1
EXHIBIT 4.7
- --------------------------------------------------------------------------------
FINOVA Capital Corporation
Rediscount Finance
LOAN AND SECURITY AGREEMENT
(MULTIPLE BORROWERS)
BORROWER: PREMIUM AUTO ACCEPTANCE CORPORATION
ADDRESS: 5420 LBJ FREEWAY, SUITE 240
DALLAS, TEXAS 75240
BORROWER: PAACO, INC.
ADDRESS: 5420 LBJ FREEWAY, SUITE 240
DALLAS, TEXAS 75240
DATE: DECEMBER 14, 1995
================================================================================
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), whose corporate
address is Dial Tower, Dial Corporate Center, Phoenix, Arizona 85077 and whose
Rediscount Finance Office address is 13355 Noel Road, Suite 800, Dallas, Texas
75240 and the borrowers named above (collectively referred to herein as the
"Borrowers" and singularly as "Borrower"), all of whose chief executive offices
are located at the above addresses (collectively referred to herein as
"Borrowers' Address"). Each Borrower shall be separately defined as set forth in
the Schedule. All representations, warranties, covenants, agreements,
undertaking or other obligations of Borrowers as set forth in this Agreement and
all other Loan Documents are made by each Borrower as if separately set forth
for each Borrower in this Agreement and the other Loan Documents. All financial
covenants and ratios set forth herein shall be applied to the Borrowers in the
aggregate.
1. DEFINITIONS
1.1. ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or
persons that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
1.2. AGREEMENT. The term "Agreement" shall mean this Loan and Security
Agreement and any amendment, modifications or extension hereof.
1.3. BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which
-1-
2
commercial banks are open for business to the public in Phoenix, Arizona and New
York, New York.
1.4. CHARGE OFFS. The term "Charge Offs" shall mean the amount due
(including the principal balance plus all earned fees and charges) pursuant to a
Receivable on the date that Borrower charges off such Receivable as
uncollectible, pursuant to Borrower's policies and/or procedures.
1.5. CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.6. COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
1.7. COLLATERAL RECOVERY RATE. The term "Collateral Recovery Rate" shall
mean, for any period of determination, (i) the total cash collected from all
Receivables (including but not limited to all cash proceeds from charge off
recoveries), divided by (ii) the sum of (a) the Included Rebates plus (b) the
total cash collected from all Receivables (excluding all cash proceeds from
charge off recoveries) plus (c) the aggregate of all Charge Offs for that
period.
1.8. COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity"
shall mean an entity, whether or not incorporated, which is under common control
with Borrower within the meaning of Section 414(b) or (c) of the Code.
1.9. DEFAULT. The term "Default" shall mean an event which with the passage
of time or notice or both would constitute an Event of Default (as defined in
Section 7.1).
1.10. DISTRIBUTIONS. The term "Distributions" shall mean any dividends or
other distribution of earnings to Borrower's shareholders, loans to officers,
directors, affiliates or shareholders.
1.11. ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean
those Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
vehicles or the rendering of services in conjunction with the sale of such
vehicles in the ordinary course of Borrower's business; (ii) represent a valid
and binding obligation enforceable in accordance with its terms for the amount
outstanding thereof without offset, counterclaim or defense (whether actual or
alleged); (iii) comply in all respects with all applicable laws and regulations,
including, but not limited to, truth in lending and credit disclosure laws and
regulations; (iv) all amounts and information appearing thereon or furnished to
Lender in connection therewith are true and correct and undisputed by the
Account Debtor thereon or any guarantor thereof; (v) Borrower and the Account
Debtor are not engaged in any litigation regarding nonpayment of the Receivable;
(vi) to the best knowledge of Borrower neither the Account Debtor thereon nor
any guarantor thereof is subject to any receivership, insolvency or bankruptcy
proceeding, is insolvent or has failed to meet its debts as they mature; (vii)
Borrower has good and sufficient right to pledge, assign and deliver the
Receivables free from all liens, claims, encumbrances or security interests
whatsoever; (viii) neither the Account Debtor thereon nor any guarantor thereof
is employed by, related to or affiliated with Borrower; (ix) to the best
knowledge of Borrower no condition exists that materially or adversely affects
the value of the Receivables or jeopardizes any security therefor; (x) if the
Receivables arise from the sale of goods, such goods have been delivered and
accepted by the Account Debtor and are still subject to the lawful possession
and control of the Account Debtor and have not been otherwise returned to or
repossessed by Borrower; (xi) is not a renewal or extension of any Receivable
previously ineligible hereunder; (xii) the original principal amount thereof
does not exceed the Maximum Amount of an Eligible Receivable (Schedule Sections
1.11.A.) and the original term thereof does not exceed the Maximum Term of an
Eligible Receivable (Schedule Section 1.11.B.); (xiii) meets the Eligibility
Test and has been reported to Lender in compliance with the Aging Procedures
(Schedule Section 1.11.C.); (xiv) is not evidenced by a judgment or has not been
reduced to judgment; (xv) is not an open account; (xvi) is evidenced by a
written payment agreement, bearing interest or containing a time price
differential, which has been executed by the Account Debtor; (xvii) the Account
Debtor thereunder is a legal resident of the United States; and (xviii) payments
under the Receivable are to be made in United States dollars.
1.12. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.13. GAAP. The term "GAAP" shall mean generally accepted accounting
principles and other standards as promulgated by the American Institute of
Certified Public Accountants.
1.14. GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a guaranty agreement in favor of Lender guaranteeing the repayment of
the Borrower's Indebtedness to Lender (Schedule Section 4.5).
1.15. GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that
certain agreement executed by the Guarantor, in a form and substance approved by
Lender.
-2-
3
1.16. GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
1.17. INCLUDED REBATE PERCENTAGE. The term "Included Rebate Percentage"
shall mean, for any period of determination, the percentage determined by (i)
the aggregate of all Charge Offs for that period, divided by (ii) the Nonpayment
Net Receivable Reductions for that period.
1.18. INCLUDED REBATES. The term "Included Rebates" shall mean, for any
period of determination, (i) the aggregate of all rebates of interest for that
period, multiplied by (ii) the Included Rebate Percentage.
1.19. INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
1.20. LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, the remainder of the total liabilities of Borrower, including the
outstanding balance of the Indebtedness, less the outstanding balance pursuant
to all Subordinated Debt, divided by the sum of the amount of Borrower's
Tangible Net Worth plus the outstanding balance due pursuant to all
Subordinated Debt.
1.21. LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement,
the Note, the Schedule, the Guaranty, Subordination Agreements Agency and
Custodian Agreements and all other documents executed in connection with this
Agreement, together with any and all renewals, amendments, restatements or
replacements of such documents.
1.22. MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful
and nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received on the Note and the
Indebtedness under the laws of the United States and the laws of such states as
may be applicable thereto, that are in effect or, to the extent allowed by such
laws, that may be hereafter in effect and that allow a higher maximum
nonusurious and lawful interest rate than would any applicable laws now allow.
1.23. NET INCOME. The term "Net Income" shall mean with respect to any
fiscal period, the net earnings of Borrower (excluding all extraordinary gains
or nonrecurring income) before provision for income taxes for such fiscal period
of Borrower, all as reflected on the financial statements of Borrower supplied
to Lender pursuant to Sections 4.4(A) and 4.4(B) hereof.
1.24. NONPAYMENT NET RECEIVABLE REDUCTIONS. The term "Nonpayment Net
Receivable Reductions" shall mean, for any period of determination, the sum of
(i) the aggregate of all Charge Offs for that period, plus (ii) the aggregate of
all net refinanced balances of a Receivable for that period.
1.25. NOTE. The term "Note" shall mean the promissory note of even date
herewith, executed by Borrower and payable to the order of Lender.
1.26. PLAN. The term "Plan" shall mean any pension plan that is covered by
Title IV of ERISA and with respect to which Borrower or a Commonly Controlled
Entity is an "Employer" as defined in section 3(5) of ERISA.
1.27. RECEIVABLES. The term "Receivables" shall mean all accounts of
Borrower and any other right of Borrower to receive payment, including, without
limitation, all loans, extensions of credit or Borrower's right to payment for
goods sold or services rendered by Borrower.
1.28. REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a
written request for an advance in the form of Exhibit "A" attached hereto and
made a part hereof.
1.29. SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
1.30. SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the
aggregate amount of any indebtedness of Borrower to persons other than Lender
that by its terms is subordinated in all respects, including, but not limited
to, the right of payment, to the prior payment in full of the Indebtedness. A
subordination and standstill agreement, in a form and substance satisfactory to
Lender, shall be entered into by all holders of Subordinated Debt.
1.31. TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean, at any
time of determination, the
-3-
4
shareholder's equity of Borrower determined in accordance with GAAP minus the
aggregate amount of all intangible assets and all assets consisting of
obligations due to Borrower from shareholders, directors, officers, or any
affiliate of Borrower or any Guarantor hereunder.
2. LOAN
2.1. AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time outstanding the lesser
of the following: (a) the Amount of Revolving Credit Line (SCHEDULE SECTION
2.1.A.) or (b) the Availability on Eligible Receivables (SCHEDULE SECTION
2.1.B.). Within the limits of this Section 2.1, Borrower may borrow, repay
and reborrow the advances. The Loan shall be evidenced by the Note.
2.2. INTEREST RATE. The outstanding principal balance of Loan shall bear
interest at the Stated Interest Rate (SCHEDULE SECTION 2.2). If Lender is ever
prevented from charging or collecting interest at the rate set forth in Stated
Interest Rate Section (i) because interest at such rate would exceed interest at
the Maximum Rate, then the rate set forth in Stated Interest Rate Section (i)
shall continue to be the Maximum Rate until Lender has charged and collected the
full amount of interest chargeable and collectable had interest at the rate set
forth in Stated Interest Rate Section (i) always been lawfully chargeable and
collectible. As the Governing Rate changes, the rate set forth in Stated
Interest Rate Section (i) shall be increased or decreased (subject to the
Maximum Rate) on the first day of each calendar month to correspond with the
change in the Governing Rate then in effect and shall remain fixed at such rate
until the first day of the next succeeding calendar month, notwithstanding
fluctuations in the Governing Rate during the month. All changes in the
Governing Rate shall be made without notice to Borrower. The monthly interest
due on the principal balance of the Loan outstanding shall be computed for the
actual number of days elapsed during the month in question on the basis of a
year consisting of three hundred sixty (360) days and shall be calculated by
determining the average daily principal balance outstanding for each day of the
month in question. The daily rate shall be equal to 1/360th times the Stated
Interest Rate (but shall not exceed the Maximum Rate).
2.3. PAYMENTS. All payments to Lender shall be payable at FINOVA Capital
Corporation, File No. 96425, P.O. Box 668100, Charlotte, NC 28266-8100. All
payments received pursuant to this Agreement shall be applied to Borrower's
Indebtedness three (3) Business Days after the actual receipt of such payment by
Lender's depository bank if such payment is credited to Lender's account. The
Indebtedness shall be due and payable as follows:
A. Accrued but unpaid interest for each calendar month during the term
hereof shall be due and payable, in arrears, on or before the fifteenth (15th)
day of the immediately succeeding calendar month; if such accrued but unpaid
interest for the preceding month is not received by the fifteenth (15th) of the
month, such unpaid interest shall be added to the Indebtedness.
B. Costs, fees and expenses payable pursuant to this Agreement shall be due
and payable by Borrower to Lender or to such other person(s) designated by
Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (SCHEDULE SECTION 2.3.).
2.4. PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5. MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2.1, Borrower shall
immediately and without notice, repay to Lender an amount sufficient to
eliminate such excess, or, at Lender's option, assign and deliver additional
Eligible Receivables sufficient for such purpose. In the event Borrower sells,
transfers, assigns or otherwise disposes of all or any portion of its
Receivables, other than in the ordinary course of business, Borrower shall apply
all proceeds of any such sale, transfer, assignment or other disposition to
reduce the outstanding balance of the Indebtedness.
2.6. VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily prepay
the Indebtedness in full at any time, provided, however, that Borrower has given
Lender ninety (90) days written notice of any such intention to prepay the
Indebtedness in full, requests Lender to terminate its security interest in the
collateral upon such prepayment in full and as liquidated damages, not as a
penalty, Borrower pays to Lender the amount of liquidated damages ("Liquidated
Damages") (SCHEDULE SECTION 2.6). Borrower may not make such prepayment prior to
the expiration of such ninety (90) day period. Upon written notice of prepayment
of the Indebtedness in full, the commitment by Lender to advance funds to
Borrower and all the obligations of Lender shall terminate on the expiration of
said ninety (90) day notice
-4-
5
period, and the entire amount of the Indebtedness and the Liquidated Damages
shall be due and payable on such date.
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT. If a court of competent
jurisdiction determines that the laws of any state other than the State of
Arizona apply to this Agreement then the following paragraph A. shall be
applicable to this Agreement and paragraph 2.7.B. hereinbelow shall be of no
force or effect.
A. It is the intent of the parties hereto to conform strictly to the
usury laws in force that apply to this transaction. Accordingly, all
agreements between Lender and Borrower, whether now existing or hereafter
arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of demand or acceleration of the maturity of
the Indebtedness or otherwise, shall the interest (and all other sums that
are deemed to be interest) contracted for, charged, received, paid or
agreed to be paid to Lender exceed interest computed at the Maximum Rate.
If, from any circumstance whatsoever, interest would otherwise be payable
to Lender in excess of interest computed at the Maximum Rate and, if from
any circumstance Lender shall ever receive anything of value deemed
interest by applicable law in excess of interest computed at the Maximum
Rate, then Lender's receipt of the same shall be deemed unintentional, the
interest payable to Lender shall be reduced to interest computed at the
Maximum Rate; and such excess interest received by Lender shall, at the
option of Lender, be repaid to Borrower or credited to the unpaid principal
balance of the Indebtedness. If the Indebtedness is prepaid or the maturity
of the Indebtedness is accelerated by reason of an election of Lender, then
the unearned interest, if any, shall be canceled and, if theretofore paid,
shall be either refunded to Borrower or credited on the Indebtedness as the
Lender elects. All interest paid or agreed to be paid to Lender shall, to
the extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full period until payment in full of the
principal (including the period of any renewal and extension thereof) so
that the interest so computed shall not exceed the Maximum Rate.
Notwithstanding that the parties hereto in good faith deem each and every
fee provided by this Agreement or paid to Lender in connection with this
Agreement to be a bona fide fee for services rendered and to be rendered
separate and apart from the lending of money or the provision of credit, if
any such fee is ever determined by a court of competent jurisdiction or
other tribunal or by Lender to constitute interest, then the treatment of
such fee for usury purposes shall be controlled by the provisions of this
Section 2.7. This paragraph shall control all agreements between Borrower
and Lender.
If a court of competent jurisdiction determines that the laws of the State
of Arizona apply to this Agreement then the following paragraph B. shall be
applicable to this Agreement and paragraph 2.7.A. hereinabove shall be of no
force or effect.
B. The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the Stated
Interest Rate, calculated and applied to the principal balance of this
Agreement in accordance with the provisions of this Agreement and the other
Loan Documents; (ii) interest after event of default or due date,
calculated and applied to the amounts due under this Agreement in
accordance with the provisions hereof; and (iii) all Additional Sums (as
herein defined), if any. Borrower agrees to pay an effective contracted for
rate of interest which is the sum of the above-referenced elements. All
fees, charges, goods, things in action or any other sums or things of value
(other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether
pursuant to this Agreement, the Loan Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise
with respect to this lending transaction, that under any applicable law may
be deemed to be interest with respect to this lending transaction, for the
purpose of any applicable law that may limit the maximum amount of interest
to be charged with respect to this lending transaction, shall be payable by
Borrower as, and shall be deemed to be, additional interest and for such
purposes only, the agreed upon and "contracted for rate of interest" of
this lending transaction shall be deemed to be increased by the rate of
interest resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law
("Applicable Usury Law") applicable pursuant to the terms of the preceding
paragraph or such other usury law which is applicable if the law chosen by
the parties is not applicable. Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any
of the documents securing payment hereof or otherwise relating hereto, in
no event shall this Agreement or such documents require the payment or
permit the collection of interest in excess of the maximum contract rate
permitted by the Applicable Usury Law. In the event (a) any such excess of
interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, or (b)
the maturity of the indebtedness evidenced by this Agreement is accelerated
in whole or in part, or (c) all or part of the principal or interest of
this Agreement shall be prepaid, so that under any of such circumstances
the amount of interest contracted for, shared or received in connection
with the
-5-
6
loan evidenced hereby, would exceed the maximum contract rate permitted by
the Applicable Usury Law, then in any such event (1) the provisions of this
paragraph shall govern and control, (2) neither Borrower nor any other
person or entity now or hereafter liable for the payment hereof will be
obligated to pay the amount of such interest to the extent that it is in
excess of the maximum contract rate permitted by the Applicable Usury Law,
(3) any such excess which may have been collected shall be either applied
as a credit against the then unpaid principal amount hereof or refunded to
Borrower, at Lender's option, and (4) the effective rate of interest will
be automatically reduced to the maximum amount of interest permitted by the
Applicable Usury Law. It is further agreed, without limiting the generality
of the foregoing, that to the extent permitted by the Applicable Usury Law;
(x) all calculations of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate
permitted by the Applicable Usury Law shall be made by amortizing,
prorating, allocating and spreading during the period of the full stated
term of the loan evidenced hereby, all interest at any time contracted for,
charged or received from Borrower or otherwise in connection with such
loan; and (y) in the event that the effective rate of interest on the loan
should at any time exceed the maximum contract rate allowed under the
Applicable Usury Law, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law
shall be paid to Lender from time to time, if and when the effective
interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to
the date of calculation does not exceed the maximum contract rate permitted
by the Applicable Usury Law, until the entire amount of interest which
would have otherwise been collected had there been no ceiling imposed by
the Applicable Usury Law has been paid in full. Borrower further agrees
that should the maximum contract rate permitted by the Applicable Usury Law
be increased at any time hereafter because of a change in the law, then to
the extent not prohibited by the Applicable Usury Law, such increases shall
apply to all indebtedness evidenced hereby regardless of when incurred;
but, again to the extent not prohibited by the Applicable Usury Law, should
the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to
the indebtedness evidenced hereby regardless of when incurred.
2.8. STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with
a statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.9. CONDITIONS PRECEDENT TO ADVANCES. The obligation of Lender to make
advances is subject to the following conditions: (i) no Default or Event of
Default shall have occurred; (ii) all actions to be taken by Borrower in
connection with the transactions contemplated hereby shall be reasonably
satisfactory in form and substance to Lender; (iii) the warranties and
representations of Borrower contained herein shall be true and correct on the
date hereof and shall be deemed to have been made again on the date of each
advance and shall then also be true and correct; (iv) Borrower shall have
performed and complied with all obligations or conditions required by this
Agreement to be performed or complied with prior to each advance and Borrower
shall not then be in default under any document or instrument evidencing or
securing the Indebtedness; (v) Borrower shall submit to Lender a completed
Request for Advance Report in the form and substance of Exhibit "A" attached
hereto, on the date such advance is requested or shall have complied with the
provisions concerning oral advances hereunder as set forth in Section 2.10
hereof; (vi) prior to the initial advance hereunder, Borrower shall submit to
Lender the initial Availability Report and all other documents, instruments,
financing statements, evidence of authority, evidence of compliance with
applicable laws, opinions of counsel and other information which Lender may
reasonably request; and (vii) Borrower shall submit to Lender resolutions of its
Board of Directors designating personnel authorized by Borrower to execute
Availability Reports on behalf of Borrower and each specific request for advance
shall be executed by one such person.
2.10. ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be
made only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this Agreement and any
other documents or instruments executed in connection herewith irrespective of
any failure by Borrower to furnish such written confirmation. Any loan or
advance shall be conclusively presumed to have been made under the terms of this
Agreement, to or for the benefit of Borrower, when made pursuant to the terms of
any written agreement executed in connection herewith; or in accordance with
such requests and directions; or when an advance is deposited to the credit of
the
-6-
7
account of any person or persons corporation or corporations comprising
Borrower, regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account or regardless of the
fact that the advance was not made or deposited for the benefit of all persons
or corporations comprising Borrower.
2.11. ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans
and advances made by Lender to Borrower under this Agreement and any other
documents or instruments executed in connection herewith shall constitute one
loan, and all indebtedness and obligations of Borrower to Lender under this
Agreement and all other such documents and instruments shall constitute one
general obligation secured by Lender's security interest in all of the
Collateral and by all other security interests, liens, claims and encumbrances
heretofore, now, or at any time or times hereafter granted by Borrower to
Lender. Borrower agrees that all of the rights of Lender set forth in this
Agreement shall apply to any modification of or supplement to this Agreement and
any other such documents and instruments.
2.12. ADVANCES. Lender shall have the right in Lender's discretion, subject
to availability hereunder on behalf of and without notice to Borrower, to make
and use advances to pay Lender for any amounts due to Lender pursuant to this
Agreement or otherwise, to cure any default hereunder, notwithstanding the
expiration of any applicable cure period.
2.13. APPLICATION OF PAYMENTS. Borrower does hereby irrevocably agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all payments and collections at any time or times hereafter received by Lender
against the Indebtedness, in such manner as Lender may determine.
3. SECURITY AGREEMENT
3.1. SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to Lender
a first and continuing security interest in the following property and interests
in property of Borrower, whether now owned or existing or hereafter acquired or
arising and wheresoever located:
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles, all of Borrower's right, remedies, security,
liens, guaranties, or other contracts of suretyship with respect thereto, all
deposits or other security or support for the obligation of any Account Debtor
thereunder and credit and other insurance acquired by Account Debtor or the
Borrower in connection therewith;
B. All inventory, new or used, including parts and accessories;
C. All bank accounts of Borrower;
D. All monies, securities and property, now or hereafter held, received by,
or intrusted to, in the possession or under the control of Lender or a bailee of
Lender;
E. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of insurance
policies referenced in Section 3.1.A above (including but not limited to claims
paid and premium refunds); and
F. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer software and hardware, electronic
data processing software, computer printouts and other computer materials and
records) of Borrower evidencing or containing information regarding any of the
foregoing.
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents reasonably necessary to evidence,
preserve or protect Lender's security interest in the Collateral. Borrower
agrees that financing statements shall be filed covering all of Borrower's
locations (SCHEDULE SECTION 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such places
as Lender may reasonably designate, schedules executed by Borrower, listing the
Receivables and fully and correctly specifying in adequate detail the aggregate
unmatured unpaid face amount of each Receivable and the amount of the deferred
installments thereof falling due each month. These schedules shall be in form
and tenor satisfactory to or supplied by Lender. All schedules delivered and
Collateral pledged to Lender shall be assigned to Lender pursuant to the
"Schedule of Receivables and Assignment" in the form and substance of Exhibit
"E" attached hereto. Borrower further warrants and agrees that in each case
where the terms of any Receivable require the Borrower or the Account Debtor
named in such Receivable to place or carry fire insurance or other insurance in
respect of the merchandise or property to which such Receivable relates, the
Borrower shall or shall cause the Account Debtor to maintain such insurance
until the full amount of such Receivable is collected and if not, Lender, at its
option, may place and maintain such insurance, charging the cost thereof to
Borrower.
3.3. FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in
-7-
8
respect of any Receivable to Lender shall not invalidate Lender's security
interest therein. To the extent that possession may be required by applicable
law for the perfection of Lender's security interest, the original chattel paper
and instruments representing the Receivables shall be deemed to be held by
Lender, although kept by the Borrower as the custodial agent of Lender.
3.4. NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or
instruments representing or evidencing a Receivable shall contain (by way of
stamp or other method satisfactory to Lender) the following language: "ASSIGNED
TO FINOVA CAPITAL CORPORATION AS COLLATERAL".
3.5. LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, upon Lender's request, physically deliver to Lender all
Receivables (including any instruments, documents or writings in respect of any
Receivable together with all instruments, documents or writings in respect of
any collateral securing each Receivable) assigned to Lender to any reasonable
place or places designated by Lender. All Receivables shall, regardless of their
location, be deemed to be Lender Under's domination and control (with files so
labeled) and deemed to be in Lender's possession.
3.6. RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current on
a daily basis and located only at the locations (SCHEDULE SECTION 3.2.). Lender
by or through any of its officers, agents, employees, attorneys or accountants,
shall have the right to enter any such locations, at any reasonable time or
times during regular business hours, for so long as Lender may desire, to
inspect the Collateral and to inspect, audit and make extractions or copies from
the books, records, journals, orders, receipts, correspondence or other data
relating to the Collateral or this Agreement.
3.7. ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its reasonable
discretion in order to evidence Lender's security interest in the Collateral.
Borrower shall not allow any financing statement or notice of assignment of
accounts receivable, other than those executed in connection with this
Agreement, to be on file in any public office covering any Collateral, proceeds
thereof or other matters subject to the security interest granted to Lender.
3.8. COLLECTION. Borrower agrees at its own expense to promptly and
diligently collect each installment of all Receivables in trust for the
exclusive account of Lender, to hold Lender harmless from any and all loss,
damage, penalty, liability, fine or expense arising from such collection by
Borrower or its agents and to faithfully account therefor to Lender. Upon the
occurrence of a Default, Lender expressly retains the unqualified right at any
time it so elects to take over the collection of the Receivables.
3.9. BLOCKED ACCOUNTS. Upon the occurrence of a Default or an Event of
Default, at Lender's request, any checks, notes, drafts or any other payment
upon and/or proceeds of the Collateral received by Borrower (or any
subsidiaries, divisions, affiliates, proprietorships, shareholders, directors,
officers, employees, agents or those persons acting for or in concert with
Borrower), shall no later than the next Business Day following receipt thereof,
be delivered to Lender, at Lender's address set forth above, for application on
account of the Indebtedness and shall be reflected in the Statement of Account
as provided in Section 2.8 herein, until such time as Lender has established a
depository account at a bank for the deposit of such payments, made arrangements
for such deposits to be transferred to Lender daily and thereafter established a
lock-box arrangement or otherwise. Borrower shall (i) deposit or cause all
Items, as defined below, to be deposited in the special account so established
by Lender or transfer all Items to Lender for application on account of the
Indebtedness and to be reflected in the Statement of Account as provided in
Section 2.8 herein and (ii) maintain copies of all checks or other items of
payment and deposit slips related thereto, together with a collection report in
a form satisfactory to Lender. All cash payments, checks, drafts, or similar
items of payment upon and/or proceeds of the Receivables (collectively "Items")
by or for the account of Borrower shall be the sole and exclusive property of
Lender immediately upon the earlier of the receipt of such Items by Lender or
the receipt of such Items by Borrower; provided, however, that no such item
received by Lender shall constitute payment to Lender and be applied to reduce
the Indebtedness until the later of: (i) three (3) Business Days from collection
of such Item by Lender's depository bank, or (ii) such Item being actually
collected by Lender's depository bank and such collection being credited to
Lender's account. Notwithstanding anything to the contrary herein, all such
items of payment shall be deemed not received if the same is subsequently
dishonored or not duly credited to Lender's depository account for any reason
whatsoever.
3.10. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral and
records pertaining to such Collateral: (i) if Borrower maintains its Collateral
records on a manual system such records shall be kept in a fire proof cabinet or
on no less than a monthly basis, a record of all payments on Receivables and all
other matters relating to the Collateral shall be placed in an off site safety
deposit box (and Lender shall have access to
-8-
9
such safety deposit box); or (ii) if the Collateral records are computerized,
Borrower agrees to create a tape or diskette "back-up" of the computerized
information and upon the request of Lender, provide Lender with a tape or
diskette copy of such "back-up" information.
3.11. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that
Lender has not required that Borrower remit all collections or proceeds of
Collateral to Lender, Borrower may use or dispose of the funds received on the
Receivables in the ordinary course of business (including returned or
repossessed goods), collect or compromise accounts or obligations and accept
returned goods or make repossessions, as Borrower shall determine based upon its
reasonable discretion.
3.12. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan in the
ordinary course of business, solely in its operations for costs incurred in the
purchasing of Receivables, or for payments to Lender hereunder.
3.13. RETURN OF COLLATERAL. Upon the payment in full or renewal of any
Receivable to which the written documents evidencing such Receivable are held by
Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.14. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender and
shall be a part of the Indebtedness.
3.15. CROSS COLLATERALIZATION Each Borrower agrees that the Collateral of
each Borrower pledged hereunder shall secure all of the obligations of the
Borrowers to Lender hereunder. Upon and after an Event of Default by any
Borrower, Lender may pursue all rights and remedies it may have against all or
any part of the Collateral regardless of the status of legal title to such
Collateral. Each Borrower hereby acknowledges that this Cross Collateralization
of their Collateral is in consideration of Lender's extending the credit
hereunder and mutually beneficial to each Borrower.
4. REPORTING REQUIREMENTS
4.1. ACCOUNTING PRACTICES. Borrower shall maintain (i) a modern system of
accounting in accordance with GAAP or other systems of accounting acceptable to
Lender and (ii) standard operating procedures applicable to all of its locations
with respect to the handling and disposition of cash receipts and other proceeds
of Collateral on a daily basis, including the depositing thereof, aging of
account receivables, record keeping and such other matters as Lender may
reasonably request. For the purpose of determining the availability pursuant to
Section 2.1 hereof, Lender shall have the right to recast any financial
statement or report presented to Lender by or on behalf of Borrower.
4.2. PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all
Receivables and, if so requested by Lender, Borrower shall deliver to Lender all
documents evidencing Receivables of Borrower, no less often than on the
twentieth (20th) day of each calendar month during the term of this Agreement.
If the evidence of title of the collateral securing the pledged Receivables is
not delivered to Lender with the original Receivable documentation, such
evidence of title shall be delivered to Lender not later than fifteen (15) days
after such evidence of title is received by Borrower. Borrower will deliver
monthly, with the delivery of the documentation evidencing the Receivables
above, a "Vehicle Title Exception Report" listing all vehicle titles which have
not been received by Lender or are due from the appropriate state motor vehicle
department, together with the Schedule of Receivables and Assignment, as set
forth in Section 3.2 hereof.
4.3. ACCOUNT DEBTORS' ADDRESSES. Borrower agrees to furnish to Lender from
time to time, promptly upon request, a list of all Account Debtors' names and
their most current addresses. Borrower agrees that Lender may from time to time,
consistent with standard or generally accepted auditing practices, verify the
validity, amount and any other matters relating to the Receivables by means of
mail, telephone or otherwise, in the name of Borrower and upon the occurrence of
an Event of Default in the name of Lender or such other name as Lender may
choose.
4.4. FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within twenty (20) days
after the end of each fiscal month: (i) "Availability Report," in the form and
substance of Exhibit "D" attached hereto; (ii) Statement of Accounts Receivable
showing the detailed aging of each Receivable according to the procedures
(SCHEDULE SECTION 1.11.C.); (iii) a monthly Profit and Loss Statement and
Balance Sheet, certified by Borrower's chief financial officer or equivalent
duly elected officer of Borrower; and (iv) Schedule of Receivables and
Assignment in the form and substance of Exhibit "E" attached hereto.
B. Within one hundred twenty (120) days after the end of each of Borrower's
fiscal years, annual financial statements, or consolidated statements, as the
case may be, of Borrower
-9-
10
prepared in accordance with GAAP, consistently applied and certified by its
chief financial officer or equivalent duly elected officer. The financial
statements shall be prepared by and under the method acceptable to Lender and
shall consist of a balance sheet as of the end of such fiscal year and
comparative statements of earnings, cash flows, and change in stockholders'
equity for such fiscal year (SCHEDULE SECTION 4.4.).
C. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans and
reports.
Together with each delivery of financial statements required by subsections
A, B and C above, Borrower shall deliver to Lender and shall cause each of its
subsidiaries to deliver to Lender, if requested by Lender, a certificate in form
satisfactory to Lender, certifying that no Default or Event of Default exists
under this Agreement as of the date of such certificate, or if a Default or an
Event of Default exists, specifying the nature and period of existence thereof
and what action Borrower proposes to take with respect thereto.
4.5. FINANCIAL STATEMENTS OF GUARANTORS. Each of the Guarantors (SCHEDULE
SECTION 4.5.) shall furnish to Lender annual personal financial statements in
form reasonably satisfactory to Lender and certified by such Guarantor and a
copy of each Guarantor's personal Federal Income Tax Return (including all
schedules thereto and amendments thereof) filed during the term hereof, within
thirty (30) days of the filing of the same.
4.6. NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing of
any change of its officers, directors or key employees; change of location of
its principal offices, change of location of any of its principal assets; any
acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; litigation of which Borrower or a
Guarantor is a party; and any other material change in the business or financial
affairs of Borrower.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
5.1. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor hereby
continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in all
states where such qualification is required, has all necessary corporate power
and authority to enter into this Agreement and each of the documents and
instruments relating hereto and to perform all of its obligations hereunder and
thereunder.
B. Borrower operates its business only under the assumed names (SCHEDULE
SECTION 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and all documents and instruments relating hereto and this Agreement
and all documents and instruments relating hereto are the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms.
D. Each Guarantor is competent to enter into this Agreement and the
Guaranty and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement
does not and shall not (i) violate any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to Borrower; (ii) violate any provision of its
Articles of Incorporation or Bylaws; or (iii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or any of its assets or properties may be bound or affected; and Borrower is not
in default of any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, agreement, lease or
instrument.
F. No consent, approval, license, exemption of or filing or registration
with, giving of notice to, or other authorization of or by, any court,
administrative agency or other governmental authority is or shall be required in
connection with the execution, delivery or performance by Borrower for the valid
consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or
an Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation pending or threatened against or affecting Borrower
before or by any court, administrative agency or other governmental authority
that brings into question the validity of the transactions contemplated hereby,
or that might
-10-
11
result in any material adverse change in the businesses, assets, properties or
financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any taxes
levied or assessed against either of them or any of their assets or properties,
except for taxes being contested in good faith and by appropriate proceedings.
I. Borrower and Guarantor have good and marketable title to their assets
and properties as reflected in their financial statements furnished to Lender.
J. Each of the financial statements furnished to Lender by the Borrower and
Guarantor was prepared in accordance with GAAP and fairly and accurately
reflects their financial condition as of the date thereof; and each hereby
certifies that there have been no material adverse changes in their condition,
financial or otherwise, since the date of such statements, and there are no
contingent liabilities not provided for or disclosed in such statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership
of the Collateral, free and clear of all liens, claims, security interests and
encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously with
the execution of this Agreement or are subordinate to those of Lender, in a form
and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and
shall be genuine and in all respects what they purport to be; the original
amount and the unpaid balance of each Receivable shown on the books and records
of Borrower and in the schedules represented as owing by each Account Debtor is
and shall be the correct amount actually owing or to be owing by such Account
Debtor at maturity; each Account Debtor liable upon the Receivables has and
shall have capacity to contract; Borrower has no knowledge of any fact which
would impair the validity or collectibility of any of the Receivables; and the
payments shown to have been made by each Account Debtor on the books and records
of Borrower shall reflect the amounts of and dates on which said payments were
actually made.
N. Borrower has places of business only at the locations (SCHEDULE SECTION
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first notifying
Lender.
O. The present value of all benefits vested under all Plans of Borrower or
any Commonly Controlled Entity (based on the assumptions used to fund the Plans)
did not, as of the last annual valuation date (which in case of any Plan was not
earlier than December 31, 1982) exceed the value of the assets of the Plans
applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi-employer Plans were to be terminated as of the valuation date most closely
preceding the date hereof, is not in excess of One Thousand Dollars ($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of
its important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing"
or "carrying" "margin stock" as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the outstanding
securities of Borrower have been offered, issued, sold and delivered in
compliance with, or are exempt from, all federal and state laws and rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true,
complete and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local
-11-
12
environmental laws, regulations or administrative orders or other materials, the
removal of which is required or the maintenance of which is prohibited,
regulated or penalized by any federal, state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they
become due, has sufficient capital to carry on its business and transactions and
all businesses and transactions in which it intends to engage, and the current
value of Borrower's assets, at fair saleable valuation, exceeds the sum of its
liabilities. Borrower shall not be rendered insolvent by the execution and
delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to engage. Borrower does not intend to, nor does it reasonably believe it
shall, incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional lien
for taxes not yet due and payable.
W. There are no material actions, suits or proceedings pending, or
threatened against or affecting the assets of Borrower or the consummation of
the transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect on
the business operations or financial condition of Borrower or Guarantor.
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With
respect to Eligible Receivables, Borrower and Guarantor continuously warrant and
represent to Lender that during the term of this Agreement and so long as any of
the Indebtedness remains unpaid: (i) in determining which Receivables are
"Eligible Receivables," Lender may rely upon all statements or representations
made by Borrower; and (ii) those Receivables designated as Eligible Receivables
meet each requirement set forth below at the time any request for advance is
provided to Lender.
A. The Eligible Receivables are genuine; are in all respects what they
purport to be; and are evidenced by at least one executed original instrument,
agreement, contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto;
C. The amounts of the face value shown on any schedule of Receivables
provided to Lender, and/or all invoices or statements delivered to Lender with
respect to any Eligible Receivables, are actually and absolutely owing to
Borrower and are not contingent for any reason;
D. No set-offs, counterclaims or disputes as to payments or liability
thereon exist or have been asserted with respect thereto and Borrower has not
made any agreement with any Account Debtor thereunder for any deduction
therefrom, except a discount or allowance allowed by Borrower in the ordinary
course of its business for prompt payment, all of which discounts or allowances
are reflected in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount of the Receivable shown on any schedule, or on all contracts,
invoices or statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed; and (ii) generally have the ability to pay their
debts as become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened or
pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any other
person or entity;
I. The goods giving rise to the Eligible Receivables are not, and were not
at the time of the sale, rental and/or lease thereof, subject to any lien,
claim, encumbrance or security interest except those of Lender, those removed or
terminated prior to the date hereof or those subordinated to Lender's security
interest, by a subordination and standstill agreement acceptable to Lender;
J. The End of Month Delinquency set forth in Section 12 of the Availability
Report shall be delivered to Lender by
-12-
13
Borrower hereunder as determined pursuant to the Aging Procedures and
Eligibility Test (SCHEDULE SECTION 1.11.D.).
6. COVENANTS AND OTHER AGREEMENTS
6.1. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long
as any of the Indebtedness remains unpaid, Borrower and Guarantor agree and
covenant, jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due. This provision shall not apply to taxes
or expenses which are due, but which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not
limited to, keeping documents, instruments or other written records otherwise
evidencing the Collateral in a fire proof cabinet.
C. Furnish to Lender written notice as to the occurrence any Default or
Event of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the
business, financial condition, properties or assets of Borrower or Guarantor,
that would have or has a materially adverse affect on such business, financial
condition, properties or assets, or ability to perform their obligations under
this Agreement and (ii) any material and adverse litigation or investigation to
which either of them may be a party.
E. Carry on and conduct their business in the same manner and in the same
fields of enterprise as they are presently engaged, and Borrower shall preserve
its corporate existence, licenses or qualifications as a domestic corporation in
the jurisdiction of its incorporation and as a foreign corporation in every
jurisdiction in which the character of its assets or properties or the nature of
the business transacted by it at any time makes qualification as a foreign
corporation necessary, and to maintain all other material corporate rights and
franchises, provided, however, nothing herein shall be construed to prevent
Borrower from closing any retail location in the good faith exercise of its
business judgment.
F. Comply, and cause each affiliate to comply, with all statutes,
governmental rules and regulations applicable to them.
G. Permit and authorize Lender, without notifying Borrower or Guarantor, to
make such inquiries through business credit or other credit reporting services
concerning Borrower or Guarantor as Lender shall deem appropriate.
H. Provide Lender with evidence of insurance issued by a reputable carrier,
as reasonably required by Lender. This insurance shall reflect Lender as the
loss payee or additional insured, as required by Lender, and contain a provision
that Lender shall be notified by the carrier thirty (30) days prior to the
termination or cancellation of any such insurance.
6.2. NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness secured hereby has been paid in full, Borrower and Guarantor
covenant and agree that they shall not, without Lender's prior written consent,
which consent shall not be unreasonably withheld, do any of the following:
A. Incur or permit to exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender.
B. Delegate, transfer or assign any of their obligations or liabilities
under this Agreement, or any part thereof, to any other person or entity.
C. Be a party to or participate in: (i) any merger or consolidation; (ii)
any purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class of, or any partnership or joint venture
interest in, any other corporation or entity; (iii) any sale, transfer,
conveyance or lease of all or substantially all of Borrower's assets or
properties; or (iv) any sale or assignment with or without recourse of any
Receivables.
D. Cause or take any of the following actions with respect to Borrower: (i)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's outstanding securities; or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity.
E. Amend, supplement or otherwise modify Borrower's Articles of
Incorporation or Bylaws which would have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower.
F. Incur, assume or suffer to exist any debt (including capitalized leases)
other than (i) the Indebtedness, (ii) accounts payable incurred in the ordinary
course of business, (iii) Subordinated Debt, or (iv) other Debt consented to in
writing, by Lender.
G. Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any person or entity, other than in the ordinary course of
Borrower's business.
-13-
14
H. Amend, modify, or otherwise change in any respect any material
agreement, instrument, or arrangement (written or oral) by which Borrower, or
any of its assets, are bound.
I. Allow Borrower to be owned and controlled directly or indirectly by any
person or entity other than the shareholders and senior management that own and
control Borrower as of the date hereof.
6.3. JOINT NEGATIVE COVENANTS. During the term of this Agreement until the
Indebtedness secured hereby has been paid in full, both Borrowers, as defined in
(SCHEDULE SECTION 1.A.) jointly covenant and agree that they shall not, allow or
permit any of the following, which covenants shall be applied in the aggregate
by combining each element of such financial covenants for each Borrower:
A. Permit the aggregate Leverage Ratio to be more than the Leverage Ratio
Limit (SCHEDULE SECTION 6.3.A.).
B. Permit the aggregate Net Income to be less than the Minimum Net Income
Requirement (SCHEDULE SECTION 6.3.B.).
C. Make or allow Distributions, in the aggregate, to exceed, without
Lender's prior written consent, which consent shall not be unreasonably
withheld, the Distributions Limitation (SCHEDULE SECTION 6.3.C.); provided,
however, that no Distribution shall be made if a Default or an Event of Default
shall exist.
7. EVENTS OF DEFAULT AND REMEDIES
7.1. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender
is not paid within five (5) days after the same shall be due and payable.
B. If Borrower or Guarantor fails or neglects to perform, keep or observe
any of the terms, provisions, conditions or covenants, contained in this
Agreement, any of the other Loan Documents or any other agreement or document
executed in connection with the transactions contemplated by this Agreement or
if any representation, warranty or certification made by Borrower herein or in
any certificate or other writing delivered pursuant hereto shall prove to be
untrue in any material respect as of the date upon which the same was made or at
any time thereafter, and the same is not cured to Lender's satisfaction within
ten (10) days after Lender has given written notice to Borrower identifying such
default.
C. If the validity or enforceability of any lien, charge, security
interest, mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
D. If any judgment against Borrower not covered by insurance in an amount
in excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or
other levy against the properties or assets of Borrower with respect to a claim
for any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days.
E. Default in the payment of any sum due under any instrument of
indebtedness for borrowed money owed by Borrower or any Guarantor to any person,
or any other default under such instrument of indebtedness for borrowed money
that permits such indebtedness for borrowed money to become due prior to its
stated maturity or permits the holders of such indebtedness for borrowed money
to elect a majority of the board of directors or manage the business of Borrower
or any Guarantor.
F. If a court or governmental authority of competent jurisdiction shall
enter an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole or
any substantial part of its properties or assets, or approving a petition filed
against Borrower or Guarantor seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law, and such order, judgment or decree
shall remain unvacated, unstayed or not set aside for an aggregate of thirty
(30) days (whether or not consecutive) from the date of the entry thereof or if
any petition seeking such relief shall be filed against Borrower or Guarantor
and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower or
Guarantor.
H. If either Borrower or Guarantor shall: (i) be generally not paying their
respective debts as they become due; (ii) file a petition in bankruptcy or a
petition to take advantage of any
-14-
15
insolvency act or other act for the relief or aid of debtors; (iii) make an
assignment for the benefit of their creditors; (iv) consent to or acquiesce in
the appointment of a receiver, custodian, liquidator, trustee or other officer
with similar powers of either of their properties or assets; (v) file a petition
or answer seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the federal bankruptcy laws or
any other applicable law; (vi) be adjudicated insolvent or be liquidated; (vii)
admit in writing either of their inability to pay debts as they become due;
(viii) voluntarily suspend transaction of usual business; or (ix) take any
action, corporate or otherwise, for the purpose of any of the foregoing.
I. Any of the following shall occur: (i) entry of a court order that
enjoins, restrains or in any way prevents Borrower from conducting all or any
material part of its business affairs in the ordinary course of business or (ii)
withdrawal or suspension of any license or authority required for the conduct of
any material part of Borrower's business.
J. If any Guarantor gives notice of termination or terminates his liability
pursuant to the Guaranty Agreement executed in conjunction with this Agreement.
7.2. ACCELERATION OF THE INDEBTEDNESS. Upon and after an Event of Default,
the outstanding principal balance together with all accrued but unpaid interest
on the Indebtedness and all other sums due and payable by Borrower to Lender
may, at the option of Lender and without demand, presentment, notice of
dishonor, notice of intent to demand or accelerate payment, diligence in
collecting, grace, notice and protest or a legal process of any kind, all of
which are hereby expressly waived, be declared, and immediately shall become due
and payable.
7.3. LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is
domiciled in, or Collateral is located in, Louisiana, and to the extent of such
domicile or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby confesses judgment, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during the
life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured to be seized and sold by
executory process issued by any competent court or to proceed with enforcement
of its security interest in any other manner provided by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the immediate
seizure of the Collateral in the event of suit thereon.
7.4. REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be non-exclusive,
cumulative and in addition to each and every other remedy set forth in the Loan
Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon
the premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower notice and opportunity for a hearing on the validity of
Lender's claim, and remove the Collateral therefrom to the premises of Lender or
any agent of Lender, for such time as Lender may desire, in order to effectively
collect and liquidate the Collateral; and/or (ii) require Borrower to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its
then condition at public or private sale or sales, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable; provided
that such sales may be adjourned from time to time with or without notice. The
requirement of reasonable notice to Borrower of the time and place of any public
sale of the Collateral or of the time
-15-
16
after which any private sale either by Lender or at its option, a broker, or any
other intended disposition thereof is to be made, shall be met if such notice is
mailed, postage prepaid, to Borrower at the address of Borrower designated
herein at least ten (10) Business Days before the date of any public sale or at
least ten (10) Business Days before the time after which any private sale or
other disposition is to be made unless applicable law requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, Borrower's labels,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit. Lender agrees to hold Borrower harmless from any liability
arising out of Lender's use of Borrower's premises, labels, copyrights, rights
of use of any name, trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature as it pertains to advertising for
sale, marshalling or selling the Collateral.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or part of the Collateral at public or, if permitted
by law, private sale and, in lieu of actual payment of such purchase price, may
set off the amount of such price against the Indebtedness owing by Borrower to
Lender. The proceeds realized from the sale of any Collateral shall be applied
first to reasonable costs and expenses, attorney's fees, expert witness fees
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to all payments,
other than principal and interest, due under this Agreement; third to interest
due upon any of the Indebtedness; fourth to the principal balance owing on the
Indebtedness; and fifth the remainder, if any, to Borrower, its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
D. In the event that Borrower is domiciled in, or Collateral is located in,
Louisiana, and to the extent of such domicile or location where Louisiana law is
applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement, appraisement being hereby expressly waived, as an entirety
or in parcels, as Lender may determine, to the highest bidder for cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5. NO WAIVER. No delay, failure or omission of Lender to exercise any
right upon the occurrence of any Default or Event of Default shall impair any
such right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed in writing by Lender. No waiver of any
Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to this Agreement or any other written agreement
between the parties hereto shall be valid or effective (or serve as a basis of
reliance by way of estoppel) unless the same is in writing and signed by the
party against whom it is sought to be enforced. The acceptance by Lender at any
time and from time to time of a partial payment or partial performance of any of
Borrower's obligations set forth herein shall not be deemed a waiver, reduction,
modification or release from any Default or Event of Default then existing. No
waiver by Lender of any Default or Event of Default shall be deemed to be a
waiver of any other existing or any subsequent Default or Event of Default.
7.6. GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold
Lender harmless from and against any and all claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (collectively "Claim" or "Claims") of any kind or nature
whatsoever, asserted by any party other than Borrower, or with respect to
Borrower only as otherwise provided in this Agreement or pursuant to applicable
law regarding Lender's obligations to Borrower, which may be imposed on,
incurred by or asserted against Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) in any way relating to or arising out of the Loan Documents or
any action taken or omitted by Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) under the Loan Documents, except to the extent such
-16-
17
indemnified matters are finally found by a court to be caused by Lender's gross
negligence or wilful misconduct.
7.7. APPLICATION OF PROCEEDS. After an Event of Default shall have occurred
and is continuing, all amounts received by Lender on account of any Indebtedness
and realized by Lender with respect to the Collateral, including any sums which
may be held by Lender, or the proceeds of any thereof, shall be applied in the
same manner as proceeds of Collateral as set forth in Section 7.4.C. hereof.
7.8. APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's name,
at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative
duties pursuant to this Agreement, including, but not limited to, the execution
of financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.8.C below, at the cost and expense of Borrower.
C. In addition to, but not in limitation of the foregoing, at any time or
times upon the occurrence of an Event of Default, Lender shall have the right:
(i) to enter upon Borrower's premises and to receive and open all mail directed
to Borrower and remove all payments to Borrower on the Receivables; however,
Lender shall turn over to Borrower all of such mail not relating to Receivables;
(ii) in the name of Borrower, to notify the Post Office authorities to change
the address for the delivery of mail addressed to Borrower to such address as
Lender may designate (notwithstanding the foregoing, for the purposes of notice
and service of process to or upon Borrower as set forth in this Agreement,
Lender's rights to change the address for the delivery of mail shall not give
Lender the right to change the address for notice and service of process to or
upon Borrower in this Agreement); (iii) demand, collect, receive for and give
renewals, extensions, discharges and releases of any Receivable; (iv) institute
and prosecute legal and equitable proceedings to realize upon the Receivables;
(v) settle, compromise, compound or adjust claims in respect of any Receivable
or any legal proceedings brought in respect thereof; (vi) generally, sell in
whole or in part for cash, credit or property to others or to itself at any
public or private sale, assign, make any agreement with respect to or otherwise
deal with any of the Receivables as fully and completely as though Lender were
the absolute owner thereof for all purposes, except to the extent limited by any
applicable laws and subject to any requirements of notice to Borrower or other
persons under applicable laws; (vii) take possession and control in any manner
and in any place of any cash or non-cash items of payment or proceeds of
Receivables; (viii) endorse the name of Borrower upon any notes, acceptances,
checks, drafts, money orders, chattel paper or other evidences of payment of
Receivables that may come into Lender's possession; and (ix) sign Borrower's
name on any instruments or documents relating to any of the Collateral, or on
drafts against Account Debtors.
The appointment of Lender as attorney-in-fact for Borrower is coupled with
an interest and is irrevocable.
8. MISCELLANEOUS
8.1. REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, except
as set forth in the SCHEDULE SECTION 8.1., Borrower agrees to reimburse Lender,
upon demand, for all reasonable out-of-pocket expenses (including costs of
establishing and maintaining accounts or arrangements set forth in Section 3.9,
attorney's fees, expert witness fees and legal expenses) incurred in connection
with the evaluation of collateral, preservation of collateral, or collection of
the indebtedness.
8.2. NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent if
sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or SCHEDULE SECTION 8.2,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
Lender shall have the right, on or after initial funding pursuant to the
terms of this Agreement, to issue a press release or other brochure announcing
the consummation of the Loan Documents and to distribute that information to
third parties in the normal course of Lender's business, at no cost to Borrower.
8.3. PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that
Lender may from time to time sell or offer to sell interests in the Indebtedness
and the Loan
-17-
18
Documents to one or more participants. Borrower and Guarantors authorize Lender
to disseminate any information it has pertaining to the Indebtedness, including
without limitation, complete and current credit information on Borrower and any
of its principals and Guarantors, to any such participant or prospective
participant.
8.4. SURVIVAL OF AGREEMENTS. All of the various representations,
warranties, covenants and agreements of Borrower (including without limitation,
any agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and the
performance under such Loan Documents, and shall further survive until one (1)
year and one (1) month after all of the Indebtedness is paid in full to Lender
and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
8.5. NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that
upon the Maturity Date, Lender shall have no obligation to renew, extend, modify
or rearrange the Loan and shall have the right to require all amounts due and
owing under the Loan to be paid in full upon such date.
8.6. PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and
only agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
8.7. PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not assign
any of their respective rights or obligations pursuant this Agreement.
8.8. NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
8.9. NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
8.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original, and
all of which taken together shall constitute but one and the same instrument.
8.11. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
8.12. HEADINGS. The Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
8.13. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby
expressly incorporated by reference as though fully set forth at that point
verbatim. All terms and provisions as defined or set forth in Article 1 and in
any Schedule are hereby incorporated into and made a part of this Agreement.
Each reference in this Agreement and the Schedule hereto to any information or
definitions contained in Article 1 or the Schedule shall mean and refer to the
information or definitions as set forth in Article 1 and the Schedule unless the
context specifically requires otherwise. Any terms used in Article 1 and in the
Schedule which are not defined shall have the meanings ascribed to such terms,
as of the date of this Agreement, by the Uniform Commercial Code as enacted in
the State of Arizona to the extent the same are defined therein.
8.14. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto and
to the other Loan Documents and all such financing statements or continuation
statements, instruments of further assurance and any other instruments, and
shall take such other actions, as Lender reasonably requests and deems necessary
or advisable in furtherance of the agreements contained herein.
8.15. LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL OF
LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT,
-18-
19
AND ALL DAMAGES SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF
WARRANTY OR BREACH OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER
CAUSED BY THE ACTS OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING
WITHOUT LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT
WITNESS FEES AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF
THE FOREGOING SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE
COLLATERAL AND SHALL BE PAYABLE ON DEMAND.
8.16. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
8.17. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER HEREBY CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID COUNTY AND STATE AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
BORROWER, AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE SECTION 8.17 AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
8.18. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR HEREBY
WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, AND ONE OR MORE
EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND HEARING
PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR THE LENDER'S REPLEVIN,
ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT
BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY OF THE
LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT OR
EXEMPTION LAWS.
8.19. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THEY
HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH RESPECT TO
THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE TRANSACTION
GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE PROVISIONS
CONTAINED IN SECTIONS 7.3, 8.15, 8.16, 8.17, 8.18, 8.19 and 8.20 HEREOF AND HAS
RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE TERMS
AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING THIS AGREEMENT, AND THAT
THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS AGREEMENT AS THE PRODUCT OF
ARMS' LENGTH NEGOTIATIONS.
8.20. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS
HEREBY COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
ANY MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW EXISTING
OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY: LENDER, BORROWER AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
-19-
20
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
8.21. TIME OF ESSENCE Time is of the essence for the performance the
obligations set forth in this Agreement and the Loan Documents.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first set forth above.
BORROWER:
PREMIUM AUTO ACCEPTANCE CORPORATION
By: /s/ DANIEL CHU
---------------------------------------
(Signature)
Daniel Chu, President
- ------------------------------------------
(Printed Name and Title) (Date)
75-2573171
- ------------------------------------------
Tax Payer Identification No.
PAACO, INC.
By: /s/ DANIEL CHU
---------------------------------------
(Signature)
Daniel Chu, President
- ------------------------------------------
(Printed Name and Title) (Date)
75-2457739
- ------------------------------------------
Tax Payer Identification No.
GUARANTORS:
/s/ LARRY W. LANGE
- ------------------------------------------
Larry W. Lange
###-##-####
- ------------------------------------------
Social Security No.
/s/ MARY LANGE
- ------------------------------------------
Mary Lange
###-##-####
- ------------------------------------------
Social Security No.
/s/ DANIEL CHU
- ------------------------------------------
Daniel Chu
###-##-####
- ------------------------------------------
Social Security No.
/s/ VICKY CHU
- ------------------------------------------
Vicky Chu
###-##-####
- ------------------------------------------
Social Security No.
/s/ THEODORE LANGE
- ------------------------------------------
Theodore Lange
###-##-####
- ------------------------------------------
Social Security No.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ STEPHEN J. THOMAS
---------------------------------------
(Signature)
Stephen J. Thomas, Vice President 12/14/95
- ------------------------------------------
(Printed Name and Title) (Date)
94-1278569
- ------------------------------------------
Tax Payer Identification Number
-20-
21
[FINOVA LOGO]
- --------------------------------------------------------------------------------
EIGHTH AMENDED AND RESTATED
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: PREMIUM AUTO ACCEPTANCE CORPORATION
ADDRESS: 605 SOUTH LOOP 12
IRVING, TEXAS 75225
BORROWER: PAACO, INC.
ADDRESS: 605 SOUTH LOOP 12
IRVING, TEXAS 75225
DATE: FEBRUARY 5, 1998
This Eighth Amended and Restated Schedule ("Eighth Amended Schedule") is
executed in conjunction with a certain Loan and Security Agreement
("Agreement"), dated December 14, 1995, and as an amendment to and a restatement
of that certain Schedule to Loan and Security Agreement ("Original Schedule"),
dated December 14, 1995, that certain Amended and Restated Schedule to Loan and
Security Agreement ("Amended Schedule"), dated May 22, 1996, that certain Second
Amended and Restated Schedule to Loan and Security Agreement ("Second Amended
Schedule"), dated January 7, 1997, that certain Third Amended and Restated
Schedule to Loan and Security Agreement ("Third Amended Schedule"), dated March
24, 1997, that certain Fourth Amended and Restated Schedule to Loan and Security
Agreement ("Fourth Amended Schedule"), dated April 17, 1997, that certain Fifth
Amended and Restated Schedule to Loan and Security Agreement ("Fifth Amended
Schedule"), dated October 2, 1997, that certain Sixth Amended and Restated
Schedule to Loan and Security Agreement ("Sixth Amended Schedule"), dated
October 27, 1997, and that certain Seventh Amended and Restated Schedule to Loan
and Security Agreement ("Seventh Amended Schedule"), dated November, 1997, by
and between FINOVA Capital Corporation, as Lender, and the above Borrower, as
Borrower. All references to Section numbers herein refer to Sections in the
Agreement. The terms and provision of this Eighth Amended Schedule shall
supersede all terms and provisions contained in all prior Schedules.
================================================================================
1.A. BORROWERS (SECTION 1).
Each Borrower shall be referred to herein as follows:
Premium Auto Acceptance Corporation - "Premium"
PAACO, Inc. - "PAACO"
-1-
22
================================================================================
1.11.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.11).
The term "Maximum Amount of an Eligible Receivable" shall mean the sum
of Eighteen Thousand Dollars ($18,000.00) remaining due thereon at any
date of determination, including all unearned finance charges,
insurance fees and other fees and charges pursuant to the Eligible
Receivables.
================================================================================
1.11.B. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.11).
The "Maximum Term of an Eligible Receivable" shall be thirty-six (36)
months remaining until the due date of such Eligible Receivable at any
date of determination.
================================================================================
1.11.C. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.11).
AGING PROCEDURES FOR A CONTRACTUAL AGING:
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 or more days past due = "60 + day Account"
ELIGIBILITY TEST:
The term "Eligibility Test" shall mean the test to determine the eligibility of
a Receivable for the purposes of Section 1.11 hereof, that test, being as
follows: no payment due on said Receivable remains unpaid more than sixty (60)
days from the specific date on which such payment was due pursuant to the terms
of said Receivable.
================================================================================
2.1.A. AMOUNT OF REVOLVING CREDIT LINE (SECTION 2.1):
The "Amount of the Revolving Credit Line shall be as follows,
provided, however, if a Default or Event of Default exist on the date
of any increase of the "Amount of the Revolving Credit Line" as set
forth below, the "Amount of the Revolving Credit Line shall not
increase, and shall only increase thereafter, at the sole discretion
of Lender:
(1) If the date of determination is on or before June 30, 1998, then
the Amount of Revolving Credit Line shall be Thirty Million
Dollars ($30,000,000.00);
(2) If the date of determination is after June 30, 1998, but on or
before September 30, 1998, then the Amount of Revolving Credit
Line shall be Thirty Two Million Five Hundred Thousand Dollars
($32,500,000.00); and
(3) If the date of determination is after September 30, 1998, then
the Amount of the Revolving Credit Line shall be Thirty Five
Million Dollars ($35,000,000.00).
-2-
23
Notwithstanding any provision contained in the Loan Documents to
the contrary, the Amount of the Revolving Credit Line shall not
exceed Thirty Million Dollars ($30,000,000.00), until Borrower
has hired, as a full time employee of Borrower, a qualified chief
financial officer that has experience and qualifications
commensurate with a chief financial officer in a same or similar
industry and value of assets as that of Borrower.
================================================================================
2.1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
The "Availability on Eligible Receivables" shall be an amount
equal to sixty-seven and one-half percent (67.5%) of the
aggregate unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, excluding all unearned finance
charges, insurance fees and other fees and charges pursuant to
the Eligible Receivables.
Notwithstanding any provision contained in the Loan Documents to
the contrary, if (i) for the twelve (12) calendar month period
immediately prior to any date of determination, the Collateral
Recovery Rate is less than seventy-two percent (72%), or (ii) on
any date of determination the percentage, determined by the
aggregate outstanding balance of all Receivables that are
ineligible, divided by the aggregate outstanding balance of all
Receivables, is greater than seven percent (7%), then in either
event, Lender, in its sole and absolute discretion, may modify
the Availability on Eligible advance percentage set forth above.
================================================================================
2.2. STATED INTEREST RATE (SECTION 2.2).
The lesser of (i) the Governing Rate plus three percent (3.0%)
per annum or (ii) the Maximum Rate.
================================================================================
2.3. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on April 30,
2000. If Borrower desires to extend the primary term or any term
thereafter of this Agreement, Borrower shall give Lender notice
of its intent to extend the term no earlier than one hundred and
eighty (180) days and no later than one hundred and fifty (150)
days prior to any expiration date of this Agreement. Upon the
receipt by Lender of Borrower's notice to extend the term of this
Agreement, if Lender desires to renew and extend the term of this
Agreement, Lender shall give Borrower notice of Lender's intent
to extend the term of this Agreement, within sixty (60) days of
Lenders receipt of Borrower's notice to extend. If Lender does
not give Borrower notice of Lender's intent to extend the term of
this Agreement within the sixty (60) days period, then it shall
be deemed that Lender does not intend to renew and extend the
term of this Agreement. Notwithstanding the foregoing, this
Agreement shall remain in full force and effect until the
Indebtedness due and owing to Lender has been paid in full.
================================================================================
2.6. LIQUIDATED DAMAGES (SECTION 2.6).
The amount of "Liquidated Damages" shall be, prior to April 30,
2000, Borrower pays the balance of the Indebtedness in full and
Borrower requests Lender to terminate Lender's security interest
in the Collateral, an amount equal to three percent (3%) of the
Amount of the Revolving Credit Line.
================================================================================
2.14 FACILITY INCREASE FEE (SECTION 2.14)
The following Section 2.14 is hereby added to the Agreement.
-3-
24
2.14 FACILITY INCREASE FEE. Immediately upon the execution of
the those certain Loan Documents to increase the Amount of the
Revolving Credit Facility from Twenty Million Dollars
($20,000,000.00) to a maximum of Thirty Five Million Dollars
($35,000,000.00), with such Thirty Five Million Dollars
($35,000,000.00) to be available on or after October 1, 1998,
upon Borrower's compliance with all of the conditions with
respect thereto, Borrower shall pay a facility increase fee in
the amount of One Hundred Fifty Thousand Dollars ($150,000.00).
================================================================================
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 and 5.1.N.).
All locations are as follows: 605 South Loop 12
Irving, Texas 75225
3200 E. Randol Mill Road
Arlington, Texas 76011
3500 N.E. 28th Street
Ft. Worth, Texas 76111
821 Avenue K
Plano, Texas 75074
5125 Ross Avenue
Dallas, Texas 75206
945 E. Jefferson Street
Dallas, Texas 75203
2751-2781 S. Garland Road
Garland, Texas 75041
================================================================================
4.4. ANNUAL FINANCIAL STATEMENTS (SECTION 4.4).
Annual financial statements shall be audited annually by
independent certified public accountants acceptable to Lender.
================================================================================
4.5. GUARANTOR (WHETHER ONE OR MORE) (SECTION 4.5).
Larry Lange and Mary Lange
Daniel Chu and Vicky Chu
Theodore Lange
================================================================================
5.1. BORROWER'S TRADENAMES (WHETHER ONE OR MORE)(SECTION 5.1.B.)
None
================================================================================
6.1. AFFIRMATIVE COVENANTS (SECTION 6.1.I)
-4-
25
Section 6.1.1 of the Agreement is hereby deleted in its entirety
and the following is hereby substituted in lieu thereof:
I. Open a new location without Lender's prior written
consent.
================================================================================
6.2.A. MODIFICATION TO A NEGATIVE COVENANT (SECTION 6.2.A.)
Section 6.2.A. is hereby deleted in its entirety and the
following is substituted in lieu thereof:
A. Incur or permit or exist any mortgage, pledge, title
retention lien or other lien, encumbrance or security
interest with respect to the Collateral now owned or
hereafter acquired by Borrower, except liens in favor
of Lender or in favor of a floor plan lender who has
executed an intercreditor agreement with Lender, in a
form and substance acceptable to Lender.
================================================================================
6.3.A. LEVERAGE RATIO LIMIT (SECTION 6.3.A).
The term "Leverage Ratio Limit" shall mean 4.0 to 1.0.
================================================================================
6.3.B. MINIMUM NET INCOME (SECTION 6.3.B).
The Minimum Net Income shall be One Dollar ($1.00) for any fiscal
quarter of Borrower.
================================================================================
6.3.C. DISTRIBUTIONS LIMITATION (SECTION 6.3.C).
Maximum Distributions shall not exceed seventy-five percent (75%)
of Net Income of the fiscal year in which such Distributions are
made.
================================================================================
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
Borrower shall reimburse Lender for all of Lenders' legal costs
and expenses incurred by Lender with respect to preparation,
negotiation, and execution of this Eighth Amended and Restated
Schedule to Loan and Security Agreement and the review of all
documentation and other due diligence with respect to the Crown,
Inc. and Alexander Group transactions.
================================================================================
8.2. NOTICES (SECTION 8.2).
Lender: FINOVA Capital Corporation
(copy each office below with all notices)
CORPORATE FINANCE OFFICE:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
-5-
26
CORPORATE OFFICE:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Vice President -
Group Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
REDISCOUNT FINANCE OFFICE:
FINOVA Capital Corporation
13355 Noel Road, Suite 800
Dallas, TX 75240
Attn: Dan Black (Account Executive)
Telephone: (214) 458-5600
Telecopy No.: (214) 458-5650
Borrower: Premium Auto Acceptance Corporation
605 South Loop 12
Irving, Texas 75225
Telephone:
--------------
Telecopy No.:
--------------
Borrower: PAACO, Inc.
605 South Loop 12
Irving, Texas 75225
Telephone:
--------------
Telecopy No.:
--------------
Guarantor: Larry W. Lange & Mary Lange
6 Braewick Ct.
Dallas, TX 75225
Telephone:
--------------
Telecopy No.:
--------------
Guarantor: Daniel Chu & Vicky Chu
10165 Gaywood
Dallas, TX 75229
Telephone:
--------------
Telecopy No.:
--------------
Guarantor: Theodore Lange
4040 Avondale, #408
Dallas, TX 75219
Telephone:
--------------
Telecopy No.:
--------------
================================================================================
8.17. AGENT FOR SERVICE OF PROCESS (SECTION 8.17).
Daniel Chu, whose address is 605 South Loop 12, Irving, Texas
75225. (Agent)
================================================================================
-6-
27
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and
year first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ BRAD FYHER
----------------------------------------------
(Signature)
Brad Fisher, Vice President 2-17-98
----------------------------------------------
(Printed Name and Title) (Date)
BORROWER:
PREMIUM AUTO ACCEPTANCE CORPORATION
By: /s/ DANIEL CHU
----------------------------------------------
(Signature)
Daniel Chu, President
----------------------------------------------
(Printed Name and Title) (Date)
PAACO, INC.
By: /s/ DANIEL CHU
----------------------------------------------
(Signature)
Daniel Chu, President
----------------------------------------------
(Printed Name and Title) (Date)
GUARANTORS:
/s/ LARRY W. LANGE
----------------------------------------------
Larry W. Lange
/s/ MARY LANGE
----------------------------------------------
Mary Lange
/s/ DANIEL CHU
----------------------------------------------
Daniel Chu
/s/ VICKY CHU
----------------------------------------------
Vicky Chu
/s/ THEODORE LANGE
----------------------------------------------
Theodore Lange
-7-
28
[FINOVA LOGO]
- --------------------------------------------------------------------------------
EIGHTH AMENDED AND RESTATED
PROMISSORY NOTE
$35,000,000.00 PHOENIX, ARIZONA February 5, 1998
FOR VALUE RECEIVED, the undersigned ("MAKER"), hereby unconditionally
promises to pay to the order of FINOVA CAPITAL CORPORATION, a Delaware
corporation, ("HOLDER") formerly known as Greyhound Financial Corporation, at
HOLDER's branch address at 13355 Noel Road, Suite 800, Dallas, Texas 75240, or
at such other place as HOLDER may designate in writing, the principal sum of
Thirty Five Million Dollars ($35,000,000.00) or so much thereof as shall be
advanced or readvanced, with interest thereon at the Stated Interest Rate
calculated on the average daily balance outstanding, as follows:
1. DEFINITIONS. When used herein, the following terms have the meanings
given in this paragraph:
A. Loan Agreement. The term "Loan Agreement" shall mean that certain
Loan and Security Agreement dated December 14, 1995, entered into by and
between FINOVA Capital Corporation, as Lender, and MAKER, as Borrower, and
all amendments, substitutions, renewals and extensions thereof. All terms
used herein which are not expressly defined herein shall have the meanings
ascribed to them in the Loan Agreement.
B. Maximum Rate. The term "Maximum Rate" shall mean the highest lawful
rate of interest applicable to this NOTE. In determining the Maximum Rate,
due regard shall be given to all payments, fees, charges, deposits,
balances and agreements which may constitute interest or be deducted from
principal when calculating interest.
2. PAYMENT. The principal and interest of this NOTE are payable as follows:
A. Accrued but unpaid interest for each calendar month during the term
hereof shall be due and payable monthly, in arrears, on the fifteenth
(15th) day of the immediately succeeding calendar month that commences on
February 15, 1997. All outstanding principal together with all accrued and
unpaid interest shall be due and payable, if not sooner paid, on April 30,
2000. All payments received hereunder shall be applied as set forth in the
Loan Agreement.
B. Notwithstanding the foregoing, principal shall be immediately due
and payable without written notice and demand from Lender in such amounts
so that the outstanding balance hereunder does not, at anytime, exceed the
amount of the Loan as determined pursuant to Section 2.1 of the Loan
Agreement. The amount of such payments shall be determined by HOLDER
pursuant to the terms of the Loan Agreement and based upon the principal
balance of this NOTE then outstanding as determined pursuant to the Loan
Agreement and as shown on the books and records of HOLDER, maintained in
accordance with its usual practice, the entries of which being conclusive
evidence of the existence and amounts as therein recorded.
C. All of the principal hereunder may be prepaid in full or in part at
any time; however, such voluntary prepayments shall be subject to the
voluntary prepayment provisions set forth in Article 2.6 of the Loan
Agreement.
-1-
29
3. PRINCIPAL BALANCE. The unpaid principal balance of this NOTE at any time
shall be the total amounts loaned or advanced hereunder by HOLDER, less the
amount of payments or prepayments of principal made hereon by or for the account
of MAKER. It is contemplated that by reason of payments or prepayments hereon
there may be times when no indebtedness is owing hereunder; but notwithstanding
such occurrences, this NOTE shall remain valid and shall be in force and effect
as to loans or advances made pursuant to and under the terms of this NOTE
subsequent to each such occurrence. All loans or advances and all payments or
prepayments made hereunder on account of principal or interest may be evidenced
by HOLDER, or any subsequent holder, maintaining in accordance with its usual
practice an account or accounts evidencing the indebtedness of MAKER resulting
from all loans or advances and all payments or prepayments hereunder from time
to time in the amounts of principal and interest payable and paid from time to
time hereunder, in which event, in any legal action or proceeding in respect of
this NOTE, subject to Section 2.8 of the Loan Agreement, the entries made in
such account or accounts shall be conclusive evidence of the existence and
amounts of the obligations of MAKER therein recorded. In the event that the
unpaid principal amount hereof, at any time and for any reason, exceeds the
maximum amount hereinabove specified, MAKER covenants and agrees to pay the
excess principal amount immediately without notice or demand; such excess
principal amount shall in all respects be deemed to be included among the loans
or advances made pursuant to the other terms of this NOTE and shall bear
interest at the rate hereinabove stated.
4. ADVANCES. This Promissory Note is the "Note" referred to in the Loan
Agreement and the Holder is entitled to all the rights, remedies and benefits of
the Lender thereunder. Reference is hereby made to the Loan Agreement for the
terms and conditions under which this Note is to be made and to be repaid.
5. DEFAULT, REMEDIES. Upon the occurrence of any one or more of the Events
of Default set forth in the Loan Agreement, at the option of the holder of this
NOTE, the entire unpaid principal balance and accrued and unpaid interest hereon
shall at once become due and payable without notice or demand and the Holder may
foreclose and enforce all liens and security interests securing this NOTE.
If this NOTE is not paid when due, whether at maturity or by acceleration,
or if it is collected through a bankruptcy, probate, or other judicial
proceeding, whether before or after maturity, MAKER agrees to pay attorney's
fees, together with all actual expenses of collection and litigation and costs
of court incurred by the Holder, whether or not suit is actually filed or not.
6. WAIVER. MAKER and all other makers, signers, sureties, guarantors and
endorsers of this NOTE waive demand, presentment, notice of dishonor, notice of
intent to demand or accelerate payment hereof, diligence in the collecting,
grace, notice and protest, and agree to one or more extensions for any period or
periods of time and partial payments, before or after maturity, without
prejudice to HOLDER.
7. SECURITY. This NOTE is secured by certain security interests as set
forth in the Loan Agreement.
8. CONTROLLING AGREEMENT. The contracted for rate of interest of the Loan
without limitation, shall consist of the following: (i) the Stated Interest
Rate, calculated and applied to the principal balance of the Note in accordance
with the provisions of this Note and the Loan Agreement; (ii) Interest After
Event of Default or Due Date, calculated and applied to the amounts due under
this Note in accordance with the provisions thereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to this Note, the Loan Agreement or any other documents or instruments in any
way pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this
-2-
30
lending transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in this NOTE, or in any of the documents securing payment hereof or
otherwise relating hereto, in no event shall this NOTE or such documents require
the payment or permit the collection of interest in excess of the maximum
contract rate permitted by the Applicable Usury Law. In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Maker or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the indebtedness evidenced by this NOTE is accelerated in whole or
in part, or (c) all or part of the principal or interest of this NOTE shall be
prepaid, so that under any of such circumstances the amount of interest
contracted for, shared or received in connection with the loan evidenced hereby,
would exceed the maximum contract rate permitted by the Applicable Usury Law,
then in any such event (1) the provisions of this paragraph shall govern and
control, (2) neither Maker nor any other person or entity now or hereafter
liable for the payment hereof will be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum contract rate
permitted by the Applicable Usury Law, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount hereof or refunded to Maker, at Holder's option, and (4) the effective
rate of interest will be automatically reduced to the maximum amount of interest
permitted by the Applicable Usury Law. It is further agreed, without limiting
the generality of the foregoing, that to the extent permitted by the Applicable
Usury Law; (x) all calculations of interest which are made for the purpose of
determining whether such rate would exceed the maximum contract rate permitted
by the Applicable Usury Law shall be made by amortizing, prorating, allocating
and spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise in connection with such loan; and (y) in the event that the
effective rate of interest on the loan should at any time exceed the maximum
contract rate allowed under the Applicable Usury Law, such excess interest that
would otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law shall be paid to Holder from time to time, if and when the
effective interest rate on the loan otherwise falls below the maximum amount
permitted by the Applicable Usury Law, to the extent that interest paid to the
date of calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Maker further agrees that should the maximum
contract rate permitted by the Applicable Usury Law be increased at any time
hereafter because of a change in the law, then to the extent not prohibited by
the Applicable Usury Law, such increases shall apply to all indebtedness
evidenced hereby regardless of when incurred; but, again to the extent not
prohibited by the Applicable Usury Law, should the maximum contract rate
permitted by the Applicable Usury Law be decreased because of a change in the
law, such decreases shall not apply to the indebtedness evidenced hereby
regardless of when incurred.
9. APPLICABLE LAW. This NOTE shall be construed in accordance with the laws
of the State of Arizona and the laws of the United States applicable to
transactions in the State of Arizona.
10. NO WAIVER. No delay on the part of the HOLDER in the exercise of any
power or right under this NOTE, or under the LOAN AGREEMENT or any other
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any power or right preclude other or
further exercise thereof or exercise of any other power or right. Enforcement by
HOLDER of any security for the payment hereof shall not constitute any election
by it of remedies so as to preclude the exercise of any other remedy available
to it.
11. SUCCESSORS, ASSIGNS. The term "HOLDER" shall include all of HOLDER's
successors and assigns to whom the benefits of this NOTE shall inure.
-3-
31
12. RENEWAL AND EXTENSION. This Eighth Amended and Restated Promissory Note
is executed in conjunction with that certain Eighth Amended and Restated
Schedule to Loan and Security Agreement, dated of even date herewith, by and
between HOLDER and MAKER amending that certain Amended and Restated Schedule to
Loan and Security Agreement, dated May 22, 1996, that certain Second Amended and
Restated Schedule to Loan and Security Agreement, dated January 7, 1997, that
certain Third Amended and Restated Schedule to Loan and Security Agreement,
dated March 24, 1997, that certain Fourth Amended and Restated Schedule to Loan
and Security Agreement, dated April 17, 1997, that certain Fifth Amended and
Restated Schedule to Loan and Security Agreement, dated October 2, 1997, that
certain Sixth Amended and Restated Schedule to Loan and Security Agreement,
dated October 27, 1997, and that certain Seventh Amended and Restated Schedule
to Loan and Security Agreement, dated November 25, 1997. This Eighth Amended and
Restated Promissory Note is a renewal and extension of and not an extinguishment
of that certain Promissory Note, dated December 14, 1995, in the stated
principal amount of $6,500,000.00, that certain Amended and Restated Promissory
Note, dated May 22, 1996, in the stated principal amount of Twelve Million
Dollars ($12,000,000.00), that certain Second Amended and Restated Promissory
Note, dated January 7, 1997, in the stated principal amount of Thirteen Million
Dollars ($13,000,000.00), that certain Third Amended and Restated Promissory
Note, dated March 24, 1997, in the stated principal amount of Fourteen Million
Dollars ($14,000,000.00), that certain Fourth Amended and Restated Promissory
Note, dated April 17, 1997, in the stated principal amount of Twenty Million
Dollars ($20,000,000.00), that certain Fifth Amended and Restated Promissory
Note, dated October 2, 1997, in the stated principal amount of Twenty One
Million Dollars ($21,000,000.00), and that certain Sixth Amended and Restated
Promissory Note, dated October 27, 1997, in the stated principal amount of
Twenty Two Million Dollars ($22,000,000.00), and that certain Seventh Amended
and Restated Promissory Note, dated November 25, 1997, in the stated principal
amount of Twenty Five Million Dollars ($25,000,000.00) each executed by MAKER in
favor of HOLDER. This Eighth Amended and Restated Promissory Note is secured by
liens granted to Holder on certain collateral, this Eighth Amended and Restated
Promissory Note is a continuation of MAKER's obligations to HOLDER and such
obligations and liens, mortgages, deeds of trust or security interests are not
extinguished by this Eighth Amended and Restated Promissory Note but are hereby
renewed and extended.
13. AVAILABILITY LIMITATIONS. The maximum outstanding balance of this Note
shall be limited as the Amount of the Revolving Credit Line is restricted in the
Eighth Amended and Restated Schedule to Loan and Security Agreement, as even
date herewith, as follows:
if a Default or Event of Default exist on the date of any increase of the
"Amount of the Revolving Credit Line" as set forth below, the "Amount of
the Revolving Credit Line" shall not increase, and shall only increase
thereafter, at the sole discretion of Lender:
i. If the date of determination is on or before June 30, 1998, then
the Amount of Revolving Credit Line shall be Thirty Million
Dollars ($30,000,000.00);
ii. If the date of determination is after June 30, 1998, but on or
before September 30, 1998, then the Amount of Revolving Credit
Line shall be Thirty Two Million Five Hundred Thousand Dollars
($32,500,000.00); and
iii. If the date of determination is after September 30, 1998, then
the Amount of the Revolving Credit Line shall be Thirty Five
Million Dollars ($35,000,000.00).
-4-
32
MAKER:
Premium Auto Acceptance Corporation,
a Texas corporation
By: /s/ DANIEL CHU
---------------------------------
Name: Daniel Chu
-------------------------------
Title: President
------------------------------
PAACO, Inc.,
a Texas corporation
By: /s/ DANIEL CHU
---------------------------------
Name: Daniel Chu
-------------------------------
Title: President
------------------------------
-5-