SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of October 16, 2000, by and among
Delta Financial Corporation, a Delaware corporation (the "Company"), each of
Delta Funding Corporation, a New York corporation ("Delta Funding"), DF Special
Holdings Corporation, a Delaware corporation ("DF Special Holdings"), Fidelity
Mortgage, Inc., a Delaware corporation, XXX Xxxxxxxxx xx Xxxxxx Xxxxxxx, xx
Xxxxxxx, Xxxxxx corporation, DFC Funding of Canada Limited, an Ontario, Canada
corporation, Continental Property Management Corp., a New York corporation
(collectively, the "Subsidiary Guarantors") and The Bank of New York, a New York
banking corporation, as trustee (the "Trustee"), under the Indenture referred to
below.
WHEREAS, the Company, the Subsidiary Guarantors and the Trustee have
previously entered into an Indenture dated as of July 23, 1997, as amended, (the
"Indenture") relating to the Company's 9 1/2% Senior Notes Due 2004 (the
"Notes");
WHEREAS, Section 9.2 of the Indenture provides that the Company, the
Subsidiary Guarantors and the Trustee may, with the written consent of the
holders of at least a majority in principal amount of the outstanding Notes,
amend or supplement the Indenture as provided herein;
WHEREAS, the holders of a majority in principal amount of the outstanding
Notes (the "Consenting Noteholders") have consented to this Second Supplemental
Indenture and agreed with the Company to extend the deadline for consummating
the Exchange Offer contemplated in the First Supplemental Indenture, dated
August 1, 2000 (the "First Supplemental Indenture"), by and among the Company,
the Subsidiary Guarantors and the Trustee; and
WHEREAS, all acts and things prescribed by law and by the Company's and
the Subsidiary Guarantors' Certificates of Incorporation and By-laws (each as
now in effect) necessary to make this Second Supplemental Indenture a valid
instrument legally binding on the Company and the Subsidiary Guarantors for the
purposes herein expressed, in accordance with its terms, have been duly done and
performed;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the Subsidiary Guarantors and the Trustee hereby agree for the benefit
of each other and the equal and ratable benefit of the holders of the Notes as
follows:
1. AMENDMENT OF SECTION 5 OF THE FIRST SUPPLEMENTAL INDENTURE.
The second sentence of Section 5 of the First Supplemental Indenture is
hereby deleted in its entirety and replaced by the following:
" If (i) the definitive terms of the Exchange Offer (as defined in the
Term Sheet) have not been agreed with the Consenting Noteholders on or prior to
October 24, 2000 or (ii) if the Company does not consummate the Exchange Offer
by exchanging New Notes (as defined in the Term Sheet) for Notes with the
Exchanging Holders on or prior to December 8, 2000, an Event of Default shall be
deemed to have occurred at such time under the Indenture."
2. AMENDMENT TO ANNEX A OF THE FIRST SUPPLEMENTAL INDENTURE.
Annex A of the First Supplemental Indenture is hereby deleted in its
entirety and replaced by Annex A attached hereto.
3. EFFECTIVENESS. This Second Supplemental Indenture shall be effective as
of the date hereof.
4. CONSTRUCTION. For all purposes of this Second Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same meanings
as corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Second Supplemental Indenture refer to this Second Supplemental Indenture as a
whole and not to any particular Section hereof.
5. TRUSTEE ACCEPTANCE. The Trustee accepts the amendment of the Indenture
effected by this Second Supplemental Indenture and agrees to execute the trust
created by the Indenture, as hereby amended, but only upon the terms and
conditions set forth in the Indenture, as hereby amended, including the terms
and provisions defining and limiting the liabilities and responsibilities of the
Trustee, which terms and provisions shall in like manner define and limit its
liabilities and responsibilities in the performance of the trust created by the
Indenture, as hereby amended. Without limiting the generality of the foregoing,
the Trustee has no responsibility for the correctness of the recitals of fact
herein contained which shall be taken as the statements of the Company and makes
no representations as to the validity, enforceability against the Company, or
sufficiently of this Second Supplemental Indenture.
6. INDENTURE RATIFIED. Except as expressly amended hereby, the Indenture
is in all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in full force and effect.
7. HOLDERS BOUND. This Second Supplemental Indenture shall form a part of
the Indenture for all purposes, and every Holder of the Notes heretofore or
hereafter authenticated and delivered shall be bound hereby.
8. SUCCESSORS AND ASSIGNS. This Second Supplemental Indenture shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
9. COUNTERPARTS. This Second Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and the
same instrument.
10. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THIS FIRST SUPPLEMENTAL INDENTURE WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
[SIGNATURE BLOCK ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Company, the Subsidiary Guarantors and the Trustee
have caused this Second Supplemental Indenture to be signed and executed as of
the day and year first above written.
DELTA FINANCIAL CORPORATION
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Senior Vice President
DELTA FUNDING CORPORATION
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Senior Vice President
DF SPECIAL HOLDINGS CORPORATION
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Vice President
FIDELITY MORTGAGE, INC.
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Vice President
DFC FINANCIAL OF CANADA LIMITED
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Vice President
DFC FUNDING OF CANADA LIMITED
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Vice President
CONTINENTAL PROPERTY MANAGEMENT CORP.
By: /S/ XXXX XXXXXX
--------------------------
Name: Xxxx Xxxxxx
Title: Vice President
THE BANK OF NEW YORK, Indenture Trustee
By: /S/ XXXXX XXXXXXXXX-XXXXXX
--------------------------
Name: Xxxxx Xxxxxxxxx-Xxxxxx
Title: Vice President
Delta Financial Corporation and Subsidiaries
Term Sheet of Informal Noteholder Committee
FOR RESTRUCTURING (THE "RESTRUCTURING TERM SHEET")
DEBTORS AND OLD Delta Financial Corporation ("DELTA HOLDINGS"),
SECURITIES and all of its subsidiaries (collectively the
"DEBTORS") that are guarantors of the 9 1/2%
Senior Notes of Delta Holdings (the "OLD
Notes").
OVERVIEW Certain holders of Old Notes, consisting of
beneficial owners of a majority in principal
amount thereof, shall consent to a supplemental
indenture (the FIRST SUPPLEMENTAL INDENTURE, as
amended by the Second Supplemental Indenture,
and collectively the "Supplemental Indenture")
that shall permit the Debtors to pledge, or
transfer to a special purpose entity, of
interest-only and residual certificates
("RESIDUALS") and Servicing Receivables, or
rights therein, to initially obtain
approximately $16 million of interim financing
(the "INTERIM FINANCING") from a warehouse
lender (the "Warehouse Lender"). The negative
pledge under the Old Notes Indenture shall
continue to apply to $150MM of Residuals until
the Exchange Offer occurs, and thereafter the
terms of the Exchange Offer shall govern.
This $150MM shall be Senior Residuals, except
if the Company deposits $7.125 million into
escrow, simultaneous with such deposit, such
$150 MM requirement shall be modified to $112.5
MM of Senior Residuals and $42.5 MM of other
Residuals. Except for this negative pledge,
pending consummation of the Exchange Offer, the
Debtors will be permitted to do financings
currently permitted under the Old Notes
Indenture.
The capitalization of the Debtors shall be
restructured (the "EXCHANGE OFFER") through an
exchange offer. Holders of Old Notes tendering
into the exchange shall receive new notes and
warrants. At the time the Exchange Offer is
consummated, the new notes indenture shall permit
one or more financing transactions utilizing
Residuals and Servicing Receivables to raise
capital for the company, subject to all the
limitations herein. The Exchange Offer shall
include covenant-stripping amendments to the Old
Notes Indenture.
It shall be a default under the Old Notes
Indenture if the Consenting Noteholders and the
Debtors have not reached definitive agreement on
the terms of an exchange offer on or before
October 24, 2000.
New Securities Each holder of Old Notes who tenders into the
Exchange Offer shall receive a PRO RATA share
NEW SENIOR SECURED NOTES of a new issue of up to $150.0 million
aggregate principal amount 9 1/2% Senior Secured
Notes (the "NEW NOTES") of Delta Holdings. SEE
TERM SHEET FOR NEW NOTES, ATTACHED HERETO AS
ANNEX A.
NEW WARRANTS Each holder of Old Notes who tenders into the
Exchange Offer shall receive a PRO RATA share
of a new issue of warrants (the "WARRANTS") of
Delta Holdings for 10% of the currently issued
and outstanding common stock of Delta
Holdings. SEE TERM SHEET FOR NEW WARRANTS,
ATTACHED HERETO AS ANNEX B.
INTERIM FINANCING CONSENT The Consenting Noteholders shall agree to
permit the Interim Financing (the "INTERIM
FINANCING CONSENT"). The Supplemental Indenture
shall lift the negative pledge from certain
Residuals and all other applicable covenants to
the extent necessary in order to permit the
Interim Financing.
COUPON PAYMENT At the time of the Interim Financing Consent
the Debtors shall direct the Warehouse Lender
to make payments out of the proceeds of the
Interim Financing directly to the indenture
trustee for the Old Notes to pay the August 1,
2000 coupon on the Old Notes.
LOCK-UP AGREEMENT
PARTIES TO LOCK-UP Certain holders of Old Notes will become party
to a Lock-up Agreement with the Debtors (such
holders being the "CONSENTING NOTEHOLDERS") at
the time definitive documentation for the
Exchange Offer is consented to by the
Consenting Noteholders.
COMMITTEE ADVISORS During the Lock-up Period, and until the warm
back-up servicer is in place, and thereafter
(if applicable) following the occurrence of an
Event of Default under either of the Old Notes
Indenture (if the Exchange Offer is not
consummated) or the New Notes Indenture, the
Debtors shall pay the fees and expenses of
Ropes & Xxxx (counsel to the Informal
Committee) and Xxxxxxxx Xxxxx Xxxxxx & Xxxxx
Capital ("HLH&Z") (financial advisor to the
Informal Committee). All such fees shall be
paid under retainer agreements similar in form
to the payment agreement between the Company
and Ropes & Xxxx, with retainer amounts for
HLH&Z acceptable to the Informal Committee and
HLH&Z in their reasonable discretion.
The Debtors shall give the Informal Committee's
advisors full reasonable access to all legal,
operational and financial materials to allow them
to monitor the Debtor's operations and status.
COVENANTS OF DEBTORS The Debtors shall use their best efforts to
DURING LOCK-UP PERIOD have the Exchange Offer consummated with not
less than the percentage of holders of Old Notes
required under the Old Notes Indenture tendering
into the exchange, so as to be consummated not
later than December 8, 2000. Failure to consummate
by December 8, 2000 shall constitute an Event of
Default under the Old Notes Indenture, as amended
by the First Supplemental Indenture and the Second
Supplemental Indenture.
Until consummation of the Exchange Offer, the
Debtors shall not engage in any transaction
outside the ordinary course of business, or enter
into any agreement to consummate such a
transaction.
ONGOING COVENANTS OF During the Lock-up Period and thereafter, the
DEBTORS Debtors shall make all preparations to be able
to facilitate the effectuation of a transfer of
servicing and other matters necessary for the
bondholders to effectively realize on the
collateral being pledged should a default occur in
the future. These preparations shall include
implementing a warm-back-up servicer by March 15,
2001, if the Exchange Offer is consummated, or as
quickly as is practicable if the Exchange Offer is
not consummated, such servicer and servicing
agreement to be satisfactory to the Informal
Committee. The requirements for a warm back-up
servicer shall be extinguished upon the Debtors
achieving Liquidity of $40MM but shall be
reinstated if Debtors Liquidity goes below
$32.5MM.
REPRESENTATIONS OF Each Consenting Noteholder shall represent and
CONSENTING NOTEHOLDERS warrant, in favor of the Debtors and the
Indenture Trustee, that it is the beneficial owner
of a stated amount of Old Notes.
TERMINATION OF LOCK-UP The passage of December 8, 2000 without
PERIOD AND OBLIGATIONS consummation of the Exchange Offer.
OF CONSENTING
NOTEHOLDERS
FORM OF DOCUMENTATION All documentation (including all documentation
contemplated by Annexes A and B hereto) to be
satisfactory in form and substance to both the
Consenting Noteholders and to the Debtors in
their respective sole discretion. The Debtors
and their officers and directors shall provide
such certificates, representations and
warranties as the Consenting Noteholders shall
require.
AS OF AUGUST 1, 2000
ANNEX A
Restructuring of Delta Financial Corporation
and Subsidiaries
TERM SHEET FOR
9 1/2% SENIOR SECURED NOTES DUE 2004 (THE "NEW NOTES")1
ISSUER Delta Financial Corporation ("DELTA HOLDINGS"),
under a trust indenture with an indenture trustee
(the "INDENTURE TRUSTEE") mutually acceptable to
the Debtors and the Consenting
Noteholders.
GUARANTORS All subsidiaries of Delta Holdings, which
currently are guarantors of the Old Notes, plus
all additional subsidiaries ("eligible
subsidiaries") which are not contractually
prohibited from being a guarantor .
PRINCIPAL AMOUNT up to $150,000,000
INTEREST 9 1/2% per annum, payable semiannually in arrears
on February 1 and August 1 of each year (each an
"INTEREST PAYMENT DATE"). Interest shall be deemed
to accrue as of the last interest payment date
under the Old Notes.
MATURITY August 1, 2004.
-------------------------------
1 Capitalized terms defined in the Restructuring Term Sheet and not
otherwise defined herein are used herein with the meanings so defined.
COLLATERAL Perfected first priority liens on all
contractual rights to be the servicer (and
following exercise of such right, in all rights
arising by virtue of the servicing rights), in
the warm back-up servicing agreement and upon
the stock of all eligible subsidiaries of Delta
Holdings.
Perfected first priority liens on the beneficial
interests in one or more (in the discretion of the
Consenting Noteholders) Delaware business trusts
that holds Residuals received by the Debtors (the
"RESIDUALS COLLATERAL TRUSTS"). The Residual
Collateral Trusts shall be restricted subsidiaries
and wholly owned subsidiaries of Delta Funding
Corporation and/or of DF Special Holdings
Corporation and each Residuals Collateral Trust
shall hold Residuals received by its parent.
The Debtors will not be permitted to pledge, sell,
lease or securitize other assets following an
uncured default or Event of Default.
Amounts sufficient to meet the first coupon
payment on the New Notes shall be placed into
escrow (immediately upon conclusion of the
so-called NIMS trade). The Debtors shall use their
best efforts to conclude the so-called NIMs trade
as soon as practicable subject to market
conditions, but in no event later than January 1,
2001.
So long as the New Notes are outstanding, the
Debtors shall cause all Residuals to be
transferred to the Residuals Collateral Trust
immediately upon the Debtors' obtaining such
Residuals. Provided no Event of Default has
occurred and is continuing, the Debtors shall be
permitted to substitute other Residuals for the
Residuals within the Residuals Collateral Trusts
provided the Residuals being deposited were
received by the parent of the respective Residuals
Collateral Trust and the Residuals Coverage Ratio
is satisfied after giving pro forma effect to the
substitution.
DESCRIPTION OF RESIDUALS COVERAGE RATIO The value of
FINANCIAL COVENANTS Residuals and cash in the Residuals Collateral
Trust shall not be less than $165 million. Such
minimum value shall increase on the following
schedule:
on and after September 30, 2001 $170MM
on and after September 30, 2002 $175MM
on and after September 30, 2003 $200MM
on and after September 30, 2004 $210MM
The aggregate value of Senior Residuals in the
Residuals Collateral Trust shall initially be not
less than $150 million, or in the event Delta
Holdings has deposited $7.125 million into escrow
for coupon payments, such amount shall be
decreased to $112.5 million simultaneous with such
deposit. (The Residuals Collateral Trust shall
still be required to maintain the minimum values
of $165 million, and increasing after 9/30/01,
aggregate value of Residuals and cash, set forth
in the first sentence.). The value amount of
Senior Residuals in the Residuals Collateral Trust
shall be raised to $150MM on the third anniversary
of the Issue Date of the New Notes and to $155.0
million after the fourth anniversary of the Issue
Date. Residuals which were created through net
interest margin securities transactions ("NIMS")
shall be deemed to be Senior Residuals when the
outstanding principal amount of all other
securities issued in the applicable NIMS has
decreased to 20% or less of their aggregate
original principal amount. For purposes of these
covenants, the value of Senior Residuals shall be
calculated in accordance with GAAP except using a
discount rate of 12%, and the value of all other
Residuals shall be calculated in accordance with
GAAP except using a discount rate of 18%.
MINIMUM CASH ON HAND The Debtors shall not have
less than $10,000,000 of cash and cash equivalents
on hand at any time (including any money held in
escrow), using the same requirements as in the
Debtor's warehouse lines of credit (the "Warehouse
Lines") ("Liquidity").
DESCRIPTION OF OTHER IN GENERAL: As under the Old Notes Indenture
COVENANTS (to the extent not inconsistent with this Term
Sheet or the negotiations of the parties) plus
covenants set forth in the loan documents for the
Warehouse Lines.
LIMITATIONS ON LIENS OR RIGHTS TO BE SERVICER OR
SALE OF STOCK OF SUBSIDIARIES: Prohibited without
consent of 51% of the New Notes.
RESTRICTIONS ON REDEMPTIONS AND DIVIDENDS.
Prohibited for existing equity without consent of
51% of the New Notes. Dividends and redemptions on
new equity of Delta Holdings are limited to the
aggregate amount of investment by the new equity.
Certain additional restrictions on other
transfers.
TRANSACTIONS WITH AFFILIATES As customary for
secured bank loans.
REPORTING: Within 90 days following the end of
each fiscal year, KPMG (or such other firm of
internationally recognized accountants as is then
retained by the Company to audit its financial
statements) as part of its annual audit will
confirm that the methodology and assumptions
employed by the Debtor in determining the value of
the Residuals.
BACK-UP SERVICER: By March 15, 2001, Delta Funding
will, at its own cost, enter into a "warm" back-up
servicing agreement (the "Servicing Agreement")
with a nationally recognized servicer, which will
provide for mapping and monthly back-up of
information relating to the mortgage loans
underlying Residuals created after 1996.
EVENTS OF DEFAULT As in the Old Notes Indenture,
breach of covenants or conditions under the New
Notes Indenture, and cross default to all
Warehouse Lines, and to all collateral agreements
and related agreements.
RELIEF FROM STAY. The Debtors shall consent to
relief from the automatic stay in the event of
a chapter 11 or chapter 7 filing.
COUPON PAYMENT. The Debtors shall certify 30 days
prior to the initial due date (without grace) of
each coupon payment on the New Notes that funds
necessary to pay the coupon payment have been
placed in escrow on terms identical to those for
the coupon required to be escrowed at the time of
the Exchange Offer.
CHANGE OF CONTROL PUT As in the Old Notes Indenture.
REGISTRATION RIGHTS The New Notes shall not be registered under
the Securities Exchange Act of 1934. The Debtors
shall register the New Notes at the request of 51%
of the beneficial holders of the New Notes.
AMENDMENTS Majority consent required for all non
ministerial amendments; PROVIDED, HOWEVER,
consent of each holder shall be required for
changes to such holder's rights with respect to
(i) interest and principal payments and
redemption/call/put provisions, (ii) maturity
date, (iii) currency of payment, (iv) place of
payment and (v) right to bring suit for
interest and principal.
OTHER PROVISIONS Customary certification, notice and
reporting provisions for collateral monitoring
under a senior secured bank facility, including
quarterly and audited annual reporting.
Other provisions to be consistent with terms of
Indenture for the Old Notes or as otherwise agreed
by the Debtors and a majority of the Consenting
Noteholders.
AS OF AUGUST 1, 2000
ANNEX B
Restructuring of Delta Financial Corporation
and Subsidiaries
TERM SHEET FOR
WARRANTS (THE "WARRANTS")2
ISSUER Delta Financial Corporation ("Delta Holdings").
NUMBER Warrants exercisable for common shares equal to
10% of currently issued and outstanding common
shares.
EXERCISE PERIOD The Warrants shall expire on the 10th
anniversary of their issuance. The Warrants (if
not previously exercised) shall expire and be of
no further force or effect upon payment of the New
Notes in full.
EXERCISE PRICE At issuance: $9.10 per share.
If equity buy-in of $15MM or more prior to the
second anniversary of their issuance, the exercise
price is reset to 110% of the per share equity
buy-in.
After the second anniversary, the exercise price
is $0.01 per share.
DIVIDENDS The Issuer shall provide prior notice to the
holders of Warrants of any record date for
dividends.
-----------------------------
2 Capitalized terms defined in the Restructuring Term Sheet and not
otherwise defined herein are used herein with the meanings so defined.
MAJOR CORPORATE Upon any sale or disposition of the company, or
TRANSACTIONS change of control, Warrant holders shall have
the right to exercise all Warrants. Warrant
holders shall have tag-along rights with Xxxxxx
family shares sold in any change of control
transaction.
ADJUSTMENTS; The number of Warrants shall be adjusted in the
ANTIDILUTION event of stock-splits, combinations,
reclassifications and stock-for-stock
distributions. In the event of any merger or other
such transaction, the holders of Warrants shall
receive as part of such transaction consideration
equal in amount and kind to the consideration
given to holders of common stock of the Issuer.
The Warrants shall also have provisions to prevent
dilution by below-market-price issuances of stock
or other equity interests.
REGISTRATION RIGHTS Demand registration rights.
MISCELLANEOUS Customary notice rights.
Customary rights and remedies, including the right
to specific performance.
