Document:

Exhibit 4.3

 

AMENDED AND RESTATED

POWER-ONE, INC.

2004 STOCK INCENTIVE PLAN

(as amended and restated effective May 24, 2010)

 

1.                                     PURPOSE OF PLAN

 

The
purpose of the Power-One, Inc. 2004 Stock Incentive Plan (this “Plan”) of Power-One, Inc., a Delaware
corporation (the “Corporation”),
is to promote the success of the Corporation and to increase stockholder value
by providing an additional means through the grant of awards to attract,
motivate, retain and reward selected employees and other eligible persons.

 

2.                                     ELIGIBILITY

 

The
Administrator (as such term is defined in Section 3.1) may grant awards
under this Plan only to those persons that the Administrator determines to be
Eligible Persons.  An “Eligible Person”
is any person who is either: (a) an officer (whether or not a director) or
employee of the Corporation or one of its Subsidiaries; (b) a director of
the Corporation or one of its Subsidiaries; or (c) an individual
consultant or advisor who renders or has rendered bona fide services (other
than services in connection with the offering or sale of securities of the
Corporation or one of its Subsidiaries in a capital-raising transaction or as a
market maker or promoter of the Corporation’s or one of its Subsidiary’s
securities) to the Corporation or one of its Subsidiaries and who is selected
to participate in this Plan by the Administrator; provided, however, that a
person who is otherwise an Eligible Person under clause (c) above may
participate in this Plan only if such participation would not adversely affect
either the Corporation’s eligibility to use Form S-8 to register under the
Securities Act of 1933, as amended (the “Securities
Act”), the offering and sale of shares issuable under this Plan by
the Corporation or the Corporation’s compliance with any other applicable
laws.  An Eligible Person who has been granted an award (a “participant”)
may, if otherwise eligible, be granted additional awards if the Administrator
shall so determine.  As used herein, “Subsidiary”
means any corporation or other entity a majority of whose outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Corporation; and “Board” means the
Board of Directors of the Corporation.

 

3.                                     PLAN ADMINISTRATION

 

3.1.                           The Administrator.  This Plan shall be
administered by and all awards under this Plan shall be authorized by the
Administrator.  The “Administrator”
means the Board or one or more committees appointed by the Board or another
committee (within its delegated authority) to administer all or certain aspects
of this Plan.  Any such committee shall be comprised solely of one or more
directors or such number of directors as may be required under applicable
law.  A committee may delegate some or all of its authority to another
committee so constituted.  The Board or a committee comprised solely of
directors may also delegate, to the extent permitted by
Section 157(c) of the Delaware General Corporation Law and any other
applicable law, to one or more officers of the Corporation, its powers under
this Plan (a) to designate the officers and employees of the Corporation
and its Subsidiaries who will receive grants of awards under this Plan, and
(b) to determine the number of shares subject to, and the other terms and
conditions of, such awards.  The Board may delegate different levels of
authority to different committees with administrative and grant authority under
this Plan.  Unless otherwise provided in the Bylaws of the Corporation or
the applicable charter of any Administrator: (a) a majority of the members
of the acting Administrator shall constitute a quorum, and 

 

 

(b) the vote of a majority of the members present assuming the
presence of a quorum or the unanimous written consent of the members of the
Administrator shall constitute action by the acting Administrator.

 

With
respect to awards intended to satisfy the requirements for performance-based
compensation under Section 162(m) of the Internal Revenue Code of
1986, as amended (the “Code”),
this Plan shall be administered by a committee consisting solely of two or more
outside directors (as this requirement is applied under
Section 162(m) of the Code); provided, however, that the failure to
satisfy such requirement shall not affect the validity of the action of any
committee otherwise duly authorized and acting in the matter.  Award
grants, and transactions in or involving awards, intended to be exempt under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must be duly and timely
authorized by the Board or a committee consisting solely of two or more
non-employee directors (as this requirement is applied under Rule 16b-3
promulgated under the Exchange Act).  To the extent required by any
applicable listing agency, this Plan shall be administered by a committee
composed entirely of independent directors (within the meaning of the
applicable listing agency).

 

3.2.                           Powers of the Administrator.  Subject
to the express provisions of this Plan, the Administrator is authorized and
empowered to do all things necessary or desirable in connection with the
authorization of awards and the administration of this Plan (in the case of a
committee or delegation to one or more officers, within the authority delegated
to that committee or person(s)), including, without limitation, the authority
to:

 

(a)                                 determine
eligibility and, from among those persons determined to be eligible, the
particular Eligible Persons who will receive an award under this Plan;

 

(b)                                grant awards to
Eligible Persons, determine the price at which securities will be offered or
awarded and the number of securities to be offered or awarded to any of such
persons, determine the other specific terms and conditions of such awards
consistent with the express limits of this Plan, establish the installments (if
any) in which such awards shall become exercisable or shall vest (which may
include, without limitation, performance and/or time-based schedules), or
determine that no delayed exercisability or vesting is required, establish any
applicable performance targets, and establish the events of termination or
reversion of such awards;

 

(c)                                 approve the
forms of award agreements (which need not be identical either as to type of
award or among participants);

 

(d)                                construe and
interpret this Plan and any agreements defining the rights and obligations of
the Corporation, it Subsidiaries, and participants under this Plan, further
define the terms used in this Plan, and prescribe, amend and rescind
rules and regulations relating to the administration of this Plan or the
awards granted under this Plan;

 

(e)                                 cancel, modify,
or waive the Corporation’s rights with respect to, or modify, discontinue,
suspend, or terminate any or all outstanding awards, subject to any required
consent under Section 8.6.5;

 

(f)                                   accelerate or
extend the vesting or exercisability or extend the term of any or all such
outstanding awards (in the case of options or stock appreciation rights, within
the maximum ten-year term of such awards) in such circumstances as the
Administrator may deem appropriate (including, without limitation, in
connection with a termination of employment or services or other events of a
personal nature) subject to any required consent under Section 8.6.5;

 

 

(g)                                subject to Section 8.6.6,
adjust the number of shares of Common Stock subject to any award, adjust the
price of any or all outstanding awards or otherwise change previously imposed
terms and conditions, in such circumstances as the Administrator may deem
appropriate, in each case subject to Sections 4 and 8.6;

 

(h)                                determine the
date of grant of an award, which may be a designated date after but not before
the date of the Administrator’s action (unless otherwise designated by the
Administrator, the date of grant of an award shall be the date upon which the
Administrator took the action granting an award);

 

(i)                                    determine
whether, and the extent to which, adjustments are required pursuant to
Section 7 hereof and authorize the termination, conversion, substitution
or succession of awards upon the occurrence of an event of the type described
in Section 7;

 

(j)                                    acquire or
settle (subject to Sections 7 and 8.6) rights under awards in cash, stock of
equivalent value, or other consideration; and

 

(k)                                 determine the
fair market value of the Common Stock or awards under this Plan from time to
time and/or the manner in which such value will be determined.

 

3.3.                           Binding Determinations.  Any
action taken by, or inaction of, the Corporation, any Subsidiary, or the
Administrator relating or pursuant to this Plan and within its authority hereunder
or under applicable law shall be within the absolute discretion of that entity
or body and shall be conclusive and binding upon all persons.  Neither the
Board nor any Board committee, nor any member thereof or person acting at the
direction thereof, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with this Plan
(or any award made under this Plan), and all such persons shall be entitled to
indemnification and reimbursement by the Corporation in respect of any claim,
loss, damage or expense (including, without limitation, attorneys’ fees)
arising or resulting therefrom to the fullest extent permitted by law and/or
under any directors and officers liability insurance coverage that may be in
effect from time to time.

 

3.4.                           Reliance on Experts.  In making any
determination or in taking or not taking any action under this Plan, the Board
or a committee, as the case may be, may obtain and may rely upon the advice of
experts, including employees and professional advisors to the
Corporation.  No director, officer or agent of the Corporation or any of
its Subsidiaries shall be liable for any such action or determination taken or
made or omitted in good faith.

 

3.5.                           Delegation.  The Administrator may
delegate ministerial, non-discretionary functions to individuals who are
officers or employees of the Corporation or any of its Subsidiaries or to third
parties.

 

4.                                     SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS

 

4.1.                           Shares Available.  Subject to the
provisions of Section 7.1, the capital stock that may be delivered under
this Plan shall be shares of the Corporation’s authorized but unissued Common
Stock and any shares of its Common Stock held as treasury shares.  For
purposes of this Plan, “Common Stock”
shall mean the common stock of the Corporation and such other securities or
property as may become the subject of awards under this Plan, or may become
subject to such awards, pursuant to an adjustment made under Section 7.1.

 

 

4.2.                           Share Limits.  The maximum number
of shares of Common Stock that may be delivered pursuant to awards granted to
Eligible Persons under this Plan (the “Share
Limit”) is 10,750,000 shares.  The following limits also apply
with respect to awards granted under this Plan:

 

(a)                                 The maximum
number of shares of Common Stock that may be delivered pursuant to options
qualified as incentive stock options granted under this Plan is 1,000,000  shares.

 

(b)                                The maximum
number of shares of Common Stock subject to those options and stock
appreciation rights that are granted during any calendar year to any individual
under this Plan is 1,500,000 shares.

 

(c)                                 The maximum
number of shares of Common Stock subject to all awards that are granted during
any calendar year to any individual under this Plan is 1,500,000  shares.

 

(d)                                The maximum
number of shares of Common Stock that may be delivered pursuant to awards
granted under this Plan, other than those described in the next sentence, is
5,500,000 shares.  The limit set forth in this Section 4.2(d) does
not apply to  shares delivered in respect
of stock option grants and shares delivered in respect of stock appreciation
right grants.

 

(e)                                 The maximum
number of shares of Common Stock subject to all awards that are granted during
any calendar year to any non-employee director under this Plan is 62,500  shares.  For this purpose, a “non-employee
director” is a member of the Board who is not an officer or employee of the
Corporation or one of its Subsidiaries.

 

(f)                                   Additional
limits with respect to Performance-Based Awards are set forth in
Section 5.2.3.

 

Each
of the foregoing numerical limits is subject to adjustment as contemplated by
Section 4.3, Section 7.1, and Section 8.10.

 

4.3.                           Awards Settled in Cash, Reissue of Awards and Shares.  To the
extent that an award granted under this Plan is settled in cash or a form other
than shares of Common Stock, the shares that would have been delivered had
there been no such cash or other settlement shall not be counted against the
shares available for issuance under this Plan.  In the event that shares
of Common Stock are delivered in respect of a dividend equivalent right granted
under this Plan, only the actual number of shares delivered with respect to the
award shall be counted against the share limits of this Plan.  To the
extent that shares of Common Stock are delivered pursuant to the exercise of a
stock appreciation right or stock option granted under this Plan, the number of
underlying shares as to which the exercise related shall be counted against the
applicable share limits under Section 4.2, as opposed to only counting the
shares actually issued.  (For purposes of clarity, if a stock appreciation
right relates to 100,000 shares and is exercised at a time when the payment due
to the participant is 15,000 shares, 100,000 shares shall be charged against
the applicable share limits under Section 4.2 with respect to such
exercise.)  Except as set forth in this Section 4.3, shares that are
subject to or underlie awards granted under this Plan which expire or for any
reason are cancelled or terminated, are forfeited, fail to vest, 

 

 

or for any other reason are not paid or delivered under this Plan shall
again be available for subsequent awards under this Plan.  Shares that are
exchanged by a participant or withheld by the Corporation as full or partial
payment in connection with any award under this Plan, as well as any shares
exchanged by a participant or withheld by the Corporation or one of its
Subsidiaries to satisfy the tax withholding obligations related to any award,
shall not be available for subsequent awards under this Plan.  In
addition, any shares that are repurchased by the Company using the proceeds
received by the Company in connection with the exercise of a stock option shall
not be available for subsequent awards under this Plan.  Refer to Section 8.10 for application of
the foregoing share limits with respect to assumed awards.  The foregoing
adjustments to the share limits of this Plan are subject to any applicable
limitations under Section 162(m) of the Code with respect to awards
intended as performance-based compensation thereunder.

 

4.4.                           Reservation of Shares; No Fractional Shares; Minimum
Issue.  The Corporation shall at all times reserve a
number of shares of Common Stock sufficient to cover the Corporation’s
obligations and contingent obligations to deliver shares with respect to awards
then outstanding under this Plan (exclusive of any dividend equivalent
obligations to the extent the Corporation has the right to settle such rights
in cash).  No fractional shares shall be delivered under this Plan. 
The Administrator may pay cash in lieu of any fractional shares in settlements
of awards under this Plan.  No fewer than 100 shares may be purchased on
exercise of any award (or, in the case of stock appreciation or purchase
rights, no fewer than 100 rights may be exercised at any one time) unless the
total number purchased or exercised is the total number at the time available
for purchase or exercise under the award.

 

5.                                     AWARDS

 

5.1.                           Type and Form of Awards.  The
Administrator shall determine the type or types of award(s) to be made to
each selected Eligible Person.  Awards may be granted singly, in
combination or in tandem.  Awards also may be made in combination or in
tandem with, in replacement of, as alternatives to, or as the payment form for
grants or rights under any other employee or compensation plan of the
Corporation or one of its Subsidiaries.  The types of awards that may be
granted under this Plan are:

 

5.1.1.                  Stock Options.  A stock option is
the grant of a right to purchase a specified number of shares of Common Stock
during a specified period as determined by the Administrator.  An option
may be intended as an incentive stock option within the meaning of Section 422
of the Code (an “ISO”) or a
nonqualified stock option (an option not intended to be an ISO).  The
award agreement for an option will indicate if the option is intended as an
ISO, otherwise it will be deemed to be a nonqualified stock option.  The
maximum term of each option (ISO or nonqualified) shall be ten
(10) years.  The per share exercise price for each option shall be
not less than 100% of the fair market value of a share of Common Stock on the
date of grant of the option.  When an option is exercised, the exercise
price for the shares to be purchased shall be paid in full in cash or such
other method permitted by the Administrator consistent with Section 5.5.

 

5.1.2.                  Additional Rules Applicable to ISOs.  To the
extent that the aggregate fair market value (determined at the time of grant of
the applicable option) of stock with respect to which ISOs first become
exercisable by a participant in any calendar year exceeds $100,000, taking into
account both Common Stock subject to ISOs under this Plan and stock subject to
ISOs under all other plans of the Corporation or one of its Subsidiaries (or
any parent or predecessor corporation to the extent required by and within the
meaning of Section 422 of the Code and the regulations promulgated
thereunder), such options shall be treated as nonqualified stock options. 
In reducing the 

 

 

number of options treated as ISOs to meet the $100,000 limit, the most
recently granted options shall be reduced first.  To the extent a
reduction of simultaneously granted options is necessary to meet the $100,000
limit, the Administrator may, in the manner and to the extent permitted by law,
designate which shares of Common Stock are to be treated as shares acquired
pursuant to the exercise of an ISO.  ISOs may only be granted to employees
of the Corporation or one of its subsidiaries (for this purpose, the term “subsidiary”
is used as defined in Section 424(f) of the Code, which generally
requires an unbroken chain of ownership of at least 50% of the total combined
voting power of all classes of stock of each subsidiary in the chain beginning
with the Corporation and ending with the subsidiary in question).  There
shall be imposed in any award agreement relating to ISOs such other terms and
conditions as from time to time are required in order that the option be an “incentive
stock option” as that term is defined in Section 422 of the Code.  No
ISO may be granted to any person who, at the time the option is granted, owns
(or is deemed to own under Section 424(d) of the Code) shares of
outstanding Common Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Corporation, unless the exercise price of
such option is at least 110% of the fair market value of the stock subject to
the option and such option by its terms is not exercisable after the expiration
of five years from the date such option is granted.

 

5.1.3.                  Stock Appreciation Rights.  A stock
appreciation right or “SAR” is a
right to receive a payment, in cash and/or Common Stock, equal to the excess of
the fair market value of a specified number of shares of Common Stock on the
date the SAR is exercised over the fair market value of a share of Common Stock
on the date the SAR was granted (the “base price”) as set forth in the
applicable award agreement.  The maximum term of an SAR shall be ten
(10) years.  The Administrator may grant limited SARs which are
exercisable only upon a change in control or other specified event and may be
payable based on the spread between the base price of the SAR and the fair
market value of a share of Common Stock during a specified period or at a
specified time within a specified period before, after or including the date of
such event.

 

5.1.4.                  Restricted Stock and Restricted Stock Units.  Restricted Stock and
Restricted Stock Units may be granted at any time and from time to time prior
to the termination of this Plan to participants as determined by the
Administrator.  “Restricted
Stock” is an award or issuance of shares of Common Stock the grant,
issuance, retention, vesting and/or transferability of which is subject during
specified periods of time to such conditions (including continued employment or
performance conditions) and terms as the Administrator deems appropriate.  “Restricted Stock Units”
are awards denominated in units of shares of Common Stock under which the
issuance of shares is subject to such conditions (including continued
employment or performance conditions) and terms as the Administrator deems
appropriate.  Unless determined otherwise
by the Administrator, each Restricted Stock Unit will be equal to one share of
Common Stock.

 

5.1.5.                  Other Awards.  The other types of
awards that may be granted under this Plan include: (a) dividend
equivalents (b) any similar securities with a value derived from the value
of or related to the Common Stock and/or returns thereon; or (c) cash
awards granted consistent with Section 5.2 below.

 

5.2.                           Section 162(m) Performance-Based Awards.  Without limiting the generality of the foregoing, any of the
types of awards listed in Sections 5.1. and 5.1.5 above may be, and
options and SARs typically will be, granted as awards intended to satisfy the
requirements for “performance-based compensation” within the meaning of
Section 162(m) of the Code (“Performance-Based
Awards”).  The grant, vesting, exercisability or payment of
Performance-Based Awards may depend on the degree of 

 

 

achievement of one or more performance goals relative to a
pre-established targeted level or level using one or more of the Business Criteria
set forth below (on an absolute or relative basis) for the Corporation on a
consolidated basis or for one or more of the Corporation’s subsidiaries,
segments, divisions or business units, or any combination of the
foregoing.  Options and SARs  are
not subject to the requirements of Section 5.2.1 and 5.2.3.  Any
other Performance-Based Award shall be subject to all of the following
provisions of this Section 5.2.

 

5.2.1.                  Class; Administrator.  The eligible class of persons for Performance-Based
Awards under this Section 5.2 shall be officers and employees of the
Corporation or one of its Subsidiaries.  The Administrator approving
Performance-Based Awards or making any certification required pursuant to
Section 5.2.4 must be constituted as provided in Section 3.1 for
awards that are intended as performance-based compensation under
Section 162(m) of the Code.

 

5.2.2.                  Performance Goals.  The specific
performance goals for Performance-Based Awards (other than Qualifying Options
and Qualifying SARs) shall be, on an absolute or relative basis, established
based on one or more of the following business criteria (“Business Criteria”) as selected by the
Administrator in its sole discretion:  earnings per share, cash flow
(which means cash and cash equivalents derived from either net cash flow from
operations or net cash flow from operations, financing and investing
activities), total stockholder return, gross revenue, revenue growth, operating
income (before or after taxes), net earnings (before or after interest, taxes,
depreciation and/or amortization), return on equity or on assets or on net
investment, cost containment or reduction, or any combination thereof. 
These terms are used as applied under generally accepted accounting principles
or in the Corporation or one of its Subsidiaries’s financial reporting. 
To qualify awards as performance-based under Section 162(m), the
applicable Business Criterion (or Business Criteria, as the case may be) and
specific performance goal or goals (“targets”) must be established and approved
by the Administrator during the first 90 days of the performance period (and,
in the case of performance periods of less than one year, in no event more than
25% of the performance period has elapsed) and while performance relating to
such target(s) remains substantially uncertain within the meaning of
Section 162(m) of the Code.  Performance targets shall be
adjusted to mitigate the unbudgeted impact of material, unusual or nonrecurring
gains and losses, accounting changes or other extraordinary events not foreseen
at the time the targets were set unless the Administrator provides otherwise at
the time of establishing the targets.  The applicable performance
measurement period may not be less than three months nor more than 10 years (subject
to Section 5.1.4).

 

5.2.3.                  Form of Payment; Maximum Performance-Based Award.  Grants or awards under this Section 5.2 may be paid in cash
or shares of Common Stock or any combination thereof.  The maximum number
of shares of Common Stock which may be delivered pursuant to Performance-Based
Awards (other than options and SARs, and other than cash awards covered by the
following sentence) that are granted to any one participant in any one calendar
year shall not exceed 1,500,000  shares,
either individually or in the aggregate, subject to adjustment as provided in
Section 7.1.  In addition, the aggregate amount of compensation to be
paid to any one participant in respect of all Performance-Based Awards payable
only in cash and not related to shares of Common Stock and granted to that
participant in any one calendar year shall not exceed $1,000,000.00. 
Awards that are cancelled during the year shall not be counted against these
limits to the extent permitted by Section 162(m) of the Code.

 

 

5.2.4.                  Certification of Payment.  Before any Performance-Based Award under this
Section 5.2 (other than options and SARs) is paid and to the extent
required to qualify the award as performance-based compensation within the
meaning of Section 162(m) of the Code, the Administrator must certify
in writing that the performance target(s) and any other material terms of
the Performance-Based Award were in fact timely satisfied.

 

5.2.5.                  Reservation of Discretion.  The Administrator will have the discretion to
determine the restrictions or other limitations of the individual awards
granted under this Section 5.2 including the authority to reduce awards,
payouts or vesting or to pay no awards, in its sole discretion, if the
Administrator preserves such authority at the time of grant by language to this
effect in its authorizing resolutions or otherwise.

 

5.2.6.                  Expiration of Grant Authority.  As required pursuant to Section 162(m) of
the Code and the regulations promulgated thereunder, the Administrator’s
authority to grant new awards that are intended to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code (other
than options and SARs) shall terminate upon the first meeting of the
Corporation’s stockholders that occurs in the fifth year following the most
recent year in which the Corporation’s stockholders approve this Plan.

 

5.3.                           Award Agreements.  Each award shall be
evidenced by a written award agreement in the form approved by the
Administrator and executed on behalf of the Corporation and, if required by the
Administrator, executed by the recipient of the award.  The Administrator
may authorize any officer of the Corporation (other than the particular award
recipient) to execute any or all award agreements on behalf of the Corporation. 
The award agreement shall set forth the material terms and conditions of the
award as established by the Administrator consistent with the express
limitations of this Plan.

 

5.4.                           Deferrals and Settlements.  Payment
of awards may be in the form of cash, Common Stock, other awards or
combinations thereof as the Administrator shall determine, and with such
restrictions as it may impose.  The Administrator may also require or
permit participants to elect to defer the issuance of shares or the settlement
of awards in cash under such rules and procedures as it may establish
under this Plan.  The Administrator may also provide that deferred
settlements include the payment or crediting of interest or other earnings on
the deferral amounts, or the payment or crediting of dividend equivalents where
the deferred amounts are denominated in shares. 
Notwithstanding anything herein to the contrary, in no event will any
deferral of the delivery of shares of Common Stock or any other payment with
respect to any award be allowed if the Administrator determines, in its sole
discretion, that the deferral would result in the imposition of the additional
tax under Section 409A(a)(1)(B) of the Code. No award shall provide
for deferral of compensation that does not comply with Section 409A of the
Code, unless the Administrator, at the time of grant, specifically provides
that the award is not intended to comply with Section 409A of the
Code.  The Corporation shall have no
liability to a participant, or any other party, if an award that is intended to
be exempt from, or compliant with, Section 409A of the Code is not so
exempt or compliant or for any action taken by the Administrator.

 

5.5.                           Consideration for Common Stock or Awards.  The
purchase price for any award granted under this Plan or the Common Stock to be
delivered pursuant to an award, as applicable, may be paid by means of any
lawful consideration as determined by the Administrator, including, without
limitation, one or a combination of the following methods:

 

·                                         services rendered by the
recipient of such award;

 

·                                         cash, check payable to the
order of the Corporation, or electronic funds transfer;

 

 

·                                         notice and third party
payment in such manner as may be authorized by the Administrator;

 

·                                         the delivery of previously
owned shares of Common Stock;

 

·                                         by a reduction in the number
of shares otherwise deliverable pursuant to the award; or

 

·                                         subject to such procedures
as the Administrator may adopt, pursuant to a “cashless exercise” with a third
party who provides financing for the purposes of (or who otherwise facilitates)
the purchase or exercise of awards.

 

In
no event shall any shares newly-issued by the Corporation be issued for less
than the minimum lawful consideration for such shares or for consideration
other than consideration permitted by applicable state law.  Shares of
Common Stock used to satisfy the exercise price of an option shall be valued at
their fair market value on the date of exercise.  The Corporation will not
be obligated to deliver any shares unless and until it receives full payment of
the exercise or purchase price therefor and any related withholding obligations
under Section 8.5 and any other conditions to exercise or purchase have
been satisfied.  Unless otherwise expressly provided in the applicable
award agreement, the Administrator may at any time eliminate or limit a
participant’s ability to pay the purchase or exercise price of any award or
shares by any method other than cash payment to the Corporation.

 

5.6.                           Definition of Fair Market Value.  For
purposes of this Plan, “fair market value” shall mean, unless otherwise
determined or provided by the Administrator in the circumstances, the last
price (in regular trading) for a share of Common Stock as furnished by the
National Association of Securities Dealers, Inc. (the “NASD”) through the NASDAQ Global Market
Reporting System (the “Global Market”)
for the date in question or, if no sales of Common Stock were reported by the
NASD on the Global Market on that date, the last price (in regular trading) for
a share of Common Stock as furnished by the NASD through the Global Market for
the next preceding day on which sales of Common Stock were reported by the
NASD.  The Administrator may, however, provide with respect to one or more
awards that the fair market value shall equal the last price (in regular
trading) for a share of Common Stock as furnished by the NASD through the Global
Market on the last trading day preceding the date in question or the average of
the high and low trading prices of a share of Common Stock as furnished by the
NASD through the Global Market for the date in question or the most recent
trading day.  If the Common Stock is no longer listed or is no longer
actively traded on the Global Market as of the applicable date, the fair market
value of the Common Stock shall be the value as reasonably determined by the
Administrator for purposes of the award in the circumstances.  The
Administrator also may adopt a different methodology for determining fair
market value with respect to one or more awards if a different methodology is
necessary or advisable to secure any intended favorable tax, legal or other treatment
for the particular award(s) (for example, and without limitation, the
Administrator may provide that fair market value for purposes of one or more
awards will be based on an average of closing prices (or the average of high
and low daily trading prices) for a specified period preceding the relevant
date).

 

5.7.                           Transfer Restrictions.

 

5.7.1.      Limitations on Exercise and Transfer.  Unless
otherwise expressly provided in (or pursuant to) this Section 5.7, by
applicable law and by the award agreement, as the 

 

 

same may be amended, (a) all awards are non-transferable and shall
not be subject in any manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge; (b) awards shall be exercised
only by the participant; and (c) amounts payable or shares issuable
pursuant to any award shall be delivered only to (or for the account of) the
participant.

 

5.7.2.      Exceptions.  The Administrator
may permit awards to be exercised by and paid to certain persons or entities
related to the participant, including but not limited to members of the
participant’s immediate family, trusts or other entities controlled by or whose
beneficiaries or beneficial owners are the participant and/or members of the
participant’s immediate family, pursuant to such conditions and procedures,
including limitations on subsequent transfers, as the Administrator may
establish.  Consistent with Section 8.1, any permitted transfer shall
be subject to the condition that the Administrator receive evidence satisfactory
to it that the transfer (a) is being made for essentially donative, estate
and/or tax planning purposes on a gratuitous or donative basis and without
consideration (other than nominal consideration or in exchange for an interest
in a qualified transferee), and (b) will not compromise the Corporation’s
ability to register shares issuable under this Plan on Form S-8 under the
Securities Act.  Notwithstanding the foregoing or anything in
Section 5.7.3, ISOs and restricted stock awards  shall be subject to any and all additional transfer
restrictions under the Code to the extent necessary to maintain the intended
tax consequences of such awards.

 

5.7.3.      Further Exceptions to Limits on Transfer.  The
exercise and transfer restrictions in Section 5.7.1 shall not apply to:

 

(a)                                 transfers to
the Corporation,

 

(b)                                the designation
of a beneficiary to receive benefits in the event of the participant’s death
or, if the participant has died, transfers to or exercise by the participant’s
beneficiary, or, in the absence of a validly designated beneficiary, transfers
by will or the laws of descent and distribution,

 

(c)                                 subject to any
applicable limitations on ISOs, transfers to a family member (or former family
member) pursuant to a domestic relations order if approved or ratified by the
Administrator,

 

(d)                                if the
participant has suffered a disability, permitted transfers or exercises on
behalf of the participant by his or her legal representative, or

 

(e)                                 the
authorization by the Administrator of “cashless exercise” procedures with third
parties who provide financing for the purpose of (or who otherwise facilitate)
the exercise of awards consistent with applicable laws and the express
authorization of the Administrator.

 

5.8.                            International Awards. One or more awards may be
granted to Eligible Persons who provide services to the Corporation or one of
its Subsidiaries outside of the United States. Any awards granted to such
persons may be granted pursuant to the terms and conditions of any applicable
sub-plans, if any, appended to this Plan and approved by the Administrator.

 

6.            EFFECT OF TERMINATION OF SERVICE ON AWARDS

 

6.1.                           General. The Administrator shall
establish the effect of a termination of employment or service on the rights
and benefits under each award under this Plan and in so doing may 

 

 

make distinctions based upon, inter alia, the cause of termination and
type of award. If the participant is not an employee of the Corporation or one
of its Subsidiaries and provides other services to the Corporation or one of
its Subsidiaries, the Administrator shall be the sole judge for purposes of
this Plan (unless a contract or the award otherwise provides) of whether the
participant continues to render services to the Corporation or one of its
Subsidiaries and the date, if any, upon which such services shall be deemed to
have terminated.

 

6.2.                           Events Not Deemed Terminations of Service. Unless the
express policy of the Corporation or one of its Subsidiaries, or the
Administrator, otherwise provides, the employment relationship shall not be
considered terminated in the case of (a) sick leave, (b) military
leave, or (c) any other leave of absence authorized by the Corporation or
one of its Subsidiaries, or the Administrator; provided that unless
reemployment upon the expiration of such leave is guaranteed by contract or
law, such leave is for a period of not more than 90 days. In the case of any
employee of the Corporation or one of its Subsidiaries on an approved leave of
absence, continued vesting of the award while on leave from the employ of the
Corporation or one of its Subsidiaries may be suspended until the employee
returns to service, unless the Administrator otherwise provides or applicable
law otherwise requires. In no event shall an award be exercised after the
expiration of the term set forth in the award agreement.

 

6.3.                           Effect of Change of Subsidiary Status. For purposes
of this Plan and any award, if an entity ceases to be a Subsidiary of the
Corporation a termination of employment or service shall be deemed to have
occurred with respect to each Eligible Person in respect of such Subsidiary who
does not continue as an Eligible Person in respect of another entity within the
Corporation or another Subsidiary that continues as such after giving effect to
the transaction or other event giving rise to the change in status.

 

7.            ADJUSTMENTS; ACCELERATION

 

7.1.                           Adjustments. Subject to
Section 7.2, upon (or, as may be necessary to effect the adjustment,
immediately prior to): any reclassification, recapitalization, stock split
(including a stock split in the form of a stock dividend) or reverse stock
split; any merger, combination, consolidation, or other reorganization; any
spin-off, split-up, or similar extraordinary dividend distribution in respect
of the Common Stock; or any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; then the Administrator shall equitably and
proportionately adjust (1) the number and type of shares of Common Stock
(or other securities) that thereafter may be made the subject of awards
(including the specific share limits, maximums and numbers of shares set forth
elsewhere in this Plan), (2) the number, amount and type of shares of
Common Stock (or other securities or property) subject to any outstanding
awards, (3) the grant, purchase, or exercise price (which term includes
the base price of any SAR or similar right) of any outstanding awards, and/or
(4) the securities, cash or other property deliverable upon exercise or
payment of any outstanding awards, in each case to the extent necessary to
preserve (but not increase) the level of incentives intended by this Plan and
the then-outstanding awards.

 

Unless
otherwise expressly provided in the applicable award agreement, upon (or, as
may be necessary to effect the adjustment, immediately prior to) any event or
transaction described in the preceding paragraph or a sale of all or
substantially all of the business or assets of the Corporation as an entirety,
the Administrator shall equitably and proportionately adjust the performance
standards applicable to any then-outstanding performance-based awards to the
extent necessary to preserve (but not increase) the level of incentives
intended by this Plan and the then-outstanding performance-based awards.

 

 

It
is intended that, if possible, any adjustments contemplated by the preceding
two paragraphs be made in a manner that satisfies applicable U.S. legal, tax
(including, without limitation and as applicable in the circumstances,
Section 424 of the Code, Section 409A of the Code and
Section 162(m) of the Code) and accounting (so as to not trigger any
charge to earnings with respect to such adjustment) requirements.

 

Without
limiting the generality of Section 3.3, any good faith determination by
the Administrator as to whether an adjustment is required in the circumstances
pursuant to this Section 7.1, and the extent and nature of any such
adjustment, shall be conclusive and binding on all persons.

 

7.2.                           Corporate Transactions - Assumption and Termination of
Awards. Upon the occurrence of any of the following: any
merger, combination, consolidation, or other reorganization; any exchange of
Common Stock or other securities of the Corporation; a sale of all or substantially
all the business, stock or assets of the Corporation; a dissolution of the
Corporation; or any other event in which the Corporation does not survive (or
does not survive as a public company in respect of its Common Stock); then the
Administrator may make provision for a cash payment in settlement of, or for
the assumption, substitution or exchange of any or all outstanding share-based
awards or the cash, securities or property deliverable to the holder of any or
all outstanding share-based awards, based upon, to the extent relevant under
the circumstances, the distribution or consideration payable to holders of the
Common Stock upon or in respect of such event. Upon the occurrence of any event
described in the preceding sentence, then, unless the Administrator has made a
provision for the substitution, assumption, exchange or other continuation or
settlement of the award or the award would otherwise continue in accordance
with its terms in the circumstances: (1) subject to Section 7.4 and
unless otherwise provided in the applicable award agreement, each
then-outstanding option and SAR shall become fully vested,  all shares of
restricted stock then outstanding shall fully vest free of restrictions, and
each other award granted under this Plan that is then outstanding shall become
payable to the holder of such award; and (2) each award shall terminate
upon the related event; provided that the holder of an option or SAR shall be
given reasonable advance notice of the impending termination and a reasonable
opportunity to exercise his or her outstanding vested options and SARs (after
giving effect to any accelerated vesting required in the circumstances) in
accordance with their terms before the termination of such awards (except that
in no case shall more than ten days’ notice of the impending termination be
required and any acceleration of vesting and any exercise of any portion of an
award that is so accelerated may be made contingent upon the actual occurrence
of the event).

 

Without
limiting the preceding paragraph, in connection with any event referred to in
the preceding paragraph or any change in control event defined in any
applicable award agreement, the Administrator may, in its discretion, provide
for the accelerated vesting of any award or awards as and to the extent
determined by the Administrator in the circumstances.

 

The
Administrator may adopt such valuation methodologies for outstanding awards as
it deems reasonable in the event of a cash or property settlement and, in the
case of options, SARs or similar rights, but without limitation on other
methodologies, may base such settlement solely upon the excess if any of the
per share amount payable upon or in respect of such event over the exercise or
base price of the award.

 

 

In
any of the events referred to in this Section 7.2, the Administrator may
take such action contemplated by this Section 7.2 prior to such event (as
opposed to on the occurrence of such event) to the extent that the
Administrator deems the action necessary to permit the participant to realize
the benefits intended to be conveyed with respect to the underlying shares.
Without limiting the generality of the foregoing, the Administrator may deem an
acceleration to occur immediately prior to the applicable event and/or reinstate
the original terms of the award if an event giving rise to an acceleration does
not occur.

 

Without
limiting the generality of Section 3.3, any good faith determination by
the Administrator pursuant to its authority under this Section 7.2 shall
be conclusive and binding on all persons.

 

7.3.                           Other Acceleration Rules. The
Administrator may override the provisions of Section 7.2 and/or 7.4 by
express provision in the award agreement and may accord any Eligible Person a
right to refuse any acceleration, whether pursuant to the award agreement or
otherwise, in such circumstances as the Administrator may approve. The portion
of any ISO accelerated in connection with an event referred to in
Section 7.2 (or such other circumstances as may trigger accelerated vesting
of the award) shall remain exercisable as an ISO only to the extent the
applicable $100,000 limitation on ISOs is not exceeded. To the extent exceeded,
the accelerated portion of the option shall be exercisable as a nonqualified
stock option under the Code.

 

7.4.                           Golden Parachute Limitation.
Notwithstanding anything else contained in this Section 7 to the contrary,
in no event shall any award or payment be accelerated under this Plan to an
extent or in a manner so that such award or payment, together with any other
compensation and benefits provided to, or for the benefit of, the participant
under any other plan or agreement of the Corporation or any of its
Subsidiaries, would not be fully deductible by the Corporation or one of its
Subsidiaries for federal income tax purposes because of Section 280G of
the Code. If a participant would be entitled to benefits or payments hereunder
and under any other plan or program that would constitute “parachute payments”
as defined in Section 280G of the Code, then the participant may by
written notice to the Corporation designate the order in which such parachute
payments will be reduced or modified so that the Corporation or one of its
Subsidiaries is not denied federal income tax deductions for any “parachute
payments” because of Section 280G of the Code. Notwithstanding the
foregoing, if a participant is a party to an employment or other agreement with
the Corporation or one of its Subsidiaries, or is a participant in a severance
program sponsored by the Corporation or one of its Subsidiaries, that contains
express provisions regarding Section 280G and/or Section 4999 of the
Code (or any similar successor provision), or the applicable award agreement
includes such provisions, the Section 280G and/or Section 4999 provisions
of such employment or other agreement or plan, as applicable, shall control as
to the awards held by that participant (for example, and without limitation, a
participant may be a party to an employment agreement with the Corporation or
one of its Subsidiaries that provides for a “gross-up” as opposed to a “cut-back”
in the event that the Section 280G thresholds are reached or exceeded in
connection with a change in control and, in such event, the Section 280G
and/or Section 4999 provisions of such employment agreement shall control
as to any awards held by that participant).

 

8.            OTHER PROVISIONS

 

8.1.                            Compliance with Laws. This Plan, the granting
and vesting of awards under this Plan, the offer, issuance and delivery of
shares of Common Stock, the acceptance of promissory notes and/or the payment
of money under this Plan or under awards are subject to 

 

 

compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law,
federal margin requirements) and to such approvals by any listing, regulatory
or governmental authority as may, in the opinion of counsel for the
Corporation, be necessary or advisable in connection therewith. The person
acquiring any securities under this Plan will, if requested by the Corporation
or one of its Subsidiaries, provide such assurances and representations to the
Corporation or one of its Subsidiaries as the Administrator may deem necessary
or desirable to assure compliance with all applicable legal and accounting
requirements.

 

8.2.                           Employment Status. No person shall have any
claim or rights to be granted an award (or additional awards, as the case may
be) under this Plan, subject to any express contractual rights (set forth in a
document other than this Plan) to the contrary.

 

8.3.                           No Employment/Service Contract. Nothing
contained in this Plan (or in any other documents under this Plan or in any
award) shall confer upon any Eligible Person or other participant any right to
continue in the employ or other service of the Corporation or one of its
Subsidiaries, constitute any contract or agreement of employment or other
service or affect an employee’s status as an employee at will, nor shall
interfere in any way with the right of the Corporation or one of its
Subsidiaries to change a person’s compensation or other benefits, or to
terminate his or her employment or other service, with or without cause.
Nothing in this Section 8.3, however, is intended to adversely affect any
express independent right of such person under a separate employment or service
contract other than an award agreement.

 

8.4.                           Plan Not Funded. Awards payable under this
Plan shall be payable in shares or from the general assets of the Corporation,
and no special or separate reserve, fund or deposit shall be made to assure
payment of such awards. No participant, beneficiary or other person shall have
any right, title or interest in any fund or in any specific asset (including
shares of Common Stock, except as expressly otherwise provided) of the
Corporation or one of its Subsidiaries by reason of any award hereunder.
Neither the provisions of this Plan (or of any related documents), nor the
creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Corporation or one of its
Subsidiaries and any participant, beneficiary or other person. To the extent
that a participant, beneficiary or other person acquires a right to receive
payment pursuant to any award hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.

 

8.5.                           Tax Withholding. Upon any exercise,
vesting, or payment of any award, the Corporation or one of its Subsidiaries
shall have the right at its option to:

 

(a)                                 require the
participant (or the participant’s personal representative or beneficiary, as
the case may be) to pay or provide for payment of at least the minimum amount
of any taxes which the Corporation or one of its Subsidiaries may be required
to withhold with respect to such award event or payment; or

 

(b)                                deduct from any
amount otherwise payable in cash to the participant (or the participant’s
personal representative or beneficiary, as the case may be) the minimum amount
of any taxes which the Corporation or one of its Subsidiaries may be required
to withhold with respect to such cash payment.

 

In
any case where a tax is required to be withheld in connection with the delivery
of shares of Common Stock under this Plan, the Administrator may in its sole
discretion (subject to Section 8.1) grant (either at the time of the award
or thereafter) to the 

 

 

participant
the right to elect, pursuant to such rules and subject to such conditions
as the Administrator may establish, to have the Corporation reduce the number
of shares to be delivered by (or otherwise reacquire) the appropriate number of
shares, valued in a consistent manner at their fair market value or at the
sales price in accordance with authorized procedures for cashless exercises,
necessary to satisfy the minimum applicable withholding obligation on exercise,
vesting or payment. In no event shall the shares withheld exceed the minimum
whole number of shares required for tax withholding under applicable law. The
Corporation may, with the Administrator’s approval, accept one or more
promissory notes from any Eligible Person in connection with taxes required to
be withheld upon the exercise, vesting or payment of any award under this Plan;
provided that any such note shall be subject to terms and conditions
established by the Administrator and the requirements of applicable law.

 

8.6.                           Effective Date, Termination and Suspension, Amendments.

 

8.6.1.      Effective Date. This Plan is effective as
of January 27, 2004, the date of its approval by the Board (the “Effective Date”). This Plan shall be
submitted for and subject to stockholder approval no later than twelve months
after the Effective Date. Unless earlier terminated by the Board, this Plan shall
terminate at the close of business on the day before the tenth anniversary of
the Effective Date. After the termination of this Plan either upon such stated
expiration date or its earlier termination by the Board, no additional awards
may be granted under this Plan, but previously granted awards (and the
authority of the Administrator with respect thereto, including the authority to
amend such awards) shall remain outstanding in accordance with their applicable
terms and conditions and the terms and conditions of this Plan.

 

8.6.2.      Board Authorization. The Board may, at any
time, terminate or, from time to time, amend, modify or suspend this Plan, in
whole or in part. No awards may be granted during any period that the Board
suspends this Plan.

 

8.6.3.      Stockholder Approval. To the extent then
required by applicable law or any applicable listing agency or required under
Sections 162, 422 or 424 of the Code to preserve the intended tax consequences
of this Plan, or deemed necessary or advisable by the Board, any amendment to
this Plan shall be subject to stockholder approval.

 

8.6.4.      Amendments to Awards. Without limiting any other
express authority of the Administrator under (but subject to) the express
limits of this Plan, the Administrator by agreement or resolution may waive
conditions of or limitations on awards to participants that the Administrator
in the prior exercise of its discretion has imposed, without the consent of a
participant, and (subject to the requirements of Sections 3.2 and 8.6.5) may make
other changes to the terms and conditions of awards. Any amendment or other
action that would constitute a repricing of an award is subject to the
limitations set forth in Section 8.6.6.

 

8.6.5.      Limitations on Amendments to Plan and Awards. No amendment,
suspension or termination of this Plan or change of or affecting any
outstanding award shall, without written consent of the participant, affect in
any manner materially adverse to the participant any rights or benefits of the
participant or obligations of the Corporation under any award granted under
this Plan prior to the effective date of such change. Changes, settlements and
other actions contemplated by Section 7 shall not be deemed to constitute
changes or amendments for purposes of this Section 8.6.

 

 

8.6.6.      No Repricing without Stockholder Approval.  Other than in connection with a change in the
Corporation’s capitalization (as described in Section 7), neither the exercise
price of an option nor the base price of a stock appreciation right may be
reduced without stockholder approval (including canceling previously awarded
options and/or stock appreciation rights in exchange for cash, other awards
under this Plan or options or stock appreciation rights with an exercise price
or base price that is less than the exercise price or base price of the
original award).

 

8.7.                           Privileges of Stock Ownership. Except as
otherwise expressly authorized by the Administrator or this Plan, a participant
shall not be entitled to any privilege of stock ownership as to any shares of
Common Stock not actually delivered to and held of record by the participant.
No adjustment will be made for dividends or other rights as a stockholder for
which a record date is prior to such date of delivery.

 

8.8.                           Governing Law; Construction; Severability.

 

8.8.1.      Choice of Law. This Plan, the awards, all
documents evidencing awards and all other related documents shall be governed
by, and construed in accordance with the laws of the State of Delaware.

 

8.8.2.      Severability. If a court of competent
jurisdiction holds any provision invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.

 

8.8.3.      Plan Construction.

 

(a)                                 Rule 16b-3. It is the
intent of the Corporation that the awards and transactions permitted by awards
be interpreted in a manner that, in the case of participants who are or may be
subject to Section 16 of the Exchange Act, qualify, to the maximum extent
compatible with the express terms of the award, for exemption from matching
liability under Rule 16b-3 promulgated under the Exchange Act.
Notwithstanding the foregoing, the Corporation shall have no liability to any
participant for Section 16 consequences of awards or events under awards
if an award or event does not so qualify.

 

(b)                                Section 162(m). Awards under
Sections 5.1.4 and 5.1.5 to persons described in Section 5.2 that are
either granted or become vested, exercisable or payable based on attainment of
one or more performance goals related to the Business Criteria, as well as
options and SARs granted to persons described in Section 5.2, that are
approved by a committee composed solely of two or more outside directors (as
this requirement is applied under Section 162(m) of the Code) shall
be deemed to be intended as performance-based compensation within the meaning
of Section 162(m) of the Code unless such committee provides
otherwise at the time of grant of the award. It is the further intent of the
Corporation that (to the extent the Corporation or one of its Subsidiaries or
awards under this Plan may be or become subject to limitations on deductibility
under Section 162(m) of the Code) any such awards and any other
Performance-Based Awards under Section 5.2 that are granted to or held by
a person subject to Section 162(m) will qualify as performance-based
compensation or otherwise be exempt from deductibility limitations under
Section 162(m).

 

8.9.                           Captions. Captions and headings are
given to the sections and subsections of this Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of this Plan or any provision
thereof.

 

 

8.10.                    Stock-Based Awards in Substitution for Stock Options or
Awards Granted by Other Corporation. Awards may be granted to
Eligible Persons in substitution for or in connection with an assumption of
employee stock options, SARs, restricted stock or other stock-based awards
granted by other entities to persons who are or who will become Eligible
Persons in respect of the Corporation or one of its Subsidiaries, in connection
with a distribution, merger or other reorganization by or with the granting
entity or an affiliated entity, or the acquisition by the Corporation or one of
its Subsidiaries, directly or indirectly, of all or a substantial part of the
stock or assets of the employing entity. The awards so granted need not comply
with other specific terms of this Plan, provided the awards reflect only
adjustments giving effect to the assumption or substitution consistent with the
conversion applicable to the Common Stock in the transaction and any change in
the issuer of the security. Any shares that are delivered and any awards that
are granted by, or become obligations of, the Corporation, as a result of the
assumption by the Corporation of, or in substitution for, outstanding awards
previously granted by an acquired company (or previously granted by a
predecessor employer (or direct or indirect parent thereof) in the case of
persons that become employed by the Corporation or one of its Subsidiaries in
connection with a business or asset acquisition or similar transaction) shall
not be counted against the Share Limit or other limits on the number of shares
available for issuance under this Plan.

 

8.11.                    Non-Exclusivity of Plan. Nothing in
this Plan shall limit or be deemed to limit the authority of the Board or the
Administrator to grant awards or authorize any other compensation, with or
without reference to the Common Stock, under any other plan or authority.

 

8.12.                    No Corporate Action Restriction. The existence
of this Plan, the award agreements and the awards granted hereunder shall not
limit, affect or restrict in any way the right or power of the Board or the
stockholders of the Corporation to make or authorize: (a) any adjustment,
recapitalization, reorganization or other change in the capital structure or
business of the Corporation or any subsidiary, (b) any merger,
amalgamation, consolidation or change in the ownership of the Corporation or
any subsidiary, (c) any issue of bonds, debentures, capital, preferred or
prior preference stock ahead of or affecting the capital stock (or the rights
thereof) of the Corporation or any subsidiary, (d) any dissolution or
liquidation of the Corporation or any subsidiary, (e) any sale or transfer
of all or any part of the assets or business of the Corporation or any
subsidiary, or (f) any other corporate act or proceeding by the
Corporation or any subsidiary. No participant, beneficiary or any other person
shall have any claim under any award or award agreement against any member of
the Board or the Administrator, or the Corporation or any employees, officers
or agents of the Corporation or any subsidiary, as a result of any such action.

 

8.13.                    Other Company Benefit and Compensation Programs. Payments and
other benefits received by a participant under an award made pursuant to this
Plan shall not be deemed a part of a participant’s compensation for purposes of
the determination of benefits under any other employee welfare or benefit plans
or arrangements, if any, provided by the Corporation or any subsidiary, except
where the Administrator expressly otherwise provides or authorizes in writing.
Awards under this Plan may be made in addition to, in combination with, as
alternatives to or in payment of grants, awards or commitments under any other
plans or arrangements of the Corporation or its subsidiaries.

 

8.14.                    Conditions
and Restrictions Upon Securities Subject to Awards.  The Administrator
may provide that the shares of Common Stock issued upon exercise of an option
or SAR or otherwise subject to or issued under an award shall be subject to
such further agreements, restrictions, conditions or limitations as the
Administrator in its discretion 

 

 

may specify prior to the exercise of such option or SAR or the grant,
vesting or settlement of such award, including without limitation, conditions
on vesting or transferability, forfeiture or repurchase provisions and method
of payment for the shares of Common Stock issued upon exercise, vesting or
settlement of such award (including the actual or constructive surrender of
shares already owned by the participant) or payment of taxes arising in
connection with an award.  Without
limiting the foregoing, such restrictions may address the timing and manner of
any resales by the participant or other subsequent transfers by the participant
of any shares of Common Stock issued under an award, including without
limitation (a) restrictions under an insider trading policy or pursuant to
applicable law, (b) restrictions designed to delay and/or coordinate the
timing and manner of sales by participant and holders of other Corporation
equity compensation arrangements, (c) restrictions as to the use of a
specified brokerage firm for such resales or other transfers and
(d) provisions requiring shares to be sold on the open market or to the
Corporation in order to satisfy tax withholding or other obligations.Exhibit 10.57

 

Execution Copy

 

 

REDUCING NOTE FACILITY AGREEMENT

 

 

among

 

 

FIRSTCITY COMMERCIAL CORPORATION

 

and

 

FH PARTNERS LLC

 

as Borrowers

 

 

and

 

 

FLBG CORPORATION

 

as a Guarantor

 

BANK OF SCOTLAND PLC

AND BOS (USA) INC.

as Lenders,

 

with

 

BANK OF SCOTLAND PLC,

acting through its New York Branch,

as Agent and Collateral Agent

 

 

Dated as of June 25, 2010

 

 

 

 

REDUCING NOTE FACILITY AGREEMENT

 

REDUCING
NOTE FACILITY AGREEMENT, dated as of June 25, 2010 among FIRSTCITY
COMMERCIAL CORPORATION, a Texas corporation (“FC Commercial”), FH
PARTNERS LLC, a Texas limited liability company (“FH Partners”) (FC
Commercial and FH Partners each a “Borrower” and together, the “Borrowers”),
FLBG CORPORATION, a Texas corporation, as Guarantor (“FLBG”), the
financial institutions from time to time party hereto as Senior Lenders (the “Senior
Lenders”), and BoS (USA) Inc., a Delaware corporation (“BoS (USA)”)(the
“Subordinated Lender” and together with the Senior Lenders, the “Lenders”)
and BANK OF SCOTLAND PLC, acting through its New York branch, as agent for
Lenders (in such capacity, “Agent”) and as collateral agent for
Lenders(in such capacity, “Collateral  Agent”).

 

W I T N E S S E T H :

 

WHEREAS,
the Borrowers’ Affiliate, FirstCity Financial Corporation, a Delaware corporation
(“FCFC”), and the Lenders and the Agent are parties to a certain
Revolving Credit Agreement dated as of November 12, 2004 (as the same has
been amended from time to time, the “Revolving Credit Agreement”);

 

WHEREAS,
FH Partners and the Lenders and the Agent are parties to a certain Revolving
Credit Agreement dated as of August 26, 2005 (as the same has been amended
from to time to time, the “FH Partners Credit Agreement”) evidencing
loans thereunder (such loans, together with the loans under the Revolving
Credit Agreement, collectively, the “Senior Loan”);

 

WHEREAS,
FCFC and BoS (USA). are parties to a certain Subordinated Delayed Draw Credit
Agreement dated as of September 5, 2007 (as the same has been amended from
time to time, the “Subordinated Credit Agreement”) evidencing loans
thereunder (the “Subordinated Loan”) (the Revolving Credit Agreement,
the FH Partners Credit Agreement and the Subordinated Credit Agreement
together, the “Existing Credit Agreements”);

 

WHEREAS,
the Borrowers and FCFC have requested that the Lenders permit the Existing
Credit Agreements to be consolidated, amended and restated in their entirety by
this Agreement;

 

WHEREAS , it is the intent of the parties hereto that
this Agreement shall be an amendment of the Existing Credit Agreements and not
a novation thereof;

 

WHEREAS,
the Lenders are willing to permit the Existing Credit Agreements to be
consolidated, amended and restated in their entirety by this Agreement and
Borrowers hereby shall assume the obligations under the Existing Credit
Agreements as consolidated, amended and restated in their entirety by this
Agreement; and

 

WHEREAS,
the parties hereto agree that the Lenders shall have no obligation to provide
any additional Loans or issue any new Letters of Credit under the Existing
Credit Agreements, under this Agreement or under any other agreement,
instrument or Loan Documents, except for Loans to be made upon presentment of
the existing Letters of Credit (as defined herein) as set forth in this
Agreement.

 

 

NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

 

Section 1.                                           DEFINITIONS.

 

(a)           Terms used in this Agreement which are defined in
Annex I hereto shall have the meanings specified in such Annex I hereto (unless
otherwise defined herein) and shall include in the singular number the plural
and in the plural number the singular.

 

(b)           Unless otherwise specified, each reference in this
Agreement or in any other Loan Document to a Loan Document shall mean such Loan
Document as the same may from time to time be amended, extended, restated,
supplemented or otherwise modified.

 

(c)           All references to Sections in this Agreement or in
Annex I hereto shall be deemed references to Sections in this Agreement unless
otherwise specified.

 

(d)           As used in this Agreement and the other Loan
Documents, the terms “including” and “such as” are illustrative and not
limitative.

 

Section 2.                                           THE OUTSTANDING
LOANS.

 

2.1          The Outstanding Loans and Letters of Credit.

 

(a)           On and as of the date hereof, the outstanding
principal balance of the loans (each a “Loan” and collectively the “Loans”)
and Letters of Credit under the respective Existing Credit Agreements is as
follows:

 

	
  Revolving Credit Agreement

  	
  -

  	
   

  	
  $

  	
  174,616,768.94

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LC Outstandings

  	
  -

  	
   

  	
  $

  	
  22,350,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FH Partners Credit
  Agreement

  	
  -

  	
   

  	
  $

  	
  46,641,875.14

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subordinated Credit
  Agreement

  	
  -

  	
   

  	
  $

  	
  25,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total:

  	
   

  	
   

  	
  $

  	
  268,608,644.08

  	
   

  

 

On
and as of the date hereof, the outstanding balance of Loans made in Euros is
€19,673,574.44 (the equivalent of $24,605,372.65  US Dollars).

 

The
existing Loans under the respective Existing Credit Agreements will be amended
and restated pursuant to the terms of this Agreement.  The aggregate outstanding principal amount of
Loans made in Euros under this Agreement shall not exceed the equivalent of
$27,500,000.  Unless otherwise provided
herein, all Loans denominated in Euros shall be made, maintained and continued
as Eurocurrency Loans.

 

2

 

(b)           The Lenders have no obligation under this Agreement,
under the Existing Credit Agreements or under any other agreement, instrument
or Loan Documents to make any additional Loans to the Borrowers or to any Affiliates
of either Borrower, except as provided in Section 2A.4(b).

 

(c)           FCFC will have no obligation or liability for
payment of the Loans or any other obligations under this Agreement or the
Existing Credit Agreements, except as set forth in and pursuant to the Limited
Guaranty.

 

2.2          The Notes.  Borrowers’ joint and several obligation to
pay the principal of, and interest on, the Loans of each Lender shall be
evidenced by promissory notes payable to the order of such Lender, each
substantially in the form of Exhibit A-1, with respect to the
Senior Loan (such note, the “Senior Note”), and Exhibit A-2,
with respect to the Subordinated Loan. (such note, a “Subordinated Note”,
and, together with the Senior Note, the “Notes”).

 

(a)           Each Note delivered to each Lender shall be: (i) dated
the Effective Date; (ii) in an original principal amount, with respect to
each Lender, as set forth on Schedule 2.2(a) hereto; and (iii) payable
in full on the Maturity Date.

 

(b)           The Notes shall be, and hereby are, secured by the
Collateral and the Security Documents.

 

(c)           For the avoidance of doubt,
the Borrowers and the Lenders acknowledge that (i) the Subordination
Agreement, as amended on the date hereof, remains in full force and effect and (ii) payments
to the Borrower under this Agreement shall be allocated among the Loans as
directed from time to time by the Agent in accordance with the Subordination
Agreement.

 

2.3          Mandatory Prepayments and Repayments of Loans.

 

(a)           On or before the end of each quarter, the Borrowers
shall prepay the Loans in any amount necessary to reduce the Total Outstanding
to the amount specified below for such quarter, as follows:

 

	
  September 30, 2010:

  	
   

  	
  $

  	
  260,000,000

  	
   

  
	
  December 31, 2010:

  	
   

  	
  $

  	
  250,000,000

  	
   

  
	
  March 31, 2011:

  	
   

  	
  $

  	
  240,000,000

  	
   

  
	
  June 30, 2011:

  	
   

  	
  $

  	
  225,000,000

  	
   

  
	
  September 30, 2011:

  	
   

  	
  $

  	
  205,000,000

  	
   

  
	
  December 31, 2011:

  	
   

  	
  $

  	
  185,000,000

  	
   

  
	
  March 31, 2012:

  	
   

  	
  $

  	
  165,000,000

  	
   

  
	
  June 30, 2012:

  	
   

  	
  $

  	
  145,000,000

  	
   

  
	
  September 30, 2012:

  	
   

  	
  $

  	
  125,000,000

  	
   

  
	
  December 31, 2012:

  	
   

  	
  $

  	
  100,000,000

  	
   

  
	
  March 31, 2013:

  	
   

  	
  $

  	
  85,000,000

  	
   

  

 

3

 

(b)           Borrowers shall repay the unpaid principal amount of
all Loans, together with all unpaid interest thereon and all other fees and
amounts due with respect thereto, in full on the Maturity Date.

 

(c)           In the event the aggregate
outstanding principal amount of Loans made in Euros under this Agreement
exceeds the equivalent of $27,500,000, Borrowers shall prepay such Loans until
the aggregate outstanding principal amount of Loans made in Euros under this
Agreement no longer exceeds the equivalent of $27,500,000.

 

(d)           No amounts prepaid or repaid
in accordance with the provisions of this Section 2.3 may be reborrowed.

 

2.4          Voluntary Prepayments of Loans.  Borrowers may, upon not less than three (3) Business
Days prior written notice to Agent (which notice Agent shall promptly transmit
to Lenders in writing or by telephone, and if by telephone, confirmed as soon
as possible thereafter in writing) prepay the Loans in whole at any time, or
from time to time in part in amounts of not less than 250,000 units of the
relevant currency equal to or greater than an amount of the Dollar Equivalent
of which is $250,000 (and, if greater, in integral multiples of 50,000 units of
the relevant currency), without premium or penalty; provided that at the
time of any such prepayment, Borrowers shall pay all interest accrued on the
principal amount so prepaid and all other fees and amounts (including, without
limitation, the Upfront Fee and any breakage costs to Lenders) due hereunder or
under the Loan Documents.  All notices
pursuant to this Section 2.4 shall be irrevocable and result in the
principal amount of Loans specified therein becoming due and payable on the
prepayment date specified therein.  In no
event may amounts prepaid under this Section 2.4 be reborrowed.

 

2.5          Currency Fluctuations, etc.

 

(a)           Not later than 1:00 p.m.,
New York City time, on each Payment Date, Agent shall (i) determine the
Exchange Rate as of such date if at such time there are outstanding Eurocurrency
Loans denominated in Euros and (ii) give notice thereof to Lenders and
Borrowers.  The Exchange Rate so
determined shall be effective on the first Business Day immediately following
the relevant Borrowing Date or Payment Date (a “Reset Date”) and shall
remain effective until the next succeeding Reset Date.

 

(b)           Not later than 5:00 p.m.,
New York City time, on each Reset Date, Agent shall (i) determine the
Dollar Equivalent of the Eurocurrency Loans in Euros then outstanding (after
giving effect to any Eurocurrency Loans to be made or repaid on such date) and (ii) notify
Lenders and Borrowers of the results of each determination.

 

SECTION 2A.  LETTERS OF CREDIT

 

SECTION 2A.1.  Outstanding Letters of Credit.  Set forth on Schedule 2A.1 is a list
of all irrevocable letters of credit (each a “Letter of Credit” and
collectively, the “Letters of Credit”) outstanding in connection with
the Existing Credit Agreements, setting forth the principal amount, beneficiary
and maturity date of each thereof.  The
Lenders have no obligation under this Agreement, under the Existing Credit
Agreements or under any other agreement, instrument or Loan Documents to issue
additional Letters of Credit.

 

4

 

SECTION 2A.2.  No Extensions.  The parties acknowledge that, notwithstanding
any contrary provision set forth in the Letters of Credit or any other
agreement, the Letters of Credit shall not be subject to any extension beyond
their respective expiry dates.  The
parties further acknowledge that this Agreement shall constitute notice under
any Letter of Credit that the expiry date of such Letter of Credit shall not be
extended.

 

SECTION 2A.3.  Fees and Expenses.  (a) Borrowers agree to pay to Agent for
distribution to Senior Lenders (pro  rata, based upon their pro
rata shares of the LC Outstandings as determined in accordance with Section 2A.6)
a non-refundable letter of credit fee with respect to each Letter of Credit
equal to, per annum (calculated on the basis of a 360-day year and the actual
number of days elapsed), (x) 3.5%, times (y) the Stated Amount
of such Letter of Credit, such fee to be paid quarterly in advance on the
fourth Business Day of each March, June, September and December thereafter
(each a “Letter of Credit Fee”).  In addition, Borrowers further agree to pay to
the Issuer for its own account the Issuer’s standard, documentary and
processing charges and all other administrative expenses of the Issuer in
connection with the maintenance of each Letter of Credit.

 

(b) 
If any Regulatory Change shall at any time (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit issued by the Issuer or participated in by any Lender or Lender
Assignee, or (ii) subject letters of credit issued by the Issuer or
participations therein held by any Lender or Lender Assignee to any assessment
or other cost or (iii) impose on the Issuer or any Lender or Lender
Assignee any other or similar condition regarding any Letter of Credit, the
commitment or obligation of the Issuer to issue Letters of Credit hereunder or
any Lender’s or Lender Assignee’s participation therein and the result of any
event referred to in clause (i), (ii) or (iii) above shall be to
increase the cost to the Issuer or any Lender or Lender Assignee of agreeing to
issue, issuing or maintaining any Letter of Credit or its participation therein
by an amount which the Issuer or such Lender or Lender Assignee shall deem to
be material (which increase in cost shall be the result of the reasonable
allocation by the Issuer or such Lender or Lender Assignee of the aggregate of
such cost increases resulting from such events), then and in each case
upon demand from time to time by the Issuer or such Lender or Lender Assignee
(furnished to Borrowers by Agent), provided such demand is made no later than
six months after such Issuer, Lender or Lender Assignee obtains knowledge of
such Regulatory Change, Borrowers shall promptly pay to Agent (for the account
of such Issuer, Lender or Lender Assignee, as the case may be) additional
amounts which shall be sufficient to compensate the Issuer (or such Lender or
Lender Assignee) for such increased cost from the date of such change, together
with interest on each such amount from the date demanded by the Issuer (or such
Lender or Lender Assignee) until payment in full thereof (after as well as
before judgment) at a rate per annum equal to the Applicable Rate from time to
time in effect.  A certificate of the
Issuer (or such Lender or Lender Assignee) submitted to Borrowers as to any
additional amount or amounts (including calculations thereof, in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
Borrowers.  In determining such amount or
amounts, the Issuer (or such Lender or Lender Assignee) may use any method of
averaging and attribution as it (in its reasonable discretion) shall deem
applicable.

 

(c) 
The provisions of this Section 2A.3 and Section 2A.5 shall survive
any termination of this Agreement and the payment in full of the Loans and the
LC Obligations.

 

5

 

SECTION 2A.4.  Disbursements.  (a) The Issuer will notify Borrowers and
Agent promptly of the presentment for payment of any Letter of Credit together
with notice of the date (the “Disbursement Date”) such payment shall be
made.  Subject to the terms and
provisions of such Letter of Credit and this Agreement, the Issuer shall make
such payment to the beneficiary (or its designee) of such Letter of Credit.

 

(b) 
Prior to 11:00 a.m. Closing Office Time on the Disbursement Date, a Loan
will be deemed made by the Senior Lenders hereunder and evidenced by the Senior
Note to reimburse the Issuer to Agent at the Closing Office for all amounts
disbursed or to be disbursed by the Issuer on that day (the “Disbursement”)
under such Letter of Credit (the “Reimbursement Obligation”); provided,
however, that neither Borrowers nor Lenders shall be obligated to reimburse the
Issuer for any wrongful Disbursement made by the Issuer under any Letter of
Credit as a result of acts or omissions constituting gross negligence or
willful misconduct on the part of the Issuer. 
Borrowers shall notify the Lenders if they object to the funding of any
Loan to pay a Reimbursement Obligation as a result of the gross negligence or
willful misconduct of the Issuer.

 

SECTION 2A.5.  Nature of Reimbursement Obligations.  Borrowers shall assume all risks of the acts,
omissions, or misuse of any Letter of Credit by the beneficiary thereof.  Neither the Issuer (except to the extent of
its own gross negligence or willful misconduct), Agent nor any Lender shall be
responsible for:

 

(a) the
form, validity, sufficiency, accuracy, genuineness, or legal effect of any
Letter of Credit or of any draft, demand or other document, instrument or other
paper relating to, or presented under, any Letter of Credit, or any document
submitted by any party in connection with the application for and issuance of
any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;

 

(b) the
form, validity, sufficiency, accuracy, genuineness, or legal effect of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof in
whole or in part, which may prove to be invalid or ineffective for any reason;

 

(c) failure
of the beneficiary to comply fully with conditions required in order to demand
payment under any Letter of Credit;

 

(d) errors,
omissions, interruptions, or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex, telecopier or otherwise; or

 

(e) any
loss or delay in the transmission or otherwise of any document or draft
required in order to make a Disbursement under any Letter of Credit or of the
proceeds thereof.

 

None
of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Issuer, Agent or Lenders hereunder.  In furtherance and extension and not in
limitation or derogation of any of the foregoing, any action taken or omitted
to be taken by the Issuer in good faith shall be binding upon Borrowers, Agent,
Lenders and each Lender Assignee and shall not put the Issuer (except to the
extent of its own gross negligence or willful misconduct), Agent or any Lender
or Lender Assignee under any resulting liability to Borrowers 

 

6

 

nor
put the Issuer under any resulting liability to Agent or any Lender or Lender
Assignee.  Nothing herein shall
constitute a waiver by Borrowers of any of its rights against any beneficiary
of any Letter of Credit.

 

2A.6  Other Senior Lenders’ Participation.  Each Letter of Credit is deemed issued on
behalf of the Senior Lenders (including the Issuer), pro  rata,
based upon the percentage that each Senior Lender’s outstanding Loans and
participations in Letters of Credit represents of all Senior Lenders’ Loans and
participations in Letters of Credit), and each Senior Lender is deemed to have
irrevocably purchased from the Issuer a participation in such Letter of Credit
equal to such Senior Lender’s pro  rata share of the Stated
Amount.  Each Senior Lender shall, to the
extent of such pro  rata share, promptly reimburse the Issuer for
any Reimbursement Obligation which has not been promptly funded by a Loan by
the Senior Lenders in accordance with Section 2A.4(b).  For the avoidance of doubt, any such Loan to
the Issuer by Senior Lenders shall (notwithstanding that Borrowers may at the
time be the subject of a proceeding of the type described in Section 9.8)
be treated as Loans made by the Senior Lenders to Borrowers for all purposes of
this Agreement.

 

Section 3.                                           INTEREST.

 

3.1          Rate of Interest.  Subject to the provisions of Section 3.3,
Borrowers agree, jointly and severally, to pay interest in respect of the
unpaid principal amount of the Loans from the date hereof until maturity
(whether by acceleration or otherwise) for each period from and including each
Payment Date to but excluding the immediately following Payment Date at a rate
per annum equal to, at the Borrower’s option, either (x) the greater of (i) LIBOR
plus 350 basis points or (ii) 4.5%, or (y) the Base Rate plus 300
basis points (such rate, the “Applicable Rate”).

 

3.2          Interest Payment Dates.  Interest on and prior to maturity in respect
of each Loan shall be payable in arrears (i) on each Payment Date; (ii) upon
any repayment or prepayment (to the extent accrued on the principal amount so
repaid or prepaid); and (iii) at maturity (whether by acceleration or
otherwise) and, after maturity, on demand.

 

3.3          Past Due Rate.  Each Loan (and any overdue interest in
respect of each Loan) shall bear interest for each day on which an Event of
Default exists (after as well as before judgment), payable on demand, at a rate
per annum equal to 5% in excess of the Applicable Rate in effect on such day
(such rate, the “Past-Due Rate”).

 

3.4          Capital Adequacy.  If any Lender shall have determined that the
applicability of any law, rule, regulation or guideline adopted after the date
hereof, it being agreed that “adopted after the date hereof” shall include
compliance by a Lender or any lending office or holding company of a Lender
with any Basel Law whether or not such Basel Law was in effect, applicable or
phased in on or prior to or after the date hereof pursuant to or arising out of
the July 1988 report of the Basel Committee on Banking Regulations and
Supervisory Practices entitled “International Convergence of Capital
Measurement and Capital Standards” or pursuant to or arising out of any
report, agreement or convention of  any
international banking group adopted subsequent to such 1988 report (said laws,
rules, regulations and guidelines pursuant to or arising out of such 1988
report or any such subsequently adopted report, agreement or convention being
sometimes collectively herein referred to as “Basel Laws”), or the
adoption after the date hereof 

 

7

 

of any other law, rule, regulation or guideline
regarding capital adequacy (any such other law, rule, regulation or guideline
being sometimes herein referred to as “Other Laws”), or any change in
any of the foregoing (after the date hereof in respect of Other Laws; before or
after the date hereof in respect of Basel Laws) or in the enforcement or
interpretation or administration of any of the foregoing (after the date hereof
in respect of Other Laws; before or after the date hereof in respect of Basel
Laws) by any Government Authority, central bank or comparable agency charged
with the enforcement or interpretation or administration thereof, or compliance
by any Lender (or any lending office of any Lender) or any holding company of
any Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Lender’s capital or on the capital of such Lender’s holding company, if any, as
a consequence of its Loans or any of its obligations hereunder to a level below
that which such Lender or such Lender’s holding company could have achieved but
for such applicability, adoption, change or compliance (taking into consideration
such Lender’s policies and the policies of such Lender’s holding company with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then, upon demand by such Lender (or by Agent on such Lender’s behalf),
Borrowers shall pay to such Lender from time to time such additional amount or
amounts as will compensate such Lender or such Lender’s holding company for any
such reduction suffered, together with interest on each such amount from the
date demanded until payment in full (after as well as before judgment) thereof
at the Base Rate. Each Lender shall endeavor to give Borrowers notice of its
intention to require compensation under this Section 3.4 within a
reasonable time after the loan officer of such Lender with responsibility for
this Agreement becomes aware of its entitlement to such compensation under this
Section 3.4, but no failure to give any such notice shall affect or
relieve Borrowers of any of Borrowers’ obligations under this Section 3.4
or under any other provision of this Agreement or any other Loan Document or
result in any obligation or liability of Agent or any Lender to Borrowers or
any other Person.  A certificate of a
Lender as to the amount required to be paid by Borrowers under this Section 3.4
and showing in reasonable detail the basis for the calculation thereof shall,
absent manifest error, be final and conclusive (it being understood that in no
event shall any Lender be required to disclose in such certificate or otherwise
any non-public information). In determining such amount or amounts, a Lender
may use any method of averaging and attribution as it (in its sole and absolute
discretion) shall deem applicable.

 

3.5          Determination of Rate of Borrowing.  As soon as practicable after 10:00 A.M.
(New York time) on each Eurocurrency Interest Determination Date, Agent shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the rate of interest (the “Rate of
Borrowing”) which shall be applicable to the Eurocurrency Loans for the
next succeeding Eurocurrency Interest Period and shall promptly give notice
thereof in writing or by telephone (confirmed in writing) to Borrowers and
Lenders.

 

3.6          Substituted Rate of Borrowing.

 

(a)           In the event that on any Eurocurrency Interest
Determination Date any Lender shall have reasonably determined (which
determination shall be final and conclusive and binding upon all parties but,
with respect to the following clauses (i), (ii)(y) and (ii)(z), shall be
made only after consultation with Agent on the date of such determination)
that:

 

8

 

(i)            by reason of any changes
arising after the date of this Agreement affecting the interbank Eurocurrency
market or affecting the position of such Lender in such market, adequate and
fair means do not exist for ascertaining the applicable Rate of Borrowing by
reference to LIBOR with respect to the Eurocurrency Loans as to which an
interest rate determination is then being made; or

 

(ii)           by reason of (x) the
requirements of Regulation D, (y) any change after the date hereof in any
other applicable law or governmental rule, regulation or order (or any
interpretation thereof and including the enactment of any new law or
governmental rule, regulation or order) or (z) other circumstances
affecting such Lender or the interbank Eurocurrency market or the position of
such Lender in such market (such as for example but not limited to a change in
official reserve requirements or increased capital reserves required or imposed
by any regulatory authority or entity (domestic or foreign) having jurisdiction
over or with respect to such Lender to the extent not provided for in clause
(ii)(x) above), LIBOR shall not represent the effective pricing to such
Lender for U.S. dollar deposits of comparable amounts for the relevant periods;

 

then,
and in any such event, Lender so affected shall on such date give notice of
such determination in writing or by telephone (confirmed in writing) to
Borrowers and to Agent.  Thereafter,
Borrowers shall pay to such Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a different method
of calculating, interest or otherwise as such Lender in its reasonable
discretion shall determine) as shall be required to cause such Lender to
receive interest with respect to its Eurocurrency Loan for the Eurocurrency
Interest Period following such Eurocurrency Interest Determination Date and for
any succeeding Eurocurrency Interest Period with respect to which such changes
or requirements apply (each such period, an “Affected Interest Period”)
at a rate per annum equal to 2.75% in excess of the effective pricing to such
Lender for U.S. dollar deposits to make or maintain its Eurocurrency Loans,
provided that in the case of any such determination pursuant to clause (ii)(x),
the written notice from such Lender to Agent and Borrowers on the relevant
Eurocurrency Interest Determination Date shall specify (x) any such amount
on account thereof theretofore incurred, and such amount shall be paid at such
time and (y) the additional amount required to be paid with respect to the
relevant Affected Interest Period (with such amount so stated to be final with
respect to the relevant Affected Interest Period) and such additional amount
shall be paid at the same time, and together with, the interest otherwise
payable in respect of such Eurocurrency Loans for such Affected Interest
Period.  A certificate as to additional
amounts owed any such Lender, showing in reasonable detail the basis for the
calculation thereof, submitted to Borrowers by such Lender through Agent shall,
absent manifest error, be final and conclusive and binding upon all of the
parties hereto.

 

(b)           In lieu of paying additional moneys to any Lender
affected by Section (a), other than clause (ii)(x) thereof (any such
Lender, together with any Lender affected by Section 3.7(a), an “Affected
Lender”), Borrowers may (subject to Section 3.8), by giving notice in
writing or by telephone (confirmed in writing) to the Affected Lender, Agent
and the other Lenders on such Eurocurrency Interest Determination Date, (x) require
the Affected Lender to convert its Eurocurrency Loan then outstanding or
requested that is so affected into a Base Rate Loan on the first day of the
Affected Interest Period, such notice to pertain only to the Loans of the
Affected Lender and to have no effect on the obligations of the other Lenders
to maintain 

 

9

 

Eurocurrency Loans, or (y) terminate the
obligations of Lenders to maintain Loans as, or convert Loans into,
Eurocurrency Loans and in such event, on the first day of what would have been
the next Eurocurrency Interest Period, all Eurocurrency Loans shall be
outstanding as Base Rate Loans.

 

3.7          Required Termination and Prepayment.

 

(a)           In the event that at any time any Affected Lender
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the continuation of its Eurocurrency
Loans has become unlawful by compliance by such Lender in good faith with any
law, governmental rule, regulation, guideline or order, the Affected Lender
shall on such date give notice in writing or by telephone (confirmed in
writing) to Agent and Borrowers of such determination.  The obligation of the Affected Lender to
maintain its Eurocurrency Loan or Loans so affected shall be terminated and
Borrowers shall forthwith and in any event no later than the earliest of (x) the
termination of the Eurocurrency Interest Period in effect at the time any such
determination pursuant to this Section 3.7(a) is made or (y) five
(5) Business Days after receipt of notice from an Affected Lender under
this Section 3.7(a), take one of the actions specified in Section 3.7(b).  If by the earliest of (x) or (y) Borrowers
have not exercised one of the options specified in Section 3.7(b),
Borrowers shall be deemed to have exercised the option set forth in clause (iii) of
Section 3.7(b) and to have given the notice specified therein.

 

(b)           Upon receiving any notification provided in Section 3.7(a),
Borrowers may (subject to Section 3.8) exercise one of the following
options:

 

(i)            If the determination by an
Affected Bank relates only to Base Rate Loans then being requested by Borrowers
to be converted to Eurocurrency Loans pursuant to a Notice of Conversion,
Borrowers may, by giving notice in writing to Agent and Lenders prior to the
date on which such Eurocurrency Loan is to be converted, withdraw such Notice
of Conversion for all Lenders;

 

(ii)           Upon written notice to
Lenders, Borrowers may terminate the obligations of Lenders to maintain Loans
as, or convert Loans into, Eurocurrency Loans and in such event, Borrowers
shall, not later than the time specified in subsection 3.7(a), convert all
Eurocurrency Loans into Base Rate Loans by giving notice thereof to Agent and
Lenders.

 

(iii)          Borrowers may, by giving
notice in writing to the Affected Lender, Agent and the other Lenders require
the Affected Lender to keep outstanding as a Base Rate Loan the Base Rate Loan
which then have been converted, such notice to pertain only to the affected
Base Rate Loans of the Affected Lender and to have no effect on the obligations
of the other Lenders to maintain Eurocurrency Loans.

 

3.8          Compensation.  Borrowers shall compensate each Lender, upon
written request by such Lender (which request shall be made through Agent and
shall set forth the basis for requesting such amounts), for all losses,
expenses and liabilities (including, without limitation, any interest paid by
such Lender to lenders of funds borrowed by it to carry its Eurocurrency Loans
to Borrowers, losses sustained by such Lender in connection with the
liquidation or re-

 

10

 

employment
of such funds and all other funding losses) which such Lender may sustain: (i) if
for any reason a conversion of any Eurocurrency Loan does not occur on a date
specified therefor pursuant to Section 3.6, 3.7 or 3.10, or any conversion
into a Eurocurrency Loan does not occur on the date specified therefor in Section 3.10,
(ii) if for any reason any prepayment or repayment or conversion of any of
its Eurocurrency Loans occurs on a date which is not the last day of a
Eurocurrency Interest Period applicable thereto, (iii) if any prepayment,
repayment or conversion of any of its Eurocurrency Loans occurs on such last
day of the Eurocurrency Interest Period applicable thereto in any amount in
excess of the amount notified to Agent in writing not less than three Business
Days prior to such last day of such Eurocurrency Interest Period, (iv) if
any prepayment, repayment or conversion of any of its Eurocurrency Loans occurs
without at least three Business Days prior written notice thereof having been
given to Agent, (v) if any prepayment or repayment of any of its
Eurocurrency Loans is not made on any date specified in a notice thereof given
by Borrowers or if any prepayment or repayment contemplated or required by a
Waterfall Certificate is not made on the Payment Date following the date such
Waterfall Certificate is delivered, or (vi) as a consequence of any
default under this Agreement.

 

3.9          Eurocurrency Interest Period Determination.

 

(a)           Each Eurocurrency Interest Period for any Loan shall
commence on a Payment Date and expire on the succeeding Payment Date.

 

(b)           No Eurocurrency Interest Period in respect of any
Loan shall extend beyond its stated maturity date.

 

(c)           Subject to Section 3.9(e), if Agent shall not
have received written notice from Borrowers on or prior to 11:00 a.m.
(Closing Office time) at least three Business Days prior to a Payment Date that
Borrowers have elected to convert all or a portion of Loans outstanding as
Eurocurrency Loans to Base Rate Loans in accordance with the other provisions
of this Agreement, Borrowers shall be deemed to have elected to have such Loans
(or portion thereof, as the case may be) continued as Eurocurrency Loans for a
new Eurocurrency Interest Period.

 

(d)           Unless the Majority Lenders specifically agree in
writing, no Eurocurrency Interest Period may be selected at any time that a
Default or Event of Default exists and Borrowers shall be deemed to have
elected to convert such Eurocurrency Loans into Base Rate Loans.

 

(e)           Borrowers shall not be permitted to maintain as
Eurocurrency Loans any Loans if the outstanding amount of such Loans to be
maintained as Eurocurrency Loans is less than 1,000,000 units of the relevant
currency, and an amount the Dollar Equivalent of which is equal to or greater
than $1,000,000, or an integral multiple of 100,000 units of the relevant
currency in excess thereof.

 

3.10        Conversions.  Borrowers shall have the option to convert,
on any Payment Date, all or any portion of Loans from Base Rate Loans to
Eurocurrency Loans or (provided that such Loan was made in Dollars) from
Eurocurrency Loans to Base Rate Loans; provided that (i) after giving
effect to any such conversion the amount outstanding as a Eurocurrency Loans,
if any, shall be equal to $1,000,000 or an integral multiple of $100,000 in
excess thereof, and the 

 

11

 

amount
outstanding as Base Rate Loans, if any, shall not be less than $20,000; and (ii) unless
the Majority Lenders specifically agree in writing, no conversion to
Eurocurrency Loans shall be permitted at any time that a Default or Event of
Default exists.  Each such conversion
shall be effected by Borrowers giving Agent written notice thereof (a “Notice
of Conversion”) on or prior to 11:00 a.m. (Closing Office time) at least
three (3) Business Days prior to a Payment Date, specifying the amount of
Loans to be converted.

 

Section 4.              FEE.  Borrowers agree to pay to Agent, for the
ratable account of each Lender (based upon their pro rata shares of the
outstanding Loans) an upfront fee (the “Upfront Fee”) in the amount of
$2,025,000, which fee shall be due and payable in full as follows:

 

(a)           Agent and Lenders acknowledge the payments of the
amount of $682,500 to the Agent on March 26, 2010, which amount shall be a
credit against the Upfront Fee;

 

(b)           On the Effective Date, the amount of $675,000; and

 

(c)           On the first day of July, August, September and
October 2010, the amount of $166,875.

 

Section 5.                                           PAYMENTS;
PERMITTED DISTRIBUTIONS.

 

5.1          Currency of Payments.  All payments of principal and interest on
Loans and under the Notes shall be made to Agent in immediately available funds
in the currency of the applicable Loan for which payment is being made.

 

5.2          Payments on Non-Business Days.  Whenever any payment to be made hereunder or
under the Notes shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and
interest shall be payable at the applicable rate during such extension.  Borrowers hereby authorize and direct Agent
and each Lender to charge any account of a Borrower maintained at any office of
Agent or such Lender with the amount of any principal, interest or fee when the
same becomes due and payable under the terms hereof or of the Notes; provided,
however, that neither Agent nor any Lender shall be under any obligation
to charge any such account.

 

5.3          Payment Date and Distribution of Funds.

 

(a)           After giving effect to any mandatory prepayment
owing or that will become due and payable on or before the last day of calendar
month in which the Payment Date in question occurs pursuant to Section 2.3(a) of
this Agreement and except following the occurrence and during the continuation
of an Event of Default, in which case the distribution of Cash Flow shall be controlled
by the Agent, all funds in the Cash Flow Cash Collateral Account, the Cash
Collateral Account-Servicing and the FCI Distribution Account (“Cash Flow”)
shall be distributed by Borrowers or the Agent on the fourth to last Business
Day of each month (each, a “Payment Date”) pursuant to the distribution
statement prepared by Borrowers and approved in writing by Agent (or at any
other times as may be agreed upon from time to time by Borrowers, Agent and
Lenders) in accordance with the following priority and amounts and applied as
follows and as illustrated in Schedule 5.3(a) to this Agreement:

 

12

 

(i)            First, to the
payment to Agent, for the account of Lenders (subject to Section 2.2(c) of
this Agreement), of all interest on the Loans which is then due and payable and
any Letter of Credit Fee payable pursuant to Section 2A.3(a) or
Upfront Fee payable pursuant to Section 4;

 

(ii)           Second, to the
payment to Agent, for the account of Lenders, an amount equal to all of any
fees, late charges and other fees and expenses (other than those paid in Section 5.3(a)(i) above),
including in respect of a Cold Back-up Servicer under Section 7.20 of this
Agreement, which are then due and payable to Agent and/or Lenders under this
Agreement or any of the other Loan Documents or which will become so due and
payable on or before the last day of the calendar month in which the Payment
Date in question occurs;

 

(iii)          Third, to FC
Commercial as requested by it to fund the FC Commercial Protective Advance
Account up to the maximum amount of $1,000,000 or such greater amount approved
in writing by the Agent and Lenders, and to FHP as requested by it to fund the
FH Protective Advance Account up to the maximum amount of $1,000,000 or such
greater amount approved in writing by the Agent and the Lenders.

 

(iv)          Fourth, to the
payment to FC Servicing, of the following Overhead Allowance amounts during the
following periods:

 

	
  Period

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May, 2010 – April, 2011

  	
   

  	
  $

  	
  1,500,000 per month

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May, 2011 – April, 2012

  	
   

  	
  $

  	
  1,029,676 per month

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May, 2012 – April, 2013

  	
   

  	
  $

  	
  715,636 per month

  	
   

  

 

(v)           Fifth, to the
payment (the “Leak-Through Allowance”) to Borrowers of twenty percent
(20%) of all remaining Cash Flow until aggregate payments under this Section 5.3(a)(v) equal
Twenty-five Million Dollars ($25,000,000), and thereafter no further amounts as
a Leak-Through Allowance; and

 

(vi)          Sixth, to the
payment to Agent, for the account of Lenders.

 

5.4          Net Payments; Application.

 

(a)           All payments hereunder and under the Loan Documents
(including, without limitation, repayments and prepayments pursuant to Section 2)
shall be made by Borrowers to Agent, except as otherwise provided in this
Agreement in freely transferable U.S. dollars, and in same day funds at the
Closing Office without setoff or counterclaim and in such amounts as may be
necessary in order that all such payments (after (i) withholding for or on
account of any present or future taxes, levies, imposts, duties or other
similar charges of whatsoever nature imposed on the amounts described above by
any government or any political subdivision or taxing authority thereof, other
than any tax (other than such taxes referred to in clause (ii) below)
imposed on a Lender pursuant to the income tax laws of the jurisdiction where
such Lender’s principal or lending office or offices are located (collectively,
the “Taxes”) and (ii) 

 

13

 

deduction of an amount equal to any taxes on or
measured by the net income payable to such Lender with respect to the amount by
which the payments required to be made by this Section 5.4 exceed the
amount otherwise specified to be paid under this Agreement and the Notes) shall
not be less than the amounts otherwise specified to be paid under this
Agreement and the Notes.  With respect to
each such deduction or withholding imposed in respect of any payment by or on
behalf of Borrowers, Borrowers shall promptly (and in no event later than 30
days thereafter) furnish to Agent such certificates, receipts and other
documents as may be required to establish any tax credit, exemption or
reduction in rate to which any Lender or holder of a Note may be entitled.  Each Lender, other than a Lender organized
and existing under the laws of the United States of America or any political
subdivision thereof, agrees to furnish Borrowers, as soon as practicable after
any written request of Borrowers to such effect, any executed form reasonably
requested by Borrowers such as IRS Form W-8BEN or W-8ECI, and any other
applicable form as to such Lender’s entitlement, if any, to exemption from, or
a reduced rate of, or its subjection to, United States withholding tax on
amounts payable to it hereunder by Borrowers or under the Notes of Borrowers
and each such Lender undertakes to use its best efforts promptly to notify
Borrowers of any material change in any information, statement or form so
furnished to Borrowers; provided, however, that any failure on
the part of any Lender to furnish any such information, statements or forms
shall in no way affect the obligations of Borrowers or the rights of any Lender
under the terms of this Agreement or of the Notes.

 

5.5          Distribution by Agent.  All payments received by Agent on behalf of
Lenders on account of principal and interest under this Agreement or the Notes
or on account of any fees payable for the account of Lenders shall be promptly
distributed by Agent to Lenders (in the type of funds received by Agent) as
follows: (i) if in respect of principal of any Loans made to Borrowers,
then to each Lender in accordance with the Subordination Agreement; (ii) if
in respect of interest on the Loans, then to each Lender in accordance with the
Subordination Agreement; (iii) if in respect of fees, then to Lenders in
accordance with their entitlement thereto (based on each Lender’s share of the
Upfront Fee); and (iv) if in respect of a payment under Section 3
other than an interest payment hereof, to each Lender in accordance with its
entitlement thereto.  For the avoidance
of doubt, none of the Borrowers, FCFC or the Guarantors shall have any
liability to the Agent or the Lenders arising from the manner in which the
funds are allocated among the Lenders by the Agent.

 

Section 6.                                           CONDITIONS
PRECEDENT TO EFFECTIVENESS

 

This
Agreement shall become effective on the date hereof (the “Effective Date”)
when each of the parties hereto has signed and delivered the same as herein
required and each of the following conditions have been satisfied to the
satisfaction of Agent (or waived by Agent in writing):

 

6.1          Default, etc.  On the Effective Date (both before and after
giving effect to the occurrence of the Effective Date assuming such Date has
occurred) there shall exist no Default or Event of Default and all
representations and warranties made by the Loan Parties herein or in the other
Loan Documents or otherwise by the Loan Parties in writing in connection
herewith or therewith shall be true and correct in all material respects with
the same effect as though such representations and warranties have been made at
and as of such time.

 

14

 

6.2          Notes.  Agent shall have received for each of Lenders
the Notes, each duly executed and completed by Borrowers.

 

6.3          Supporting Documents of Borrowers.  There shall have been delivered to Agent
(with sufficient copies for each of the Lenders) such information and copies of
documents (if any), approvals (if any) and records (certified where
appropriate) of corporate and legal proceedings (if any) in addition to those
listed on the Closing Checklist as Agent or any Lender may have reasonably
requested relating to the Loan Parties’ entering into and performance of the
Loan Documents or any other agreements or documents related thereto or contemplated
thereby.

 

6.4          Officer’s Certificate.  There shall have been delivered to Agent
(with sufficient copies for each of Lenders) a certificate of an Executive
Officer of each Borrower certifying, as of the Effective Date, compliance with
the conditions of Section 6.1 and the absence of any Material Adverse
Changes of the type referred to in Section 6.8.

 

6.5          Certifications; Financial Statements.  Borrowers shall have delivered to Agent such
financial statements and certifications of financial statements as Agent may
have requested, which statements shall include, in any event, month end
financial statements of the type required by Section 7.1(a) and
certified by the CFO as of the most recent month ending no later than ninety
(90) days prior to the Effective Date and the annual audited financial
statements required for FCFC for the Fiscal Year most recently ended (or the
prior Fiscal Year, if less than 105 days have passed since the end of a Fiscal
Year) accompanied by the certifications required by Section 7.1(d).

 

6.6          Approvals and Consents.  All orders, permissions, consents, approvals,
licenses, authorizations and validations of, and filings, recordings and
registrations with, and exemptions by (all of the foregoing, “Requisite
Consents”), any Government Authority, or any other Person, required to
authorize or required in connection with the execution, delivery and
performance of this Agreement or the other Loan Documents and the transactions
contemplated hereby and thereby by any Loan Party shall have been obtained
(and, if so requested, furnished to Agent, with sufficient copies for Lenders).

 

6.7          Legal Opinions.  Agent shall have
received legal opinions (in sufficient counterparts for each of Lenders) dated
the Effective Date from Haley & Olson P.C., counsel to Borrowers and
each other Loan Party, in form and substance satisfactory to Agent.

 

6.8          Adverse Change.  There shall have been, in Agent’s opinion, no
Material Adverse Change since December 31, 2009.  Neither Agent nor any Loan Party shall have
become aware of any previously undisclosed information with respect to any Loan
Party which, in Agent’s opinion, would have a Material Adverse Effect

 

6.9          Change in Law; No Opposition.  (i) No change shall have occurred in
applicable law or in applicable regulations thereunder or in the
interpretations thereof by any Governmental Authority which, in the opinion of
any Lender, would make it illegal for such Lender to make one or more Loans
hereunder; and (ii) no suit, action or proceeding shall be pending or
threatened before or by any Governmental Authority seeking to restrain or
prohibit the making of any Loan or the consummation of the transactions
contemplated hereby.

 

15

 

6.10        All Proceedings to be Satisfactory.   All corporate, partnership, limited liability
company and legal proceedings and all instruments, documents and papers in
connection with the transactions contemplated by this Agreement and the other
Loan Documents and the other documents referred to herein shall be satisfactory
in form and substance to Agent, and Agent and each Lender shall have received
all such information and copies of all documents which Agent or such Lender may
reasonably have requested in connection herewith, such documents where
appropriate to be certified by proper corporate officials or governmental
authorities.

 

6.11        Checklist Documents.  The documentation set forth on the Closing
Checklist (Schedule 6.11), including, without limitation, the
Guaranties, Pledge Agreements and Security Agreements, related confirmations
listed thereon, the Subordination Agreement and the Back-Up Servicing
Agreement, satisfactory to Agent in form and substance, shall have been
delivered to Agent, and such other actions referred to on such Schedule and in
such documentation shall have been taken.

 

6.12        Intercompany Security Agreements.  Each Primary Obligor shall have delivered (i) intercompany
security agreements (or confirmations thereof) in form and substance
satisfactory to Agent securing each such Person’s obligations under its Pledged
Note together with such other documents and instruments relating thereto and
records of company proceedings and (ii) if requested by Agent, legal
opinions, as Agent may reasonably request.

 

6.13        UCC Statements.  Lien search results confirming the absence of
any perfected Liens prior to Lenders’ and of any other Liens other than Liens
permitted hereunder shall have been delivered to Agent and all actions with
respect to the Liens created by the Security Documents as are necessary or
appropriate to perfect such Liens shall have been taken.

 

6.14        Fees and Expenses.  The fees referred to in Section 4 of
this Agreement and the legal fees and expenses of Agent’s New York counsel and
(if any) local or special counsel in connection with the transactions
contemplated by this Agreement shall have been paid in full.

 

6.15        Release by FCFC.  Borrowers shall have caused the execution and
delivery by FCFC and its Affiliates to the Lenders of a release in form, scope
and substance satisfactory to the Lenders (the “Release”).

 

6.16        Collateral Assignment of Service Bureau.  FC Servicing and the Lenders shall have
executed and delivered a collateral assignment of that certain Information
Technology Services Agreement, dated February 7, 2006, between Fidelity
Information Services, Inc. and FC Servicing (the “ITSA Agreement”),
such collateral assignment to be in form, scope and substance satisfactory to
the Lenders.

 

6.17        Valuation Certificate.  Borrowers shall have delivered to the Lenders
a Valuation Certificate in the form of Schedule 6.17 (the “Valuation
Certificate”) signed by the Treasurer of the Borrowers which will set forth
the Aggregate Net Present Equity Value of each Borrower and Portfolio Entity.

 

16

 

Section 7.                                           AFFIRMATIVE
COVENANTS.

 

Each
Borrower and FLBG warrants, represents and covenants to the Lenders and Agent
that, so long as this Agreement is in effect and until all of the Loans, together
with interest and all other obligations (including Deemed Disbursements and
Reimbursement Obligations and fees and disbursements in connection therewith)
are paid in full,  each Borrower will
(unless it shall have first procured the written consent of the Majority
Lenders to do otherwise) (i) perform the obligations set forth in this Section 7,
(ii) cause each Primary Obligor, Wholly-Owned Subsidiary and other Loan
Party to perform the obligations set forth in this Section 7 which are
applicable to such Person and (iii) exercise commercially reasonable
efforts to cause each Material Portfolio Entity to perform the obligations set
forth in this Section 7 which are applicable to such Person.

 

7.1          Financial Statements.  Each Borrower will furnish to Agent and each
Lender:

 

(a)           As soon as available and in any event within
forty-five (45) days after the close of each calendar month, as at the end of
such month and for the period commencing at the end of the previous Fiscal Year
and ending with the end of such month, a consolidated and consolidating balance
sheet of FC Commercial and the other members of the Consolidated Group, and the
related statement of operations for such period, all certified by the CFO of
each Borrower and of each other member of the Consolidated Group as being
prepared in accordance with GAAP and to present fairly the financial position
and results of operation of such Person for such period;

 

(b)           As soon as available but not later than one hundred
five (105) days after the close of each Fiscal Year of FC Commercial, as at the
end of and for the Fiscal Year just closed, an audited consolidated balance
sheet of FC Commercial and the other members of the Consolidated Group, the
related statement of operations (including income statement) and a
reconciliation of capital for such year, all certified on an unqualified basis
by a firm of independent certified public accountants selected by Borrowers and
acceptable to Agent in Agent’s sole and absolute discretion;

 

(c)           As soon as available but not later than one hundred
five (105) days after the close of each Fiscal Year of FC Commercial, as at the
end of and for the Fiscal Year just closed, an unaudited consolidating balance
sheet of FC Commercial and the other members of the Consolidated Group, the
related statements of operations (including income statement) and a
reconciliation of capital for such year, prepared by the CFO of each Borrower;

 

(d)           Concurrently with the delivery of the financial
statements described in subsection (b) above, a certificate of the
aforesaid independent certified public accountants certifying to Agent that
based upon their examination of the affairs of FCFC, performed in connection
with the preparation of said financial statements, FCFC is in compliance with
the covenants set forth in the Limited Guaranty, or, if FCFC is not in
compliance, the nature of the noncompliance therewith;

 

(e)           Concurrently with delivery to its stockholders,
copies of all financial and other information delivered by FCFC or a Borrower,
as the case may be, to such Persons, including without limitation, its proxy
statements and annual reports to stockholders. 
Within two (2) Business Days after delivery to the SEC by FCFC or a
Borrower, as the case may be, which 

 

17

 

in all cases shall be on a timely basis in
accordance with the applicable document and the Securities Laws, copies of all
reports and other filings filed by FCFC or a Borrower, as the case may be with
the SEC, including without limitation, all reports on Forms 10K, 10Q or 8K
promulgated under the Securities Exchange Act of 1934, as amended, and all
registration statements filed under the Securities Act of 1933, as amended;

 

(f)            Concurrently with delivery of the financial
statements required pursuant to Section 7.1(a) and (b) hereof, a
certificate executed by the President, Treasurer or CFO of each Borrower that (A) no
Event of Default or Default has occurred and is continuing under this
Agreement, (B) each Borrower is in compliance with the covenants set forth
in Section 8.17 hereof; and (C) no event of default and no event or
condition which, with the passage of time or the giving of notice or both,
would constitute an event of default has occurred and is continuing under any
other Indebtedness Instrument (“Other Indebtedness Instrument Unmatured
Default”) or, if an Event of Default or Default has occurred under this
Agreement or an event of default or Other Indebtedness Instrument Unmatured
Default has occurred under any other Indebtedness Instrument, setting forth the
details of such event and the action which each Borrower proposes to take with
respect thereto;

 

(g)           Promptly upon receipt thereof, copies of all
detailed financial reports and Management Letters, if any, submitted to any member
of the Consolidated Group by the Auditors, in connection with each annual or
interim audit of their respective books by such Auditors;

 

(h)           As soon as possible and in any event (A) within
thirty (30) days after a Loan Party, or any of the respective ERISA Affiliates
of any Loan Party, knows that any Termination Event described in clause (i) of
the definition of Termination Event with respect to any Pension Plan has
occurred or is expected to occur and (B) within ten (10) days after a
Loan Party or any of its ERISA Affiliates knows that any other Termination
Event with respect to any Pension Plan has occurred or is expected to occur, a
statement of the CFO of FLBG and of each Borrower describing such Termination
Event and the action, if any, which the affected Loan Party or ERISA Affiliate
proposes to take with respect thereto;

 

(i)            Promptly and in any event within five (5) Business
Days after receipt thereof by a Loan Party or any of its ERISA Affiliates from
the PBGC, copies of each notice received by such Person of the PBGC’s intention
to terminate any Pension Plan or to have a trustee appointed to administer any
Pension Plan, any notice of noncompliance issued by the PBGC with respect to a
proposed standard termination of a Pension Plan, and any notice issued by the
PBGC with respect to a proposed distress termination of a Pension Plan;

 

(j)            Promptly and in any event within thirty (30) days
after the filing thereof with the IRS, copies of each Schedule B
(Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Pension Plan;

 

(k)           Promptly and in any event within five (5) Business
Days after receipt thereof by a Loan Party or any of its ERISA Affiliates from
a Multiemployer Plan sponsor, a copy of each notice received by such Person
concerning (x) the imposition or amount of withdrawal liability under
Subtitle E of Title IV of ERISA or (y) any determination by a 

 

18

 

Multiemployer Plan sponsor that such Multiemployer
Plan is, or is expected to be, in “reorganization” (within the meaning of Section 4241
of ERISA) or “insolvent” (within the meaning of Section 4245 of ERISA), or
has incurred or is expected to incur an “accumulated funding deficiency”
(within the meaning of Section 302 of ERISA or Section 412 of the
Code);

 

(l)            Upon request of Agent made from time to time, a copy
of any Pension Plan sponsored, contributed to, participated in or maintained by
a Borrower or any ERISA Affiliate; and

 

(m)          With reasonable promptness, such other information
respecting the business, properties, operations, prospects or condition
(financial or otherwise) of any member of the Consolidated Group and any other
Primary Obligor and, to the extent reasonably available, any other Related
Entity as Agent or any Lender may from time to time in writing reasonably
request provided,  that neither
Borrower shall be required to furnish to Agent or any Lender any such
information relating to a Portfolio Entity if (i) the Charter Documents
of, or Shareholder Agreement relating to, such Person, in each case as in
effect on the date of formation of such Person, prohibit such disclosure and (ii) notice
of such prohibition on disclosure is provided to Agent within five days of
formation of such Person (any such restriction, a “Disclosure Restriction”).

 

7.2          Other Required Notices and Covenants.

 

(a)           Each Borrower and FLBG shall notify Agent promptly
after obtaining knowledge of:

 

(i)            except as otherwise
previously disclosed, any event or occurrence which Borrower has determined
could have a Material Adverse Effect as a result of a loss or decline in value
of the Assets of a Borrower, FLBG, any other Primary Obligor, any Portfolio
Entity or any Related Entity due to casualty or any other adverse occurrence
and the estimated (or actual, if available) amount of such loss or decline;

 

(ii)           the institution of (x) any
suit or administrative proceeding which if determined adversely to a Borrower,
FLBG, any other Primary Obligor, any Portfolio Entity or any Related Entity is
reasonably likely to or could reasonably be expected to result in a Material
Adverse Effect, and (y) any other suit or administrative proceeding
against a Borrower, FLBG, any other Primary Obligor or any Portfolio Entity in
which the uninsured amount involved is $750,000 or more, such notice to be
given on or prior to the end of the calendar month in which the applicable
event occurs;

 

(iii)          a Borrower, FLBG any other
Primary Obligor or any Material Portfolio Entity becoming subject to any
Charge, restriction, judgment, decree or order which could reasonably be
expected to materially adversely affect the operations, financial conditions or
business of such Person, or any other Portfolio Entity or any Related Entity
becoming subject to any Charge, restriction, judgment, decree or order if the
same could reasonably be expected to materially adversely affect the
operations, financial conditions or business of a Borrower, FLBG, any other
Primary Obligor, or any Material Portfolio Entity;

 

19

 

(iv)          the commencement of any
lockout, strike or walkout relating to any labor contract to which a Borrower,
FLBG, any other Primary Obligor, any Portfolio Entity or any Related Entity is
a party, if the same could reasonably be expected to have a Material Adverse
Effect;

 

(v)           except as otherwise
previously disclosed, any event or occurrence in respect of a Borrower, FLBG,
any other Primary Obligor, any Portfolio Entity or any Related Entity which
could reasonably be expected to have a Material Adverse Effect;

 

(vi)          the occurrence of (x) a
default by a Borrower, FLBG, FCFC, any other Primary Obligor, any Portfolio
Entity, any Related Entity or any other Loan Party under any agreement,
document or instrument to which such Person is a party which could reasonably
be expected to have a Material Adverse Effect, or (y) any default by a
Borrower, FLBG, FCFC, any other Primary Obligor or any other Loan Party which
could reasonably be expected to materially and adversely affect any such Person’s
ability to perform its respective obligations under the Loan Documents;

 

(vii)         the filing of a petition by
or against a Borrower, FLBG, any other Primary Obligor, any Portfolio Entity,
any Related Entity or any other Loan Party under any section or chapter of the
United States Bankruptcy Code or any similar law or regulation or if any such
Person shall make an assignment for the benefit of its creditors or if any case
or proceeding is filed by or against any such Person for its dissolution or
liquidation;

 

(viii)        the making of an application
for the appointment of a receiver, trustee or custodian for any of the Assets
of a Borrower, FLBG, any other Primary Obligor, any Material Portfolio Entity,
any Related Entity or any other Loan Party, other than a Non-Default Voluntary
Custodial Arrangement;

 

(ix)          the exercise by any holder
of any option, warrant or right to purchase any Equity Interest in a Borrower,
FLBG, any other Primary Obligor or any Material Portfolio Entity;

 

(x)           the issuance or sale of any
Securities by a Borrower, FLBG, any other Primary Obligor or any Portfolio
Entity, whether or not permitted pursuant to the terms hereof; and

 

(xi)          the occurrence of the REO Post—25% Time.

 

(b)           On the 20th day of each
month, each Borrower shall deliver to Agent (i) Waterfall Certificates in
respect of each Asset Pool and Portfolio Entity, certified by an Executive
Officer of each Borrower; and (ii) a Summary Waterfall Certificate in
respect of all Asset Pools; and (iii) a report in the form attached hereto
as Exhibit B setting forth the computation of the Aggregate
Undistributed Funds of all Portfolio Entities.

 

(c)           (i)  Each Borrower
shall give Agent notice that a Portfolio Entity has become a Material Portfolio
Entity (due to the amount of Assets contributed to it on the date of its
formation or an increase in Assets thereafter) within thirty (30) days of such
Person becoming a Material Portfolio Entity.

 

20

 

(ii)           Each Borrower shall give
Agent notice that an Immaterial Entity has ceased to constitute an Immaterial
Entity (due to an increase in the fair market value of its assets or such
company engaging in any business) within thirty (30) days of such Person
ceasing to constitute an Immaterial Entity and shall promptly deliver to Lender
a revised Schedule 10.34 to reflect such change.

 

(iii)          Each Borrower shall give
Agent notice of the dissolution or full liquidation of, or the suspension or
discontinuation of business by, any Portfolio Entity, not less than thirty (30)
days prior to such dissolution, liquidation, suspension or discontinuation.

 

(d)           On or before the fourth to last Business Day of each
month, each Borrower shall deliver to Agent a Portfolio Protection Expense
Report in the form of Schedule 7.2(d) hereto (the “Portfolio Protection
Expense Report”) showing as of the close of business on the last Business
Day of the preceding calendar month the balances of the FC Commercial
Protective Advance Account, the FH Protective Advance Account and the FCI
Distribution Account, the aggregate amount retained by Portfolio Entities to
pay Portfolio Protection Expenses not theretofore paid, the aggregate amount of
Portfolio Protection Expenses theretofore paid and the aggregate amount of
Portfolio Protection Expenses withheld (in the aggregate) by such Persons
during the immediately preceding calendar month.  Borrower shall provide to the Agent such
other information with respect thereto as Agent may reasonably request.

 

(e)           Each Borrower shall give Agent notice of the
transfer of any property by a Portfolio Entity to one of its REO Affiliates
within thirty (30) days of any such transfer and such other information as
Agent may request with respect thereto promptly following such request.

 

(f)            On or before the fourth to last Business Day of each
month, Borrower shall deliver to Agent a Valuation Certificate signed by the
Treasurer of the Borrowers.

 

(g)           Each Borrower shall give Agent notice of the
occurrence of an Adverse Waterfall Event within thirty days of such occurrence.

 

(h)           If a Borrower at any time has knowledge of any
servicer default, servicing termination event, amortization event or similar
event or condition occurring or existing under any agreement relating to the
securitization of Assets of any Primary Obligor or other Loan Party or
securitization entity established by any Primary Obligor or other Loan Party,
such Borrower shall immediately notify Agent thereof.

 

(i)            Borrower shall notify Agent if the amount of
Aggregate Undistributed Funds at any time exceeds $5,000,000.

 

7.3          Payment of Charges.

 

(a)           Other than charges payable by First X or First B,
Each Borrower, each Primary Obligor, each Material Portfolio Entity, and each
Wholly-Owned Subsidiary other than any REO Affiliate shall pay promptly when
due and discharge all Charges.  In the
event a Borrower, any Primary Obligor, any Material Portfolio Entity or any
Wholly-Owned Subsidiary other than an REO Affiliate, at any time or times
hereafter, shall fail to pay the Charges or to 

 

21

 

obtain such discharges as required herein, such
Borrower shall so advise Agent thereof in writing.  Agent may, without waiving or releasing any
obligation, covenant or agreement of either Borrower or any Event of Default or
Default, in its sole and absolute discretion, at any time or times thereafter,
make such payment, or any part thereof, or obtain such discharge and take any
other action with respect thereto which Agent deems advisable.  All sums so paid by Agent and any expenses
relating thereto, including reasonable attorneys’ fees, court costs, expenses
and other charges, shall be part of the Obligations, payable by Borrowers to
Agent on demand.  Notwithstanding the
foregoing, a Borrower, any Primary Obligor, any Material Portfolio Entity or
any Wholly-Owned Subsidiary may permit or suffer the Charges to attach to its
Assets on the conditions that: (i) such Borrower or the applicable Primary
Obligor, Material Portfolio Entity or Wholly-Owned Subsidiary, in good faith,
shall be contesting the same in an appropriate proceeding diligently pursued; (ii) enforcement
thereof against any Assets of such Borrower or any applicable Material
Portfolio Entity or Wholly-Owned Subsidiary shall be stayed; and (iii) appropriate
reserves therefor shall have been established on the Records of such Borrower
or the applicable Primary Obligor, Material Portfolio Entity or Wholly-Owned
Subsidiary in accordance with GAAP.

 

7.4          Insurance.  Each Borrower, FLBG, each Primary Obligor,
each Portfolio Entity (other than any Foreign Portfolio Entity), each REO
Affiliate and each Wholly-Owned Subsidiary at each of such respective Person’s
sole cost and expense, shall keep and maintain: (i) policies of insurance
against all hazards and risks ordinarily insured against by other owners or
users of properties in similar business or as reasonably requested in writing
by Agent; and (ii) public liability insurance relating to such Person’s
ownership and use of its Assets; provided, however, no such
Person shall be required to maintain the insurance referred to in clause (i) as
to any Asset if the Net Present Value of the Asset is less than $100,000.  All such policies of insurance shall be in
form, with insurers and in such amounts as may be satisfactory to Agent.  Each Borrower shall deliver to Agent the
original (or certified) copy of each policy of insurance and evidence of
payment of all premiums for each such policy. 
Such policies of insurance of each Borrower, Primary Obligors and
Wholly-Owned Subsidiaries (except those of public liability) shall contain an
endorsement, in form and substance acceptable to Agent, showing losses payable
to Agent for the ratable benefit of Lenders (excluding any losses payable to
the lenders under any Approved Portfolio Leverage Arrangement).  Such endorsement or an independent instrument
furnished to Agent, shall provide that all insurance companies will give Agent
at least thirty (30) days prior written notice before any such policy or
policies of insurance shall be altered or canceled and that no act or default
of a Borrower or any other Person shall affect the right of Agent for the
ratable benefit of Lenders, to recover under such policy or policies of
insurance in case of loss or damage (excluding any losses payable to the lenders
under any Approved Portfolio Leverage Arrangement).  Upon request by Agent and, whether or not
such request is made, upon the occurrence of an Event of Default or Default,
each Borrower hereby directs all insurers under such policies of insurance
(except those of public liability) to pay all proceeds payable thereunder
directly to Agent (excluding any losses payable to the lenders under any
Approved Portfolio Leverage Arrangement). 
Upon request by Agent and upon the occurrence of an Event of Default or
Default, each Borrower, irrevocably, appoints Agent (and all officers,
employees or agents designated by Agent) as such Borrower’s true and lawful
agent and attorney-in-fact for the purpose of making, settling and adjusting
claims under such policies of insurance, endorsing the name of such Borrower on
any check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all 

 

22

 

determinations and decisions with respect to such
policies of insurance.  In the event a
Borrower, any Primary Obligor, any Portfolio Entity, any REO Affiliate or any
Wholly-Owned Subsidiary at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
in whole or in part relating thereto, then Agent, without waiving or releasing
any obligation, covenant or agreement of a Borrower or any Event of Default or
Default, may at any time or times thereafter (but shall be under no obligation
to do so) obtain and maintain such policies of insurance and pay such premium
and take any other action with respect thereto which Agent deems
advisable.  All sums so disbursed by
Agent, including reasonable attorneys’ fees, court costs, expenses and other
charges relating thereto, shall be part of the Obligations, payable by
Borrowers to Agent on demand.  Agent
shall also be named as an additional insured with respect to each Borrower’s,
each Primary Obligor’s and each Wholly-Owned Subsidiary’s liability insurance.

 

7.5          Maintenance of Records.  Each Borrower will keep, and will cause FLBG,
each other Primary Obligor and each Wholly-Owned Subsidiary other than REO
Affiliates to keep, at all times books of record and account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs, and each such Person will provide, and
will cause each such other Person to provide, adequate protection against loss
or damage to such books of record and account.

 

7.6          Preservation of Existence.  Each Borrower, FLBG, each other Primary
Obligor, each Material Portfolio Entity, and each Subsidiary of a Borrower
other than an Immaterial Entity, REO Affiliate or a Harbor Debtor, will
maintain and preserve its respective corporate, limited liability company or
partnership existence, rights, privileges and franchises in its jurisdiction of
organization, and qualify and remain qualified to do business in, and maintain
its rights, privileges and franchises in each other jurisdiction which in the
opinion of the respective board of directors, manager, general partner or other
governing Person thereof continue to be advantageous to it and shall comply in
all material respects with all applicable Legal Requirements.  Without limiting the generality of the
foregoing, each Borrower agrees to (and to cause each such other Person to)
qualify to do business as a foreign corporation in each jurisdiction where the
nature of its business and the operations conducted by it therein require it to
be so qualified; provided that notwithstanding the foregoing, Agent and Lenders
acknowledge that it is contemplated that the Borrowers, Primary Obligors and
Portfolio Entities will be liquidating their assets and that a Primary Obligor
or any Portfolio Entity may be dissolved or merged into another Primary Obligor
or Portfolio Entity upon the liquidation of all assets of any such Person that
can be reasonably expected to be collected or sold.

 

7.7          Preservation of Assets.  Each Borrower, FLBG and each other Primary
Obligor will keep its property material to the conduct of its business in good
repair, working order and condition and from time to time make all needful and
proper repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, so that the business carried on by it may be conducted at
all times in accordance with prudent business management.

 

7.8          Inspection of Books and Assets.  Each Borrower, FLBG and each other Primary
Obligor shall permit Agent, Lenders and each of their respective
representatives reasonable access during normal business hours to its
properties and personnel, and shall disclose and make available to Agent and
Lenders all books, papers and records relating to the Assets, stock 

 

23

 

ownership, properties, operations, obligations, and
liabilities of each Borrower, FLBG, each other Primary Obligor and their
respective Subsidiaries (and shall use commercially reasonable efforts to cause
each other Portfolio Entity to do the same), including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
meetings of boards of directors (and any committees 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 its independent outside auditors), litigation files, loan
files, plans affecting employees, and any other business or prospects in which
Lenders may have a reasonable interest in connection with the Loans, provided
that such access shall be reasonably related to the transactions contemplated
hereby and not unduly interfere with normal operations, and provided further
that in the event that any of the foregoing are in the control of any third
party, each Borrower, FLBG and each other Primary Obligor shall use its
reasonable best efforts to cause such third party to provide access to such
materials to Agent and Lenders who shall request the same.  In the event that a Borrower, FLBG or any
other Primary Obligor is prohibited by law from providing any of the access
referred to in the preceding sentence to Agent and Lenders, it shall use its
commercially reasonable efforts to obtain waivers thereof promptly so as to
permit such access.  Each Borrower, FLBG
and each other Primary Obligor shall make the directors, officers, employees
and agents and authorized representatives (including counsel and independent public
accountants) of such Borrower, FLBG, other Primary Obligor, and their
respective Subsidiaries (and shall use its commercially reasonable efforts to
cause each other Portfolio Entity to do the same) to confer with Agent and
Lenders and their respective representatives, provided that (i) such
access shall be reasonably related to the transactions contemplated hereby and
not unduly interfere with normal operations and (ii) unless a Default or
Event of Default exists, counsel to Borrowers, FLBG and each other Primary
Obligor shall be permitted to be present at any meeting among Borrowers’, FLBG’s
or such Primary Obligor’s independent public accountants and Agent or Lenders.

 

7.9          Payment of Indebtedness.  Each Borrower, FLBG, each other Primary
Obligor, each Material Portfolio Entity and, subject to the final sentence of
this Section 7.9, each Wholly-Owned Subsidiary will duly and punctually
pay, or cause to be paid, the principal of and the interest on all Indebtedness
heretofore or hereafter incurred or assumed by such Person, when and as the
same shall become due and payable, provided that neither a Borrower, nor
any Primary Obligor, any Wholly-Owned Subsidiary or any Material Portfolio
Entity shall be required to pay any Indebtedness (other than Indebtedness
incurred under this Agreement or any other Loan Document) while the same is
being contested by it in good faith and by appropriate proceedings so long as
each Borrower or such Primary Obligor or Wholly-Owned Subsidiary or Material
Portfolio Entity (as the case may be) shall have set aside on its books
appropriate reserves in accordance with GAAP with respect thereto and title to
any property of each Borrower or the applicable Primary Obligor or Wholly-Owned
Subsidiary or Material Portfolio Entity is not jeopardized.  The provisions of this Section 7.9 do
not relate to Indebtedness of FC Capital or other Wholly-Owned Subsidiaries
which are REO Affiliates.

 

7.10        Further Assurances.  Each Borrower, FLBG, each other Primary
Obligor, each Wholly-Owned Subsidiary and each other Loan Party will, and will
cause each of its respective Subsidiaries to, make, execute or endorse, and
acknowledge and deliver or file, all such vouchers, invoices, notices, and
certifications and additional agreements, undertakings, conveyances, transfers,
assignments, or further assurances, and take any and all such other 

 

24

 

action, as Agent or any Lender may, from time to
time, deem necessary or proper in connection with this Agreement, the
obligations of such Person hereunder or under the Notes or any of the other
Loan Documents to which such Person is a party, or for the better assuring and
confirming unto Collateral Agent or Agent on behalf of Lenders, with the first
priority, all or any part of the security for the Obligations.

 

7.11        Notice of Default.  Forthwith and in any event within five (5) days
after a Borrower shall have obtained knowledge of the existence of a Default or
Event of Default, such Borrower will deliver to Agent a certificate signed by
an Executive Officer of such Borrower setting forth the details of such event,
the period of existence thereof, and what action such Borrower proposes to take
with respect thereto.

 

7.12        Reserves.  Each Borrower, FLBG, each other Primary
Obligor and, subject to the last sentence of this Section 7.12, each
Wholly-Owned Subsidiary, will set up on its books of its earnings, reserves for
bad debt in accordance with GAAP and in an aggregate amount deemed adequate in
the judgment of such Person and accepted by the outside auditors in their
annual audits and each Borrower shall use its commercially reasonable efforts
to cause each other Material Portfolio Entity to do the same.  The provisions of this Section 7.12
shall not apply to any Wholly-Owned Subsidiary which is an REO Affiliate, or
any Immaterial Entity.

 

7.13        Representation and Warranties; Covenants as to Other
Persons, Amendment of Schedules.

 

(a)           To the extent any representation or warranty
contained herein refers to an event or state of facts which exists on or after
the date hereof, on or after the Execution Date or on or after the Effective
Date or on or after the date of any Loan and which exists during the term
hereof or at the time of any or each Loan hereunder, to the extent not already
a covenant, said representation or warranty shall be deemed to be an
affirmative covenant by each Borrower to take all actions, omit to take such
actions or cause such actions to be taken which shall be necessary or desirable
to cause such representation or warranty to be true and accurate at all times
during the term hereof.  To the extent
any representation, warranty or covenant herein (including the covenants set
forth in Section 8 and in this Section 7) relates to any Primary
Obligor, other Subsidiary or any other Loan Party, it shall be deemed to be a
covenant of each Borrower to cause such Person to comply with or otherwise
perform such representation, warranty or covenant, whether or not a Borrower
has the legal, corporate or other ability to cause such compliance or
performance.  To the extent any
representation, warranty or covenant herein (including the covenants set forth
in Section 8 and in this Section 7) relates to any Person other than
a Primary Obligor, other Subsidiary or any other Loan Party it shall be deemed
to be a covenant of each Borrower to exercise commercially reasonable efforts
to cause such Person to comply with or otherwise perform such representation,
warranty or covenant, whether or not a Borrower has the legal, corporate or
other ability to cause such compliance or performance.

 

(b)           No delivery of any new or supplemented Schedule to
this Agreement (whether or not such delivery is required by this Agreement or
any other Loan Document) shall waive or cure any Default or Event of Default
which would occur absent such delivery (other than a Default or Event of
Default arising solely from the breach of an obligation to deliver such 

 

25

 

Schedule and other than as may be set forth in
writing in a consent or amendment (if any) pursuant to which any such new or
supplemented Schedule is delivered).

 

7.14        Perform Obligations.  Each Borrower, FLBG and each other Loan Party
shall duly and punctually pay and perform each of its obligations under the
Loan Documents to which it is a party, in accordance with the terms hereof and
thereof.

 

7.15        Cooperation.  At Agent’s request, each Borrower will meet
from time to time with (and provide then available financial information to)
other financial institutions to which any Lender may wish to grant
participations in the Loans, including potential Lender Assignees and potential
Purchasing Lenders.

 

7.16        Approvals and Consents.  In the event that any approval, consent or
non-objection need be obtained by a Borrower, FLBG, any other Primary Obligor
or other Loan Party from, or a notice or other filing need be filed by a
Borrower or any such other Person, with, any Governmental Authority in
connection with the execution, delivery and performance of this Agreement or
any Loan Document by a Borrower or any such other Person, each Borrower and
FLBG shall take and cause such other Person (as applicable) to take, all
actions reasonably necessary to obtain any such approval, consent or
non-objection or file such notice or other filing as promptly as practicable,
and Lenders agree to cooperate with Borrowers and FLBG in obtaining or filing
the same.

 

7.17        Payment of Dividends from Primary Obligors and
Subsidiaries.  In
furtherance and not in limitation of other provisions hereof (including Section 8.22)
regarding required distributions, to the extent necessary to enable it to make
payments of the Obligations in accordance with the terms hereof, unless
prohibited by applicable law, each Borrower shall cause dividends to be paid to
it by each Primary Obligor and each other Wholly-Owned Subsidiary of a Borrower
(whether in existence as of the date hereof or hereafter formed or acquired) in
amounts which are sufficient to enable Borrowers to satisfy their payment obligations
under the terms hereof.

 

7.18        Stay, Extension and Usury Laws.  Each Borrower covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law which would prohibit or forgive it from
paying all or any portion of the principal of, premium, if any, or interest on
the Notes, wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of its obligations under the Notes,
and each Borrower (to the extent it may lawfully do so) hereby expressly waives
all benefits or advantages of any such law.

 

7.19        Compliance with Laws.  Each Borrower shall comply with, and shall
cause each Primary Obligor, each other Subsidiary and each other Loan Party to
comply with, and shall exercise commercially reasonable efforts to cause each
Portfolio Entity to comply with, all laws, rules, regulations and governmental
orders (federal, state and local), including all Environmental Laws, having
applicability to it or to the business or businesses at any time conducted by
it, where the failure to so comply would have, or could reasonably be expected
to have, a Material Adverse Effect.

 

26

 

7.20        Back-Up Servicer.  The Borrowers shall reimburse the Lenders for
amounts up to $12,000 paid by the Lenders to a Cold Back-Up Servicer selected
by the Lenders to act as a back-up servicer to FC Servicing, and the Borrowers
shall use commercially reasonable efforts to cooperate with, and provide all
information reasonably requested by, such Cold Back-Up Servicer selected by the
Lenders, all subject to and as contemplated by the back-up servicing agreement
entered into as of the date hereof by Borrowers and Cold Back-Up Servicer and
assigned as collateral to the Collateral Agent. 
The Borrowers shall cooperate with, and permit, Lenders to designate a
replacement for any Cold Back-Up Servicer

 

Section 8.                                           NEGATIVE
COVENANTS.

 

Each
Borrower and FLBG warrants and represents to and covenants to Lenders and Agent
that, so long as this Agreement is in effect and all of the Loans, together
with interest and all other obligations incurred hereunder are paid in full,
each Borrower will perform the obligations set forth in this Section 8
(unless it shall have first procured the written consent of the Majority
Lenders to do otherwise), and, except as provided in the following paragraph,
will cause each Primary Obligor, Subsidiary, and other Loan Party to, and will
use commercially reasonable efforts to cause each Portfolio Entity-50% and
other Material Portfolio Entity to, perform the obligations set forth in this Section 8
which are applicable to such Person (unless it shall have first procured the
written consent of the Majority Lenders to do otherwise).

 

For
the purposes of this Section 8, the terms Primary Obligor, Subsidiary,
Loan Party, Related Entity, Portfolio Entity and Portfolio Entity-50% shall not
mean or include any Crestone Portfolio Entities or any Person owned by a
Crestone Portfolio Entity, FC Capital (or any of its Subsidiaries), MSC,
Servicios Integrales de Cobranze, S.A. Chile, UBN, SAS or any Portfolio Entity
in which MCS and/or UBN, SAS owns 50% or more of the equity interests of such
entity; provided that Borrowers will provide notice to Agent of any event,
occurrence or action by any such Person that would otherwise constitute a
breach of this Section 8 and Agent and Lenders may prohibit such event,
occurrence or action if such event, occurrence or action would, in the opinion
of the Lenders, have a Material Adverse Effect on the Borrowers.

 

8.1          Amend Charter Documents; Engage in Same Type of
Business.

 

(a)           None of either Borrower, any Primary Obligor, any
Subsidiary or any Portfolio Entity-50% 
shall (i) make or consent to any change: (i) in its Charter
Documents, in any Shareholder Agreement or in its capital structure or (ii) make
any change in any of its business objectives, purposes and operations,
including by undertaking additional business activities or (iii) waive any
material right under its Charter Documents or any Shareholder Agreement.  None of either Borrower, any Primary Obligor,
any Subsidiary or any Portfolio Entity-50% 
shall engage in any business not of the same general type as those
conducted by it on the Execution Date or, in the case of a newly formed entity,
any business not of the same general type as those conducted by a Borrower, any
Primary Obligor, any Portfolio Entity-50% or any other Subsidiary (as the case
may be) on the Execution Date. Without limiting the foregoing, no Subsidiary
which is a Portfolio Entity and no Portfolio Entity-50%  shall engage in any business other than purchasing
Asset Pools in accordance with the terms hereof and causing such Asset Pools to
be serviced in accordance with Section 8.24.

 

27

 

(b)           None of either Borrower, any Subsidiary or any
Portfolio Entity-50% shall enter into any Shareholder Agreement after the
Execution Date other than a Permitted Shareholder Agreement.

 

8.2          Liens.  None of either Borrower, any Subsidiary
(other than an REO Affiliate) or any Portfolio Entity-50%, will grant,
contract, create, incur, assume or suffer or permit to exist any Lien upon or
with respect to, or by transfer or otherwise subject to the prior payment of
any indebtedness (other than the Loans), any of its Assets, whether now owned
or hereafter acquired, except (i) Permitted Liens or (ii)  in the
case of an REO Affiliate, Liens in favor of its REO Owner and non-consensual
Charges.

 

8.3          Other Indebtedness.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% will contract, create, incur, assume or suffer to
exist any Indebtedness, except:

 

(i)            the Loans and the
obligations of a Borrower in respect of the LC Obligations;

 

(ii)           other Indebtedness existing
on the Effective Date listed on Schedule 10.19 to this Agreement;

 

(iii)          Indebtedness of any
Portfolio Entity incurred under Approved Portfolio Leverage Arrangements;

 

(iv)          Indebtedness of any
Portfolio Entity to which no proceeds of any Loans were, directly or
indirectly, advanced or contributed;

 

(v)           unsecured trade payables
incurred in the ordinary course of business;

 

(vi)          in the case of any REO
Affiliates, Indebtedness owed to its REO Owner and trade payables incurred
in the ordinary course of business and, to the extent constituting Indebtedness,
Charges incurred by such REO Affiliate;

 

(vii)         Indebtedness to the extent
permitted by Section 8.12(a)(i)-(iii);

 

(viii)        Indebtedness of Portfolio
Entities in respect of loans permitted to be made by FC Servicing and FirstCity
Mexico, S.A. de C.V. pursuant to Section 8.12(a)(v);

 

(ix)          Indebtedness of any
Subsidiary or Portfolio Entity-50% payable to a Borrower or a Wholly-Owned
Subsidiary;

 

(x)           Guaranty Equivalents to the
extent permitted under Section 8.12(b);

 

(xi)          Indebtedness of FirstCity Denver
Investment Corp. payable to FC Commercial related to loans made by FC
Commercial to enable FC Denver Investment Corp. to fund loans to Crestone
Portfolio Entities under the Crestone Facility; and

 

(xii)         Up to $5,000,000 in
aggregate principal Indebtedness incurred by FCS Creamer, Ltd., FCS
Lancaster, Ltd., FCS Wood Ltd., FCS Wildhorse Ltd. and Brazos 

 

28

 

River Partnership One, L.P. or other REO
Affiliates to finance developmental expenses of real property owned by such
entities.

 

8.4          Sell Assets.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% shall assign, sell or transfer any of its Assets to
any Person, other than in the ordinary course of business and for fair and
adequate consideration (and, in the case of Assets constituting Equity
Interests, only to the extent permitted by Section 8.8(a)); provided that
the foregoing shall not restrict (i) an REO Affiliate from transferring
its Assets to the Person which owns all of its equity interests or to any other
Person which is not a Subsidiary or Affiliate of either Borrower or such REO
Affiliate or (ii) any Person which owns all of the equity interests in an
REO Affiliate from transferring distressed notes secured by real estate (and
such real estate security) to such REO Affiliate.

 

8.5          Attachment.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% shall permit or suffer any levy, attachment, seizure,
or restraint to be made of, upon or affecting any of its Assets or permit any
of its Assets to be subject to a writ of distress, if the same would have a
Material Adverse Effect.

 

8.6          Receiver.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% shall permit or suffer any receiver, trustee or
assignee for the benefit of creditors, or any other custodian to be appointed
to take possession of all or any of its Assets, or for all or any of its Assets
to come within the possession of any receiver, trustee, assignee for the
benefit of creditors or custodian, other than a custodian pursuant to a
Non-Default Voluntary Custodial Arrangement, if the same would have a Material
Adverse Effect.

 

8.7          Mergers, Acquisitions.  None of either Borrower, any Primary Obligor
(other than FLBG) or any Material Portfolio Entity shall wind up, liquidate or
dissolve its affairs or merge or consolidate with, be acquired by or acquire
the stock or assets of or make any investment in (other than a capital
contribution to provide for payment of Portfolio Protection Expenses), any Person,
whether by merger, consolidation, purchase of stock or assets or otherwise, or
create any new Subsidiary other than an REO Affiliate (or agree to do any of
the foregoing at any future time) or fail to maintain its corporate,
partnership or limited liability company or other formal existence, provided
that notwithstanding the foregoing, Agent and Lenders acknowledge that it is
contemplated that the Borrowers, Primary Obligors and Portfolio Entities will
be liquidating their assets and that any Primary Obligor or any Portfolio
Entity may be dissolved or merged into another Primary Obligor or Portfolio
Entity upon the liquidation of all assets of any such Person that can be
reasonably expected to be collected or sold.

 

8.8          Stock Transfers.

 

(a)           Except (i) as permitted pursuant to Section 8.8(b),
(ii) for the sale of Equity Interests in a Subsidiary for fair market
price, the proceeds of which are distributed pursuant to Section 5.3
hereof, (iii) with respect to quotas issued to FirstCity Chile II in
connection with direct and indirect contributions of capital from distributions
or dividends from NPL Fund Two, Private Investment Fund, or (iv) for
options, warrants or other rights to purchase Equity Interests in a Borrower
pursuant to plans or instruments described in Schedule 10.5(c) as
amended from time to time with Majority Lenders’ written consent and for Equity
Interests in a 

 

29

 

Borrower issued upon exercise thereof, none of any
Borrower, any Subsidiary or any Portfolio entity-50% shall (x) grant any
option, warrant or other right to purchase any Equity Interest in a Borrower,
any Subsidiary or any Portfolio Entity-50% or (y) issue any other Equity
Interests, or (ii) transfer any Equity Interests (whether its own or
Equity Interests issued by any Person other than itself) without, in each case,
the prior written consent of Majority Lenders.

 

(b)           Notwithstanding anything to the contrary contained
herein, each Borrower shall have the right to offer and sell equity Securities
of such Borrower under the following terms and conditions: (x) such
Borrower shall deliver notice to Agent, within twenty-four (24) hours of any
filing with the SEC; (y) such Borrower shall fully and timely comply with
all Securities Laws and with all terms and provisions of the underwriting
agreement pursuant to which such Securities are offered for sale; and (z) the
prospectus and all other selling materials used by such Borrower in such
offering shall not contain any misstatement of material fact or omit to state
any fact which would render the statements contained therein false or
misleading.

 

8.9          Adverse Transactions.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% shall enter into any transaction which materially and
adversely affects its ability to perform its obligations under the Loan
Documents or to pay any other Indebtedness.

 

8.10        Investments.

 

(a)           Subject to the further limitations set forth in
Sections 8.10(b) and (c), after the Execution Date, neither Borrower,
any Subsidiary or any Portfolio Entity-50% shall make any investment in Equity
Interests of any Person other than (i) investments in Equity Interests
owned as of the date of this Agreement, (ii) direct or indirect
contributions by Primary Obligors to capital of Portfolio Entities to be used
by such entities (a) to pay development expenses related to real estate or
(b) to pay Portfolio Protection Expenses, (iii) investments by any
such Person (other than by a Portfolio Entity) in the ordinary course of business
or (iv) with respect to quotas issued by FirstCity Chile II in connection
with direct and indirect contributions of capital from distributions or
dividends from NPL Fund Two, Private Investment Fund.

 

(b)           As used in Sections 8.10(a) and (c) “investment”
shall include, but not be limited to contributions to the capital of a Person.

 

(c)           In furtherance, and not in limitation, of other
restrictions herein and in the other Loan Documents on contributions, loans,
gifts, investments and Guaranty Equivalents, none of Borrower, any Subsidiary
or any Portfolio Entity-50% shall make capital contributions, loans or gifts
to, investments in or enter into or issue any Guaranty Equivalent with respect
to the obligations of any entity identified on Schedule 10.37 or any other
Immaterial Entity at any time during the term hereof.

 

8.11        Dividends.  Neither Borrower will, and neither Borrower
will permit any Subsidiary or any Portfolio Entity-50% to, authorize, declare,
or pay any dividends or return any capital to its stockholders as such or
authorize or make any other distribution, payments or delivery of property or
cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration any shares of any class of
its capital stock now or hereafter outstanding or any options, warrants or
other securities (now or hereafter 

 

30

 

outstanding) convertible into or exercisable for any
equity or other securities of a Borrower, any Subsidiary or any Portfolio
Entity-50% or set aside funds for any of the foregoing and neither Borrower
will permit any Subsidiary or any Portfolio Entity-50% to purchase any Equity
Interests of a Borrower, or set aside funds for any of the foregoing (any such
authorization, declaration, payment, dividend, return of capital, distribution,
delivery, redemption, retirement, purchase, acquisition or setting aside of
funds, a “Dividend”), provided, that (i) any Subsidiary or
Portfolio Entity-50% may declare or pay Dividends to a Borrower or any
Wholly-Owned Subsidiary and (ii) any Subsidiary or Portfolio Entity-50%
may pay cash Dividends to holders of its shares of stock, partnership
interests, limited liability company interests or similar equity interests
generally so long as the Borrower or its respective Subsidiaries which own such
equity interests in the Person paying such Dividends receives at least its
proportionate share thereof (based on its relative holdings of such equity
interests in the Person paying such Dividends).

 

8.12        Loan; Guaranty Debt.

 

(a)           Except as set forth on Schedule 8.12(a), none
of either Borrower, any Subsidiary or any Portfolio Entity-50% shall make any
loan to any Person, or otherwise invest in or acquire any note, bond, other
debt instruments or obligations of or issued by any Person except (i) the
acceptance by FH Partners, a Subsidiary or a Portfolio Entity-50% of a note
from its 100% owned REO Affiliate evidencing the deferred purchase price of a
mortgage note sold to such REO Affiliate by FH Partners, such Subsidiary or
Portfolio Entity-50% or a portion of the purchase price for the real property
in the event that the REO Affiliate acquires the real property (1) at a
foreclosure sale or through a foreclosure proceeding, (2) from the
mortgagor in either full or partial satisfaction of the related debt, or (3) by
purchase from FH Partners, the Subsidiary or Portfolio Entity-50%; (ii) the
acceptance by an REO Affiliate, a Latin American Acquisition Entity or a
European Acquisition Entity of a note from the transferee of real property sold
by such REO Affiliate, Latin American Acquisition Entity or European
Acquisition Entity (as the case may be) in the ordinary course of business
evidencing a portion of the deferred purchase price of such property; (iii) in
the case of FC Servicing and FirstCity Mexico, S.A. de C.V., short term
servicer advances in the ordinary course of business with respect to portfolios
which they are servicing in aggregate principal amount at any one time outstanding
not in excess of $5,000,000, on a combined basis; and (iv) direct or
indirect loans by Primary Obligors to Subsidiaries and Portfolio Entities to be
used by such entities (a) to pay development expenses related to real
estate or (b) to pay Portfolio Protection Expenses; (v) SBA Loans
made by ABL in accordance with the SBA Rules and Regulations; and (vi) loans
made by FC Commercial to FirstCity Denver Investment Corp. to enable FirstCity
Denver Investment Corp. to fund loans to Crestone Portfolio Entities under the
Crestone Facility for Portfolio Protection Expenses.

 

(b)           Except as set forth on Schedule 8.12(b), none
of either Borrower, any Subsidiary or any Portfolio Entity-50% shall enter into
or issue any Guaranty Equivalents.

 

8.13        Issue Power of Attorney.  Except pursuant to the other provisions of
this Agreement or the Security Documents to which Agent is a party, none of
either Borrower, any Subsidiary or any Portfolio Entity-50% shall issue any
power of attorney or other contract or agreement giving any Person power or
control over the day-to-day operations of any such Person’s business; provided
that,  any Primary Obligor, any
Portfolio Entity, FirstCity do Brazil, Ltda., FirstCity Argentina Corporation,
First South America LLC, FirstCity Recovery S.A., 

 

31

 

FirstCity Mexico, S.A. de C.V. and Servicios
Efectivos de Recuperacion, S. de R.L. de C.V. shall have the right to grant
powers of attorney necessary to conduct business outside the United States, to
pursue or consummate asset acquisitions outside the United States and to
collect or liquidate Assets or pursue litigation related Assets outside the
United States, which are undertaken in the ordinary course of such respective
company’s business.

 

8.14        Amendment of Credit Agreements.   None of either Borrower, any Subsidiary or
any Portfolio Entity-50% shall amend, modify or extend (or agree to amend,
modify or extend or give any notice of any sort the result of which would
amend, modify or extend (whether or not, without limitation, any such extension
would occur pursuant to a renewal or extension option contained therein or any
other term thereof)) any note, credit agreement, security agreement or other
document, instrument or agreement evidencing or securing Indebtedness of such
entity; provided that a Borrower, any Subsidiary or any Portfolio
Entity-50% may extend the term of any credit facilities or loans permitted
under the terms of this Agreement under financial terms no more onerous than those
provided for in the applicable existing credit facility or then-existing market
credit terms.

 

8.15        Payments for Consent.  None of either Borrower or any Subsidiary or
any Portfolio Entity-50% shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Lender
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of any Loan Document unless such consideration is paid to all
Lenders.

 

8.16        Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries.  Except as herein provided, neither Borrower
shall, and each Borrower shall not permit any Subsidiary, or any Portfolio
Entity-50% to, create, assume or otherwise cause or suffer to exist or to
become effective any consensual encumbrance or restriction on the ability of
any such Person to:

 

(i)            pay any dividends or make
any other distribution on its Stock or other Equity Interests to a Borrower or
any of its Subsidiaries;

 

(ii)           make payments on or in
respect to any Indebtedness owed to a Borrower, any Subsidiary; or

 

(iii)          make loans or advances to a
Borrower or any of its Subsidiaries or to guarantee Indebtedness of a Borrower
or any of its Subsidiaries;

 

other
than, in the case of (i), (ii) and (iii),

 

(1)           restrictions with respect to
a Subsidiary other than a Portfolio Entity, a Primary Obligor or an REO
Affiliate imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all the assets (which term may
include the capital stock) of such Subsidiary provided that such restrictions
terminate upon the closing of such sale or disposition or termination of such
agreement;

 

32

 

(2)           to the extent the same
result in a restriction of non-cash in-kind distributions of such assets,
restrictions on the transfer by any Subsidiary other than a Portfolio Entity, a
Primary Obligor or an REO Affiliate of non-cash assets which are subject to
Permitted Liens;

 

(3)           restrictions existing under
any agreement which refinances or replaces any of the agreements containing the
restrictions in clauses (1) or (5), provided that the terms and conditions
of any such restrictions are not materially less favorable to the Lenders or
materially more burdensome to the applicable Person bound thereby than those
under the agreement evidencing or relating to the Indebtedness refinanced or
replaced;

 

(4)           Permitted Restrictions on
payment of dividends by a Subsidiary of a Borrower under a loan agreement
listed on Schedule 10.19 to which such 
Subsidiary is a party;

 

(5)           restrictions under this
Agreement;

 

(6)           Permitted Restrictions
imposed under Approved Portfolio Leverage Arrangements;

 

(7)           Permitted Restrictions on
the payment of dividends by a Portfolio Entity-50% under credit agreements
under which such Portfolio Entity-50% is a borrower; and

 

(8)           restrictions of the payment
of dividends by ABL as set forth in the ABL Facility Agreement and restrictions
of the ability of ABL to make payments on indebtedness outstanding under the
ABL Capital Note as set forth in the subordination agreement referred to
therein.

 

and
other than in the case of (iii), a consensual encumbrance or restriction on the
ability of any Subsidiary other than a Wholly-Owned Subsidiary or any Portfolio
Entity-50% to make a loan or advance to or guarantee Indebtedness of a Borrower
or any of its Subsidiaries.

 

8.17        Financial Covenants.  In the event that any Financial Statement
required to be delivered pursuant to Section 7.1(a) or Section 7.1(b) or
any certificate required to be delivered pursuant to Section 7.1(f) hereof
(in the case of any such certificate required in connection with monthly
financial statements, at the end of any month which is also a fiscal quarter end
date) is not delivered within 10 days after the date required therefor pursuant
to such Section, each Borrower shall be deemed to be in default of this Section 8.17
for purposes of Section 9.3 hereof.

 

8.18        Accounting Changes.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% will make any significant change in (x) accounting
treatment and reporting practices except as permitted or required by GAAP or
Legal Requirements or (y) unless Agent consents thereto in writing (which
consent shall not be unreasonably withheld), its Fiscal Year; provided that
in any such case, if any such change would affect any computation required by Section 8.17
hereof or any amount required to be paid by Section 2.3 hereof,
appropriate amendment shall 

 

33

 

have been made to this Agreement with respect
thereto (or, in the case of change required at such time by a Legal
Requirement, appropriate amendment is made to this Agreement contemporaneous
with such change and, and if such amendment is not made, each Borrower shall be
deemed in default under Section 8.17).

 

8.19        Related Transactions.  Neither Borrower has and neither Borrower
shall, and neither Borrower shall permit any Subsidiary or any Portfolio
Entity-50% to, enter into any transactions with any Affiliate or Associate,
including, without limitation, agreements for the purchase, sale or exchange of
property or the rendering of any services to or by any Affiliate or Associate
of a Borrower or any Parent, or enter into, assume or suffer to exist any
employment, management, administration, advisory or consulting contract with
any Affiliate or Associate of a Borrower or any Parent or, in each of the
foregoing cases, with any officer, director or partner of any Affiliate or
Associate of a Borrower or any Parent or modify any Fee Agreement unless, in
any such case, such transaction (a) is otherwise not in violation of this
Agreement or any other Loan Document and (b) is in the ordinary course of
its business and is upon fair and reasonable terms no less favorable to a
Borrower, such Subsidiary or such Portfolio Entity-50% (as the case may be)
than such Person would obtain in a comparable arm’s-length transaction with a
Person not an Affiliate or Associate; provided, that the foregoing shall
not restrict a Subsidiary from entering into a transaction contemplated by the
definition of “REO Affiliate” to sell real estate (or distressed notes
secured by real estate) to its wholly owned REO Affiliate.

 

8.20        Leasebacks.  None of either Borrower, any Subsidiary or
any Portfolio Entity-50% will enter into any arrangement with any bank,
insurance company or other lender or investor providing for the leasing to any
of the foregoing Persons of real property (i) which at the time has been
or is to be sold or transferred by any of the foregoing Persons to such lender
or investor, or (ii) which has been or is being acquired from another
Person by such lender or investor or on which one or more buildings or
facilities have been or are to be constructed by such lender or investor for
the purpose of leasing such property to a Borrower, any Subsidiary  or any Portfolio Entity-50%.

 

8.21        Compliance with ERISA.  Neither Borrower nor any Subsidiary (each, an
“Applicable Person”) will (i) terminate, or permit any of its
Subsidiaries to terminate, any Pension Plan so as to result in any material (in
the opinion of Agent or the Majority Lenders) liability of any such Person or
Subsidiary to the PBGC, (ii) permit to exist the occurrence of any Reportable
Event (as defined in Section 4043 of ERISA), or any other event or
condition, which presents a material (in the opinion of Agent or the Majority
Lenders) risk of such a termination by the PBGC of any Pension Plan, (iii) allow,
or permit any of its Subsidiaries to allow, the aggregate amount of “benefit
liabilities” (within the meaning of Section 4001(a)(16) of ERISA) under
all Pension Plans of which any Applicable Person or any ERISA Affiliate is a “contributing
sponsor” (within the meaning of Section 4001(a)(13) of ERISA) to exceed
$100,000, (iv) allow, or permit any of its Subsidiaries to allow, any Plan
to incur an “accumulated funding deficiency” (within the meaning of Section 302
of ERISA or Section 412 of the Code), whether or not waived, (v) engage,
or permit any of its Subsidiaries or any Plan to engage, in any “prohibited
transaction” (within the meaning of Section 406 of ERISA or Section 4975
of the Code) resulting in any material (in the opinion of Agent or the Majority
Lenders and considered by itself or together with all other such liabilities of
a Borrower and all ERISA Affiliates) liability to any Applicable Person or any
ERISA Affiliate, (vi) allow, or permit any of 

 

34

 

its Subsidiary to allow, any Plan to fail to comply
with the applicable provisions of ERISA and the Code in any material respect, (vii) fail,
or permit any of its Subsidiaries to fail, to make any required contribution to
any Multiemployer Plan, or (viii) completely or partially withdraw, or
permit any of its Subsidiaries to completely or partially withdraw, from a
Multiemployer Plan, if such complete or partial withdrawal will result in any
material (in the opinion of Agent or the Majority Lenders) withdrawal liability
under Title IV of ERISA.  No Loan Party
or Subsidiary, other than a Borrower and Subsidiaries that are not Portfolio
Entities has or shall at any time have any employees.

 

8.22        Distributions to Primary Obligors and a Borrower.

 

(a)           Each calendar month, each Borrower shall (i) cause
each Portfolio Entity and each REO Affiliate to distribute to a Primary
Obligor, on or prior the Payment Date occurring in such month, the Portfolio
Entity Proceeds, and (ii) cause each such Primary Obligor to pay to such
Borrower, upon receipt, each such Dividend received by such Primary Obligor
under clause (i) above by prepaying the applicable Pledged Note or
intercompany receivable and, if no amount then remains outstanding thereunder,
by distributing any remaining portion of such distribution as a Dividend (in
accordance with Section 8.11) to such Borrower.

 

(b)           Each Borrower shall cause each amount required to be
distributed or paid to such Borrower or any Primary Obligor pursuant to this Section 8.22
to be distributed or paid to such Borrower or such Primary Obligor by deposit
or wire transfer directly to the Cash Flow Cash Collateral Account.

 

8.23        Capital Expenditures.  Neither Borrower will make any Capital
Expenditures and neither Borrower will permit any of its Subsidiaries to make
any Capital Expenditures without the prior written consent of the Lenders,
except that Borrowers and their Subsidiaries may make Capital Expenditures in
an aggregate amount (excluding the capitalization of insurance premiums) not in
excess of $2,000,000, net of any reimbursement for Capital Expenditures made to
Regional Rail, LLC, East Penn Railroad LLC or Middletown & New Jersey
Railroad, LLC and other Persons owned by the Crestone Portfolio Entities during
each fiscal year.

 

8.24        Servicing.

 

(a)           Each Borrower shall ensure that FC Servicing or Minn
Servicing is the servicer for each Subsidiary and Portfolio Entity-50% which is
a US Person, except as to (a) ABL, which will service all loans originated
or acquired by ABL, (b) each Crestone Portfolio Entity, whose assets will
be serviced by FirstCity Crestone LLC, and (c) each Person owned by the
Crestone Portfolio Entities.

 

(b)           Each Borrower shall (i) cause FC Servicing to
deposit all fee income and all other funds received by it not constituting Servicing
Restricted Funds to the Cash Collateral Account-Servicing upon receipt of each
such amount and (ii) cause Minn Servicing to distribute to FC Servicing
all fee income and all other funds received by it not constituting Servicing
Restricted Funds by wiring all such amounts directly to the Cash Collateral
Account-Servicing upon receipt of each such amount.

 

35

 

8.25        Portfolio Entity Ownership.  In furtherance and not in limitation of Section 8.8(a),
each Borrower shall ensure (x) that there is no change in the percentage
of Equity Interests issued by any Portfolio Entity and owned by any Subsidiary
from that reflected on Schedule 10.5(b); provided that Equity Interests
in a Portfolio Entity may be sold for a fair market price, the proceeds of
which are distributed pursuant to Section 5.3.

 

8.26        Activities of Portfolio Entity.  In furtherance and not in limitation of the
other restrictions set forth in this Agreement, each Borrower shall ensure that
no Subsidiary which is a Portfolio Entity and no Portfolio Entity-50% engages
in any activity other than owning Asset Pools and shall have no Assets other
than such Asset Pools, collections thereon and interests in REO Affiliates of
which it is the REO Owner, or the ownership of Incidental Equity Interests, provided,
that (i) a Subsidiary or a Portfolio Entity-50% doing business outside the
United States may own the type of assets an REO Affiliate would own (if it had
an REO Affiliate of which it were the REO Owner); (ii) each REO Affiliate
shall be formed in respect of a specific REO Owner and shall not hold assets
other than from such REO Owner; (iii) ABL may originate and service SBA
Loans in accordance with the SBA Rules and Regulations; and (iv) Crestone
Portfolio Entities and Person owned by Crestone Portfolio Entities may continue
to engage in the activities in which they are presently engaging.

 

Section 9.                                           EVENTS OF
DEFAULT.

 

Upon
the occurrence of any of the following specified events (each an “Event of
Default”):

 

9.1          Principal and Interest.  Borrowers shall fail to make due and punctual
payment of any principal, interest or other amount due hereunder or under any
Note or any other Loan Document; provided, that the failure to make any
interest payment when due shall not constitute an Event of Default if such
interest payment is made within three (3) days of the date when due and a
Borrower has not been late in making any other interest payment on any Note
more than once in the preceding twelve (12) months; or

 

9.2          Representations and Warranties.  Any representation, warranty, statement,
report or certificate made or delivered by a Borrower or any other Loan Party
or any officer, director, manager or authorized employee or agent thereof
herein or in any other Loan Document or otherwise in writing by such Person in
connection with any of the foregoing or in any certificate, report or other
statement furnished pursuant to or in connection with any of the foregoing,
shall be breached or shall prove to be untrue in any material respect; or

 

9.3          Negative and Certain Other Covenants.  A Borrower shall fail to perform or observe,
or shall fail to cause (or as to a Portfolio Entity-50% use its commercially
reasonable efforts to cause) any Subsidiary, Portfolio Entity-50% or any other
Loan Party or other Person covered thereby to perform or observe, any term,
covenant or agreement to be performed or observed by a Borrower or such
Subsidiary, Portfolio Entity-50%, Loan Party or other Person, as the case may
be, pursuant to Section 7.11 or Section 8; or

 

9.4          Other Covenants.  A Borrower shall fail to perform or observe,
or shall fail to cause Subsidiary, Portfolio Entity, other Loan Party or other
Person covered thereby to perform 

 

36

 

or observe, any term, covenant or agreement to be
performed or observed by a Borrower or such Subsidiary, Portfolio Entity, other
Loan Party or other Person, as the case may be, pursuant to any of the
provisions of this Agreement, including, without limitation, Section 2.3
(other than those referred to in Sections 9.1, 9.2 or 9.3) or any other Loan
Document and such default (which shall be capable of cure) shall continue
unremedied for a period of thirty (30) days, after the earlier of the date on
which (x) Agent or any Lender gives each Borrower notice thereof, or (y) a
Borrower obtains knowledge of such default; or

 

9.5          Other Indebtedness of Borrower.  Any Applicable Indebtedness of a Borrower (i) shall
be declared to be or shall become due and payable prior to the stated maturity
thereof or (ii) shall not be paid as and when the same becomes due and
payable; or any other event of default shall occur and be continuing under any
other Indebtedness Instrument (other than a Loan Document) relating to any
Indebtedness of a Borrower in excess of $15,000,000 and, if a cure period is
applicable thereto, such default shall not be cured within fifteen (15) days
after the occurrence thereof; or

 

9.6          Other Indebtedness of other Loan Parties.

 

Any
Applicable Indebtedness of any Primary Obligor or other Loan Party (i) shall
be declared to be or shall become due and payable prior to the stated maturity
thereof or (ii) shall not be paid as and when the same becomes due and
payable; or any other event of default shall occur and be continuing under any
other Indebtedness Instrument (other than a Loan Document) relating to any
Indebtedness of such Person in excess of $15,000,000 and, if a cure period is
applicable thereto, such default shall not be cured within fifteen (15) days
after the occurrence thereof; or

 

9.7          Guaranty.  The breach by FCFC or any Guarantor of any
term or provision of, or the occurrence of any default under, any Guaranty or
other agreement, instrument or document delivered in connection therewith to which
FCFC or such guarantor is a party, which breach or default is in the opinion of
Agent, material, or any other such breach or default (other than such a
material breach or default) occurs and is not cured within the time, if any,
specified therefor therein or fifteen (15) days thereafter, if no such time is
specified or such time is less than fifteen (15) days; or if any such Guaranty
is at any time not in full force and effect; or if FCFC or any Guarantor shall
assert that it is not liable with respect to any Guaranty to which it is a
party;

 

9.8          Insolvency.  (i) A Borrower, any Primary Obligor or
any other Loan Party (Borrower and each of the other foregoing Persons being a “Section 9.8
Entity”) shall make an assignment for the benefit of creditors or a
composition with creditors; or (ii) any Section 9.8 Entity shall
admit in writing its inability to pay its debts as they mature, shall file a
petition in bankruptcy, shall be adjudicated insolvent or bankrupt, shall
petition or apply to any tribunal for the appointment of any receiver,
liquidator, trustee or custodian of or for it or any of its Assets; or
(iii) any application is made by any other Person for the appointment of
any receiver, liquidator, trustee or custodian for any Section 9.8 Entity
or for any of the Assets of any Section 9.8 Entity; or (iv) any Section 9.8
Entity shall commence any proceedings relating to it under any bankruptcy,
reorganization, arrangement, readjustment of debt, receivership, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (v) there shall be commenced against any Section 9.8
Entity any such proceeding which shall remain 

 

37

 

undismissed for a period of sixty (60) days or more,
or any order, judgment or decree approving the petition in any such proceeding
shall be entered; or (vi) any Section 9.8 Entity shall by any act or
failure to act indicate its consent to, approval of or acquiescence in, any
such proceeding or in the appointment of any receiver, liquidator, trustee or
custodian (other than a custodian under Non-Default Voluntary Custodial
Arrangements) of or for it or any of its Assets, or shall suffer any such
appointment to exist; or (vii) any Section 9.8 Entity shall take any
action for the purpose of effecting any of the foregoing; or any court of
competent jurisdiction shall assume jurisdiction with respect to any such
proceeding or a receiver or trustee or other officer or representative of a
court or of creditors, or any court, governmental officer or agency, shall
under color of legal authority, take and hold possession of any substantial
part of the property or Assets of any Section 9.8 Entity; or
(viii) any Section 9.8 Entity shall become insolvent (howsoever such
insolvency may be evidenced) or shall be unable to pay its debts as they mature
(except that the occurrence of any condition set forth in this clause (viii) with
respect to FC Mexico, so long as FC Mexico is paying its debts as they mature,
shall not constitute an Event of Default under this Section 9.8 unless the
occurrence of any such condition with respect to FC Mexico is an Event of
Default under any other clause of this Section 9.8); or

 

9.9          Security Documents.  The breach by a Borrower or any other Loan
Party of any term or provision of, or the occurrence of any default under, any
Security Document or other Loan Document (other than this Agreement) or other
agreement, instrument or document delivered in connection therewith to which
such Person is a party, which breach or default is in the opinion of Agent,
material, or any other such breach or default (other than such a material
breach or default) occurs and is not cured within the time, if any, specified
therefor therein or fifteen days thereafter, if no such time is specified or
such time is less than fifteen (15) days; or if any such Security Document or
Loan Document is at any time not in full force and effect; or any of the
Security Documents shall fail to grant to Agent on behalf of Lenders the Liens
(if any) intended to be created thereby; or if any Loan Party shall assert that
it is not liable with respect to any Security Document to which it is a party;
or FCFC or any Primary Obligor shall assert that it is not liable as a
guarantor under the Guaranty to which it is party; or

 

9.10        Notice of Charge.  Except as expressly permitted pursuant to Section 7.3,
if a notice of any Charge is filed of record with respect to all or any of the
Assets of a Borrower, any Primary Obligor, any Material Portfolio Entity or any
Wholly-Owned Subsidiary (other than any 
REO Affiliate); or

 

9.11        Judgments.

 

(a)           Any final non-appealable judgment for the payment of
money in excess of $1,000,000 (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 a Borrower or any Primary Obligor
and the same shall remain in effect for a period of ten (10) days after
entry of such judgment; or

 

(b)           Final judgment for the payment of money in excess of
$1,000,000 shall be rendered against a Borrower or any Primary 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; or

 

38

 

(c)           If for the purpose of obtaining judgment in any
court it is necessary to convert a sum due from a Borrower in the currency
expressed to be payable herein (the “specified currency”) into another
currency, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures Agent could purchase the specified
currency with other such currency at Agent’s New York branch on the Business
Day that is on or immediately following the day on which final judgment is
entered.  The obligations of a Borrower
in respect of any sum due to any Lender or Agent hereunder shall,
notwithstanding any judgment in a currency other than the specified currency,
be discharged only to the extent that on the Business Day following receipt by
such Lender or Agent, as the case may be, of any sum adjudged to be so due in
such other currency such Lender or Agent as the case may be, may in accordance
with normal banking procedures purchase the specified currency with such other
currency.  If the amount of the specified
currency so purchased is less than the sum originally due to such Lender or
Agent, as the case may be, in the specified currency, each Borrower agrees, to
the fullest extent it may effectively do so, as a separate obligation and
notwithstanding any such judgment, to indemnify such Lender or Agent, as the
case may be, against such loss, and if the amount of the specified currency so
purchased exceeds the sum originally due to any Lender or Agent, as the case
may be, in the specified currency, such Lender or Agent, as the case may be,
agrees to remit such excess to the appropriate Borrower.

 

9.12        Stock Issuance or Transfer.  Except as expressly permitted pursuant to the
terms hereof, if any Subsidiary or Portfolio Entity-50% issues to (except upon
formation of a Person permitted by this Agreement) or transfers to any Person
any Stock or other Equity Interests; or

 

9.13        ERISA.  Any ERISA Affiliate of a Borrower or of any
other Applicable Person under Section 8.21 which is not a Subsidiary of a
Borrower or such Applicable Person shall fail in the performance or observance
of any term, provision or agreement with respect to a Plan or Multiemployer
Plan set forth in Section 8.21 as if such ERISA Affiliate were a
Subsidiary of a Borrower or an Applicable Person; or

 

9.14        Material Effect Defaults.  To the extent that the same does not constitute
an Event of Default under any other provision of this Section 9, a default
by a Borrower or any Primary 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 a Borrower or any Primary Obligor is a
party and the effect of such default could reasonably be expected to have a
Material Adverse Effect; or

 

9.15        Change in Control.  A Change in Control shall occur (for purposes
hereof, a “Change in Control” shall mean the occurrence of any of the
following events after the date hereof:  (i) any
“person” or “group” (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly, or
indirectly, of more than fifty percent (50%) of the aggregate voting power of
all classes of Capital Stock of a Borrower or of FCFC entitled to vote generally
in an election of directors; (ii) a Borrower or FCFC is merged with or
into another corporation or another corporation is merged with or into a
Borrower or FCFC with the effect that immediately after such transaction the
stockholders of such Borrower or FCFC, as the case may be, immediately prior to
such 

 

39

 

transaction hold less than a majority in interest of
the total voting power entitled to vote in the election of directors, managers
or trustees of the entity surviving the transaction; or (iii) to the
extent not otherwise then constituting an Event of Default, all or
substantially all of the Assets of a Borrower, FCFC or another Primary Obligor
are sold to any person or persons (as an entirety in one transaction or a
series of related transactions).  For
purposes of this Section 9.15, “Capital Stock” of any Person
means any and all shares, interests, participations or other equivalents in the
equity (however designated) of such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
an equity interest in such Person); or

 

9.16        Management.  If, without the prior written consent of
Lenders, a Key Employee ceases to be employed full-time with FC Servicing, a
Borrower or FC, such occurrence shall be an Event of Default unless FC
Servicing, such Borrower or FC, as the case may be, employs a replacement
officer having the duties of such Key Employee acceptable to Lenders in their
reasonable discretion within sixty (60) days after such Key Employee ceases to
be employed; or

 

9.17        Court Orders.  To the extent not otherwise constituting an
Event of Default, if a Borrower, any Primary Obligor or any other Loan Party is
enjoined, restrained or in any way prevented by court order from conducting all
or any material part of its business or affairs and such Person consents (by
action, inaction or otherwise) to such order or such order remains in effect
for a period of thirty (30) days; or

 

9.18        Dissolution.  If a Borrower, any Primary Obligor or any
other Loan Party shall dissolve, fully liquidate or suspend or discontinue its
business; then, and in any such event, and at any time thereafter, if any Event
of Default shall then be continuing, Agent may (and shall, if instructed in
writing by the Majority Lenders) by written notice to each Borrower declare the
principal of and accrued interest on the Loans of each Borrower to be,
whereupon the same shall forthwith become, due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower; provided that if any Event of Default described in Section 9.8
shall occur with respect to a Borrower, the result which would otherwise occur
only upon the giving of written notice by Agent to each Borrower as herein
described shall occur automatically, without the giving of any such notice;
further provided that notwithstanding the foregoing, Agent and Lenders
acknowledge that it is contemplated that the Borrowers, Primary Obligors and
Portfolio Entities will be liquidating their assets and that any Primary
Obligor or Portfolio Entity may be dissolved or merged into another Primary
Obligor or Portfolio Entity upon the liquidation of all assets of any such
Person that can reasonably be expected to be collected or sold.

 

Section 10.                                    GENERAL
REPRESENTATIONS AND WARRANTIES AND RELATED COVENANTS.

 

In
order to induce Lenders to enter into this Agreement, to maintain the Loans and
to maintain the Letters of Credit, provided for herein, each Loan Party party
hereto makes the following representations, covenants and warranties, both as
of the Execution Date and (after giving effect to the transactions contemplated
hereby to occur on the Effective Date) as of the Effective Date (unless
otherwise specified), which representations, covenants and warranties 

 

40

 

shall
survive the execution and delivery of this Agreement and the other documents
and instruments referred to herein:

 

10.1        Organization.

 

(a)           Each Borrower, Primary Obligor, and FLBG is and at
all times hereafter shall be a corporation or limited liability company, as the
case may be, duly organized and validly existing and in good standing under the
laws of its jurisdiction or organization and qualified or licensed to do
business and in good standing in all states in which the laws thereof require
such Borrower to be so qualified and/or licensed and in which the failure to so
qualify could have a Material Adverse Effect, including, without limitation,
the State of Texas.  Schedule  10.1(a) identifies
each jurisdiction in which a Borrower has qualified or been licensed to do
business and describes the nature and current status of any such qualification
or license.

 

(b)           Each Primary Obligor and each Portfolio Entity and
each other Loan Party is a corporation or limited liability company or a
limited partnership, duly organized and validly existing and in good standing
under the laws of the state or foreign jurisdiction of its organization.

 

(c)           Each Primary Obligor and other Loan Party is and at
all times hereafter shall be qualified or licensed to do business and in good
standing in all states in which the laws thereof require such Primary Obligor
and such other Loan Party to be so qualified and/or licensed.

 

(d)           Each Portfolio Entity is and at all times hereafter
shall be qualified or licensed to do business and in good standing in all
states in which the laws thereof require such Portfolio Entity to be so
qualified and/or licensed and in which the failure to so qualify could have a
Material Adverse Effect.  Schedule
10.1(d) identifies each jurisdiction in which each Primary Obligor,
Portfolio Entity, Related Entity and each other Loan Party has qualified or
been licensed to do business and describes the nature and current status of any
such qualification or license.

 

(e)           Schedule 10.1(e) lists all Shareholder
Agreements to which a Borrower, any Subsidiary, any Portfolio Entity-50% or any
other holder of any Equity Interest in a Pledged Entity is a party.

 

10.2        Entity Power.

 

(a)           Each Borrower has the right, power and capacity and
is duly authorized and empowered to enter into, execute, deliver and perform
this Agreement and the other Loan Documents to which it is a party.

 

(b)           Each Primary Obligor and each other Loan Party has
the right, power and capacity and is duly authorized and empowered to enter
into, execute, deliver and perform those Loan Documents  to which it is a party.

 

41

 

10.3        Violation of Charter Documents.

 

(a)           The execution, delivery and/or performance by each
Borrower of this Agreement and the other Loan Documents to which it is a party
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate and shareholder action and none of such
execution, delivery, performance or consummation shall, by the lapse of time,
the giving of notice or otherwise, constitute a violation of any Legal
Requirement or a breach of any provision contained in the Charter Documents of
a Borrower, or contained in any agreement, instrument or document to which a
Borrower is now or hereafter a party or by which it or any of its Assets is or
may become bound, other than agreements, instruments or documents that are
immaterial to a Borrower and the breach of which could not have a Material
Adverse Effect.

 

(b)           The execution, delivery and/or performance by each
Primary Obligor and other Loan Party of each Loan Document to which it is a
party and the consummation of each such Person of the transactions contemplated
hereby have been duly authorized by all necessary corporate, partnership or
limited liability company action (as the case may be) and other action by the
holders of the Equity Interests thereof and none of such execution, delivery,
performance or consummation shall, by the lapse of time, the giving of notice
or otherwise, constitute a violation of any Legal Requirement or a breach of
any provision contained in the Charter Documents of such Primary Obligor or
such other Loan Party, or contained in any agreement, instrument or document to
which such Primary Obligor or such other Loan Party is now or hereafter a party
or by which it or any of its Assets is or may become bound, other than agreements,
instruments or documents that are immaterial to such Primary Obligor and other
Loan Party and the breach of which could not have a Material Adverse Effect.

 

10.4        Enforceability.

 

(a)           This Agreement and the other Loan Documents to which
a Borrower is a party are and will be the legal, valid and binding agreements
of each Borrower, enforceable in accordance with their respective terms, except
as enforcement thereof may be subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’
rights generally, and to general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or at law); and

 

(b)           Those other Loan Documents to which each other Loan
Party is a party are and will be the legal, valid and binding agreements of
such Loan Party, enforceable in accordance with their respective terms, except
as enforcement thereof may be subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors’
rights generally, and to general principles of equity (regardless of whether
such enforcement is sought in a proceeding in equity or at law).

 

10.5        Ownership.

 

(a)           Schedule 10.5(a) sets forth all classes
of Stock of each Borrower, as of December 31, 2009, the shareholders
thereof (other than members of the general public), addresses of each
shareholder, and number of shares owned by each Shareholder as of such date;

 

42

 

(b)           Schedule 10.5(b) sets forth all classes
of Stock and/or other Equity Interests (other than options, warrants and rights
to acquire Stock or other Equity Interests) issued by each Primary Obligor,
each Portfolio Entity and each Related Entity, the shareholders and other
equity holders thereof, and the addresses, number of shares and/or partnership
interests owned by each Shareholder or equity holder.

 

(c)           Schedule  10.5(c) sets
forth all options, warrants and other rights to acquire Stock or other Equity
Interests of each Borrower, any Primary Obligor, any Portfolio Entity, any
Related Entity and any other Pledged Entity, the nature of such option, warrant
or right and the conditions for the exercise thereof.  Lenders hereby expressly consent to the transfer,
issuance or conveyance of Stock and/or other Equity Interests of each Borrower
in accordance with such options, warrants and rights; provided that the
same does not result in a Change of Control.

 

(d)           All Equity Interests of each Borrower, each Primary
Obligor, each Portfolio Entity, each Related Entity and each other Loan Party
have been duly and validly issued, are fully paid and are non-assessable.

 

10.6        Fictitious Names.

 

(a)           Each of the fictitious names, if any, used by a
Borrower during the five (5) year period preceding the Execution Date is
set forth on Schedule 10.6 attached hereto (as amended from time to
time) and none of such fictitious names are registered trademarks or tradenames
with the U.S. Patent and Trademark Office, except as set forth in Schedule
10.6;

 

(b)           Each of the fictitious names, if any, used by each
Primary Obligor, Material Portfolio Entity and any other Loan Party, during the
five (5) year period preceding the Execution Date is set forth on Schedule
10.6 attached hereto (as amended from time to time), and none of such
fictitious names are registered trademarks or trade names with the U.S. Patent
and Trademark Office; provided that, variations on the corporate name of
any Primary Obligor, Portfolio Entity or any other Loan Party in states where
used solely for qualifying to do business therein shall and have been excluded
from such schedule, with Lender’s consent and approval.

 

10.7        Title.

 

(a)           Schedule 10.7 is a true, accurate and
complete list of all Liens relating to the Collateral on the Execution Date and
Effective Date.

 

(b)           Each of First X and First B shall at all times own
fee title to its respective holdings of real estate subject to no liens other
than the Permitted Liens.

 

(c)           Each Borrower, each Primary Obligor, Portfolio
Entity and other Loan Party shall at all times have indefeasible and
merchantable title to and ownership of all of its Assets except to the extent
the failure to do so could not reasonably be expected to have a Material
Adverse Effect.

 

10.8        Financial Warranty.  Except as set forth on Schedule 10.8,
each Borrower (a) is paying its debts as they mature, (b) owns
property which, at a fair valuation, is greater than the 

 

43

 

sum of its debt, and (c) has capital sufficient
to carry on its business and transactions and all businesses and transactions
in which it is about to engage. Except as set forth on Schedule 10.8,
each Primary Obligor and each Material Portfolio Entity: (i) is paying its
respective debts as they mature, (ii) owns property which, at a fair
valuation, is greater than the sum of its debt and (iii) has capital
sufficient to carry on its business and transactions and all businesses and
transactions in which it is about to engage.

 

10.9        Proceedings.  Except as set forth on Schedule 10.9,
there are no actions or proceedings which are pending or threatened against a
Borrower, any Primary Obligor, any Material Portfolio Entity or any other Loan
Party which could reasonably be expected to have a Material Adverse
Effect.  None of the actions or
proceedings referred to on Schedule 10.9 could have a Material Adverse
Effect.

 

10.10      Government Contracts.  Except as set forth on Schedule 10.10,
neither Borrower, nor any Primary Obligor, Material Portfolio Entity or other
Loan Party is a party to any government contracts.

 

10.11      Adequate Licenses.  Each Borrower, and each Primary Obligor,
Portfolio Entity and other Loan Party possesses adequate Assets, licenses,
patents, copyrights, trademarks and trade names to continue to conduct its
business as previously conducted by it and as contemplated in the foreseeable
future except such licenses, patents, copyrights, trademarks and trade names
the failure of which to obtain could not be reasonably expected to have a
Material Adverse Effect.

 

10.12      Government Permits; 
Approvals and Consents.

 

(a)           Except for matters which could not result in a
Material Adverse Effect, each Borrower and each Primary Obligor, each Portfolio
Entity  and each other Loan Party has been
and is in good standing with respect to and has obtained all governmental
permits, certificates, consents and franchises necessary to continue to conduct
its business as previously conducted prior to the date hereof and prior to the
Execution Date and to own or lease and operate its properties as now owned or
leased by it.  None of said permits,
certificates, consents or franchises contain any term, provision, condition or
limitation more burdensome than such as are generally applicable to Persons
engaged in the same or similar business as the applicable Person.

 

(b)           Except for those consents and other items set forth
on Schedule 10.12, neither Borrower, nor any Primary Obligor, Material
Portfolio Entity or other Loan Party requires 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 to shareholders, partners, members, equity owners,
holders of Indebtedness Instruments, or any owner of any lien upon the Assets
of any one or more of them or their Affiliates) for the execution and delivery
of, and the consummation of the transactions contemplated by, this Agreement
and the other Loan Documents, including but not limited to the borrowing of any
Loans, the pledge of the Collateral, and the payment and performance of all
Obligations.  Each Borrower and each
other Primary Obligor, Material Portfolio Entity and other Loan Party have
received the consents and other items described on Schedule 10.12 and
has 

 

44

 

delivered a copy thereof to Agent, which consents
are in full force and effect, unmodified and unamended on the date hereof and
on the Execution Date.

 

10.13      Charge; Restrictions.

 

(a)           On the Execution Date and on the Effective Date,
neither Borrower, nor any Primary Obligor nor any Portfolio Entity or any other
Loan Party is a party to (nor are any of such Person’s Assets otherwise subject
to) any contract or agreement or restriction, judgment, decree or order that
could have a Material Adverse Effect.

 

(b)           On the Execution Date and on the Effective Date,
none of either Borrower, nor any Primary Obligor, Material Portfolio Entity, or
any other Loan Party is subject to (nor are any such Person’s Assets otherwise
subject to) any Charge (other than Charges owed by First B or First X).

 

10.14      Compliance with Laws.  Except for matters which could not result in
a Material Adverse Effect, neither Borrower, nor any Primary Obligor nor any
Portfolio Entity  nor any other Loan
Party is in violation of any applicable statute, regulation, order or ordinance
of the United States of America, of any state, city, town, municipality, county
or of any other jurisdiction, or of any agency thereof, including the Federal
Reserve Board, in any respect.

 

10.15      Compliance with Indebtedness Instruments.  Other than those defaults set forth on Schedule
10.15, neither Borrower is in default under any Indebtedness Instrument or
any other material agreement to which it is a party.  Other than those defaults set forth on Schedule
10.15, no Primary Obligor, Material Portfolio Entity, or any other Loan
Party is in default under any Indebtedness Instrument.

 

10.16      Financials.  The Financial Statements delivered by each
Borrower, any Primary Obligor, Material Portfolio Entity or any other Loan
Party to Agent, fairly and accurately present the Assets, liabilities and
financial conditions and results of operations of such Borrower, and such other
Persons described therein as of and for the periods ending on such dates and
have been prepared in accordance with GAAP applied on a basis consistently
followed in all material respects throughout the periods involved.

 

10.17      Tax Returns.  Each Borrower and each other member of the
Consolidated Group has filed or caused to be filed all tax returns which are
required to be filed, and has paid all Charges shown to be due and payable on
said returns or on any assessments made against it or any of its property, and
all other Charges imposed on it or any of its properties by any Governmental
Authority, except for Charges arising at any time after the Effective Date,
which a Borrower is disputing in accordance with the final sentence of Section 7.3.

 

10.18      No Material Adverse Change.  Except as set forth in Schedule 10.18,
since December 31, 2009, no event or circumstance has occurred that had,
has or could reasonably be expected to have a Material Adverse Effect.

 

10.19      No Indebtedness.  None of either Borrower, any Primary Obligor,
Portfolio Entity, Wholly-Owned Subsidiary or other Loan Party (i) has any
Indebtedness except for Indebtedness described in Schedule 10.19, Schedule
10.20 and Schedule 8.12(a) and except for 

 

45

 

Indebtedness permitted by this Agreement which
(other than in the case of MCS, any Latin American Acquisition Entity  or any European Acquisition Entity ) is
reflected in the most recent Financial Statements delivered pursuant to 7.1(a) or
(b) (except for any such Indebtedness permitted by this Agreement (x) incurred
since such most recent Financial Statements were delivered, or (y) constituting
unsecured trade payables arising in the ordinary course of business since the
dates reflected in the December 31, 2009 Financial Statements that is not
Indebtedness for borrowed money or Indebtedness of any REO Affiliate to its REO
Parent evidenced by a note payable to such REO Parent and in each case, only to
the extent, if any, not required by GAAP to be reflected in Financial
Statements) or (ii) has guaranteed any indebtedness or entered into or
issued any Guaranty Equivalent (other than as a result of the endorsement of
any instrument of items of payment for deposit or collection in the ordinary
course of business or as otherwise expressly permitted pursuant to the terms
hereof) in respect of the obligations of any Person.

 

10.20      Affiliate Notes.  Attached hereto as Schedule 10.20 is a
true, accurate and complete schedule of all promissory notes made by any Affiliate
payable to the order of a Borrower, a Wholly-Owned Subsidiary, a Portfolio
Entity or a Related Entity, other than the Pledged Notes and the Excluded
Notes.

 

10.21      No Liability on Lenders or Agent.  None of the execution, delivery and
performance by a Borrower or any other Loan Party of this Agreement and/or the
other Loan Documents will impose on or subject any of the Lenders or the Agent
to any liability, whether fixed or contingent, in respect of any Environmental
Law, whether relating to the operation of a Borrower’s business or
otherwise.  None of the Lenders’ or the
Agent’s exercise of any of the rights or remedies described in this Agreement
or in any of the other Loan Documents shall constitute a breach of any
provision contained in any agreement, instrument or document concerning the
assignment or license of, or the payment of royalties for, any patents, patent
rights, trade names, trademarks, trade secrets, know-how, copyrights or any
other form of intellectual property now or at any time or times hereafter
protected as such by any applicable law.

 

10.22      Affiliates.  Schedule 10.22 attached hereto is a
true, accurate and complete schedule of each Borrower’s Affiliates as of the
Effective Date, together with a description of such Borrower’s relationship to
each such Affiliate.

 

10.23      Real Property; Environmental Issues.  Except as set forth on Schedule 10.23,
neither Borrower, any Loan Party, any Primary Obligor, any Portfolio Entity or
any Related Entity other than First X, First B, FCS Creamer, Ltd., FCS
Wood Ltd., and FCS Wildhorse Ltd., FCS Lancaster Ltd., the Crestone Portfolio
Entities and Persons owned by the Crestone Portfolio Entities, Brazos River
Partnership One, L.P., any REO Affiliate, any Latin American Acquisition Entity
or European Acquisition Entity now owns or, in the case of US Persons, leases
or at any time in the five (5) years preceding the Execution Date has
owned or leased any real property. 
Neither Borrower, any Primary Obligor, any Portfolio Entity, any Related
Entity, any Immaterial Entity, or any other Loan Party has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other Governmental Authority concerning any action or omission resulting in the
releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment with respect to any real property.

 

46

 

10.24      Investment Company Act and Public Utility Holding
Company Act.  Neither
Borrower nor any Primary Obligor nor any other Loan Party or the entering into
of any Loan Documents, nor the issuance of the Notes is subject to any of the
provisions of the Investment Company Act of 1940, as amended.  Neither Borrower, nor any Primary Obligor or
any other Loan Party is a “holding company” as defined in the Public Utility
Holding Company Act of 1935, as amended, or subject to any other federal or
state statute or regulation limiting its ability to incur Indebtedness for
money borrowed.

 

10.25      Disclosure.  Neither this Agreement nor any other Loan
Document nor any statement, list, certificate or other document or information,
nor any schedules to this Agreement or any other Loan Document, delivered or to
be delivered to Lenders or Agent, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make statements contained herein or therein, in light of the circumstances in
which they are made, not misleading. 
Copies of all documents delivered to Lenders and/or Agent pursuant to
this Section 10 or any other provision of this Agreement are true, correct
and complete copies thereof and include all amendments, restatements,
supplements and other modifications thereto and thereof.

 

10.26      Qualification.

 

(a)           Solely by reason of (and without regard to any other
activities of Lenders and/or Agent in any state in which Assets of the a
Borrower, any Primary Obligor, any Portfolio Entity, any Related Entity or
other Loan Party are located) the entering into and performance of this
Agreement, the Notes, the other Loan Documents and the documents, instruments
and agreements delivered in connection therewith by Lenders and/or Agent will
not constitute doing business by Lenders and/or Agent in any of such states or
result in any liability of Lenders and/or Agent for taxes or other governmental
charges; and qualification by Lenders and/or Agent to do business in such
jurisdiction is not necessary in connection with, and the failure to so qualify
will not affect, the enforcement of, or exercise of any rights or remedies
under, any of such documents.

 

(b)           No “business activity,” “doing business” or similar
report or notice is required to be filed by the Lenders and/or Agent in any
such jurisdiction in connection with the Loans or the transactions contemplated
by this Agreement or any other Loan Document, and the failure to file any such
report or notice will not affect the enforcement of, or the exercise of any
rights or remedies under, this Agreement or any of the other Loan Documents.

 

(c)           SEC Filings.  The Borrowers have filed and made available
to the Agent and Lenders each form, registration statement, schedule, report,
proxy statement and document required to be filed by FCFC with the SEC since
January 1, 2006 (collectively, the “SEC Reports”).  Except
as set forth on Schedule 10.26, the SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of
the Securities Laws and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated in the SEC Reports or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. 
FCFC is the only Loan Party required to file pursuant to the Exchange
Act.  Since 

 

47

 

January 1, 2006, FCFC has made all filings with
the SEC in a timely manner (except as set forth on Schedule 10.26, each
of which filing deficiencies was subsequently cured in a manner that brought
FCFC into full compliance with law) as required by law and no event has occurred
that requires an additional filing or any amendment to a prior filing, which
has not been made or filed.

 

10.27      Federal Reserve Margin Regulations; Use of Proceeds

 

(a)           Neither Borrower, any Primary Obligor, any Portfolio
Entity, any Related Entity or any other Loan Party or member of the
Consolidated Group or Subsidiary of any of the foregoing is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System).  No part of the proceeds of any
Loan will be used to purchase or carry any such margin stock or to extend
credit to others for the purpose of purchasing or carrying any such margin
stock.

 

(b)           Neither the Loans nor the use of proceeds therefrom
will result in a violation of any of the foreign assets control regulations of
the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended), or any ruling issued thereunder or any enabling legislation or
Presidential Executive Order in connection therewith.

 

10.28      Intellectual Property.  All patents, trademarks, registered
copyrights and trade names of a Borrower, each Primary Obligor, each Material
Portfolio Entity and each other Loan Party are listed in Schedule 10.28
to this Agreement; all of those so listed are in full force and effect.  If any member of the Consolidated Group at
any time acquires, establishes, invents or develops any patent, trademark, copyright
or trade name that is or becomes material to such Person’s business or
operations, it will promptly notify Agent of same and take such action as Agent
shall request to grant to Collateral Agent or Agent on behalf of Lenders a
perfected, first priority security interest in same.

 

10.29      Compliance with ERISA.  No Loan Party or Subsidiary, other than FC
Servicing or a Borrower and Subsidiaries that are not Portfolio Entities has or
shall at any time have any employees.  Schedule
10.29 describes the Pension Plans to which Borrower or any ERISA Affiliates
may have obligations.  Each Loan Party
and each ERISA Affiliate and each Plan and the trusts maintained pursuant to
such plans are in compliance in all material respects with the presently
applicable provisions of Sections 401 through and including 417 of the Code and
of ERISA and (i) no event which constitutes a Reportable Event as defined
in Section 4043 of ERISA has occurred and is continuing with respect to
any Plan which is or was covered by Title IV of ERISA, (ii) no Plan which
is subject to Part 3 of Subtitle B of Title 1 of ERISA has incurred any “accumulated
funding deficiency” (within the meaning of Section 302 of ERISA or Section 412
of the Code) whether or not waived, and (iii) no written notice of
liability has been received with respect to any Loan Party or any Subsidiary
for any “prohibited transaction” (within the meaning of Section 4975 of
the Code or Section 406 of ERISA), nor has any such prohibited transaction
resulting in liability to any Loan Party or ERISA Affiliate occurred.

 

Neither
any Loan Party nor any ERISA Affiliate (i) has incurred any liability to
the PBGC (or any successor thereto under ERISA), or to any trustee of a trust
established under

 

48

 

Section 4049
of ERISA, in connection with any Plan (other than liability for premiums under Section 4007
or ERISA), (ii) has incurred any withdrawal liability under Subtitle E of
Title IV of ERISA in connection with any Plan which is a Multiemployer Plan,
nor (iii) has contributed or has been obligated to contribute on or after September 26,
1980, to any “multiemployer plan” (within the meaning of Section 3(37) of
ERISA) which is subject to Title IV of ERISA.

 

The
consummation of the transactions contemplated by this Agreement (i) will
not give rise to any liability on behalf of any Loan Party or any ERISA
Affiliate under Title IV of ERISA to the PBGC (other than ordinary and usual
PBGC premium liability), to the trustee of a trust established pursuant to Section 4049
of ERISA, or to any Multiemployer Plan, and (ii) will not constitute a “prohibited
transaction” under Section 406 of ERISA or Section 4975 of the Code.

 

10.30      The Security Documents.

 

(a)           Each Security Document heretofore delivered grants,
and each Security Document hereafter delivered when delivered will grant a Lien
in the properties or rights intended to be covered thereby (the “Collateral”)
which (i) will constitute a valid and enforceable security interest under
the Uniform Commercial Code of the State (x) in which the Collateral is
located and (y) by which any Security Document is governed (as applicable,
the “UCC”), (ii) will be entitled to all of the rights, benefits
and priorities provided by the UCC, and (iii) when such Security Documents
or financing statements with respect thereto are filed and recorded as required
by the UCC, will be superior and prior to the rights of all third Persons now
existing or hereafter arising whether by way of mortgage, pledge, lien, security
interest, encumbrance or otherwise, except for Permitted Liens, and will
provide Agent and Lenders the first priority. 
All such action as is necessary in law has been taken, or prior to the
Effective Date will have been taken, to establish and perfect the security
interest of Agent and Lenders in the Collateral and to entitle Lenders or Agent
on behalf of Lenders to exercise the rights and remedies provided in each of
the Security Documents and the UCC, as applicable, and no filing, recording,
registration or giving of notice or other action is required in connection
therewith except such as has been made or given or will have been made or given
prior to such dates.  All filing and
other fees and all recording or other tax payable with respect to the recording
of any of the Security Documents and UCC financing statements have been paid or
provided for.

 

(b)           In furtherance (and not in limitation) of Section 10.30(a),
after giving effect to the Pledge Agreements and Security Agreements listed on Schedule
10.30(b), each Borrower and each Primary Obligor will have granted
Collateral Agent a Lien of the first priority on (x) each Pledged Note and
on each other note, instrument or other evidence of indebtedness, other than
any Excluded Note, in which it has any right, title or interest; and (y) each
Equity Interest, other than Equity Interests in Excluded Entities, in which it
has any right, title or interest, including, without limitation, each Equity
Interest issued to it by any Portfolio Entity acquiring any Asset Pool.

 

10.31      Other Loan Documents.  All representations and warranties contained
in the other Loan Documents are true and correct.

 

49

 

10.32      Fee Agreements.  Attached hereto as Schedule 10.32
is a true, accurate and complete schedule, as of the Effective Date, of all Fee
Agreements to which a Borrower or any Primary Obligor, or Material Portfolio
Entity is a party.

 

10.33      Securitization Agreements.  Attached hereto as Schedule 10.33 is a
true, accurate and complete schedule as of the Execution Date of all sales and
servicing agreements and similar agreements relating to securitizations to
which a Borrower, any Primary Obligor or any other Subsidiary of a Borrower is
a party.

 

10.34      Immaterial Entities.  Schedule 10.34 lists each Affiliate of
a Borrower that does not engage in any business and that has assets of with a
fair market value of less than $100,000. 
The aggregate fair market value of Assets of all entities listed on Schedule
10.34 does not exceed $1,500,000.

 

10.35      Waterfall Restrictions.  No loan agreement or other borrowing
arrangement of any Portfolio Entity contains any provision (x) pursuant to
which such agreement or arrangement would cross-default to a loan agreement or
other borrowing arrangement of any other Portfolio Entity or to a different
loan agreement or other borrowing arrangement of such Portfolio Entity or (y) which
would in any way restrict, reduce or prohibit distributions by a Portfolio
Entity on account of any event or condition with respect to any Affiliate of
such Portfolio Entity or with respect to that Portfolio Entity under any other
borrowing or credit arrangement.

 

10.36      Wholly Owned Subsidiary Interests.  Attached as Schedule 10.36 hereto is a
true and complete list, as of the Effective Date, of each Wholly-Owned
Subsidiary which owns Equity Interests issued by any other Person other than an
REO Affiliate of such Wholly-Owned Subsidiary,

 

10.37      REO Affiliates.  Attached as Schedule 10.37 hereto is a
true and complete list, as of the Effective Date, of each REO Affiliate.

 

10.38      Material Portfolio Entities.  Attached hereto as Schedule 10.38 is a
true and complete list, as of the Effective Date, of each Material Portfolio
Entity.

 

Section 11.                                    AGENT.

 

11.1        Appointment.  Lenders hereby irrevocably appoint Bank of
Scotland plc, acting through its New York branch, to act as Agent hereunder
Agent (in such capacity, the “Agent”), and as Collateral Agent, subject
to the Collateral Agency Agreement (in such capacity, the “Collateral Agent”),
“Assignee” and “Secured Party” (or in any other similar
representative capacity designated in any Security Document) under the Security
Documents.  Each Lender hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such Note
shall be deemed irrevocably to authorize, Agent to take such action on its
behalf under the provisions of this Agreement, the Notes, the Security
Documents, the other Loan Documents and any other instruments and agreements
referred to therein and to exercise such powers thereunder as are specifically
delegated to or required of it by the terms thereof and such other powers as
are reasonably incidental thereto; provided that Agent shall not take
any action to realize upon any security interest in any of the Collateral, or
release any substantial portion of the Collateral, 

 

50

 

without the consent of the Majority Lenders.  Agent may perform any of its duties under any
of the Loan Documents by or through its agents or employees.

 

11.2        Nature of Duties.  Agent shall have no duties or
responsibilities except those expressly set forth in the Loan Documents.  Neither Agent nor any of its officers,
directors, employees or agents shall be liable to any Lender for any action
taken or omitted by it under any of the Loan Documents, or in connection
therewith unless caused by its or their gross negligence or willful
misconduct.  Nothing in the Loan
Documents, expressed or implied, is intended to or shall be so construed as to
impose upon Agent any obligations in respect of the Loan Documents except as
expressly set forth therein.  The duties
of Agent under the Loan Documents shall be mechanical and administrative in
nature and Agent shall not have by reason of its duties under the Loan
Documents a fiduciary relationship in respect of any Lender.  Agent agrees to deliver promptly to each
Lender (i) copies of notices received by it pursuant to Sections 7.1, 7.2
and 7.11 of this Agreement, and (ii) copies of all documents required to
be delivered hereunder by a Borrower to Lenders directly but that are not so
delivered to any Lender (but were delivered to Agent) if such Lender notifies
Agent that it has not received such document or documents, specifying same.

 

11.3        Lack of Reliance.  Independently and without reliance on Agent,
each Lender to the extent it deems appropriate has made and shall continue to
make (i) its own independent investigation of the financial condition and
affairs of the Loan Parties in connection with the making and the continuance
of the Loans hereunder and the taking or not taking of any action in connection
herewith, (ii) its own appraisal of the creditworthiness of the Loan
Parties and (iii) its own independent investigation and appraisal of the
Collateral; and, except as expressly provided in the Loan Documents, Agent
shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the date hereof or at any
time or times thereafter.  Agent shall
not be responsible to any Lender for any recitals, statements, representations
or warranties herein or in any certificate or other document delivered in
connection herewith or for the authorization, execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, or
sufficiency of any of the Loan Documents, the financial condition of the Loan
Parties or the condition of any of the Collateral, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of any of the Loan Documents, the financial condition
of the Loan Parties or the existence or possible existence of any Event of Default
or Default.

 

11.4        Certain Rights.  If Agent requests instructions from Lenders
or Majority Lenders with respect to any interpretation, act or action
(including failure to act in connection with this Agreement or any of the other
Loan Documents) Agent shall be entitled to refrain from such act or taking such
actions unless and until it shall have received instructions from Lenders or
the Majority Lenders, as the case may be; and Agent shall not incur liability
to any Person by so refraining.  Without
limiting the foregoing, no Lender shall have any right of action whatsoever
against Agent as a result of Agent acting or refraining from acting hereunder
or under any of the other Loan Documents in accordance with the instructions of
the Majority Lenders (as to matters requiring the consent of the Majority
Lenders) or all Lenders (as to matters requiring the consent of all
Lenders).  Agent shall be fully justified
in failing or refusing to take any action under any Loan Document unless, if it
requests, it shall first be indemnified to its satisfaction by Lenders 

 

51

 

against any and all liability and expense which may
be incurred by it by reason of taking, continuing to take or not taking any
such action.

 

11.5        Reliance.  Agent shall be entitled to rely upon any
written notice or any telephone message believed by it to be genuine or correct
and to have been signed, sent or made by the proper Person, and, with respect
to all legal matters pertaining to the Loan Documents and its duties
thereunder, upon advice of counsel selected by it.

 

11.6        Indemnification.  To
the extent Agent is not reimbursed or indemnified by the Borrowers, Lenders
will reimburse and/or indemnify Agent, in proportion to the aggregate amount of
their respective Loans outstanding under this Agreement, for and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred or sustained by or asserted
against Agent, acting pursuant hereto or any of the other Loan Documents in its
capacity provided for in this Section 11, in any way relating to or
arising out of this Agreement, or any of the other Loan Documents, provided,
however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent’s gross negligence
or willful misconduct.  The obligations
of Lenders under this Section 11.6 shall survive the repayment of the
Notes and the Loans and the termination of this Agreement and the other Loan
Documents.

 

11.7        Agent, Individually.  With respect to its obligations under this
Agreement, the Loans made by it and any Note issued to or held by it, Agent
shall have and may exercise the same rights and powers hereunder and is subject
to the same obligations and liabilities as and to the extent set forth herein
for any other Lender or holder of a Note. 
The terms “Lender”, “holders of Notes” or any similar terms
shall, unless the context clearly otherwise indicates, not exclude Agent in its
individual capacity as a Lender or holder of a Note.  Agent may accept deposits from, lend money
to, and generally engage in any kind of banking, trust or other business with
the Loan Parties and their Subsidiaries as if it were not acting pursuant
hereto, and may accept fees and other consideration from the Loan Parties and
their Subsidiaries for services as Agent in connection with this Agreement and
the other Loan Documents and for services otherwise than as Agent without
having to account for the same to Lenders.

 

11.8        Holders of Notes.  Agent may deem and treat the payee of any
Note as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been received by
Agent.  Any request, authority or consent
of any Person, who at the time of making such request or of giving such
authority or consent is the payee of any Note, shall be conclusive and binding
on any subsequent holder, transferee, assignee or payee of such Note or of any
Note or Notes issued in exchange therefor.

 

11.9        Resignation.  Agent may resign at any time from the
performance of all its functions and duties hereunder and under the other Loan
Documents by giving thirty (30) days prior written notice to each Borrower and
each Lender.  Such resignation shall take
effect upon the expiration of such 30-day period or upon the earlier appointment
of a successor.  Notwithstanding any such
resignation, the provisions of Sections 11.6 and 12.3 shall inure also to the
benefit of each Agent who has so resigned with respect to the period it served
as Agent.  In case of the resignation of
Agent, the Majority Lenders, with the prior consent of Borrowers, 

 

52

 

which consent may not be unreasonably withheld, may
appoint a successor by a written instrument signed by the Majority
Lenders.  Any successor shall execute and
deliver to Agent an instrument accepting such appointment, and thereupon such
successor, without further act, shall become vested with all the estates,
properties, rights, powers, duties and trusts of Agent hereunder and with like
effect as if originally named as “Agent” herein and therein, and upon request,
the predecessor Agent shall take all actions and execute all documents
necessary to give effect to the foregoing. 
In the event Agent’s resignation becomes effective at a time when no
successor has been named, all notices, other communications and payments
hereunder required to be given by or to Agent shall be sufficiently given if
given by the Majority Lenders (or all Lenders, if the consent of all Lenders is
required therefor hereunder) or to each Lender, as the case may be.  In such event, all powers specifically
delegated to Agent may be exercised by the Majority Lenders and the Majority
Lenders shall be entitled to all rights of Agent hereunder.

 

11.10      Reimbursement.  Without limiting the provisions of Section 11.6,
Lenders and Agent hereby agree that Agent shall not be obligated to make
available to any Person any sum which Agent is expecting to receive for the
account of that Person until Agent has determined that it has received that sum.  Agent may, however, disburse funds prior to
determining that the sums which Agent expects to receive have been finally and
unconditionally paid to Agent, if Agent wishes to do so.  If and to the extent that Agent does disburse
funds and it later becomes apparent that Agent did not then receive a payment
in an amount equal to the sum paid out, then any Person to whom Agent made the
funds available shall, on demand from Agent:

 

(a)           refund Agent the sum paid to that Person; and

 

(b)           reimburse Agent for the additional amount certified
by Agent as being necessary to indemnify Agent against any funding or other
cost, loss, expense or liability sustained or incurred by Agent as a result of
paying out the sums before receiving it; provided, however, that
if such funds were made available to any Lender, such additional amount shall
be limited to interest on the sum to be repaid, for each day from the date such
amount was disbursed until the date repaid to Agent, at (for the first three (3) days)
the customary rate set by Agent for correction of errors among banks, and
thereafter at the Base Rate (or, if greater and in respect of a Loan, the rate
from time to time prevailing on such Loan).

 

Section 12.                                    MISCELLANEOUS.

 

12.1        Calculations and Financial Data.  Calculations hereunder (including, without
limitation, calculations used in determining, or in any certificate of any Loan
Party delivered reflecting compliance by any Loan Party with the provisions of
this Agreement) shall be made and financial data required hereby shall be
prepared both as to classification of items and as to amount in accordance with
GAAP, consistent with the audited Financial Statements described in Section 10.16;
provided  that for purposes of Section 8.17 no effect shall
be given to any change in GAAP from those in effect on December 31, 2009.

 

12.2        Amendment and Waiver.  Except as otherwise provided, no provision of
any of the Loan Documents may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the Majority Lenders (or
Agent on their behalf) and, if a Borrower is a party thereto, such Borrower,
except that waivers of provisions relating to a Loan 

 

53

 

Party’s performance or non-performance of its obligations
hereunder or thereunder need not be signed by such Loan Party or any other Loan
Party; provided  however that the written consent of Agent shall
also be required to change, waive, discharge or terminate provisions of Section 11
and the written consent of the Issuing Bank shall also be required to change,
waive, discharge or terminate provisions of Section 2A; and provided
further that without the consent of all of Lenders (or Agent on their
behalf) no change, waiver, discharge or termination may be made that would
increase the amount of any Loans of any Lender, decrease the principal of any
Loan; decrease the interest rate payable on any Loan; decrease the amount of
any fee; extend the Maturity Date of any Loan; change the definition of “Majority
Lenders” or modify this Section 12.2. 
Any such change, waiver, discharge or termination shall be effective
only in the specific instance and for the specific purposes for which made or
given.

 

12.3        Expenses; Indemnification.

 

(a)           Whether or not the transactions hereby contemplated
shall be consummated, each Borrower and FLBG, jointly and severally agree to
pay all out-of-pocket costs and expenses of (x) Agent incurred in
connection with the preparation, execution, delivery, negotiation
administration, filing and recording of, and (y) Agent and Lenders
incurred in connection with the amendment (including any waiver or consent) or
modification of (including any amendment, waiver, consent or modification at
any time requested by a Borrower, whether or not same is finalized or
executed), any failure of a Borrower to perform or observe any provision of,
and enforcement of or preservation of any rights under, this Agreement, the
other Loan Documents, the making and repayment of the Loans, and the payment of
all interest and fees, including, without limitation, (A) the fees and
expenses of Sullivan & Worcester LLP, counsel for Agent, and any
special or local counsel retained by Agent or Lenders, and with respect to
enforcement, the reasonable fees and expenses of counsel for Agent or any
Lender, (B) the reasonable fees and expenses of accountants, other
consultants, appraisers and other professionals retained by Agent in connection
with the transactions contemplated hereunder, and (C) printing, travel,
title insurance, mortgage recording, filing, communication and signing taxes
and costs.

 

(b)           Each Borrower and FLBG, jointly and severally, agrees to pay, and to save
Agent and Lenders harmless from (x) all present and future stamp, filing
and other similar taxes, fees or charges (including interest and penalties, if
any), which may be payable in connection with the Loan Documents or the
issuance of the Notes or any modification of any of the foregoing, and (y) all
finder’s and broker’s fees in connection with the transactions contemplated by
this Agreement or the other Loan Documents.

 

(c)           Each Borrower and FLBG,
jointly and severally, agrees to indemnify, pay and hold harmless Agent, each
Lender, any Lender Assignee and each holder of a Note and their respective
present and future officers, directors, employees and agents (collectively, the
“Indemnified Parties”) from and against all liability, losses, damages
and expenses (including, without limitation, legal fees and expenses) arising
out of, or in any way connected with, or as a result of (i) the execution
and delivery of this Agreement or the other Loan Documents or the documents or
transactions contemplated hereby and thereby or the performance by the parties
hereto or thereto of their respective obligations hereunder and thereunder or
relating thereto; or (ii) any claim, action, suit, investigation or
proceeding (in each case, regardless of whether or not 

 

54

 

the Indemnified Party is a
party thereto or target thereof) in any way relating to a Borrower, any Primary
Obligor, any Portfolio Entity, any Related Entity or Subsidiary of any thereof
or any Collateral or any Affiliate of a Borrower or any Subsidiary of any such
Affiliate or in any way relating to any of the foregoing Persons or any other
Loan Party, or any Affiliate of any of the foregoing in respect of this
Agreement, any other Loan Documents or any other document or transaction in
connection herewith or therewith or relating hereto or thereto; or (iii) any
actual or alleged violation by a Borrower, any Primary Obligor, any Portfolio
Entity, any Related Entity, any Loan Party, any Affiliate of any of the
foregoing Persons or any Subsidiary of any of the foregoing Persons (or any
predecessor in interest of any of them) of any Environmental Law; provided
that neither FLBG nor either Borrower shall be liable to an Indemnified Party
for any portion of such liabilities, losses, damages and expenses sustained or
incurred as a direct result of the gross negligence or willful misconduct of
Agent, any Lender or such Indemnified Party. 
Each Lender shall endeavor to give each Borrower and FLBG notice of any
material claim, action, suit or proceeding (if not restricted by applicable
law, regulation or Government Authority from so doing or unless the same would
be inconsistent with a request from a Government Authority) referred to in
clause (ii) which has been filed against such Lender within a reasonable
time after the loan officer of such Lender with responsibility for this Agreement
becomes aware of the same, but no failure to give any such notice shall affect,
or relieve a Borrower or FLBG of, any of such Borrower’s or FLBG’s obligations
under this Section 12.3 or under any other provision of this Agreement or
any other Loan Document or result in any obligation or liability of Agent or
any Lender to a Borrower or FLBG or any other Person.

 

(d)           All obligations provided for in this Section 12.3  and
Sections 3.4, 5.2 and 11.6 shall survive any termination of this Agreement and
the Loans and the payment in full of the Obligations.

 

12.4        Benefits of Agreement; Descriptive Headings.

 

(a)           This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns, and, in particular, shall inure to the benefit of the
holders from time to time of the Notes; provided, however, that
no Loan Party that is party hereto may assign or transfer any of its rights or
obligations hereunder without the prior written consent of Agent and Lenders
and any such purported assignment or transfer shall be void.  In furtherance of the foregoing, each Lender
shall be entitled at any time to grant participations in the whole or any part
of its rights and/or obligations under this Agreement, the Loan Documents or
any Loan or Note to any Person; provided, however, that no Lender
Assignee shall be permitted by the terms of its participation agreement with
the relevant Lender to require such Lender to take or omit to take any action
hereunder except to the extent that if Lender Assignee were a Lender hereunder,
its consent to taking or omitting to take such action would be required by the
terms of the second proviso of Section 12.2 hereto.  No such participation pursuant to this Section 12.4(a) shall
relieve any Lender from its obligations hereunder and a Borrower need deal
solely with Agent and Lenders with respect to waivers, modifications and
consents to this Agreement, the Loan Documents or the Notes.  Any such participant is referred to in this
Agreement as a “Lender Assignee”. 
Each Borrower agrees that the provisions of Sections 3.4, 5.4 and 12.3
shall run to the benefit of each Lender Assignee and its participations or
interests herein, and any Lender may enforce such provisions on behalf of any
such Lender Assignee; provided, however, that if any Lender
grants a participation in the 

 

55

 

whole or any part of its rights and/or obligations
pursuant to this Section 12.4(a), then the amounts that a Borrower is
required to pay pursuant to this Agreement (including, without limitation,
additional amounts made pursuant to Section 5.4) shall not exceed the
amounts that a Borrower would have been required to pay to such Lender pursuant
to this Agreement had such Lender not granted such participation.  Each Borrower hereby further agrees that any
such Lender Assignee may, to the fullest extent permitted by applicable law,
exercise the right of setoff with respect to such participation (and in an amount
up to the amount of such participation) as fully as if such Lender Assignee
were the direct creditor of a Borrower. 
Upon the grant of a participation in accordance with the foregoing, each
Borrower shall execute such documents and do such acts as any Lender may
reasonably request to effect such assignment. 
Any Lender may furnish any information concerning the Loan Parties in
its possession from time to time to Lender Assignees (including prospective
Lender Assignees) and prospective Purchasing Lenders.  Each Lender shall notify each Borrower of any
participation granted by it pursuant to this Section 12.4(a) but
neither the approval of a Borrower nor that of any other Loan Party shall be
required for any such participation. 
Neither Borrower shall be responsible for any due diligence costs or
legal expenses of such Lender Assignees in connection with their entering into
such participation.

 

(b)           The descriptive headings of the various provisions
of this Agreement and the other Loan Documents are inserted for convenience of
reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.

 

(c)           Any Lender may at any time assign to any other
Lender or any affiliate of any Lender, or (subject to obtaining the prior
written consent of each Borrower (but no other Loan Party), such consent not to
be unreasonably withheld) to one or more additional banks or financial
institutions (“Purchasing Lenders”), all or any part of its Loans and
corresponding Note pursuant to a Transfer Supplement (“Transfer Supplement”),
the form and substance satisfactory to Agent; provided, however,
that each such assignment shall be for an amount not less than $1,000,000 (or,
if Lender’s Loan at the time is less, such amount) and integral multiples of
$500,000 above such amount, or such other amount or multiple to which Agent may
consent.  Upon (i) such execution of
such Transfer Supplement, (ii) delivery of an executed copy thereof to
each Borrower and Agent, (iii) payment by such Purchasing Lender to such
transferor Lender of an amount equal to the purchase price agreed between such
transferor Lender and such Purchasing Lender, (iv) payment by the
Purchasing Lender to Agent of a $3,000 processing fee, and (v) any consent
of a Borrower required by the first sentence of this Section 12.4(c), such
Purchasing Lender shall for all purposes be a Lender party to this Agreement
and shall have all the rights and obligations of a Lender under this Agreement
to the same extent as if it were an original party hereto and thereto with the
percentage share of the Loans set forth in Schedule I to such Transfer
Supplement, and no further consent or action by a Borrower, any other Loan
Party, Lenders or Agent shall be required. 
Such Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the percentage of the Notes
and Loans (and related rights and obligations) held by the transferor Lender
and the Purchasing Lender arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor Lender
pursuant to the Transfer Supplement. 
Upon the consummation of any transfer to a Purchasing Lender pursuant to
this Section 12.4(c), the transferor Lender, Agent and each Borrower shall
make appropriate arrangements so that, if required, a replacement Note or 

 

56

 

Notes (dated the same date as the Note or Notes
being replaced) is issued to such Purchasing Lender and a new Note or Notes
(dated the same date as the Note or Notes being replaced) or, as appropriate, a
replacement Note or Notes (dated the same date as the Note or Notes being
replaced) is issued to such Purchasing Lender, in each case in principal
amounts reflecting their  outstanding
Loans, as adjusted pursuant to such Transfer Supplement.

 

(d)           Notwithstanding anything to the contrary contained
herein or in any of the Loan Documents, unless Agent, a Borrower or a Lender
otherwise requests with respect to any specific exhibit, exhibits to this
Agreement shall not be required to be attached to the execution or any other
copy of this Agreement, and any references in this Agreement or the other Loan
Documents to such exhibits as “Exhibits hereto,” “Exhibits to this Agreement”
or words of similar effect shall be deemed to refer to such exhibit as executed
by the parties thereto and delivered on the Effective Date.

 

12.5        Notices, Requests, Demands, etc.  Except as otherwise expressly provided
herein, all notices, requests, demands or other communications to or upon the
respective parties hereto shall be deemed to have been duly given or made when
delivered if sent by Federal Express or other similar overnight delivery
service, or three (3) Business Days after mailing (when mailed, postage
prepaid, by registered or certified mail, return receipt requested) or (in the
case of telex, telegraphic, telecopier or cable notice) when delivered to the
telex, telegraph, telecopier or cable company, or (in the case of telex or
telecopier notice sent over a telex or telecopier owned or operated by a party
hereto or electronic mail) when sent; in each case addressed as follows, except
that notices and communications to Agent pursuant to Section 2 and Section 9
shall not be effective until received by Agent: (i) if to Agent, at the
Closing Office, (ii) if to a Lender, at the address specified with its
signature below or (if a Purchasing Lender) on the applicable Transfer
Supplement, and (iii) if to a Loan Party, at its address specified with
its signature below (Attention: President), or to such other addresses as any
of the parties hereto may hereafter specify to the others in writing, provided
that communications with respect to a change of address shall be deemed to be
effective when actually received.

 

12.6        Governing Law.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK WITHOUT REFERENCE TO THE EXTENT LAWFUL TO CHOICE OF LAW DOCTRINE
THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION,
except (as to any other Loan Document) to the extent specifically set forth
otherwise in that Loan Document.

 

12.7        Counterparts; Telecopies.  This Agreement and the other Loan Documents
may be executed in any number of counterparts, and by the different parties
hereto and thereto on the same or separate counterparts, each of which when so
executed and delivered shall be deemed to be an original; all the counterparts
for each such Loan Document shall together constitute one and the same
agreement.  Telecopied signatures hereto
and to the other Loan Documents shall be of the same force and effect as an
original of a manually signed copy.

 

57

 

12.8        Waiver; Remedies Cumulative; Payment of Claims; Full
Recourse.

 

(a)           No failure or delay on the part of Agent or any
Lender in exercising any right, power or privilege under this Agreement or any
other Loan Document, and no course of dealing between a Borrower, any Primary
Obligor, any Portfolio Entity, any Related Entity or any other Loan Party or
any Subsidiary thereof and Agent or any Lender shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  No notice to or demand on a Borrower, any
Primary Obligor, any Portfolio Entity, any Related Entity or any other Loan
Party or any Subsidiary thereof in any case shall entitle such Person to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of Agent or any Lender to any other or further
action in any circumstances without notice or demand.

 

(b)           The rights and remedies herein expressly provided
are cumulative and not exclusive of any rights or remedies which Agent or any
Lender would otherwise have pursuant to such documents or at law or equity.

 

(c)           In furtherance and not in limitation of the other
rights and remedies of Agent and the Lenders, upon the occurrence of an Event
of Default or Default, Agent, in its sole and absolute discretion, without
waiving or releasing any covenant, agreement or other obligation of a Borrower
or any Default or Event of Default, may at any time or times hereafter, but
shall be under no obligation to, pay, acquire and/or accept an assignment of
any security interest, lien, encumbrance or claim asserted by any Person
against the Assets of a Borrower, or any Primary Obligor, or any Wholly-Owned
Subsidiary.  All sums paid by Agent in
respect thereof and all reasonable costs and expenses (including, without
limitation, fees and expenses of counsel to Agent) relating thereto incurred by
Agent or for which Agent becomes obligated on account thereof shall be part of
the Obligations payable by a Borrower to Agent on demand and any amount not
paid on demand shall bear interest at the Past Due Rate.

 

(d)           Each Borrower’s obligations to pay principal,
interest, fees and other amounts when due under this Agreement and the other
Loan Documents is absolute and unconditional and a full recourse obligation of
each Borrower, notwithstanding any fact or circumstance and, without limiting
the generality of the foregoing, whether or not there are funds available in
the Cash Flow Cash Collateral Account for application to any such obligation.

 

12.9        Acknowledgement of Consents.  Notwithstanding anything to the contrary in
this Agreement or any other Loan Document, Agent and Lenders hereby acknowledge
and agree that any document of consent or waiver referred to on Schedule
12.9 shall remain in full force and effect with respect to this Agreement.

 

12.10      Recoveries; Pro Rata Sharing.

 

(a)           Any Recoveries (after deduction and payment of all expenses
and costs permitted by this Agreement, the Security Documents or applicable
law) shall be applied pro rata against the Loans held by Lenders until
satisfaction in full of all amounts due thereunder.

 

(b)           Lenders agree among themselves that, with respect to
all sums received by Lenders applicable to the payment of the principal of or
interest on the Notes (except as 

 

58

 

otherwise provided in Section 3.4, 5.4 or 5.5),
equitable adjustment will be made between Lenders so that, in effect, all such
sums shall be shared ratably by each of Lenders (in accordance with the
outstanding principal amount of their respective applicable Loans) whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker’s lien, by counterclaim or cross-action or by
the enforcement of any or all of the Notes or otherwise.  If any Lender receives any payment on its
Notes of a sum or sums in excess of its pro rata portion (except as otherwise
provided in Section 3.4, 5.4 or 5.5), then such Lender receiving such
excess payment shall purchase for cash from the other Lenders with outstanding
Loans to a Borrower an interest in their Note or Notes in such amount as shall
result in a ratable participation by all of Lenders in the aggregate unpaid
amount of applicable Notes then outstanding; provided, however,
that if all or any portion of such excess payment is thereafter recovered by
such Lender, the purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest.  Each Borrower hereby agrees that any Lender
so purchasing a participation from another Lender pursuant to this Section 12.10(b) may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff) with respect to such participation as fully as
if such Lender were the direct creditor of a Borrower in the amount of such
participation.  The foregoing Section 12.10(b) shall
in all events be subject to the Subordination Agreement.

 

12.11      Jurisdiction.  EACH BORROWER AND FLBG HEREBY AGREES THAT ANY
LEGAL ACTION OR PROCEEDING AGAINST IT WITH RESPECT TO THIS AGREEMENT, THE NOTES
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE DOCUMENTS DELIVERED IN CONNECTION
HEREWITH OR THEREWITH MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK
AS AGENT OR ANY LENDER MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF,
EACH BORROWER AND FLBG ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY
AGENT AND THE MAJORITY LENDERS IN WRITING, WITH RESPECT TO ANY ACTION OR
PROCEEDING BROUGHT BY IT AGAINST AGENT OR ANY LENDER AND ANY QUESTIONS RELATING
TO USURY.  EACH BORROWER AGREES THAT
SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO
DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM
NON  CONVENIENS.  EACH
BORROWER AND FLBG HEREBY IRREVOCABLY CONSENTS THAT ALL PROCESS SERVED OR
BROUGHT AGAINST A BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH
COURT IN NEW YORK SHALL BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT IF
SENT BY REGISTERED MAIL, OR (IF PERMITTED BY LAW) BY FEDERAL EXPRESS OR OTHER
SIMILAR OVERNIGHT COURIER SERVICE, TO SUCH LOAN PARTY AT ITS ADDRESS SET FORTH
BELOW ITS SIGNATURE TO THIS AGREEMENT (OR SUCH OTHER ADDRESS AS AGENT IS
NOTIFIED OF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12.5).  NOTHING HEREIN SHALL AFFECT THE RIGHT OF
AGENT OR LENDERS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR 

 

59

 

SHALL LIMIT THE RIGHT OF AGENT OR ANY LENDER TO
BRING PROCEEDINGS AGAINST ANY LOAN PARTY IN THE COURTS OF ANY OTHER
JURISDICTION.

 

12.12      Severability.  If any provision of this Agreement shall be
held or deemed to be or shall, in fact, be illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative or unenforceable to
any extent whatever.

 

12.13      Right of Set-off.  In addition to any rights now or hereafter
granted under applicable law or otherwise and not by way of limitation of any
such rights, upon the occurrence of an Event of Default each of Lenders is
hereby authorized at any time or from time to time, without notice to any Loan
Party or to any other Person, any such notice being hereby expressly waived, to
set-off and to appropriate and apply any and all deposits (general or special,
time or demand, provisional or final) and any other indebtedness at any time
held or owing by such Lender to or for the credit or the account of such Loan
Party against and on account of the obligations and liabilities of such Loan
Party now or hereafter existing under any of the Loan Documents irrespective of
whether or not any demand shall have been made thereunder and although said
obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.  Lender or Lenders exercising
any rights granted under this Section 12.13 shall thereafter notify the
affected Loan Party and Agent of such action; provided  that the
failure to give such notice shall not affect the validity of such set-off and
application.

 

12.14      No Third Party Beneficiaries.  This Agreement is solely for the benefit of
Agent and Lenders and each Borrower and the respective successors and assigns
of Agent and Lenders and nothing contained herein shall be deemed to confer
upon anyone other than a Borrower any right to insist on or to enforce the
performance or observance of any of the obligations of Agent or Lenders
contained herein.  All conditions to the
obligations of Lenders to make 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 Person shall under any
circumstances be deemed to be beneficiary of such conditions.

 

12.15      Survival; Integration.

 

(a)           Each of the representations, warranties, terms,
covenants, agreements and conditions contained in this Agreement shall
specifically survive the execution and delivery of this Agreement and the other
Loan Documents and the making of the Loans and shall, unless otherwise
expressly provided, continue in full force and effect until the Loans together
with interest thereon, the fees and compensation of Agent, and all other sums
payable hereunder or thereunder have been indefeasibly paid in full.

 

(b)           This Agreement, together with the other Loan
Documents, comprises the complete and integrated agreement of the parties on
the subject matter hereof and thereof and supersedes  all prior agreements, written or oral, on the
subject matter hereof and thereof.  In
the event of any direct conflict between the provisions of this Agreement and
those of any other Loan Document, the provisions of this Agreement shall
control and govern; provided that the inclusion of supplemental rights
or remedies in favor of Agent or Lenders in any other Loan 

 

60

 

Document shall not be deemed a conflict with this
Agreement.  Each Loan Document was
drafted with the joint participation of the respective parties thereto and
shall be construed neither against nor in favor of any party, but rather in
accordance with the fair meaning thereof.

 

12.16      Domicile of Loans.  Any 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.

 

12.17      No Usury.  It is expressly stipulated and agreed to be
the intent of Agent, Lenders and Borrowers to comply at all times with
applicable usury laws.  If at any time
such laws would ever render usurious any amount called for under any of the
Loan Documents, then it is the express intention of the parties hereto that
such excess amount be immediately credited on the applicable Notes, or if the
applicable Notes have been fully paid, refunded by Lenders (pro rata in
accordance with their respective principal amount of the affected Loans), to
Borrowers (and Borrowers shall accept such refund) and the provisions hereof
and thereof be immediately deemed to be reformed to comply with the then
applicable laws, without the necessity of the execution of any further
documents, but so as to permit the recovery to the fullest amount otherwise
called for hereunder and thereunder.  Any
such crediting or refunding shall not cure or waive any default by Borrowers
under the Loan Documents.  If at any time
following any such reduction to the interest rate payable by Borrowers there
remains unpaid any principal amounts under the Notes and the maximum interest
rate permitted by applicable law is increased or eliminated, then the interest
rate payable to Lenders shall be readjusted, to the full extent permitted by
applicable law, so that the total amount of interest thereunder payable by
Borrowers to Lenders shall be equal to the amount of interest which would have
been paid by Borrowers without giving effect to applicable usury laws.  Each Borrower agrees, however, that in
determining whether or not any interest payable under the Notes or any of the
other Loan Documents exceeds the highest rate permitted by law, any
non-principal payment (except payments specifically stated in the Notes or such
other Loan Documents to be “interest”), including fees and commissions and all
other sums payable hereunder or thereunder or in connection herewith or
therewith, shall be deemed, to the full extent permitted by law, to be an
expense, fee, premium or penalty rather than interest.

 

12.18      Waiver of Jury Trial.  EACH BORROWER, FLBG, AGENT AND EACH LENDER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER,
OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF A BORROWER, ANY PARTNER THEREOF, ANY OTHER LOAN PARTY, AGENT OR
LENDERS.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR AGENT AND LENDERS ENTERING INTO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.

 

12.19      Waiver by Borrower.  EXCEPT AS OTHERWISE PROVIDED FOR IN THIS
AGREEMENT OR REQUIRED BY LAW, EACH BORROWER AND FLBG WAIVES (A) PRESENTMENT,
DEMAND AND PROTEST, NOTICE OF PROTEST, NOTICE OF PRESENTMENT, DEFAULT,
NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF
ANY OR ALL COMMERCIAL PAPER, 

 

61

 

ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS,
CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY ANY OF LENDERS AND/OR AGENT ON
WHICH A BORROWER MAY IN ANY WAY BE LIABLE; (B) ALL RIGHTS TO NOTICE
AND A HEARING PRIOR TO AGENT’S TAKING POSSESSION OR CONTROL OF, OR TO  REPLEVY, ATTACHMENT OR LEVY UPON THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR
TO ALLOWING ANY OF LENDERS AND/OR AGENT TO EXERCISE ANY OF ITS RESPECTIVE
REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, EXTENSION AND
EXEMPTION LAWS.

 

12.20      Waiver of Marshaling.  All rights of marshaling of Assets of a
Borrower, including any such right with respect to the Collateral, are hereby
waived by each Borrower.

 

12.21      Waiver of Claims; Release by Borrowers.

 

(a)           Each Borrower and FLBG releases Lenders and Agent
from any and all causes of action or claims which a Borrower may now or
hereafter have for any asserted loss or damage to a Borrower claimed to be
caused by or arising from any act or omission to act on the part of any Lenders
and/or Agent, their respective officers, agents or employees, except, in the
case of any Lender or Agent, the willful misconduct or gross negligence of such
Lender or Agent (as the case may be).

 

(b)           Each Borrower and FLBG hereby acknowledges, agrees
and affirms, as of the Execution Date and as of the Effective Date, that it
possesses no claims, defenses, offsets, recoupment or counterclaims of any kind
or nature against or with respect to the enforcement of this Agreement, any
other Loan Document or any amendments thereto, or any of the Existing Credit
Agreements, as amended, or documents delivered pursuant thereto (collectively,
the “Claims”), nor does a
Borrower and FLBG 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 this Agreement or any other Loan Document, as may have been
amended by the amendments thereto, or any of the Existing Credit Agreements, as
amended, or documents delivered pursuant thereto, each Borrower and FLBG 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.

 

12.22      Confidentiality.  Agent and each Lender, severally and with
respect to itself only, covenants and agrees that any information obtained by
Agent or such Lender pursuant to this Agreement shall be held in confidence (it
being understood that documents provided to Agent hereunder may in all cases be
distributed by Agent to Lenders) except that Agent or such Lender may disclose
such information (i) to its officers, directors, employees, agents,
counsel, accountants, auditors, advisors or representatives, (ii) to the
extent such information has become available to the public other than as a
result of a disclosure by or through Agent or such Lender, (iii) to the
extent such information was available to Agent or such Lender in a capacity
other than Agent or Lender hereunder or on a nonconfidential basis prior to its
disclosure to Agent or such Lender hereunder, (iv) with the consent of
each Borrower, (v) to actual or prospective Lender Assignees or Purchasing
Lenders or (vi) to the extent Agent or such Lender should be (A) 

 

62

 

required in connection with any legal or regulatory
proceeding or (B) requested by any Government Authority to disclose such
information.

 

Section 13.                                    FINAL AGREEMENT.

 

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE MATTERS COVERED HEREBY
AND THEREBY 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 14.                                    NON-COVERED
ENTITIES.

 

Notwithstanding
any other provision of this Agreement, no provision of this Agreement shall be
applicable to FC Investment Holdings Corporation, FC Diversified Holdings LLC,
FC Highway 6 Holdings LLC, FC Imperial Holdings LLC, VFC Partners 4 LLC, VFC
Partners 5 LLC, FC Capital or any of their subsidiaries or other entities in
which such Persons own any equity interest and no such Person shall be a
Primary Obligor, Subsidiary, Loan Party, Portfolio Entity, Portfolio
Entity-50%, Affiliate, Associate, Guarantor, Immaterial Entity, Parent,
Pledged Entity, Related Entity or Wholly-Owned Subsidiary for any purpose of
this Agreement.  In addition, this Agreement shall not be applicable or
refer to FirstCity Financial Corporation or FC Servicing except to the extent
expressly provided herein by reference to FirstCity Financial Corporation or
FCFC, in the former case, and FirstCity Servicing Corporation or FC Servicing,
in the latter case.

 

[remainder of page intentionally left blank]

 

63

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
and delivered by their respective duly authorized officers as of the date first
above written.

 

 

	
   

  	
  FIRSTCITY
  COMMERCIAL CORPORATION

  
	
   

  	
  a
  Texas corporation, as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  6400 Imperial Drive
  (delivery only)

  
	
   

  	
  Waco, Texas 76710

  
	
   

  	
   

  
	
   

  	
  P.O. Box 8216 (mail)

  
	
   

  	
  Waco, Texas 76714-8216

  
	
   

  	
   

  
	
   

  	
  254-761-2953
  (telecopier)

  
	
   

  	
  jholmes@fcfc.com
  (electronic mail)

  
	
   

  	
   

  
	
   

  	
  FH
  PARTNERS LLC

  
	
   

  	
  a
  Texas limited liability company, as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  6400 Imperial Drive
  (delivery only)

  
	
   

  	
  Waco, Texas 76710

  
	
   

  	
   

  
	
   

  	
  P.O. Box 8216 (mail)

  
	
   

  	
  Waco, Texas 76714-8216

  
	
   

  	
   

  
	
   

  	
  254-761-2953
  (telecopier)

  
	
   

  	
  jholmes@fcfc.com
  (electronic mail)

  

 

[signature page to Reducing Note Facility Agreement]

 

 

	
   

  	
  FLBG
  CORPORATION

  
	
   

  	
  a
  Texas corporation, as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  6400 Imperial Drive
  (delivery only)

  
	
   

  	
  Waco, Texas 76710

  
	
   

  	
   

  
	
   

  	
  P.O. Box 8216 (mail)

  
	
   

  	
  Waco, Texas 76714-8216

  
	
   

  	
   

  
	
   

  	
  254-761-2953
  (telecopier)

  
	
   

  	
  jholmes@fcfc.com
  (electronic mail)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK
  OF SCOTLAND PLC, acting through its New York branch, individually as Senior
  Lender and as Collateral Agent and Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BOS
  (USA) INC.

  
	
   

  	
  a
  Delaware corporation, as Subordinated Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

[signature page to Reducing Note Facility Agreement]

 

 

EXHIBITS

 

Annex I                                  Definitions

 

Exhibit A-1
Senior Note

Exhibit A-2
Subordinated Note

Exhibit B - Report Setting Forth the Computation of the Aggregate
Undistributed Funds of all Portfolio Entities.

Exhibit C
- Form of Asset Pool Acquisition Certificate

Exhibit D
- Eligible Asset Pool

Exhibit E
- Permitted Shareholder Agreements/Arrangements

Exhibit F
- Net Present Value

 

 

LIST OF SCHEDULES

 

	
  Schedule
  2.2(a) -

  	
   

  	
  Original
  Principal Amount

  
	
  Schedule
  2A.1 -

  	
   

  	
  Outstanding
  Letters of Credit

  
	
  Schedule
  5.3(a) -

  	
   

  	
  Distribution
  of Funds

  
	
  Schedule
  6.11 -

  	
   

  	
  Closing
  Checklist

  
	
  Schedule
  7.2(d)

  	
   

  	
  Portfolio
  Protection Report

  
	
  Schedule
  8.12(a) -

  	
   

  	
  Loan;
  Guaranty Debt

  
	
  Schedule
  8.12(b) -

  	
   

  	
  Guaranty
  Equivalents

  
	
  Schedule
  10.1(a) -

  	
   

  	
  Organization
  of Borrower

  
	
  Schedule
  10.1(d) -

  	
   

  	
  Organization
  of Each Primary Obligor, Portfolio Entity, Related Entity and Each Other Loan
  Party

  
	
  Schedule
  10.1(e) -

  	
   

  	
  Shareholder
  Agreements

  
	
  Schedule
  10.5(a) -

  	
   

  	
  Classes
  of Stock of Borrower

  
	
  Schedule
  10.5(b) -

  	
   

  	
  Classes
  of Stock and/or Other Equity Interests Issued by Each Primary Obligor, Each
  Portfolio Entity and Each Related Entity, the Shareholders and Other Equity
  Holders

  
	
  Schedule
  10.5(c) -

  	
   

  	
  Options,
  Warrants and Other Rights to Acquire Stock or Other Equity Interests of
  Borrower, any Primary Obligor, any Portfolio Entity, any Related Entity and
  any Other Pledged Entity

  
	
  Schedule
  10.6 -

  	
   

  	
  Fictitious
  Names

  
	
  Schedule
  10.7 -

  	
   

  	
  Liens
  Relating to the Collateral

  
	
  Schedule
  10.8 -

  	
   

  	
  Financial
  Warranty

  
	
  Schedule
  10.9 -

  	
   

  	
  Proceedings

  
	
  Schedule
  10.10 -

  	
   

  	
  Government
  Contracts

  
	
  Schedule
  10.12 -

  	
   

  	
  Government
  Permits; Approvals and Consents

  
	
  Schedule
  10.15 -

  	
   

  	
  Defaults
  under any Indebtedness Instrument

  
	
  Schedule
  10.18 -

  	
   

  	
  Material
  Adverse Change

  
	
  Schedule
  10.19 -

  	
   

  	
  Indebtedness
  Existing on the Effective Date

  
	
  Schedule
  10.20 -

  	
   

  	
  Affiliate
  Notes

  
	
  Schedule
  10.22 -

  	
   

  	
  Affiliates

  
	
  Schedule
  10.23 -

  	
   

  	
  Real
  Property; Environmental Issues

  
	
  Schedule
  10.26(c) -

  	
   

  	
  SEC
  Filings

  
	
  Schedule
  10.28 -

  	
   

  	
  Intellectual
  Property

  
	
  Schedule
  10.29 -

  	
   

  	
  Compliance
  with ERISA

  
	
  Schedule
  10.30(b) -

  	
   

  	
  Pledge
  Agreements and Security Agreements

  
	
  Schedule
  10.32 -

  	
   

  	
  Fee
  Agreements

  
	
  Schedule
  10.33 -

  	
   

  	
  Securitization
  Agreements

  
	
  Schedule
  10.34 -

  	
   

  	
  Immaterial
  Entity

  
	
  Schedule
  10.36 -

  	
   

  	
  Wholly
  Owned Subsidiary Interests

  
	
  Schedule
  10.37 -

  	
   

  	
  REO
  Affiliates

  
	
  Schedule
  10.38 -

  	
   

  	
  Material
  Portfolio Entities

  
	
  Schedule
  12.9 -

  	
   

  	
  Consents
  Which Remain in Effect

  

 

 

ANNEX I

 

DEFINITIONS

 

As
used in the Reducing Note Facility Agreement to which this Annex I is annexed,
the following terms shall have the meanings herein specified or as specified in
the Section of such Agreement or in such other document herein referenced:

 

“ABL”
shall mean American Business Lending, Inc., a Texas corporation.

 

“ABL
Capital Note” shall mean that certain Promissory Note by ABL to the order
of Borrower, dated December 15, 2006, in the maximum principal amount of
$4,000,000.

 

“ABL
Facility” shall mean that certain Loan Agreement between ABL and Wells
Fargo Foothill, LLC, dated as of December 15, 2006, together with the “Loan
Documents” as therein defined, as the same may be amended, restated or
otherwise modified from time to time with the prior written consent of the
Lenders.

 

“Adverse
Waterfall Event” shall mean with respect to any Portfolio Entity owning
more than one Asset Pool or Assets in addition to those contained in its
initial Asset Pool, that any lender to such Portfolio Entity has for any reason
diverted (whether to make up for a shortfall with respect to any other pool or
asset or otherwise) any portion of collections from any Asset Pool of such
Portfolio Entity to a different  asset or
asset pool (or waterfall with respect thereto) of such Portfolio Entity or
otherwise subsidized any other such asset or asset pool with collections from
any Asset Pool or otherwise restricted distributions from, or reduced waterfall
amounts arising from, collections of any Asset Pool on account of any condition
or occurrence other than a condition or occurrence arising directly from such
Asset Pool.

 

“Affected
Interest Period” — Section 3.6(a)

 

“Affected
Lender” — Section 3.6(a)

 

“Affiliate”
shall mean any Person (i) in which Borrower and/or any Parent,
individually, jointly and/or severally, now or at any time or times hereafter,
have an equity or other ownership interest equal to or in excess of twenty—five
percent (25%) of the total equity of or other ownership interests in such
Person, and/or (ii) which directly or indirectly through one or more
intermediaries controls or is controlled by, or is under common control with
either or both Borrowers and/or (iii) which is an officer or director of
either Borrower or any Primary Obligor. 
For purposes of this definition, “control” shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of Stock, by
contract or otherwise, and in any case shall include direct or indirect
ownership (beneficially or of record) of, or direct or indirect power to vote,
25% or more of the outstanding shares of any class of capital stock of such
Person (or in the case of a Person that is not a corporation, 25% or more of
any class of equity interest). 
Notwithstanding the foregoing, none of the Harbor Debtors shall be
deemed to be an Affiliate for the purposes of this Agreement other than Section 8.20.  “Affiliate” shall not include any Non-Covered
Entity.

 

 

“Agent”
— introductory paragraph.

 

“Aggregate Net Present Equity Value” shall mean the sum of the
Net Present Equity Value of each Portfolio Entity.

 

“Aggregate
Undistributed Funds” shall mean, on any date of determination, the sum of
the amounts determined by multiplying (i) the FC Percentage of each
Portfolio Entity, times (ii) the amount of funds held by such Portfolio
Entity (which for purposes of this definition shall include the operating funds
of the general partner of any limited partnership which is the Portfolio
Entity) which are not (w) held in a lockbox account, nor (x) held by
such Portfolio Entity for the payment (a) of indebtedness to a Permitted
Portfolio Company Creditor of such Portfolio Entity due within the next 30 days
or (b) Portfolio Protection Expenses, nor (y) retained by a Portfolio
Company Creditor thereof pursuant to a covenant under a loan agreement between
such creditor and such Portfolio Entity as in effect on the Execution Date, of
which Agent has been given written notice, nor (z) held by ABL.

 

“Agreement”
or “Loan Agreement” shall mean this Reducing Note Facility Agreement, as
it may from time to time be amended, extended, restated, supplemented or
otherwise modified.

 

“Applicable
Indebtedness” of any Person shall mean all Indebtedness of such Person
other than trade payables incurred in the ordinary course of business which are
not evidenced by an Indebtedness Instrument.

 

“Applicable
Person” — Section 8.21.

 

“Applicable
Rate” — Section 3.1.

 

“Approved
Portfolio Leverage Arrangement” shall mean (i) each borrowing
arrangement between a Portfolio Entity and a financial institution existing as
of the Effective Date and (ii) each future borrowing arrangement between a
Portfolio Entity and a financial institution on terms and conditions reasonably
satisfactory to Agent (as indicated in writing by Agent). Without limiting the
scope of Agent’s discretion pursuant to the preceding sentence,  (i) no borrowing arrangement shall be
deemed an Approved Portfolio Leverage Arrangement if such arrangement cross–defaults
to a credit arrangement of any other Portfolio Entity or contains any
provisions which would in any way restrict, reduce or prohibit distributions by
a Portfolio Entity on account of any event or condition with respect to any
Affiliate of such Portfolio Entity; and (ii) references herein to an
Approved Portfolio Leverage Arrangement shall be limited to such borrowing
arrangements governed by the terms of the loan agreement and other documents in
the form delivered to Agent at the time such arrangements were approved by
Agent, as amended, supplemented or otherwise modified with the written consent
of Agent.

 

“Asset”
shall mean any real, personal and intangible property of a Person, including,
without limitation, accounts, chattel paper, contract rights, letters of
credit, instruments and documents, equipment , general intangibles, inventory,
leases, options, licenses, real property, and Equity Interests issued by any
other Person whether now existing or hereafter acquired or arising.

 

2

 

“Asset
Pool” shall mean (x) in connection with the acquisition thereof by an
Eligible Portfolio Entity or the origination of an Asset by a Crestone
Portfolio Entity, a portfolio of loans or one or more Assets described in an
Asset Pool Acquisition Certificate, and (y) in all other contexts, all
Assets of a Portfolio Entity.

 

“Asset
Pool Acquisition Certificate” shall mean a certificate from an Executive
Officer of Borrower in the form of Exhibit C to the Agreement, to
which is attached (as contemplated by the form of such certificate) the asset
purchase agreement relating to the Assets proposed to be purchased, and, if not
previously provided to Agent or if amended, restated or otherwise modified
since previously provided, the Charter Documents for the purchasing Portfolio
Entity and any Shareholders Agreement entered into or proposed to be entered
into by the holders of the Equity Interests of such Portfolio Entity.

 

“Associate”,
when used to indicate a relationship with a Person, shall mean (i) another
Person (other than a Loan Party or a Subsidiary thereof) of which such Person
is an officer or partner or is, directly or indirectly, the beneficial owner of
10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such Person has a substantial beneficial interest or as
to which such Person or an immediate member of his family serves as trustee or
in a similar capacity, and (iii) any relative or spouse of such Person or
any relative of such spouse.  “Associate”
shall not include any Non-Covered Entity.

 

“Auditors”
shall mean KPMG LLP or other independent certified public accountants of
recognized standing selected by Borrowers and FLBG and satisfactory to Agent.

 

“Back-Up
Servicing Agreement” shall mean the Back-Up Servicing Agreement, dated as
of the date hereof, between FC Servicing and the Cold Back-Up Servicer.

 

“Base”
— Section 8.17(a).

 

“Base
Rate” — shall mean, for any day, the higher of (x) the fluctuating
interest rate per annum, in effect from time to time, established by Bank of
Scotland Plc in New York as its base, prime or reference rate for U.S. domestic
commercial loans in Dollars, (y) the Federal Funds Rate in effect on such
day plus 1% or (z) one-month LIBOR plus 1%.  Any change in the interest rate resulting
from a change in the Base Rate shall be effective as of the opening of business
on the day on which such change becomes effective; it is understood and agreed
that the aforesaid rates and the Base Rate are reference rates only and do not
necessarily represent the lowest or best rate actually charged to any customer.

 

“Base
Rate Loan” — shall mean any Loan during any period that it bears interest
determined by reference to the Base Rate.

 

“Basel
Laws” — Section 3.4.

 

“Borrower”
and “Borrowers” — introductory paragraph.

 

“Borrower
Pledge Agreements” shall mean (i) the Pledge Agreement, dated as of
the date hereof, by and between FC Commercial and Collateral Agent and (ii) the
Pledge Agreement, dated as of the date hereof, by and between FH Partners and
Collateral Agent.

 

3

 

“BoS
(USA)” — introductory paragraph.

 

“Business
Day” shall mean any day that is not a Saturday, Sunday or legal holiday in
the State of New York,  the State of
Texas, the State of Connecticut (or any other State where the CFCCA is
maintained) or a day on which banking institutions chartered by the State of
New York, the State of Texas, the State of Connecticut (or any other State
where the CFCCA is maintained) or the United States are legally required or
authorized to close, and, when used in connection with LIBOR, means any such
Business Day which is also a day on which deposits in Dollars and Euros may be
dealt in on the London interbank market.

 

“Capital
Expenditures” shall mean, with respect to any Person, all expenditures by
such Person which should be capitalized in accordance with GAAP, including all
purchases of property, plant and equipment, and including all such expenditures
with respect to fixed or capital Assets (including, without limitation,
expenditures for maintenance and repairs which 
should be capitalized in accordance with GAAP) and the amount of
obligations under Capitalized Leases incurred by such Person.

 

“Capital
Stock” — Section 9.15.

 

“Capitalized
Lease” shall mean any lease which is, or is required under GAAP to be,
capitalized on the balance sheet of the lessee at such time, and “Capitalized
Lease Obligation” of any Person at any time shall mean the aggregate amount of
rental expenses which is, or is required under GAAP to be, capitalized on the
books of such Person under Capitalized Leases.

 

“Cash
Collateral Account-Servicing” shall mean shall mean the account at the
Depositary specified in the Cash Collateral Agreement-Servicing and in the
letter agreement between the Collateral Agent and the Depositary relating
thereto or such other account, if any, which is specified in a cash collateral
agreement (in form and substance satisfactory to Agent) between FC Servicing
and Collateral Agent and related letter agreement (in form and substance
satisfactory to the Collateral Agent) between the Collateral Agent and the
depositary bank with respect to such other account.

 

“Cash
Flow” — Section 5.3(a).

 

“Cash
Flow Cash Collateral Account” and “CFCCA” shall mean the account at
the Depositary specified by account number in the Cash Collateral Agreement and
in the letter agreement between the Collateral Agent and the Depositary
relating thereto or such other account, if any, which is specified by account
number in a cash collateral agreement (in form and substance satisfactory to
Agent) between Borrower and Collateral Agent and letter agreement (in form and
substance satisfactory to the Collateral Agent) between the Collateral Agent
and the depositary bank with respect to such other account.

 

“CFO”,
as to any Loan Party shall mean such Loan Party’s chief financial officer.

 

“Change
in Control” — Section 9.15.

 

“Charges”
shall mean all national, Federal, state, county, city, municipal and/or other
governmental (or any instrumentality, division, agency, body or department
thereof, including 

 

4

 

without
limitation the PBGC) taxes, levies, assessments, charges, liens, claims or
encumbrances upon and/or relating to the Obligations, a Person’s Assets, a
Person’s business, a Person’s ownership and/or use of any of its Assets, a
Person’s income and/or gross receipts and/or a Person’s ownership and/or use of
any of its Assets.

 

“Charter
Document” shall mean (i) with respect to a corporation: its
certificate or articles of incorporation or association and its by–laws or
comparable documents under non–US laws; (ii) with respect to a
partnership: its partnership agreement, certificate of partnership (if a limited
partnership) and its certificate of doing business under an assumed name (if a
general partnership); (iii) with respect to a trust, its trust agreement
or declaration of trust; and (iv) with respect to a limited liability
company, its certificate of formation and operating agreement or analogous
documents; in each case, with such other similar documents as Agent shall
request or specify.

 

“Claims”
— Section 12.21(b).

 

“Closing
Checklist” shall mean the Closing Checklist in the form of Schedule 6.11
to the Agreement.

 

“Closing
Office” shall mean the office of Agent at 1095 Avenue of the Americas, New
York, New York 10036 or such other office as may be designated in writing to
Borrowers by Agent.

 

“Closing
Office Time” shall mean the local time in effect at the Closing Office.

 

“Code”
shall mean the Internal Revenue Code of 1986, as the same may be amended from
time to time.

 

“Cold
Back-up Servicer” shall mean (1) an entity engaged principally in
providing data collection in connection with servicing loan portfolios and
other investment vehicles or (2) a banking institution.

 

“Collateral”
— Section 10.30.

 

“Collateral
Agency Agreement” shall mean that certain Collateral Agency Agreement,
dated as of the date hereof, between Agent, Collateral Agent, Lenders and
Borrowers.

 

“Collateral
Agent” shall mean Agent in its capacity as agent under one or more of the
Security Documents and its successor and assigns (Agent, in such capacity,
being sometimes referred to herein and in other Loan Documents as the “Collateral
Agent” is such capacity he is only referred to as the Collateral Agent and
sometimes as the “Agent”).

 

“Collateral
Assignment of Contract” — shall mean the Collateral Assignment of Contract,
dated as of the date hereof, made by FC Servicing to Collateral Agent.

 

“Consolidated
Group” shall mean FC Commercial and its consolidated Subsidiaries, other
than the Harbor Debtors.

 

5

 

“Crestone
Facility” shall mean a $32 million line of credit provided by FirstCity
Denver Investment Corp. to Crestone Portfolio Entities used for the acquisition
and origination of Assets and payment of expenses related to those Assets which
is secured by a first priority lien on all assets of the Crestone Portfolio
Entities and a $2 million line of credit to be provided by FirstCity Denver
Investment Corp. to FirstCity Crestone LLC to be used exclusively for working
capital purposes.

 

“Crestone
Notes” shall mean the promissory notes issued from time to time under the
Crestone Facility, as the same may be amended, restated or otherwise modified
from time to time with the prior written consent of the Lenders.

 

“Crestone
Portfolio Entity” shall mean FC Crestone 07 Corp., FC Crestone Colorado 07
LLC, FC Crestone 08 Corp., FC Crestone 09 Corp., FC Crestone 2009 Corp. and FC
Crestone 2010 Corp.

 

“Default”
shall mean any event which with notice or lapse of time, or both, would become
an Event of Default.

 

“Disbursement” — Section 2A.4(b).

 

“Disbursement Date” — Section 2A.4(a).

 

“Disclosure
Restriction” — Section 7.1 (m).

 

“Dividend”
— Section 8.11.

 

“Dollar
Equivalent” shall mean, on any date of determination, with respect to any
amount in Euros, the equivalent in Dollars of such amount, determined by Agent
using the Exchange Rate then in effect.

 

“Dollars”,
“U.S. $”, “$” and “U.S. dollars” shall mean the lawful
currency of the United States of America.

 

“Effective
Date” — Section 6.

 

“Eligible
Asset Pool” shall mean an Asset Pool, held by a Portfolio Entity from an
Eligible Seller for an all cash purchase price, which (unless Agent in its
discretion otherwise consents in writing) conforms in every respect with the
requirements of Exhibit D to the Agreement.

 

“Eligible
Portfolio Entity” shall mean a partnership, corporation, trust, or limited
liability company or, if not formed in the United States, a similar foreign
organized entity which is a Portfolio Entity of which (i) if such
Portfolio Entity is a US Person, not less than 50% of each class of Equity
Interests is owned directly or indirectly by Borrower or a Primary Obligor, (ii) no
Equity Interests thereof owned directly or indirectly by Borrower or a Primary
Obligor are pledged to any Person other than Agent, for the benefit of the
Lenders, provided that the Equity Interests of a Crestone Portfolio Entity may
be pledged to secure the Crestone Facility, so long as the Crestone Notes and
documents securing the Crestone Facility are assigned to Agent to secure 

 

6

 

the
obligations of Borrower herein, (iii) the Charter Documents and
Shareholder Agreements result in Permitted Shareholder Arrangements, (iv) which
has no Indebtedness other than Indebtedness under an Indebtedness Instrument (a) pursuant
to Approved Portfolio Leverage Arrangements, or with respect to ABL, the ABL
Facility, (b) incurred to pay development expenses related to real estate,
or (c) loaned to it by the owners of the Equity Interests of the Portfolio
Entity to pay Property Improvement Expenses, and (vi) in respect of which
no Disclosure Restriction exists.

 

“Environmental
Laws” shall mean all laws, common law, statutes, rules and
regulations, and all judgments, decrees, franchises, orders or permits, issued,
promulgated, approved or entered thereunder by any Government Authority relating
to pollution or protection of the environment or occupational health and
safety, including, without limitation, those relating to emissions, discharges,
releases or threatened releases of any waste, pollutant, chemical, hazardous
material, hazardous substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum–derived substance or waste, or any constituent of any
such pollutant material, substance or waste, into the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
waste, pollutant, chemical, hazardous material, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum–derived
substance or waste.

 

“Equity
Interests” shall mean any equity interests issued by any Person, including,
without limitation, Stock (including, without limitation, common stock and
preferred stock), partnership interests or limited liability company interests,
any other securities convertible into, or exercisable for, any of the foregoing
or other securities of such Person, and options and warrants or other rights to
acquire any of the foregoing.

 

“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended from
time to time.

 

“ERISA
Affiliate” shall mean any Person which is from time to time a member of a
controlled group or a group under common control with any Loan Party within the
meaning of Sections 414(b), 414(c), 414(m) or 414(o) of the Code or Section 4001(a)(14)
of ERISA.

 

“Euros”
shall mean the single currency of the European Union as constituted by the
Treaty on the European Union.

 

“Eurocurrency
Interest Determination Date” shall mean the date as of which LIBOR is
determined, which shall be two Business Days prior to the commencement of a
Eurocurrency Interest Period.

 

“Eurocurrency
Interest Period” shall mean, with respect to each Eurocurrency Loan, the
interest period applicable pursuant to Section 3.9(a) hereof.

 

“Eurocurrency
Loan” shall mean a Loan during any period that it bears interest determined
by reference to LIBOR.

 

7

 

“European
Acquisition Entity” shall mean a Foreign Portfolio Entity which has
acquired Assets that originated in Europe.

 

“Event
of Default” shall mean each of the Events of Default defined in Section 9.

 

“Exchange
Act” — Section 9.15.

 

“Exchange
Rate” shall mean with respect to Euros on a particular date, the rate at
which Euros may be exchanged into Dollars in London on a spot basis, as set
forth on the display page of the Reuters System applicable to Euros two
Business Days prior to such date as reasonably determined by Agent.  In the event that such rate does not appear
on any Reuters display page, the Exchange Rate with respect to Euros shall be
determined by reference to such other publicly available service for displaying
exchange rates as may be agreed upon by Agent and Borrower or, in the absence
of such agreement, such Exchange Rate shall instead be determined by reference
to Agent’s spot rate of exchange quoted to prime banks in London in the London
interbank market where its foreign currency exchange operations in respect to
Euros are then being conducted, at or about noon, local time, two Business Days
prior to such date for the purchase of Dollars with Euros, for delivery on a
spot basis; provided, however, that if at the time of such determination, for
any reason, no such rate is being quoted and no other methods for determining
the Exchange Rate can be determined as set forth above, Agent may use any
reasonable method it deems applicable to determine such rate, and such
determination shall be conclusive absent manifest error.

 

“Excluded
Entities” shall mean each Person listed on Schedule I—(EE).

 

“Excluded
Notes” shall mean those notes listed on Schedule I—(EN).

 

“Execution
Date” shall mean the date on which all parties to this Agreement shall have
signed a copy this Agreement (whether the same or different copies) and shall
have delivered the same to Agent.

 

“Executive
Officer” shall mean the President of Borrower, the CFO of Borrower or any
Senior Vice President of a Borrower.

 

“Existing
Credit Agreements” — Recitals.

 

“FC
Capital” shall mean FC Capital Corp., a New York corporation.

 

“FC
Commercial” shall mean FirstCity Commercial Corporation, a Texas
corporation.

 

“FC
Mexico” shall mean FirstCity Mexico, Inc., a Texas corporation.

 

“FC
Percentage” (x) with respect to any Portfolio Entity or any other
Person shall mean the percentage of outstanding shares of stock, limited
liability company interests or partnership interests (or, in the case of a
non-US entity, similar equity interests) of such Portfolio Entity or Person
owned directly or indirectly by FLBG or FC Servicing, (y) with respect to
any Asset Pool or any Asset owned by an Portfolio Entity, the FC Percentage
with respect to such Portfolio 

 

8

 

Entity,
and (z) with respect to any Asset Pool or any Asset owned by any REO
Affiliate, the FC Percentage of the Portfolio Entity which is the parent of the
REO Affiliate.

 

“FC
Holdings Real Property Financing Loans” shall mean the FCS Lancaster Loan.

 

“FC
Servicing” shall mean FirstCity Servicing, Inc., a Texas corporation.

 

“FCFC”
— Recitals.

 

“FCI
Distribution Account” shall mean account number FR76 3000 4008 1800 0121
9939 227 maintained by FCI at BNP Paribas for deposit of Portfolio Entity
Proceeds of European Acquisition Entities and any distributions from MCS.

 

“FCM”
shall mean FirstCity Mexico, S.A. de C.V.

 

“FCS
Lancaster Loan” shall mean that certain loan in an original principal
amount not in excess of $2,200,000.00 made by FC Holdings to FCS Lancaster, Ltd.
on or about December 29, 2005.

 

“Fee
Agreements” shall mean any partnership agreement, management agreement,
consulting agreement, or other agreement pursuant to which Borrower, any
Primary Obligor or any Related Entity is to be paid fees, distributions, allocations,
expense reimbursements, consideration, salary or other compensation in
consideration for providing management, personnel or services, in any form
whatsoever, from any Affiliate or from any other Person.  Services to be rendered under Fee Agreements
may include, but not be limited to consulting, collecting revenues, paying
operating expenses not paid directly by others, and providing clerical and
bookkeeping services.

 

“FH
Partners” — Recitals.

 

“FH
Partners Credit Agreement” — Recitals.

 

“Financial
Statements” shall mean, with respect to any Person, the statement of
financial position (balance sheet) and the statement of earnings, cash flow,
and stockholders’ (or partners’ or members) equity of such Person.

 

“First
B” shall mean First B Realty L.P., a Texas limited partnership.

 

“First
X” shall mean First X Realty L.P., a Texas limited partnership.

 

“Fiscal
Year” shall mean each January 1 to December 31 period.  “Fiscal Year” followed by a year means the
Fiscal Year with its Fiscal Year–End in such calendar year.

 

“FLBG”
— Introductory paragraph.

 

“Foreign
Portfolio Entity” shall mean a Portfolio Entity domiciled in or with a
principal place of business in a country other than the United States or which
has acquired Assets located outside of the United States.

 

9

 

“GAAP”
shall mean generally accepted accounting principles (as promulgated by the
Financial Accounting Standards Board or any successor entity) in the United
States provided, that when with respect to a Person which is not a US
Person, GAAP shall mean the equivalent in such Person’s jurisdiction of
organization.

 

“Government
Authority” shall mean any nation or government, any state or political
subdivision thereof, any agency, authority, regulatory body, bureau, central
bank, commission, department or instrumentality of any of the foregoing or any
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.

 

“Guarantor”
shall mean each Primary Obligor and any other Person which is a guarantor under
any Guaranty.  “Guarantor” shall not
include any Non-Covered Entity.

 

“Guaranty”
shall mean any one or more of the guaranties delivered pursuant to Section 6
and each other guaranty agreement delivered in respect of the Obligations, as
each such agreement may be from time to time amended, extended, restated,
supplemented or otherwise modified.

 

“Guaranty
Equivalent” shall mean any agreement, document or instrument pursuant to
which a Person directly or indirectly guarantees, becomes surety for, endorses,
assumes, agrees to indemnify the obligee of any other Person against, or
otherwise agrees, becomes or remains liable (contingently or otherwise) for,
such obligation, other than (i) by endorsements of instruments in the
ordinary course of business or (ii) indemnification of sellers of assets
related to breaches of confidential agreements and obligations related to
performance of purchase and sale agreements in the conduct of the Asset acquisition
business.  Without limitation, a Guaranty
Equivalent shall be deemed to exist if a Person agrees, becomes or remains
liable (contingently or otherwise), directly or indirectly: (i) to
purchase or assume, or to supply funds for the payment, purchase or
satisfaction of, an obligation; (ii) to make any loan, advance, capital
contribution or other investment in, or a purchase or lease of any property or
services from, a Person; (iii) to maintain the solvency of such Person; (iv) to
enable such Person to meet any other financial condition; (v) to enable
such Person to satisfy any obligation or to make any payment; (vi) to
assure the holder of an obligation against loss; (vii) to purchase or
lease property or services from such Person regardless of the non–delivery of
or failure to furnish of such property or services; or (viii) in respect
of any other transaction the effect of which is to assure the payment or
performance (or payment of damages or other remedy in the event of nonpayment
or nonperformance) of any obligation.

 

“Harbor
Debtors” shall mean, collectively, (i) Harbor Financial Mortgage
Corp., (ii) NAF, Inc. (f/k/a New America Financial, Inc.), (iii) Hamilton
Financial Services Corp., (iv) Community National Mortgage Corp., (v) CalCap, Inc.
and (vi) Harbor Financial Group, Inc, and any Subsidiary of any such
Person.

 

“Immaterial
Entity” shall mean each Person listed on Schedule 10.37; provided,
that if any such Person engages in business or has assets with an aggregate
fair market value of $100,000 or more, such Person shall cease to constitute an
Immaterial Entity.  “Immaterial Entity”
shall not include any Non-Covered Entity.

 

10

 

“Incidental
Equity Interests” shall mean Equity Interests in a Person acquired by a
Portfolio Entity or Related Entity in settlement of collection of an asset in
the portfolio of such Portfolio Entity or Related Entity if such Equity
Interests so acquired (i) constitute Equity Interests in a Person engaged
in a business unrelated to the business of the Consolidated Group and such
Person is not Borrower or an Affiliate of Borrower or a Person in which or in
an Affiliate of which any other Equity Interest is owned by Borrower, any
Primary Obligor or any Related Entity at the time such Equity Interest is so
acquired; and (ii) have a value of less than $500,000.

 

“Indebtedness”
shall mean, with respect to any Person (without duplication): (i) all
obligations on account of money borrowed by, or credit extended to or on behalf
of, or for or on account of deposits with or advances to, such Person; (ii) all
obligations of such Person evidenced by bonds, debentures,  notes or similar instruments; (iii) all
obligations of such Person for the deferred purchase price of property or
services other than trade payables incurred in the ordinary course of business
and on terms customary in the trade; (iv) all obligations secured by a
Lien on property owned by such Person (whether or not assumed); and all
obligations of such Person under Capitalized Leases (without regard to any
limitation of the rights and remedies of the holder of such Lien or the lessor
under such Capitalized Lease to repossession or sale of such property); (v) the
face amount of all letters of credit issued for the account of such Person and,
without duplication, the unreimbursed amount of all drafts drawn thereunder,
and all other obligations of such Person associated with such letters of credit
or draws thereon; (vi) all obligations of such Person in respect of
acceptances or similar obligations issued for the account of such Person; (vii) all
obligations of such Person under a project financing or similar arrangement; (viii) all
obligations of such Person under any interest rate or currency protection
agreement, interest rate or currency future, interest rate or currency option,
interest rate or currency swap or cap or other interest rate or currency hedge
agreement; and (ix) all obligations and liabilities with respect to
unfunded vested benefits under any “employee benefit plan” or with respect to
withdrawal liabilities incurred under ERISA by Borrower or any ERISA Affiliate
to a “multiemployer plan”, as such terms are defined under the Employee
Retirement Income Security Act of 1974.

 

“Indebtedness
Instrument” shall mean any note, mortgage, indenture, chattel mortgage,
deed of trust, loan agreement, hypothecation agreement, Guaranty Equivalent,
pledge agreement, security agreement, financing statement or other document,
instrument or agreement evidencing or securing the payment of or otherwise
relating to the borrowing of monies. 
Indebtedness Instruments shall include, but not be limited to the Loan
Documents.

 

“Indemnified
Party” — Section 12.3(c).

 

“IRS”
shall mean the Internal Revenue Service of the United States.

 

“Issuer”
shall mean the Bank of Scotland in its capacity as a Lender hereunder and not
in its capacity as Agent.  References to
the Lenders in this Agreement and the other Loan Documents (when used to refer
to Bank of Scotland) shall (without duplication) include such Lender as Issuer.

 

“ITSA
Agreement” — Section 6.16.

 

11

 

“Key
Employee” shall mean James Sartain, James Holmes and James Moore, or any
Person who the Lenders may hereafter approve as a replacement for any such
Person or prior replacement from time to time as Key Employees; at no time
shall there be more than three (3) Key Employees.

 

“Latin
American Acquisition Entity” shall mean a Foreign Portfolio Entity which
has acquired Assets that originated in a Latin American country.

 

“LC
Obligations” shall mean the aggregate amount (without duplication) of all
LC Outstandings.

 

“LC
Outstandings” shall mean the aggregate Stated Amount (as reduced from time
to time) of all Letters of Credit issued hereunder and outstanding at any point
in time.

 

“Leak-Through
Allowance” — Section 5.3(a)(vi).

 

“Legal
Requirements” shall mean, with respect to any Person, all laws, common law,
statutes, rules and regulations of any Government Authority to which such
Person or any of its assets is subject or any judgment, decree, franchise,
order or permit of any Government Authority applicable to such Person or any of
its assets.

 

“Lender
Assignee” — Section 12.4(a).

 

“Lenders”
— introductory paragraph.

 

“Letter
of Credit” shall mean a letter of credit issued pursuant to Section 2A.1(a).

 

“Letter
of Credit Fee”  — Section 2A.3(a).

 

“LIBOR”
shall mean, for each Eurocurrency Interest Period, (x) the per annum rate
of interest at which U.S. Dollar or Euro deposits in the amount of the outstanding
principal balance of the Loan are or would be offered for such Eurocurrency
Interest Period in the London interbank market at 11:00 A.M. London time
two Business Days prior to the start of such Eurocurrency Interest Period as
published by the British Bankers’ Association as the “Interest Settlement Rate”
for such period, divided by (y) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including without limitation
any marginal, emergency, supplemental, special or other reserves required by
applicable law) applicable to any member bank of the Federal Reserve System in
the United States in respect of Eurocurrency funding or liabilities.

 

“Lien”
shall mean any mortgage, deed of trust, security deed, pledge, security
interest, encumbrance, lien or other charge of any kind or any other agreement
or arrangement having the effect of conferring security (including any
agreement to give any of the foregoing, any assignment or lease in the nature
thereof, and any conditional sale or other title retention agreement), any lien
arising by operation of law, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction (or
any similar or  comparable law of any
jurisdiction that has not enacted the Uniform Commercial Code).

 

12

 

“
Limited Guaranty” shall mean the Limited Guaranty Agreement dated the
Closing Date executed by FCFC in favor of the Lenders.

 

“Limited
Guaranty Agreement” shall mean that certain Limited Guaranty Agreement,
made of the date hereof, by FCFC in favor of Agent.

 

“Loan
Commitment” shall mean as to each Lender, the amount set forth opposite its
name on Schedule 2.1 under the heading “Loan Commitment” as such amount may be
modified by the provisions of any Transfer Supplement from time to time entered
into and as the same may from time to time be reduced or terminated pursuant to
Section 2.8(b) , Section 9 or any other Section of the
Agreement.

 

“Loan
Documents” shall mean, individually and collectively, this Agreement, the
Notes, the Letters of Credit, the Guaranties, the Pledge Agreements, the
Security Agreements, the other Security Documents and all other instruments and
agreements heretofore or from time to time hereafter executed by or on behalf
of Borrowers, any Primary Obligor, any Related Entity or any other Loan Party
in connection herewith or therewith, in each case as amended, extended,
restated, supplemented or otherwise modified from time to time.  Without limiting the generality of the
foregoing, each amendment to (or constituting part of) this Agreement or any
other Loan Document and each instrument and agreement (including, without
limitation, consents or waivers, but excluding any amendment, consent or waiver
executed prior to the Effective Date) executed in connection with any Loan
Document shall be deemed to be a Loan Document for all purposes of the
Agreement and the other Loan Documents.

 

“Loan
Party” shall mean, individually and collectively, Borrowers, each Primary
Obligor and each other Person, which has executed any Security Document as a pledgor
or grantor of collateral thereunder.  “Loan
Party” shall not include any Non-Covered Entity.

 

“Loan(s)”
— Section 2.1(a).

 

“Loans
Outstandings” as of any particular date shall mean the aggregate
outstanding principal amount of Loans as of such date in Dollars, after
converting all Loans outstanding in Euros to the Dollar Equivalent, based on
the Exchange Rate as determined on the immediately preceding Reset Date.

 

“Majority
Lenders” as of a particular date shall mean the holders of at least 51% of
the aggregate unpaid principal amount of all Loans at the particular time
outstanding.

 

“Management
Letter” shall mean any correspondence or report submitted by the Auditors
to a Loan Party’s chief executive officer, its Board of Directors or any
committee thereof containing comments and suggestions concerning a Loan Party’s
accounting procedures and systems based upon the work done by the Auditors
during their annual or other audit.

 

“Material
Adverse Change” shall mean a material adverse change in (i) the business,
properties, operations, prospects or condition (financial or otherwise) of
Borrower, the Primary Obligors, Portfolio Entities and the Related Entities,
taken as a whole or (ii)  the ability of Borrower or any other Loan Party
to perform, or of Agent to enforce, any of the Obligations.

 

13

 

“Material
Adverse Effect” shall mean an effect that would result in a Material
Adverse Change.

 

“Material
Portfolio Entity” shall mean each Portfolio Entity, each Person listed on Schedule
I—(MPE) and each other Portfolio Entity (other than a Foreign Portfolio Entity)
with a Net Present Equity Value of $5,000,000 or more.  Each such 
Person, which at any time constitutes a Material Portfolio Entity shall
continue to constitute a Material Portfolio Entity until the time (if any) when
Borrower sends to Agent written notice (a “Redesignation Notice”)
executed by an Executive Officer of Borrower certifying, as to such Person that
the Net Present Equity Value of such Person (the “Subject MPE”) is below
$5,000,000 and has been below $5,000,000 for the preceding period of 90
consecutive days or more, and requesting that such Subject MPE no longer
constitute a Material Portfolio Entity.  
Provided that Borrower provides such additional information, if any,
that Agent may request with respect to such Subject MPE and that Agent has not
given Borrower notice that it disputes such redesignation of such Subject
MPE  within 30 days after receiving such
Redesignation Notice or, if later, within 30 days after Agent received
additional information (if any) requested by it with respect to such requested
redesignation, the Subject MPE shall cease to constitute a Material Portfolio
Entity (until, the time, if any, that such Subject MPE  again satisfies the criteria applicable to
Material Portfolio Entities).

 

“Maturity
Date” shall mean June 25, 2013.

 

“MCS”
shall mean MCS et Associes S.A.

 

“Minn
Servicing” shall mean FirstCity Serving of Minnesota, Inc.

 

“Multiemployer
Plan” shall mean any employee benefit plan which is a “multiemployer plan”
within the meaning of Section 3(37) of ERISA and to which any Loan Party
or any ERISA Affiliate of either Borrower contributes or has been obligated to
contribute.

 

“Multiparty
Pledge Agreement “ — shall mean that certain Pledge Agreement, dated as of
the date hereof, by and between FC Europe, FC International, FC Mexico, FLBG,
FLBG Holdings Investment LP, FLBG Holdings GP Corp., FLBG Holdings Corp. and
Collateral Agent.

 

“Net
Collections” with respect to a Portfolio Entity for any applicable period
shall mean the gross aggregate amount received during such period by the
Portfolio Entity on account of the Assets of the Portfolio Entity (including,
in addition, amounts received by any REO Affiliate of such Portfolio Entity) or
collateral therefor, and including amounts received on account of such Assets
prior to the commencement of such period which were paid to or for the benefit
of such Portfolio Entity during such period, reduced by (a) amounts which were
paid directly to the Permitted Portfolio Company Creditor of such Portfolio
Entity under an Approved Portfolio Leverage Arrangement or amounts which were
remitted to such Creditor, in either case pursuant to the requirements of such
Approved Portfolio Leverage Arrangement, which, in any such case, have not been
released by such Creditor to (or for the benefit of) such Portfolio Entity
(and/or any REO Affiliate thereof), (b) servicing fees, custodial fees and
lockbox bank fees related to such Assets paid by such Portfolio Entity during
such period, (c) escrow payments or deposits 

 

14

 

made
by any obligor related to an Asset, (d) reasonable accounting and legal
fees paid by the Portfolio Entity related to the operation of the Portfolio
Entity, and (e) Portfolio Protection Expenses related to the Assets of the
Portfolio Entity or its related REO Affiliate.

 

“Net
Present Equity Value” shall mean, with respect to any Person, the amount
determined by multiplying (x) the FC Percentage in respect of such Person
and (y) the amount by which (A) the Net Present Value of the Assets
of such Person exceeds (B) the sum of (i) outstanding Indebtedness of
such Person under any Approved Portfolio Leverage Arrangements and (ii) indebtedness
for money borrowed by, or for any monetary judgment rendered against, such
Person; in the case of the determination of the Net Present Equity Value of an
REO Affiliate the outstanding Indebtedness of the REO Owner under any Approved
Portfolio Leverage Arrangements shall be allocated proportionately between the
REO Affiliate and the REO Owner.

 

“Net
Present Value” as to any Asset or Asset Pool, the net present value of all
reasonably projected future collections from such Asset(s) reduced by reasonable
and necessary collection expenses and discounted using the “ASR NPV” discount
rate assignments utilized by the Portfolio Entity in making such determinations
for each Asset as set forth on Exhibit F to the Agreement, as
adjusted from time to time with the approval of Agent; all of which
determinations must be reasonably satisfactory to Agent.

 

“Non-Covered
Entity” shall mean FC Investment Holdings Corporation, FC Diversified
Holdings LLC, FC Highway 6 Holdings LLC, FC Imperial Holdings LLC, VFC Partners
4 LLC, VFC Partners 5 LLC, FC Capital Corp. or any of their subsidiaries or
other entities in which such persons own any equity interest.

 

“Non-Default
Voluntary Custodial Arrangement” shall mean an arrangement to perfect a
lien in favor of Agent or the holder of a different Permitted Lien, in each
case, on certain specified Assets of a Person entered into voluntarily by a
Portfolio Entity or Related Entity at a time when no Default or Event of
Default has occurred and is continuing.

 

“Notes”
— Section 2.2.

 

“Notice
of Conversion” — Section 3.10

 

“Obligations”
shall mean (x) with respect to each Loan Party other than Borrower, all
obligations of such Loan Party with respect to the repayment or performance of
any obligations (monetary or otherwise) of Borrower arising under or in
connection with this Agreement, the Notes or any other Loan Document, and (y) with
respect to Borrower, all obligations of Borrower with respect to the repayment
or performance of obligations (monetary or otherwise) arising under or in
connection with this Agreement, Letters of Credit, the Notes or any other Loan
Document.

 

“Other
Indebtedness Instrument Unmatured Default” — Section 7.1(f).

 

“Other
Laws” — Section 3.4.

 

“Overhead
Allowance” — Section 5.6(a).

 

15

 

“Parent”
shall mean any Person now or at any time hereafter owning or controlling (alone
or with Borrower, any Subsidiary and/or any other Person) at least a majority
of the issued and outstanding Stock or other ownership interest of Borrower or
any Subsidiary.  For purposes of this
definition, “control” shall have the same meaning ascribed to such term in the
definition of “Affiliate”. 
Notwithstanding the forgoing, no Person shall be a Parent which is not a
Parent of Borrower or a 51% or more owned subsidiary, directly or indirectly,
of Borrower.  “Parent” shall not include
any Non-Covered Entity.

 

“Past–Due
Rate” — Section 3.3.

 

“Payment
Date” — Section 5.3.

 

“PBGC”
shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002
of ERISA.

 

“Pension
Plan” shall mean any employee pension benefit plan subject to Title IV of
ERISA and maintained by any Loan Party or any ERISA Affiliate of any Loan Party
or any such plan to which any Loan Party or any ERISA Affiliate is or has been
required to contribute on behalf of any of its employees, other than a
Multiemployer Plan.

 

“Permitted
Liens” shall mean (i) any liens created pursuant to the Loan Documents
in favor of Agent for the benefit of Lenders and Agent to secure the
Obligations; (ii)  liens for Charges which are not yet due and payable, or
claims and unfunded liabilities under ERISA not yet due and payable or which
are being contested in good faith by appropriate proceedings diligently
pursued; (iii) liens arising in connection with worker’s compensation,
unemployment insurance, old age pensions and social security benefits which are
not overdue or are being contested in good faith by appropriate proceedings
diligently pursued, provided that in the case of any such contest any
proceedings commenced for the enforcement of such lien shall have been duly
suspended and such provision for the payment of such lien has been made on the
books of Borrower (or the applicable Affiliate) as may be required by GAAP; (iv) liens
incurred in the ordinary course of business to secure the performance of
statutory obligations arising in connection with progress payments or advance
payments due under contracts with the United States Government or any agency
thereof entered into in the ordinary course of business; (v) any liens
securing Indebtedness of Borrower (or any Affiliate) to any Persons in an
amount not greater than $250,000 for each such Person, provided the aggregate
amount of Indebtedness secured by all such liens shall not exceed $500,000; (vi) Charges
relating to Assets of First B and First X; (vii) as to any Affiliate,
other than Borrower, a Primary Obligor or a Portfolio Entity, purchase money
liens securing permitted indebtedness incurred in connection with the
acquisition of Assets and other indebtedness incurred under the credit
agreement under which such permitted indebtedness to acquire such Assets was
incurred so long as such liens encumber only the Assets acquired, (viii) as
to any Affiliate, other than Borrower or a Primary Obligor or a Portfolio
Entity, liens relating to permitted Indebtedness incurred in connection with
the warehousing of Assets or the securitization of Assets, so long as such
liens encumber only the Assets warehoused or securitized; (ix) those liens
disclosed on Schedule (PL); (x) liens on Assets of a Portfolio
Entity in favor of the Person providing financing under an Approved Portfolio
Leverage Arrangement in respect of the acquisition of Assets acquired pursuant
to such Approved Portfolio Leverage Arrangement to the extent such liens are
required by, and secure 

 

16

 

only
obligations under, such Approved Portfolio Leverage Arrangement; and (xi) liens
on real property of a Portfolio Entity or an REO Affiliate in favor of a Person
providing financing of development expenses related to such real property which
is permitted under Section 8.3(x).

 

“Permitted
Portfolio Company Creditor” shall mean those creditors of a Portfolio
Entity which have provided loans pursuant to Approved Portfolio Leveraged
Arrangement.

 

“Permitted
Restrictions” on the payment of dividends by a Person shall mean provisions
(i) of an Approved Portfolio Leverage Arrangement, or (ii) of a loan
agreement, as in effect when first entered into, to which such Person is a
party as borrower which prohibit such Person from paying dividends for either
of the following reasons:

 

(x)           the funds from being distributed are
required to satisfy a leverage or required reserve amount covenant (but only if
such covenant would not reasonably be expected to significantly impair such
Person’s ability to pay dividends if anticipated cash flows are received as and
when anticipated and in approximately the amounts anticipated); and

 

(y)           such dividends are restricted when
there exists an event of default of a customary type to be found in such
agreements and that also permits the relevant lender to accelerate the maturity
of indebtedness outstanding under such agreement.

 

“Permitted
Shareholder Agreement” shall mean a Shareholder Agreement with terms
permitted by Exhibit E.

 

“Permitted
Shareholder Arrangements” shall mean arrangements which would arise from a
Permitted Shareholder Agreement.

 

“Person”
shall mean and include an individual, a partnership, a corporation (including a
business trust), a joint stock company, a limited liability company, a trust,
an unincorporated association, a joint venture or other entity or a government
or an agency or political subdivision thereof.

 

“Plan”
shall mean any “employee benefit plan” (within the meaning of Section 3(3) of
ERISA) maintained by any Loan Party or any ERISA Affiliate or any such plan to
which any Loan Party or any ERISA Affiliate is or has been required to
contribute on behalf of any of its employees, other than a Multiemployer Plan.

 

“Pledge
Agreement” means each of (or, as the context requires, any of) the Borrower
Pledge Agreements, Multiparty Pledge Agreement, Collateral Assignment of
Contract and any other pledge agreement made for the benefit of the Lenders by
the Borrowers or the Affiliates.

 

“Pledged
Entity” shall mean any Person any Equity Interest in which has been pledged
to Agent to secure the Obligations.  “Pledged
Entity” shall not include any Non-Covered Entity.

 

“Pledged
Notes” shall mean those certain promissory notes listed on Schedule I—(PN)
and any other promissory notes which have been delivered to Agent and in which
the Collateral Agent holds a perfected security interest of the first priority
pursuant to a Pledge Agreement to which the Collateral Agent is party.

 

17

 

“Portfolio
Entity” shall mean any entity (other than an REO Affiliate or an Immaterial
Entity) in which Borrower or a Primary Obligor is directly or indirectly an
equity owner and which was formed for the purpose of acquiring Asset Pools,
including FHP, and shall also include Bosque Leasing, L.P. (which is owned by
Bosque Asset Corp. and Bosque GP Corp.). 
“Portfolio Entity” shall not include any Non-Covered Entity.

 

“Portfolio
Entity—50%” shall mean any Portfolio Entity of which Borrower or any
Subsidiary directly or indirectly owns exactly 50% of the voting interests or
any class of other Equity Interests of such Portfolio Entity.  “Portfolio Entity-50%” shall not include any
Non-Covered Entity.

 

“Portfolio
Entity Proceeds” for any Portfolio Entity in respect of any Payment Date
shall mean the sum of (I) the FC Percentage of the Net Collections, plus (II) any
proceeds from a sale or transfer of any Equity Interests issued by such
Portfolio Entity to FC Commercial or other Wholly Owned Subsidiary, as
applicable, plus (III) the FC Percentage of any proceeds of a sale or
transfer of any Equity Interests issued by any REO Affiliate related to such
Portfolio Entity; (it being understood that any reference in this definition to
any sale or transfer of Equity Interests issued by any Portfolio Entity or REO
Affiliate shall not be construed to affect or modify any prohibition thereof or
requirement for the obtaining of any consent relating thereto set forth
elsewhere in this Agreement).

 

“Portfolio
Protection Expense Report” — Section 7.2(d).

 

“Portfolio
Protection Expenses” with respect to a Portfolio Entity shall mean expenses
or other amounts which (w) such Portfolio Entity has reasonably determined
are necessary to advance to one of its REO Affiliates for reasonable and
necessary expenses to preserve or protect real property owned by such REO
Affiliate, or (x) constitute reasonable and customary, necessary leasing
commissions, reasonable and necessary tenant improvement costs paid by such
Portfolio Entity or REO Affiliate pursuant to a written lease or capital
improvements to such property required in order for the property to be so
leased, or (y) such Portfolio Entity has reasonably determined are
necessary to protect other Assets securing indebtedness owed to such Portfolio
Entity, or (z) constitute obligor funding obligations, such expenses or
other amounts to constitute Portfolio Protection Expenses when amounts therefor
are retained by such Portfolio Entity or REO Affiliate or, if earlier, when
such expenses or other amounts are paid.

 

“Primary
Obligor” shall mean any of (i) FC International; (ii) FC Mexico; (iii) FC
Europe; and (iv) any other Guarantor and Primary Obligors shall mean all
of the foregoing collectively.  “Primary
Obligor” shall not include any Non-Covered Entity.

 

“Purchasing
Lenders” — Section 12.4(c).

 

“Rate
of Borrowing” — Section 3.5.

 

“Records”
shall mean all books, records, computer records, computer software, ledger
cards, programs and other computer materials, customer and supplier lists,
invoices, orders and other property and general intangibles at any time
evidencing or relating to Assets.

 

18

 

“Recoveries”
shall mean any funds, or substitution of receipts or collateral, received by
the Lenders or Agent (a) from the sale, collection or other disposition of
Collateral pursuant to the Security Documents, or (b) from any
distribution to any of the Lenders or Agent, or abandonment to any of them, or
substitute Liens or payment given to any of them pursuant to events or
proceedings of the nature referred to in Section 9.8 of the Agreement, or
otherwise, which distribution or abandonment pertains to the Collateral.

 

“Regulatory
Change” means, relative to any Lender, Collateral Agent or Agent, any
change after the Effective Date in any (or the adoption after the Effective
Date of any new):

 

(a)           United States
Federal, state or local law or foreign law applicable to Agent, Collateral
Agent or Lender; or

 

(b)           regulation,
interpretation, directive, or request (whether or not having the force of law)
applying to Agent or any Lender of any Government Authority charged with the
interpretation or administration of any law referred to in clause (a) or
of any fiscal, monetary, central bank or other authority having jurisdiction
over Agent, Collateral Agent or Lender.

 

“Reimbursement Obligation” Section 2A.4(g).

 

“Related
Entity” shall mean each entity identified on Schedule  I—(RE), as well as, subject to the final
sentence of this definition, any other entity, other than a Primary Obligor,
Portfolio Entity, or Immaterial Entity, any Equity Interest of which is owned
by Borrower, any Primary Obligor, any Portfolio Entity, any Immaterial Entity
or any other Related Entity. Notwithstanding the foregoing, no Immaterial
Entity or any Harbor Debtor shall constitute a Related Entity.  “Related Entity” shall not include any
Non-Covered Entity.

 

“Release”
— Section 6.15.

 

“REO
Affiliate” shall mean a Person, other than Borrower, a Primary Obligor or a
Material Portfolio Entity, which is a corporation, limited liability company or
partnership 100% of the Equity Interests in which are owned by a Portfolio
Entity (the “REO Owner”) (or, in the case of such an entity which is a
limited partnership, 100% of the limited partnership interest of which is owned
by the REO Owner and 100% of the interest in the general partner is owned by
the REO Owner), which Person has been established solely to acquire, from the
REO Owner or a seller from which the Portfolio Entity is acquiring other
Assets, title to (and owns no Assets other than) parcels of real property (or
distressed notes secured by real property for purposes of obtaining title to
real property securing such loans) in exchange for, with respect to each such
parcel, a promissory note in a principal amount no less than 96% of the value
(as reasonably determined by the REO Owner and the REO Affiliate) of the
property; provided  that no Person
shall constitute or continue to constitute an REO Affiliate if (A) such
Person acquires property from any Person other than (x) the REO Owner or a
Person from whom the REO Owner is acquiring other Assets, or (y) in the
case where it has acquired a note from the REO Owner solely for purposes of
acquiring title to the real property securing such note, the obligor of such
note; or (B) engages in any business other than business incidental to
owning and selling the parcels of real property so acquired by such REO Affiliate.

 

19

 

“REO
Excess Value Adjustment” shall mean the amount, if any, by which the Net
Present Equity Value of all REO Affiliates exceeds 25% of the Aggregate Net
Present Equity Value.

 

“REO
Post—25% Time” shall mean any time on or after the Net Present Equity Value
of all REO Affiliates exceeds 25% of the Aggregate Net Present Equity Value,
until two Business Days after Borrower gives Agent written notice along with
evidence satisfactory to Agent that such Net Present Equity Value of Assets of
REO Affiliates no longer so exceeds 25 % of the Aggregate Net Present Equity
Value.

 

“Reportable
Event” shall mean a Reportable Event described in Section 4043 of
ERISA and the regulations issued thereunder.

 

“Requisite
Consents” — Section 6.6.

 

“Reset
Date” — Section 2.5.

 

“Revolving
Credit Agreement” — Recitals.

 

“SBA”
shall mean the United States Small Business Administration or any other federal
agency administering the SBA Act.

 

“SBA
Act” shall mean the Small Business Act of 1953, as in effect from time to
time.

 

“SBA
Loans” shall mean any loans made by ABL to small businesses and partially
guaranteed by SBA, all originated in accordance with the SBA Rules and
Regulations and pursuant to the authorization contained in Section 7(a) of
the SBA Act.

 

“SBA
Rules and Regulations” shall mean the SBA Act, any other legislation
binding on the SBA relating to financial transactions, and any loan guaranty
agreement and rules and regulations promulgated from time to time under
the SBA Act, and any SBA Standard Operating Procedures and Official Notices,
all as from time to time in effect.

 

“SEC”
shall mean the Securities and Exchange Commission.

 

“SEC
Reports” — Section 10.26(c).

 

“Securities”
shall have the meaning ascribed to that term in the Securities Act of 1934.

 

“Securities
Laws” shall mean all applicable Federal and state securities laws and
regulations promulgated pursuant thereto.

 

“Security
Agreements” shall mean any one or more of the security agreements delivered
pursuant to Section 6C and each other security agreement heretofore or
from time to time hereafter delivered in respect of the Obligations, as each
such agreement may be from time to time amended, extended, restated,
supplemented or otherwise modified.

 

20

 

“Security
Documents” shall be the collective reference to (x) each of the
agreements referred to in Section 6 (or on the Closing Checklist referred
to therein) pursuant to which Collateral is or was granted or is or was
intended to be granted, directly or indirectly, to Agent on behalf of the
Lenders, (y) each agreement entered into after the Execution Date pursuant
to which any collateral is or was granted or is or was intended to be granted,
directly or indirectly, to Agent on behalf of the Lenders and any other Person
(if any) sharing an interest in such collateral, and (z) all amendments,
supplements or other modifications to such agreements or replacements
thereof.  Without limiting the generality
of the foregoing, each Security Agreement, each Pledge Agreement, each cash
collateral agreement securing any Obligation, each depositary bank
acknowledgement relating to any bank account of any Loan Party, each other
agreement pursuant to which any obligations are subordinated to any of the
Obligations (whether pursuant to a subordination agreement, subordination
provisions in any other agreement or instrument or otherwise), each Pledged
Note, and each security agreement securing the obligations under any Pledged
Note shall constitute Security Documents. 
However, as to a Loan Party, the term “Security Document” shall not
include any such document as to which such Loan Party is released from all its
obligations thereunder by Agent or the Lenders in accordance with the terms
hereof or thereof.

 

“Servicing
Restricted Funds” means funds received by FC Servicing or Minn Servicing in
the ordinary course of such company’s servicing business for the account of
Persons other than FC Servicing, Minn Servicing, Borrower or any other
Subsidiary of Borrower.

 

“Senior
Lender” — introductory paragraph.

 

“Senior
Loan” — recitals.

 

“Senior
Note” — Section 2.2.

 

“Shareholder
Agreement” shall mean any agreement (other than a certificate of
incorporation, customary by–laws, a limited liability company formation
certificate or a partnership formation certificate but including resolutions of
any Person owning any Equity Interests in such Person) among any holders of
Equity Interests issued by Borrower, any Primary Obligor or any Related Entity
relating to the management of any such Person or any of the rights or
privileges of any holders of Equity Interests of any such Person.

 

“Stated
Amount” shall mean, as to each Letter of Credit, the maximum amount payable
thereunder to the beneficiary thereof upon compliance with the terms and
conditions stated therein, as such amount may be reduced from time to time.

 

“Stock”
shall mean all shares and other Equity Interests issued by a corporation,
whether voting or non–voting, including but not limited to, common stock,
warrants, preferred stock, convertible debentures, and all agreements,
instruments and documents convertible, in whole or in part, into any one or
more or all of the foregoing.

 

“Subordinated
Credit Agreement” — Recitals.

 

“Subordinated
Lender” — Introductory paragraph.

 

21

 

“Subordinated
Loan” — Recitals.

 

“Subordinated
Note” — Section 2.2.

 

“Subordination
Agreement” shall mean the Subordination Agreement dated as of October 31,
2007 by and among BoS (USA), the Agent and FC, as amended and restated on the
date hereof.

 

“Subsidiary”
of any Person (the “First Person”) shall mean any other Person more than
50% of the indicia of equity rights (whether capital stock or otherwise) of
which is at the time owned, directly or indirectly by the First Person and/or
by one or more of such First Person’s Subsidiaries other than the Harbor
Debtors and Immaterial Entities.  Unless
otherwise indicated, references to Subsidiaries shall refer to Subsidiaries of
Borrower.  “Subsidiary” shall not include
any Non-Covered Entity.

 

“Summary
Waterfall Certificate” shall mean a certificate in a form approved by Agent
which sets forth summary information as to all Waterfall Certificates being
delivered on or about the same day as such certificate

 

“Tangible
Net Worth”, at any time, shall mean the total of shareholders’ equity
(including capital stock (both common and preferred), additional paid–in
capital and retained earnings after deducting treasury stock of a Person), less
the sum of the total amount of any intangible Assets, which, for purposes of
this definition, shall include, without limitation, general intangibles and, if
applicable, all accounts receivable not incurred in the ordinary course of
business from any Affiliate of such Person or any loans to directors or
officers of any Affiliate of such Person, unamortized deferred charges and good
will, all as determined in accordance with GAAP.

 

“Taxes”
— Section 5.4.

 

“Termination
Event” shall mean (i) a Reportable Event described in Section 4043
of ERISA and the regulations issued thereunder (other than a Reportable Event
not subject to the provision for 30–day notice to the PBGC under such
regulations), or (ii) the withdrawal of any Loan Party or any of its ERISA
Affiliates from a Pension Plan during a plan year in which it was a “substantial
employer” as defined in Section 4001(a)(2) of ERISA, or (iii) the
issuance of a notice of intent to terminate a Pension Plan or the treatment of
a Pension Plan amendment as a termination under Section 4041 of ERISA, or (iv) receipt
by any Loan Party or any ERISA Affiliate of notice of the PBGC’s intention to
terminate any Pension Plan or to have a trustee or the PBGC appointed to
administer any Pension Plan or (v) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan.

 

“Total
Outstandings” as of a particular date shall mean the sum of (i) Loans
Outstandings on such date and (ii) LC Obligations on such date.

 

“Transfer
Supplement” — Section 12.4(c).

 

“Transfer”
shall mean any sale, conveyance, lease or other disposition (and “Transferred”,
“Transferring” and other variations thereof shall have correlative meanings).

 

22

 

“UCC”
— Section 10.30.

 

“United
States”, “US” or “U.S.” shall mean the United States of
America.

 

“Upfront
Fee” — Section 4.4.

 

“US
Person” shall mean a Person formed under the laws of the United States, any
of the 50 states or the District of Columbia or any territory of the United
States.

 

“Valuation
Certificate” — Section 6.18.

 

“Waterfall
Certificate” in respect of any Payment Date shall mean a completed made by
FLBG in a form approved by Agent which sets forth information with respect to
Net Collections of an Asset Pool during the preceding period to which such
certificate is applicable and such other information as Agent shall require.

 

“Wave
Litigation” shall mean FH Partners LLC
v. Superior Funding, Inc., Wave Tec Pools, Inc., Nations Pool Supply, Inc.,
Jason B. Herring and Kimberly McCormick aka Kimberly Herring.

 

“Wholly-Owned
Subsidiary” shall mean any Subsidiary of Borrower of which all of the
outstanding shares of stock, limited liability company interests or partnership
interests (as the case may be) are owned by Borrower and/or one or more wholly
owned direct or indirect Subsidiaries of Borrower.  “Wholly-Owned Subsidiary” shall not include
any Non-Covered Entity.

 

23

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