Second Supplemental Indenture among Delta Financial Corporation, Subsidiary Guarantors, and The Bank of New York as Trustee

Summary

Delta Financial Corporation, its subsidiaries, and The Bank of New York (as trustee) have entered into this Second Supplemental Indenture to amend the terms of their existing Indenture related to 9.5% Senior Notes due 2004. The amendment extends deadlines for an exchange offer and updates related terms, with the consent of a majority of noteholders. The agreement is binding on all parties and noteholders, and is governed by New York law. All other terms of the original Indenture remain in effect.

EX-10.1 2 0002.txt SECOND SUPPLEMENTAL INDENTURE 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, DFC Financial of Canada Limited, an Ontario, Canada 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/ MARC MILLER -------------------------- Name: Marc Miller Title: Senior Vice President DELTA FUNDING CORPORATION By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Senior Vice President DF SPECIAL HOLDINGS CORPORATION By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Vice President FIDELITY MORTGAGE, INC. By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Vice President DFC FINANCIAL OF CANADA LIMITED By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Vice President DFC FUNDING OF CANADA LIMITED By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Vice President CONTINENTAL PROPERTY MANAGEMENT CORP. By: /S/ MARC MILLER -------------------------- Name: Marc Miller Title: Vice President THE BANK OF NEW YORK, Indenture Trustee By: /S/ JULIE SALOVITCH-MILLER -------------------------- Name: Julie Salovitch-Miller 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 & Gray (counsel to the Informal Committee) and Houlihan Lokey Howard & Zukin 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 & Gray, 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 Miller 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.