Loan Agreement

EXHIBIT 10.1


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FOURTH AMENDED AND RESTATED
LOAN AGREEMENT


Dated as of July 10, 2006


By and among


ASTA FUNDING ACQUISITION I, LLC, ASTA FUNDING ACQUISITION II, LLC,
PALISADES COLLECTION, L.L.C., PALISADES
ACQUISITION I, LLC, PALISADES ACQUISITION II, LLC, PALISADES
ACQUISITION IV, LLC, AND CLIFFS
PORTFOLIO ACQUISITION I, LLC


as Borrowers,


THE OTHER CREDIT PARTIES SIGNATORY HERETO
FROM TIME TO TIME,
as Credit Parties,


THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,


ISRAEL DISCOUNT BANK OF NEW YORK


as Administrative Agent, Co-Administrative Agent and Co-Lead Arranger


MERRILL LYNCH CAPITAL,
a Division of Merrill Lynch Business Financial Services Inc.


as Administrative Agent, Co-Administrative Agent and Co-Lead Arranger


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1. AMOUNT AND TERMS OF CREDIT


1.1 Credit Facilities


1.2 Prepayments


1.3 Use of Proceeds


1.4 Interest and Applicable Margins


1.5 Cash Management Systems


1.6 Fees


1.7 Receipt of Payments


1.8 Application and Allocation of Payments


1.9 Loan Account and Accounting


1.10 Indemnity


1.11 Access


1.12 Taxes


1.13 Capital Adequacy; Increased Costs; Illegality


1.14 Single Loan


1.15 Security Interest


1.16 No Obligations Outstanding


2. CONDITIONS PRECEDENT


2.1 Conditions to the Initial Revolving Loan


2.2 Further Conditions to Each Loan


3. REPRESENTATIONS AND WARRANTIES


3.1 Corporate Existence; Compliance with Law


3.2 Executive Offices, Collateral Locations, FEIN


3.3 Corporate Power, Authorization, Enforceable Obligations


3.4 Financial Statements and Projections


3.5 Material Adverse Effect


3.6 Ownership of Property; Liens


3.7 Labor Matters


3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness


3.9 Government Regulation


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3.10 Margin Regulations


3.11 Taxes


3.12 ERISA


3.13 No Litigation


3.14 Brokers


3.15 Intellectual Property


3.16 Full Disclosure


3.17 Environmental Matters


3.18 Insurance


3.19 Deposit and Disbursement Accounts


3.20 Government Contracts


3.21 Customer and Trade Relations


3.22 Agreements and Other Documents


3.23 Solvency


3.24 Restrictions on or Relating to Subsidiaries


3.25 Disaster Recovery Plan


4. FINANCIAL STATEMENTS AND INFORMATION


4.1 Reports and Notices


4.2 Communication with Accountants


5. AFFIRMATIVE COVENANTS


5.1 Maintenance of Existence and Conduct of Business


5.2 Payment of Charges


5.3 Books and Records


5.4 Insurance; Damage to or Destruction of Collateral


5.5 Compliance with Laws


5.6 Supplemental Disclosure


5.7 Intellectual Property


5.8 Environmental Matters


5.9 Landlords' Agreements, Mortgagee Agreements, Bailee Letters
and Real Estate Purchases


5.10 ERISA


5.11 Servicing Agreements


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5.12 Inactive Subsidiaries


5.13 Further Assurances


6. NEGATIVE COVENANTS


6.1 Mergers, Subsidiaries, Etc


6.2 Investments; Loans and Advances


6.3 Indebtedness


6.4 Employee Loans and Affiliate Transactions


6.5 Capital Structure and Business


6.6 Guaranteed Indebtedness


6.7 Liens; Lien Release


6.8 Sale of Stock and Assets


6.9 ERISA


6.10 Financial Covenants


6.11 Hazardous Materials


6.12 Sale-Leasebacks


6.13 Cancellation of Indebtedness


6.14 Restricted Payments


6.15 Change of Corporate Name or Location; Change of Fiscal Year


6.16 No Impairment of Intercompany Transfers


6.17 No Speculative Transactions


6.18 Leases; Real Estate Purchases


6.19 Changes Relating to Subordinated Debt; Material Contracts


6.20 Credit Parties Other than Borrowers


6.21 Adverse Transactions


6.22 Disaster Recovery Plan


6.23 Limitation on Collection Fees


6.24 No Amendment to Servicing Agreements


7. TERM


7.1 Termination


7.2 Survival of Obligations Upon Termination of Financing
Arrangements


8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES


8.1 Events of Default


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8.2 Remedies


8.3 Waivers by Credit Parties


9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT


9.1 Assignment and Participations


9.2 Appointment of Administrative Agent


9.3 Administrative Agent's Reliance, Etc


9.4 IDB and Affiliates


9.5 [Omitted]


9.6 Indemnification


9.7 Successor Administrative Agent


9.8 Setoff and Sharing of Payments


9.9 Advances; Payments; Non-Funding Lenders; Information; Actions
in Concert


10. SUCCESSORS AND ASSIGNS


10.1 Successors and Assigns


11. MISCELLANEOUS


11.1 Complete Agreement; Modification of Agreement


11.2 Amendments and Waivers


11.3 Fees and Expenses


11.4 No Waiver


11.5 Remedies


11.6 Severability


11.7 Conflict of Terms


11.8 Confidentiality


11.9 GOVERNING LAW


11.10 Notices


11.11 Section Titles


11.12 Counterparts


11.13 WAIVER OF JURY TRIAL


11.14 Press Releases and Related Matters


11.15 Reinstatement


11.16 Advice of Counsel


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11.17 No Strict Construction


11.18 Administrative Agent for Service


12. CROSS-GUARANTY; SUBORDINATION


12.1 Cross-Guaranty


12.2 Waivers by Borrowers


12.3 Benefit of Guaranty


12.4 Subordination of Subrogation, Etc


12.5 Election of Remedies


12.6 Limitation


12.7 Contribution with Respect to Guaranty Obligations


12.8 Liability Cumulative


12.9 Subordination


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BASE OF APPENDICES


Annex A (Recitals) - Definitions Annex C (Section 1.8) - Cash Management System Annex D (Section 2.1(a)) - Closing Checklist Annex E (Section 4.1(a)) - Financial Statements and Projections
Reporting Annex F (Section 4.1(b)) - Collateral Reports Annex G (Section 6.10) - Financial Covenants Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information Annex I (Section 11.10) - Notice Addresses Annex J (from Annex A -
Commitments definition) - Commitments as of Closing Date
Annex L (Section 11.2(b)(ii)) - Counterpart to Fourth Amended and
Restated Loan Agreement Schedule 1.1 - Administrative Agent's Representatives Schedule 1.1(b) - Ratable Shares of each Borrower


FOURTH AMENDED AND RESTATED LOAN AGREEMENT


THIS FOURTH AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is executed and entered into as of July 11, 2006 (and shall be effective as of the Effective Date) by and among ASTA FUNDING ACQUISITION I, LLC, a Delaware limited liability company, ASTA FUNDING ACQUISITION II, LLC, a Delaware limited liability company, PALISADES COLLECTION, L.L.C., a Delaware limited liability company, PALISADES ACQUISITION I, LLC, a Delaware limited liability company, PALISADES ACQUISITION II, LLC, a Delaware limited liability company, PALISADES ACQUISITION IV, LLC, a Delaware limited liability company, PALISADES ACQUISITION V, LLC, a Delaware limited liability company, PALISADES ACQUISITION VI, LLC, a Delaware limited liability company, PALISADES ACQUISITION VII, LLC, a Delaware limited liability company, PALISADES ACQUISITION VIII, LLC, a Delaware limited liability company, PALISADES ACQUISITION IX, LLC, a Delaware limited liability company, PALISADES ACQUISITION X, LLC, a Delaware limited liability company, CLIFFS PORTFOLIO ACQUISITION I, LLC, a Delaware limited liability company, SYLVAN ACQUISITION I, LLC, a Delaware limited liability company, and OPTION CARD, LLC, a Colorado limited liability company (sometimes collectively referred to herein as "Borrowers" and individually as a "Borrower"); ASTA FUNDING, INC., a Delaware corporation, COMPUTER FINANCE, LLC, a Delaware limited liability company, ASTAFUNDING.COM, LLC, a Delaware limited liability company, ASTA COMMERCIAL, LLC, a Delaware limited liability company, and VATIV RECOVERY SOLUTIONS, LLC, a Texas limited liability company (collectively, "Guarantor"); ISRAEL DISCOUNT BANK OF NEW YORK, a New York banking corporation ("IDB"), as collateral agent for itself and the lenders signatory hereto from time to time (together with any successor collateral agent appointed pursuant to Section 9.7, the "Collateral Agent"), as administrative agent (together with any successor administrative agent appointed pursuant to Section 9.7, the "Administrative Agent", and together with the Collateral Agent, the "Agents"), and as co-lead arranger; MERRILL LYNCH CAPITAL, a Division of Merrill Lynch Business Financial Services Inc. ("Merrill Lynch"), as co-lead arranger and as co-administrative agent; and the Lenders (as defined below).


BACKGROUND


A. Borrowers and Guarantors, along with IDB, as agent, and certain Lenders are parties to a certain Third Amended and Restated Loan and Security Agreement dated as of May 11, 2004 (as amended, modified, supplemented or restated from time to time, the "Existing Loan Agreement").


B. Borrowers, Guarantors, IDB and the Lenders have agreed to amend and restate the terms of the Existing Loan Agreement as set forth herein.


NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree that the Existing Loan Agreement is amended and restated in its entirety as follows:


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1. AMOUNT AND TERMS OF CREDIT


1.1 Credit Facilities.


(a) Revolving Credit Facility.


(i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make revolving credit advances (each, an "Advance" and collectively, the "Advances") to Borrowers from time to time until the Commitment Termination Date its Pro Rata Share of such Advances. The Pro Rata Share of the Revolving Loan of any Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment. The obligations of each Revolving Lender hereunder shall be several and not joint. Until the Commitment Termination Date, Borrowers may borrow, repay and reborrow under this Section 1.1(a); provided that the amount of any Advance to be made at any time shall not exceed Borrowing Availability at such time. Each Advance shall be made on notice by Borrower Representative on behalf of the applicable Borrower to one of the representatives of Administrative Agent identified in Schedule 1.1 at the address specified therein. Any such notice must be given no later than (1) 1:00 p.m. (New York time) on the Business Day of the proposed Advance, in the case of a Base Rate Loan, or (2) 1:00 p.m. (New York time) on the date which is 3 Business Days prior to the proposed Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Borrowing") must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i) attached to the Disclosure Document, and shall include the information required in such Exhibit and such other information as may be reasonably required by Administrative Agent. If any Borrower desires to have the Advances bear interest by reference to a LIBOR Rate, Borrower Representative must comply with Section 1.5(e).


(ii) Use of Advances to finance Portfolio purchases in excess of $15,000,000 shall require the consent of the Administrative Agent and use of Advances to finance Portfolio purchases in excess of $25,000,000 shall require the consent of the Requisite Lenders. In connection with such purchases, Borrowers shall deliver to Administrative Agent and Requisite Lenders, if applicable, the Portfolio Proposal relating to such purchases. For purposes of this Section 1.1(a)(ii) only, any Requisite Lenders that have not responded within 4 Business Days of receipt of a request for their consent for the purchase of a Portfolio in excess of $25,000,000 shall be deemed to have consented to such purchase. Borrowers agree not to intentionally propose, modify or structure (or permit to be structured) any Portfolio purchases from any seller or its affiliates, whether as a single transaction or a series of transactions that could reasonably be deemed to be part of the same transaction, for the purpose of evading the requirements of this Section 1.1(a)(ii) to obtain the consent of Administrative Agent or Requisite Lenders, as the case may be. Without limiting the foregoing, any Portfolio purchase occurring within 120 days of any other Portfolio purchase or purchases shall be deemed to be part of the same transaction for purposes of determining whether the consent of the Administrative Agent or Requisite Lenders is required under this Section 1.1(a)(ii). Notwithstanding anything in this Section to the contrary, a Borrower may acquire a Rejected Portfolio having a purchase price in excess of the amount set forth in this Section without the consent of the Administrative Agent or the Requisite Lenders if the purchase is made with Borrowers' own cash or borrowings that are made without including the Rejected Portfolio as an Eligible New Portfolio in the Borrowing Base, and if the Rejected Portfolio is subject to a security interest or Lien in favor of Collateral Agent, for the benefit of itself, the Agents and Lenders, to secure the Obligations. Without conferring approval rights upon Administrative Agent (except as otherwise provided in this Section 1.1(a)(ii)), the applicable Borrower shall deliver to Administrative Agent, upon Administrative Agent's request, such information (as is reasonably available to the applicable Borrower) relating to the purchase of a Portfolio as Administrative Agent may reasonably request (including any available Portfolio Acquisition Documents) within a reasonable period of time following the applicable Borrower's purchase of such Portfolio.


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(iii) Anything in this Agreement to the contrary notwithstanding, at the request of Borrower Representative, Administrative Agent may in its discretion (but shall have absolutely no obligation to) make Advances to Borrowers in amounts that cause the outstanding balance of the aggregate Revolving Loan to exceed the Borrowing Base (an "Overadvance"), provided that: (A) the amount of any or all Overadvances shall not exceed an amount equal to Three Million Dollars ($3,000,000), (B) the outstanding balance of the aggregate Revolving Loan (after taking into consideration such Overadvance) shall not exceed an amount equal to one hundred five percent (105%) of the Borrowing Base, (C) the outstanding balance of the aggregate Revolving Loan shall not exceed the Maximum Amount at any time, (D) any Overadvance must be repaid, together with applicable interest thereon, in full to Administrative Agent, on behalf of Lenders, within 7 calendar days of such Overadvance; and (E) not more than three (3) Overadvances shall be made in any calendar year.


(iv) Administrative Agent shall not be required to advise Borrowers or any Credit Party for the reason for Lenders' failure to approve any Portfolio. Notwithstanding anything in this Section 1.1(a) to the contrary, a Rejected Portfolio may be acquired by any Credit Party in the event that such acquisition is made pursuant to the use of its own cash or borrowings that are made without including the Rejected Portfolio as an Eligible New Portfolio in the Borrowing Base, and if the Rejected Portfolio is subject to a security interest or Lien in favor of Collateral Agent, for the benefit of itself, the Agents and Lenders, to secure the Obligations. A Non-Credit Party Affiliate may finance the acquisition of a Rejected Portfolio, provided, such indebtedness is not guaranteed directly or indirectly by any Credit Party. In no event shall a Non-Recourse Non-Credit Party Loan be guaranteed directly or indirectly by any Credit Party. Provided that any Non-Recourse Non-Credit Party Loan shall have been assigned and transferred to a Non-Credit Party Affiliate, Collateral Agent will provide releases reasonably requested by any other lender with respect to Lender's Liens in any Rejected Portfolio and the proceeds and other rights related thereto.


(v) Except as provided in Section 1.12, Borrowers shall execute and deliver to each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving Lender. Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(v) attached to the Disclosure Document (each a "Revolving Note" and, collectively, the "Revolving Notes"). Each Revolving Note shall represent the obligation of the Borrowers to pay the amount of the applicable Revolving Lender's Revolving Loan Commitment or, if less, such Revolving Lender's Pro Rata Share of the aggregate unpaid principal amount of all Advances to Borrowers together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the aggregate Revolving Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date.


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(b) Reliance on Notices; Appointment of Borrower Representative. Administrative Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Borrowing, Notice of Conversion/Continuation or similar notice purporting to be executed by an officer of the Borrower's Representative and believed by Administrative Agent to be genuine. Administrative Agent may assume that each Person executing and delivering any notice in accordance herewith who purports to be a person on the list of authorized signatories provided from time to time by Borrower's Representative to Administrative Agent was duly authorized, unless the responsible individual acting thereon for Administrative Agent has actual knowledge to the contrary. Each Borrower hereby designates Palisades as its representative and agent on its behalf for the purposes of executing and delivering the Agent Fee Letter and the Lenders' Fee Letter, issuing Notices of Borrowing and Notices of Conversion/Continuation, giving instructions with respect to the disbursement of the proceeds of the Revolving Loan, selecting interest rate options, effecting repayment of the Revolving Loan, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. Borrower Representative hereby accepts such appointment. Administrative Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from Borrower Representative as a notice or communication from all Borrowers, and shall give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower.


1.2 Prepayments.


(a) Voluntary Reductions in Revolving Loan Commitments. Borrowers may at any time on at least 5 days' prior written notice by Borrower Representative to Administrative Agent permanently reduce (but not terminate) the Revolving Loan Commitment; provided that (i) any such prepayments or reductions shall be in a minimum amount of $1,000,000 and integral multiples of $500,000 in excess of such amount (and shall be applied to reduce the Revolving Loan Commitments of the Lenders based on their Pro Rata Share of the reduction), (ii) the Revolving Loan Commitment shall not be reduced to an amount less than the amount of the Revolving Loan then outstanding, and (iii) after giving effect to such reductions, Borrowers shall comply with Section 1.2(b)(i). In addition, Borrowers may at any time on at least 10 days' prior written notice by Borrower Representative to Administrative Agent terminate the Revolving Loan Commitment; provided that upon such termination, the Revolving Loan and other Obligations shall be immediately due and payable in full. Any voluntary reduction or termination of the Revolving Loan Commitment must be accompanied by payment of any LIBOR funding breakage costs in accordance with Section 1.10(b). Upon the effective date of any such reduction or termination of the Revolving Loan Commitment, each Borrower's right to request Advances shall simultaneously be permanently reduced or terminated, as the case may be.


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(b) Mandatory Prepayments.


(i) If at any time the aggregate outstanding balance of the Revolving Loan exceeds Borrowing Availability, Borrowers shall immediately repay the aggregate outstanding Advances to the extent required to eliminate such excess.


(ii) Immediately upon receipt by any Credit Party of proceeds of any asset disposition (excluding proceeds of asset dispositions permitted by Sections 6.8 (a), (d), and (e)) or any sale of Stock of any Subsidiary of any Credit Party, Borrowers shall prepay the Revolving Loan in an amount equal to all such cash proceeds net of (A) underwriting discounts, commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrowers in connection therewith (in each case, paid to non-Affiliates), (B) sales, transfer, and similar taxes, (C) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, (D) amounts required to be placed in escrow in connection with such transaction; provided that such amounts and terms of escrow are customary for transactions of such nature and are reasonably satisfactory to Administrative Agent, and provided, further, that upon the release of any such escrowed funds such funds are applied in accordance with this Section 1.2 and (E) amounts that Administrative Agent reasonably determines are appropriate to meet indemnity and similar obligations, including post-closing purchase price adjustments in connection with such transaction, provided, that upon such obligations terminating, any such amounts not used for such purposes shall be applied in accordance with this Section 1.2.


(iii) Subject to the provisions set forth in Section 6.5 of this Agreement, if any Credit Party issues Stock or any debt securities, no later than the Business Day following the date of receipt of the cash proceeds thereof, Borrowers shall prepay the Revolving Loan in an amount equal to all such cash proceeds, net of underwriting discounts and commissions and other reasonable and customary transaction costs paid to non-Affiliates in connection therewith.


(c) No Implied Consent. Nothing in this Section 1.2 shall be construed to constitute Administrative Agent's or any Lender's consent to any transaction that is not permitted by other provisions of this Agreement or the other Loan Documents.


1.3 Use of Proceeds. Borrowers shall utilize the proceeds of the Revolving Loan solely for the purchase of Portfolios, ordinary working capital and general corporate needs, including, without limitation, the purchase of Rejected Portfolios and to capitalize or fund a Non-Recourse Non-Credit Party Affiliate, subject to the terms, conditions and limitations set forth in this Agreement. The Disclosure Document contains a description of Borrowers' sources and uses of funds as of the Closing Date, including the Revolving Loan to be made or incurred on that date.


1.4 Interest an ...