**Exhibit 10.58**

 

Execution Copy

 

LIMITED GUARANTY AGREEMENT

 

This LIMITED GUARANTY AGREEMENT (this “Agreement”) made as of June 25,2010 by FirstCity Financial Corporation, a Delaware corporation (the “Guarantor”),in favor of Bank of Scotland Plc, acting through its New York Branch, as Agent(in such capacity, and including its successors and assigns in such capacity,the “Agent”), for the benefit of the lenders (the “Lenders”) fromtime to time party to the Reducing Note Facility Agreement referred to below.  Unless otherwise defined herein, capitalizedterms shall have the respective meanings assigned to them in the Reducing NoteFacility Agreement.

 

W I T N E S S E T H :

 

WHEREAS, FirstCity Commercial Corporation, a Texas corporation, FHPartners LLC, a Texas limited liability company (together with FirstCityCommercial Corporation, the “Borrowers”, and each individually, a “Borrower”),FLBG Corporation, a Texas corporation, Bank of Scotland Plc, acting through itsNew York Branch (the “Agent”), and the financial institutions partythereto (the “Lenders”) are party to the Reducing Note FacilityAgreement dated as of the date hereof (the “Reducing Note Facility Agreement”);

 

WHEREAS,the Guarantor will derive substantial direct and indirect benefit from the executionand delivery by the Borrowers of the Reducing Note Facility Agreement; and

 

WHEREAS,in connection with the execution and delivery of the Reducing Note FacilityAgreement, and as a condition precedent to the effectiveness thereof, theGuarantor is required to enter into this Guaranty Agreement;

 

NOW,THEREFORE, in consideration of the premises and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,each party hereto hereby agrees as follows:

 

1.             The Guaranty.  (a)  Subject to the limitation of Section 1(b),the Guarantor hereby unconditionally and irrevocably guarantees as primaryobligor and not merely as surety the full and prompt payment when due andpayable (whether upon maturity, by acceleration or otherwise) of theobligations of each of the Borrowers (including without limitation all interestwhich may be payable thereon prior to or during the pendency of any insolvencyor similar proceeding with respect to such Borrower) with respect to payment ofthe indebtedness under the Reducing Note Facility Agreement as evidenced by thenotes executed pursuant to the terms of the Reducing Note Facility Agreementand letters of credit under the Reducing Note Facility Agreement (the “GuarantiedObligations”).  If any or all of suchGuarantied Obligations become due and payable, the Guarantor unconditionallypromises to pay such indebtedness to the Agent on behalf of the Lenders, ororder, on demand, together with any and all expenses which may be incurred bythe Lenders or the Agent in collecting any of the indebtedness which is part ofthe Guarantied Obligations, subject to the terms of Section 1(b).  If the Agent or the Lenders are prevented bylaw from accelerating any of the indebtedness in accordance with the terms ofany 

 

----

 

agreementor instrument governing same, the Agent shall be entitled to receive hereunderfrom the Guarantor, upon demand therefor, the sum which would have otherwisebeen due had such acceleration occurred. The word “indebtedness” is used in this Agreement in its mostcomprehensive sense and includes any and all advances, debts, obligations andliabilities of each of the Borrowers which are part of the GuarantiedObligations, in each case heretofore, now or hereafter made, incurred orcreated, whether voluntarily or involuntarily, absolute or contingent,liquidated or unliquidated, determined or undetermined, whether or not suchindebtedness is from time to time reduced, or extinguished and thereafterincreased or incurred, whether such Borrower may be liable individually orjointly with others, whether or not recovery upon such indebtedness may be orhereafter become barred by any statute of limitations, and whether or not suchindebtedness may be or hereafter become otherwise unenforceable.  Without limiting the generality of theforegoing, the Guarantor acknowledges that this guaranty is a guaranty ofpayment, not a guaranty of collection.

 

(b)           Anything hereinor in any other Loan Document to the contrary notwithstanding, the maximumliability of the Guarantor hereunder and under the other Loan Documents (saidmaximum liability, its “Maximum Guaranteed Amount”) shall in no eventexceed the lesser of (i) such amount which can be guaranteed by theGuarantor under applicable federal and state laws relating to the insolvency ofdebtors and (ii) 75,000,000 plus an amount equal to any losses incurred byLenders arising from the failure of the Guarantor to pay federal income taxesas required in Section 10(q) which result in a levy or otherenforcement proceeding by the United States Internal Revenue Service thatreduces the cash flow from or results in a loss of Collateral or securityinterests or pledges securing the Guarantied Obligations (and any expenses ofthe Collateral Agent and Lenders related to defense of the Collateral from anysuch enforcement proceedings).

 

(c)           The Guarantoragrees that the indebtedness may at any time and from time to time exceed theMaximum Guaranteed Amount without impairing this Agreement or affecting the rightsand remedies of the Agent and the Lenders hereunder; provided that under nocircumstance shall the liability of the Guarantor exceed the Maximum GuaranteedAmount.

 

(d)           No payment orpayments made by any Borrower, any other guarantor or any other Person orreceived or collected by the Agent or any Lender from any Borrower, any otherguarantor or any other Person by virtue of any action or proceeding or anyset-off or appropriation or application at any time or from time in reductionof or in payment of the indebtedness shall be deemed to modify, reduce, releaseor otherwise affect the liability of the Guarantor hereunder which shall,notwithstanding any such payment or payments other than payments made to theAgent by the Guarantor or payments received or collected by the Agent from theGuarantor, remain liable for the indebtedness up to its Maximum GuaranteedAmount until the indebtedness is indefeasibly paid in full; provided that allsuch payments are applied to the Guarantied Obligations.

 

(e)           Notwithstandingany other provision of this Agreement, the Guarantor and the Agent agree thatpayments made to the Guarantor, FirstCity Diversified Holdings LLC or FirstCityServicing Corporation pursuant to Section 5.3 of the Reducing NoteFacility Agreement are not in violation of this Agreement, and that no suchpayment shall increase the liability of Guarantor to pay the GuarantiedObligations subject to the Maximum Guaranteed

 

2

----

 

Amount,nor shall any such payment be required to be returned, paid or delivered to theAgent for any reason.

 

2.             Bankruptcy.  Additionally, the Guarantor unconditionallyand irrevocably guarantees the payment of any and all Guarantied Obligations ofeach of the Borrowers, subject to the Maximum Guarantied Amount, whether or notdue or payable, upon the occurrence in respect of such Borrower of any of theevents specified in Section 9 of the Reducing Note Facility Agreement(including, without limitation, Section 9.8 thereof) and unconditionallypromises to pay such Guarantied Obligations, subject to the Maximum GuaranteedAmount, to the Agent on behalf of the Lenders, or order, on demand, in lawfulmoney of the United States, without setoff or counterclaim.

 

3.             Nature ofLiability.  Theliability of the Guarantor hereunder is exclusive and independent of anysecurity or other guaranty of the indebtedness of any Borrower whether executedby the Guarantor or by any other party, and the liability of the Guarantorhereunder shall not be affected or impaired by (a) any direction as toapplication of payment by any Borrower or by any other party, (b) anyother continuing or other guaranty, undertaking or maximum liability of aguarantor or of any other party as to the indebtedness of any Borrower, (c) anypayment on or in reduction of any such other guaranty or undertaking, (d) anydissolution or termination of any Borrower, or (e) any payment made to theAgent or to any or all Lenders on the indebtedness which such Agent, Lender orLenders are required to repay to any Borrower, whether pursuant to a courtorder, in any bankruptcy, reorganization, arrangement, moratorium or otherdebtor relief proceeding and the Guarantor waives any right to the deferral ormodification of its obligations hereunder by reason of any such proceeding.

 

4.             IndependentObligation.  (a) The obligations of the Guarantor hereunder are independent of the obligationsof any other guarantor or any Borrower, and any security for or other guaranteeof the indebtedness of any Borrower, and a separate action or actions may bebrought and prosecuted against the Guarantor whether or not action is broughtagainst any other guarantor or any Borrower or any security held by the Agentand without pursuing any other remedy, and whether or not any other guarantoror any Borrower be joined in any such action or actions.  The Guarantor waives to the fullest extentpermitted by law, the benefit of any statute of limitations affecting itsliability hereunder or the enforcement thereof. Any payment by any Borrower or other circumstance which operates to tollany statute of limitations as to any Borrower shall operate to toll the statuteof limitations as to the Guarantor.  Therights of the Agent and the Lenders under this Agreement will not be exhaustedby any action or inaction by the Agent or the Lenders until all of theindebtedness has been indefeasibly paid in full.

 

(b)           The liabilityof the Guarantor hereunder is not affected or impaired by any direction orapplication of payment by any Borrower or by any other party, or by any otherguarantee or undertaking of any other guarantor or any other party as to theindebtedness of any Borrower, by any payment on, or in reduction of, any suchother guarantee or undertaking, by the termination, revocation or release ofany obligations under the Reducing Note Facility Agreement or of any otherguarantor, or by any payment made to the Agent or the Lenders on theindebtedness which the Agent or the Lenders repay to any Borrower or any otherguarantor or other person or entity, whether pursuant to court order, in anybankruptcy, reorganization, arrangement, moratorium or other debtor reliefproceeding or any other fact or circumstance which would otherwise excuse theobligation of a guarantor or surety, and the Guarantor waives 

 

3

----

 

any right to the deferral or modification of theGuarantor’s obligations hereunder by reason of any such proceeding, fact orcircumstance.  This Agreement shallcontinue to be effective in accordance with its terms, or be reinstated, as thecase may be, if at any time payment, or any part thereof, of or with respect toany of the indebtedness is rescinded or must otherwise be restored or returnedby the Agent or a Lender upon the insolvency, bankruptcy, dissolution,liquidation or reorganization of any Borrower or any other payor thereof, orupon or as a result of the appointment of a receiver, intervenor or conservatorof, or trustee or similar officer for, any Borrower or any other payor thereofor any substantial part of its property, or otherwise, all as though suchpayments had not been made.

 

5.             Authorization.  The Guarantor authorizes the Agent and theLenders without notice or demand, and without affecting or impairing theGuarantor’s liability hereunder, from time to time to (a) renew,compromise, extend, increase, accelerate or otherwise change the time forpayment of, or otherwise change the terms of, the Guarantied Obligations of anyBorrower or any part thereof, including any increase or decrease of the rate ofinterest thereon, (b) take and hold security from any Borrower, anyguarantor or any other party for the payment of this guaranty or theindebtedness and subordinate, compromise, exchange, enforce, waive and releaseany such security or accept additional or substituted security, (c) applysuch security and direct the order or manner of sale thereof as the Agent orCollateral Agent in its discretion may determine and (d) release, add orsubstitute any one or more endorsers, guarantors or other obligors.  Any modifications, renewals and extensions ofthe indebtedness may be made at any time by the Agent on behalf of the Lenders,and the Guarantor shall be fully liable for any such modifications, renewals orextensions.  The Agent on behalf of theLenders may take any of the foregoing actions upon any terms and conditions asthe Agent may elect, without giving notice to the Guarantor or obtaining theconsent of the Guarantor and without affecting the liability of the Guarantorto the Agent or the Lenders.

 

6.             Reliance.  It is not necessary for the Lenders or theAgent to inquire into the capacity or powers of any Borrower or the officers,directors, partners or agents acting or purporting to act on its behalf, and anyindebtedness made or created in reliance upon the professed exercise of suchpowers shall be guaranteed hereunder. The Guarantor assumes full responsibility for keeping fully informed ofthe financial condition of each Borrower and all other circumstances affectingsuch Borrower’s ability to perform its obligations to the Agent and theLenders, and agrees that neither the Agent nor any Lender will have any duty toreport to the Guarantor any information which the Agent or any Lender receivesabout any Borrower’s financial condition or any circumstances bearing on itsability to perform, and expressly waives any right to receive such informationand any defense based upon failure to receive such information.

 

7.             Subordination.  Notwithstanding the indebtedness of theBorrowers as set forth in the Reducing Note Facility Agreement, anyindebtedness of any Borrower now or hereafter held by the Guarantor, whether inconnection with this Agreement or whether completely independent of thisAgreement and the indebtedness, is hereby subordinated to the indebtedness ofthe Borrowers to the Lenders; and such indebtedness of any Borrower to theGuarantor shall be collected, enforced and received by the Guarantor as trusteefor the Lenders and be paid over to the Lenders on account of the indebtednessof such Borrower to the Lenders, but without affecting or impairing in anymanner the liability of the Guarantor under the other provisions of thisAgreement.  The Guarantor further agreesthat it will not assert any claim against any 

 

4

----

 

Borroweruntil all indebtedness to the Agent and the Lenders has been completelysatisfied.  Prior to the transfer by theGuarantor of any note or negotiable instrument evidencing any indebtedness ofany Borrower to the Guarantor, the Guarantor shall mark such note or negotiableinstrument with a legend that the same is subject to this subordination.

 

8.             Waivers ofDefenses.  TheGuarantor waives, except as otherwise provided in this Agreement:

 

(a)           all statutes oflimitation as to the indebtedness, this Agreement or otherwise as a defense toany action brought against the Guarantor by the Agent or any Lender, to thefullest extent permitted by law;

 

(b)           any defensebased upon any legal disability of any Borrower or any discharge or limitationof the liability of any Borrower to the Agent or the Lenders, whetherconsensual or arising by operation of law or any bankruptcy, insolvency, ordebtor-relief proceeding, or from any other cause;

 

(c)           presentment,demand, protest and notice of any kind;

 

(d)           any defensebased upon or arising out of any defense which any Borrower may have to thepayment or performance of any part of the indebtedness;

 

(e)           any defensebased upon any disbursements by the Agent or the Lenders to any Borrowerpursuant to any agreements or instruments governing the indebtedness whethersame be deemed an additional advance or be deemed to be paid out of any specialinterest or other fund accounts, as constituting unauthorized paymentshereunder or amounts not guaranteed by this Agreement;

 

(f)            all rights toparticipate in any security held by the Agent or the Lenders for theindebtedness;

 

(g)           irregularity orunenforceability of any agreement or instrument representing or governing theindebtedness;

 

(h)           any requestthat the Agent or a Lender be diligent or prompt in making demands hereunder orunder any agreement or instrument representing or governing the indebtedness;and

 

(i)            any otherdefense in law or equity (except the defense that the indebtedness has beenindefeasibly paid in full) which, under applicable law, would release theobligation of a guarantor or surety, until the indebtedness has beenindefeasibly paid in full.

 

9.             Representationsand Warranties.  In order toinduce the Lenders to accept this Agreement the Guarantor makes the followingrepresentations, covenants and warranties, which representations, covenants andwarranties shall survive the execution and delivery of this Agreement and theother documents and instruments referred to herein:

 

5

----

 

9.1          Organization.

 

The Guarantor is and at all times hereafter shall be a corporation,duly organized and validly existing and in good standing under the laws of theState of Delaware and qualified or licensed to do business and in good standingin all states in which the laws thereof require the Guarantor to be soqualified and/or licensed and in which the failure so to qualify could have aMaterial Adverse Effect, including, without limitation, the State ofTexas.  Schedule 9.1(a) identifieseach jurisdiction in which the Guarantor has qualified or been licensed to dobusiness and describes the nature and current status of any such qualificationor license.

 

9.2          Entity Power.

 

The Guarantor has the right, power and capacity and is duly authorizedand empowered to enter into, execute, deliver and perform this Agreement.

 

9.3          Violation ofCharter Documents.

 

The execution, delivery and/or performance by the Guarantor of this Agreementand the consummation of the transactions contemplated hereunder have been dulyauthorized by all necessary corporate and shareholder action and none of suchexecution, delivery, performance or consummation shall, by the lapse of time,the giving of notice or otherwise, constitute a violation of any LegalRequirement or a breach of any provision contained in the Charter Documents ofthe Guarantor, or contained in any agreement, instrument or document to whichthe Guarantor is now or hereafter a party or by which it or any of its Assetsis or may become bound, other than agreements, instruments or documents thatare immaterial to the Guarantor the breach of which could not have a MaterialAdverse Effect.

 

9.4          Enforceability.

 

This Agreement is and will be the legal, valid and binding agreement ofthe Guarantor, enforceable in accordance with its terms, except as enforcementthereof may be subject to the effect of applicable bankruptcy, insolvency,reorganization, moratorium or similar laws affecting creditors’ rightsgenerally, and to general principles of equity (regardless of whether suchenforcement is sought in a proceeding in equity or at law).

 

9.5          Ownership.

 

(a)           Schedule 9.5(a) setsforth all classes of stock of the Guarantor, as of December 31, 2009, theshareholders thereof (other than members of the general public), addresses ofeach shareholder, and number of shares owned as of such date.

 

(b)           Schedule 9.5(b) setsforth all classes of stock and/or other Equity Interests (other than options,warrants and rights to acquire Stock or other Equity Interests) issued by eachPrimary Obligor, each Portfolio Entity and each Related Entity, theshareholders and other equity holders thereof, and the addresses, number ofshares and/or partnership interests owned.

 

(c)           Schedule 9.5(c) setsforth all options, warrants and other rights to acquire Stock or other EquityInterests of the Guarantor, any Primary Obligor, any Portfolio Entity, anyRelated Entity and any other Pledged Entity, the nature of such option, warrantor right and the 

 

6

----

 

conditions for the exercise thereof.  Lenders hereby expressly consent to thetransfer, issuance or conveyance of Stock and/or other Equity Interests of theGuarantor in accordance with such options, warrants and rights; provided thatthe same does not result in a Change of Control.

 

(d)           All EquityInterests of the Guarantor, each Primary Obligor, each Portfolio Entity, eachRelated Entity and each other Loan Party have been duly and validly issued, arefully paid and are non-assessable.

 

9.6          FinancialWarranty.

 

The Guarantor (i) is paying its debts as they mature, (ii) ownsproperty which, at a fair valuation, is greater than the sum of its debt, and (iii) hascapital sufficient to carry on its business and transactions and all businessesand transactions in which it is about to engage.

 

9.7          Proceedings.

 

Except as set forth on Schedule 9.7, there are no actions orproceedings which are pending or threatened against the Guarantor which couldreasonably be expected to have a Material Adverse Effect.  None of the actions or proceedings referredto on Schedule 9.7 could have a Material Adverse Effect.

 

9.8          AdequateLicenses.

 

The Guarantor possesses adequate Assets, licenses, patents, copyrights,trademarks and tradenames to continue to conduct its business as previouslyconducted by it and as contemplated in the foreseeable future except suchlicenses, patents, copyrights, trademarks and trade names the failure of whichto obtain could not be reasonably expected to have a Material Adverse Effect.

 

9.9          GovernmentPermits;  Approvals and Consents.

 

(a)           Except formatters which could not result in a Material Adverse Effect, the Guarantor hasbeen and is in good standing with respect to all governmental permits,certificates, consents and franchises necessary to continue to conduct itsbusiness as previously conducted prior to the date hereof to own or lease andoperate its properties as now owned or leased by it.  None of said permits, certificates, consentsor franchises contain any term, provision, condition or limitation moreburdensome than such as are generally applicable to Persons engaged in the sameor similar business as the applicable Person.

 

(b)           The Guarantordoes not require the approval, consent, waiver, order, permission, license,authorization, registration or validation of, or filing with or exemption by,any Government Authority or any other Person (including but not limited toshareholders, partners, members, equity owners, holders of IndebtednessInstruments, or any owner of any lien upon the Assets of any one or more ofthem or their Affiliates) for the execution and delivery of, and theconsummation of the transactions contemplated by, this Agreement.

 

7

----

 

9.10        Restrictions.

 

(a)           The Guarantoris not a party to (nor are any of its Assets otherwise subject to) any contractor agreement or restriction, judgment, decree or order that could have aMaterial Adverse Effect.

 

(b)           The Guarantoris not subject to (nor are any of its Assets otherwise subject to) any Charge.

 

9.11        Compliance withLaws.

 

Except for matters which could not result in a Material Adverse Effect,the Guarantor is not in violation of any applicable statute, regulation, orderor ordinance of the United States of America, of any state, city, town,municipality, county or of any other jurisdiction, or of any agency thereof,including the Federal Reserve Board, in any respect.

 

9.12        Compliance withIndebtedness Instruments.

 

The Guarantor is not in default under any Indebtedness Instrument orany other material agreement to which it is a party.

 

9.13        Financials.

 

The Financial Statements delivered by the Guarantor to Agent fairly andaccurately present the Assets, liabilities and financial conditions and resultsof operations of the Guarantor, and such other Persons described therein as ofand for the periods ending on such dates and have been prepared in accordancewith GAAP and such principles have been applied on a basis consistentlyfollowed in all material respects throughout the periods involved.

 

9.14        Tax Returns.

 

The Guarantor has filed or caused to be filed all tax returns which arerequired to be filed, and has paid all Charges shown to be due and payable onsaid returns or on any assessments made against it or any of its property, andall other Charges imposed on it or any of its properties by any GovernmentalAuthority.

 

9.15        No MaterialAdverse Change.

 

Since December 31, 2009, no event or circumstance has occurredthat had, has or could reasonably be expected to have a Material AdverseEffect.

 

9.16        No Indebtedness.

 

The Guarantor (i) has no Indebtedness except for Indebtednessreflected in the most recent Financial Statements (except for any such Indebtedness(x) incurred since such most recent Financial Statements were deliveredand identified on Schedule 9.15, or (y) constituting unsecuredtrade payables arising in the ordinary course of business since the datesreflected in the December 31, 2009 Financial Statements) or (ii) hasguaranteed any indebtedness or entered into or issued any Guaranty Equivalent(other than as a result of the endorsement of any 

 

8

----

 

instrumentof items of payment for deposit or collection in the ordinary course ofbusiness or as otherwise expressly permitted pursuant to the terms hereof) inrespect of the obligations of any Person.

 

9.17        Affiliates.

 

Schedule 9.17 attached hereto is a true, accurate andcomplete schedule of the Guarantor’s Affiliates, together with a description ofthe Guarantor’s relationship to each such Affiliate.

 

9.18        InvestmentCompany Act and Public Utility Holding Company Act.

 

Neither the Guarantor nor the issuance of this Agreement is subject toany of the provisions of the Investment Company Act of 1940, as amended.  The Guarantor is not a “holding company” asdefined in the Public Utility Holding Company Act of 1935, as amended, orsubject to any other federal or state statute or regulation limiting itsability to incur Indebtedness for money borrowed.

 

9.19        SEC Filings.

 

The Guarantor has filed and made available to the Agent and Lenderseach form, registration statement, schedule, report, proxy statement anddocument required to be filed by the Guarantor with the SEC since January 1,2006 (collectively, the “**SEC Reports**”).  Except as set forth on Schedule 9.19,the SEC Reports (i) at the time filed, complied in all material respectswith the applicable requirements of the Securities Laws and (ii) did notat the time they were filed (or if amended or superseded by a filing prior tothe date of this Agreement, then on the date of such filing) contain any untruestatement of a material fact or omit to state a material fact required to bestated in the SEC Reports or necessary in order to make the statements therein,in the light of the circumstances under which they were made, notmisleading.  Since January 1, 2006,the Guarantor has made all filings with the SEC in a timely manner (except asset forth on Schedule 9.19, each of which filing deficiencies wassubsequently cured in a manner that brought the Guarantor into full compliancewith law) as required by law and no event has occurred that requires anadditional filing or any amendment to a prior filing, which has not been madeor filed.

 

10.          Waiver ofSubrogation; Certain Covenants of Guarantors.

 

(a)           The Guarantorhereby irrevocably waives (but only until the final indefeasible payment andsatisfaction of all Guarantied Obligations due to the Agent and the Lenders)any claim or other rights which it may now have or hereafter acquire againstany Borrower or any other guarantor that arise from the existence, payment,performance or enforcement of the Guarantor’s obligations under this Agreementor any other Loan Document, including (without limitation) any right ofsubrogation, reimbursement, exoneration, contribution, indemnification, anyright to participate in any claim or remedy of the Lenders and the Agentagainst any Borrower or any other guarantor or any collateral which the Agentor any Lender now has or hereafter acquires, whether or not such claim, remedyor right arises in equity, or under contract, statute or common law including(without limitation) the right to take or receive from such Borrower, directlyor indirectly, in cash or other property or by set-off or in any other manner,payment or security on account of such claim or other rights.  If any amount shall be paid 

 

9

----

 

to the Guarantor in violation of the precedingsentence and the Guarantied Obligations shall not have been paid in full, suchamount shall be deemed to have been paid to the Guarantor for the benefit of,and held in trust for the benefit of, the Lenders and the Agent and shall forthwithbe paid to the Agent on behalf of the Lenders to be credited and applied uponthe Guarantied Obligations, whether matured or unmatured in accordance with theterms of the Reducing Note Facility Agreement. The Guarantor acknowledges that it will receive direct and indirectbenefits from the financing arrangements contemplated by the Reducing NoteFacility Agreement and that the waiver set forth in this Agreement is knowinglymade in contemplation of such benefits.

 

(b)           The Guarantorand the Agent agree that any payments made to Guarantor, FirstCity DiversifiedHoldings LLC and FirstCity Servicing Corporation pursuant to Section 5.3of the Reducing Note Facility Agreement are not paid in violation of this Section 10(a) andno such payment shall be required to be returned, paid or delivered to theAgent or the Lenders for any reason.

 

(c)           The Guarantorhereby agrees that it shall, at the end of each fiscal quarter:

 

(i)            maintain aTangible Net Worth equal to or greater than an amount equal to $60,000,000 forthe last day of the fiscal quarter then ended.

 

(d)           The Guarantorhereby agrees that it shall give Agent notice within forty-five (45) days afterit merges with or acquires an interest in any Person.

 

(e)           The Guarantorshall at all times cause the Consolidated Group to be comprised of the entitiesconstituting the Consolidated Group as of the date hereof and shall permit onlythose mergers, dispositions or other transactions among such entities as arepermitted by the Facility Agreement; provided that this provision shall notprohibit the formation of REO Affiliates.

 

(f)            Concurrentlywith delivery to its stockholders, the Guarantor shall deliver to Agent copiesof all financial and other information delivered by the Guarantor to suchstockholders, including, without limitation, its proxy statements and annualreports to stockholders.  Within two (2) BusinessDays after delivery to the SEC by the Guarantor, which in all case shall be ona timely basis in accordance with the applicable document and the SecuritiesLaws, copies of all reports and other filings filed by the Guarantor with theSEC, including, without limitation, all reports on Forms 10K, 10Q or 8Kpromulgated under the Securities Exchange Act of 1934, as amended, and allregistration statements and amendments thereto filed under the Securities Actof 1933, as amended.

 

(g)           The Guarantorshall notify Agent promptly after obtaining knowledge of:

 

(i)            any event oroccurrence which the Guarantor has determined could have a Material AdverseEffect.  “Material Adverse Effect” shallmean an effect that would result in a Material Adverse Change.  “Material Adverse Change” shall mean amaterial adverse change in the business, properties, operations, prospectus orcondition (financial or otherwise) of the Guarantor;

 

(ii)           the institutionof (x) any suit or administrative proceeding which if determined adverselyto the Guarantor is reasonably likely to or could reasonably be expected to 

 

10

----

 

resultin a Material Adverse Effect, and (y) any other suit or administrativeproceeding against the Guarantor in which the uninsured amount involved is$5,000,000 or more, such notice to be given on or prior to the end of thecalendar month in which the applicable event occurs;

 

(iii)          The Guarantorbecoming subject to any Charge, restriction, judgment, decree or order whichcould reasonably be expected to have a Material Adverse Effect;

 

(iv)          thecommencement of any lockout, strike or walkout relating to any labor contractto which the Guarantor is a party, if the same could reasonably be expected tohave a Material Adverse Effect;

 

(v)           any event oroccurrence in respect of the Guarantor which could reasonably be expected tohave a Material Adverse Effect;

 

(vi)          the occurrenceof (x) a default by the Guarantor under any agreement, document orinstrument to which the Guarantor is a party which could reasonably be expectedto have a Material Adverse Effect, or (y) any default by the Guarantorwhich could reasonably be expected to materially and adversely affect theGuarantor’s ability to perform its obligations under this Agreement;

 

(vii)         the filing of apetition by or against the Guarantor under any section or chapter of the UnitedStates Bankruptcy Code or any similar law or regulation or if the Guarantorshall make an assignment for the benefit of its creditors or if any case orproceeding is filed by or against the Guarantor for its dissolution orliquidation; and

 

(viii)        the making ofan application for the appointment of a receiver, trustee or custodian for anyof the Assets of the Guarantor.

 

(h)           Insurance.  The Guarantor, at its sole cost and expense,shall keep and maintain: (i) policies of insurance against all hazards andrisks ordinarily insured against by other owners or users of properties insimilar business; and (ii) public liability insurance relating to theGuarantor’s ownership and use of its Assets; provided, however, the Guarantorshall not be required to maintain the insurance referred to in clause (i) asto any Asset if the Net Present Value of the Asset is less than $100,000.

 

(i)            Preservation ofExistence.  TheGuarantor will maintain and preserve its corporate existence, rights,privileges and franchises in the State of Delaware, and qualify and remainqualified to do business in, and maintain its rights, privileges and franchisesin each other jurisdiction which in the opinion of its board of directorscontinue to be advantageous to it and shall comply in all material respectswith all applicable Legal Requirements. Without limiting the generality of the foregoing, the Guarantor agreesto qualify to do business as a foreign corporation in each jurisdiction wherethe nature of its business and the operations conducted by it therein requireit to be so qualified.

 

(j)            Preservation ofAssets.  The Guarantor will keep itsproperty material to the conduct of its business in good repair, working orderand condition and from time to time make all needful and proper repairs,renewals, replacements, extensions, additions, betterments 

 

11

----

 

and improvements thereto, so that the businesscarried on by it may be conducted at all times in accordance with prudentbusiness management.

 

(k)           Inspection ofBooks and Assets.  TheGuarantor shall permit Agent, Lenders and each of their respectiverepresentatives reasonable access during normal business hours to itsproperties and personnel, and shall disclose and make available to Agent andLenders all books, papers and records relating to the Assets, stock ownership,properties, operations, obligations, and liabilities of the Guarantor,including, but not limited to, all books of account (including the generalledger), tax records, minute books of meetings of boards of directors (and anycommittees thereof) and shareholders, organizational documents, bylaws,material contracts and agreements, filings with any regulatory authority,accountants’ work papers (other than those that are the property of itsindependent outside auditors), litigation files, loan files, plans affectingemployees, and any other business or prospects in which Lenders may have areasonable interest in connection with the Facility Agreement and thisAgreement, provided that such access shall be reasonably related to thetransactions contemplated hereby and not unduly interfere with normaloperations, and provided further that in the event that any of the foregoingare in the control of any third party, the Guarantor shall use its reasonablebest efforts to cause such third party to provide access to such materials toAgent and Lenders who shall request the same. In the event that the Guarantor is prohibited by law from providing anyof the access referred to in the preceding sentence to Agent and Lenders, it shalluse its commercially reasonable efforts to obtain waivers thereof promptly soas to permit such access.  The Guarantorshall make its directors, officers, employees and agents and authorizedrepresentatives (including counsel and independent public accountants) toconfer with Agent and Lenders and their respective representatives, providedthat (i) such access shall be reasonably related to the transactionscontemplated hereby and not unduly interfere with normal operations and (ii) unlessa Default or Event of Default exists, counsel to the Guarantor shall bepermitted to be present at any meeting between the Guarantor’s independentpublic accountants and Agent or Lenders.

 

(l)            Compliance withLaws.  The Guarantor shall complywith all laws, rules, regulations and governmental orders (federal, state andlocal), including all Environmental Laws, having applicability to it or to thebusiness or businesses at any time conducted by it, where the failure to socomply would have, or could reasonably be expected to have, a Material AdverseEffect.

 

(m)          Dissolution;Existence.  TheGuarantor shall not wind up, liquidate or dissolve its affairs or fail tomaintain its corporate, existence.

 

(n)           AdverseTransactions.  TheGuarantor shall not enter into any transaction which materially and adverselyaffects its ability to perform its obligations under this Agreement.

 

(o)           AccountingChanges.  The Guarantor will not makeany significant change in (x) accounting treatment and reporting practicesexcept as permitted or required by GAAP or Legal Requirements or (y) unlessAgent consents thereto in writing (which consent shall not be unreasonablywithheld), its Fiscal Year.

 

(p)           Dividends.  The Guarantor will not authorize, declare, orpay any dividends or return any capital to its stockholders as such orauthorize or make any other distribution, payments or delivery of property orcash to its stockholders as such, or redeem, 

 

12

----

 

retire, purchase or otherwise acquire, directly orindirectly, for a consideration any shares of any class of its capital stocknow or hereafter outstanding or any options, warrants or other securities (nowor hereafter outstanding) convertible into or exercisable for any equity orother securities of the Guarantor or set aside funds for any of the foregoingand the Guarantor will not permit any Subsidiary or any Portfolio Entity-50% topurchase any Equity Interests of the Guarantor, or set aside funds for any ofthe foregoing.

 

(q)           Tax Returns.  The Guarantor shall timely file or caused tobe filed all federal tax returns which are required to be filed, and pay allCharges shown to be due and payable on said returns or on any assessments madeagainst it or any of its property.

 

11.          Default.  The Agent may declare the Guarantor indefault under this Agreement, and may exercise all of its rights hereunder anddemand payment of the Guarantied Obligations subject to the Maximum GuaranteedAmount; if:

 

(a)           the Guarantorfails to perform any of its obligations under, or meet any covenant of theGuarantor provided in, Section 10(c), 10(p) or 10(q) of thisAgreement, or fails to perform any of its other obligations under thisAgreement or meet any other covenant of the Guarantor provided for herein,which as to any such other obligation or other covenant other than a monetarypayment obligation of the Guarantor could be reasonably expected to materiallyand adversely affect the Guarantor’s ability to perform its payment obligationsunder this Agreement;

 

(b)           any Event ofDefault under any other Loan Document occurs and is continuing that involves apayment default by the Borrowers or that results in the acceleration of theGuarantied Obligations;

 

(c)           anyIndebtedness of the Guarantor in excess of $30,000,000 (whether evidenced by asingle facility or in the aggregate by more than one facility) (i) shallbe declared to be or shall become due and payable prior to the stated maturitythereof and, if a cure period is applicable thereto, such default shall not becured within the applicable cure period, or (ii) shall not be paid as andwhen the same becomes due and payable, and, in either case, could be reasonablyexpected to materially and adversely affect the Guarantor’s ability to performits payment obligations under this Agreement, and;

 

(d)           the Guarantorbecomes the subject of any bankruptcy, insolvency, arrangement, reorganization,moratorium, or other debtor-relief proceeding under any law, whether nowexisting or hereafter enacted, or upon the appointment of a receiver for, orthe attachment, restraint of or making or levying of any order of court orlegal process affecting, the property of such Guarantor; or

 

(e)           anyrepresentation, warranty, statement, report or certificate made or delivered bythe Guarantor or any officer, director, manager or authorized employee or agentthereof herein or in any other Loan Document or otherwise in writing by suchPerson in connection with any of the foregoing or in any certificate, report orother statement furnished pursuant to or in connection with any of theforegoing, shall be breached or shall prove to be untrue in any materialrespect, but only in the event that such breach or falsity could be reasonablyexpected to materially and adversely affect the Guarantor’s ability to performits payment obligations under this Agreement; or

 

13

----

 

(f)            a Change inControl shall occur (for purposes hereof, a Change in Control shall mean theoccurrence of any of the following events after the date hereof:  (i) any “person” or “group” (as suchterms are used in Sections 13(d) and 14(d) of the Securities ExchangeAct of 1934, as amended (the “**Exchange Act**”)),is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5under the Exchange Act), directly, or indirectly, of more than fifty percent(50%) of the aggregate voting power of all classes of Capital Stock of theGuarantor entitled to vote generally in an election of directors; (ii) theGuarantor is merged with or into another corporation or another corporation ismerged with or into the Guarantor with the effect that immediately after suchtransaction the stockholders of the Guarantor immediately prior to suchtransaction hold less than a majority in interest of the total voting powerentitled to vote in the election of directors, managers or trustees of theentity surviving the transaction; or (iii) to the extent not otherwisethen constituting an Event of Default, all or substantially all of the Assetsof the Guarantor are sold to any person or persons (as an entirety in onetransaction or a series of related transactions) (for purposes hereof, “CapitalStock” of any Person means any and all shares, interests, participations orother equivalents in the equity (however designated) of such Person and anyrights (other than debt securities convertible into an equity interest),warrants or options to acquire an equity interest in such Person).

 

12.          Right of Setoff.  In addition to all rights of setoff or lienagainst any moneys, securities or other property of the Guarantor given to theAgent and the Lenders by law, upon the occurrence of any default under anyagreement or instrument governing any of the Indebtedness or under thisAgreement, the Agent and each Lender is authorized at any time and from time totime following an Event of Default, without notice to the Guarantor or to anyother person or entity, any such notice being hereby expressly waived by theGuarantor, to set-off and apply any and all deposits (general) and any otherindebtedness at any time held or owing by the Agent or any Lender to or for thecredit or the account of the Guarantor against and on account of theobligations of the Guarantor under this Agreement, irrespective of whether ornot the Agent or such Lender shall have made any demand hereunder or any demandfor payment of any Indebtedness and although said obligations, liabilities orclaims, or any of them, shall be contingent or unmatured.

 

13.          Costs andExpenses.  Guarantoragrees to pay the Agent’s and the Lenders’ reasonable and documentedout-of-pocket costs and expenses, including but not limited to reasonable legalfees and disbursements, incurred in any effort to collect or enforce thisAgreement, whether or not any lawsuit is filed (the “Enforcement Costs”).

 

14.          CumulativeRemedies.  No delay orfailure by the Agent or any Lender to exercise any right or remedy against, orto require performance by, any Borrower or the Guarantor or any other partyshall be construed as a waiver of that right, remedy or requirement.  All remedies of the Agent and the Lendersagainst each Borrower and the Guarantor are cumulative.  All powers of the Agent and the Lenders toexercise any right or remedy against, or to require performance by, any LoanParty shall remain in full force and effect until specifically waived orreleased by an instrument in writing executed by the Agent and the Lenders.

 

15.          Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUTREFERENCE TO CHOICE OF LAW DOCTRINE THAT WOULD RESULT IN THE APPLICATION OF THELAWS OF ANOTHER JURISDICTION.

 

14

----

 

16.          Jurisdiction.  The Guarantor hereby agrees that ANY LEGALACTION OR PROCEEDING AGAINST THE GUARANTOR WITH RESPECT TO THIS AGREEMENT ORANY OTHER AGREEMENTS OR DOCUMENTS CONTEMPLATED HEREBY OR REFERRED TO HEREIN MAY BEBROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OFAMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS THE AGENT MAY ELECT, ANDBY EXECUTION AND DELIVERY OF THIS AGREEMENT THE GUARANTOR ACCEPTS AND CONSENTSFOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THEJURISDICTION OF THE AFORESAID COURTS AND AGREES THAT SUCH JURISDICTION SHALL BEEXCLUSIVE, unless waived by the Agent in writing, with respect to any action orproceeding brought by it against the Agent or any Lender and any questionsrelating to usury, and further consents (to the extent permitted by applicablelaw) to the service of process in any such action or proceeding being made uponthe Guarantor by mail at the address stated alongside its name on the signaturepage hereof or at such other address as the Agent is notified of inwriting in accordance with Section 19 hereof.  Nothing herein shall limit the right of theAgent or the Lenders to bring proceedings against the Guarantor in the courtsof any other jurisdiction.  The Guarantorcovenants that it is and will remain subject to service of process in the Stateof New York so long as any of the indebtedness is outstanding.

 

17.          Severability.  If any one or more of the provisionscontained in this Agreement or any document executed in connection herewithshall be invalid, illegal or unenforceable in any respect under any applicablelaw, the validity, legality and enforceability of the remaining provisionscontained herein shall not in any way be affected or impaired.

 

18.          Taxes.  All payments hereunder shall be made by theGuarantor to the Agent without setoff or counterclaim and in such amounts asmay be necessary in order that all such payments received by the Agent, afterwithholding for or on account of any present or future taxes, levies, imposts,duties or other similar charges of whatsoever nature imposed on the amountspayable by the Guarantor hereunder by any government or any politicalsubdivision or taxing authority thereof shall not be less than the amountrequired to be received by the Agent hereunder. In addition, the Guarantor shall on demand indemnify the Agent for allincome taxes on additional amounts paid pursuant to the precedingsentence.  With respect to each such deduction or withholding, theGuarantor shall promptly (and in no event later than 30 days thereafter)furnish to the Agent such certificates, receipts and other documents as may berequired to establish any tax credit, exemption or reduction in rate relatedthereto.

 

19.          Notices,Requests, Demands, Etc.  Except as otherwise expressly providedherein, all notices, requests, demands or other communications to or upon therespective parties hereto shall be deemed to have been duly given or made whendelivered if sent by Federal Express or other similar overnight deliveryservice, or three Business Days after mailing (when mailed, postage prepaid, byregistered or certified mail, return receipt requested) or (in the case oftelex, telegraphic, telecopier or cable notice) when delivered to the telex,telegraph, telecopier or cable company, or (in the case of telex or telecopiernotice sent over a telex or telecopier owned or operated by a party hereto)when sent; in each case addressed to the party entitled to receive same to theaddress stated alongside its name on the signature page hereto (or to suchother address as any party hereto may hereafter specify to the other inwriting); provided that communications with respect to a change ofaddress shall be deemed to be effective when actually received.

 

15

----

 

20.          Amendment.  No provisions of this Agreement shall bewaived, amended or supplemented except by a written instrument executed by theAgent and the Guarantor.

 

21.          Miscellaneous.  The provisions of this Agreement will bindand benefit the successors and assigns of the Guarantor, the Agent and theLenders.  The term “Borrowers” will meanboth the named Borrowers and any other person or entity at any time assuming orotherwise becoming primarily liable on all or any part of theIndebtedness.  The descriptive headingsused in this Agreement are for convenience only and shall not be deemed toaffect the meaning or construction of any provision hereof.

 

22.          Waiver ofClaims.  The Guarantor herebyacknowledges, agrees and affirms that it possesses no claims, defenses,offsets, recoupment or counterclaims of any kind or nature against or withrespect to the enforcement of this Agreement or any other Loan Document or anyamendments thereto (collectively, the “Claims”), nor does the Guarantornow have knowledge of any facts that would or might give rise to anyClaims.  If facts now exist which wouldor could give rise to any Claim against or with respect to the enforcement ofthis Agreement or any other Loan Document, as any of the foregoing may havebeen amended by the amendments thereto, the Guarantor hereby unconditionally,irrevocably and unequivocally waives and fully releases any and all such Claimsas if such Claims were the subject of a lawsuit, adjudicated to final judgmentfrom which no appeal could be taken and therein dismissed with prejudice.

 

23.          Counterparts.  This Agreement may be executed in any numberof counterparts, and by the different parties hereto on the same or separatecounterparts, each of which shall be deemed to be an original and all of whichtaken together shall constitute one and the same agreement.  Telecopied signatures hereto shall be of thesame force and effect as an original of a manually signed copy.

 

24.          WAIVER OF JURYTRIAL.  EACH OF THE AGENT AND THEGUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALLRIGHTS EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATIONBASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT ORANY OTHER AGREEMENT OR DOCUMENT RELATED HERETO, OR ANY COURSE OF CONDUCT,COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THEAGENT, THE LENDERS, ANY BORROWER, THE GUARANTOR OR ANY OTHER LOAN PARTY.  THIS PROVISION IS A MATERIAL INDUCEMENT FORTHE AGENT ENTERING INTO THIS AGREEMENT AND SUCH OTHER AGREEMENTS AND DOCUMENTSAND FOR THE LENDERS AND THE ISSUER ENTERING INTO THE REDUCING NOTE FACILITYREFERRED TO ON THE FIRST PAGE HEREOF.

 

25.          Attorney’s Fees.  If any legal action is brought by theGuarantor or the Agent, it is expressly agreed that the prevailing party insuch legal action shall be entitled to recover from the other party reasonableattorneys’ fees in addition to any other relief that may be awarded.

 

26.          Integration.

 

**THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINALAGREEMENT AMONG THE PARTIES HERETO WITH**

 

16

----

 

**RESPECTTO THE MATTERS COVERED HEREBY AND THEREBY AND MAY NOT BE CONTRADICTED BYEVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THEPARTIES.**

 

**THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.**

 

[remainder of page intentionally left blank]

 

17

----

 

INWITNESS WHEREOF, each party hereto has caused this Agreement to be dulyexecuted as of the date first above written.

 

Address:

 
| 6400  Imperial Drive (delivery only)                                                                                                                            |                      | FIRSTCITY  FINANCIAL CORPORATION |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|----------------------------------|
| Waco,  Texas 76710                                                                                                                                              |                      |                             |
|                                                                                                                                                            |                      | By:                              |   |
| P.O. Box  8216 (mail)                                                                                                                                      |                      |                             | Name: |
| Waco,  Texas 76714-8216                                                                                                                                         |                      |                             | Title: |
|                                                                                                                                                            |                      |                             |
| 254-761-2953  (telecopier)                                                                                                                                      |                      |                             |
|                                                                                                                                                            |                      |                             |
| ACCEPTED  BY:                                                                                                                                                   |                      |                             |
|                                                                                                                                                            |                      |                             |
| Bank  of Scotland Plc, acting through its New York Branch, in its capacity as Agent  under this Agreement and agent under the Reducing Note Facility Agreement. |                      | 1095  Avenue of the Americas     |
|                                                                                                                                                            | New  York, New York 10036 |
|                                                                                                                                                            |                      |
|                                                                                                                                                            |                      | (212)  883-6610 (telecopier)     |
| By:                                                                                                                                                             |                      |                             |   |
|                                                                                                                                                            | Name:                     |                             |   |
|                                                                                                                                                            | Title:                    |                             |   |

 

*[Signaturepage to Guaranty Agreement]*

 

----