1
Exhibit 10.31
GUARANTY AND PLEDGE AGREEMENT
(STOCK)
THIS GUARANTY AND PLEDGE AGREEMENT dated as of December 15, 1997
(the "Pledge Agreement") is made by and among First Merchants Acceptance
Corporation, a Delaware corporation (the "Pledgor") (as owner of all of the
outstanding capital stock in First Merchants Auto Receivables Corporation, a
Delaware corporation ("FMARC") and First Merchants Auto Receivables Corporation
II, a Delaware corporation ("FMARC II")), LaSalle National Bank, as Agent under
the Warehouse Facility, Ugly Duckling Corporation ("UDC") and Harris Trust and
Savings Bank, an Illinois banking corporation, as collateral agent (the
"Collateral Agent") on behalf of the Agent. Capitalized terms not otherwise
defined herein are used as defined in Schedule I attached hereto.
INTRODUCTORY STATEMENTS
A. The Pledgor is the sole shareholder of FMARC and FMARC II.
B. Pursuant to a Stock Pledge Agreement dated as of March 1, 1996, among
the Pledgor, FSA and the Collateral Agent (as the same may be amended,
supplemented or otherwise modified from time to time, the "FSA Pledge
Agreement"), the Pledgor has pledged all of its interest as sole shareholder of
FMARC II to the Collateral Agent on behalf of FSA. All such interest is
represented by a single stock certificate (the "FMARC II Certificate"). The
FMARC II Certificate has been delivered to the Collateral Agent by the Pledgor
pursuant to the FSA Pledge Agreement.
C. Pursuant to a Stock Pledge Agreement dated as of June 9, 1997, among
the Pledgor, Greenwich and the Collateral Agent (as the same may be amended,
supplemented or otherwise modified from time to time, the "Greenwich Pledge
Agreement"), the Pledgor has further pledged its interest as sole shareholder of
FMARC II to the Collateral Agent on behalf of Greenwich, subject to the rights
of FSA under the FSA Pledge Agreement and pursuant to an Intercreditor Agreement
dated as of June 9, 1997 by and between FSA and Greenwich (the "Intercreditor
Agreement").
D. Pursuant to that certain Pledge Agreement (Stock) dated as of July 17,
1997, among Pledgor, UDC, and the Collateral Agent (the "DIP Pledge"), the
Pledgor has pledged all of its interest as sole shareholder of FMARC II to the
Collateral Agent to secure its obligations to UDC under the DIP Facility and
Overadvance Cap subject to the limitations set forth in the DIP Pledge. UDC has
elected to subordinate the DIP Pledge to the liens granted hereunder.
2
E. The Pledgor has entered into the Modified Plan Agreement. Pursuant to
the Modified Plan Agreement, the Pledgor has agreed to sell the Owned Loans to
the Agent.
F. In order to acquire the Owned Loans free and clear of any interests,
liens or encumbrances, the Agent, at the direction of UDC, has agreed to credit
bid the Purchase Price for the Owned Loans. The Pledgor, UDC and the Committee
have recognized that a cash sale of the Owned Loans would not provide sufficient
proceeds to satisfy, in full, all amounts due the Bank Group under the Warehouse
Facility. Moreover, the Pledgor and the Committee have requested that the Agent
release its lien on the Retained Property. As consideration for the Agent's (1)
credit bid of the Purchase Price for the Owned Loans and (2) release of its lien
on the Retained Property, the Pledgor has agreed to execute a non-recourse
guaranty guaranteeing to the Agent on behalf of the Current Bank Group
satisfaction in full of the Secured Claim Recovery Amount and to secure the
guaranty with a pledge of the FMARC Certificate and the FMARC II Certificate
(collectively the "Pledged Shares").
AGREEMENTS
In consideration of the premises and of the agreements herein
contained, the Pledgor, the Agent and the Collateral Agent agree as follows:
Section 1. Definitions. As used herein, the term "Final Date" shall
mean the earlier of (i) the date upon which the Agent has fully recovered and
received the Secured Claim Recovery Amount and, if the Chapter 11 Plan is
confirmed, UDC has received the Modified UDC Fee or (ii) the date on which all
of Pledgor's obligations under the Contribution Agreement have been satisfied.
The term "Senior Creditors" shall mean with respect to FMARC II individually
and/or collectively FSA and Greenwich. The term "Senior Pledge Agreements" shall
mean individually and/or collectively the FSA Pledge Agreement and the Greenwich
Pledge Agreement. The term "Senior Obligations" shall mean individually and/or
collectively the obligations of Pledgor to the Senior Creditors secured by the
Senior Pledge Agreements. The term "Senior Security Interests" shall mean any
and all properly perfected, valid and enforceable liens existing as of July 11,
1997, of Pledgor to the Senior Creditors securing the Senior Obligations. The
term "Responsible Officer" shall mean when used with respect to the Collateral
Agent any officer within its principal corporate trust office located at 311
West Monroe Street, Chicago, Illinois 60606, including any Vice President,
Managing Director, Assistant Vice President, Secretary, Assistant Secretary or
Assistant Treasurer or any other officer of the Collateral Agent customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge and familiarity
with
3
the particular subject.
Section 2. Guaranty. Pledgor guarantees, absolutely and irrevocably,
the full and timely receipt and recovery by the Agent (and the successors or
assigns of Agent) and/or UDC (collectively, the "Secured Party"), in the
aggregate of the Secured Claim Recovery Amount and, if the Chapter 11 Plan is
confirmed, the Modified UDC Fee. Pledgor's guaranty obligations hereunder
(collectively, the "Obligations") shall be non-recourse to the Pledgor or any
assets of the Pledgor other than the FMARC Collateral (as defined below). The
Secured Party agrees to satisfy any claim arising hereunder against Pledgor only
from the proceeds of the FMARC Collateral.
Section 3. Pledge of Stock and Grant of Security Interest. As
security for the full and complete performance of all of the Obligations, the
Pledgor hereby delivers, pledges and assigns to the Collateral Agent for the
benefit of the Secured Party, and grants in favor of the Collateral Agent for
the benefit of the Secured Party, a security interest in all of the Pledgor's
right, title and interest in and to the Pledged Shares, together with all of the
Pledgor's rights and privileges with respect thereto, all proceeds, dividends,
distributions (including specifically, without limitation, all distributions or
dividends in any way related to Pledgor's interest in FMARC and FMARC II),
income and profits therefrom and all property received in exchange or in
substitution therefor (the "FMARC Collateral"); provided, however, that such
security interest of the Secured Party shall be subordinate to the Senior
Security Interests of the Senior Creditors in and to such FMARC Collateral
granted pursuant to the Senior Pledge Agreements for so long as any Senior
Obligations shall be outstanding and for so long as such Senior Security
Interests shall continue.
Section 4. Stock Dividends, Options, or Other Adjustments. Until the
Final Date, the Pledgor shall deliver to the Collateral Agent, as FMARC
Collateral, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the FMARC Collateral, whether in the form
of or by way of stock dividends, warrants, total or partial liquidation,
conversion, prepayments, redemptions or otherwise, with the sole exception of
cash dividends or cash interest payments, as the case may be. If any additional
shares of capital stock, instruments, or other property, a security interest in
which can only be perfected by possession, which are distributable on or by
reason of the FMARC Collateral pledged hereunder, shall come into the possession
or control of the Pledgor, the Pledgor shall forthwith transfer and deliver such
property to the Collateral Agent, as FMARC Collateral hereunder. The security
interest of the Secured Party in and to such additional FMARC Collateral shall
be subordinate to the Senior Security Interests for so long as any Senior
Obligation shall be outstanding, and for as long as such Senior Security
Interests
4
shall continue.
Section 5. Delivery of Share Certificates; Stock Powers. Pursuant to
the FSA Pledge Agreement and the pledge of the FMARC stock herein, the Pledgor
has previously delivered to the Collateral Agent all instruments and stock
certificates representing the FMARC Collateral, together with stock powers duly
executed in blank by the Pledgor. The Pledgor shall promptly deliver to the
Collateral Agent, or cause FMARC and FMARC II (collectively, the "FMARC
Entities") or any other entity issuing the FMARC Collateral, to deliver directly
to the Collateral Agent share certificates or other instruments representing any
FMARC Collateral issued to, acquired or received by the Pledgor after the date
of this Pledge Agreement with a stock or bond power duly executed by the
Pledgor. Subject to the rights of the Senior Creditors for so long as the Senior
Security Interests shall continue, if, at any time, either the Collateral Agent
acting on behalf of the Secured Party or the Secured Party notifies the Pledgor
that it requires additional stock powers endorsed in blank, the Pledgor shall
promptly execute in blank and deliver the requested power to the requesting
party.
Section 6. Power of Attorney. Subject to the rights of the Senior
Creditors for so long as any Senior Obligations shall be outstanding and the
Senior Security Interests shall continue, and subject further to the provisions
of Title 11 of the United States Code (the "Bankruptcy Code"), the Pledgor
hereby constitutes and irrevocably appoints the Collateral Agent on behalf of
the Secured Party and the Secured Party, or either one acting alone, exercisable
at any time after the Senior Obligations shall have been paid in full, with full
power of substitution and revocation, as the Pledgor's true and lawful
attorney-in-fact, with the power, upon the failure of Pledgor to satisfy its
obligations under Section 2 hereof, and a failure to cure as provided in Section
12(a) hereof, to the full extent permitted by law, to affix to any certificates
and documents representing the FMARC Collateral, the stock or bond powers
delivered with respect thereto, and to transfer or cause the transfer of the
FMARC Collateral, or any part thereof, on the books of the FMARC Entities or any
other entity issuing such FMARC Collateral, to the name of the Collateral Agent
or the Secured Party or any nominee thereof, and thereafter to exercise with
respect to such FMARC Collateral all the rights, powers and remedies of an
owner. Subject to the rights of the Senior Creditors for so long as the Senior
Security Interests shall continue, the power of attorney granted pursuant to
this Pledge Agreement and all authority hereby conferred are granted and
conferred solely to protect the Secured Party's interest in the FMARC Collateral
and shall not impose any duty upon the Collateral Agent or the Secured Party to
exercise any power. This power of attorney shall be irrevocable as one coupled
with an interest until the Final Date.
5
Section 7. Inducing Representations of the Pledgor.
The Pledgor represents and warrants to UDC that:
(a) The Pledged Shares are validly issued, fully paid for and
nonassessable.
(b) The Pledged Shares represent all of the issued and outstanding
capital stock of FMARC and FMARC II.
(c) The Pledgor is the sole legal and beneficial owner of, and has
good and marketable title to, the Pledged Shares, free and clear of all pledges,
liens, security interests and other encumbrances, except the security interests
created by this Pledge Agreement, the Senior Security Interests and the DIP
Pledge, and the Pledgor has the unqualified right and authority to execute and
perform this Pledge Agreement, subject to (e) below.
(d) No options, warrants or other agreements with respect to the
FMARC Collateral are outstanding, except with respect to the Senior Security
Interests and the DIP Pledge.
(e) Any necessary consent, approval or authorization of or
designation or filing with any authority on the part of the Pledgor which is
required in connection with the Pledge and security interest granted under this
Pledge Agreement has been obtained or effected by Court approval of this Pledge
Agreement in the Bankruptcy Case after notice and an opportunity to be heard.
(f) Once approved by the Court in the Bankruptcy Case, neither the
execution and delivery of this Pledge Agreement by the Pledgor, the consummation
of the transaction contemplated hereby nor the satisfaction of the terms and
conditions of this Pledge Agreement:
(i) conflicts with or results in any breach or violation of
any provision of the articles of incorporation or bylaws of the Pledgor or any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award currently in effect having applicability to the Pledgor or any of its
properties, including regulations issued by an administrative agency or other
governmental authority having supervisory powers over the Pledgor;
(ii) conflicts with, constitutes a default (or an event which
with the giving of notice or the passage of time, or both, would constitute a
default) by the Pledgor under, or a breach of or contravenes any provision of,
any agreement to which the Pledgor or any of its subsidiaries is a party or by
which it or any of their properties is or may be bound or affected, including
without limitation any loan agreement, mortgage, indenture or other agreement or
instrument except where such consent has been obtained or is effected by entry
of an order approving this Pledge
6
Agreement; or
(iii) results in or requires the creation of any lien upon or
in respect of any of the Pledgor's assets except the lien created by this Pledge
Agreement.
(g) With respect to all Pledged Shares heretofore delivered to and
currently held by the Collateral Agent, and upon delivery to the Collateral
Agent of any Pledged Shares hereafter issued to, acquired or received by the
Pledgor, the Secured Party will have a valid, perfected security interest in and
to the FMARC Collateral, enforceable as such against all other creditors of the
Pledgor and against all persons purporting to purchase any of the FMARC
Collateral from the Pledgor, except that such security interest of the Secured
Party in the FMARC Collateral is subordinate to the Senior Security Interests
for so long as such Senior Security Interests shall continue and the right of
the Secured Party to enforce such security interest is limited by the rights of
the Senior Creditors under the Senior Pledge Agreements and the Intercreditor
Agreement for so long as the Senior Security Interests shall continue.
Section 8. Obligations of the Pledgor. The Pledgor further
represents, warrants and covenants to the Secured Party that:
(a) The Pledgor will not sell, transfer or convey any interest in,
or suffer or permit any lien or encumbrance to be created upon or with respect
to, any of the FMARC Collateral (other than the Senior Security Interests or the
security interests created under this Pledge Agreement and the DIP Pledge)
during the term of this Pledge Agreement, without the prior written consent of
the Secured Party.
(b) On and after the date hereof, the Pledgor will not, and will not
cause or permit the FMARC Entities or any affiliate of the Pledgor or of the
FMARC Entities to, enter into any new agreement or arrangement with FSA for the
insurance of any securitization by FSA or the cross-collateralization of any
such securitization with the presently existing securitizations, without the
prior written consent of the Secured Party.
(c) The Pledgor will, at its own expense, at any time and from time
to time at the request of the Collateral Agent on behalf of the Secured Party or
the Secured Party, at such time as the Senior Obligations shall have been paid
in full, do, make, procure, execute and deliver all acts, things, writings,
assurances and other documents as may be reasonably proposed by the Collateral
Agent or the Secured Party to preserve, establish, demonstrate or enforce the
rights, interests and remedies of the Collateral Agent or the Secured Party as
created by, provided in, or emanating from this Pledge Agreement, in each case
subject to the rights of the
7
Senior Creditors for so long as the Senior Security Interests shall continue.
(d) The Pledgor will not take any action which would cause the FMARC
Entities to issue any other capital stock without the prior written consent of
the Secured Party, subject to the rights of the Senior Creditors for so long as
the Senior Security Interests shall continue. Any such issuance shall be subject
to the rights of the Secured Party under this Pledge Agreement and the Senior
Creditors under the Senior Pledge Agreements for so long as the Senior Security
Interests shall continue.
(e) The Pledgor will not consent to any amendment to the articles of
incorporation of the FMARC Entities without the prior written consent of the
Secured Party, which consent shall not be unreasonably withheld or delayed.
Section 9. Dividends. Pledgor agrees that, until the Final Date, it
shall not cause the FMARC Entities to declare or make payment of (i) any
dividend or other distribution on any shares of its capital stock, or (ii) any
payment on account of the purchase, redemption, retirement or acquisition of any
option, warrant or other right to acquire shares of its capital stock, unless
such dividends, distribution or proceeds are paid to Agent or UDC hereunder to
be applied to reduce the Secured Claim Recovery Amount and, if a Chapter 11 Plan
is confirmed, the Modified UDC Fee, or to the Senior Creditors.
Section 10. Voting Proxy. Subject to the rights of the Senior
Creditors for so long as the Senior Security Interests shall continue, the
Pledgor hereby grants to the Collateral Agent on behalf of the Secured Party an
irrevocable proxy, exercisable at such time as the Senior Obligations shall have
been paid in full, to vote, upon the occurrence of an Event of Default (as
hereinafter defined), the Pledged Shares with respect to the matters contained
in Article XII of the Articles of Incorporation of the FMARC Entities, which
proxy shall continue until the Final Date, subject to the rights of the Senior
Creditors for so long as the Senior Security Interests shall continue. UDC will
provide written notice to the Collateral Agent and the Pledgor in the event that
(i) the Senior Obligations are paid in full, (ii) the Final Date has occurred or
(iii) an Event of Default has occurred. The Pledgor represents and warrants that
it has directed the FMARC Entities, in accordance with Section 217 of the
Delaware General Corporation Law, to reflect on their respective books the right
of the Collateral Agent to vote the FMARC Collateral, as applicable, on behalf
of the Secured Party, exercisable at such time as the Senior Obligations shall
have been paid in full, and only on the occurrence of an Event of Default (as
defined below). Upon the request of the Collateral Agent or the Secured Party,
the Pledgor shall deliver to the Collateral Agent such further evidence of such
irrevocable proxy or such further irrevocable proxy exercisable at
8
such time as the Senior Obligations shall have been paid in full, and only on
the occurrence of an Event of Default (as defined below), to vote the FMARC
Collateral as the Collateral Agent or the Secured Party may request pursuant
hereto. The Collateral Agent shall exercise all such rights to vote the FMARC
Collateral granted hereunder in accordance with the written directions given by
the Secured Party.
Section 11. Rights of the Collateral Agent and the Secured Party.
Subject to the rights of the Senior Creditors for so long as the Senior Security
Interests shall continue, the Secured Party may, at any time and without notice,
upon providing the Collateral Agent with the full amount necessary to carry out
such direction, direct the Collateral Agent in writing to discharge any taxes,
liens, security interests or other encumbrances levied or placed on the FMARC
Collateral, pay for the maintenance and preservation of the FMARC Collateral, or
pay for insurance on the FMARC Collateral; the amount of such payments, plus any
and all reasonable fees, costs and expenses of the Collateral Agent and the
Secured Party (including reasonable attorneys' fees and disbursements) in
connection therewith, shall, at the option of the Collateral Agent or the
Secured Party, as appropriate, be reimbursed by the Pledgor on demand, with
interest thereon from the date paid at a rate of ten (10) percent per annum. The
Collateral Agent shall have no duty or obligation to follow any direction
provided in this Section 11 unless the Secured Party has provided the Collateral
Agent with the full amount necessary to carry out such direction.
Section 12. Remedies Upon Event of Default under this Pledge
Agreement. Subject to the rights of the Senior Creditors for so long as the
Senior Security Interests shall continue, at such time as the Senior Obligations
shall have been paid in full and/or the Senior Creditors rights under the Senior
Pledge Agreements have been released or discharged, and subject further to the
provisions of the Bankruptcy Code, the Collateral Agent, on behalf of the
Secured Party, or the Secured Party may exercise any one or more of the
following remedies upon an Event of Default under this Pledge Agreement:
(a) Upon the failure by Pledgor to satisfy its obligations under
Section 2 hereof, the Secured Party may, directly or through the Collateral
Agent, with at least five (5) business days prior written notice to the Pledgor
(during which period Pledgor may cure such default) (such failure to satisfy and
failure to cure, collectively, an "Event of Default"),
(i) cause the FMARC Collateral to be transferred to the
Collateral Agent's name or the Secured Party's name, or to the name of a nominee
of either, and thereafter exercise as to such FMARC Collateral all of the
rights, powers and remedies of an owner;
9
(ii) collect by legal proceedings or otherwise all dividends,
interest, principal payments, capital distributions and other sums now or
hereafter payable on account of the FMARC Collateral, and hold all such sums as
part of the FMARC Collateral, or apply such sums to the payment of the
Obligations in such manner and order as the Secured Party may decide, in its
sole discretion; or
(iii) enter into any extension, subordination, reorganization,
deposit, merger, or consolidation agreement, or any other agreement relating to
or affecting the FMARC Collateral, and in connection therewith deposit or
surrender control of the FMARC Collateral thereunder, and accept other property
in exchange therefor and hold and apply such property or money so received in
accordance with the provisions hereof; or
(b) In addition to all the rights and remedies of a secured party
under the Uniform Commercial Code as in effect in any applicable jurisdiction,
upon the occurrence of an Event of Default, the Secured Party shall have the
right, without demand of performance or other demand, advertisement or notice of
any kind, except as specified below and subject to the rights of the Senior
Creditors for so long as the Senior Security Interests shall continue, to or
upon the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith or direct the Collateral Agent in
writing to proceed forthwith, to collect, receive, appropriate and realize upon
the FMARC Collateral, or any part thereof and to proceed forthwith to sell,
assign, give an option or options to purchase, contract to sell, or otherwise
dispose of and deliver the FMARC Collateral or any part thereof in one or more
parcels in accordance with applicable securities laws and in a manner designed
to ensure that such sale will not result in a distribution of the Pledged Shares
in violation of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act") (it being understood and agreed that the Collateral Agent will
have no liability with respect thereto) and on such terms (including, without
limitation, a requirement that any purchaser of all or any part of the FMARC
Collateral shall be required to purchase any securities constituting the FMARC
Collateral solely for investment and without any intention to make a
distribution thereof) as the Secured Party, in its sole and absolute discretion,
deems appropriate without any liability for any loss due to a decrease in the
market value of the FMARC Collateral during the period held. If any notification
to the Pledgor of intended disposition of the FMARC Collateral is required by
law, such notification shall be deemed reasonable and properly given if hand
delivered or express mailed to the Pledgor at least ten (10) days before any
such disposition at the address in Section 22 hereof. Any disposition of the
FMARC Collateral or any part thereof may be for cash or on credit or for future
delivery without assumption of any credit risk, with the right of the Secured
Party
10
to purchase all or any part of the FMARC Collateral so sold at any such sale or
sales, public or private, free of any equity or right of redemption in the
Pledgor, which right of equity is, to the extent permitted by applicable law,
hereby expressly waived or released by the Pledgor; or
(c) The Agent, in its sole and absolute discretion, may elect to
obtain or cause the Collateral Agent to obtain the advice of any independent
nationally known investment banking firm, which is a member firm of the New York
Stock Exchange, with respect to the method and manner of sale or other
disposition of any of the FMARC Collateral, the best price reasonably obtainable
therefor, the consideration of cash and/or credit terms, or any other details
concerning such sale or disposition; costs and expenses of obtaining such advice
shall be for the account of the Secured Party. Subject to the rights of the
Senior Creditors, for so long as the Senior Security Interests shall continue,
the Secured Party, with the prior written consent of the Senior Creditors, or,
at such time as the Senior Obligations shall have been paid in full, in its sole
and absolute discretion, may elect to sell or cause the Collateral Agent to
sell, the FMARC Collateral on any credit terms which it deems reasonable. The
out-of-pocket costs and expenses of such sale shall be for the account of the
Secured Party, except that, where such sale is effected with the prior written
consent of the Senior Creditors, such costs and expenses shall be allocated pro
rata between the Senior Creditors and the Secured Party to the extent, if any,
that the proceeds of such sale are paid to each of the Senior Creditors and the
Secured Party. The sale of any of the FMARC Collateral on credit terms shall not
relieve the Pledgor of its liability with respect to the Obligations. All
payments received in respect of any sale of the FMARC Collateral by the
Collateral Agent or the Secured Party shall be applied to the Obligations as and
when such payments are received, subject to the rights of the Senior Creditors
for so long as the Senior Security Interests shall continue and any price
received by the Collateral Agent in respect of such sale shall be conclusive and
binding upon the Secured Party; or
(d) The Pledgor recognizes that it may not be feasible to effect a
public sale of all or a part of the FMARC Collateral by reason of certain
prohibitions contained in the Securities Act, and that it may be necessary to
sell privately to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire the FMARC Collateral for their own account, for
investment and not with a view for the distribution or resale thereof. The
Pledgor agrees that private sales may be at prices and other terms less
favorable to the seller than if the FMARC Collateral were sold at public sale,
and that neither the Collateral Agent nor the Secured Party has any obligation
to delay the sale of any FMARC Collateral for the period of time necessary to
permit the registration of the FMARC Collateral for public sale under the
Securities Act. The Pledgor agrees that a private sale or sales
11
made under the foregoing circumstances shall be deemed to have been made in a
commercially reasonable manner; or
(e) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority shall be
necessary to effectuate any sale or other disposition of the FMARC Collateral,
or any partial disposition of the FMARC Collateral, the Pledgor will execute all
such applications and other instruments as may be reasonably required in
connection with securing any such consent, approval or authorization, and will
otherwise use reasonable efforts to secure the same; or
(f) Subject to the rights of the Senior Creditors for so long as the
Senior Security Interests shall continue, upon any sale or other disposition
with the prior written consent of the Senior Creditors or, at such time as the
Senior Obligations shall have been paid in full, the Collateral Agent, acting at
the written direction of the Secured Party, or the Secured Party shall have the
right to deliver, assign and transfer to the purchaser thereof (including the
Secured Party) the FMARC Collateral so sold or disposed of, subject to the
Senior Security Interests if such sale or disposition is made prior to the
payment in full of the Senior Obligations, and free from any other claim or
right of whatever kind, including any equity or right of redemption of the
Pledgor. The Pledgor specifically waives, to the extent permitted by applicable
law, all rights of redemption, stay or appraisal which it may have under any
rule of law or statute now existing or hereafter adopted; or
(g) Neither the Collateral Agent nor the Secured Party shall be
obligated to make any sale or other disposition of the FMARC Collateral
permitted under this Pledge Agreement, unless the terms thereof shall be
satisfactory to the Secured Party. The Collateral Agent or the Secured Party
may, without notice or publication, adjourn any such private or public sale,
and, upon five (5) days' prior written notice to the Pledgor, hold such sale at
any time or place to which the same may be so adjourned. In case of any such
sale of all or any part of the FMARC Collateral on credit or future delivery,
the FMARC Collateral so sold may be retained by the Collateral Agent or the
Secured Party until the selling price is paid by the purchaser thereof, but
neither the Collateral Agent nor the Secured Party shall incur any liability in
case of the failure of such purchaser to take up and pay for the property so
sold and, in case of any such failure, such property may again be sold as herein
provided.
(h) All of the rights and remedies granted to the Collateral Agent
and the Secured Party, including but not limited to the foregoing, shall be
cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as the Secured Party may deem expedient.
12
(i) Notwithstanding anything to the contrary in this Section 12, the
security interest of the Collateral Agent and the Agent shall secure only the
guaranty of the Secured Claim Recovery Amount. Any excess value or proceeds in
or from the FMARC Collateral shall accrue to Pledgor except as otherwise agreed
in writing by the Pledgor.
Section 13. Limitation on Liability.
(a) Neither the Collateral Agent nor the Secured Party, nor any of
their respective directors, officers, employees or agents, shall be liable to
the Pledgor or to the FMARC Entities for any action taken or omitted to be taken
by it or them hereunder, or in connection herewith, except that the Collateral
Agent and the Secured Party shall each be liable for its own gross negligence,
bad faith or willful misconduct.
(b) The Collateral Agent shall incur no liability to the Secured
Party except for the Collateral Agent's negligence, bad faith or willful
misconduct in carrying out its duties hereunder.
(c) The Collateral Agent shall be protected and shall incur no
liability to any party in relying upon the accuracy, acting in reliance upon the
contents, and assuming the genuineness of any notice, demand, certificate,
signature, instrument or other document a Responsible Officer of the Collateral
Agent reasonably believes to be genuine and to have been duly executed by the
appropriate signatory, and (absent actual knowledge to the contrary of any
Responsible Officer of the Collateral Agent) the Collateral Agent shall not be
required to make any independent investigation with respect thereto. The
Collateral Agent shall at all times be free to establish independently to its
reasonable satisfaction, but shall have no duty to independently verify, the
existence or nonexistence of facts that are a condition to the exercise or
enforcement of any right or remedy hereunder.
(d) The Collateral Agent may consult with qualified counsel,
financial advisors or accountants and shall not be liable for any action taken
or omitted to be taken by it hereunder in good faith and in accordance with the
advice of such counsel, financial advisors or accountants.
(e) The Collateral Agent shall not be under any obligation to
exercise any of the rights, powers or duties vested in it by this Pledge
Agreement unless it shall have received reasonable security or indemnity
satisfactory to the Collateral Agent against the costs, expenses and liabilities
which it might incur.
(f) Whenever in the administration of this Agreement, the Collateral
Agent shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering or
13
omitting to take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of gross
negligence, bad faith or wilful misconduct on the part of the Collateral Agent,
be deemed to be conclusively proved and established by an officers' certificate
of the Secured Party delivered to the Collateral Agent, and such certificate, in
the absence of gross negligence, bad faith or wilful misconduct on the part of
the Collateral Agent, shall be a warranty to the Collateral Agent for any action
taken, suffered or omitted to be taken by the Collateral Agent under the
provisions of this Agreement in reliance on such certificate.
Section 14. Performance of Duties. The Collateral Agent shall have
no duties or responsibilities with respect to the Secured Party except those
expressly set forth in this Pledge Agreement or as directed in writing by the
Secured Party pursuant to this Pledge Agreement.
Section 15. Appointment of and Powers of Collateral Agent. Subject
to the rights of the Senior Creditors for so long as the Senior Security
Interests shall continue, the Secured Party appoints Harris Trust and Savings
Bank as its Collateral Agent and Harris Trust and Savings Bank accepts such
appointment and agrees to act as Collateral Agent on behalf of the Secured Party
to maintain custody and possession of the FMARC Collateral and to perform the
other duties of the Collateral Agent in accordance with the provisions of this
Pledge Agreement. The Collateral Agent shall, subject to the other terms and
provisions of this Pledge Agreement and subject to the rights of the Senior
Creditors for so long as the Senior Security Interests shall continue, act upon
and in compliance with the Secured Party's written instructions delivered
pursuant to this Pledge Agreement as promptly as possible following receipt of
such written instructions. Receipt of written instructions shall not be a
condition to the exercise by the Collateral Agent of its express duties
hereunder, unless this Pledge Agreement provides that the Collateral Agent is
permitted to act only following receipt of such written instructions.
Section 16. Successor Collateral Agent.
(a) Merger. Any Person into which the Collateral Agent may be
converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its trust business and assets as a whole or substantially as a
whole, or any person resulting from any such conversion, merger, consolidation,
sale or transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and, subject to the rights of the Senior
Creditors for so long as the Senior Security Interests shall continue, be vested
with all of the title to and interest in the FMARC Collateral, all of the duties
and obligations provided herein and all of the trusts, powers, immunities,
privileges and other matters as was its predecessor at
14
the time of such conversion, merger or consolidation, without the execution or
filing of any instrument or any further act, deed or conveyance on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
(b) Resignation. Subject to the rights of the Senior Creditors for
so long as the Senior Security Interests shall continue, the Collateral Agent
and any successor Collateral Agent may not resign (i) without the prior written
consent of both the Senior Creditors and the Secured Party (which consent will
not be unreasonably withheld) or, at such time as the Senior Obligations shall
have been paid in full, of the Secured Party (ii) unless the Collateral Agent is
unable to perform its duties hereunder as a matter of law as evidenced by an
opinion of counsel acceptable to both the Senior Creditors and the Secured Party
or, at such time as the Senior Obligations shall have been paid in full, the
Secured Party. Upon the occurrence of (i) or (ii) above, the Collateral Agent
shall give notice of its resignation by registered or certified mail to the
Pledgor (with a copy to the Secured Party, and to the Senior Creditors for so
long as the Senior Security Interests shall continue). Any resignation by the
Collateral Agent shall take effect only upon the date which is the later of (x)
the effective date of the appointment pursuant hereto of a successor Collateral
Agent, and the acceptance in writing by such successor Collateral Agent of such
appointment and (y) the date on which the FMARC Collateral is delivered to the
successor Collateral Agent. Notwithstanding the preceding sentence, if by the
contemplated date of resignation specified in the written notice of resignation
delivered as described above, no successor Collateral Agent has been appointed
or becomes the Collateral Agent pursuant to subsection (d) below, the resigning
Collateral Agent may petition a court of competent jurisdiction for the
appointment of a successor. In the event of any resignation pursuant to this
Section 16(b), the Pledgor shall pay to the Collateral Agent its fees and
expenses then due and owing in accordance with Section 20 hereof.
(c) Removal. The Collateral Agent may be removed (i) by the Senior
Creditors for so long as the Senior Security Interests shall continue, and (ii)
at such time as the Senior Obligations shall have been paid in full, by the
Secured Party, at any time, with or without cause, by an instrument or
concurrent instruments in writing delivered to the Collateral Agent and a
written copy thereof shall be promptly furnished to the Pledgor. The Collateral
Agent shall provide the Secured Party and the Pledgor with a copy of any such
notice received from the Senior Creditors by the Collateral Agent pursuant to
(i) above. Any removal pursuant to the provisions of this subsection (c) shall
take effect only upon the later to occur of (i) the effective date of the
appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the
15
provisions hereof and (ii) the date on which the FMARC Collateral is delivered
to a successor Collateral Agent. In the event of any removal pursuant to this
Section 16(c), the Pledgor shall pay the Collateral Agent its fees and expenses
then due and owing in accordance with Section 20 hereof.
(d) Appointment of and Acceptance by Successor.
(i) For so long as the Senior Security Interests shall
continue, the Senior Creditors shall have the right to appoint any successor
Collateral Agent and, at such time as the Senior Obligations shall have been
paid in full, the Secured Party shall have the sole right, pursuant to this
Pledge Agreement, to appoint any successor Collateral Agent. Every successor
Collateral Agent appointed or approved hereunder shall execute, acknowledge and
deliver to its predecessor, to the Pledgor, to the Senior Creditors for so long
as the Senior Security Interests shall continue and, at such time as the Senior
Obligations shall have been paid in full, to the Secured Party, an instrument in
writing accepting such appointment hereunder, and the relevant predecessor shall
execute, acknowledge and deliver such other documents and instruments as will
effectuate the delivery of all FMARC Collateral to the successor Collateral
Agent, whereupon such successor, without any further act, deed or conveyance,
shall become fully vested with all the estates, properties, rights, powers,
duties and obligations of its predecessor. Such predecessor shall, nevertheless,
on the written request of the Secured Party, and, at such time as the Senior
Obligations shall have been paid in full, execute and deliver an instrument
transferring to such successor all the estates, properties, rights and powers of
such predecessor hereunder.
(ii) Every predecessor Collateral Agent shall assign, transfer
and deliver all FMARC Collateral held by it as Collateral Agent hereunder to its
successor as Collateral Agent.
(iii) Should any instrument in writing from the Pledgor be
reasonably required by a successor Collateral Agent for the purpose of more
fully and certainly vesting in such successor the estates, properties, rights,
powers, duties and obligations vested or intended to be vested hereunder in the
Collateral Agent, any and all such written instruments shall, at the request of
the successor Collateral Agent, be forthwith executed, acknowledged and
delivered by the Pledgor.
(iv) The designation of any successor Collateral Agent and the
instrument or instruments removing any Collateral Agent and appointing a
successor hereunder, together with all other instruments provided for herein,
shall be maintained with the records relating to the FMARC Collateral and, to
the extent required by applicable law, filed or recorded by the successor
Collateral Agent in each place where such filing or recording is
16
necessary to effect the transfer of the FMARC Collateral to the successor
Collateral Agent or to protect and preserve the security interest granted
hereunder.
(v) Neither the original Collateral Agent nor any successor
Collateral Agent named under this Section 16 shall be liable for the acts or
omissions of any successor Collateral Agent named under this Section 16 in
connection with fulfilling its duties as Collateral Agent hereunder.
Section 17. Indemnification. The Pledgor shall indemnify solely from
the FMARC Collateral each of the Secured Party, its affiliates and subsidiaries,
the Collateral Agent, and their respective directors, officers, employees and
agents, for, and hold each of the Secured Party, its affiliates and
subsidiaries, the Collateral Agent, and their respective directors, officers,
employees and agents harmless against, any loss, liability or reasonable expense
(including the reasonable costs and expenses of defending against any claim of
liability) arising out of or in connection with this Pledge Agreement and the
transactions contemplated hereby, except any such loss, liability or expense as
shall result from the respective gross negligence, bad faith or willful
misconduct of each of the Secured Party, its affiliates and subsidiaries, the
Collateral Agent or their respective directors, officers, employees or agents.
The obligation of the Pledgor under this Section shall survive the resignation
or removal of the Collateral Agent and the satisfaction of all of the
Obligations. The Secured Party shall indemnify the Collateral Agent for the
foregoing on a recourse basis.
Section 18. Representations and Warranties of the Collateral Agent.
The Collateral Agent represents and warrants to Pledgor and to the Secured Party
as follows:
(a) Due Organization. The Collateral Agent is an Illinois banking
corporation, duly organized, validly existing and in good standing under the
laws of the State of Illinois and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Collateral Agent has all requisite right,
power and authority to execute and deliver this Pledge Agreement and to perform
all of its duties as Collateral Agent hereunder and thereunder.
(c) Due Authorization. The execution and delivery by the Collateral
Agent of this Pledge Agreement and the performance by the Collateral Agent of
its duties hereunder, have been duly authorized by all necessary corporate
proceedings and no further approvals or filings, including any governmental
approvals, are required for the valid execution and delivery by the Collateral
Agent, or the performance by the Collateral Agent, of this Pledge
17
Agreement.
(d) Valid and Binding Agreement. The Collateral Agent has duly
executed and delivered this Pledge Agreement and this Pledge Agreement
constitutes the legal, valid and binding obligation of the Collateral Agent,
enforceable against the Collateral Agent in accordance with its respective
terms, except as (i) such enforceability may be limited by bankruptcy,
insolvency, reorganization and similar laws relating to or affecting the
enforcement of creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles of
general applicability.
Section 19. Termination. This Pledge Agreement shall continue in
full force and effect until the Final Date. Subject to any sale or other
disposition of the FMARC Collateral pursuant to and in accordance with this
Pledge Agreement or the Senior Pledge Agreements, and subject further to the
rights of the Senior Creditors for so long as the Senior Security Interests
shall continue, the FMARC Collateral shall be returned to the Pledgor on the
Final Date.
Section 20. Compensation and Reimbursement. The Pledgor agrees for
the benefit of the Secured Party and as part of the Obligations (a) to pay to
the Collateral Agent, from time to time, reasonable compensation for all
services rendered by it hereunder not to exceed $2,500 per annum and (b) to
reimburse the Collateral Agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Collateral Agent in
accordance with any provision of, or carrying out its duties and obligations
under, this Pledge Agreement (including the reasonable compensation and fees and
the reasonable expenses and disbursements of its agents, any independent
certified public accountants and independent counsel), except any expense,
disbursement or advances as may be attributable to negligence, bad faith or
willful misconduct on the part of the Collateral Agent. Such fees and expenses
shall be considered administrative expenses of Pledgor entitled to priority
under 11 U.S.C. section 503.
Section 21. Foreclosure Expenses of the Collateral Agent and the
Secured Party. All reasonable expenses (including reasonable fees and
disbursements of counsel) incurred in compliance with this Pledge Agreement, by
the Collateral Agent on behalf of the Secured Party or by the Secured Party in
connection with any actual or attempted sale, exchange of, or any enforcement,
collection, compromise or settlement respecting this Pledge Agreement or the
FMARC Collateral, or any other action taken in compliance with this Pledge
Agreement, by the Collateral Agent on behalf of the Secured Party or by the
Secured Party hereunder, whether directly or as attorney-in-fact pursuant to a
power of attorney or other authorization herein conferred, for the purpose of
satisfaction of the Obligations shall be deemed an Obligation
18
for all purposes of this Pledge Agreement and the Collateral Agent (with the
consent of the Secured Party) and the Secured Party may apply the FMARC
Collateral to payment of or reimbursement of itself for such liability;
provided, however, that any fees, expenses or disbursements incurred in
connection with this Pledge Agreement which are attributable to the gross
negligence, bad faith or willful misconduct of the Secured Party or the
Collateral Agent shall not be considered an Obligation hereunder and shall not
be subject to payment or reimbursement from the FMARC Collateral.
Section 22. Notices. Any notice or other communication given
hereunder shall be in writing and shall be sent to the recipient as follows:
If to UDC, to:
Ugly Duckling Corporation
2525 E. Camelback Road, Suite 1150
Phoenix, Arizona 85016
Attention: Steven P. Johnson, Esq.
Facsimile No.: (602) 852-6696
With a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Attention: Timothy W. Moser, Esq.
Facsimile No.: (602) 382-6070
If to the Pledgor, to:
First Merchants Acceptance Corporation
570 Lake Cook Road, Suite 126
Deerfield, Illinois 60015
Attention: Howard Adamski
Facsimile No.: (847) 945-2556
With a copy to:
Sonnenschein Nath & Rosenthal
Suite 8000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Attention: Robert E. Richards, Esq.
Facsimile No.: (312) 876-7934
If to the Agent, to:
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
19
Attention: Commercial Lending Department
With a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Jeffrey Elegant, Esq.
Telecopy No.: (312) 527-0484
With a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
400 East Van Buren
Phoenix, Arizona 85004-0001
Attention: Timothy W. Moser, Esq.
Telephone: (602) 382-6000
Telecopy No.: (602) 382-6070
If to FSA, to:
Financial Security Assurance, Inc.
350 Park Avenue
New York, New York 10022
Attention: Surveillance Department
Facsimile No.: (212) 339-3518
With a copy to:
Paul Hastings Janofsky & Walker, L.L.P.
555 S. Flower Street
Los Angeles, California 90071
Attention: Carl Anderson
Facsimile No.: (213) 627-0705
20
If to Greenwich, to:
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Craig Eckes
Telephone: (203) 622-5651
Telecopy No.: (203) 629-9640
With a copy to:
Office of the General Counsel
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Telephone: (203) 622-5651
Telecopy No.: (203) 629-9640
If to Collateral Agent, to:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Indenture Trust Department
Telephone: (312) 461-6030
Facsimile No.: (312) 461-3525
Each such notice or other communication, together with appropriate copies,
shall be (a) mailed by United States registered or certified mail, return
receipt requested, postage prepaid, (b) delivered by overnight delivery service
such as Federal Express, providing for signed receipts, (c) delivered by
personal service in the manner provided for service of legal process, or (d)
transmitted by facsimile at the above facsimile numbers, with a copy by United
States mail as provided in subsection (a) hereof. Counsel to a party may give
notice for its client provided such notice is otherwise made in accordance with
the provisions of this Section. Notices shall be effective on the first business
day following the date of mailing or transmission, or upon receipt or personal
service.
Section 23. General Provisions.
(a) The Collateral Agent on behalf of the Secured Party and its
successors and permitted assigns shall have no obligation in respect of the
FMARC Collateral, except to use reasonable care in holding the FMARC Collateral
and to hold and dispose of the same in accordance with the terms of this Pledge
Agreement.
(b) The failure of the Collateral Agent or the Secured Party to
exercise, or delay in exercising, any right, power or remedy hereunder, shall
not operate as a waiver thereof, nor shall
21
any single or partial exercise by the Collateral Agent or the Secured Party of
any right, power or remedy hereunder preclude any other or future exercise
thereof, or the exercise of any other right, power or remedy. The remedies
herein provided are cumulative and are not exclusive of any remedies provided by
law or any other agreement.
(c) The representations, covenants and agreements of the Pledgor
herein contained shall survive until the Final Date.
(d) Neither this Pledge Agreement nor the provisions hereof can be
changed, waived or terminated unless any such change, waiver or termination
shall be in writing, signed by the parties hereto; no modification that would be
adverse to the Senior Creditors shall be made without the prior written consent
of the Senior Creditors for so long as the Senior Security Interests shall
continue and any Senior Obligations are unpaid. This Pledge Agreement, subject
to the rights of the Senior Creditors for so long as the Senior Security
Interests shall continue, shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors, legal representatives and
permitted assigns. If any provision of this Pledge Agreement shall be invalid or
unenforceable in any respect or in any jurisdiction, the remaining provisions
shall remain in full force and effect and shall be enforceable to the maximum
extent permitted by law.
(e) This Pledge Agreement may be executed in counterparts, each of
which shall constitute an original but all of which, when taken together, shall
constitute one instrument.
(f) This Pledge Agreement is fully assignable by the Secured Party,
including, but not limited to, assignment to any subsequent purchaser of the
Owned Loans or to UDC, any affiliate of UDC, or any successor-in-interest,
assign or purchaser of the assets of UDC or any affiliate of UDC. Any assignee,
successor or transferee of the Secured Party shall have the right to enforce all
the provisions of this Agreement as though such assignee were a signatory
hereto.
(g) THE VALIDITY OF THIS PLEDGE AGREEMENT, THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
ARIZONA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS PLEDGE AGREEMENT MAY BE TRIED AND LITIGATED IN THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF DELAWARE. PLEDGOR, COLLATERAL AGENT AND THE
SECURED PARTY WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
22
SECTION.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Pledge Agreement on the date first above written.
FIRST MERCHANTS ACCEPTANCE CORPORATION, a
Delaware corporation
By: /s/ William H. Plamondon
----------------------------------------
Name: William H. Plamondon
--------------------------------------
Title: President CEO
-------------------------------------
LaSALLE NATIONAL BANK, as Agent
By: /s/ James Thompson
----------------------------------------
Name: James Thompson
--------------------------------------
Title: Senior Vice President
-------------------------------------
HARRIS TRUST AND SAVINGS BANK, as
Collateral Agent
By: /s/ Jeffrey L. Kinney
----------------------------------------
Name: Jeffrey L. Kinney
--------------------------------------
Title: Assistant Vice President
-------------------------------------
UGLY DUCKLING CORPORATION
By: /s/ Steven P. Johnson
----------------------------------------
Name: Steven P. Johnson
--------------------------------------
Title: Senior Vice President and Secretary
-------------------------------------
23
SCHEDULE I
DEFINITIONS
"1997-2 Securitized Pool" means the pool of contracts the Debtor
securitized through FMARC II on May 1, 1997.
"Acquisition Date" means August 21, 1997.
"Agent" means LaSalle National Bank in its capacity as agent under the
Warehouse Facility, or any successor agent thereunder.
"Bank Group" means the Current Bank Group and the Original Bank Group.
"Bank Group Claim" means all amounts owed to the Bank Group under the
Warehouse Facility.
"Bankruptcy Case" means the Debtor's chapter 11 bankruptcy case pending in
the United States District Court for the District of Delaware entitled In re
First Merchants Acceptance Corporation, Case No. 97-1500(JJF)(D. Del., July 11,
1997).
"B Pieces" means all of the residual interests and certificates in the
Securitized Pools held by FMARC or FMARC II.
"Chapter 11 Plan" means a chapter 11 plan of the Debtor containing terms
consistent with the terms of the Modified Plan Agreement.
"Committee" means the Official Committee of Unsecured Creditors of First
Merchants Acceptance Corporation.
"Contracts" means retail installment automobile loan contacts originated
or purchased by the Debtor.
"Contribution Agreement" means that certain Contribution Agreement dated
as of December 15, 1997 between FMAC and UDC.
"Court" means the United States District Court for the District of
Delaware.
"Current Bank Group" means as of December 15, 1997, UDC, Cerberus
Partners, L.P., and Bear, Stearns Co., Inc., solely in their capacities as
assignees of the Original Bank Group and as the current holders of the Bank
Group Claim.
"Debtor" means First Merchants Acceptance Corporation.
24
"DIP Facility" means that certain Final Order (1) Authorizing Debtor in
Possession Financing; (2) Granting Liens and Superpriority Administrative
Claims; (3) Modifying the Automatic Stay; (4) Specifying Use of Cash
Collateral; and (5) Granting Adequate Protection Therefor Pursuant to Sections
361 and 363 of the Bankruptcy Code dated August 28, 1997, as amended by that
Stipulation and Agreed Order to Amend DIP Facility dated as of December 15,
1997.
"Exercise Date" means the date on which UDC will exercise the Stock Option.
"Excess Collections Split" means the sharing arrangement between the
Debtor and UDC on the proceeds and collections of the Owned Loans and the B
Pieces whereby, after payment in full of the Secured Claim Recovery Amount, the
DIP Facility and the Modified UDC Fee, the Debtor and UDC will share all excess
collections and proceeds on the Owned Loans and the B Pieces, with 82 1/2% of
such excess collections and proceeds to be paid to the Debtor and 17 1/2% of
such excess collections and proceeds to be paid to UDC, as more particularly
described in and subject to the terms of the Contribution Agreement (including
adjustments in the sharing percentages upon the occurrence of certain events as
set forth in the Contribution Agreement).
"FMAC" means First Merchants Acceptance Corporation.
"FMARC" means First Merchants Auto Receivables Corporation.
"FMARC II" means First Merchants Auto Receivables Corporation II.
"FSA" means Financial Security Assurance, Inc.
"GE" means General Electric Capital Corporation.
"Greenwich" means Greenwich Financial Products, Inc.
"Greenwich Collateral" means all Contracts and related collateral securing
repayment of the Debtor's obligations to Greenwich.
"Modified Plan Agreement" means that certain Binding Agreement To Propose
and Support Modified Plan Agreement dated as of December 15, 1997, by and among
the Debtor, UDC and the Committee.
"Modified UDC Fee" means a $450,000.00, non-recourse, flat fee, payable by
the Debtor to UDC prior to initiation of the Excess Collections Split on the B
Pieces and solely from collections from and proceeds of the B Pieces and
secured by a pledge of the B Pieces subordinate only to the DIP Facility and
the Secured Claim Recovery Amount.
25
"Option Notice" means 15 days' advance written notice to be delivered by
UDC to the Debtor, and a public announcement by UDC on the same date as the
giving of the notice, specifying the Exercise Date and the Stock Option Shares.
"Original Bank Group" means LaSalle National Bank; NBD Bank; Firstar Bank
Milwaukee, N.A.; Harris Trust and Savings Bank; Nationsbank, N.A.; First Bank,
National Association; CoreStates Bank, N.A.; Fleet Bank, National Association,
f/k/a Natwest Bank, N.A.; and Mellon Bank, N.A.; solely in their capacity as
lenders to FMAC pursuant to the terms of the Warehouse Facility.
"Overadvance Cap" means additional advances under the DIP Facility (in
excess of the prior limit of $10,000,000 on such advances) to pay
administrative and post-Plan Confirmation operating expenses of the Debtor as
set forth in that certain Stipulation and Agreed Order to Amend DIP Facility
dated as of December 15, 1997 and the Modified Plan Agreement; provided,
however, that the total amount of advances outstanding at any time under the
DIP Facility shall not exceed $16,500,000.00.
"Owned Loans" means all of the Debtor's owned Contracts, other than the
Greenwich Collateral, whether current, delinquent, or charged off, together
with all of the Debtor's rights in the collateral securing such Contracts and
all related repossessed vehicles.
"Owned Loan Servicing Fee" means a charge, calculated on a monthly basis
for each such Contract, from and after the date on which UDC or its permitted
assigns begin to service the Owned Loans, of the greater of (i) 1/12 of 3-1/4%
of the then outstanding principal balance of the applicable Contracts, or (ii)
$15.00 per Contract, in each case applied only to Contracts which constitute
part of the Owned Loans and are less than 120 days past due at the end of such
month and for which the related vehicle has not been repossessed.
"Petition Date" means July 11, 1997.
"Plan Confirmation" means confirmation of the Chapter 11 Plan.
"Purchase Price" means the entire amount of the Bank Group Claim as of the
Sale Date, including, but not limited to, any and all outstanding principal,
plus accrued and unpaid interest through the Sale Date (including default
interest from and after the Petition Date through and including the Sale Date),
plus an agreed amount of $150,000.00 of attorneys' fees, costs and expenses of
the Original Bank Group incurred through the Acquisition Date and stipulated as
allowable under 11 U.S.C. Section 506(b), plus all attorneys fees, costs and
expenses of the Bank Group incurred after the Acquisition Date allowable under
11 U.S.C. Section 506(b); provided, that, attorneys fees, costs and expenses of
the Bank Group incurred after the Acquisition Date will be assumed to be
$450,000 for purposes of determining the Purchase Price; and provided further,
that, if
26
(i) there are objections by the Debtor, the Committee or any other
party-in-interest to the attorneys' fees, costs and expenses of the Bank Group
incurred after the Acquisition Date after review of detailed supporting invoices
provided by the Bank Group, and (ii) at a subsequent hearing, the Court reduces
or increases the amount of such attorneys' fees, costs and expenses allowable
under 11 U.S.C. Section 506(b), the Purchase Price will be reduced or increased
by an amount equal to the reduction or increase in such fees, costs and
expenses.
"Replacement Lien" means the lien granted by the Debtor to the Agent on the
stock of FMARC and FMARC II to secure the Debtor's non-recourse guaranty of the
Secured Claim Recovery Amount.
"Retained Property" means all assets of the Debtor other than the Owned
Loans, including, but not limited to, the Tax Refunds and other tax attributes
of the Debtor, the Greenwich Collateral, and the Debtor's furniture, fixtures,
equipment, general intangibles and causes of action.
"Sale" means the sale of the Owned Loans by the Debtor to the Agent.
"Sale Date" means December 15, 1997.
"Secured Claim Recovery Amount" means any shortfall between (i) collections
on, net proceeds from sales of charged off Contracts constituting, and net
proceeds of collateral securing payment of, the Owned Loans after the Sale Date,
and (ii) the Purchase Price plus interest at the rate of 11% from and after the
Sale Date until paid in full plus the Owned Loan Servicing Fee, provided,
however, that in the event the servicing of the Owned Loans is transferred to an
entity other than UDC or a wholly-owned subsidiary of UDC or an entity agreed
upon by the Debtor, UDC and the Committee in the Chapter 11 Plan without the
prior written consent of the Debtor, which consent will not be unreasonably
withheld, the Secured Claim Recovery Amount shall be limited to $10,000,000.
"Securitized Pools" means the pools of Contracts the Debtor securitized
through FMARC and FMARC II, but excluding the 1997-2 Securitized Pool, unless
the Debtor or UDC becomes the servicer for the 1997-2 Securitized Pool.
"Securitized Pools Servicing Fee" means, subject to FSA approval (or any
other consents required pursuant to governing documents), the base servicing fee
UDC and/or the Debtor will receive after the Sale Date for servicing and
collection of the Securitized Pools, equal to the greater of 1/12 of 3 1/4%, or
$15.00 per Contract, calculated on a monthly basis, on the outstanding principal
balance of the Securitized Pools, applied only to Contracts in the Securitized
Pools which are less than 120 days past due at the end of such month, and for
which the related vehicle has not been repossessed, together with all
27
other amounts, fees, costs and expenses payable under the servicing agreements
for the Securitized Pools.
"Stock Option" means UDC's option to distribute Stock Option Shares to the
Debtor for the benefit of the Debtor's unsecured creditors (and, if applicable,
stockholders), or if the Debtor so requests, at the Debtor's expense and solely
in accordance with the Debtor's instructions (and UDC shall have no liability
to any party in connection with any distribution made in accordance with such
instructions), to make direct distribution to the Debtor's unsecured creditors
(and if applicable, stockholders), in lieu of the Debtor's right to retain a
portion of the Debtor's share of the Excess Collections Split in cash, which
UDC may exercise by giving the Option Notice, subject to the following
conditions:
(a) UDC may exercise the Stock Option one time only, with exercise being
the actual delivery of the Stock Option Shares;
(b) Revocation of the Option Notice shall not be deemed to be an exercise
of the Stock Option by UDC;
(c) In the event that UDC exercises the Stock Option, and delivers the
Stock Option Shares to the Debtor for the benefit of the Debtor's
unsecured creditors (and, if applicable, stockholders), UDC shall be
entitled to receive the Debtor's share of cash distributions under
the Excess Collections Split from and after the Exercise Date until
UDC has received cash distributions equal to the Stock Option Value
(this is in addition to UDC's right to receive its share of cash
distributions under the Excess Collections Split);
(d) Once UDC has received cash distributions equal to the Stock Option
Value (without regard to any post-issuance change in the market value
of the issued Stock Option Shares), the Debtor shall be entitled to
and shall retain the remaining portion of the Debtor's share of cash
distributions under the Excess Collections Split, if any, in excess
of the Stock Option Value;
(e) In no event shall UDC be entitled to receive any portion of the
Debtor's share of cash distributions under the Excess Collections
Split in excess of the Stock Option Value, nor shall UDC be entitled
to recover any portion of the Stock Option Value from any source
other than the Debtor's share of the Excess Collections Split; and
(f) UDC shall not be entitled to exercise the Stock Option unless and
until (i) the value of UDC common stock on the Exercise Date and the
closing price for UDC common stock on each day during the previous
ten trading days shall be at least $8.00 per share, (ii) UDC shall
have caused (at UDC's sole cost and expense) the Stock Option Shares
to be (x) registered under the
28
Securities Act of 1933, as amended, (y) unrestricted and (z) fully
transferable and shall have taken all steps necessary to allow the
Debtor to distribute the Stock Option Shares to the Debtor's
unsecured creditors, and if applicable, shareholders, and (iii) UDC
shall not have purchased any of its common stock (except upon the
exercise of previously issued and outstanding options, warrants,
stock appreciation rights or other rights) or announced any stock
repurchase programs from and after the delivery of the Option Notice
to the Debtor through the Exercise Date.
"Stock Option Shares" means the number of shares of UDC common stock that
UDC will issue to the Debtor on the Exercise Date.
"Stock Option Value" means that aggregate value of the Stock Option
Shares, determined by multiplying the Stock Option Shares by 98% of the average
of the closing prices of UDC common stock on the NASDAQ National Market or on
such other market as such stock may be traded, for the 10 trading days
immediately preceding the Exercise Date.
"Tax Refunds" means the Debtor's uncollected state and federal income tax
refunds for 1996 and prior years.
"UDC" means Ugly Duckling Corporation.
"UDC Warrants" means 3-year warrants to purchase 325,000 shares of UDC
common stock at a price of $20.00 per share which will be callable by UDC when
UDC common stock trades at a price of $28.50 per share, or greater, for 10
consecutive trading days, which UDC will issue to the Debtor pursuant to the
terms of the Warrant Agreement.
"Warehouse Facility" means the Debtor's warehouse loan facility pursuant
to that certain Fourth Amended and Restated Loan and Security Agreement, dated
as of February 28, 1996, as subsequently amended, by and among FMAC, the Agent
and the Original Bank Group.
"Warrant Agreement" means that certain Warrant Agreement to be entered
into between UDC and Harris Trust Company of California, as warrant agent.