOR Rate plus the Applicable Margin apply or continue to apply (as the case may be) to all or a portion of the principal balance of the s. No such designation shall change the outstanding principal balance of any Warehouse Note. Obligors shall designate such rate in the related Loan Request given to the Administrative Agent by the applicable Rate Designation Date or by separate written notice given thereafter, if Obligors desire to designate (or continue) a Eurodollar Rate Loan or an Adjusted LIBOR Rate Loan, or to convert a Eurodollar Rate Loan to an Adjusted LIBOR Rate Loan or vice versa. Each Eurodollar Rate Loan shall be and remain in the amount of at least Two Hundred Fifty Thousand Dollars ($250,000), and no more than three (3) Eurodollar Rate Loans may be outstanding at any one time. Section 3.2 Inadequacy of Pricing and Rate Determination. If (a) the Administrative Agent is unable through its customary practices to determine any applicable Eurodollar Base Rate; (b) by reason of circumstances affecting the interbank market generally, any of the Banks is not being offered deposits in dollars in the market for Eurodollar deposits in United States dollars for the applicable Interest Period and in an amount equal to the amount of any Eurodollar Rate Loan requested by Obligors or (c) the applicable Eurodollar Base Rate will not adequately and fairly reflect the cost to any of the Banks of making and maintaining a Eurodollar Rate Loan, then the Administrative Agent shall give the Obligors notice thereof and thereupon (1) the Obligors' designation of a Eurodollar Rate Loan that has not commenced as of the date of such notice from the Administrative Agent shall be of no force and effect and (2) until the Administrative Agent notifies the Obligors that the circumstances giving rise to the Administrative Agent's notice no longer exist, the Obligors may not request a Eurodollar Rate Loan (and any attempted designation thereof shall be ineffective). Furthermore, if for any reason 45 56 the LIBOR Rate cannot be determined, then the Administrative Agent shall give the Obligors notice thereof and thereupon (1) the Obligors' designation of a LIBOR Rate Loan that has not commenced as of the date of such notice from the Administrative Agent shall be of no force and effect and (2) until the Administrative Agent notifies the Obligors that the circumstances giving rise to the Administrative Agent's notice no longer exist, the Obligors may not request a LIBOR Rate Loan (and any attempted designation thereof shall be ineffective). Section 3.3 Funding Losses. The Obligors shall compensate the relevant Banks on demand for any loss or expense that any Bank sustains or incurs because of (1) Obligors' failure to borrow, continue or convert to any Eurodollar Rate Loan after the Administrative Agent has received the applicable Loan Request designating it; (2) any prepayment or conversion of all or any part of a Eurodollar Rate Loan or (3) any default in the full payment of any Eurodollar Rate Loan or any interest accrued on it when due (whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise). Such loss or expense shall include the excess, if any, of (A) the relevant Bank's cost of obtaining the funds for the Eurodollar Rate Loan being paid, prepaid or not borrowed, made by continuation or conversion or prepaid for the period from the date thereof to the last day of the relevant Interest Period over (B) the interest that would be realized by such Bank in reemploying the funds so paid, prepaid or not borrowed for such period. Section 3.4 Determinations. In determining any amount, rate, cost, loss, expense or reserve requirement hereunder, the Administrative Agent may make any reasonable assumptions and allocations and may employ any reasonable averaging and attribution methods. The Administrative Agent's records with respect to interest rate designations, Interest Periods and the amounts of Eurodollar Rate Loans to which they apply, the Adjusted LIBOR Rate, any Eurodollar Rate and all other determinations by the Administrative Agent or any Bank under this Section and under the relevant definitions shall be binding and conclusive, absent manifest error. Section 3.5 Affiliates. Each Bank may make any Eurodollar Rate Loan by causing a branch or Affiliate of such Bank to make such Eurodollar Rate Loan and may transfer and carry such Eurodollar Rate Loan at, to or for the account of the same; but the joint and several obligation of the Obligors to repay such Eurodollar Rate Loan shall nevertheless be to that Bank and such Eurodollar Rate Loan shall (1) be deemed to have been made by that Bank and (2) be held by that Bank for the account of such branch or Affiliate. Section 3.6 Funding Decision. Each Bank may fund each Eurodollar Rate Loan in any manner it sees fit; but for the purposes of this Section all determinations shall be made as if each such Bank funded such Eurodollar Rate Loan through the purchase of deposits having a maturity corresponding to its Interest Period and an interest rate equal to the relevant Eurodollar Base Rate. Section 3.7 Rate of Return Maintenance Covenant. If at any time after the date of this Agreement, any Bank determines that (a) any applicable law, rule or regulation regarding capital adequacy has been adopted or changed since December 31, 1998 or (b) its interpretation or administration by any Governmental Authority, central bank or comparable agency has changed 46 57 since December 31, 1998 and determines that such change or such Bank's compliance with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on that Bank's capital as a consequence of its obligations under this Agreement or any of the other Loan Documents to a level below that which that Bank would have achieved but for such adoption, change or compliance (taking into consideration the Bank's own capital adequacy policies) by an amount the Bank deems to be material, then upon notice to the Obligors by that Bank or the Administrative Agent summarizing the facts triggering the increase and showing the detailed calculations of the increase. The interest rate on the principal of that Bank's portion of the Loans funded and outstanding from time to time shall be increased to a rate sufficient to provide that Bank with a rate of return on its capital equal to that which would have been achieved but for such adoption. change or compliance (taking into consideration that Bank's own capital adequacy policies), or if no Loan is then outstanding, the Obligors shall pay that Bank on demand an additional interest payment in an amount sufficient to provide that rate of return, but in no event to exceed the Ceiling Rate. In determining the increase in interest rate required to achieve that result, each affected Bank may employ such assumptions and make such allocations of costs and expenses fairly applicable to such Loans as that Bank reasonably elects and may use any reasonable averaging and attribution method. Section 3.8 Illegality of Eurodollar Rate Loans; Inability to Determine LIBOR Rate. If the Administrative Agent or any Bank, acting in its sole discretion, determines (i) that maintenance of any Eurodollar Rate Loan would violate any applicable Law or any rule, regulation, guideline or directive of any Governmental Authority applicable to any Bank or the Administrative Agent. whether or not having the force of law or (ii) before the commencement of an Interest Period after exerting reasonable efforts to obtain them, that deposits of a type and maturity appropriate to match fund a Eurodollar Rate Loan are not available, then the Administrative Agent shall suspend the availability of each interest rate option affected by such determination and any Eurodollar Rate Loan outstanding under every affected interest rate option shall automatically convert to a LIBOR Rate Loan: provided that if the LIBOR Rate cannot be determined for any reason, the availability of interest rates based thereon shall be suspended and all LIBOR Rate Loans shall automatically be converted to bear interest at a rate equal to (i) the Federal Funds Effective Rate plus (ii) 0.125% plus (iii) the Applicable Margin for LIBOR Rate Loans. ARTICLE 4. FUNDING PROVISIONS Notwithstanding any other inconsistent or contrary provision of this Agreement or any of the other Loan Documents: Section 4.1 Commitments Lapse Provision. The Banks' commitments to lend or fund (and all of the Obligors' correlative rights to borrow) under any of the Facilities now or hereafter existing under this Agreement for which any such commitment of any of the Banks to lend or fund (or any such right of the Obligors to borrow or receive funding) then exists, shall lapse 47 58 immediately, automatically and without notice upon the occurrence of (a) any default, event of default or similar occurrence, however denominated (a "Default") under any of the Loan Documents the occurrence of which gives the Administrative Agent or any of the Banks the right to exercise any remedy (regardless of whether its exercise has been stayed or enjoined by operation of Law or governmental act) or (b) any event ("Potential Default") that, with notice and/or the passage of time would ripen into or become a Default, until (1) each such Potential Default (if any) that occurred is cured before it ripens into a Default and (2) all such Defaults that have occurred (if any) have been waived in a writing signed by a Vice President or more senior officer of the Administrative Agent. In their sole discretion, the Banks may elect to continue funding on one or more occasions under any of their Facility notwithstanding any Default or Potential Default, and no such election shall be construed to be a reinstatement of any lapsed or suspended commitment, a waiver of any Default or Potential Default or a course of dealing from which the Obligors or anyone else may infer or construe any obligation on any Bank's or the Administrative Agent's part to defer exercising or to not exercise any remedy or to resume, continue or initiate any additional or other funding or purchasing beyond the specific funding(s) which the Banks have in fact already made. The provisions of this Section 4.1 are called the "Commitments Lapse Provision". Section 4.2 Application of Proceeds of Realization on Collateral. All Collateral secures all Obligations held by the Banks from time to time and any and all realizations whether by the Administrative Agent, the Collateral Agent, any of the Banks or any Person acting on behalf of any of them, on any Collateral, shall be applied Ratably to the payment of all of the Warehouse Notes and all other Obligations. Section 4.3 Application of Setoff Proceeds. The proceeds of the exercise of any right of setoff or banker's Lien that any Bank exercises against any of the Obligors' accounts with such Bank shall be applied (a) first, Ratably to the unpaid costs and expenses incurred and paid by the Administrative Agent, the Collateral Agent and the Banks for which the Obligors are liable to the Administrative Agent, the Collateral Agent and/or the Banks under this Agreement and the other Loan Documents, in the proportion that the outstanding balance of such costs and expenses reimbursement of which is owed to each Bank bears to the aggregate outstanding balances of all such unreimbursed costs and expenses owed to all Banks and (b) second, Ratably to the Warehouse Notes and all other Obligations. This provision shall not imply any obligation of either Obligor to maintain any deposit balances with any Bank. Section 4.4 Conditions Precedent. No Bank shall have any obligation to make any Loan unless and until all of the applicable conditions precedent stated in this Section shall have been satisfied. (a) Each Bank's obligation to make its part of the first Loan requested to be funded after the Effective Date is conditioned upon the Administrative Agent's receipt, of sufficient copies (other than the Warehouse Notes) for each Bank to receive one, of the following documents on or before the date the requested initial Loan is to be made, all of which must be 48 59 satisfactory to the Administrative Agent in both form and content and duly executed by all parties thereto: (1) this Agreement; (2) the Master Warehouse Notes; (3) UCC searches for each of the Obligors and the Guarantor, as debtor, in the office of the Secretary of State of Texas; (4) Termination statements for all existing financing statements shown on the UCC searches described in item (3) above that pertain to financings by Persons other than the Banks that will be repaid with the proceeds of any Facility and a release agreement in form satisfactory to Administrative Agent from Persons other than the Banks that will be repaid with proceeds of the Facility. (5) (A) Guarantor's certificate of incorporation issued by the Secretary of State of Delaware, (B) copies of Guarantor's bylaws certified by its corporate secretary or assistant secretary and (C) certificates of the Guarantor's good standing issued by the Secretary of State of the State of Delaware. (6) (A) Copies of each Obligor's articles of incorporation certified by the Secretary of State of the State of Texas, (B) copies of each Obligor's bylaws certified by its corporate secretary or assistant secretary and (C) a certificate of good standing issued by the Secretary of State of the State of Texas and (D) certificate of authority and franchise taxes paid issued by the Secretary of State of the State of Texas and the Texas Comptroller of Public Accounts. (7) resolutions of the board of directors of the Guarantor and each Obligor, certified, in each case, by its corporate secretary or assistant secretary, authorizing the execution, delivery and performance of all applicable Loan Documents and all other documents to be delivered by the Guarantor and/or each Obligor pursuant to this Agreement; (8) a certificate of the corporate secretary or assistant secretary of the Guarantor and each Obligor as to the incumbency and authenticity of the signatures of the officers of the Guarantor and each Obligor executing the applicable Loan Documents (the Administrative Agent shall be entitled to rely on each such certificate until a replacement certificate has been furnished to the Administrative Agent); (9) the opinion of counsel to the Obligors and the Guarantor, dated as of the Effective Date, addressed to the Administrative Agent and the Banks and substantially in the form of Exhibit E; and 49 60 (10) all fees due to the Administrative Agents or any Bank pursuant to this Agreement and any other letters or agreements between the Guarantor and/or the Obligors and any Bank or the Administrative Agent shall have been paid on the Effective Date. (b) Each Bank's obligation to make its part of any Loan pursuant to this Agreement is also conditioned upon satisfaction of each of the following additional conditions precedent: (1) the borrowing Obligor shall have delivered to the Administrative Agent a Loan Request completed and executed by the borrowing Obligor and otherwise conforming to the requirements of Section 2.14; (2) all uncertificated Mortgage-Backed Securities in which either Obligor has granted a Lien to the Collateral Agent for the benefit of the Banks shall have been recorded on the books of the Agent's designated securities intermediary as being owned by the Collateral Agent (and on the Collateral Agent's books as being held for the Banks) and all other Collateral in which either Obligor or the Guarantor has granted a Lien to the Collateral Agent (including all of the capital stock (common and, if any, preferred of all classes and any stock warrants or other rights) of the Company) shall have been pledged and physically delivered to the Collateral Agent and sufficiently in its or its designated bailee's possession to satisfy the UCC's requirement of possession for perfection of the Collateral Agent's Lien (for the benefit of the Banks) against such Collateral; (3) the Obligors' representations and warranties contained in this Agreement (other than those representations and warranties which by their express terms are confined to the date as of which they are initially made) shall be true and correct in all material respects on the date of such Loan as if republished and made on that date; (4) on the date of such proposed Loan, no event described in the Commitments Lapse Provision shall have occurred or would exist if the requested Loan were made and no such Facility shall have been terminated; provided that with respect to the first Loans, the condition described in this paragraph 4 shall be satisfied once the Debt under the existing 12/97 Facilities Agreement among Chase Texas Bank, National Association, formerly Texas Commerce Bank, National Association, as Agent, the Obligors and certain lenders have been repaid in full with the proceeds of such Loan. (5) if the requested Loan were made, the sum of (A) the amount of the Loan requested to be made by such Bank, plus (B) the aggregate outstanding balance of Loans made by such Bank plus (C) the total outstanding loans and other extensions of credit by such Bank to the Obligors and to every other Person whose loans and other extensions of credit from the Bank are required to be combined with the Obligors for purposes of any applicable legal lending limit would be no greater than the lowest legal lending limit established by any Governmental Authority and applicable to such Bank's loans and extensions of credit to the Obligors and to all other Persons whose loans and extensions of credit from that Bank are 50 61 required to be combined with the Obligors' for purposes of any such legal lending limit; provided, that each Bank, by executing this Agreement, represents to each of the other parties to this Agreement that (i) to the best of the current actual knowledge of that Bank's officers who are responsible for that Bank's participation in the Facility provided for in this Agreement and (ii) in reliance upon information furnished to such Bank by the Obligors and their respective officers and representatives concerning relationships between the Obligors and other credit customers of such Bank, that Bank's aggregate Committed Sum does not exceed any such legal lending limit; (6) the making of the Loan shall not be prohibited by any Law; (7) at the time the Loan is requested is made, the Banks and the Collateral Agent each shall have received all fees due and owing to it pursuant to the Loan Documents; (8) the Company is a wholly-owned Subsidiary of the Guarantor and New Am Inc. is a wholly-owned Subsidiary of the Company. Each Loan Request shall be deemed to constitute a representation and warranty by the borrowing, Obligor on the date of the requested Loan that the conditions specified in Subsections 4.5(b)(3), 4.5(b)(5) and 4.5(b)(7) are then currently satisfied. ARTICLE 5. THE OBLIGORS' WARRANTIES AND REPRESENTATIONS Each of the Obligors warrants and represents, to the extent applicable, to the Banks and the Collateral Agent today, and all such warranties and representations shall be deemed republished and reconfirmed as currently true by the applicable Obligor each time the applicable Obligor requests funding or offers to sell, as applicable, under any of the Facility, as follows: Section 5.1 Organization. Each of the Obligors is a corporation duly organized, legally existing and in good standing under the laws of the State of Texas, it has all requisite power and authority and all necessary licenses, permits, franchises and other authorizations to (i) own and operate its Property, (ii) carry on its business as now conducted, (iii) execute and deliver this Agreement, all other Loan Documents, each Loan Request, and all other instruments referred to or mentioned here or there to which each such Obligor is a party, (iv) carry out and comply with the terms of this Agreement, each other Loan Document, each Loan Request, and all other instruments referred to or mentioned here or there to which it is a party and (iv) consummate the transactions contemplated thereby; and each of the Obligors is duly qualified and authorized to do business and is in good standing as a foreign corporation in all jurisdictions wherein the Property owned or the business transacted by it makes such qualification necessary or appropriate, and where the failure to so qualify would result in a Material Adverse Effect. 51 62 Section 5.2 Corporate Action. All corporate action on each Obligor's part requisite for the due execution. delivery and performance of, and compliance with, this Agreement, all other Loan Documents, each Loan Request, and any instruments referred to or mentioned here or there to which each of the Obligors is a party, or requisite for the consummation of the transactions contemplated thereby, has been duly and effectively taken. This Agreement, each Loan Request, and each other Loan Document each constitutes the legal and binding obligation of the applicable Obligor, enforceable against such Obligor in accordance with its terms. Section 5.3 No Violations. Neither the execution and delivery of this Agreement, any other Loan Documents, any Loan Request, nor the consummation of the transactions contemplated by any of them, nor compliance with the provisions of any of them will conflict with, or result in a breach of, or a default under, any of the terms, conditions or provisions of any Law or of any contract, regulation, order, writ, injunction, judgment or decree of any court or Governmental Authority, domestic or foreign to which either Obligor is subject, or either Obligor's articles of incorporation or bylaws, or of any indenture, mortgage, deed of trust, promissory note. loan agreement or any other agreement or undertaking to which either Obligor is a party or by which such Obligor or any of its property may be bound or subject, or will result in the creation or imposition of any Lien upon such Obligor's Property, or will require any action. consent or approval of, or declaration of filing with, any Governmental Authority. Section 5.4 Approved Lender, Seller and Servicer. The Company is an FHA- and VA- approved lender and mortgagee and a GNMA-, FNMA- and FHLMC-approved issuer and servicer, in each case in good standing, and the Company currently satisfies and will continuously satisfy all applicable GNMA, FNMA and FHLMC net worth requirements. New Am Inc. is an FHA-approved lender and mortgagee and a FNMA-approved issuer and servicer, in each case, in good standing, and New Am Inc. currently satisfies and will continuously satisfy all applicable FNMA net worth requirements. Section 5.5 Obligors are not an Investment Company or Controlled by One. Neither Obligor is an "investment company" or "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 5.6 Obligors' Legal Compliance. The Obligors are in compliance, and will continue to observe and comply, in all material respects with all Laws of all Governmental Authorities (including ERISA). Section 5.7 Financial Statements Accurate. The Company's consolidated balance sheet of itself and its Subsidiaries (including New Am Inc.), as of December 31, 1998, and the consolidated statement of operations and cash flows of the Company as of December 31, 1998 heretofore furnished to the Banks, fairly present the consolidated financial condition and cash flows of the Company and its Subsidiaries (including New Am Inc.) as of December 31, 1998 and for the fiscal year then ended, all in conformity with GAAP consistently applied, and subsequent to the date of those Financial Statements, there has not been any Material Adverse Effect. 52 63 Section 5.8 Litigation. There is no litigation pending, or to the Obligors' knowledge, threatened, that, if determined adversely, to the Obligors, would adversely affect the execution, delivery or enforceability of this Agreement, any other Loan Documents, any Loan Request, any sale or conveyance of any Pool, any relevant custodial agreement, the pledge, transfer or assignment of any Pool, to the Administrative Agent or the Collateral Agent (as agent for the Banks) pursuant to this Agreement, or which would have a Material Adverse Effect. Section 5.9 Payment of Taxes. Each of the Obligors has filed (or caused to be filed) all required federal, state and local income, excise, property and other tax returns with respect to its and its Subsidiaries' operations, all of such returns are true and correct and each of the Obligors has paid or caused to be paid all taxes which are due and owing under applicable Law or as shown on such returns or on any assessment to the extent such taxes have become due, including all applicable FICA payments and withholding taxes. The amounts reserved as a liability for income taxes and other taxes payable in the Financial Statements heretofore furnished to the Banks are sufficient for payment of all unpaid federal, state and local income, excise, property and other taxes (whether or not disputed) of each of the Obligors, and its respective Subsidiaries accrued for or applicable to the period and on the dates of such Financial Statements and all prior years and periods, and for which each of the Obligors and its respective Subsidiaries may be liable in their own right or as transferee of the assets of other Persons or as successor to any other Person. Section 5.10 Title to Properties. Each of the Obligors has good, valid, insurable (in the case of real property) and marketable title to all of its Properties and assets (whether real or personal, tangible or intangible) reflected or referred to in the Financial Statements described in Section 9.3, except for such Properties and assets as have been disposed of since the date of such Financial Statements either in the ordinary course of business or because they were no longer used or useful in the conduct of its respective business, and all such Properties and assets are free and clear of all Liens, except as disclosed in such Financial Statements. Section 5.11 Eligibility of Collateral. By its delivery of a Loan Request and/or a collateral transmittal letter to the Agents, the borrowing Obligor represents and warrants that all documents submitted in connection with such Loan Request and collateral transmittal letter satisfy (or, in the case of a Wet Warehouse Loan Request, all documents to be submitted in connection with such Loan Request and collateral transmittal letter, will satisfy, prior to the expiration of the applicable time period for submitting such documents), the requirements of Section 2.14 applicable to a Loan Request and collateral transmittal letter of the type submitted and/or the type of Collateral submitted in connection with such Loan Request and collateral transmittal letter and that all Collateral submitted in connection with such Loan Request and collateral transmittal letter satisfies the eligibility requirements set forth in the Agreement for that type of Collateral, and, further that the Residential Mortgage File maintained by the borrowing Obligor in connection with any Pledged Mortgage contains, among other items, an appraisal mortgage title insurance with respect to the related real estate encumbered by such Pledged Mortgage, and a primary mortgage insurance policy with respect to Pledged Mortgages in which 53 64 the original loan-to-value ratio was greater than eighty percent (80%), except, in such latter case, for pledged VA Loans, and FHA Loans. Section 5.12 Year 2000 Compliance. All devices, systems, machinery, information technology, computer software and hardware, and other date sensitive technology necessary for Obligors to carry on their business as presently conducted and as contemplated to be conducted in the future are or will be in a condition such that no material disruption of Obligors' business operations will occur at the year 2000. ARTICLE 6. DEFAULTS AND REMEDIES If: Section 6.1 Note Payment Default. The Obligors shall fail to pay or prepay any principal of or interest on any Warehouse Note held by any of the Banks and all other amounts including, the Warehouse Facility Fee, the fees owing pursuant to Section 2.12, or the fee, now or hereafter owing under this Agreement or any of the other Loan Documents as and when due; or Section 6.2 Covenant Default. Default shall occur in the punctual and complete performance of any covenant of either Obligor, the Guarantor or any other Person contained in this Agreement or any other Loan Documents, except that the Obligors shall have fifteen (15) days after Default in the performance of the covenants set out in Sections 7.3(a) through 7.3(j), Section 7.8, Section 7.10, Section 7.13, and Sections 8.8 through 8.14, to cure any such Default before the Banks' remedies as set forth in this Article shall apply; or Section 6.3 Default on Other Obligation. Either Obligor or the Guarantor shall fail to pay at maturity, or within any applicable period of grace, any principal of or interest on any other obligation to any Person which obligation (as opposed to the amount of such delinquent payment) shall equal or exceed One Million Dollars ($1,000,000) or shall fail to observe or perform any term, covenant or agreement contained in any agreement or obligation by which it is bound for such period of time as would accelerate, or would permit its holder (or the holder of any obligation issued under it) to accelerate, the maturity of that or any other obligation; or Section 6.4 Violation of Law. Either Obligor or the Guarantor shall be in default under, or in violation of, any Law of any Governmental Authority having jurisdiction over either Obligor or the Guarantor or its assets or Property in any material respect; or Section 6.5 False Representation or Warranty. Any representation or warranty made in or in connection with the execution and delivery of this Agreement or any of the other Loan Documents shall prove to have been materially incorrect, false or misleading on the date as of which made; or 54 65 Section 6.6 Undischarged Final Judgment. Final judgment or judgments in the aggregate for the payment of money in excess of Five Hundred Thousand Dollars ($500,000), and which is uninsured, shall be rendered against either Obligor or the Guarantor and remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or Section 6.7 Lien Claimed or Held Invalid. Either Obligor or the Guarantor (or anyone claiming by, through or under either Obligor or the Guarantor) shall claim, or any court shall find or rule, that the Collateral Agent does not have a valid Lien on any security that may have been provided by either Obligor, the Guarantor or such other Person for any obligation under this Agreement or any of the other Loan Documents; or Section 6.8 Disposition, Encumbrance or Loss of Collateral. There is a sale, encumbrance or abandonment of any Property now or hereafter covered by this Agreement (except as contemplated by the Loan Documents) or any other mortgage, security agreement or other papers now or hereafter securing or guaranteeing any part of any obligation under this Agreement or any of the other Loan Documents, or the making of any levy on any of such Property or any seizure or attachment of it, or the loss, theft, substantial damage or destruction of any such Property exceeding the aggregate amount of $500,000; or Section 6.9 Liquidation, Etc. Order. Any order shall be entered in any proceeding against either Obligor or the Guarantor decreeing the dissolution, liquidation or split-up of either Obligor or the Guarantor, and such order shall remain in effect for thirty (30) days; or Section 6.10 Default under Other Loan Documents. Any default occurs under any other instrument now or hereafter securing or guaranteeing any part of any obligation under this Agreement or any of the other Loan Documents after the expiration of any applicable grace periods; or Section 6.11 Assignment for the Benefit of Creditors, Voluntary Bankruptcy. Either Obligor or the Guarantor shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business. estate or assets or shall commence any proceeding under any bankruptcy. reorganization. arrangement, insolvency, readjustment of debt, dissolution or liquidation Law of any jurisdiction, whether now or hereafter in effect; or Section 6.12 Involuntary Proceeding. Any such petition or application shall be filed or any such proceeding shall be commenced against either Obligor or the Guarantor and either Obligor or the Guarantor by any act or omission shall indicate approval of it, consent to it or acquiescence in it, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of either Obligor or the Guarantor or granting relief to either Obligor or the Guarantor or approving the petition in any such proceeding, and that order shall remain in effect for more than sixty (60) days; or 55 66 Section 6.13 General Failures, Writ of Attachment, Etc. Either Obligor or the Guarantor shall fall generally to pay its debts as they become due. or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part or all of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy; or Section 6.14 Fraudulent Concealment or Removal. The Obligors or the Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar Law, or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid or shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon any of its Property through legal proceedings or distraint which is not vacated within thirty (30) days from its effective date; or Section 6.15 Dissolution, Etc. There is dissolution, liquidation or termination of existence of either Obligor or the Guarantor or the conveyance, lease or other disposition of a substantial part of either Obligor's or the Guarantor's assets; or Section 6.16 Change of Control. Any Change of Control occurs; provided that acquisition of all of the authorized and issued capital stock of Guarantor by FirstCity Financial Corporation, a Delaware corporation, shall not constitute a Default, the Banks and the Agent hereby specifically consenting to the Change of Control that will result from that (but no other) change in the ownership of the capital stock of Guarantor; or Section 6.17 Material Adverse Change. Any event shall occur that would have a Material Adverse Effect on either Obligor or the Guarantor; then default shall have occurred under this Agreement, every one of the Warehouse Notes described or referred to in it and all other Loan Documents, including all renewals, extensions, rearrangements, increases or substitutions of them, and all of the Banks' obligations (if any are then outstanding) to fund any advance or payment to or for the account of either Obligor shall automatically and immediately lapse and the Administrative Agent at its option may - and at the direction of the Majority Banks shall - (a) without notice declare any or all of the Warehouse Notes and all of the Obligors' Obligations to each of the Banks to be, and thereupon they shall all forthwith become, immediately due and payable, together with all accrued interest on them and all unpaid Facility Fees or other fees theretofore incurred by the Obligors, without notice of any kind, notice of acceleration or of intention to accelerate, presentment, demand or protest, all of which each of the Obligors hereby expressly waives (provided, that such acceleration shall occur automatically and immediately upon the occurrence of any of the events described in Sections 6.11 or 6.12 with respect to either Obligor), or (b) proceed to protect and enforce the Banks' rights under this Agreement and any other Loan Documents, by any appropriate proceedings, and all Liens securing any and all 56 67 Obligations of the Obligors to the Banks, the Administrative Agent or any of them shall be subject to foreclosure in any manner provided for therein or provided for by applicable Law, as the Administrative Agent may elect. The Banks or the Administrative Agent may also elect to specifically enforce any covenant or agreement contained in this Agreement or in any of the Warehouse Notes or other Loan Documents, or to enforce any other legal or equitable right provided under this Agreement or in any of the Warehouse Notes or any other Loan Documents, or otherwise existing under any Law. No remedy, and no right or power, of the Administrative Agent or the Banks, or any of them, is intended to be exclusive of any other remedy, right or power, and each and every remedy, right and power shall be cumulative and in addition to every other remedy, right and power given hereunder or now or hereafter existing at Law or in equity, or by statute or otherwise, and the Administrative Agent's or any Bank's pursuit of any remedy or remedies shall not be construed as an election to waive or relinquish any other available remedy. ARTICLE 7. AFFIRMATIVE COVENANTS Until each of the Obligors has fully paid and performed all of its Obligations to the Banks under this Agreement and the Banks are no longer committed to make Loans under this Agreement, each of the Obligors agrees to keep, observe and perform the following affirmative covenants, to the extent applicable: Section 7.1 Use of Proceeds. Each of the Obligors agrees to use the proceeds of all Loans for proper corporate purposes in the ordinary course of such Obligor's business as it is presently being conducted. as represented and warranted in this Agreement, and for no purpose other than the respective purposes permitted by this Agreement. Section 7.2 Promptly Correct Escrow Imbalances. By no later than seven (7) Business Days after learning (from any source) of any material imbalance in any escrow account(s) maintained by either Obligor, the applicable Obligor will fully and completely correct and eliminate such imbalance. Section 7.3 Financial Statements and Other Reports. Each of the Obligors agrees to deliver to the Administrative Agent and (except for the weekly Investor Commitment required by clause (a) and the weekly schedule of Eligible Receivables required by clause (j) of this Section which are to be furnished only to the Administrative Agent) to each of the other Banks: (a) by no later than Wednesday of each week, such Obligor's weekly Investor Commitment (described in Section 2.13) for the preceding week in form substantially similar to those heretofore furnished to the Administrative Agent, sufficient in detail to allow the Administrative Agent to reconcile such reports with Investor Commitments held in trust by the Obligors for the Administrative Agent, 57 68 (b) promptly -- and in any event within thirty (30) days -- after the end of each calendar month, a management report substantially in the form of Schedule 3 regarding such Obligor's commitment position, pipeline position and hedging position, prepared as of the end of such month; (c) within thirty (30) days after the end of each calendar month, the Obligors' and the Guarantor's monthly Financial Statements, including a balance sheet as of the end of such month and an income statement for such month and for the fiscal year to date, prepared substantially in accordance with GAAP subject to normal year-end adjustments. and also including copies in forms substantially similar to those heretofore furnished to the Administrative Agent of each of the Obligors' portfolio delinquency reports for such month; (d) as soon as available and in any event within ninety (90) days after the last day of each fiscal year of each of the Obligors and the Guarantor (or longer if, and for the same period that, GNMA, FNMA, FHLMC and HUD extend the time for such Obligor to file audited Financial Statements with them, but in no event beyond one hundred twenty (120) days after such fiscal year end), each Obligor's and the Guarantor's annual Financial Statements, and including a balance sheet and a statement of income, retained earnings and cash flows for such fiscal year and the immediately preceding fiscal year in comparative form and in reasonable detail, and all notes to them, all prepared in conformity with GAAP and accompanied by a report and opinion, without material disclaimer or qualification, of KPMG Peat, Marwick or another firm of certified public accountants reasonably acceptable to and approved by the Administrative Agent, stating that such accountants have conducted audits of such Financial Statements in accordance with generally accepted auditing standards and that, in their opinion, such Financial Statements present fairly, in all material respects, the financial position of the applicable Obligor or the Guarantor as of the date thereof and the results of its operations and cash flows for the periods covered thereby in conformity with GAAP -- each such annual auditor's report and opinion shall either include or be accompanied by (1) such accountants' statement that their examination included tests relating to Mortgage Loans serviced for others in accordance with the requirements of the "Uniform Single Audit Program for Mortgage Bankers" and (2) such accountants' report made in accordance with the requirements of such program of exceptions or errors, if any, in such Obligor's or the Guarantor's records, and Obligors shall forward to Administrative Agent such accountants' management letter within thirty (30) days after Obligors' receipt thereof; (e) as soon as available and in any event within forty-five (45) days after the end of (1) each month a current written appraisal by the management of each Obligor, and (2) each fiscal quarter of each fiscal year of each Obligor, a current written appraisal by an independent appraiser (nationally known as expert in the evaluation of Loan Servicing Rights and acceptable to the Administrative Agent in the exercise of its sole discretion), in each case appraising the fair market value of the Owned Servicing Rights of such Obligor as of the end of such month or fiscal quarter; such appraisal shall be addressed to the Administrative Agent and shall be in a form reasonably acceptable to the Administrative Agent, and if the opinion of value in any such appraisal is expressed as a range of values, then for purposes of this Agreement, the 58 69 appraised value shall be deemed the midpoint (the average of the limits) of the range; provided, that the Administrative Agent (at the discretion of the Majority Banks) has the right to request an independent appraisal more frequently than quarterly; and provided further that for purposes of this Agreement, the value of the Obligors' commercial mortgage loan Servicing Rights shall in no event exceed the lesser of their appraised value or twenty basis points (0.020%) of the aggregate principal sum of the Obligors' commercial mortgage loan servicing portfolio on any day; (f) together with each delivery of Financial Statements pursuant to Sections 7.3(c) and 7.3(d), a Compliance Certificate, properly completed which, among other things required by such form: (1) sets forth in reasonable detail all calculations necessary to show that the Obligors are in compliance with the requirements of this Agreement, or if the Obligors are not in compliance, showing the extent of noncompliance, stating the period of noncompliance and specifying what actions the Obligors have taken and propose to take with respect to it; and (2) sets forth in sufficient detail satisfactory to the Administrative Agent the delinquency status of all Serviced Mortgages (calculated as described in Section 10.14); and (3) sets forth in sufficient detail satisfactory to the Administrative Agent, the aggregate principal amount of each Obligor's Debt as of the end of the time period to which the accompanying Financial Statements relate; (g) all other delinquency reports maintained by the Obligors and such other reports in respect of the Collateral deposited with or filed by or for the Administrative Agent pursuant to this Agreement or any other Loan Document, in such detail and when and as the Administrative Agent may reasonably request from time to time; (h) within thirty (30) days after such Obligor's receipt of such Obligor's annual HUD report, a copy of such HUD report and such Obligors' response to it; (i) within thirty (30) days after such Obligor's receipt of such Obligor's GNMA, FNMA or FHLMC audit, a copy of such GNMA, FNMA or FHLMC audit and such Obligor's response to it; (j) by no later than Wednesday of each week, such Obligor's weekly, detailed computer generated schedule of all Eligible Receivables; (k) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, an aging report showing how long Servicing Rights have been pledged to Collateral Agent for the benefit of the Banks. 59 70 (l) copies of all other regular or periodic financial and other reports, if any (including any warranty or indemnity claim reports), that either Obligor or the Guarantor shall file with GNMA, FNMA, FHLMC, HUD or VA or any other Governmental Authority, in such detail and when and as the Administrative Agent may reasonably request from time to time; and (m) From time to time, with reasonable promptness, such further information regarding each Obligor's or the Guarantor's business, operations, properties or financial condition as the Administrative Agent or any Bank may reasonably request. Section 7.4 Maintenance of Existence, Conduct of Business. Each of the Obligors agrees to (a) preserve and maintain its corporate existence in good standing and all of its material rights. privileges, licenses and franchises necessary or desirable in the normal conduct of its business. including its eligibility as mortgagee, seller/servicer or issuer as described in Section 5.4, and (b) make no material change in the nature or character of its business. Section 7.5 Compliance with Applicable Laws. Each of the Obligors agrees to comply with the requirements of all applicable Laws which if breached by such Obligor could reasonably be expected to result in a Material Adverse Effect, except only where such Obligor is diligently contesting such Laws in good faith and by appropriate proceedings with appropriate reserves for any potential associated liabilities which reserves are both (a) established in accordance with GAAP and (b) reasonably determined to be adequate by such Obligor's Board of Directors. Section 7.6 Perform Agreement. Each of the Obligors will do and perform every act and discharge every obligation under the Loan Documents and in the manner here and there specified. Section 7.7 Books. At any reasonable time, upon the Administrative Agent's or any Bank's request, each of the Obligors will permit the Administrative Agent or any Bank or their respective agents or representatives to examine such Obligor's books of account, records, reports and other papers and make copies and extracts from them, inspect such Obligor's Property and discuss such Obligor's business, finances, accounts and affairs with its chief executive or chief operating officer and independent certified public accountants and each Obligor hereby consents to and approves of any such discussions and examinations previously held. Each of the Obligors agrees to provide its accountants with a copy of this Agreement (including' each supplement, amendment or restatement of it made, and each from time to time hereafter made promptly after its execution) and will instruct its accountants to answer candidly any and all questions that the officers or any authorized representatives of the Administrative Agent or any Bank may address to them in reference to such Obligor's financial affairs or condition. Each of the Obligors may have its representatives in attendance at any meetings between the officers or other representatives of the Administrative Agent or any Bank and such Obligor's accountants held in accordance with this Section. 60 71 Section 7.8 Investor Commitments. With respect to Eligible Mortgages, at all times maintain in effect Investor Commitments in an aggregate amount of at least one hundred percent (100%) of the aggregate unpaid principal balances or amounts of such Eligible Mortgages, excluding Other Loans and Defective Mortgages. Section 7.9 Notice. Each of the Obligors agrees to give written notice to the Administrative Agent and the Banks of any of the following that may occur immediately after such Obligor first learns of it: (a) the occurrence of a Potential Default or a Default. (b) the institution or threat of any action, suit or proceeding by or against either Obligor in or before any Governmental Authority ( excluding routine HUD or VA audits not undertaken for cause) involving a claim of $50,000 or more. (c) the filing, recording or assessment of any federal, state or local tax Lien against such Obligor which could reasonably be expected to have a Material Adverse Effect. (d) such Obligor's failure for any reason to continuously satisfy all requirements for maintaining its eligibility as an approved mortgagee, seller/servicer or issuer as described in Section 7.4, or the suspension, revocation or termination of such eligibility for any reason. (e) any event or condition that either currently has a Material Adverse Effect or (either by itself or in combination with other existing or reasonably anticipated circumstances) if adversely determined, could have a Material Adverse Effect. Section 7.10 Pay Debt, Taxes, Etc. Each of the Obligors agrees to pay when due and before delinquency (a) all taxes and other governmental charges or levies imposed on such Obligor, its income or profits or any of its Property, (b) all lawful claims for labor, materials and supplies which, if unpaid, might become a Lien upon any of its Property and (c) all Debts, accounts, liabilities, debts and charges now or hereafter owing by such Obligor. Each of the Obligors agrees to maintain appropriate accruals and reserves for all Debts and all other liabilities, debts and charges in a timely fashion in accordance with GAAP. Provided. that each Obligor may delay paying any such taxes, levies, claims, accounts, Debts or other liabilities, debts and charges (excluding those owing to the Banks, all of which must be paid when due) if, to the extent that and for so long as (1) such Obligor is contesting their validity diligently, in good faith and by appropriate proceedings, (2) such Obligor has posted such bond or other security as shall be fully effective to prevent or stay any attachment, garnishment, sequestration or seizure of any of such Obligor's Property during the pendency of such proceedings, (3) such Obligor has set aside on its books adequate reserves in accordance with GAAP and (4) such Obligor pays such taxes, etc. before any of such Obligor's Property can lawfully and effectively be garnished, attached or sold to secure or satisfy them and before any judgment in respect of them against such Obligor or any of its Property becomes final. 61 72 Section 7.11 Insurance. Each of the Obligors agrees to maintain (a) errors and omissions insurance or mortgage impairment insurance and blanket bond coverage with such companies and in such amounts as satisfy prevailing GNMA, FNMA, FHLMC, FHA and VA requirements and (b) liability insurance and fire and other hazard insurance on its Properties with responsible insurance companies, in such amounts and against such risks as is customarily carried by similar businesses operating in the same vicinity. Each of the Obligors agrees to furnish evidence of such insurance to the Administrative Agent upon request without charge promptly after a request made from time to time by the Administrative Agent. Section 7.12 Other Loan Obligations. Each of the Obligors agrees to perform all obligations under the terms of each loan, credit or similar agreement, promissory note, mortgage, security agreement, indenture or other debt or security instrument by which such Obligor is bound or to which it or any of its Property is subject, if the failure to perform such obligations could have a Material Adverse Effect (either by itself or in combination with other existing or reasonably anticipated circumstances). Section 7.13 Covenants Concerning Collateral. Each of the Obligors agrees to: (a) Service (or cause to be serviced) all Mortgage Loans included in the Collateral which such Obligor has the right or obligation to service, in accordance with standard industry requirements and all applicable GNMA, FNMA, FHLMC, FHA and VA requirements, including taking all actions necessary to enforce the obligations of the obligors under such Mortgage Loans. (b) Service (or cause to be serviced) in accordance with all applicable contractual and other requirements all Mortgage Loans and commercial mortgage loans which (1) back Mortgage-Backed Securities included in the Collateral and (2) such Obligor has the right or obligation to service. (c) Timely comply in all respects with all terms and conditions of all Investor Commitments covering Collateral (and any renewals, extensions or modifications of them or substitutions for them), and cause the Collateral covered by and intended to be sold under each Investor Commitment to be delivered to the Qualified Investor who issued the Investor Commitment before its expiration in the manner and order contemplated by the Investor Commitment. (d) Maintain, at such Obligor's principal office, in trust, for the benefit of the Administrative Agent and the Banks, the originals (or copies in any case where the original has been delivered to the Administrative Agent) of all Residential Mortgage Notes, recorded Residential Mortgages included in Collateral and Investor Commitments related to them, all insurance policies and all related papers, as well as all files, surveys, certificates, correspondence, appraisals (to the extent required by the policies of any Qualified Investor), computer programs, tapes, disks, cards, accounting records and other information and data relating to the Collateral. 62 73 Upon the Administrative Agent's reasonable request, such Obligor will promptly make them conveniently available to the Administrative Agent. (e) Warrant and forever defend to the Administrative Agent, the Banks and their respective successors and assigns, (1) title to the Collateral and (2) the Liens granted by this Agreement and the other Loan Documents. (f) Promptly discharge and perform all of such Obligor's obligations with respect to any of the Collateral and all Investor Commitments relating to it. (g) Upon request by the Administrative Agent from time to time, expeditiously apply for and, if such counter-parties are willing to make such agreements with an Obligor (each of the Obligors agrees in good faith to urge them to do so), to execute such acknowledgment agreements and related agreements with GNMA (if any such agreements with GNMA are both available and deemed by the Administrative Agent to be necessary), FNMA, FHLMC and other counterparties to Loan Servicing Agreements as are necessary or appropriate, in the Administrative Agent's opinion, to achieve, maintain or improve establishment and perfection of the Collateral Agent's security interest in collateral intended to be covered by the Servicing Rights Security Agreement as security for all of such Obligor's present and future Obligations to the Banks. Section 7.14 Employee Benefit Plans. Each of the Obligors agrees to promptly furnish to the Administrative Agent: (a) Within ten (10) Business Days after the occurrence of a Reportable Event with respect to any Plan, a copy of any materials required to be filed with the PBGC with respect to such Reportable Event. (b) A copy of any notice of intent to terminate a Plan, no later than the date such notice is required to be provided to participants of such Plan under Section 404 1 (a)(2) of ERISA and copies of any notices of noncompliance received from the PBGC under Section 4041(b)(2)(C) of ERISA, within ten (10) Business Days after such Obligor's receipt of such notice. (c) Not later than ten (10) Business Days after its receipt by such Obligor, any ERISA Affiliate of such Obligor or the administrator of any Plan, a copy of any notice to such Obligor or such ERISA Affiliate that the PBGC has instituted proceedings to terminate such Plan or to appoint a trustee to administer such Plan. (d) A statement from a vice president or more senior officer of such Obligor describing any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of any Plan or for the appointment of a trustee to administer any Plan, within ten (10) Business Days after such Obligor knows or has reason to know such event or condition exists. 63 74 (e) Within ten (10) Business Days after its receipt by such Obligor or any ERISA Affiliate of such Obligor, a copy of any notice concerning the imposition of any withdrawal liability under Section 4202 of ERISA. Section 7.15 Benefit Plan Obligations. Each of the Obligors agrees to reduce future contributions or benefits to each Plan to the extent (if any) (a) necessary to avoid the occurrence of a Default and (b) that such reduction may be effected without (1) causing a "partial termination" as that term is used in Section 411 (d)(3) of the Internal Revenue Code and its related regulations and (2) causing the Plan to become disqualified or violating ERISA. Section 7.16 Further Assurances. Each of the Obligors agrees to promptly cure any defects in the execution and delivery of any of the Loan Documents. Each of the Obligors agrees to do, execute, acknowledge and deliver (or cause to be done, executed, acknowledged and delivered) at its own cost and expense, all such further acts, documents and assurances as the Administrative Agent in its discretion shall request or require to more fully, completely or effectively (a) state the obligations intended to be stated in the Loan Documents, (b) effect the pledge and assignment to the Collateral Agent of the Collateral intended by the Loan Documents to be pledged and assigned or which such Obligor may be (or may hereafter become) bound to pledge or assign to the Collateral Agent, (c) perfect any transfer, conveyance or security interest created or intended to be created under the Loan Documents, or (d) carry out the intention or facilitate the performance of the terms of this Agreement and the other Loan Documents. Without limitation, each of the Obligors agrees to immediately execute and deliver to the Administrative Agent (or its designee) upon written request all such other and further security agreements, financing statements and other papers in compliance with, or accomplishment of, such Obligor's promises and obligations in the Loan Documents, as the Administrative Agent shall request from time to time, and to furnish favorable written opinions of counsel as to the validity and enforceability of this Agreement and the other Loan Documents and the validity, enforceability, perfection and priority of any Lien against the Collateral intended by the Loan Documents to be pledged and assigned, or that such Obligor may be (or may hereafter become) bound to pledge or assign, to the Collateral Agent, containing only such exceptions and qualifications as such counsel requires and as are reasonably acceptable to the Collateral Agent and its legal counsel. Within ten (10) Business Days after the Effective Date, Obligors shall deliver to Administrative Agent (a) certificates of authority and good standing issued or to be issued by the appropriate Governmental Authority in each state in which the Guarantor does business and where either the Guarantor is authorized to do business or where doing business without being duly authorized would potentially subject the Guarantor to a Material Adverse Effect, each dated no less recently than thirty (30) days prior to the date of delivery and (b) certificates of authority and good standing issued or to be issued by the appropriate Governmental Authority in each state in which each Obligor does business and where either each Obligor is authorized to do business or where doing business without being duly authorized would potentially subject each Obligor to a Material Adverse Effect, each dated no less recently than thirty (30) days prior to the date of delivery. Within thirty (30) days after the Effective Date, Obligors shall deliver to 64 75 Administrative Agent the opinion of regulatory counsel to the Obligors and the Guarantor, addressed to the Administrative Agent and the Banks in form and substance acceptable to Administrative Agent. ARTICLE 8. NEGATIVE COVENANTS Until each of the Obligors has fully paid and performed all of its Obligations to the Banks under this Agreement and the Banks are no longer committed to make Loans under this Agreement, each of the Obligors agrees to keep, observe and perform the following negative covenants, to the extent applicable: Section 8.1 No Change of Business. Each of the Obligors agrees not to engage to any material extent in any line of business other than the lines of business in which such Obligor and its Subsidiaries are regularly engaged on the Effective Date, and the Obligors have disclosed all of such lines of business to the Banks. Section 8.2 No Other Investments. Each of the Obligors agrees not to make Investments other than in the normal course of such Obligor's business, as presently conducted or as changed in accordance with this Agreement. Section 8.3 No Other Debt. Without first obtaining the specific written consent of Majority Banks, each of the Obligors agrees to neither directly nor indirectly create, nor permit the Guarantor to create, any Debt (or suffer any Debt to exist) except (a) Debt to the Banks under this Agreement, (b) Debt under the Permitted Facilities Agreements; (c) Debt under additional warehouse facilities not exclusive to Banks of up to $50,000,000 made available by any lender to Obligors so long as the Collateral Agent is the only custodian with respect thereto (the Administrative Agent agrees to give notice to the Banks if and when Administrative Agent receives notice from time to time that such Debt has been incurred), (d) Debt of less than an aggregate Five Hundred Thousand Dollars ($500,000) incurred in the ordinary, course of business and (e) Debt under mortgage gestation repurchase agreements pursuant to the express provisions of which the relevant purchaser(s) has no recourse to the Company. Section 8.4 Limitation on Dividends. Each of the Obligors agrees to take no action that would result in such Obligor's declaring dividends, distributions or stock redemptions in any fiscal year except that if (and only if): (a) no Potential Default has occurred that has not been cured before it has become a Default; (b) no Default has occurred that has not been declared in writing by the Administrative Agent to have been cured or waived; and 65 76 (c) the Obligors' net income as of the end of the most recent calendar month earned during the fiscal year during which such calendar month occurs is at least $1, excluding $10,000,000 in non-recurring restructuring provision expenses recorded during the second quarter of fiscal year 1999 from the sale of GNMA and other non-performing assets and from the closure of production offices and associated headcount reduction costs; and costs and expenses incurred in restructuring Debt during the second quarter of fiscal year 1999. (d) after giving effect to such dividend payment (1) the Obligors' cash remaining on hand after such payments plus (2) the Mortgage Loan Values of all Eligible Mortgages owned by the Obligors and that have not been pledged or borrowed against, totals at least Ten Million Dollars ($10,000,000); then such Obligor may declare and pay the following dividends to the Guarantor: (1) such dividend (if any) as is reasonably required to pay the cash federal income tax amount due and payable by the Obligors' and the Guarantor's consolidated corporate group (not to exceed, however, the cash tax amount that would be due if such Obligor were to file and pay its own tax return and taxes taking into account the tax benefit of the Obligors' and the Guarantor's filing consolidated tax returns, including the Guarantor's interest expense deductions); (2) if either Obligor shall have incurred Subordinated Debt, then no dividend shall thereafter be declared or paid until such Subordinated Debt shall have repaid or until there shall have been a conversion of that Subordinated Debt into common stock of the applicable Obligor, after which a dividend of up to twenty-five percent (25%) per annum of the Obligors' after-tax net income may be declared and paid, and (3) any other dividend so long as Obligors notify Administrative Agent that such dividend will be made at least one day before it is made and with such notice deliver to Administrative Agent an officers certificate certifying that the conditions described above have been satisfied. Section 8.5 Minimum Adjusted Tangible Net Worth. The Obligors agree to neither suffer nor permit their Adjusted Tangible Net Worth at any time to be or become less than Sixty- five Million Dollars ($65,000,000). Section 8.6 Maximum Debt to Adjusted Tangible Net Worth. The Obligors agree to neither suffer nor permit the ratio (measured at the end of each month on or after the Effective Date) of (a) Total Debt for the month just ended to (b) the Obligors' Adjusted Tangible Net Worth for the month just ended to be greater than the ratio of 10.00 to 1.00. Section 8.7 Limitations on Transactions with Affiliates. 66 77 (a) The Obligors agree to neither amend, modify nor change, in any respect that would have a Material Adverse Effect (either by itself or in combination with other existing or reasonably anticipated circumstances), any material agreement or instrument, whether now or hereafter existing, pursuant to which the Obligors may incur Debt to an Affiliate (the Obligors acknowledge that they may do so only with the Administrative Agent's consent), or to take, suffer or permit any act or omission in respect of any such Debt to any Affiliate that would have that effect. For purposes of this Section, any of the following will constitute a Material Adverse Effect per se and without regard to any other conditions, circumstances or considerations: (1) any increase in the effective interest rate applicable to any of the Obligors' Debt to an Affiliate. (2) any direct or indirect increase in the amount or frequency of any principal payments on such Debt, including any voluntary or involuntary prepayment of such Debt. (3) any acceleration of the maturity of any part of such Debt. (4) any prepayment of or agreement to accelerate, the maturity of any part of such Debt. (b) The Obligors agree not to incur any Debt to any Affiliate or otherwise undertake or engage in any other transaction with an Affiliate except Debt incurred upon fair and reasonable terms no less favorable than the Obligors could obtain in a comparable arm's-length transaction with a Person who is not an Affiliate and that does not violate or result in a violation of Sections 10.3, 10.5, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12 or 10.13. (c) The Obligors agree neither to directly or indirectly guarantee any Debt of the Guarantor or any Debt of any other Affiliate nor to suffer or permit the Guarantor to directly guarantee any Debt of its Affiliates except for (1) the Guaranty and (2) guarantees of recourse Loan Servicing Rights in an amount not to exceed five percent (5%) of the aggregate principal amount of the Obligors' and their Affiliates Serviced Mortgages portfolio. (d) Except for commissions and bonuses paid to officers and employees in the ordinary course of business, the Obligors agree to make no advances, loans or distributions in excess of an aggregate One Hundred Thousand Dollars ($100,000) to its officers, employees or shareholders without the Administrative Agent's prior written consent. (e) The Company agrees to issue no additional capital stock without the Administrative Agent's prior written consent and unless it is pledged and delivered when issued to the Administrative Agent as Collateral. Section 8.8 Limitation on Unmarketable Loans. The Obligors agree not to own at any time more than Five Million Dollars ($5,000,000) in aggregate principal amounts of Mortgage 67 78 Loans that, for any reason are not eligible for sale in the regular secondary market for Residential Mortgage Loans; provided that, for this Section's purposes, Mortgage Loans whose purchase by the Obligors is financed under the Foreclosure Receivables Sub-subline, the Mortgage Repurchase Subline and the Other Loan Subline shall not be considered ineligible for sale as aforesaid. Section 8.9 No Uncovered Commercial Loans, Etc. Except as otherwise provided in this Section or as approved in writing by the Administrative Agent on a case-by-case basis, the Obligors agree not to make or acquire after the Effective Date any direct outright ownership interest, participation interest or other creditor's interest in any commercial real estate loan, personal property loan, oil and gas loan, commercial loan, wrap-around real estate loan not subject to a valid Investor Commitment, unsecured loan, acquisition loan, development loan, construction loan (except only for construction loans that (a) are participated in by another reputable financial institution at the time of their initial funding to the extent of at least ninety-nine percent (99%) of the amount committed to be lent and (b) FNMA or another Qualified Investor approved by the Administrative Agent for that purpose has issued a valid and enforceable commitment to purchase after the construction financed has been completed or (c) made pursuant to the ICF Agreement) or unimproved real estate loans except for such loans made pursuant to the ICF Agreement. Section 8.10 Loss of Eligibility. Each of the Obligors agrees not to take or omit to take any act that would result in the suspension or loss of any of its status with any of GNMA, FNMA, FHLMC, VA or FHA as an eligible mortgagee, seller/servicer and issuer as described in Section 5.4. Section 8.11 Fiscal Year Accounting. Neither Obligor will change its fiscal year or method of accounting unless and until required or recommended by GAAP and then only after giving notice and a written explanation of each such change and the reasons for it to the Administrative Agent and the Banks at least thirty (30) days before the change becomes effective. Section 8.12 Loans, Advances and Investments. Each of the Obligors agrees (a) to neither make nor hold any loan, advance or capital contribution to any Person (or for the account or benefit of any Person) or any investment in any Person (including any investment in excess of One Million Dollars ($1,000,000) in all Subsidiaries), (b) to neither purchase nor otherwise acquire any Person's capital stock, securities or evidence of debt (collectively, "Investments") and (c) to not otherwise acquire any interest in any Person or control of any Person, except (if and only if the making of an Investment described below would not violate any other provision of this Agreement or have a Material Adverse Effect) the following: (1) Mortgage Loans. (2) Investments in Qualified Investment Securities. 68 79 (3) Any acquisition of securities or evidence of debt of others when acquired by such Obligor in settlement of accounts receivable or other debts arising in the ordinary course of business, if the aggregate amount of any such securities or evidence of debt is not material to such Obligor's financial condition according to GAAP. (4) Any acquisition in the ordinary course of such Obligor's business of (A) servicing portfolios and related assets, (B) Mortgage-Backed Securities, (C) Mortgage Loans or (D) businesses for the purpose of increasing Mortgage Loan production, and related transactions. Section 8.13 Actions with Respect to Pledged Mortgages. (a) Each of the Obligors agrees to neither compromise, extend nor (except in accordance with the provisions of the Pledged Mortgages or to correct an error) adjust payments on any Pledged Mortgage, accept a conveyance of mortgaged Property in full or partial satisfaction of any Pledged Mortgage or (except against full repayment of the affected Residential Mortgage) release any Residential Mortgage securing or underlying any Pledged Mortgage. (b) Neither Obligor will agree to the amendment, termination or pairing off of any Investor Commitment or to the substitution of a different Investor Commitment for an Investor Commitment, if such amendment, termination, pairing off or substitution may reasonably be expected (as determined by the Administrative Agent) to have a Material Adverse Effect (either by itself or in combination with other existing or reasonably anticipated circumstances). (c) Neither Obligor will transfer, sell, assign nor deliver to any Person other than the Collateral Agent any Pledged Mortgage other than pursuant to Investor Commitments. (d) Neither Obligor will grant, create, incur, assume, permit or suffer to exist any Lien upon any Pledged Mortgage except for (1) Liens granted to the Collateral Agent or (2) such non-consensual Liens (if any) as may be deemed to arise by operation of law pursuant to any Investor Commitment. Section 8.14 Cancellation of Loan Servicing Rights. Each of the Obligors agrees to neither suffer nor permit the cancellation for cause of Twenty-five Million Dollars ($25,000,000) or more of Loan Servicing Rights. Section 8.15 Continuous Compliance. Notwithstanding that the Obligors' compliance with most of the financial covenants set forth in Sections 10.5 through 10.14 is provided in such Sections to be measured periodically, the Obligors agree to use their best good faith efforts to comply with each of those financial covenants at all times and continuously for so long as this Agreement is in force. 69 80 ARTICLE 9. AGREEMENTS CONCERNING THE ADMINISTRATIVE AGENT AND THE BANKS Section 9.1 Authorization and Action. Each of the Banks hereby irrevocably appoints GFB as the Administrative Agent under this Agreement and the other Loan Documents and authorizes the Administrative Agent to act on such appointing Bank's behalf and to exercise such powers under this Agreement and all other Loan Documents as are specifically delegated to or required of the Administrative Agent by their terms, together with all reasonably incidental powers. If the Administrative Agent (in such capacity) (a) receives any material writing from either Obligor (including any report or statement required by any of the Loan Documents), (b) receives any default notice from any Bank alleging or relating to any Default by either Obligor or (c) gives any Default notice to either Obligor pursuant to the terms of any of the Loan Documents, then in each such instance, the Administrative Agent shall promptly forward copies of such material writing or Default notice to the other Banks. As to any matter not expressly provided for by this Agreement and all other Loan Documents (including enforcement or collection of any Warehouse Note and foreclosure on any Collateral for any or all of either Obligor's present or future Obligations under the Loan Documents), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the joint instructions of all of the affected Banks, and such instructions shall be binding upon all Banks; provided, that the Administrative Agent shall not be required to take any action that it reasonably believes may (1) expose it to personal liability or (2) be contrary to this Agreement, any other Loan Documents or applicable requirements of Law. The Administrative Agent may (but shall not be under any obligation to) propose to take action or actions under this Agreement and the other Loan Documents in a notice to the other affected Banks; unless otherwise directed by the other affected Banks within ten (10) Business Days after the date of such notice, the Administrative Agent may (but shall not be obligated to) take the action or actions proposed in such notice and the Administrative Agent shall be fully protected in so acting as if it had received instructions to take such action or actions from the other affected Banks; provided that without the other affected Banks' approval, the Administrative Agent: shall not (A) declare in writing that a Default that has occurred under this Agreement or any other Loan Documents has been waived or cured, (B) consent to any merger or consolidation of either Obligor with or into another Person that would have the effect described in clause (a)(2) or (b)(2), as applicable, of this Agreement's definition of "Change of Control", or (C) declare the maturity of any Warehouse Note accelerated, foreclose or direct Collateral Agent to foreclose on any Collateral or exercise any of the Banks' other material remedies after the occurrence of any Default unless such actions set forth in this clause (C) are (i) reasonably susceptible of being rescinded without materially and adversely affecting the other Banks or any of the Collateral if the other affected Banks should elect to have the Administrative Agent rescind them or (ii) actions that the Administrative Agent, acting reasonably in light of the circumstances then prevailing and known to the Administrative Agent, shall deem necessary or appropriate to take on an urgent basis in order to protect or preserve Collateral or to protect the rights or interests of the Banks. Each Bank hereby (i) authorizes Administrative Agent to execute and deliver the Warehouse Pledge Agreement and to appoint Bank One, Texas, N.A., to act as collateral agent and representative (within the meaning of Section 9.105(13) of the UCC) for each Bank under the Warehouse Pledge 70 81 Agreement, the Servicing Rights Security Agreement, the Receivables Security Agreement and the Stock Pledge Agreements and (ii) authorizes Administrative Agent and Collateral Agent to release Collateral as expressly provided in this Agreement. Section 9.2 Employment of Others by the Administrative Agent. The Administrative Agent may execute and perform any of its duties under the Loan Documents by or through agents other than (a) either Obligor or (b) any of such Obligor's Affiliates or (c) any of such Obligor's attorneys, and shall be entitled to rely (and shall be protected in reasonably relying) on the advice of such agents and attorneys concerning all matters pertaining to its duties under the Loan Documents, and, except as otherwise provided in Section 9.3 no Agent shall be responsible for the negligence or misconduct of any such agents and attorneys selected by it with reasonable care. Each Bank recognizes and understands that if neither the Administrative Agent nor the Collateral Agent shall service any Collateral consisting of loans secured by mortgages and neither Administrative Agent nor Collateral Agent, as applicable, has adequate facilities (and neither the Administrative Agent nor the Collateral Agent shall have any obligation to develop adequate facilities) to service such Collateral, and that after the occurrence of any Default, it will be necessary for the Administrative Agent or Collateral Agent, as applicable, to contract with a third party to service such Collateral and the fees to be paid for such services will be treated as expenses payable out of the income and proceeds realized from such Collateral having priority over other applications of such income and proceeds pursuant to the Loan Documents. The Administrative Agent will identify any such servicing agent selected by the Administrative Agent or Collateral Agent for such purpose by written notice to the Banks, and may engage and continue to employ such servicing agent unless and until the Majority Banks notify the Administrative Agent in writing that they disapprove of such servicing agent so selected, in which event the Administrative Agent shall promptly engage such other servicing agent as shall be approved in writing by all of the Banks (including GFB) and replace the servicing agent so originally selected. Section 9.3 No Liability. Except in the case of its, his or her own (or own agent's) fraud, gross negligence or willful misconduct, IT BEING SPECIFICALLY INTENDED THAT THE RELEASED PERSONS (AS DEFINED BELOW) BE HEREBY RELEASED FROM LIABILITY FOR THEIR OWN SIMPLE NEGLIGENCE, the Administrative Agent, the Collateral Agent, Banc One Capital Markets, Inc., as Syndication Agent, and their respective Affiliates and their and each of their Affiliates' officers, shareholders, directors, employees and agents, the Banks and their respective shareholders, directors, officers, employees, attorneys and agents (collectively, the "Released Persons") shall not be (a) liable for any action taken or omitted to be taken by such Released Person (1) under the Loan Documents in good faith and believed by such Released Person to be within the discretion or power conferred upon such Released Person by the Loan Documents or (2) with the consent or at the request of the Banks or (b) responsible for consequences of any error of judgment. The Administrative Agent, Collateral Agent, their Affiliates and its and each of Affiliates' officers, shareholders, directors, employees and agents shall not be responsible in any manner to anyone for (1) the effectiveness, enforceability, legality, genuineness, sufficiency, validity, due execution, filing, registration or recording of any of the Loan Documents, (2) any representation, warranty, document, certificate, report or statement made or furnished in, under 71 82 or in connection with the Loan Documents other than its own representation, warranty, certificate, report or statement furnished to one or more Banks in or pursuant to any of the Loan Documents, whether deemed given pursuant to another provision of this Agreement or given in a separate writing (and no certificate, report or statement so furnished that is prepared in reliance upon information furnished by either Obligor or any source other than the Administrative Agent itself shall be construed to be a certification, confirmation, guaranty or undertaking of any kind by the Administrative Agent of the correctness or completeness of any of the information so relied upon by the Administrative Agent), (3) the value of any of the Collateral, (4) except to the extent the Administrative Agent or the Collateral Agent is required to hold Collateral or take or perform any other action with respect to it in accordance with this Agreement and all other Loan Documents and which action is required for such perfection, the perfection of any Lien on any Collateral or (5) any delay, error, omission or default of any third party mail, telegraph, telecopy, electronic mail, cable or wireless agency or operator. Except for its obligations to make the examinations and determinations required to enable the Administrative Agent to make the statements which the Administrative Agent will be deemed to make to the Banks from time to time pursuant to Section 9.17 of this Agreement by giving notices to Banks of Loan Requests, the Administrative Agent shall not be under any obligation to anyone to (a) ascertain or to inquire as to the performance or observation of any of the terms, covenants or conditions of any of the Loan Documents on the part of either Obligor or any other Person or (b) inspect the Property (including the books and records) of either Obligor. Section 9.4 Reliance. Each Agent shall be entitled to rely (and shall be fully protected in reasonably relying) upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype message, statement, order or other document or conversation believed by it, him or her to be genuine and correct and to have been signed or made by the proper Person. Each Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. If any order, writ, judgment or decree (an "Order") shall be made or entered by any court affecting the rights, duties and obligations of either Agent under the Loan Documents, then and in any of such events such Agent is authorized, in its sole discretion, to rely upon and comply with such Order; and if such Agent complies with any such Order, then such Agent shall not be liable to any Bank or to any other Person by reason of such compliance, even though such Order may be subsequently reversed, modified, annulled, set aside, held inapplicable or vacated. Section 9.5 Qualifications of the Administrative Agent. The Administrative Agent shall at all times be either a Bank, a commercial bank, a federal savings bank or trust company organized and doing business under the Laws of the United States of America or any state, district or territory of it authorized under such Laws to exercise corporate trust powers, having a combined capital and unimpaired surplus of at least $50,000,000 and subject to supervision or examination by Federal, state, district or territorial authority. The Administrative Agent shall have an office and place of business in Dallas, Texas, if there is such a Bank, commercial bank, federal savings bank or trust company willing and able to act as the Administrative Agent on reasonable and customary terms. If such Bank, commercial bank, federal savings bank or trust company publishes reports of conditions at least annually, pursuant to applicable Law or to the 72 83 requirements of the aforesaid supervising or examination authority, then for the purposes of this Section, the combined capital and unimpaired surplus of such Bank, commercial bank, federal savings bank or trust company shall be deemed to be its combined capital and unimpaired surplus as set forth in its most recent report of condition so published. In case the Administrative Agent shall cease at any time to be eligible in accordance with the provisions of this Section, the Administrative Agent shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 9.6 Resignation of the Administrative Agent. The Administrative Agent, or any agent or agents hereafter appointed, at any time may resign by giving written notice of resignation to the Obligors and the Banks and complying with the applicable provisions of this Section. The Administrative Agent may be removed in accordance with the applicable provisions of Section 9.7 and with written notice to the Obligors. Upon receiving such notice of resignation or removal, a successor Administrative Agent shall be promptly appointed by unanimous action of the Banks (including GFB) by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Administrative Agent and one copy to the successor Administrative Agent. If no successor Administrative Agent shall have been so appointed and have accepted the appointment within thirty (30) days after such notice of resignation, then the resigning Administrative Agent may appoint a successor Administrative Agent, which shall itself be subject, however, to removal by the Banks (other than any Bank which is then the Administrative Agent) without cause (i.e., notwithstanding the conditions to removal of the Administrative Agent stated in Section 9.7) upon thirty (30) days' written notice, provided that the removing Banks designate another successor Administrative Agent in such notice -- or in a separate written notice given on or before five (5) days thereafter -- to the Administrative Agent being removed. If the resigning Administrative Agent does not appoint a successor Administrative Agent as provided in the preceding sentence, then the resigning Administrative Agent or the Banks (other than any Bank which is then the Administrative Agent) may petition any appropriate court for the appointment of a successor Administrative Agent. After such notices, if any, as it may deem proper and prescribe, such court may appoint a successor Administrative Agent. Section 9.7 Removal of the Administrative Agent. If (a) the Administrative Agent shall cease to be eligible in accordance with the provisions of Section 9.6 and shall fail to resign after written request therefor by the Banks (other than any Bank which is then the Administrative Agent), or (b) a receiver of it or of its Property shall be appointed by any Governmental Authority, of competent jurisdiction and shall take charge or control of its Property or affairs for the purpose of rehabilitation, conservation or liquidation, or (c) the Administrative Agent shall be grossly negligent in the performance of its material duties and obligations under this Agreement or other Loan Documents or engage in willful misconduct concerning any such material duties and obligations, then, in any such case, the other Banks may remove the Administrative Agent and appoint a successor by written instrument, in duplicate, one copy of which shall be delivered to the Administrative Agent so removed and one copy to the successor Administrative Agent; or the Banks may petition any court of competent jurisdiction for the removal of the Administrative Agent and the appointment of a successor Administrative Agent. After such notice, if any, as it 73 84 may deem proper and prescribe, such court may remove the Administrative Agent and appoint a successor Administrative Agent. Section 9.8 Effective Date of Resignation or Removal. No resignation or removal of the Administrative Agent shall be effective until (a) a successor Administrative Agent is appointed pursuant to the provisions of this Agreement and has accepted the appointment as provided in this Agreement, with a copy of such acceptance to be provided by the successor Administrative Agent to the predecessor Administrative Agent, the Obligors and the Banks (but no notice to any other Person shall be required), and (b) the resigning or removed Administrative Agent has taken such actions, and the resigning or removed Administrative Agent agrees to take any and all such actions as may be necessary or appropriate to substitute the successor Administrative Agent hereunder, and resigning or removed Agent aggress to take any and all such actions as the successor Administrative Agent may reasonably request. Each Bank shall be responsible, Ratably, for its share of all reasonable expenses of the resigning or removed Administrative Agent and of the successor Administrative Agent incurred in connection with the actions to be taken in accordance with the provisions of this Section. No successor Administrative Agent shall accept appointment as provided in this Section unless at the time of such acceptance such successor Administrative Agent shall be eligible under the provisions of Section 9.6. Section 9.9 Successor Agent. Any successor Administrative Agent appointed as provided in this Article shall execute and deliver to the Obligors and to its predecessor Administrative Agent an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Administrative Agent shall become effective and such successor Administrative Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of its predecessor, with like effect as if originally named as the Administrative Agent; provided that upon the written request of the Obligors or the successor Administrative Agent, the Administrative Agent ceasing to act shall execute and deliver (a) an instrument transferring to such successor Administrative Agent all of the rights of the Administrative Agent so ceasing to act and (b) to such successor Administrative Agent such instruments as are necessary to transfer the Collateral to such successor Administrative Agent (including assignments of all Collateral or Collateral documents). Upon the request of any such successor Administrative Agent made from time to time, the Obligors shall execute any and all papers which the successor Administrative Agent shall request or require to more fully and certainly vest in and confirm to such successor Administrative Agent all such rights. No successor Administrative Agent shall accept appointment as provided in this Section unless at the time of such acceptance such successor Administrative Agent shall be eligible under the provisions of Section 9.6. Section 9.10 Merger of the Administrative Agent. Any Person into which the Administrative Agent may be merged or converted or with which it may be consolidated, or any Person surviving or resulting from any merger, conversion or consolidation to which the Administrative Agent shall be a party or any Person succeeding to the commercial banking 74 85 business of the Administrative Agent, shall be the successor Administrative Agent without the execution or filing of any paper or any further act on the part of any of the parties. Section 9.11 Banks' Credit Decisions. Each Bank acknowledges that it has, independently and without reliance upon Administrative Agent or any other Bank in full compliance with Bank's responsibilities under all applicable Governmental Requirements (including but not limited to the due diligence requirements of Banking Circular 181 promulgated by the Office of the Comptroller of the Currency) based on its own commercial lending expertise has made its own analysis of Obligor and the transactions contemplated hereby and its own independent decision to enter into this Agreement and the other Loan Documents. Each Bank as a sophisticated commercial lender has based its decision to make the Loan upon a complete analysis of each Obligor's credit quality, the value and lien status of Collateral and the Loan Documents, conducted at the same level of due diligence that Bank would undertake if it alone were making the Loan. Each Bank also acknowledges that it will, independently and without reliance upon Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents. Each Bank's Loan is a commercial loan transaction made in the ordinary course of Bank's business, about which Bank, as a commercial lender, is fully informed and actively involved on a daily basis. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Bank or the Obligor referring to the Loan Documents, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event the Administrative Agent receives such notice, the Administrative Agent shall give notice thereof to the Banks. The Administrative Agent shall take such action with respect to such Default or Event of Default as directed by the number of Banks required for such action. Section 9.12 Indemnification. Each Bank agrees to indemnify Administrative Agent, its Affiliates and each of its Affiliates' officers, shareholders, directors, employees and agents (to the extent not reimbursed by Obligor within ten (10) days after demand) Ratably, from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this section, collectively, "LIABILITIES AND COSTS") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against Administrative Agent, in its capacity as Administrative Agent, growing out of, resulting from or in any other way associated with any of the Collateral, the Loan Documents, and the transactions and events (including the enforcement thereof) at any time associated therewith or contemplated therein. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT, PROVIDED ONLY THAT NO BANK SHALL BE OBLIGATED UNDER THIS SECTION TO INDEMNIFY ADMINISTRATIVE AGENT FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND 75 86 COSTS WHICH IS PROXIMATELY CAUSED BY ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. Cumulative of the foregoing, each Bank agrees to reimburse Administrative Agent promptly upon demand, ratably, for any costs and expenses to be paid to Administrative Agent by any Obligor under Section 10.7 to the extent that Administrative Agent is not timely reimbursed for such expenses by Obligors as provided in such section. Section 9.13 Rights as Bank. In its capacity as a Bank, Administrative Agent shall have the same rights and obligations as any Bank and may exercise such rights as though it were not Administrative Agent. Administrative Agent may accept deposits from, lend money to, act as Trustee under indentures of, and generally engage in any kind of business with Obligor or its Affiliates, all as if it were not Administrative Agent hereunder and without any duty to account therefor to any other Bank. Section 9.14 Benefit of Article IX. The provisions of this Article are intended solely for the benefit of the Agents and Banks, and the Obligors shall not be entitled to rely on any such provision or assert any such provision in a claim or defense against Agents or any Bank. Agents and Banks may waive or amend such provisions as they desire without any notice to or consent of Obligor. Section 9.15 NO REPRESENTATIONS. BANKS ACKNOWLEDGE AND AGREE THAT ADMINISTRATIVE AGENT HAS MADE NO REPRESENTATION OR WARRANTY, WRITTEN OR ORAL, EXPRESS OR IMPLIED, REGARDING THE ACCURACY OR COMPLETENESS OF ANY INFORMATION RELATING TO OBLIGOR OR THE COLLATERAL INCLUDING BUT NOT LIMITED TO THE CREDITWORTHINESS OF OBLIGORS OR ANY OBLIGOR, OR THE CONDITION OR COLLECTABILITY OF ANY ASSET. ADMINISTRATIVE AGENT AND ITS DIRECTORS, OFFICERS, ADMINISTRATIVE AGENTS, ATTORNEYS, EMPLOYEES, REPRESENTATIVES AND AFFILIATES SHALL HAVE NO LIABILITY TO ANY BANK OR ANY OTHER PERSON RESULTING FROM ANY SUCH INFORMATION. Section 9.16 Participation; Assignment. (a) Each Bank reserves the rights (1) with notice to the Obligors, the Administrative Agent and the other Banks, to sell to any bank, savings and loan, savings bank, credit union, other deposit-taking financial institution or commercial lending institution, participations in all or any part of such Bank's Loans, Notes, Warehouse Line Commitment, and (2) with or without notice to the Obligors to pledge any or all of its interests under any or all of the Facilities to a Federal Reserve Bank provided, that no Bank (other than Bank One) may assign any portion of its commitment until the earlier of (i) the date upon which Bank One's commitment has been reduced to $75,000,000 or (ii) 120 days following the effective date hereof (the "Secondary Syndication"). Participants shall have no rights under the Loan Documents other than certain voting rights as provided below. Each Bank shall be entitled to obtain (on 76 87 behalf of its participants) the benefits of this Agreement with respect to all participants in its Loans outstanding from time to time; provided, that the Obligors shall not be obligated to pay any amount in excess of the amount that would be due to such Bank calculated as though no participation had been made. No Bank shall sell any participating interest under which the participant shall have any rights to approve any amendment, modification or waiver of any Loan Documents, except to the extent such amendment, modification or waiver (1) extends the due date for payment of any amount in respect of principal, interest or fees due under the Loan Documents or (2) reduces the interest rate or the amount of principal or fees applicable to the Loan. In those cases (if any) where a Bank grants rights to any of its participants to approve amendments, modifications or waivers of any Loan Documents pursuant to the immediately preceding sentence, such Bank must include a voting mechanism as to all such approval rights in the relevant participation agreement(s) whereby a readily-determinable fraction of such Bank's portion of the Facilities under this Agreement (whether held by such Bank or participated) shall control the vote for all of such Bank's portion of such Facilities; provided, that if no such voting mechanism is provided for or is fully and immediately effective, then the vote of such Bank itself shall be the vote for all of such Bank's portion of such Facilities. Except in the case of the sale of a participating interest to a Bank, the relevant participation agreement shall not permit the participant to transfer, pledge, assign, sell any subparticipation in or otherwise alienate or encumber its participation interest in such Facilities. (b) Each Bank shall have the right to sell, assign or transfer all or any part of such Bank's Warehouse Note, Loans Warehouse Line Commitment and the associated rights and obligations under all Loan Documents to one or more financial institutions; provided, that no Bank (other than Bank One) may assign any portion of its commitment until the earlier of (i) the date upon which Bank One's commitment has been reduced to $75,000,000 or (ii) 120 days following the effective date hereof, and provided further that each such sale, assignment, or transfer to any Person other than another Bank shall be with the reasonable consent of the Collateral Agent, the Administrative Agent and, so long as no Potential Default or Default has occurred and is continuing, the Obligors, and the assignee, transferee or recipient shall have, to the extent of such sale, assignment, or transfer, the same rights, benefits and obligations as it would if it were such Bank and a holder of such Warehouse Note, including, without limitation, the right to vote on decisions requiring consent or approval of all Banks or Majority Banks and the obligation to fund its Funding Share of any Loan directly to Administrative Agent; provided further, that (i) each Bank in making each such sale, assignment, or transfer must dispose of a pro rata portion of each Loan made by such Bank, (ii) each such sale, assignment, or transfer shall be in a principal amount not less than $10,000,000, or the entire amount of Bank's Funding Share, if less than $10,000,000, (iii) each Bank shall at all times maintain Loans then outstanding in an aggregate amount at least equal to $10,000,000 (unless Bank transfers 100% of its Percentage Share), (iv) each Bank may not offer to sell its Warehouse Note and Loan or interests therein in violation of any securities laws, and (v) no such assignments shall become effective until the assigning Bank delivers to Administrative Agent an Assignment and Assumption Agreement in the form of Exhibit E, appropriately completed. An assignment fee in the amount of $3,000 for each such assignment will be payable to Administrative Agent by assignor or assignee. Within five (5) Business Days after its receipt of notice that the Administrative Agent has received 77 88 copies of the completed Assignment and Acceptance, the assignee Bank shall notify Obligors of the outstanding principal balance of the Warehouse Note payable to such Bank and Obligors shall execute and deliver to Administrative Agent (for delivery to the relevant assignee) new Warehouse Notes evidencing such assignee's assigned Loan and, if the assignor Bank has retained a portion of its Loan, a replacement Warehouse Note in the principal amount of the Loan retained by the assignor Bank (such Warehouse Note to be in exchange for, but not in payment of, the Warehouse Note held by such Bank). (c) If any interest in the Facility is so transferred to any Person that is organized under the Laws of any jurisdiction other than the United States of America or any State, the transferor Bank shall cause such Person, concurrently with the effectiveness of such transfer, (1) to represent to the transferor Bank (for the benefit of the transferor Bank, the Administrative Agent, the other Banks and the Obligors) that under applicable Laws no taxes will be required to be withheld by the Administrative Agent, the Obligors or the transferor Bank with respect to any payments to be made to such Person in respect of the Facility, (2) to furnish to each of the transferor Bank, the Administrative Agent and the Obligors two duly completed copies of either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Person claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (3) to agree (for the benefit of the transferor Bank, the other Banks, the Administrative Agent and the Obligors) to provide the transferor Bank, the Administrative Agent and the Obligors a new Form 4224 or Form 1001 upon the obsolescence of any previously delivered form and comparable statements in accordance with applicable United States Laws and amendments duly executed and completed by such Person and to comply from time to time with all applicable Laws with regard to such withholding tax exemption. Section 9.17 Loan Requests; Payments. By giving notice to the applicable Banks of a Loan Request, the Administrative Agent shall be deemed to state to them that (a) the Administrative Agent has examined the Loan Request and its attachments, including any listing provided of any Collateral proposed to be borrowed against under the Loan Request, and has determined that the Loan Request and its attachments appear to comply with the requirements of this Agreement for the form and content of the Loan Request and any required attachments (including requirements for the Obligors' representations concerning Collateral value of Collateral furnished to induce and support the Loan requested and the borrowing Obligor's representations and calculations concerning mathematical relationships between Loan amounts and Collateral value). In conjunction with the performance of its duties under the Loan Documents, the Administrative Agent shall bill and collect all principal and interest payments on the Warehouse Notes, the Warehouse Facility Fee, and Pool sales proceeds (including proceeds of sales of MBSs created from Pools), plus all other amounts due to the Banks on account of this Agreement and all other Loan Documents. Upon receipt of any payment due under the Warehouse Line, the Administrative Agent shall transfer each other applicable Bank's share to it by federal funds wire transfer (or by such other method as may be agreed upon between the Administrative Agent and such other Bank) as soon as practicable. If the Administrative Agent receives such sums at or before 11:30 a.m. on a Business Day and the Administrative Agent fails 78 89 without a valid excuse to initiate a wire transfer (or to initiate such other method of transferring such funds as the Administrative Agent and such other Bank have agreed upon) on the same Business Day to any Bank of its portion of such payment received, then the Administrative Agent shall be obligated to pay interest on them to the Bank to which they are due from the day when they should have been transferred to the day when they are transferred at the Federal Funds Effective Rate. Should any payment owed under the Loan Documents become due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the Loan Document under which such payment is due. To the extent any such Bank contracts for charges, reserves or receives interest in excess of the Ceiling Rate, such Bank hereby indemnifies the Administrative Agent, its Affiliates and its and each of its Affiliates' officers, shareholders, directors, employees and agents, and the other Banks, and agrees to hold each harmless, from and against any and all liabilities, losses, damage, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever that may be imposed on, asserted against or incurred by the Administrative Agent, its Affiliates and its and each of its Affiliates' officers, shareholders, directors, employees and agents, or the other Banks in any way relating thereto, including reasonable attorneys' fees. Section 9.18 Application of Collateral Proceeds. All realizations and proceeds of Collateral ("Collateral Proceeds") for the Facilities shall be applied (a) first, to the costs (including attorneys' fees, appraisal costs and other expenses related to the preparation of the Collateral for sale) incurred by the Administrative Agent and the Collateral Agent in obtaining such Collateral Proceeds, or otherwise owing to the Administrative Agent or the Collateral Agent under the Loan Documents; (b) second, in accordance with Section 4.2 or 4.3, as applicable; (c) third, to the payment of all other unreimbursed expenses of the Administrative Agent, the Collateral Agent and the Banks under the Loan Documents, Ratably, in accordance with such expenses and (d) fourth, to the Obligors or another Person, as their interest may appear. The Collateral Agent shall not be permitted to credit bid with respect to any foreclosure sale of the Collateral without the consent of all of the Banks. No Bank bidding at a foreclosure of the Collateral for any Facility may include in the amount of its bid an amount to be applied as a credit to such Bank's Warehouse Note; instead, each Bank may bid (if it elects to bid) in cash only. Section 9.19 Information Concerning Other Banks. From time to time, at the request of any Bank, the Administrative Agent will advise the requesting Bank of (a) the identity of each Bank under this Agreement as of the date of such request, (b) the amount of each Bank's Warehouse Line Commitment and the amounts funded by any such Bank under such commitments and (c) any default by such Bank of any of its obligations under this Agreement or the other Loan Documents and the nature of such default. Section 9.20 Expense Reimbursement. If the Obligors shall fail to reimburse the Administrative Agent within thirty (30) days of a request therefor, as provided in any Loan Document, for any expenses incurred by the Administrative Agent in connection therewith that 79 90 the Obligors are required to reimburse, then each of the Banks shall pay, Ratably, its share of such expenses, plus interest at the Federal Funds Effective Rate from the date of expenditure until paid; provided that in the event that the Administrative Agent subsequently receives payment from the Obligors for such expenses, the Administrative Agent shall (if no other amounts are then due and owing to the Administrative Agent hereunder) pay, Ratably, to the Banks its share of such payment. Any Bank's failure to pay, Ratably, to the Administrative Agent that Bank's share of any expenses shall not in itself relieve any other Bank of its obligation to pay, Ratably, the Administrative Agent that other Bank's share of those (or any other) expenses, although no Bank shall be responsible or liable for any other Bank's failure to pay. Section 9.21 Rights of Individual Banks. No Bank other than the Administrative Agent shall have any right by virtue (or by availing itself) of any provision of the Loan Documents to institute any action or proceedings at Law or in equity or otherwise (excluding any actions in bankruptcy) upon or under or with respect to the Loan Documents or for the appointment of a receiver or for any other remedy without the prior written approval of the other Banks. Further, no Bank or Person other than the Administrative Agent shall take any such action unless and until, after a Default has occurred and before the Administrative Agent has declared in writing that it has been cured or waived (the Administrative Agent's authority to make such a declaration being, subject to the final proviso of Section 9.1 above): the Banks (other than the Administrative Agent) have: given a written direction to the Administrative Agent that the Administrative Agent institute such action or proceedings in its own name as Administrative Agent under this Agreement; not subsequently revoked such written direction or given any other or further direction inconsistent with such direction; and offered to the Administrative Agent such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby; and the Administrative Agent, after its receipt of such request and offer of indemnity and after having been given a reasonable opportunity to do so, shall have failed to so institute such action or proceedings or stated that it refuses to do so. In addition, the parties to this Agreement intend and mutually covenant that no one or more Banks or other holders of Warehouse Notes shall have any right in any manner whatever to affect, disturb or prejudice the rights of any other Bank--or holder of any other Warehouse Note or to obtain or seek to obtain priority over or preference to any other such Bank or holder, or to enforce any right under this Agreement and all other Loan Documents, except (a) in the manner provided in this Agreement and (b) Ratably, for the common benefit of all Banks under this Agreement. For the protection and enforcement of the provisions of this Section, each and every Bank and the Administrative Agent shall be entitled to such relief as can be given either at Law or in equity. 80 91 Section 9.22 Notice to the Administrative Agent. Should any Potential Default or Default occur and be continuing, any Bank that becomes aware of it shall promptly notify the Administrative Agent of its existence. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Potential Default or Default hereunder unless the Administrative Agent has received notice of such Potential Default or Default from any Bank pursuant to this Section or from either Obligor. In the event the Administrative Agent receives such notice, the Administrative Agent shall give notice thereof to Banks. The Administrative Agent shall take such action with respect to such Potential Default or Default as directed by the number of Banks required for such action. Section 9.23 No Partnership. Neither the execution and delivery of this Agreement or any of the other Loan Documents nor any interest that the Banks, the Administrative Agent or any of them may now or hereafter have in all or any part of the Collateral shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Banks or among any of the Banks and the Administrative Agent. The relationship between the Banks, on the one hand, and the Administrative Agent on the other, is and shall be that of principals and Administrative Agent only, and nothing in this Agreement or any of the other Loan Documents shall be construed to constitute the Administrative Agent as trustee or other fiduciary for any Bank or to impose on the Administrative Agent any duty, responsibility or obligation other than those expressly provided for herein and therein. Section 9.24 Amendments and Modifications. Without the written consent of all of the Banks, including GFB, the Administrative Agent shall not agree to any amendments or modifications to the Loan Documents, or grant a written waiver of any provision of them, the effect of which would be to (a) change the amount or the due date of any required payment of principal or accrued interest or any fees, (b) extend the maturity date of any Warehouse Note, (c) change any sharing ratio applicable to the Banks under this Agreement, (d) change the several nature of the Banks' respective obligations to make Loans this Agreement, (e) change the conditions precedent to any Facility, (f) release Collateral other than pursuant to the express provisions of this Agreement, (g) amend this Section or the definition of "Majority Banks", (h) amend, or waive any violation of, the provisions of Section 8.11, (i) amend the definition of "Eligible Mortgage Loan" or amend any defined term used within the definition of "Eligible Mortgage Loan" (provided that, with the approval of the Majority Banks, the Collateral Agent may temporarily waive or suspend one or more of this Agreement's eligibility requirements or conditions for a particular grouping of Mortgage Loans to qualify as Eligible Mortgage Loans where their failure to so qualify is beyond the Company's reasonable control and if the Collateral Agent believes at the time of such temporary waiver or suspension that the factors which apparently caused such disqualification will be eliminated in a reasonably short time), (j) permit either (1) Loans to be made or continued that are secured by Collateral that does not comply with the definition of "Eligible Mortgage" as of the Effective Date in an aggregate amount that exceeds the Collateral Agent's discretionary authority to permit such Loans in an aggregate amount of up to Five Million Dollars ($5,000,000), (k) release the Guarantor from its obligations under the Guaranty, or (l) increase the amount of any Bank's Warehouse Line Commitment. Without the consent of the Majority Banks, neither the Administrative Agent nor the Collateral 81 92 Agent shall agree to any other amendments or modifications to the Loan Documents, or grant a written waiver of any other material provision of the Loan Documents; provided that any such amendment or waiver proposed by Administrative Agent or either Obligor shall be submitted to all Banks concurrently, even though the consent or approval of all Banks may not be required, and the Administrative Agent may proceed to make any such amendment or waiver that requires only the Majority Banks' approval when the Administrative Agent has obtained that approval even if not all Banks have yet responded to the Administrative Agent's proposal. Section 9.25 Replacement of Retiring Bank. If (i) any Bank has demanded compensation or indemnification, or if the Obligors otherwise have been required to make any payment to any Person pursuant to Section 3.7, or (ii) any Bank has failed to make available all or any portion of its Funding Share of any Loan (and has not cured the failure), (iii) any Bank has notified the Administrative Agent or the Obligors that such Bank does not intend to comply with its obligations under any or all of Section 2.2 following, the appointment of a receiver or conservator with respect to such Bank at the direction or request of my regulatory agency or authority or (iv) any Bank has failed to consent to a proposed amendment, waiver, discharge or termination or which, pursuant to the terms of Section 9.24 or any other provision of any Loan Documents, requires the consent of all Banks and with respect to which the Majority Banks have consented, the Obligors shall have the right, if no Default has occurred that has not been cured and if no Event of Default has occurred that the Administrative Agent has not declared in writing to have been cured or waived, to replace such Bank with a Replacement Bank. The replacement of a Retiring Bank pursuant to this Section 9.25 shall be effective on the tenth (10th) Business Day (the "Replacement Date") following the date of notice of such replacement to the Retiring Bank and each Continuing Bank through the Administrative Agent, subject to satisfaction of the following conditions: (a) the Retiring Bank and the Replacement Bank shall have satisfied the conditions to assignment and assumption set forth in Section 9.16 and, in connection therewith, the Replacement Bank(s) shall pay to the Retiring Bank an amount equal in the aggregate to the sum of (x) the principal of all of the Retiring Bank's outstanding Loans, together with all accrued interest thereon and (y) the Retiring Bank's share of any accrued fees under this Agreement: and (b) the Obligors shall have paid to the Administrative Agent for the account of the Retiring Bank an amount equal to all obligations owing, to the Retiring Bank by the Obligors (other than those obligations of the Obligors owing but not yet due that are referred to in Section 9.25(a) immediately above). Section 9.26 Replacement Banks Replace Retiring Banks. On the Replacement Date, each Replacement Bank that is a New Bank shall become a Bank and the Retiring Bank shall cease to be a Bank; provided that this Agreement shall continue to govern the rights and obligations of a Retiring Bank with respect to any Loans made or any other actions taken by such Retiring Bank while it was a Bank. 82 93 Section 9.27 Termination of Retiring Bank's Commitment. In lieu of the foregoing, upon the express written consent of Continuing Banks who are the holders of at least sixty-six and two-thirds percent (662/3%) of that portion of the outstanding principal of the Loan held by Continuing Banks, the Obligors shall have the right to terminate the Commitment of a Retiring Bank in full. Upon payment by the Obligors to the Administrative Agent for the account of the Retiring Bank of an amount equal to the sum of (i) the aggregate principal amount of all Loans held by the Retiring Bank and (ii) all accrued interest, fees and other amounts owing to the Retiring Bank pursuant to this Agreement and the other Loan Documents, such Retiring Bank shall cease to be a Bank hereunder; provided that the provisions of this Agreement shall continue to govern the rights and obligations of a Retiring Bank with respect to any Loans made or any other actions taken by such Bank while it was a Bank. Section 9.28 Syndication Agent. Banc One Capital Markets, Inc., as Syndication Agent, shall have no obligations except as expressly stated in this Agreement. ARTICLE 10. MISCELLANEOUS Section 10.1 No Waiver. No waiver of any Default or Potential Default shall be deemed to be a waiver of any other Default or Potential Default. No failure to exercise or delay in exercising any power or right under any Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No course of dealing between (a) the Obligors and (b) the Agent or any Bank, shall operate as a waiver of any rights of any of the Banks. Except for amendments, modifications and waivers made pursuant to Section 9.23, no amendment, modification or waiver of any provision of this Agreement, any Warehouse Note or any other Loan Documents nor consent to any departure therefrom shall be effective against any affected Bank unless it is in writing and signed by that affected Bank (or, unless prohibited by this Agreement, by the Agent acting on behalf of that affected Bank), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Obligors or any other Person shall entitle the Obligors or any other Person to any other or further notice or demand in similar or other circumstances. Section 10.2 Notices. Notices under the Loan Documents shall be in writing and either (a) delivered against a receipt therefor; (b) mailed by registered or certified mail, return receipt requested, postage prepaid, or (c) sent by telefax, telex or telegram, in each case addressed as follows: 83 94 (1) If to either Obligor, to: New America Financial, Inc. c/o Harbor Financial Mortgage Corporation 3131 Turtle Creek Blvd., Suite 1300 Dallas, Texas 75219 Attention: Rick R. Hagelstein Telephone: (214) 599-2300 Telecopy: (214) 599-2495 (2) If to the Administrative Agent or GFB, to: Guaranty Federal Bank, F.S.B. 8333 Douglas Avenue, Suite 1100 Dallas, Texas 75225 Attention: Brian Hilberth Telephone: (214) 360-1968 Telecopy: (214) 360-1660 (3) If to another Bank, as provided in the Commitments Schedule. or to such other address as a party may by notice hereunder designate. Notices given by postage prepaid certified or registered U.S. mail shall be deemed to have been given two (2) Business Days after being mailed; notices given by other means shall be effective only when actually received (in the case of notices to either Obligor) in such Obligor's offices or (in the case of notices to the Agent or GFB) by a Vice President of GFB's Mortgage Finance Group or another officer in that group or (in the case of notices to any other Bank) by the officer of that Bank named on the Commitments Schedule or another officer in the named officer's group at that Bank. Section 10.3 Governing Law, Jurisdiction and Venue. Except as otherwise stated therein or required by applicable Law, each of the Loan Documents shall be deemed to be a contract under the Laws of the State of Texas and of the United States of America and shall be construed and enforced in accordance with such Laws. Each of the Obligors hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts of the State of Texas and agrees and consents that service of process may be made upon it in any proceeding arising out of this Agreement or any of the other Loan Documents by service of process as provided by Texas Law. Each of the Obligors hereby irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to the this Agreement or any of the other Loan Documents brought in the District Court of Dallas County, State of Texas, or in the United States District Court for the Northern District of Texas, Dallas Division, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Each of the Obligors further (a) agrees to designate and maintain an 84 95 agent for service of process in the City of Dallas in connection with any such suit, action or proceeding and to deliver to the Agent evidence thereof and (b) irrevocably consents to the service of process out of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by certified mail, return receipt requested, postage prepaid, to each of the Obligors at its address set forth herein. Nothing herein shall affect the right of the Agent or any Bank to commence legal proceedings or otherwise proceed against either Obligor in any jurisdiction or to serve process in any manner permitted by applicable Law. Each of the Obligors hereby irrevocably agrees that any proceeding against the Agent or any Bank arising out of or in connection with this Agreement or the other Loan Documents shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division, if such relevant court has jurisdiction. Section 10.4 Survival; Successors and Assigns. All representations, warranties, covenants and agreements made by either Obligor in connection herewith shall survive the execution and delivery of the Loan Documents, shall not be affected by any investigation made by any Person and shall bind each of the Obligors and its successors, trustees, receivers and assigns and shall benefit the Agent, the Banks and their respective participants and other holders of any of the Obligors' Obligations under the Loan Documents and their respective successors and assigns; provided, that the undertaking of the Banks under this Agreement or any of the other Loan Documents to make loans and extend other benefits of the Facility to the Obligors shall not inure to the benefit of any successor, trustee, receiver or assign of any such Obligor. Subject to such proviso, all references in the Loan Documents to either Obligor, the Agent or any Bank shall include the successors, trustees, receivers and assigns of such party. In the event any Bank sells participations or other rights or interests in any Warehouse Note or other indebtedness or obligation incurred pursuant to this Agreement or any of the other Loan Documents to other lenders, each of such other lenders shall have the rights to set off against such indebtedness and similar rights or Liens to the same extent as may be available to that Bank. Section 10.5 Counterparts. This Agreement may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute one and the same agreement, Section 10.6 Usury Not Intended; Credit or Refund of Any Excess Payments. It is the intent of each of the Obligors, the Agent and the Banks in the execution and performance of this Agreement and the other Loan Documents to contract in strict compliance with the applicable usury laws of the State of Texas and the United States of America from time to time in effect. In furtherance of that purpose, each of the Obligors, the Agent and the Banks stipulate and agree that none of the terms and provisions contained in this Agreement or the other Loan Documents shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate in excess of the Ceiling Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged, taken, reserved or received under this Agreement or any of the other Loan Documents. In the event that the maturity of any Warehouse Note is accelerated by reason of 85 96 any election of its holder resulting from any Default or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum nonusurious amount permitted by applicable Law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on such Warehouse Note (or, if such Warehouse Note shall have been paid in full, refunded to the payor of such interest). The provisions of this Section shall control over all other provisions of this Agreement, the Warehouse Notes and the other Loan Documents which may be in apparent conflict herewith. In the event any Bank or other holder of any of such Warehouse Notes shall collect monies which are deemed to constitute interest at a rate in excess of the Ceiling Rate then in effect, all such sums deemed to constitute interest in excess of the Ceiling Rate shall be immediately returned to their payor (or, at the option of the holder of the Warehouse Notes, credited against the unpaid principal of the Warehouse Notes) upon such determination. Section 10.7 Expenses. Whether or not the transactions contemplated by this Agreement shall be consummated, the Obligors, jointly and severally, agree to pay (a) all legal fees incurred by the Administrative Agent and Collateral Agent in connection with the preparation, negotiations and execution of this Agreement, the Warehouse Notes and the other Loan Documents; (b) the legal fees actually incurred by each Bank (other than GFB) in reviewing this Agreement and the other Loan Documents; (c) all out-of-pocket expenses of the Banks (including the reasonable fees and expenses of counsel for the Banks) in connection with the filing, recording, refiling and rerecording of this Agreement and the other Loan Documents and in establishing, making, servicing, administering and collecting any of the Facility, findings and loans hereunder; (d) any and all stamp, mortgage and recording taxes; (e) all other expenses incurred in the recording, filing, rerecording and refiling of any of the Loan Documents and all other documents or instruments of further assurance required or appropriate to be recorded, rerecorded, filed or refiled in appropriate recording or filing offices; (f) the costs of any title insurance or lien insurance in connection therewith; (g) all costs of preparation, execution and delivery of any and all amendments, modifications, supplements, consents, waivers or other documents or writings relating to the transactions contemplated by this Agreement (including reasonable attorneys' fees); and (h) all costs (including reasonable attorneys' fees) of the review of title opinions, security opinions and other legal opinions relating to the transactions contemplated in this Agreement or any of the other Loan Documents. Upon request, the Obligors, jointly and severally, agree to promptly reimburse the Agents or any Bank for all amounts expended by them, respectively, to satisfy any obligation of either Obligor under this Agreement or any other Loan Documents or to protect the Property or business of either Obligor or any of its Subsidiaries or to collect any of the Warehouse Notes, or to enforce the rights of any or all of the Agents or any Bank under this Agreement or any other Loan Documents, which amounts will include all court costs, attorneys' fees, fees of auditors and accountants and investigation expenses incurred by any of the Agents or any Bank in connection with any such matters, together with interest at a rate equal to the Stated Rate for LIBOR Rate Loans plus two percent (2%) on each such amount from the date that the same is expended, advanced or incurred by any of the Agents or any Bank until the date of reimbursement to the Agents or that Bank. 86 97 The obligations of the Obligors under this Section shall survive the expiration or termination of this Agreement. SECTION 10.8 INDEMNIFICATION. THE OBLIGORS, JOINTLY AND SEVERALLY, AGREE TO INDEMNIFY ADMINISTRATIVE AGENT AND EACH BANK, UPON DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT OR SUCH BANK GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN TORT). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK, provided only that neither Administrative Agent nor any Bank shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including any Obligor or any of their Affiliates) ever alleges such gross negligence or willful misconduct by Administrative Agent or any Bank, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the terms "Administrative Agent" and "Bank" shall refer not only to each Person designated as such in this Agreement but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person. Section 10.9 Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between (a) the Obligors and (b) the Agents and the Banks, relating to the subject matter hereof and thereof and supersede all prior proposals, agreements and understandings relating to such subject matter. The other Loan Documents are incorporated herein by reference; however, in the event and to the extent of any conflict or inconsistency, the provisions of this Agreement shall control. Section 10.10 Accounting Terms. All determinations of financial amounts on a consolidated basis shall make due allowance for minority interests. 87 98 Section 10.11 Severability. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable Law. If any provision of any Loan Document shall be invalid, illegal or unenforceable in any respect under any applicable Law, the validity, legality and enforceability of the remaining provisions of such Loan Document shall not be affected or impaired thereby. Section 10.12 Domicile of Loan. The Banks may transfer and carry all or any part of the Loans at, to or for the account of any branch office or Affiliate. Section 10.13 Disclosures. Every reference in this Agreement and the other Loan Documents to disclosures of either Obligor to the Banks or the Agent in writing, to the extent that such references refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to them made in an orderly manner concurrently with the execution of this Agreement. SECTION 10.14 RELEASE OF TRANSACTION CLAIMS. EACH OBLIGOR HEREBY RELEASES, DISCHARGES AND ACQUITS FOREVER THE AGENT AND EACH BANK AND THEIR RESPECTIVE OFFICERS, DIRECTORS, TRUSTEES, AGENTS, EMPLOYEES AND COUNSEL (IN EACH CASE, PAST, PRESENT OR FUTURE) FROM ANY AND ALL TRANSACTION CLAIMS EXISTING AS OF THE EFFECTIVE DATE (OR THE DATE OF ACTUAL EXECUTION HEREOF BY SUCH OBLIGOR, IF LATER). THE TERM "TRANSACTION CLAIM" SHALL MEAN ANY AND ALL CLAIMS, ACTIONS, OBLIGATIONS, LIABILITIES AND DAMAGES (INCLUDING COURT COSTS, PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER WHATSOEVER, INCLUDING CLAIMS FOR USURY, BREACH OF CONTRACT, BREACH OF COMMITMENT, NEGLIGENT MISREPRESENTATION OR FAILURE TO ACT IN GOOD FAITH, IN EACH CASE WHETHER NOW KNOWN (OR UNKNOWN, SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED OR PRIMARY OR CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS, COURSE OF CONDUCT, TORT, VIOLATIONS OF LAWS OR REGULATIONS OR OTHERWISE. Section 10.15 Notice Pursuant to Section 26.02 of the Tex. Bus. & Comm. Code. THE OBLIGORS, THE AGENTS AND THE BANKS HEREBY AGREE THAT THIS AGREEMENT, THE FEE LETTERS DESCRIBED HEREIN, AND THE OTHER LOAN DOCUMENTS (INCLUDING BUT NOT LIMITED TO ALL FEE LETTERS) TOGETHER REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.16 Waiver of Jury Trial, Punitive Damages, etc. OBLIGORS AND EACH BANK HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION 88 99 WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO. Section 10.17. Termination; Limited Survival. At any time after the Warehouse Final Termination Date that no Obligations are owing, Obligors may request that all Loan Documents be terminated and that the Collateral be released from the Liens created thereby. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by Obligors or Guarantor in any Loan Document, any Obligations under Article 3, and any obligations which any Person may have to indemnify or compensate Administrative Agent or Collateral Agent or any Bank shall survive any termination of this Agreement or any other Loan Document. At the expense of Obligors, Administrative Agent and Collateral Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the Loan Documents. Each of Administrative Agent and Collateral Agent is hereby authorized to execute all such instruments on behalf of all Banks, without the joinder of or further action by any Bank. [REST OF PAGE INTENTIONALLY LEFT BLANK] 89 100 EXECUTED as of the date first above written. HARBOR FINANCIAL MORTGAGE CORPORATION By: -------------------------------------- Rick R. Hagelstein Chairman of the Board NEW AMERICA FINANCIAL, INC. By: -------------------------------------- Rick R. Hagelstein Chairman of the Board FIRSTCITY FINANCIAL MORTGAGE CORPORATION, as Guarantor By: -------------------------------------- Rick R. Hagelstein Chairman of the Board 90 101 GUARANTY FEDERAL BANK, F.S.B., as the Administrative Agent and a Bank By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 91 102 BANK ONE, TEXAS, N.A., as Collateral Agent and a Bank By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 92 103 BANK UNITED By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 93 104 COMERICA BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 94 105 PNC BANK KENTUCKY, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 95 106 HIBERNIA NATIONAL BANK By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 96 107 NATIONAL CITY BANK OF KENTUCKY By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 97 108 US BANK NATIONAL ASSOCIATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 98 109 ATTACHED: Commitments Schedule Exhibit A - Form of Warehouse Note Exhibit B-1 - Form of [Wet Warehousing] [Mortgage Warehouse] Loan Request Exhibit B-2 - Form of Second-Lien Loan Request Exhibit B-3 - Form of P&I Loan Request Exhibit B-4 - Form of T&I Loan Request Exhibit B-5 - Form of Foreclosure Receivables Loan Request Exhibit B-6 - Form of Foreclosed Properties Loan Request Exhibit B-7 - Form of Mortgage Repurchase Loan Request Exhibit B-8 - Form of Servicing Held for Sale Loan Request Exhibit B-9 - Form of Servicing Sale Receivable Loan Request Exhibit B-10 - Form of Other Loan Subline Loan Request Exhibit C - Form of Opinion of Counsel Exhibit D - Form of Compliance Certificate Exhibit E - Form of Assignment and Assumption Agreement Schedule 1 - List of Qualified Investors Schedule 2 - Form of Standard Financial Statements Schedule 3 - Form of management report Schedule 4 - Persons authorized to issue Obligor Orders Schedule 5 - [Intentionally Omitted] Schedule 6 - Approved Servicing Purchasers 99 110 COMMITMENTS SCHEDULE TO CREDIT AGREEMENT The Banks' Commitments from and after the effective date of this Commitments Schedule and until it shall have been superseded (or amended and restated) by a more recent Commitments Schedule in accordance with this Agreement (as it may have been supplemented, amended or restated) of which this Commitments Schedule is a part, each Facility and the sums of such Commitments, by Bank, are as follows:
WAREHOUSE WET WET RECEIVABLES WAREHOUSE LINE SWING WAREHOUSING WAREHOUSING SECOND LIEN ADVANCES BANK COMMITMENT SUBLIMIT SUBLIMIT(1) SUBLIMIT(2) SUBLIMIT SUBLIMIT - ------------- ------------ ------------ ------------ ------------ ------------ ------------ GFB $ 75,000,000 $ 45,000,000 $ 30,000,000 $ 18,750,000 $ 7,500,000 $ 5,625,000 - ------------- ------------ ------------ ------------ ------------ ------------ ------------ BANK ONE, $221,000,000 $ 0 $ 88,400,000 $ 55,250,000 $ 22,100,000 $ 16,575,000 TEXAS, N.A. - ------------- ------------ ------------ ------------ ------------ ------------ ------------ PNC BANK $ 50,000,000 $ 0 $ 20,000,000 $ 12,500,000 $ 5,000,000 $ 3,750,000 - ------------- ------------ ------------ ------------ ------------ ------------ ------------ COMERICA $ 44,000,000 $ 0 $ 17,600,000 $ 11,000,000 $ 4,400,000 $ 3,300,000 BANK - ------------- ------------ ------------ ------------ ------------ ------------ ------------ HIBERNIA $ 35,000,000 $ 0 $ 14,000,000 $ 8,750,000 $ 3,500,000 $ 2,625,000 BANK - ------------- ------------ ------------ ------------ ------------ ------------ ------------ BANK $ 30,000,000 $ 0 $ 12,000,000 $ 7,500,000 $ 3,000,000 $ 2,250,000 UNITED - ------------- ------------ ------------ ------------ ------------ ------------ ------------ US BANK $ 25,000,000 $ 0 $ 10,000,000 $ 6,250,000 $ 2,500,000 $ 1,875,000 - ------------- ------------ ------------ ------------ ------------ ------------ ------------ NATIONAL $ 20,000,000 $ 0 $ 8,000,000 $ 5,000,000 $ 2,000,000 $ 1,500,000 CITY BANK ============= ============ ============ ============ ============ ============ ============ TOTALS $500,000,000 $ 45,000,000 $200,000,000 $125,000,000 $ 50,000,000 $ 37,500,000 - ------------- ------------ ------------ ------------ ------------ ------------ ------------
- -------- (1) during first and last 5 Business Days (2) during remainder of calendar month 100 111
SERVICING FORECLOSURE FORECLOSED MORTGAGE HELD P&I T&I RECEIVABLES PROPERTIES REPURCHASE FOR SALE BANK SUB-SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUB-SUBLIMIT SUBLIMIT SUBLIMIT - ----------- ------------ ------------ ------------ ------------ ------------ ------------ GFB $ 1,875,000 $ 1,875,000 $ 2,250,000 $ 750,000 $ 750,000 $ 1,500,000 - ----------- ------------ ------------ ------------ ------------ ------------ ------------ BANK ONE, $ 5,525,000 $ 5,525,000 $ 6,630,000 $ 2,210,000 $ 2,210,000 $ 4,420,000 TEXAS, N.A. - ----------- ------------ ------------ ------------ ------------ ------------ ------------ PNC BANK $ 1,250,000 $ 1,250,000 $ 1,500,000 $ 500,000 $ 500,000 $ 1,000,000 - ----------- ------------ ------------ ------------ ------------ ------------ ------------ COMERICA $ 1,100,000 $ 1,100,000 $ 1,320,000 $ 440,000 $ 440,000 $ 880,000 BANK - ----------- ------------ ------------ ------------ ------------ ------------ ------------ HIBERNIA $ 875,000 $ 875,000 $ 1,050,000 $ 350,000 $ 350,000 $ 700,000 BANK - ----------- ------------ ------------ ------------ ------------ ------------ ------------ BANK $ 750,000 $ 750,000 $ 900,000 $ 300,000 $ 300,000 $ 600,000 UNITED - ----------- ------------ ------------ ------------ ------------ ------------ ------------ US BANK $ 625,000 $ 625,000 $ 750,000 $ 250,000 $ 250,000 $ 500,000 - ----------- ------------ ------------ ------------ ------------ ------------ ------------ NATIONAL $ 500,000 $ 500,000 $ 600,000 $ 200,000 $ 200,000 $ 400,000 CITY BANK =========== ============ ============ ============ ============ ============ ============ TOTALS $ 12,500,000 $ 12,500,000 $ 15,000,000 $ 5,000,000 $ 5,000,000 $ 10,000,000 - ----------- ------------ ------------ ------------ ------------ ------------ ------------
101 112
SERVICING SALE RECEIVABLE OTHER LOANS BANK SUBLIMIT SUBLIMIT - ------------------- -------------- ----------- GFB $ 5,625,000 $ 750,000 - ------------------- -------------- ----------- BANK ONE, $ 16,575,000 $ 2,210,000 TEXAS, N.A. - ------------------- -------------- ----------- PNC BANK $ 3,750,000 $ 500,000 - ------------------- -------------- ----------- COMERICA $ 3,300,000 $ 440,000 BANK - ------------------- -------------- ----------- HIBERNIA $ 2,625,000 $ 350,000 BANK - ------------------- -------------- ----------- BANK $ 2,250,000 $ 300,000 UNITED - ------------------- -------------- ----------- US BANK $ 1,875,000 $ 250,000 - ------------------- -------------- ----------- NATIONAL $ 1,500,000 $ 200,000 CITY BANK =================== ============== =========== TOTALS $ 37,500,000 $ 5,000,000 - ------------------- -------------- -----------
102 113 This Commitments Schedule is executed (in counterparts) by the undersigned Banks, who are currently all of the Banks under this Agreement, to be effective as of the date last above written. GUARANTY FEDERAL BANK, F.S.B., as the Administrative Agent and a Bank By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 103 114 BANK ONE, TEXAS, N.A., as Collateral Agent and a Bank By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 104 115 BANK UNITED By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 105 116 COMERICA BANK By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 106 117 PNC BANK KENTUCKY, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 107 118 HIBERNIA NATIONAL BANK By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 108 119 NATIONAL CITY BANK OF KENTUCKY By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 109 120 US BANK NATIONAL ASSOCIATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 110 121 The Banks' respective addresses for notices and their telephone and telecopy numbers are as shown on the attached Addresses Annex to this Commitments Schedule. 111 122 ADDRESSES ANNEX TO COMMITMENTS SCHEDULE DATED MAY 28, 1999 BANK ONE, TEXAS, N.A. HIBERNIA NATIONAL BANK Mortgage Finance Group 313 Carondelet Street, 14th Floor 1717 Main Street, Fourth Floor New Orleans, Louisiana 70130 Dallas, Texas 75201 Attention: EDWARD (SKIP) SANTOS Attention: MARK FREEMAN Telephone: 504/533-3661 Telephone: 214/290-2780 Telecopy: 504/533-6242 Telecopy: 214/290-2054 NATIONAL CITY BANK OF KENTUCKY BANK UNITED 421 West Market Street 3200 Southwest Freeway, Suite 1325 Louisville, Kentucky 40202 Houston, Texas 77027 Attention: GARY SIEVEKING Attention: JANET B. GROUE Telephone: 502/581-7660 Telephone: 713/543-6819 Telecopy: 502/581-4154 Telecopy: 713/543-6469 US BANK NATIONAL ASSOCIATION COMERICA BANK 601 Second Avenue South 500 Woodward MPSP0508 Detroit, Michigan 48226-3256 Minneapolis, Minnesota 55402 Attention: DON HEATH Attention: KATHY CONNOR Telephone: 313/222-5740 Telephone: 612/973-0306 Telecopy: 313/222-9295 Telecopy: 612/973-0826 PNC BANK KENTUCKY, INC. 500 West Jefferson St., Suite 1200 Louisville, Kentucky 40202 Attention: SLOANE GRAFF Telephone: 502/581-4607 Telecopy: 502/581-3844 112 EX-10.34 3 CUSTODIAL AGREEMENT - DATED JULY 11, 1995 1 AUGUST 11, 1999 TENTH AMENDMENT TO LOAN AGREEMENT THIS TENTH AMENDMENT TO LOAN AGREEMENT (this "TENTH AMENDMENT"), is dated for reference purposes only as of August 11, 1999 by and among lenders party hereto from time to time ("LENDERS"), FirstCity Financial Corporation ("BORROWER"), a Delaware corporation, with its principal place of business at 6400 Imperial Drive, P.O. Box 8216, Waco, Texas 76714, and Bank of Scotland ("AGENT"), acting through its branch in New York, New York, a foreign banking corporation incorporated under the laws of Scotland with its principal place of business at 565 Fifth Avenue, New York, New York 10017, as administrative agent, managing agent and collateral agent on behalf of Lenders. RECITALS: A. Borrower and Bank of Scotland have entered into that certain Loan Agreement dated as of April 8, 1998, as amended by First Amendment to Loan Agreement by and between Borrower and Bank of Scotland, as amended by Second Amendment to Loan Agreement dated as of August 12, 1998 by and among Borrower, Bank of Scotland, individually, Lenders and Agent, as amended by Third Amendment to Loan Agreement dated as of September 29, 1998, as amended by Fourth Amendment to Loan Agreement dated as of November 17, 1998, as amended by Fifth Amendment to Loan Agreement dated as of February 17, 1999, as amended by Sixth Amendment to Loan Agreement dated as of April 30, 1999, as amended by Seventh Amendment to Loan Agreement dated as of June 30, 1999, as amended by Eighth Amendment to Loan Agreement dated as of July 30, 1999, as amended by Ninth Amendment to Loan Agreement dated as of August 6, 1999 (collectively, the "EXISTING LOAN AGREEMENT") pursuant to which Lenders have agreed to provide Borrower with a revolving credit facility. B. Borrower and Lenders have agreed to amend the Existing Loan Agreement to, inter alia, (i) extend the maturity date, (ii) increase the maximum principal amount of the loans, (iii) adjust the Interest Rate, and (iv) provide for an additional fee. NOW THEREFORE, in consideration of any loan, advance, extension of credit and/or other financial accommodation at any time made by Lenders to or for the benefit of Borrower, and of the promises set forth herein, the parties hereto agree as follows: 1. RECITALS, INCORPORATION. (a) Recital Representations. Borrower hereby represents and warrants to Lenders that the foregoing Recitals are (a) true and accurate and (b) an integral part of this Tenth Amendment. Borrower, Lenders and Agent hereby agree that all of the Recitals of this Tenth Amendment are hereby incorporated into this Tenth Amendment and made a part hereof. (b) Incorporation of Existing Loan Agreement. Any term not otherwise defined herein shall have the meaning set forth in the Existing Loan Agreement. 2. AMENDMENTS TO EXISTING LOAN AGREEMENT. The Existing Loan Agreement is hereby amended as follows: (a) The definition of "COMMITMENT PERCENTAGE" in the Existing Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: 2 "COMMITMENT PERCENTAGE" SHALL HAVE THE MEANING SET FORTH IN SECTION 2.3, AND SHALL BE COMPRISED OF THE TRANCHE A LOAN COMMITMENT PERCENTAGE, THE TRANCHE B LOAN COMMITMENT PERCENTAGE AND THE TRANCHE C LOAN COMMITMENT PERCENTAGE. (b) The definition of "ELIGIBLE NOTES" in the Existing Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "ELIGIBLE NOTE" SHALL MEAN ANY ONE OR MORE NEGOTIABLE PROMISSORY NOTES MADE BY A PRIMARY OBLIGOR PAYABLE TO THE ORDER OF BORROWER, IN FORM AND SUBSTANCE ACCEPTABLE TO AGENT, IN ITS SOLE AND EXCLUSIVE DISCRETION, WHICH NOTE: (A) HAS BEEN PLEDGED TO AGENT PURSUANT TO THE NOTE PLEDGE AGREEMENT BY AND BETWEEN BORROWER AND AGENT; (B) HAS BEEN DELIVERED TO AGENT BY BORROWER; (C) HAS BEEN ENDORSED BY BORROWER PAYABLE TO THE ORDER OF AGENT; (D) FOR WHICH BORROWER HAS DELIVERED TO AGENT AN AGREEMENT AND ESTOPPEL CERTIFICATE FROM THE MAKER THEREOF, ALL IN FORM AND SUBSTANCE ACCEPTABLE TO AGENT IN ITS SOLE AND EXCLUSIVE DISCRETION; AND (E) THE REPRESENTATIONS AND WARRANTIES WITH RESPECT TO WHICH MADE IN THE APPLICABLE NOTE PLEDGE AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS. (c) The definition of "MATURITY DATE" in the Existing Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "MATURITY DATE": JUNE 30, 2000, OR SUCH EARLIER DATE AS ALL OF BORROWER'S OBLIGATIONS SHALL BE DUE AND PAYABLE BY ACCELERATION OR OTHERWISE. (d) The definition of "PRIME INTEREST RATE" in the Existing Loan Agreement is hereby deleted in its entirety and the following is substituted therefor: "PRIME INTEREST RATE": MEANS (I) ON ALL AMOUNTS OUTSTANDING UNDER TRANCHE A LOANS, A VARIABLE INTEREST RATE EQUAL TO THE PRIME RATE PLUS ONE AND ONE-HALF PERCENT (1.5%) PER ANNUM, AND (II) ON ALL AMOUNTS OUTSTANDING UNDER THE TRANCHE B LOANS AND/OR THE TRANCHE C LOANS, A VARIABLE INTEREST RATE EQUAL TO THE PRIME RATE PLUS FOUR PERCENT (4%) PER ANNUM. (e) Section 1.1 of the Existing Loan Agreement is hereby amended by adding the following definitions: "AMENDED AND RESTATED NOTED PLEDGE AGREEMENT": THAT CERTAIN NOTE PLEDGE AGREEMENT BY AND BETWEEN BORROWER AND AGENT DATED AS OF AUGUST 11, 1999. "CONSUMER NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE MADE BY FC CONSUMER LENDING, PAYABLE TO THE ORDER OF BORROWER IN THE AMOUNT OF $5,000,000, AS SAID NOTE MAY HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED. "EXTRAORDINARY TRANSACTION" SHALL MEAN: (A) A SALE, CONVEYANCE, LEASE, OR OTHER TRANSFER BY BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR OF ALL OR SUBSTANTIALLY ALL OF ITS ASSETS, NOT IN THE ORDINARY COURSE OF ITS BUSINESS; (B) A SALE, CONVEYANCE, OR OTHER TRANSFER OF ANY EQUITY INTERESTS (INCLUDING STOCK, PARTNERSHIP INTERESTS, MEMBERSHIP INTERESTS, TRUST INTERESTS, WARRANTS, OPTIONS OR DEBENTURES) IN ANY AFFILIATE BY BORROWER, 3 ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR; (C) ANY SALE, CONVEYANCE OR OTHER TRANSFER OF ANY INDEBTEDNESS DUE TO BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR FROM ANY AFFILIATE, INCLUDING BUT NOT LIMITED TO BONDS, NOTES, NOTE PURCHASE AGREEMENTS OR ANY OTHER INDEBTEDNESS, HOWSOEVER EVIDENCED; (D) ANY INDEBTEDNESS PERMITTED BY AGENT AND LENDERS (IN THEIR SOLE AND EXCLUSIVE DISCRETION) TO BE INCURRED BY BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR, EXCEPT FOR (I) INDEBTEDNESS TO BE INCURRED BY ANY SUBSIDIARY OF FC COMMERCIAL (WHICH SHALL ONLY HAVE RECOURSE TO THE PURCHASING ENTITY) IN CONNECTION WITH PURCHASE MONEY FINANCING (WHETHER SECURED OR UNSECURED) TO PARTIES (OTHER THAN AFFILIATES) AND (II) INDEBTEDNESS INCURRED UNDER THE EXISTING FACILITIES LISTED UNDER SCHEDULE 5.1(T) ATTACHED HERETO, INCURRED IN THE ORDINARY COURSE OF BUSINESS; (E) THE ISSUANCE OF ANY SECURITIES OF BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR; (F) THE SALE OR RETENTION OF IN EXCHANGE FOR CREDIT THEREFORE BY NOMURA SECURITIES (BERMUDA) LTD. ("NOMURA") OF ANY PURCHASED SECURITIES, AS DEFINED IN AND PURSUANT TO THE TERMS THE MASTER REPURCHASE AGREEMENT BY AND BETWEEN FC CAPITAL CORP. AND NOMURA (THE "FC CAPITAL REPURCHASE AGREEMENT") AND THE MASTER REPURCHASE AGREEMENT BY AND BETWEEN FIRSTCITY CONSUMER LENDING CORPORATION AND NOMURA (THE "FCCLC REPURCHASE AGREEMENT" AND, TOGETHER WITH THE FC CAPITAL REPURCHASE AGREEMENT, THE "REPURCHASE AGREEMENTS") ("SECURITIES SALE"). "EXTRAORDINARY TRANSACTION PROCEEDS" SHALL MEAN THE CONSIDERATION PAID WITH RESPECT TO ANY EXTRAORDINARY TRANSACTION OR THE PROCEEDS OF ANY LOAN RECEIVED FROM ANY EXTRAORDINARY TRANSACTION, MINUS ONLY AMOUNTS FOR NECESSARY AND COMMERCIALLY REASONABLE EXPENSES INCURRED WITH RESPECT TO SUCH EXTRAORDINARY TRANSACTION, INCLUDING ATTORNEY'S FEES AND PAYMENT OF ANY INDEBTEDNESS SECURED TO BY ASSETS BEING CONVEYED PAYABLE TO ANY INDEPENDENT THIRD PARTY LENDER TO SECURE A RELEASE OF LIEN ON SUCH ASSETS BEING CONVEYED. "TENTH AMENDMENT": THE TENTH AMENDMENT TO LOAN AGREEMENT DATED FOR REFERENCE PURPOSES ONLY AS OF AUGUST 11, 1999 BY AND AMONG AGENT, LENDERS AND BORROWER. "TRANCHE A COMMITMENT": THE COMMITMENT OF LENDERS TO MAKE TRANCHE A LOANS, AS FURTHER DESCRIBED IN SECTION 2.3(a), AS MAY BE REDUCED PURSUANT TO THE TERMS OF SECTION 2.3(b). "TRANCHE A LOANS": LOANS TO BE MADE BY LENDERS TO BORROWER, MADE PURSUANT TO SECTION 2.1(a). "TRANCHE A NOTES": THOSE CERTAIN REVOLVING PROMISSORY NOTES OF BORROWER EXECUTED AND DELIVERED UNDER THIS AGREEMENT, PAYABLE TO THE RESPECTIVE LENDERS, ON OR BEFORE JUNE 30, 2000, EVIDENCING TRANCHE A LOANS MADE BY LENDERS TO BORROWER PURSUANT TO SECTION 2.1(a), AS SAID NOTES MAY HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED. 4 "TRANCHE B COMMITMENT": THE COMMITMENT OF BANK OF SCOTLAND TO MAKE TRANCHE B LOANS, AS FURTHER DESCRIBED IN SECTION 2.3(a). "TRANCHE B LOANS": LOANS TO BE MADE BY BANK OF SCOTLAND TO BORROWER, IN THE MAXIMUM AMOUNT OF $5,000,000, MADE PURSUANT TO SECTION 2.1(b). "TRANCHE B NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE MADE BY BORROWER PAYABLE TO THE ORDER OF BANK OF SCOTLAND, EVIDENCING TRANCHE B LOANS MADE PURSUANT TO SECTION 2.1(b), AS SAID NOTE MAY HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED. "TRANCHE C COMMITMENT" : THE COMMITMENT OF BANK OF SCOTLAND TO MAKE TRANCHE C LOANS, AS FURTHER DESCRIBED SECTION 2.3. "TRANCHE C LOANS ": LOANS TO BE MADE BY BANK OF SCOTLAND PURSUANT TO SECTION 2.1(c). "TRANCHE C NOTE": THAT CERTAIN REVOLVING PROMISSORY NOTE OF BORROWER EXECUTED AND DELIVERED UNDER THIS AGREEMENT, PAYABLE TO THE ORDER OF BANK OF SCOTLAND, EVIDENCING TRANCHE C LOANS MADE BY BANK OF SCOTLAND TO BORROWER PURSUANT TO SECTION 2.1(c), AS SAID NOTE MAY HEREAFTER BE AMENDED, RESTATED, MODIFIED, SUPPLEMENTED, EXTENDED OR REPLACED. "WARRANT AGREEMENT": THAT CERTAIN WARRANT AND REGISTRATION AGREEMENT DATED AS OF AUGUST 11, 1999 GRANTING BANK OF SCOTLAND, AS HOLDER, THE RIGHT TO PURCHASE 250,000 SHARES OF BORROWER'S COMMON STOCK. (f) Articles 2 and 3 of the Existing Loan Agreement are hereby deleted in their entirety and the following is substituted therefor: 2. LOANS - GENERAL TERMS 2.1. CREDIT FACILITIES. (a) TRANCHE A LOANS. SUBJECT TO THE TERMS AND CONDITIONS HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN SET FORTH, EACH LENDER, SEVERALLY AND NOT JOINTLY, AGREES TO MAKE TRANCHE A LOANS TO BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER THE DATE HEREOF TO BUT NOT INCLUDING THE MATURITY DATE. THE COMMITMENT OF ALL LENDERS TO MAKE TRANCHE A LOANS SHALL BE THE AMOUNT SET FORTH IN SECTION 2.3. A LENDER SHALL HAVE NO OBLIGATION AT ANY TIME TO MAKE ANY TRANCHE A LOANS IN EXCESS OF SUCH LENDER'S COMMITMENT SET FORTH IN SECTION 2.3. SUBJECT TO THE TERMS HEREOF, BORROWER MAY BORROW, REPAY AND REBORROW THE TRANCHE A LOANS; PROVIDED THAT, AT NO TIME SHALL THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE A LOANS EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE A LOANS DETERMINED IN ACCORDANCE WITH SECTION 2.2(a) NOR SHALL THE UNPAID PRINCIPAL BALANCE OF THE 5 TRANCHE A LOANS EXCEED THE OTHER LIMITATIONS SET FORTH HEREIN. THE OBLIGATION OF BORROWER TO REPAY THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS MADE TO IT BY EACH LENDER AND TO PAY INTEREST THEREON IS FURTHER EVIDENCED, IN PART, BY THE TRANCHE A NOTES. (b) TRANCHE B LOANS. SUBJECT TO THE TERMS AND CONDITIONS HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN SET FORTH, BANK OF SCOTLAND AGREES TO MAKE TRANCHE B LOANS TO BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER THE DATE HEREOF TO BUT NOT INCLUDING THE MATURITY DATE, IN AN AMOUNT NOT TO EXCEED $5,000,000. SUBJECT TO THE TERMS HEREOF, BORROWER MAY BORROW, REPAY AND REBORROW THE TRANCHE B LOANS; PROVIDED THAT, AT NO TIME SHALL THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE B LOANS EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE B LOANS DETERMINED IN ACCORDANCE WITH SECTION 2.2(a), NOR SHALL THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE B LOANS EXCEED THE OTHER LIMITATIONS SET FORTH HEREIN. THE OBLIGATION OF BORROWER TO REPAY THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE B LOANS MADE TO IT BY BANK OF SCOTLAND AND TO PAY INTEREST THEREON IS FURTHER EVIDENCED, IN PART, BY THE TRANCHE B NOTE. THE PROCEEDS OF THE TRANCHE B LOANS SHALL BE USED SOLELY TO FUND ADVANCES BY BORROWER TO FC CONSUMER PURSUANT TO THE CONSUMER NOTE. (c) TRANCHE C LOANS. SUBJECT TO THE TERMS AND CONDITIONS HEREOF AND RELYING UPON THE REPRESENTATIONS AND WARRANTIES HEREIN SET FORTH, BANK OF SCOTLAND AGREES TO MAKE TRANCHE C LOANS TO BORROWER AT ANY TIME OR FROM TIME TO TIME AFTER THE DATE HEREOF TO BUT NOT INCLUDING THE MATURITY DATE, IN AN AMOUNT NOT TO EXCEED $7,000,000. SUBJECT TO THE TERMS HEREOF, BORROWER MAY BORROW, REPAY AND REBORROW THE TRANCHE C LOANS; PROVIDED THAT, AT NO TIME SHALL THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE C LOANS EXCEED THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE C LOANS DETERMINED IN ACCORDANCE WITH SECTION 2.2(a), NOR SHALL THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS EXCEED THE OTHER LIMITATIONS SET FORTH HEREIN. THE OBLIGATION OF BORROWER TO REPAY THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS MADE TO IT BY BANK OF SCOTLAND AND TO PAY INTEREST THEREON IS FURTHER EVIDENCED, IN PART, BY THE TRANCHE C NOTE. 6 2.2. MAXIMUM PRINCIPAL AMOUNT. (a) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN ANY OTHER LOAN DOCUMENT, BUT SUBJECT TO THE LIMITATIONS SET FORTH IN OTHER PROVISIONS OF THIS AGREEMENT, THE PRINCIPAL PORTION OF BORROWER'S LIABILITIES OUTSTANDING SHALL NOT EXCEED THE FOLLOWING AMOUNTS (THE "MAXIMUM PRINCIPAL AMOUNT"): (i) THE MAXIMUM PRINCIPAL AMOUNT OF TRANCHE A LOANS SHALL NOT EXCEED AT ANY TIME AND FROM TIME TO TIME AN AMOUNT EQUAL TO EACH LENDER'S COMMITMENT FOR TRANCHE A LOANS DETERMINED IN ACCORDANCE WITH SECTION 2.3; (ii) THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE B LOANS SHALL NOT EXCEED, AT ANY ONE TIME, THE LESSER OF (a) $5,000,000 OR (b) THE OUTSTANDING PRINCIPAL AMOUNT OF THE CONSUMER NOTE; AND (iii) UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS SHALL NOT EXCEED, AT ANY ONE TIME, $7,000,000. THE UNPAID PRINCIPAL BALANCE PLUS ALL ACCRUED BUT UNPAID INTEREST, FEES AND ALL OTHER SECURED OBLIGATIONS SHALL BE DUE AND PAYABLE IN FULL ON THE MATURITY DATE. (b) IN THE EVENT THAT THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE A LOANS, TRANCHE B LOANS OR TRANCHE C LOANS EXCEED THE MAXIMUM PRINCIPAL AMOUNT THEREOF (INDIVIDUALLY AND NOT IN THE AGGREGATE) DETERMINED IN ACCORDANCE WITH SECTION 2.2(a), BORROWER SHALL PAY THE AMOUNT OF SUCH EXCESS TO AGENT (i) WITH RESPECT TO AMOUNTS BORROWED FROM TRANCHE A LOANS FOR THE RATABLE BENEFIT OF LENDERS AND (ii) WITH RESPECT TO AMOUNTS BORROWED UNDER TRANCHE B LOANS AND/OR TRANCHE C LOANS FOR THE SOLE BENEFIT OF BANK OF SCOTLAND, WITHOUT NOTICE OR DEMAND, AND ANY AMOUNT NOT SO PAID SHALL BEAR INTEREST AT THE DEFAULT RATE UNTIL PAID. THIS IS AN ABSOLUTE OBLIGATION TO PAY TO AGENT THE AMOUNT OF THE UNPAID PRINCIPAL BALANCE OF THE LOANS IN EXCESS OF SAID MAXIMUM PRINCIPAL AMOUNT, REGARDLESS OF THE CAUSE OF SUCH EXCESS. (c) LIMITATIONS ON TRANCHE B LOANS AND TRANCHE C LOANS. (i) IN ADDITION TO THE LIMITATIONS SET FORTH IN SECTION 2.2(a), NO PROCEEDS OF THE TRANCHE B LOANS OR THE TRANCHE C LOANS SHALL BE ADVANCED AT ANY TIME THAT LENDERS HAVE NOT FUNDED THEIR TOTAL TRANCHE A COMMITMENTS AND THAT THE OUTSTANDING PRINCIPAL BALANCE OF THE TRANCHE A LOANS IS NOT THE MAXIMUM OUTSTANDING PRINCIPAL BALANCE PERMITTED HEREUNDER. (ii) NO ADVANCES OF THE TRANCHE B LOANS OR THE TRANCHE C LOANS, IN THE AGGREGATE, SHALL BE MADE IN AN AMOUNT IN EXCESS OF $3,000,000 DURING ANY ONE CALENDAR MONTH. (iii) NO ADVANCES OF TRANCHE B LOANS OR THE TRANCHE C LOANS IN EXCESS OF THE PRINCIPAL AMOUNT OF $3,000,000 SHALL BE MADE AT ANY TIME THAT THE OUTSTANDING PRINCIPAL BALANCE (DETERMINED IN DOLLAR EQUIVALENTS) UNDER THE INTERNATIONAL FACILITY EXCEEDS $4,000,000. AS USED HEREIN, THE "INTERNATIONAL FACILITY" MEANS THAT CERTAIN AMENDED AND RESTATED LOAN AGREEMENT DATED AS OF DECEMBER 9, 1998 BY AND AMONG BANK OF SCOTLAND, FIRST CITY INTERNATIONAL CORPORATION, AND CRINOLINE INVESTMENTS, B.V., OF WHICH BORROWER IS A GUARANTOR OF PAYMENT AND PERFORMANCE OF ALL LIABILITIES AND OBLIGATIONS THEREUNDER. 7 2.3. LENDER'S COMMITMENTS. (a) ON THE DATE HEREOF THE TOTAL COMMITMENT OF LENDERS IS $93,000,000. THE TRANCHE A COMMITMENT, AS OF THE DATE HEREOF IS $81,000,000, OF WHICH BANK OF SCOTLAND'S COMMITMENT IS $48,000,000 AND NATIONSBANK'S COMMITMENT IS $33,000,000. THE TRANCHE B COMMITMENT IS $5,000,000, AND THE TRANCHE C COMMITMENT IS $7,000,000. BANK OF SCOTLAND'S COMMITMENT PERCENTAGE RELATING TO TRANCHE A LOANS SHALL BE 59.259% AND NATIONSBANK'S COMMITMENT PERCENTAGE RELATING TO TRANCHE A LOANS SHALL BE 40.741%. BANK OF SCOTLAND'S COMMITMENT PERCENTAGE RELATING TO THE TRANCHE B LOANS AND THE TRANCHE C LOANS SHALL BE 100% AND NATIONSBANK SHALL HAVE NO COMMITMENT PERCENTAGE RELATING TO TRANCHE B LOANS OR TRANCHE C LOANS. THE COMMITMENT PERCENTAGE OF EACH LENDER MAY BE ADJUSTED IF A TRANSFER OCCURS IN ACCORDANCE WITH SECTION 9.27. LENDERS' COMMITMENTS ARE SUBJECT TO THE MANDATORY REDUCTIONS SET FORTH IN SECTION 2.3(b). (b) THE PAYMENT OF ANY EXTRAORDINARY TRANSACTION PROCEEDS PAID PURSUANT TO SECTION 3.3 SHALL PERMANENTLY REDUCE THE LENDER'S COMMITMENTS RELATING TO THE TRANCHE A LOANS, THE TRANCHE B LOANS OR THE TRANCHE C LOANS, AS APPLICABLE, SUCH AMOUNT MAY NOT BE REBORROWED AND THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A LOANS, THE TRANCHE B LOANS, OR THE TRANCHE C LOANS, AS APPLICABLE, SHALL BE PERMANENTLY REDUCED BY SUCH AMOUNT. 2.4. MATURITY DATE; TERMINATION OF LOANS. LENDERS' RESPECTIVE OBLIGATIONS TO MAKE ANY ADVANCE TO BORROWER PURSUANT TO THE PROVISIONS HEREOF SHALL BE IN EFFECT UNTIL THE MATURITY DATE, UNLESS SOONER TERMINATED BY LENDERS UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, AN UNMATURED DEFAULT, OR PURSUANT TO THE TERMS HEREOF. 2.5. AUTHORIZED DISBURSEMENT OF PROCEEDS. BORROWER HEREBY AUTHORIZES AND DIRECTS EACH LENDER AND AGENT TO DISBURSE, FOR AND ON BEHALF OF BORROWER AND FOR BORROWER'S ACCOUNT, THE PROCEEDS OF ANY LOANS TO SUCH PERSON AS BORROWER OR ANY DESIGNATED PERSON SHALL DIRECT. IN ADDITION TO ADVANCES OF LOAN PROCEEDS MADE PURSUANT TO A BORROWING REQUEST MADE BY BORROWER FROM TIME TO TIME, BORROWER HEREBY IRREVOCABLY AUTHORIZES EACH LENDER AND AGENT TO DISBURSE PROCEEDS OF THE LOANS TO PAY: (a) INTEREST WHICH IS ACCRUED BUT UNPAID AND WHICH IS DUE AND PAYABLE PURSUANT TO THE TERMS HEREOF AND OF THE NOTES UNTIL THE LOANS ARE PAID IN FULL; AND (b) FOR ANY AND ALL COSTS. THE EXECUTION OF THIS AGREEMENT BY BORROWER SHALL, AND HEREBY DOES, CONSTITUTE AN IRREVOCABLE DIRECTION AND AUTHORIZATION TO EACH LENDER AND AGENT SO TO DISBURSE SUCH FUNDS DESCRIBED IN THIS SECTION AND TO TREAT SUCH ADVANCES AS MONEY LOANED PURSUANT TO THIS AGREEMENT AND AS INDEBTEDNESS EVIDENCED BY THE NOTES. NO FURTHER DIRECTION OR AUTHORIZATION FROM BORROWER SHALL BE NECESSARY FOR LENDERS TO MAKE SUCH ADVANCES, AND ALL SUCH ADVANCES SHALL SATISFY, TO THE EXTENT SO DISBURSED, THE OBLIGATIONS OF BORROWER HEREUNDER AND SHALL BE EVIDENCED BY THE NOTES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, LENDERS ARE UNDER NO DUTY OR OBLIGATION TO MAKE SUCH ADVANCES AND FAILURE TO MAKE SUCH ADVANCES SHALL NOT BE DEEMED TO BE A DEFAULT BY LENDERS OR IMPAIR ANY OF LENDERS' RIGHTS OR REMEDIES HEREUNDER. 2.6. BORROWING PROCEDURE. (a) BORROWING REQUEST. IN ORDER TO REQUEST AN ADVANCE, BORROWER SHALL HAND DELIVER OR TELECOPY TO AGENT A DULY COMPLETED BORROWING REQUEST NOT LATER THAN 11:00 A.M. NEW YORK TIME AT 8 LEAST ONE (1) BUSINESS DAY BEFORE A PROPOSED ADVANCE. EACH BORROWING REQUEST SHALL BE IRREVOCABLE AND SHALL SPECIFY: (w) THE NUMBER AND LOCATION OF THE ACCOUNT TO WHICH FUNDS ARE TO BE DISBURSED; (x) THE DATE SUCH ADVANCE IS TO BE MADE (WHICH SHALL BE A BUSINESS DAY); (y) THE AMOUNT OF SUCH ADVANCE; AND (z) WHETHER THE ADVANCE IS TO BE TRANCHE A LOANS, TRANCHE B LOANS OR TRANCHE C LOANS; PROVIDED THAT BORROWER MAY NOT MAKE A BORROWING REQUEST FOR ANY TRANCHE B LOANS OR ANY TRANCHE C LOANS IF THE OUTSTANDING PRINCIPAL AMOUNT OF THE TRANCHE A LOANS IS LESS THAN THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A LOANS, DETERMINED IN ACCORDANCE WITH SECTION 2.2(a). EACH BORROWING REQUEST RELATING TO A TRANCHE B LOANS SHALL BE ACCOMPANIED BY A CERTIFICATE SETTING FORTH THE THEN OUTSTANDING PRINCIPAL BALANCE OF THE CONSUMER NOTE. (b) PRO RATA TREATMENT OF TRANCHE A LOANS. EACH BORROWING OF TRANCHE A LOANS SHALL BE MADE FROM EACH LENDER PRO RATA IN ACCORDANCE WITH ITS TRANCHE A LOAN COMMITMENT PERCENTAGE, DETERMINED IN ACCORDANCE WITH SECTION 2.3. (c) FAILURE TO LOAN. THE FAILURE OF ANY LENDER TO MAKE A LOAN SHALL NOT RELIEVE ANY OTHER LENDER OF ITS OBLIGATION TO LEND ANY HEREUNDER, BUT NEITHER AGENT NOR ANY LENDER SHALL BE RESPONSIBLE FOR THE FAILURE OF ANY OTHER LENDER TO MAKE A LOAN. 2.7. INTEREST RATE. THE UNPAID PRINCIPAL BALANCE OF THE LOANS SHALL BEAR INTEREST AT THE PRIME INTEREST RATE APPLICABLE THERETO. INTEREST ON ALL PRIME RATE ADVANCES SHALL BE COMPUTED ON A 365-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED. AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT AND DURING THE CONTINUATION THEREOF, ALL LOANS SHALL BEAR INTEREST AT THE DEFAULT RATE. THE UNPAID PRINCIPAL BALANCE OF EACH ADVANCE SHALL BEAR INTEREST AT THE INTEREST RATE APPLICABLE THERETO, DETERMINED BY AGENT IN ACCORDANCE WITH THE PROVISIONS HEREOF, WHICH DETERMINATION SHALL BE BINDING UPON BORROWER, ABSENT MANIFEST ERROR. 2.8. CHANGE OF LAWS. IF AGENT OR ANY LENDER SHALL DETERMINE AT ANY TIME AFTER THE DATE HEREOF THAT THE ADOPTION OF ANY LAW, RULE OR REGULATION REGARDING CAPITAL ADEQUACY, OR ANY CHANGE THEREIN OR IN THE INTERPRETATION OR ADMINISTRATION THEREOF BY ANY GOVERNMENTAL AUTHORITY, CENTRAL BANK OR COMPARABLE AGENCY CHARGED WITH THE INTERPRETATION OR ADMINISTRATION THEREOF OR COMPLIANCE BY AGENT OR ANY LENDER WITH ANY REQUEST OR DIRECTIVE REGARDING CAPITAL ADEQUACY (WHETHER OR NOT HAVING THE FORCE OF LAW) FROM ANY SUCH AUTHORITY, CENTRAL BANK OR COMPARABLE AGENCY, HAS OR WOULD HAVE THE EFFECT OF REDUCING THE RATE OF RETURN ON AGENT'S OR ANY LENDER'S CAPITAL AS A CONSEQUENCE OF ITS OBLIGATIONS HEREUNDER TO A LEVEL BELOW THAT WHICH AGENT OR THE APPLICABLE LENDER COULD HAVE ACHIEVED BUT FOR SUCH ADOPTION, CHANGE OR COMPLIANCE (TAKING INTO CONSIDERATION AGENT'S OR SUCH LENDER'S POLICIES WITH RESPECT TO CAPITAL ADEQUACY) BY AN AMOUNT DEEMED BY AGENT OR SUCH LENDER TO BE MATERIAL, AGENT OR SUCH LENDER, AS APPLICABLE, SHALL GIVE NOTICE THEREOF TO BORROWER OF SUCH DETERMINATION (AND ANY LENDER GIVING SUCH NOTICE SHALL NOTIFY AGENT), IN WHICH EVENT BORROWER SHALL PAY TO AGENT FOR THE BENEFIT OF THE APPLICABLE LENDER UPON DEMAND SUCH AMOUNT OR AMOUNTS, IN ADDITION TO THE AMOUNTS PAYABLE UNDER ANY OTHER PROVISION OF THIS AGREEMENT OR THE OTHER AGREEMENTS, AS WILL COMPENSATE AGENT OR SUCH LENDER, AS APPLICABLE, FOR SUCH REDUCTION. DETERMINATIONS BY AGENT OR SUCH LENDER FOR PURPOSES OF THIS SECTION OF THE ADDITIONAL AMOUNT OR AMOUNTS REQUIRED TO COMPENSATE AGENT OR SUCH LENDER WITH RESPECT TO THE FOREGOING SHALL BE CONCLUSIVE IN THE ABSENCE OF 9 MANIFEST ERROR. IN DETERMINING SUCH AMOUNT OR AMOUNTS, AGENT OR SUCH LENDER MAY USE ANY REASONABLE AVERAGING OR ATTRIBUTION METHODS. NOTWITHSTANDING THE FOREGOING, NO AMOUNTS SHALL BE PAYABLE BY BORROWER TO AGENT OR SUCH LENDER UNDER THE TERMS OF THIS SECTION 2.8 IF THE SECURED OBLIGATIONS ARE PAID IN FULL ON OR BEFORE TEN (10) DAYS AFTER THE DATE ON WHICH AGENT OR SUCH LENDER, AS APPLICABLE, SHALL HAVE NOTIFIED BORROWER THAT AMOUNTS WILL BE DUE UNDER THIS SECTION 2.8. 2.9. FEES. (a) FACILITY FEE. IN THE EVENT BORROWER REPAYS IN FULL THE UNPAID PRINCIPAL BALANCE OF THE LOANS MADE TO IT AND ANY ACCRUED INTEREST THEREON AND LENDERS' COMMITMENTS ARE CANCELLED (THE "CANCELLATION DATE"), BORROWER SHALL PAY TO LENDERS A FACILITY FEE TO BE ALLOCATED AMONG LENDERS' PRO RATA IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENT PERCENTAGES WITH RESPECT TO AMOUNTS DISBURSED AS TRANCHE A LOANS. THE AMOUNT OF THE FACILITY FEE IS DEPENDENT UPON THE DATE OF THE CANCELLATION DATE AND SHALL BE PAID IN ACCORDANCE WITH THE FOLLOWING SCHEDULE:
IF THE CANCELLATION DATE IS: FACILITY FEE SHALL BE: ---------------------------- ---------------------- ON OR BEFORE NOVEMBER 9, 1999 $0 ON OR BEFORE FEBRUARY 8, 2000 $500,000 ON OR BEFORE MAY 8, 2000 $1,650,000 AT ANY TIME THEREAFTER $2,500,000
(b) UNUSED COMMITMENT. BORROWER SHALL PAY AN UNUSED COMMITMENT FEE IN AN AMOUNT EQUAL TO .125% (ON AN ANNUAL BASIS, BASED ON THE NUMBER OF DAYS ELAPSED ON A 365-DAY YEAR) OF THE DIFFERENCE BETWEEN TOTAL COMMITMENT DETERMINED IN ACCORDANCE WITH SECTION 2.3 AND THE DAILY OUTSTANDING PRINCIPAL BALANCE OF THE LOAN. SUCH FEE SHALL BE PAYABLE QUARTERLY IN ARREARS ON THE LAST BUSINESS DAY OF EACH CALENDAR QUARTER. (c) INTEREST ON FEES. ANY FEE PAYABLE UNDER THIS SECTION 2.9 WHICH NOT PAID WHEN DUE SHALL BEAR INTEREST AT THE DEFAULT RATE. 2.10. USURY. THE PROVISIONS OF THIS SECTION SHALL GOVERN AND CONTROL OVER ANY IRRECONCILABLY INCONSISTENT PROVISION CONTAINED IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT EVIDENCING OR SECURING THE LOAN. NONE OF LENDERS OR AGENT SHALL BE ENTITLED TO RECEIVE, COLLECT, OR APPLY AS INTEREST HEREON (FOR PURPOSES OF THIS SECTION, THE WORD "INTEREST" SHALL BE DEEMED TO INCLUDE ANY SUMS TREATED AS INTEREST UNDER APPLICABLE LAW GOVERNING MATTERS OF USURY AND UNLAWFUL INTEREST), ANY AMOUNT IN EXCESS OF THE HIGHEST LAWFUL RATE (HEREINAFTER DEFINED) AND, IN THE EVENT LENDERS OR AGENT EVER RECEIVES, COLLECTS, OR APPLIES AS INTEREST ANY SUCH EXCESS, SUCH AMOUNT WHICH WOULD BE EXCESSIVE INTEREST SHALL BE DEEMED A PARTIAL PREPAYMENT OF PRINCIPAL AND SHALL BE TREATED HEREUNDER AS SUCH; AND, IF THE PRINCIPAL OF THIS AGREEMENT IS PAID IN FULL, ANY REMAINING EXCESS SHALL 10 FORTHWITH BE PAID TO BORROWER. IN DETERMINING WHETHER OR NOT THE INTEREST PAID OR PAYABLE, UNDER ANY SPECIFIC CONTINGENCY, EXCEEDS THE HIGHEST LAWFUL RATE, BORROWER, LENDERS AND AGENT SHALL, TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW; (i) CHARACTERIZE ANY NON-PRINCIPAL PAYMENT AS AN EXPENSE, FEE OR PREMIUM RATHER THAN AS INTEREST; (ii) EXCLUDE VOLUNTARY PREPAYMENTS AND THE EFFECTS THEREOF, AND (iii) SPREAD THE TOTAL AMOUNT OF INTEREST THROUGHOUT THE ENTIRE CONTEMPLATED TERM OF THIS AGREEMENT, PROVIDED, THAT IF THIS AGREEMENT IS PAID AND PERFORMED IN FULL PRIOR TO THE END OF THE FULL CONTEMPLATED TERM HEREOF, AND IF THE INTEREST RECEIVED FOR THE ACTUAL PERIOD OF EXISTENCE HEREOF EXCEEDS THE HIGHEST LAWFUL RATE, LENDERS AND/OR AGENT SHALL REFUND TO BORROWER THE AMOUNT OF SUCH EXCESS AND, IN SUCH EVENT, LENDERS AND/OR AGENT SHALL NOT BE SUBJECT TO ANY PENALTIES PROVIDED BY ANY LAWS FOR CONTRACTING FOR, CHARGING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE. "HIGHEST LAWFUL RATE" SHALL MEAN THE MAXIMUM RATE OF INTEREST WHICH LENDERS AND/OR AGENT IS ALLOWED TO CONTRACT FOR, CHARGE, TAKE, RESERVE OR RECEIVE UNDER APPLICABLE LAW AFTER TAKING INTO ACCOUNT, TO THE EXTENT REQUIRED BY APPLICABLE LAW, ANY AND ALL RELEVANT PAYMENTS OR CHARGES HEREUNDER. 3. PAYMENT TERMS. 3.1. LOAN ACCOUNT; METHOD OF MAKING PAYMENTS. AGENT SHALL MAINTAIN A LOAN ACCOUNT ON ITS BOOKS IN WHICH SHALL BE RECORDED: (i) ALL LOANS MADE BY LENDERS TO BORROWER PURSUANT TO THIS AGREEMENT; (ii) ALL PAYMENTS MADE BY BORROWER ON ALL LOANS; AND (iii) ALL OTHER APPROPRIATE DEBITS AND CREDITS AS PROVIDED IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ALL FEES, CHARGES, EXPENSES AND INTEREST. ALL ENTRIES IN THE LOAN ACCOUNT SHALL BE MADE IN ACCORDANCE WITH AGENT'S CUSTOMARY ACCOUNTING PRACTICES, IN EFFECT FROM TIME TO TIME. THE FAILURE OF AGENT TO RECORD ANY OF THE FOREGOING SHALL NOT IN ANY WAY LIMIT BORROWER'S LIABILITIES OR BORROWER'S OBLIGATIONS UNDER THIS AGREEMENT. 3.2. INTEREST PAYMENTS. ACCRUED INTEREST ON ALL LOANS SHALL BE PAYABLE MONTHLY, IN ARREARS, ON THE LAST BUSINESS DAY OF EACH MONTH DURING THE TERM HEREOF, WITHOUT NOTICE OR DEMAND. 3.3. PRINCIPAL PAYMENTS. BORROWER SHALL PAY MANDATORY PRINCIPAL PAYMENTS AT THE FOLLOWING TIMES AND IN THE FOLLOWING AMOUNTS: (a) THE UNPAID PRINCIPAL BALANCE, PLUS ALL ACCRUED BUT UNPAID INTEREST, SHALL BE DUE AND PAYABLE TO AGENT, FOR THE RATABLE BENEFIT OF LENDERS, IN FULL ON THE MATURITY DATE, WITHOUT NOTICE OR DEMAND. SAID AMOUNT SHALL BE DUE AND PAYABLE, NOTWITHSTANDING ANY SEEMINGLY CONTRADICTORY PROVISIONS IN THIS AGREEMENT. (b) IN THE EVENT OF A PRINCIPAL PAYMENT ON ANY PLEDGED NOTE IN AN AMOUNT IN EXCESS, IN THE AGGREGATE, OF $100,000, BORROWER AND THE APPLICABLE LOAN PARTY SHALL GIVE IMMEDIATE NOTICE THEREOF TO AGENT AND BORROWER SHALL PAY TO AGENT PRINCIPAL IN AN AMOUNT EQUAL TO THE AMOUNT OF SUCH PRINCIPAL PAYMENT ON SAID PLEDGED NOTE; PROVIDED THAT THE PARTIES HEREBY ACKNOWLEDGE THAT SUCH PRINCIPAL PAYMENT SHALL NOT REDUCE THE TOTAL COMMITMENT. (c) IF AT ANY TIME THE OUTSTANDING PRINCIPAL AMOUNT EXCEEDS THE MAXIMUM PRINCIPAL AMOUNT OF THE TRANCHE A LOAN, THE TRANCHE B LOAN OR THE TRANCHE C LOAN, AS APPLICABLE, DETERMINED IN 11 ACCORDANCE WITH SECTION 2.2, BORROWER SHALL PAY PRINCIPAL IN AN AMOUNT NECESSARY TO REDUCE THE THEN OUTSTANDING PRINCIPAL AMOUNT TO AN AMOUNT LESS THAN THE MAXIMUM PRINCIPAL AMOUNT OF THE APPLICABLE LOAN AND SAID PAYMENT SHALL BE APPLIED TO THE TRANCHE A LOAN, THE TRANCHE B LOAN OR THE TRANCHE C LOAN, AS APPLICABLE, TO REDUCE SUCH LOAN TO AN AMOUNT BELOW THE MAXIMUM PRINCIPAL AMOUNT THEREOF DETERMINED IN ACCORDANCE WITH SECTION 2.2. (d) BORROWER SHALL PAY TO AGENT, FOR THE BENEFIT OF LENDERS, 100% OF ALL EXTRAORDINARY TRANSACTION PROCEEDS, TO BE APPLIED TO THE SECURED OBLIGATIONS IN THE ORDER OF PRIORITY DETERMINED IN ACCORDANCE WITH SECTION 3.6. 3.4. PLACE OF PAYMENT. ALL PAYMENTS TO AGENT HEREUNDER AND UNDER THE OTHER AGREEMENTS SHALL BE PAYABLE IN IMMEDIATELY AVAILABLE FUNDS ON OR BEFORE NOON NEW YORK TIME AT THE PLACE DESIGNATED ON EXHIBIT A, OR SUCH PLACE OR PLACES AS AGENT MAY DESIGNATE IN WRITING TO BORROWER. ALL OF SUCH PAYMENTS TO PERSONS OTHER THAN AGENT SHALL BE PAYABLE AT SUCH PLACE OR PLACES AS AGENT MAY DESIGNATE IN WRITING TO BORROWER. BORROWER'S LIABILITIES AND THE OTHER SECURED OBLIGATIONS WILL BE PAYABLE AS SET FORTH IN THE NOTES, THIS AGREEMENT, AND THE OTHER AGREEMENTS. 3.5. PAYMENT ON MATURITY AND PREPAYMENT. ON THE MATURITY DATE, WHETHER BY ACCELERATION OR OTHERWISE, BORROWER SHALL PAY TO AGENT, IN FULL, IN CASH OR OTHER IMMEDIATELY AVAILABLE FUNDS, THE OUTSTANDING AMOUNT OF THE LOAN. THE LOANS MAY BE PREPAID IN FULL OR IN PART, WITHOUT PREMIUM OR PENALTY, EXCEPT FOR THE FEES SET FORTH IN SECTION 2.9. 3.6. APPLICATION OF PAYMENTS. (a) AGENT SHALL APPLY PAYMENTS MADE TO AGENT, FOR THE BENEFIT OF LENDERS, FROM ANY SOURCE OTHER THAN EXTRAORDINARY TRANSACTION PROCEEDS (THE "ORDINARY COURSE PREPAYMENTS") IN THE FOLLOWING ORDER OF PRIORITY: (i) FIRST TO COSTS, INCLUDING THE PAYMENT OF ANY COSTS AND EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY RIGHTS HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS; (ii) THEN TO ACCRUED BUT UNPAID INTEREST AND OTHER FEES AND EXPENSES THEN DUE AND PAYABLE HEREUNDER; (iii) THEN TO THE PRINCIPAL AMOUNT OF THE TRANCHE C LOAN; (iv) THEN TO THE PRINCIPAL AMOUNT OF THE TRANCHE B LOAN, AND (v) THEN TO THE PRINCIPAL AMOUNT OF THE TRANCHE A LOAN IN ACCORDANCE WITH THE FOLLOWING PROPORTIONS: 59.295% TO BANK OF SCOTLAND AND 40.741% TO NATIONSBANK. (b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, AGENT SHALL APPLY EXTRAORDINARY TRANSACTION PROCEEDS RECEIVED IN CONNECTION WITH A SALE OF THE STOCK OR OTHER EQUITY INTERESTS OF FC CONSUMER LENDING OR ANY OF FC CONSUMER LENDING'S ASSETS FIRST TO (i) COSTS RELATING TO THE TRANCHE B LOAN; (ii) THEN TO INTEREST UNDER THE TRANCHE B LOAN; (iii) THEN TO THE UNPAID PRINCIPAL AMOUNT OF THE TRANCHE B LOAN; (iv) THEN TO ALL OTHER COSTS, INCLUDING THE PAYMENT OF COSTS AND EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY RIGHTS HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS; (v) THEN TO ACCRUED BUT UNPAID INTEREST ON ALL OTHER LOANS; (vi) THEN TO PAYMENT OF THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS AND THE REDUCTION OF LENDERS' COMMITMENTS IN ACCORDANCE WITH THE FOLLOWING PROPORTIONS: 62.50% TO BANK OF SCOTLAND AND 37.50% TO NATIONSBANK, UNTIL BANK OF SCOTLAND IS 12 PAID IN FULL ALL AMOUNTS DUE TO BANK OF SCOTLAND WITH RESPECT TO THE TRANCHE A LOANS; (vii) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS UNTIL NATIONSBANK IS PAID IN FULL, AND (viii) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS. (c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, BUT SUBJECT TO THE PROVISIONS OF SECTION 3.6(b), THE AGENT SHALL APPLY EXTRAORDINARY TRANSACTION PROCEEDS, INCLUDING BUT NOT LIMITED TO EXTRAORDINARY TRANSACTION PROCEEDS RECEIVED IN CONNECTION WITH A SECURITIES SALE, AS FOLLOWS: (i) TO COSTS INCLUDING PAYMENT OF ANY COSTS AND EXPENSES INCURRED BY AGENT AND/OR LENDERS TO ENFORCE ANY RIGHTS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT; (ii) THEN TO ACCRUED BUT UNPAID INTEREST THEN DUE AND PAYABLE, (iii) THEN TO THE REPAYMENT OF THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS AND THE REDUCTION OF LENDERS' TRANCHE A COMMITMENTS IN ACCORDANCE WITH THE FOLLOWING PROPORTIONS: 64.52% TO BANK OF SCOTLAND AND 35.48% TO NATIONSBANK, UNTIL BANK OF SCOTLAND IS PAID IN FULL ALL AMOUNTS DUE TO BANK OF SCOTLAND WITH RESPECT TO THE TRANCHE A LOANS; (iv) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE A LOANS UNTIL NATIONSBANK IS PAID IN FULL, (v) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE C LOANS, AND (vi) THEN TO THE UNPAID PRINCIPAL BALANCE OF THE TRANCHE B LOANS. (d) THE PROVISIONS OF THIS SECTION 3.6 SHALL CONTROL OVER ANY INCONSISTENT PROVISION IN THIS AGREEMENT, INCLUDING THE PROVISIONS OF SECTION 10.5. 3.7. ADVANCES TO CONSTITUTE ONE LOAN. ALL ADVANCES, LOANS, INCLUDING TRANCHE A LOANS, TRANCHE B LOANS AND TRANCHE C LOANS, AND ANY OTHER FINANCIAL ACCOMMODATIONS PROVIDED PURSUANT TO THE TERMS HEREOF BY LENDERS TO BORROWER SHALL CONSTITUTE ONE LOAN AND ALL INDEBTEDNESS AND OBLIGATIONS OF BORROWER TO LENDERS AND/OR AGENT UNDER THIS AGREEMENT, THE OTHER AGREEMENTS OR OTHERWISE SHALL CONSTITUTE ONE GENERAL OBLIGATION SECURED BY THE COLLATERAL. 3.8. REAPPLICATION OF PAYMENTS. TO THE EXTENT THAT AGENT RECEIVES ANY PAYMENT ON ACCOUNT OF THE SECURED OBLIGATIONS, AND ANY SUCH PAYMENT(S) AND/OR PROCEEDS OR ANY PART THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE FRAUDULENT OR PREFERENTIAL, SET ASIDE, SUBORDINATED AND/OR REQUIRED TO BE REPAID TO A TRUSTEE, RECEIVER OR ANY OTHER PERSON UNDER ANY BANKRUPTCY ACT, STATE OR FEDERAL LAW, COMMON LAW OR EQUITABLE CAUSE, THEN, TO THE EXTENT OF SUCH PAYMENT(S) OR PROCEEDS RECEIVED, THE SECURED OBLIGATIONS OR PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE IN FULL FORCE AND EFFECT, AS IF SUCH PAYMENT(S) AND/OR PROCEEDS HAD NOT BEEN RECEIVED BY AGENT AND APPLIED ON ACCOUNT OF THE SECURED OBLIGATIONS. 3.9. MONTHLY STATEMENTS. ALL ADVANCES TO BORROWER AND ALL OTHER DEBITS AND CREDITS PROVIDED FOR IN THIS AGREEMENT SHALL BE EVIDENCED BY ENTRIES MADE BY EACH LENDER AND AGENT IN ITS INTERNAL DATA CONTROL SYSTEMS SHOWING THE DATE, AMOUNT AND REASON FOR EACH SUCH DEBIT OR CREDIT. UNTIL SUCH TIME AS EACH LENDER AND AGENT SHALL HAVE RENDERED TO BORROWER WRITTEN STATEMENTS OF ACCOUNT AS PROVIDED HEREIN, THE BALANCE IN THE LOAN ACCOUNT, AS SET FORTH ON EACH LENDER'S AND AGENT'S RESPECTIVE MOST RECENT STATEMENTS, SHALL BE REBUTTABLY PRESUMPTIVE EVIDENCE OF THE AMOUNTS DUE AND OWING TO EACH LENDER AND/OR AGENT BY BORROWER. AT EACH LENDER'S AND AGENT'S OPTION, EACH LENDER AND AGENT SHALL RENDER A 13 MONTHLY STATEMENT TO BORROWER SETTING FORTH THE BALANCE OF THE LOAN ACCOUNT, INCLUDING PRINCIPAL, INTEREST, COSTS, PENALTIES, CHARGES AND OTHER FEES. EACH SUCH STATEMENT SHALL BE SUBJECT TO SUBSEQUENT ADJUSTMENT BY EACH LENDER AND AGENT AND EACH LENDER'S AND AGENT'S RIGHT TO REAPPLY PAYMENTS IN ACCORDANCE WITH SECTION 3.7(b), BUT SHALL, AS TO STATEMENTS OF PRINCIPAL AND INTEREST THEN DUE OR HAVING BEEN PAID, ABSENT MANIFEST ERRORS OR OMISSIONS, BE PRESUMED CORRECT AND BINDING UPON BORROWER AND SHALL CONSTITUTE AN ACCOUNT STATEMENT UNLESS, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF ANY STATEMENT FROM ANY LENDER AND/OR AGENT, BORROWER SHALL DELIVER TO THE APPROPRIATE LENDER AND/OR AGENT WRITTEN OBJECTION THERETO, SPECIFYING THE ERROR OR ERRORS, IF ANY, CONTAINED IN SUCH STATEMENT. 3.10. TIME OF PAYMENT OF EXTRAORDINARY TRANSACTION PROCEEDS. ANY PAYMENT DUE PURSUANT TO THE TERMS OF SECTION 3.3(d) SHALL BE MADE ON THE DATE OF CLOSING OF SUCH TRANSACTION AND BORROWER SHALL DIRECT PURCHASER AND/OR LENDER TO MAKE PAYMENT BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS DIRECTLY TO AGENT. NO PORTION OF THE CONSIDERATION PAID FOR SUCH TRANSFER SHALL BE MADE IN KIND, IN SECURITIES, OR BY DELIVERY OF PROMISSORY NOTE OR OTHER FORM OF INDEBTEDNESS OR OBLIGATION, WITHOUT, IN EACH INSTANCE THE PRIOR WRITTEN CONSENT OF LENDERS, WHICH CONSENT MAY BE WITHHELD BY LENDERS IN THEIR SOLE AND EXCLUSIVE DISCRETION. (g) The following Section 4.5 is hereby added to the Existing Loan Agreement: 4.5 WARRANT AGREEMENT. CONCURRENTLY HEREWITH, BORROWER SHALL ENTER INTO AND DELIVER TO BANK OF SCOTLAND THAT CERTAIN WARRANT AND REGISTRATION AGREEMENT, GRANTING WARRANTS IN THE STOCK OF BORROWER TO BANK OF SCOTLAND. NATIONSBANK SHALL HAVE NO INTEREST THEREIN. (h) Sections 6.3(k), (l), (m), (n) and (o) of the Existing Loan Agreement are hereby deleted in their entirety and the following is substituted therefor: (k) INDEBTEDNESS. NEITHER BORROWER NOR ANY PRIMARY OBLIGOR SHALL CONTRACT, CREATE, INCUR, ASSUME OR SUFFER TO EXIST ANY INDEBTEDNESS; EXCEPT FOR (w) THE LOANS, (x) INDEBTEDNESS EXISTING ON THE DATE HEREOF AND REFLECTED ON THE FINANCIALS OF BORROWER DELIVERED ON SUCH DATE, (y) INDEBTEDNESS DISCLOSED ON SCHEDULES 5.1(s) AND (t), AND (z) UNSECURED TRADE PAYABLES AND UNSECURED INDEBTEDNESS OF BORROWER TO AN AFFILIATE, INCURRED IN THE ORDINARY COURSE OF BUSINESS . (l) LOAN; GUARANTY DEBT. BORROWER SHALL NOT MAKE ANY LOAN TO ANY PERSON, OTHER THAN LOANS TO PRIMARY OBLIGORS PURSUANT TO THE TERMS OF THE ELIGIBLE NOTES. EXCEPT AS SET FORTH ON SCHEDULE 6.3(l), NEITHER BORROWER, NOR ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR SHALL ENTER INTO ANY GUARANTY EQUIVALENTS. (m) PAY INDEBTEDNESS. EXCEPT IN THE ORDINARY COURSE OF BUSINESS, NEITHER BORROWER, NOR ANY PRIMARY OBLIGOR NOR ANY SECONDARY OBLIGOR SHALL DEFEASE, PREPAY, REPAY, PURCHASE, REDEEM OR OTHERWISE ACQUIRE ANY OF ITS INDEBTEDNESS FOR BORROWED MONEY. (n) ISSUE POWER OF ATTORNEY. EXCEPT PURSUANT TO THIS AGREEMENT AND THE OTHER AGREEMENTS, NEITHER BORROWER, NOR ANY PRIMARY OBLIGOR NOR ANY SECONDARY OBLIGOR SHALL ISSUE ANY POWER OF ATTORNEY OR OTHER CONTRACT OR AGREEMENT GIVING ANY PERSON POWER OR CONTROL OVER THE 14 DAY-TO-DAY OPERATIONS OF BORROWER'S, ANY PRIMARY OBLIGOR'S OR ANY SECONDARY OBLIGOR'S BUSINESS, OTHER THAN IN CONNECTION WITH PERMITTED LIENS OR INDEBTEDNESS EXPRESSLY PERMITTED PURSUANT TO THE TERMS OF THIS AGREEMENT. (o) AMENDMENT OF CREDIT AGREEMENTS. EXCEPT IN THE ORDINARY COURSE OF BUSINESS, NEITHER BORROWER, NOR ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR, SHALL AMEND, MODIFY OR EXTEND ANY NOTE, CREDIT AGREEMENT, SECURITY AGREEMENT OR OTHER DOCUMENT, INSTRUMENT OF AGREEMENT EVIDENCING OR SECURING INDEBTEDNESS OF SUCH ENTITY, WITHOUT IN EACH CASE LENDERS' PRIOR WRITTEN CONSENT. (i) Section 7.1 is hereby deleted in its entirety and the following is substituted therefor: 7.1. EVENTS OF DEFAULT. THE OCCURRENCE OF ANY ONE OF THE FOLLOWING EVENTS SHALL CONSTITUTE A DEFAULT ("EVENT OF DEFAULT") UNDER THIS AGREEMENT: (a) IF BORROWER FAILS OR NEGLECTS TO PERFORM, KEEP OR OBSERVE ANY OF BORROWER'S OBLIGATIONS OR IF BORROWER FAILS OR NEGLECTS TO CAUSE ANY PRIMARY OBLIGOR, SECONDARY OBLIGOR OR ANY OTHER LOAN PARTY (FOR ANY REASON WHATSOEVER) TO KEEP OR OBSERVE ANY COVENANT WITH RESPECT TO SUCH ENTITY SET FORTH HEREIN AND THE SAME IS NOT CURED WITHIN FIVE (5) DAYS AFTER AGENT GIVES BORROWER NOTICE OF SUCH DEFAULT; PROVIDED THAT A BREACH OF ANY OF THE PROVISIONS, TERMS, CONDITIONS OR COVENANTS CONTAINED IN SECTIONS 6.2(d), 6.3 AND 6.4 SHALL AUTOMATICALLY BE AN EVENT OF DEFAULT WITHOUT ANY NOTICE OR CURE PERIOD. (b) IF ANY REPRESENTATION, WARRANTY OR MATERIAL STATEMENT, REPORT OR CERTIFICATE MADE OR DELIVERED BY ANY LOAN PARTY, OR ANY OF ITS DIRECTORS, OFFICERS, AUTHORIZED EMPLOYEES OR AGENTS, TO AGENT IS NOT TRUE AND CORRECT; (c) IF BORROWER FAILS TO PAY ANY OF THE SECURED OBLIGATIONS, WHEN DUE AND PAYABLE OR DECLARED DUE AND PAYABLE; (d) IF BORROWER SHALL DEFAULT UNDER THE TERMS OF ANY INDEBTEDNESS INSTRUMENT, OTHER THAN THE LOAN DOCUMENTS. (e) EXCEPT AS PROVIDED IN ANY OTHER SECTION OF THIS SECTION 7.1 AND EXCEPT FOR THOSE DEFAULTS BY HARBOR FINANCIAL MORTGAGE CORPORATION LISTED ON EXHIBIT B ATTACHED HERETO WHICH SHALL CONSTITUTE AN IMMEDIATE EVENT OF DEFAULT FOR WHICH THE TEN DAY CURE PERIOD REFERENCED BELOW SHALL NOT BE APPLICABLE IF SUCH DEFAULTS ARE NOT CURED ON OR BEFORE SEPTEMBER 15, 1999, IF ANY SUBSIDIARY OF BORROWER SHALL DEFAULT UNDER THE TERMS OF ANY INDEBTEDNESS INSTRUMENT AND SUCH DEFAULT IS NOT CURED WITHIN TEN (10) DAYS AFTER THE OCCURRENCE THEREOF; PROVIDED THAT SUCH CURE PERIOD SHALL NOT APPLY IF: (i) A DEFAULT OCCURS BY SUCH SUBSIDIARY UNDER THE TERMS OF ANY OTHER INDEBTEDNESS INSTRUMENT SECURING OR EVIDENCING A DIFFERENT BORROWING, OR (ii) IF ANY OTHER SUBSIDIARY DEFAULTS UNDER THE TERMS OF ANY INDEBTEDNESS INSTRUMENT DURING SUCH TEN (10) DAY CURE PERIOD. NOTWITHSTANDING THE FOREGOING, IF ANY TWO OR MORE SUCH PERSONS ARE OBLIGATED FOR THE SAME INDEBTEDNESS AND A DEFAULT OCCURS THEREUNDER, IT SHALL BE DEEMED TO BE A DEFAULT BY A SINGLE PERSON FOR THE PURPOSES OF THIS SECTION 7.1(e). 15 (f) IF THERE IS A TRIGGER EVENT, A SEQUENTIAL TRIGGER EVENT, A TERMINATION EVENT, A DEFAULT, AN EVENT OF DEFAULT AND/OR ANY OTHER OCCURRENCE HAVING A SIMILAR RESULT AS ANY OF THE FOREGOING, AS APPLICABLE, AS DEFINED IN AND/OR UNDER THE TERMS OF ANY ONE OR MORE OF THE AGREEMENTS LISTED ON EXHIBIT A ATTACHED HERETO. (g) IF BORROWER FAILS OR NEGLECTS TO PERFORM, KEEP OR OBSERVE ANY OF BORROWER'S OBLIGATIONS OR TO CAUSE ANY PRIMARY OBLIGOR OR SECONDARY OBLIGOR TO KEEP OR OBSERVE ANY REPRESENTATION, WARRANTY OR COVENANT, CONTAINED IN SECTION 6.2(e) AND THE SAME IS NOT CURED WITHIN TEN (10) DAYS AFTER AGENT GIVES BORROWER NOTICE OF SUCH DEFAULT. (h) A BREACH OF THE REPRESENTATION, WARRANTY AND COVENANT SET FORTH IN SECTION 6.2(i). (i) IF ANY OF BORROWER'S ASSETS OR THE ASSETS OF ANY PRIMARY OBLIGOR, OR SECONDARY OBLIGOR OR ANY PORTION THEREOF ARE ATTACHED, SEIZED, SUBJECTED TO A WRIT OF DISTRESS WARRANT, OR ARE LEVIED UPON, OR COME WITHIN THE POSSESSION OF ANY RECEIVER, TRUSTEE, CUSTODIAN OR ASSIGNEE FOR THE BENEFIT OF CREDITORS; (j) IF A PETITION UNDER ANY SECTION OR CHAPTER OF THE UNITED STATES BANKRUPTCY CODE OR ANY SIMILAR LAW OR REGULATION SHALL BE FILED BY BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR, OR IF BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR SHALL MAKE AN ASSIGNMENT FOR THE BENEFIT OF ITS CREDITORS OR IF ANY CASE OR PROCEEDING IS FILED BY BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR FOR ITS DISSOLUTION OR LIQUIDATION; (k) IF BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR IS ENJOINED, RESTRAINED OR IN ANY WAY PREVENTED BY COURT ORDER FROM CONDUCTING ALL OR ANY MATERIAL PART OF ITS BUSINESS AFFAIRS OR IF A PETITION UNDER ANY SECTION OR CHAPTER OF THE UNITED STATES BANKRUPTCY CODE OR ANY SIMILAR LAW OR REGULATION IS FILED AGAINST BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR OR IF ANY CASE OR PROCEEDING IS FILED AGAINST BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR FOR ITS DISSOLUTION OR LIQUIDATION; (l) IF AN APPLICATION IS MADE BY BORROWER, ANY PRIMARY OBLIGOR, ANY SECONDARY OBLIGOR OR ANY PLEDGED ENTITY FOR THE APPOINTMENT OF A RECEIVER, TRUSTEE OR CUSTODIAN FOR ANY OF ITS ASSETS OTHER THAN A CUSTODIAN PURSUANT TO A VOLUNTARY CUSTODIAL AGREEMENT ENTERED INTO TO PERFECT A SECURITY INTEREST; (m) IF AN APPLICATION IS MADE BY ANY PERSON OTHER THAN A LOAN PARTY FOR THE APPOINTMENT OF A RECEIVER, TRUSTEE, OR CUSTODIAN FOR ANY OF THE ASSETS OF BORROWER, ANY PRIMARY OBLIGOR OR ANY SECONDARY OBLIGOR OR ANY PLEDGED ENTITY; (n) EXCEPT AS EXPRESSLY PERMITTED PURSUANT TO SECTION 6.2(e), (i) IF A NOTICE OF ANY CHARGE IS FILED OF RECORD WITH RESPECT TO ALL OR ANY OF BORROWER'S, ANY PRIMARY OBLIGOR'S, OR ANY SECONDARY OBLIGOR'S ASSETS, OR (ii) IF ANY CHARGE BECOMES A LIEN OR ENCUMBRANCE UPON ANY OF ITS ASSETS; 16 (o) THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT OR UNMATURED DEFAULT UNDER ANY AGREEMENT, INSTRUMENT AND/OR DOCUMENT EXECUTED AND DELIVERED BY ANY GUARANTOR TO AGENT, WHICH IS NOT CURED WITHIN THE TIME, IF ANY, SPECIFIED THEREFOR IN SUCH AGREEMENT, INSTRUMENT OR DOCUMENT OR ANY OF THE LOAN DOCUMENTS SHALL FAIL TO GRANT TO AGENT ON BEHALF OF LENDERS THE LIEN OR OTHER SECURITY INTEREST (IF ANY) INTENDED TO BE CREATED THEREBY OR ANY LOAN PARTY THERETO SHALL ASSERT THAT IT IS NOT LIABLE WITH RESPECT THERETO; OR ANY GUARANTOR SHALL ASSERT THAT IT IS NOT LIABLE AS A GUARANTOR OR OTHERWISE UNDER ITS GUARANTEE AGREEMENT EXECUTED IN CONNECTION HEREWITH; (p) THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER ANY OF THE OTHER AGREEMENTS, WHICH IS NOT CURED WITHIN THE TIME, IF ANY, SPECIFIED THEREFOR IN SUCH OTHER AGREEMENT; (q) EXCEPT AS EXPRESSLY PERMITTED PURSUANT TO THE TERMS HEREOF, IF BORROWER, ANY PRIMARY OBLIGOR, ANY SECONDARY OBLIGOR OR ANY PLEDGED ENTITY ISSUES TO OR TRANSFERS TO ANY PERSON ANY STOCK OF BORROWER, ANY PRIMARY OBLIGOR, ANY SECONDARY OBLIGOR OR ANY PLEDGED ENTITY; (r) IF ANY FINAL NON-APPEALABLE JUDGMENT FOR THE PAYMENT OF MONEY IN EXCESS OF $100,000 (AFTER GIVING EFFECT TO ANY AMOUNT COVERED BY INSURANCE AS TO WHICH THE INSURER SHALL NOT HAVE DENIED OR QUESTIONED ITS OBLIGATION TO PAY) SHALL BE RENDERED AGAINST BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR; OR FINAL JUDGMENT FOR THE PAYMENT OF MONEY IN EXCESS OF $100,000 SHALL BE RENDERED AGAINST BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR AND THE SAME SHALL REMAIN UNDISCHARGED FOR A PERIOD OF THIRTY (30) DAYS DURING WHICH EXECUTION SHALL NOT BE EFFECTIVELY STAYED OR DILIGENTLY CONTESTED IN GOOD FAITH BY APPROPRIATE PROCEEDINGS; (s) IF BORROWER OR ANY ERISA AFFILIATE (1) SHALL EFFECT A COMPLETE OR PARTIAL WITHDRAWAL (AS DEFINED IN ERISA SECTIONS 4203 OR 4205) FROM A MULTIEMPLOYER PLAN, IF SUCH WITHDRAWAL COULD SUBJECT EITHER BORROWER OR ANY ERISA AFFILIATE TO LIABILITY; (2) SHALL FAIL TO PAY WHEN DUE AN AMOUNT THAT IS PAYABLE BY IT TO THE PBGC OR TO AN EMPLOYEE BENEFIT PLAN; (3) HAS INSTITUTED AGAINST IT BY A FIDUCIARY OF ANY MULTIEMPLOYER PLAN AN ACTION TO ENFORCE ERISA SECTION 515 AND SUCH PROCEEDINGS SHALL NOT HAVE BEEN DISMISSED WITHIN THIRTY (30) DAYS THEREAFTER; (4) HAS IMPOSED AGAINST IT ANY TAX UNDER CODE SECTION 4980B(A); (5) HAS ASSESSED AGAINST IT BY THE SECRETARY OF LABOR A CIVIL PENALTY WITH RESPECT TO ANY EMPLOYEE BENEFIT PLAN UNDER ERISA SECTION 502(c) OR 502(L); (6) SHALL APPLY FOR A WAIVER OF THE MINIMUM FUNDING STANDARDS OF THE CODE; OR (7) SHALL PERMIT ANY OTHER EVENT OR CONDITION TO OCCUR OR EXIST WITH RESPECT TO AN EMPLOYEE BENEFIT PLAN THAT COULD SUBJECT EITHER BORROWER OR ANY ERISA AFFILIATE TO LIABILITY; (t) EXCEPT AS SET FORTH IN SECTION 7.1(d) OR (e), A DEFAULT BY BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR SHALL OCCUR UNDER ANY AGREEMENT, DOCUMENT OR INSTRUMENT (OTHER THAN THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS) NOW OR HEREAFTER EXISTING, TO WHICH BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR IS A PARTY AND THE EFFECT OF SUCH DEFAULT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITIONS OR BUSINESS OPERATIONS OF SUCH LOAN PARTY; 17 (u) IF BORROWER, ANY PRIMARY OBLIGOR, OR ANY SECONDARY OBLIGOR DISSOLVES, LIQUIDATES (OTHER THAN WITH RESPECT TO A SECONDARY OBLIGOR UPON THE DISPOSITION OF ALL OF ITS ASSETS IN THE ORDINARY COURSE OF ITS BUSINESS), OR FAILS TO MAINTAIN ITS CORPORATE EXISTENCE, WITHOUT THE PRIOR WRITTEN CONSENT OF AGENT. (k) Schedules 1.1(xxx), 2.2(c), 4.2, 4.3, 5.1(e), 5.1(f), 5.1(g), 5.1(j), 5.1(l), 5.1(s), 5.1(t), 5.1(u) and 6.3(l) attached to the Existing Loan Agreement are hereby deleted in their entirety and the Schedules attached hereto are substituted therefor. 3. ADDITIONAL COVENANTS. (a) Borrower hereby covenants that no Advances of Loan proceeds made after the date hereof shall be loaned to, contributed as capital to, used to pay the debts or obligations of or otherwise expended (either directly or indirectly) by Borrower, and that Borrower shall not allow any Subsidiary to allow any Advances of Loan proceeds made after the date hereof to be loaned to, contributed as capital to, used to pay the debts or obligations of or otherwise expended (either directly or indirectly) for the benefit of or on behalf of FirstCity Financial Mortgage Corporation, Harbor Financial Mortgage Corporation, or New America Financial Inc., or any Subsidiary thereof. (b) Borrower hereby covenants that it will not, without the prior written consent of Lenders, pay any dividends, with respect to its equity interests, including any Preferred Stock. (c) Borrower shall use its best efforts to and shall fully cooperate with Agent and Lenders to amend and restate the Existing Loan Agreement on or before September 15, 1999. 4. MISCELLANEOUS. (a) This Tenth Amendment is supplementary to the Existing Loan Agreement and the other Loan Documents as amended by the amendments and assignments thereto. All of the provisions of the Loan Documents, including without limitation, the right to declare principal and accrued interest due for any cause specifically in the Loan Documents, shall remain in full force and effect, except as herein or concurrently herewith expressly modified. The Loan Documents and all rights and powers created thereby and thereunder are in all respects ratified and confirmed. From and after the date hereof, the Existing Loan Agreement shall be deemed to be amended and modified as herein provided, but, except as so amended and modified, the Existing Loan Agreement shall continue in full force and effect and the Existing Loan Agreement and this Tenth Amendment shall be read, taken and construed as one and the same instrument. On and after the date hereof, the term "LOAN AGREEMENT" as used in all of the other Loan Documents and "THIS AGREEMENT" as used in the Existing Loan Agreement and this Tenth Amendment shall mean the Existing Loan Agreement as amended hereby. (b) Representations and Warranties of Borrower. This Tenth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. To induce Agent and Lenders to enter into this Tenth Amendment, Borrower hereby represents and warrants to Agent and Lenders that: (i) The execution and delivery of this Tenth Amendment, and the performance by Borrower of its obligations under this Tenth Amendment and the other Loan Documents, as amended, are within Borrower's corporate powers, have been duly authorized by all necessary corporate action, have received all necessary governmental approvals (if any shall be required) and do not and will not contravene or conflict with any provisions of law, or the Articles of Incorporation or corporate By-Laws of Borrower or of any other agreement binding upon Borrower; (ii) This Tenth Amendment, and each other instrument executed by Borrower concurrently herewith, is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement thereof may be subject to the effect of applicable bankruptcy, insolvency, 18 reorganization, moratorium or similar laws affecting creditors' rights generally, and to the general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law); (iii) Except for the existing defaults by Harbor Financial Mortgage Corporation listed on Exhibit B attached hereto, all of the representations and warranties of Borrower made in the Loan Documents are true and correct as of the date hereof, except where such representation or warranty specifically relates to an earlier date. Borrower hereby expressly remakes and reaffirms each and every representation, warranty and covenant set forth in the Agreement and the other Loan Documents to which Borrower is a party to and for the benefit of Agent and Lenders, as if made on the date herein and fully set forth herein. (iv) No Event of Default or Unmatured Default under the Loan Documents exists and Borrower is in full compliance with all of the terms, conditions and provisions of the Agreement and the other Loan Documents. (v) All material agreements relating to auto receivables or home equity loan receivables to which Borrower or a Subsidiary thereof is a party are listed on Exhibit A attached hereto. (c) Reimbursement for Expenses. Upon demand by Agent therefor, Borrower shall reimburse Bank of Scotland and/or Agent for all reasonable costs, fees and expenses incurred by Bank of Scotland and/or Agent or for which any Lender and/or Agent becomes obligated, in connection with the negotiation, preparation and conclusion of this Tenth Amendment, including without limitation, reasonable attorney's fees, costs and expenses, search fees, title insurance policy fees, costs and expenses, filing and recording fees, LIBOR Breakage Fees and all taxes payable in connection with this Tenth Amendment. (d) Waiver of Claims. Borrower hereby acknowledges, agrees and affirms that it possesses no claims, defenses, offsets, recoupment or counterclaims of any kind or nature against or with respect to the enforcement of the Agreement, or any other Loan Document or any amendments thereto (collectively, the "CLAIMS"), nor does Borrower now have knowledge of any facts that would or might give rise to any Claims. If facts now exist which would or could give rise to any Claim against or with respect to the enforcement of the Agreement, or any other Loan Document, as amended by the amendments thereto, Borrower hereby unconditionally, irrevocably and unequivocally waives and fully releases any and all such Claims as if such Claims were the subject of a lawsuit, adjudicated to final judgment from which no appeal could be taken and therein dismissed with prejudice. (e) Severability. If any provision (in whole or in part) of this Tenth Amendment or the other Loan Documents or the application thereof to any person or circumstance is held invalid or unenforceable, then such provision shall be deemed modified, restricted, or reformulated to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Tenth Amendment or the other Loan Documents, as the case may require, and this Tenth Amendment and such other Loan Documents shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified, restricted, or reformulated or as if such provision had not been originally incorporated herein or therein, as the case may be. The parties further agree to seek a lawful substitute for any provision found to be unlawful. If such modification, restriction or reformulation is not reasonably possible, the remainder of this Tenth Amendment and the other Loan Documents and the application of such provision to other persons or circumstances will not be affected thereby and the provisions of this Tenth Amendment and the other Loan Documents shall be severable in any such instance. (f) Governing Law. THIS TENTH AMENDMENT HAS BEEN DELIVERED FOR ACCEPTANCE BY AGENT AND LENDERS IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. TO THE EXTENT PERMITTED BY APPLICABLE LAW 19 BORROWER HEREBY (a) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS TENTH AMENDMENT; (b) IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (c) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; AND (d) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST AGENT, LENDERS OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS TENTH AMENDMENT IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR AGENT'S OR LENDERS' RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AGENT'S OR LENDERS' RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. (g) Representation by Counsel. Borrower hereby represents that it has been represented by competent counsel of its choice in the negotiation and execution of this Tenth Amendment and the other Loan Documents; that it has read and fully understood the terms hereof; Borrower and its counsel have been afforded an opportunity to review, negotiate and modify the terms of this Tenth Amendment, and that it intends to be bound hereby. In accordance with the foregoing, the general rule of construction to the effect that any ambiguities in a contract are to be resolved against the party drafting the contract shall not be employed in the construction and interpretation of this Tenth Amendment. (h) Headings. The descriptive headings of the various provisions of this Tenth Amendment and the other Loan Documents are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section references in the Existing Loan Agreement shall be deemed to refer to the applicable Section set forth in this Amendment. (i) Counterparts. This Tenth Amendment and the other Loan Documents may be executed in any number of counterparts, and by the different parties hereto and thereto on the same or separate counterparts, each of which when so executed and delivered shall be deemed to be an original; all the counterparts for each such Loan Document shall together constitute one and the same agreement. (j) Fax Execution. For purposes of negotiating and finalizing this Tenth Amendment (including any subsequent amendments thereto), any signed document transmitted by facsimile machine ("FAX") shall be treated in all manner and respects as an original document. The signature of any party by FAX shall be considered for these purposes as an original signature. Any such FAX document shall be considered to have the same binding legal effect as an original document, provided that an original of the faxed document was mailed by first class US Mail or personally delivered to the recipient, on the date of its transmission with proof of the Fax transmission. At the request of either party, any FAX document subject to this Tenth Amendment shall be re-executed by both parties in an original form. The undersigned parties hereby agree that neither shall raise the use of the FAX or the fact that any signature or document was transmitted or communicated through the use of a FAX as a defense to the formation of this Tenth Amendment. (k) No Third Party Beneficiaries. This Tenth Amendment is solely for the benefit of Agent, Lenders, Borrower and their respective successors and assigns (except as otherwise expressly provided herein) and nothing contained herein shall be deemed to confer upon any other Person any right to insist on or to enforce the performance or observance of any of the obligations contained herein. All conditions to the obligations of Lenders to make the Loans hereunder are imposed solely and exclusively for the benefit of Lenders and their respective successors and assigns and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms and no other Persons shall under any circumstances be deemed to be a beneficiary of such conditions. (l) Domicile of Loans. Each Lender may make, maintain or transfer any of its Loans hereunder to, or for the account of, any branch office, subsidiary or affiliate of such Lender. 20 (m) Modification. Borrower expressly agrees that for purposes of this Tenth Amendment and each and every other Loan Document: (i) this Tenth Amendment, the Agreement and each and every Loan Document shall be a "credit agreement" under the Illinois Credit Agreements Act, 815 ILCS 160/1 et. seq. (the "ACT"); (ii) the Act applies to this transaction including, but not limited to, the execution of this Tenth Amendment, the Existing Loan Agreement, as amended hereby, and each and every other Loan Document; and (iii) any action on or in any way related to this Tenth Amendment, the Existing Loan Agreement, as amended hereby, and each and every other Loan Document shall be governed by the Act. (n) Texas Language. (i) THIS WRITTEN AGREEMENT (TOGETHER WITH THE OTHER LOAN DOCUMENTS) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. (ii) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES HERETO. (o) WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY LAW, BORROWER, AGENT AND/OR LENDERS EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS TENTH AMENDMENT, THE EXISTING LOAN AGREEMENT, AS AMENDED HEREBY, OR THE OTHER AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDERS TO MAKE THE LOAN. The remainder of this page has been left intentionally blank. 21 IN WITNESS WHEREOF, this Tenth Amendment to Loan Agreement has been duly executed and dated for reference purposes only as of August 11, 1999. BORROWER: FIRSTCITY FINANCIAL CORPORATION, a Delaware corporation By: --------------------------------------- Title: ------------------------------------ LENDERS: BANK OF SCOTLAND By: --------------------------------------- Title: ------------------------------------ NATIONSBANK, N.A. By: --------------------------------------- Title: ------------------------------------ AGENT: BANK OF SCOTLAND By: --------------------------------------- Title: ------------------------------------ 22 EXHIBIT A 23 EXHIBIT B EX-27.1 4 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JUN-30-1999 17,940 68,021 694,552 0 126,016 0 0 0 1,109,651 0 930,969 26,323 0 83 89,706 1,109,651 11,018 92,452 8,971 8,971 106,452 5,562 11,001 (39,534) 5,032 (44,566) 0 0 835 (46,667) (5.63) (5.63)
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