1
Exhibit 10.3
SERVICING AGREEMENT
This SERVICING AGREEMENT ("Servicing Agreement") is made as of February
9, 1998 by and between RELIANCE ACCEPTANCE CORPORATION, a Delaware corporation
("RAC"), on behalf of itself and all of its subsidiaries with the exception of
Reliance Auto Receivables Corporation (collectively, the "Subsidiaries" and
together with RAC, the "Client"), UGLY DUCKLING CORPORATION, a Delaware
corporation ("UDC"), acting by or through one or more of its subsidiaries or
Affiliates as designated in writing by UDC prior to the Effective Date of this
Servicing Agreement (the "Servicer"), and BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation ("Agent"), as agent on behalf of itself and the other
lenders (including Agent, the "Lenders") who are parties to that certain Amended
and Restated Loan and Security Agreement dated October 7, 1997 among the Agent,
the Lenders, RAC, and certain subsidiaries of RAC (as amended from time to time,
the "Loan and Security Agreement").
RECITALS
A. Client and Agent have entered into the Loan and Security
Agreement, pursuant to which the Lenders made certain loans and other financial
accommodations to the Client. To secure the obligations of the Client
thereunder, the Client granted to the Agent and Lenders a security interest in,
among other things, substantially all of its "Receivables" (as defined herein).
B. On February 9, 1998, RAC and the Subsidiaries, as debtors in
possession in the Bankruptcy Case as defined below, filed Chapter 11 petitions
under the provisions of Title 11, United States Code, as amended (the
"Bankruptcy Code"), in the United States District Court for the State of
Delaware (the "Court") and such petitions are currently pending as a
jointly-administered case (the "Bankruptcy Case"). As part of the Bankruptcy
Case, the Lenders have provided debtor-in-possession financing to Client
pursuant to which they have obtained liens and security interests on, among
other things, all of Client's "Receivables" (as defined herein).
C. RAC desires to enter into an agreement with the Servicer
pursuant to which the Servicer shall manage, administer, service, make
collection calls and liquidate vehicles with respect to certain motor vehicle
retail installment sale contracts of Client secured by new or used automobiles,
sport utility vehicles and/or light-duty trucks and the accessions thereto,
("Sale Contracts", which Sale Contracts are either identified on Schedule 1
hereto as of the Effective Date or added to Schedule 1 after the Effective Date
pursuant to the provisions of Section 2.01 (such Sale Contracts, together with
the "Documents" (as defined herein) and the "Insurance Policies" (as defined
herein), are referred to herein as the "Receivables").
D. Pursuant to the Consulting Agreement, as defined herein, the
Servicer is to provide consulting services to Client regarding Client's
servicing of the Receivables prior to the time Servicer begins servicing the
Receivables pursuant to this Servicing Agreement.
E. The Servicer has agreed to commence servicing the Receivables
pursuant to this Servicing Agreement upon the "Effective Date" (as defined
herein).
NOW THEREFORE, in consideration of the covenants and conditions
contained in this Servicing Agreement, the parties, intending to be legally
bound, hereby agree as follows:
1
2
ARTICLE 1
DEFINED TERMS
Section 1.01. Defined Terms. Capitalized and defined terms contained in
this Servicing Agreement without definitions have the following meanings, and
the definitions of such terms are equally applicable to both the singular and
plural forms of such terms and to the masculine, feminine and neuter genders of
such terms.
"Advisors" shall mean the accountants, auditors and attorneys of a
Person.
"Affiliate" of any Person means any Person who directly or indirectly
controls, is controlled by, or is under direct or indirect common control with
such Person. For purposes of this definition of "Affiliate," the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause a direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Backup Servicer" shall mean any backup servicer appointed pursuant to
Section 2.01(c).
"Bank Portfolio" shall mean a portfolio of Client's Receivables
constituting (with a book value of $28.4 million as of January 31, 1998) finance
contracts originated and serviced from the Client's Northbrook, Illinois Branch
commonly referred to as the Auto Sub, Inc., a subsidiary of Cole Taylor Bank,
which was merged into Reliance Acceptance Corporation in the spinoff transaction
which became effective on February 12, 1998.
"Business Day" shall mean any day other than (i) a Saturday or Sunday,
or (ii) another day on which banking institutions in the State of Arizona are
authorized or obligated by law to be closed.
"Certificate of Title" shall mean with respect to any Financed Vehicle,
the certificate of title (or other evidence of ownership) issued by the
department of motor vehicles, or other appropriate governmental body, of the
state in which the Financed Vehicle is registered or is to be registered,
showing the Obligor as owner with either notation of the first lien of any party
who is a Client, or such other status indicated thereon which is necessary to
perfect the security interest of Client or, if applicable, Agent, in the
Financed Vehicle as a first priority interest, and showing no other actual or
possible ownership or lien interests.
"Client" means, collectively, RAC and the Subsidiaries, and upon being
reorganized pursuant to the Bankruptcy Case, shall mean all such entities as
reorganized.
"Collateral" means a Financed Vehicle and any other property in which a
lien has been created in favor of any party which is a Client or the Agent.
"Collection Account" shall mean such bank account designated to Servicer
in writing as the Collection Account by the Interested Party.
"Collection Period" means a calendar month.
"Collection Policy" means the Ugly Duckling Holdings, Inc. (n/k/a Ugly
Duckling Corporation) Collections Department Policy and Procedures Manual
revised as of October 27, 1995 and attached hereto as Exhibit A, as such may be
subsequently modified by the Servicer with the consent of the Interested Party.
2
3
"Collections" shall have the meaning set forth in Section 3.01(a).
"Controlled Servicer" shall mean any Servicer for which UDC has the
ability, by ownership of securities or otherwise, to direct the policies or
operations.
"Credit Application" shall mean the credit application completed by the
Obligor in order to request financing for the Obligor's purchase of the Financed
Vehicle.
"Deboarding Charge" shall mean the lesser of (1) $200,000, and (2) all
(i) capital expenditures of Servicer related to this Servicing Agreement, plus
(ii) lease and contract termination fees and costs related to the termination of
the Servicer pursuant to Section 6.03(a) of this Servicing Agreement.
"Defaulted Receivable" means any Receivable with respect to which (i)
except for Receivables for which the Servicer has repossessed, in compliance
with the Collection Policy, the related Financed Vehicle as provided in (ii)
below, at least 10% of a Scheduled Payment is 120 days or more delinquent on a
contractual basis (not paid by the due date); (ii) notwithstanding (i) above,
the Servicer has, in compliance with the Collection Policy, (A) repossessed the
related Financed Vehicle prior to the expiration of the 120 days in (i) above
and thereafter, (B) any applicable redemption period has expired, and thereafter
(C) the Servicer has liquidated the Financed Vehicle; (iii) there has commenced
an Insolvency Proceeding by or against an Obligor, and any Scheduled Payment is
delinquent (not paid by the due date) more than 90 days; (iv) the Financed
Vehicle is missing, has been damaged beyond ordinary means of repair, or has
been leased or disposed of by sale or other transfer of title; or (v) a Skip
Loss Investigation was initiated and not satisfactorily resolved within the
earlier of (A) 90 days, or (B) the date when at least 10% of a Scheduled Payment
on the Receivable is 120 days or more delinquent on a contractual basis (not
paid by the due date).
"Depository Accounts" are such bank accounts subject to the Master
Agency Agreement in the name of the Servicer set forth in Exhibit B attached
hereto and such other or different bank accounts subject to the Master Agency
Agreement in the name of the Servicer designated by the Servicer as Depository
Accounts pursuant to the Master Agency Agreement.
"Documentation" shall have the meaning set forth in Section 7.16.
"Documents" shall mean with respect to each Receivable, (i) the original
Certificate of Title or proof of lien perfection; (ii) the executed Original
Purchased Contract with original signatures; (iii) if available or unless
electronically stored, a copy of the dealer invoice and invoices for any
additional equipment included in such contract, (iv) a copy of the original
signed Credit Application; (v) verification that any party who is a Client was
the loss payee, additional insured, or lienholder with respect to the Insurance
Policies (including policy number); (vi) if available, a copy of the "Report of
Sale," "Guaranty of Title" or other comparable document executed by the seller
dealer which has been forwarded to the appropriate department of motor vehicles;
(vii) if available or unless electronically stored, copies of: (a) credit bureau
reports, (b) the completed credit investigation form, (c) the completed
verification of employment and income forms, (d) Obligor references, and (e) the
credit scoring sheet; (viii) the applicable funds disbursement invoice or
listing; (ix) a certificate for each type of Insurance Policy purchased by
Obligor; (x) if available, Client's loan process or "deal structure" sheet; (xi)
if available, a "fact sheet" from the dealer, (xii) a copy of the "Credit Life
Insurance Policy", if any, and the "Credit Disability Insurance Policy", if any,
on the Obligor relating to the Financed Vehicle; (xiii) a copy of the "Vehicle
Invoice", if applicable; (xiv) if available, other documents, or copies, as
applicable, that may be reasonably required in the ordinary course of business
with respect to the enforceability of the Obligor's obligations, and (xv) all
other records, files, and documents, whether consisting of paper or computerized
or in some other
3
4
form, which relate specifically to the applicable Receivable, Obligor, or the
Financed Vehicle or associated rights under the Receivable, including, without
limitation, instruments, documents, correspondence and memoranda generated by or
coming into the possession of the Servicer (including, but not limited to,
insurance premium receipts, ledger sheets, payment records, insurance claim
files, correspondence and current and historical computer data files) that are
required to document or service any Receivable.
"Effective Date" means the effective date of a plan of reorganization or
liquidation for Client in the Bankruptcy Case that ratifies this Servicing
Agreement, provided such plan has been accepted by the class containing the
Agent and the Lenders and has not been modified pursuant to Section 1127 of the
Bankruptcy Code or otherwise without the necessary votes or consents of the
Agent and the Lenders.
"Expiration Date" shall have the meaning set forth in Section 6.01.
"Financed Vehicle" means a new or used automobile, sport utility
vehicles or light-duty trucks and all accessions thereto comprising the
Collateral, securing an Obligor's indebtedness under a Receivable that is being
serviced by the Servicer hereunder.
"Indebtedness" means, as applied to any Person at any time, (a) all
indebtedness, monetary obligations or other monetary liabilities of such Person
(i) for borrowed money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments, and any accrued interest, fees and charges
relating thereto, (ii) with respect to letters of credit issued for such
Person's account, (iii) to pay the deferred purchase price of property or
services, except accounts payable and accrued expenses arising in the ordinary
course of business, (iv) in respect of capital leases or (v) in respect of
guaranties in connection with any of the foregoing; (b) all indebtedness,
monetary obligations or other monetary liabilities of such Person secured by a
lien on any property of such Person whether or not such indebtedness, monetary
obligations or monetary liabilities are assumed by such Person; (c) all
preferred stock subject to mandatory redemptions; (d) all indebtedness, monetary
obligations or other monetary liabilities of such Person under, in connection
with or relating to a securitization facility; and (e) all contingent
contractual monetary obligations with respect to any of the foregoing.
"lnsolvency Proceeding" means (i) the commencement by a person as debtor
of any case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or the filing of a motion or other
pleading seeking the appointment of a receiver, trustee, custodian or similar
official for such person or any substantial part of such person's property, or
(ii) the commencement of any such case or proceeding against such person which
(x) is consented to by such person, (y) results in the entry of such order or
appointment, the issuance of such a protective decree or the entry of an order
having similar effect or (z) is not dismissed within 30 days, or (iii) the
making by a person of a general assignment for the benefit of creditors or (iv)
the admission in writing by a person of such person's inability to pay such
person's debts as they become due.
"Insurance Policies" means any credit life, disability or warranty
policy, or any collision or comprehensive insurance policy that insures a
Financed Vehicle and shall include any Required Borrower Insurance.
"Interested Party" means the Agent until such time as (i) all
obligations to the Agent and the Lenders of (A) any entities which are a Client,
and (B) Reliance Acceptance Group, Inc. shall have been irrevocably paid in full
in cash and, (ii) the Servicer has received written notice from the Agent
4
5
that (i) has occurred at which time the Servicer may unconditionally rely and
act on such notice and thereafter the Interested Party shall be the Client.
"Lien" shall mean a security interest, lien, charge, pledge or
encumbrance of any kind.
"Liquidation Proceeds" means, with respect to any Defaulted Receivable,
all funds, collections and proceeds collected from whatever source in respect
thereof or on the related Financed Vehicle (including, but not limited to, all
proceeds of sale or other disposition, collections, insurance proceeds, dealer
recourse and third party originator recourse).
"Management Employees" shall mean employees, other than Senior Management
Employees of the Servicer or its Affiliates with the titles (or comparable
titles) set forth on Exhibit I.
"Master Agency Agreement" shall mean that Master Depository Accounts and
Post-Office Boxes and Agency Agreement, a copy of which is appended hereto as
Exhibit H, which agreement as it pertains to any of the Depository Accounts may
not be amended or supplemented except pursuant to the terms thereof.
"Obligor" means, with respect to a Receivable, the purchaser of the
Financed Vehicle, each co-purchaser, co-signer and guarantor, or any other
person responsible or potentially responsible for payments under the Receivable.
"Original Purchased Contract" shall mean with respect to each
Receivable, the original contract, together with the original of any and all
modifications, amendments or assignments with respect thereto.
"Other Materials" shall have the meaning set forth in Section 7.16.
"Outstanding Principal Balance" means the unpaid principal balance of a
Receivable as of a certain date, which amount shall (1) include accrued but
unpaid premiums for any Insurance Policies with respect to the Receivable, (2)
include earned but uncollected finance charges related to the Receivable, but
(3) not include any unearned finance charges related to the Receivable.
"Performance Event" means the occurrence and continuation of one of the
events set forth on Exhibit C hereto.
"Person" means any individual, corporation, estate, partnership, joint
venture, limited liability company, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof, or other entity.
"Receivable" has the meaning set forth in Recital C.
"Reimbursable Expenses" are the costs and expenses of the Servicer set
forth in Section 2.10(b).
"Required Borrower Insurance" shall mean any casualty insurance an
Obligor is required to obtain pursuant to the terms of a Receivable.
"Sale Contracts" shall have the meaning set forth in Recital C.
5
6
"Schedule of Payments" means the schedule of periodic payments disclosed
on a Receivable, as modified or extended pursuant to and consistent with the
Collection Policy or this Servicing Agreement.
"Scheduled Payment" means, with respect to any date, the payment amount
indicated as due on that date on the Schedule of Payments.
"Senior Management Employees" of a Person shall mean the titled officers
(or comparable titles) employed by the Servicer or its Affiliates set forth on
Exhibit J.
"Service Provider" shall mean any Person who provides Servicer with any
of the services to be provided pursuant to this Servicing Agreement.
"Servicer" means, as of the Effective Date, one or more of UDC's
Affiliates as designated in writing to Client and Agent by UDC prior to the
Effective Date, or, thereafter, any entity which becomes the servicer pursuant
to this Servicing Agreement in compliance with the terms of Section 6.05.
"Skip Loss Investigation" means an investigation of the whereabouts of a
Financed Vehicle or Obligor which has been initiated by Servicer.
"Spin-Off" shall mean, with respect to a Person, an entity with
shareholders that include at least all of the same shareholders or interest
holders as that Person.
"Substituted Financed Vehicle" shall have the meaning set forth in
Section 2.19.
"Transition Agreement" is the Transition Services Agreement dated as of
February 9, 1998, by and between the Servicer and Client pursuant to which the
Servicer shall provide Client with transition services with respect to Client's
servicing of the Receivables.
"UDC" means Ugly Duckling Corporation, a Delaware corporation.
ARTICLE II
ADMINISTRATION AND SERVICING OF RECEIVABLES
Section 2.01. Appointment and Backup Servicer.
(a) Client hereby appoints, effective on the Effective Date, the
Servicer to manage, administer, service and make collections on the Receivables
as specified herein and to otherwise perform the duties of the Servicer. On the
Effective Date, Client, Agent and Servicer shall modify Schedule 1 (as appended
to this Servicing Agreement on or about the date of this Servicing Agreement) to
delete the Sale Contracts that are either Defaulted Receivables or no longer
owned by Client as of the Effective Date. In addition, on the Effective Date and
at any time thereafter, Schedule 1 shall be amended, upon receipt by Servicer of
written notice from Client and Agent indicating as such, to include any Sale
Contracts of Client existing on or prior to the Effective Date (other than a
contract relating to a Defaulted Receivable) which were not previously on
Schedule 1, provided, however, that Servicer shall have no obligation to service
any Receivable until such time as it is deemed listed on Schedule 1. Servicer
accepts such appointment effective as of the Effective Date on the terms and
conditions of this Servicing Agreement. In performing its duties hereunder, the
Servicer shall have full power and authority to do or cause to be done any and
all things in connection with such servicing and administration which it may
deem necessary or
6
7
desirable, within the terms of this Servicing Agreement or the Collection
Policy. In the performance of its duties hereunder, the Servicer shall be an
independent contractor acting on its own behalf in its own name and for its own
account. It shall have no authority, express or implied, to act in any manner or
by any means for or on behalf of Client or Agent in any capacity other than as
an independent contractor. Neither this Servicing Agreement nor any of the
activities contemplated hereby shall be deemed to create any partnership, joint
venture, agency or employer/employee relationship between the Servicer, Client
or Agent. Notwithstanding the foregoing provisions of this Section 2.01,
pursuant to express provisions of this Servicing Agreement, the Servicer may be
authorized or directed to take certain actions on behalf of or for the direct
benefit of Client and Agent, provided that, in the taking of such actions, the
Servicer shall continue to be acting as an independent contractor. Except as set
forth in Section 2.10(b) of this Servicing Agreement, Servicer shall perform all
of its obligations under this Servicing Agreement at its own expense.
(b) The appointment of Servicer pursuant to Section 2.01 shall be for a
term commencing on the Effective Date and ending, unless earlier terminated
pursuant to the provisions of Section 5.03, 5.04, or 6.03, on the Expiration
Date (as defined in Section 6.01).
(c) The Interested Party reserves the right to appoint a backup servicer
for the Receivables (the "Backup Servicer"). Upon notice to Servicer and UDC of
such appointment, Servicer shall deliver to the Backup Servicer copies of all
notices, reports and computer diskettes required to be delivered by Servicer to
Client or Agent under this Servicing Agreement. The additional cost of providing
such notices, reports and computer diskettes to Backup Servicer shall be borne
by the Servicer, but any charges, costs or expenses of Backup Servicer shall be
borne by Client.
Section 2.02. Collection of Receivable Payments; Sale of or
Subcontracting for Defaulted Receivables.
(a) The Servicer shall be responsible for collection of payments called
for under the terms and provisions of the Receivables, as and when the same
shall become due, and shall follow the Collection Policy. Consistent with this
Section 2.02 and the Collection Policy, the Servicer may grant at its discretion
extensions, rebates or adjustments on a Receivable, or modify the original due
date of a Receivable if such extensions are limited to two (2) one (1) month
extensions in any consecutive twelve (12) month period. Servicer will exercise
care in offering extensions and modifications so as not to defer losses likely
to occur. During the life of a Receivable, extensions and modifications shall
not (i) be granted more than six (6) times, or (ii) except as provided below,
reduce the Obligor's Outstanding Principal Balance. Servicer shall not permit
any due date changes in a Receivable other than in the same month. The Servicer
may in its discretion waive any late payment charge or any other fees that may
be collected in the ordinary course of servicing a Receivable. In no event shall
the Outstanding Principal Balance of a Receivable be reduced, except in
connection with a settlement in full of a Defaulted Receivable as provided in
the following sentence. The Servicer shall have the ability to settle any
account in full that does not result in a charge-off of greater than the lesser
of (i) $500, or (ii) 20% of the then Outstanding Principal Balance of the
applicable Receivable. Any amount over such limit will require that the Servicer
notify Client and Agent of such request in writing, and that the Interested
Party respond to such request pursuant to the procedures set forth in Section
7.10.
(b) Servicer shall provide sufficient staffing and telephone lines to:
(1) quote payoffs to requesting Obligors verbally and in writing, (2) record
changes in garaging and billing addresses for Obligors, (3) record name changes,
(4) answer billing questions and (5) respond to any other reasonable written or
telephonic inquiries by Obligors, Agent or Client relating to the Receivables.
If the full amount of a Scheduled Payment due under a Receivable is not received
within three (3)
7
8
Business Days after its due date, the Servicer will make reasonable and
customary efforts to contact the Obligor by telephone to inquire as to the
status of such payment.
(c) Notwithstanding any provision in this Servicing Agreement, the
Servicer shall not be responsible for servicing any Defaulted Receivable and
shall only be required to take such actions with respect thereto as set forth in
Sections 2.02(d) below.
(d) At the expense of Client, the Servicer shall sell or contract for
the collection of any or all Defaulted Receivables with the consent of the
Client and Agent. Each sale or contract for collection shall be (i) for all
Receivables that become Defaulted Receivables during not less than a six (6)
month period, and (ii) (if a sale,) by a bid procedure acceptable to the
Servicer and the Interested Party, and the Servicer and the Agent shall be
permitted to be bidders in such sale. All sales shall be for cash. If the
Defaulted Receivables are contracted for collection, each bidder, together with
its Affiliates, must have not less than 7,500 auto Receivables, other than the
Client's Defaulted Receivables, which it and its Affiliates are servicing.
Neither the Servicer, nor its employees or their relatives, shall be allowed to
purchase Defaulted Receivables except through an open auction procedure.
Section 2.03. Realization Upon Receivables. In the event a Receivable
becomes or is reasonably anticipated to become a Defaulted Receivable, the
Servicer (either directly or through the use of independent contractors or
agents) shall use its reasonable best efforts, consistent with the Collection
Policy, to repossess or otherwise convert the ownership of the Financed Vehicle
securing such Receivable. None of the Servicer, nor its employees or their
relatives, shall be allowed to purchase Financed Vehicles being foreclosed upon,
except through an open auction procedure. In any case in which the Financed
Vehicle shall have suffered damage, the Servicer shall not expend funds for
repair or repossession of such Financed Vehicle unless the Servicer shall
determine that such repair or repossession should increase the value of the
Liquidation Proceeds by an amount greater than the amount of such expenses.
Section 2.04. Maintenance of Security Interests in Financed Vehicles and
Receivables.
(a) Provided that Servicer or any Service Provider is aware of facts
which indicate a need to take such actions as described below, Servicer shall,
consistent with the standard set forth in Section 2.15, take such actions as are
necessary to maintain the continuing perfection and priority of Client's and
Agent's right, title and interest in the Receivables and the Collateral,
including, but not limited to, obtaining the execution and the registering,
re-registering, recording, re-recording, filing, and refiling of all security
agreements, Certificates of Title, cautionary financing statements, continuation
statements or other instruments as are necessary to maintain the security
interests granted by the Obligors under the respective Receivables. Client and
Agent authorize Servicer to re-perfect or cause the re-perfection of such
security interests on their behalf.
(b) Subject to Section 2.10(b) and 2.10(e), all expenses paid by
Servicer pursuant to this Section 2.04(b) shall be borne by Client. In addition,
in the event the Interested Party directs Servicer in writing to reissue in
Client's or Agent's name the Certificate of Title related to a Receivable,
Client shall reimburse Servicer for the reasonable time spent by Servicer's
Management Employees at a rate of $200 per hour and other employees at a rate
agreed to by the Servicer and the Interested Party in effecting such reissuance.
Section 2.05. Additional Covenants of Servicer.
(a) Except as otherwise provided in the Collection Policy, the Servicer
shall (i) not release any Financed Vehicle securing any Receivable from the
security interest granted by such
8
9
Receivable in whole or in part except in the event of payment in full by the
Obligor thereunder (or settlement pursuant to Section 2.02) or upon transfer of
the Financed Vehicle to a successor purchaser of the vehicle following
repossession by the Servicer, (ii) not materially impair the rights of Client or
Agent in the Receivables or the Collateral, (iii) not increase the number of
scheduled payments due under a Receivable except as permitted herein, (iv)
except as provided in Section 2.02(d), not sell, pledge, assign, or transfer to
any other Person, or grant, create, incur, assume, or suffer to exist any Lien
on any Receivable, the Collateral, or any interest therein, (v) upon obtaining
or a Service Provider obtaining actual knowledge thereof, immediately notify
Client and Agent of the existence of any Lien on any such Receivable with an
Outstanding Principal Balance in excess of $2,000.00, (vi) defend the right,
title, and interest of Client and Agent in, to and under such Receivables and
Collateral, against all claims of third parties claiming through or under the
Servicer, (vii) deposit into the Depository Accounts and to the Collection
Account all payments received by Servicer with respect to the Receivables in
accordance with this Servicing Agreement, (viii) promptly notify Client and
Agent of the occurrence of any Event of Default and any breach by Servicer or
UDC of any of their covenants or representations and warranties contained
herein, and (ix) upon the discovery of the relocation out of state of a Financed
Vehicle, promptly notify Client and Agent of the occurrence of any event which,
to the knowledge of the Servicer or a Service Provider, would require that
Client or Agent make or cause to be made any filings, reports, notices, or
applications or seek any consents or authorizations from any and all government
agencies, tribunals, or authorities to create, maintain, and protect a
first-priority security interest of Client or Agent in, to and on the Financed
Vehicles and a first-priority security interest of Agent in, to, and on the
Receivables (unless such actions are being taken by the Servicer pursuant to
Section 2.04(a) above). Subject to Section 2.10(b) and 2.10(e), all expenses
paid by Servicer pursuant to this Section 2.05(a) shall be borne by Client.
(b) The Servicer will promptly advise Client and Agent of any inquiry
received from an Obligor which contemplates the consent of Client or Agent.
Inquiries contemplating the consent of Client or Agent shall include, but not be
limited to, inquiries about settlement of any unasserted claim or defense, or
compromise of any amount an Obligor owes, in an amount in excess of the amounts
set forth in Section 2.02(a), or any other matters the Servicer should
reasonably understand are not within the Servicer's authority under this
Servicing Agreement or the Collection Policy.
(c) Within two (2) Business Days of receipt, Servicer shall provide
Client and Agent with copies of all correspondence, written notices, and legal
and administrative documents which specifically allege that Servicer committed a
wrongful act with regard to a Receivable, Obligor, or any Collateral and which
specifically allege claims, damages or loss in excess of $20,000 per occurrence
or $100,000 in the aggregate (collectively, the "Notice Items"). Within two (2)
Business Days of receipt, Servicer shall inform Client and Agent in writing of
the following:
(1) the receipt of any written claim or the initiation of any
legal process, litigation or administrative or judicial investigation regarding
the Notice Items involving an uninsured amount in excess of $20,000 in any one
instance or $100,000 in the aggregate;
(2) the receipt of a written notice from any agency or
governmental body having authority over the conduct of its business that (i) it
is being placed under regulatory supervision, (ii) any license, permit, charter,
membership or registration needed to perform this Servicing Agreement or
material to the conduct of its business is to be suspended or revoked, or (iii)
it is to cease and desist any practice, procedure or policy employed by it in
the conduct of its business, and such cessation will materially adversely affect
the conduct of its business or materially adversely affect its financial affairs
or adversely affect its ability to perform this Servicing Agreement; or
9
10
(3) the receipt of any written claim or the receipt of a written
notice of the initiation of any legal process, litigation or administrative of
juridical investigation against it which may materially and adversely affect the
operations, financial condition or business of Servicer or Servicer's ability to
perform this Servicing Agreement or which in any way involves Client's or
Agent's security interest in the Receivables or related Collateral or other
rights therein or under this Servicing Agreement.
(d) The Servicer will reasonably cooperate with Client and Agent in
audits, review and special reports as may be required by the Court; provided
that the Servicer is reimbursed by Client for all reasonable costs and expenses
associated therewith and such does not unreasonably interfere with the
Servicer's business activities. For purposes of this Section 2.05(d) the term
special reports shall not include any reports noted on Exhibit D hereto and the
term audits does not include the audits referenced in Section 2.17.
Section 2.06. Reports Provided by Servicer. The Servicer will provide to
Client, Agent, and, if requested in writing by the Interested Party, Backup
Servicer such reports relating to the Receivables as noted in Exhibit D in the
form specified therein. Servicer shall also provide such parties such additional
reports as may be requested in writing by the Interested Party within the time
set forth in such request (such time not to be less than five (5) Business
Days), but any increase in number of reports or reporting frequency requested
from that provided on Exhibit D will require an additional fee to be agreed to
by the Servicer, Client, and Agent based on the specific requests of the
Interested Party. Requests for such additional reports will be billed to Client
on a time and materials basis. All reports provided to Client or Agent shall be
certified by an officer of Servicer as being true and correct in all material
respects. All reports provided by Servicer to Client and Agent shall have at
least a line item setting forth the cumulative total for the relevant category
in the report during the term of the Servicing Agreement.
Section 2.07. Servicing Fee.
(a) The Servicer shall be paid by Client a base monthly Servicing Fee
equal to the greater, for a given calendar month, of (A) 4% divided by twelve
(12) on the Outstanding Principal Balance of the Receivables, other than
Defaulted Receivables, as of the first day of such calendar month; or (B) $15.00
per Receivable, other than Defaulted Receivables, serviced pursuant to this
Servicing Agreement, as of the first day of such calendar month. Additionally,
the Servicer shall be paid (i) the reimbursable expenses pursuant to Section
2.10(b) below, (ii) all third party charges paid for not-sufficient fund checks
and returned checks, and (iii) if earned, the amounts set forth on Schedule 2
attached hereto. Servicer shall be permitted to collect and retain late fees,
modification fees and extension fees actually paid by Obligors. The Servicer
shall commence earning fees and have the right to reimbursement for costs and
expenses as of the Effective Date. The base monthly fee shall be prorated for
any calendar month for which the appointment of the Servicer was not effective
for all days in that calendar month (based upon the number of days for which
such appointment was effective).
(b) Each Collection Period, the base monthly Servicing Fee pursuant to
this Section 2.07 with respect to the immediately preceding Collection Period,
and reimbursable expenses pursuant to Section 2.10(b) incurred during the
immediately preceding Collection Period, shall be paid by Client not later than
the fifth (5th) Business Day after the Servicer delivers (i) the applicable
Servicer Certificate to Client and Agent pursuant to Section 2.08 below, (ii)
the reconciliation of accounts required pursuant to C.2. of Exhibit D, and (iii)
the summary report of all reimbursements, expenses and costs pursuant to Section
2.10(b) in the form of Exhibit K (the "Servicer Payment Date"). Amounts earned
by Servicer described on Schedule 2 shall be paid as provided in Schedule 2.
10
11
Section 2.08. Servicer Certificates. The Servicer shall deliver to
Client and Agent, on or prior to the fifteenth (15th) day of each month, a
Servicer Certificate substantially in the form provided in Exhibit E hereto (the
"Servicer Certificate").
Section 2.09. [Reserved]
Section 2.10. Costs and Expenses.
(a) Except as set forth in Section 2.10(b) below, all costs and expenses
paid by the Servicer in carrying out its duties hereunder shall be paid or
caused to be paid by the Servicer out of the compensation to be paid to or
retained by the Servicer pursuant to this Servicing Agreement.
(b) Subject to Section 2.10(e), during the term of this Servicing
Agreement, the Servicer shall be reimbursed by Client for the following actual
third-party costs and expenses not constituting normal overhead which Servicer
has incurred in connection with the performance of its duties hereunder:
(i) Compensation paid to outside legal counsel to protect the
interests of Client or Agent, or if Client or Agent is not the owner of the
Receivables, the owner's interest in assets administered under this Servicing
Agreement;
(ii) Compensation paid to professional accountants retained at
Client's or Agent's direction to review the assets administered under this
Servicing Agreement;
(iii) Compensation paid to independent repossessors and direct
out-of-pocket expenses arising from or related to realization of Receivables of
Client administered under the Servicing Agreement, including, but not limited
to, repossession fees and charges, auction fees, towing charges, storage fees,
repair expenses and detailing expenses;
(iv) Sales, franchise, income, excise, personal property or other
taxes arising from or related to any Receivables administered under the
Servicing Agreement (provided, however, nothing in this Servicing Agreement
shall obligate Client or Agent to pay any income or other taxes of Servicer or
UDC);
(v) Parking or other fines, insurance, title or other such fees
arising from or related to any Receivables administered under the Servicing
Agreement;
(vi) Costs for retitling the Financed Vehicles after a request
therefor from the Interested Party;
(vii) Costs associated with cooperating with or providing any
audits, reviews or special reports related to Agent or Client in the Case (but
not the reports set forth on Exhibit D or the audits set forth in Section 2.17),
including Client as a reorganized entity; and
(viii) Expenses and costs associated with the sale or contracting
for collection of Defaulted Receivables pursuant to Section 2.02(d).
Other requested services will be quoted on a time and materials basis utilizing
the Servicer's current pricing schedule. With respect to such other requested
services, the Servicer shall only be reimbursed to the extent it receives prior
written approval from the Interested Party pursuant to the procedures set forth
in Section 7.10. In the event Servicer seeks but does not obtain in a specific
instance written approval to incur expenses of those stated herein, Servicer
shall not be obligated
11
12
to proceed with the recommended activity as to which such approval is sought.
Services requested of Servicer by the Interested Party which require the
services of Management Employees shall be billed at the rate of $200 per hour
for the services of such Management Employees identified by the Servicer and
approved by the Interested Party.
(c) Servicer's rights to reimbursement of expenses shall not be
contingent upon success in a Skip Loss Investigation, repossession, litigation
or similar activity.
(d) In furtherance of its performance hereunder, the Servicer may, with
the prior written consent of the Interested Party pursuant to the procedures set
forth in Section 7.10, contract for goods or services with Affiliates of
Servicer. To the extent such goods or services give rise to an expense
reimbursable pursuant to Section 2.10(b) above, the costs or expenses for such
goods or services must be upon costs, terms and conditions that are market
rates, terms and conditions found in arms' length transactions in the relevant
geographic area.
(e) Notwithstanding anything to the contrary in this Servicing
Agreement, Servicer shall not be entitled to reimbursement of any fees, costs,
or expenses which (i) are not ultimately paid by Servicer, (ii) are incurred by
Servicer in connection with services rendered beyond the scope of this Servicing
Agreement or contrary to the Collection Policy, or (iii) arise from the gross
negligence or wilful misconduct of Servicer or any Service Provider.
Reimbursement of any fees, costs, or expenses to Servicer shall not foreclose
Client or Agent from disputing Client's obligation to reimburse such fees,
costs, or expenses, nor act as an admission of the propriety of such fees,
costs, or expenses. All backup documentation for costs and expenses shall be
available at the offices of Servicer for inspection and audit by Client and
Agent at the cost of the Client. In the event any fee, cost, or expense
obligation for which Servicer seeks reimbursement is disputed by Client or
Agent, Servicer, Client and Agent shall each use their best efforts to resolve
such dispute. If Client, Agent and Servicer cannot agree on a disputed
obligation, such obligation shall not be the subject of reimbursement to
Servicer until such dispute has been reviewed pursuant to the Payment
Reimbursement Dispute Resolution Policy, a copy of which is attached to this
Servicing Agreement as Exhibit F. Any expense which is paid to Servicer and
which is subsequently disputed by Client or Agent and which has not been placed
in escrow by the Servicer pursuant to the provisions of the Payment
Reimbursement Dispute Resolution Policy set forth on Exhibit F hereto may be
deducted from any subsequent reimbursable expenses or any fees to be paid to
Servicer, without prejudice to the right of Servicer to place the disputed
amount in escrow from collections in conformity with the provisions of the
Payment Reimbursement Dispute Resolution Policy set forth on Exhibit F hereto.
Upon resolution of any disputed amounts, any amounts owing to the Servicer,
Client, or Agent, along with interest earned thereon in escrow, shall be paid to
the party entitled to such funds.
Section 2.11. Responsibility for Insurance Policies: Processing of
Claims Under Insurance Policies.
(a) The Servicer, on behalf of Client and Agent, will administer and
enforce all rights and responsibilities of the holder of the Receivables
provided for in any applicable Insurance Policy, provided, however, that the
Servicer shall not be required to pay any premiums on the Insurance Policies
except from collections of Receivables.
(b) If directed by the Interested Party, and at Client's expense, the
Servicer shall obtain Required Borrower Insurance with respect to any
Receivable.
12
13
Section 2.12. Records Maintenance.
(a) The Servicer shall maintain copies or originals of the Documents in
its files with respect to each Receivable and the Financed Vehicle related
thereto, provided that they were given to the Servicer by the Client. The
Servicer shall keep satisfactory books and records pertaining to each Receivable
and shall make periodic reports in accordance with this Servicing Agreement.
Such records may not be destroyed or otherwise disposed of except as provided
herein and as allowed by applicable laws, regulations or decrees. All documents,
whether developed or originated by the Servicer or not, reasonably required to
document or to properly administer any Receivable shall remain at all times the
property of Client (unless transferred by Client). The Servicer shall not
acquire any property rights with respect to any Receivables or any Documents
(including, without limitation, any possessory Lien with respect to any
Receivable or any Documents), and shall not have the right to possession of them
except pursuant to the terms of this Servicing Agreement. The Servicer shall
bear the entire cost of restoration in the event any Documents shall become
damaged, lost or destroyed while in the Servicer's possession or under the
Servicer's control.
(b) The Servicer hereby agrees that the computer files and other
physical records of the Receivables maintained by the Servicer will bear an
indication reflecting that the Receivables are owned by Client and are subject
to a Lien in favor of Agent.
Section 2.13. Possession and Ownership of Documents. Unless otherwise
specified herein, the Servicer shall maintain physical possession of good and
legible copies of the Documents and shall hold all Documents in trust for the
benefit of Client and Agent, and all Documents, as between Servicer and Client,
shall remain the property of Client. The Servicer shall respond to all third
party inquiries concerning ownership of the Receivables by indicating that the
Receivables are the property of Client, and, if applicable, subject to a Lien in
favor of the Agent. The Servicer hereby agrees that the computer files and other
physical records of the Receivables maintained by the Servicer will bear an
indication reflecting that the Receivables are owned by Client and are subject
to a Lien in favor of the Agent.
Section 2.14. Warranties, Representations and Indemnity With Respect to
Documents. As to each Document generated by Client, the Client warrants and
represents that such Document is free of illegal or prohibited powers or
provisions, and that the enforcement thereof by the Servicer will not subject
the Servicer to liability under any federal, state or local law, provided such
enforcement by the Servicer is conducted in accordance with the provisions of
this Servicing Agreement and the Collection Policy. Subject to Section 2.10(e),
Client will indemnify Servicer, pursuant to the provisions of Section 5.05(a),
from all liability and costs, including reasonable attorneys' fees, paid as a
result of the presence of any such illegal or prohibited provision, but,
notwithstanding anything to the contrary in this Servicing Agreement, the
presence of any such illegal or prohibited provision shall not, pursuant to
Section 5.02 or 5.04 or otherwise, permit Servicer to terminate its appointment
pursuant to this Servicing Agreement.
Section 2.15. Standard of Care. In performing its duties and obligations
hereunder and in making its judgments, determinations and decisions pursuant to
this Servicing Agreement, the Servicer will comply with all applicable state and
federal laws, rules, and regulations and will exercise that degree of skill and
care consistent with the degree of skill and care that the Servicer exercises
with respect to similar motor vehicle retail installment sales contracts or
loans owned and/or serviced by the Servicer and that is consistent with prudent
industry standards, and will apply, in performing such duties and obligations,
those standards, policies and procedures consistent with the standards, policies
and procedures the Servicer applies with respect to similar motor vehicle retail
installment contracts or loans owned or serviced by it; provided, however, that
notwithstanding the foregoing, the Servicer shall not, except pursuant to a
judicial order from a court of competent
13
14
jurisdiction, or as otherwise required by applicable law or regulation, release
or waive the right to collect the unpaid balance on any Receivable. In
performing its duties and obligations hereunder, the Servicer shall maintain all
state and federal licenses and franchises necessary for it to perform its
responsibilities hereunder, and shall not impair the rights of Client or Agent
(and, if applicable, any escrow agent) in the Receivables and any other property
in which Client or Agent has an interest. Notwithstanding any provision to the
contrary herein, and even to the extent that compliance requires the exercise of
a higher standard of care than set forth above, the Servicer shall (i) comply
with the Collection Policy, and (ii) the standard of care set forth in Section
5.05 of this Servicing Agreement. Notwithstanding any provision to the contrary
in this Servicing Agreement, the Servicer shall not be responsible or liable to
Client, Agent or any other person for any act done in compliance with this
Servicing Agreement, absent willful misconduct or gross negligence.
Notwithstanding any provision in any Receivable, if the Servicer determines that
any provision in any Receivable is either illegal or unenforceable, then
Servicer may elect, without liability to Client or Agent, not to enforce or
follow such provision.
Section 2.16. Records. The Servicer shall maintain or cause to be
maintained such books of account and other records as will enable Client and
Agent to determine the status of each Receivable.
Section 2.17. Inspection.
(a) At all times during the term hereof, the Servicer shall afford
Client and Agent, their authorized agents, and any escrow agent, if applicable,
upon not less than 24 hours notice, reasonable access during normal business
hours to the all records relating to the Receivables. The examination referred
to in this Section 2.17 will be conducted in a manner which does not
unreasonably interfere with the Servicer's normal operations or customer or
employee relations. Without otherwise limiting the scope of the examination,
Client, Agent, or any applicable escrow agent may, using generally accepted
audit procedures, verify (1) the status of each Receivable and review the
Documents and other records relating thereto for conformity to reports prepared
pursuant to Section 2.06 or otherwise, and (2) Servicer's compliance with this
Servicing Agreement. Nothing in this section shall affect the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding Obligors, and the failure of the Servicer to provide access to
information as a result of such obligation shall not constitute a breach of this
Section 2.17. The Servicer's obligations under this Section 2.17 shall be to
provide access to records related to the Receivables, ensure that such records
are in reasonable order, and to respond to questions related to such records.
The Servicer shall not be compensated for providing such services and for
otherwise facilitating any such reasonable inspections. Any other expense
incident to the exercise by Client or Agent of any right under this Section 2.17
(including without limitation copying costs and third party fees and costs)
shall be borne by Client, provided, however, that, upon request, Servicer agrees
to provide such services to Client and Agent at Servicer's actual cost.
(b) At no additional charge, not more frequently than monthly, Servicer
will, at the Interested Party's request, provide Client, Agent, and Backup
Servicer, as applicable, with a data extract disk, in a format mutually
agreeable to Client, Agent, and Servicer, containing records relating to the
Receivables.
Section 2.18. Enforcement.
(a) The Servicer will, consistent with the standard of care required by
this Servicing Agreement and the Collection Policy, act with respect to the
Receivables and the Collateral in such manner as will, in the reasonable
judgment of the Servicer, maximize the benefits to be received by Client and
Agent with respect thereto. Servicer may disregard instructions or demands from
14
15
other parties which, in Servicer's reasonable judgment, have not been authorized
by the Interested Party, or conflict with Client's or Agent's interest, written
instructions or approvals.
(b) The Servicer may and shall, at the direction of the Interested
Party, sue to enforce or collect upon the Receivables and the Insurance Policies
(including unpaid claims), in its own name, if possible, or as agent for Client.
If the Servicer commences a legal proceeding to enforce a Receivable or an
Insurance Policy, the act of commencement shall be deemed to be an automatic
assignment of the Receivable and the related rights under the Insurance Policies
by Client to the Servicer for purposes of collection only. If, however, in any
enforcement suit or legal proceeding it is held that the Servicer may not
enforce a Receivable or an Insurance Policy on the grounds that it is not a real
party in interest or a holder entitled to enforce the Receivable or the
Insurance Policy, Client shall, at Servicer's request, assign the Receivable or
the Insurance Policy to Servicer for the limited extent necessary to enforce the
Receivable or the Insurance Policy, or take such steps as the Interested Party
deems necessary to enforce the Receivable or the Insurance Policy, including
bringing suit in Client's name. Pursuant to the terms of Section 2.10(b) and
2.10(e), the Servicer shall be entitled to reimbursement for expenses paid in
connection with enforcement or collection activities with respect to the
Receivables pursuant to this Section 2.18(b).
(c) The Servicer shall exercise any rights of recourse against third
persons that exist with respect to any Receivable in accordance with the
Collection Policy, the Servicer's usual practice and the standard of care
required by Section 2.15 hereof. In exercising such recourse rights, the
Servicer is hereby authorized on Client's and Agent's behalf to reassign the
Receivable and to deliver the Certificate of Title to the Financed Vehicle to
the person against whom recourse exists at the price set forth in the document
creating the recourse. The provisions of Section 2.18(b) above, including
Servicer's right to reimbursement of expenses, shall similarly apply to this
Section.
(d) The Servicer may grant to the Obligor on any Receivable any rebate,
refund or adjustment that the Servicer in the exercise of its reasonable
judgment and consistent with the Collection Policy believes is required because
of prepayment in full of the Receivable, and may deduct the amount of any such
rebate, refund or adjustment from the amount otherwise payable by the Servicer.
The Servicer may not permit any rescission or cancellation of any Receivable nor
may it take any action with respect to any Receivable or Collateral which would
materially impair the rights of Client or Agent therein or in the proceeds
thereof.
(e) The Servicer may not increase or reduce the amount of any Scheduled
Payments, change any Receivable annual percentage rate, or extend or rewrite any
Receivable; provided, however, that the Servicer may extend any Receivable
pursuant to Section 2.02(a).
Section 2.19. Substitution of Collateral. In the event a Financed
Vehicle sustains significant physical damage such that the insurance company
carrying the physical damage insurance covering such Financed Vehicle determines
that the Financed Vehicle is not repairable, the Servicer may permit the Obligor
to pledge a vehicle of equal or greater market value than that of the Financed
Vehicle immediately prior to sustaining the physical damage. The second vehicle
shall be substituted as the collateral ("Substituted Financed Vehicle") for the
Receivable and the terms of the Receivable shall not be amended or modified
except to reflect the substituted collateral. The Servicer shall, within 180
days of the acceptance of the Substituted Financed Vehicle, cause the
certificate of title for the Substituted Financed Vehicle to be delivered to
Client or the Servicer for the benefit of Client or the escrow agent, as
applicable. The Servicer shall make appropriate notation in its records of the
substitution of the collateral.
Section 2.20. Sale of Receivables. (a) The Servicer agrees to cooperate
with the Client and Agent, and to provide information reasonably required by the
Client or Agent, in connection with a
15
16
proposed sale by Client or Agent of all or a portion of the Receivables. If
requested by the Client or Agent and given at least ten (10) Business Days
advance written notice, the Servicer shall: (i) arrange for representatives of
the Servicer to meet with prospective purchasers, (ii) arrange for
representatives of the Servicer to provide information reasonably requested by
any such prospective purchaser with respect to Receivables and the servicing
thereof, (iii) arrange for representatives of the Servicer to meet with rating
agencies, credit enhancement providers and such other similar parties as the
Client or Agent shall designate and to provide information with respect to
Receivables and the servicing thereof, (iv) provide information reasonably
requested for the preparation of any offering materials required in connection
with a sale by Client or Agent of the Receivables, including, without
limitation, information relating to the servicing of the Receivables by the
Servicer, (v) assist the Client and the Agent in reviews of the Servicer's
reporting, collection, servicing and recovery management systems in respect of
the Receivables; and (vi) provide any other information or services reasonably
requested by Client or Agent to assist in the potential or actual sale of all or
a portion of the Receivables. The above services will be charged to Client at a
rate of $200 per hour for Servicer's Management Employees, and $300 per hour for
Servicer's Senior Management Employees. The Servicer shall identify all
Management Employees and Senior Management Employees to be used for such
services, prior to their commencement of services. Subject to Section 2.10(e),
Client will reimburse Servicer for the reasonable expenses paid for printing,
copying and postage, audit or accountant expense, legal fees, or other
out-of-pocket costs paid to respond to Client's or Agent's requests regarding
any such prospective sale by Client and Agent. Except for actions or inactions
of Servicer which constitute gross negligence or willful misconduct, Servicer
shall have no liability to Client, Agent or the potential purchaser under this
Section 2.20 for the failure of Servicer to provide such purchaser with accurate
information or the failure for any reason for the sale not to close,
(b) Servicer recognizes that the Client intends to sell the Bank
Portfolio. Servicer agrees that (1) until such sale, and for the fees and
expenses set forth in Section 2.07 and 2.10, it shall provide all services as to
the Bank Portfolio required under this Servicing Agreement as to any other
Receivable, (2) it shall cooperate with Client and Agent in the sale of the Bank
Portfolio pursuant to the provisions of Section 2.20(a), and (3) upon sale of
the Bank Portfolio, it shall not be entitled to any additional fees or expenses
with respect to the Bank Portfolio, except such fees, costs and expenses accrued
as of the date of sale.
(c) Notwithstanding any other provision in this Servicing Agreement, if
the Client or Agent sells any or all of the Receivables other than the Bank
Portfolio, or Defaulted Receivables, to any person or entity other than the
Servicer or an Affiliate of Servicer, the Servicer shall be paid a fee equal to
4% of the Outstanding Principal Balance of such sold Receivables calculated on
the date of such sale (the "Exit Sale Proceeds"), provided that, the Base Amount
shall be reduced by the lesser of (i) the amount of Exit Sale Proceeds received
by the Servicer from such sale and (ii) the remaining Base Amount on the date
that such Exit Sale Proceeds are calculated. The Servicer may retain possession
of all Documents for such sold Receivables until receipt of such amount.
Section 2.21. Directions of Interested Party. The Servicer may follow
any and all instructions, directions or decisions by the Interested Party as are
to be given or made by the Interested Party without any liability of the
Servicer to Agent or Client which is not the Interested Party for following such
instructions, directions, or decisions.
16
17
ARTICLE III
COLLECTIONS AND INSURANCE COVERAGE
Section 3.01 Collections.
(a) Subject to Section 3.01(b) below, Servicer shall deposit into one of
the Depository Accounts on or prior to each Business Day, and shall remit to the
Collection Account, and to no other account, on the third (3rd) Business Day
after receipt thereof, all available funds for payments made by or on behalf of
the Obligor and received by or on behalf of the Servicer, including all actual
payments, insurance proceeds, recoveries, collections, all proceeds relating to
the repossession or disposition of the Financed Vehicles, and all payments or
other amounts, if any, made by or on behalf of an Obligor and received by the
Servicer with respect to any Receivable (the "Collections"). Servicer shall give
to Agent all notices required to be given to Client pursuant to the Master
Agency Agreement simultaneously upon giving such notices to Client. In addition,
notwithstanding anything to the contrary in the Master Agency Agreement,
Servicer agrees that all funds transferred or retransferred pursuant to the
Master Agency Agreement shall be transferred directly to the Collection Account
after transfer to the Consolidating Depository Accounts.
(b) Notwithstanding Section 3.01(a) above, if, in any calendar month,
Client does not timely pay to Servicer all amounts required to be paid to
Servicer pursuant to Sections 2.07 and 2.10, the Servicer may, commencing on the
second (2nd) Business Day after written notice to Client and Agent of such
nonpayment, from the Collections to be remitted to the Collection Account, place
into an escrow, in conformity with the provisions of the Payment Reimbursement
Dispute Resolution Policy set forth on Exhibit F hereto, an amount equal to such
unpaid amounts.
Section 3.02 Insurance Coverage. Servicer shall maintain, at its own
expense, a crime insurance policy, with broad coverage with responsible
companies on all officers, employees or other Persons acting on behalf of
Servicer in any capacity with regard to the Receivables to handle funds, money,
documents and papers relating to the Receivables. Any such insurance shall
protect and insure Servicer against losses for dishonest acts of such Persons
and shall be maintained in a form that would meet the requirements of prudent
institutional auto loan servicers and in an amount of not less than $10,000 per
occurrence with no deductible. Client and Agent shall be named as loss payee and
as an additional named insured on such policy.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, AND COVENANTS
Section 4.01. Representations and Warranties of the Servicer. The
Servicer and UDC hereby make the following representations and warranties to
Client and Agent only as to itself, provided that with respect to any Controlled
Servicer, UDC shall make such representations and warranties as to itself and
such Servicer. These representations and warranties are made as of the execution
of this Servicing Agreement by Servicer or UDC as being true and correct at that
time and at all times thereafter while either Servicer or UDC has obligations
pursuant to this Servicing Agreement.
(a) Due Organization and Good Standing. The Servicer and UDC are
corporations duly organized, validly existing, and in good standing under the
laws of the State of their incorporation, with power and authority to own their
properties and to conduct their businesses as such properties are owned and such
businesses are presently conducted. Servicer and UDC are qualified to do
17
18
business as foreign corporations and are in good standing in each jurisdiction
where the character of their properties or the nature of their activities makes
such qualification necessary.
(b) Power and Authority. The Servicer and UDC have the power and
authority to execute and deliver this Servicing Agreement and to carry out its
terms; and the execution, delivery, and performance of this Servicing Agreement
have been duly authorized by the Servicer and UDC by all necessary corporate
action.
(c) Binding Obligations. This Servicing Agreement shall constitute a
legal, valid, and binding obligation of the Servicer and UDC enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights in general and by general principles of equity,
regardless of whether such enforceability shall be considered in a proceeding in
equity or at law.
(d) No Violation. The consummation of the transactions contemplated by
this Servicing Agreement and the fulfillment of the terms thereof shall not
conflict with, result in any breach of any of the terms, and the provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
articles of organization or by-laws of the Servicer or UDC, or to the best of
the Servicer's or UDC's knowledge, after reasonable investigation, any
indenture, agreement, or other instrument to which the Servicer or UDC is a
party or by which either of them shall be bound; nor result in the creation or
imposition of any lien upon any of their properties pursuant to the terms of any
such indenture, agreement, or other instrument (other than this Servicing
Agreement); nor violate any law or, to the best of the Servicer's or UDC's
knowledge, any order, rule, or regulation applicable to the Servicer or UDC of
any court or of any federal or state regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over the Servicer, UDC,
or any of their properties.
(e) No Proceedings. There are no proceedings or investigations pending
or, to the Servicer's or UDC's best knowledge, threatened before any court,
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over the Servicer or UDC or any of their properties (a)
asserting the invalidity of this Servicing Agreement, (b) seeking to prevent the
consummation of any of the transactions contemplated by this Servicing
Agreement, or (c) seeking any determination or ruling that might materially and
adversely affect the performance by the Servicer or UDC of either of their
obligations under, or the validity or enforceability of, this Servicing
Agreement.
(f) Permits and Licenses. Servicer and UDC have all necessary permits,
licenses, consents, approvals, waivers, registrations, and notifications
necessary for the execution and performance by Servicer and UDC pursuant to this
Servicing Agreement (including, without limitation, all permits, licenses,
consents, approvals, waivers, registrations, and notifications relating to any
hardware, software, or other intellectual property utilized or to be utilized by
Servicer or UDC pursuant to this Servicing Agreement) and there has not been any
revocation, withdrawal, termination, modification, cancellation, suspension, or
similar limitation of such permits, licenses, consents, approvals, waivers,
registrations, and notifications.
Section 4.02. Representations and Warranties of RAC. RAC hereby makes
the following representations, warranties and covenants to Servicer, UDC, and
Agent. These representations, warranties, and covenants are made as of the
execution of this Servicing Agreement by RAC as being true and correct at that
time and at all times thereafter while Client has any obligations pursuant to
this Servicing Agreement.
18
19
(a) Due Organization and Good Standing. RAC is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct its
business as such properties are owned and such business is presently conducted.
RAC is qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary.
(b) Power and Authority. RAC has the power and authority to execute and
deliver this Servicing Agreement and to carry out its terms; and the execution,
delivery, and performance of this Servicing Agreement have been duly authorized
by the Client by all necessary corporate action.
(c) Binding Obligations. This Servicing Agreement shall constitute a
legal, valid, and binding obligation of RAC enforceable in accordance with its
terms.
(d) No Violation. The consummation of the transactions contemplated by
this Servicing Agreement and the fulfillment of the terms thereof shall not
conflict with, result in any breach of any of the terms, and the provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
articles of organization or by-laws of RAC, or to the best of the RAC's
knowledge, after reasonable investigation, any indenture, agreement, or other
instrument to which RAC is a party or by which it shall be bound; nor result in
the creation or imposition of any lien upon any of its properties pursuant to
the terms of any such indenture, agreement, or other instrument (other than this
Servicing Agreement); nor violate any law or, to the best of the RAC's
knowledge, any order, rule, or regulation applicable to RAC of any court or of
any federal or state regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over RAC or its properties.
(e) No Proceedings. Other than the Bankruptcy Case, there are no
proceedings or investigations pending or, to RAC's best knowledge, threatened
before any court, regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over RAC or its properties (a) asserting the
invalidity of this Servicing Agreement, (b) seeking to prevent the consummation
of any of the transactions contemplated by this Servicing Agreement, or (c)
seeking any determination or ruling that might materially and adversely affect
the performance by RAC of its obligations under, or the validity or
enforceability of, this Servicing Agreement.
(f) Permits and Licenses. RAC has all necessary permits, licenses,
consents, approvals, waivers, registrations, and notifications necessary for the
execution and performance by RAC pursuant to this Servicing Agreement
(including, without limitation, all permits, licenses, consents, approvals,
waivers, registrations, and notifications relating to any hardware, software, or
other intellectual property utilized or to be utilized by RAC pursuant to this
Servicing Agreement) and there has not been any revocation, withdrawal,
termination, modification, cancellation, suspension, or similar limitation of
such permits, licenses, consents, approvals, waivers, registrations, and
notifications.
Section 4.03. Representations and Warranties of the Agent. Agent hereby
makes the following representations, warranties and covenants to Servicer, UDC,
and Client. These representations, warranties, and covenants are made as of the
execution of this Servicing Agreement by Agent as being true and correct at that
time and at all times thereafter while Agent has rights pursuant to this
Servicing Agreement.
(a) Due Organization and Good Standing. Agent is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct its
business as such properties are owned and such business
19
20
is presently conducted. Agent is qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties or the nature of its activities makes such qualification
necessary.
(b) Power and Authority. Agent has the power and authority to execute
and deliver this Servicing Agreement and to carry out its terms; and the
execution, delivery, and performance of this Servicing Agreement have been duly
authorized by the Agent by all necessary corporate action.
(c) Binding Obligations. This Servicing Agreement shall constitute a
legal, valid, and binding obligation of Agent enforceable in accordance with its
terms.
(d) No Violation. The consummation of the transactions contemplated by
this Servicing Agreement and the fulfillment of the terms thereof shall not
conflict with, result in any breach of any of the terms, and the provisions of,
nor constitute (with or without notice or lapse of time) a default under, the
articles of organization or by-laws of Agent or to the best of the Agent's
knowledge, after reasonable investigation, any indenture, agreement, or other
instrument to which Agent is a party or by which it shall be bound; nor result
in the creation or imposition of any lien upon any of its properties pursuant to
the terms of any such indenture, agreement, or other instrument (other than this
Servicing Agreement); nor violate any law or, to the best of the Agent's
knowledge, any order, rule, or regulation applicable to Agent of any court or of
any federal or state regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Agent or its properties.
(e) No Proceedings. There are no proceedings or investigations pending
or, to Agent's best knowledge, threatened before any court, regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction
over Agent or its properties (a) asserting the invalidity of this Servicing
Agreement, (b) seeking to prevent the consummation of any of the transactions
contemplated by this Servicing Agreement, or (c) seeking any determination or
ruling that might materially and adversely affect the performance by Agent of
its obligations under, or the validity or enforceability of, this Servicing
Agreement.
Section 4.04. Survival of Representations and Warranties. The
representations and warranties set forth in this Article IV are continuous and
shall survive the termination of this Servicing Agreement, with respect to any
Servicer, shall survive the termination of the appointment of such Servicer, and
with respect to any Controlled Servicer, shall survive the termination of the
appointment of such Controlled Servicer. Upon discovery by either Client,
Servicer, UDC, or Agent of a breach of any of the foregoing representations and
warranties, the party discovering such breach shall give prompt written notice
to the other parties.
Section 4.05. Covenants of the Servicer and UDC. Servicer and UDC hereby
covenant to Client and Agent for so long as Servicer shall continue to act as
Servicer hereunder:
(a) All payments received by Servicer with respect to the Receivables
will be received in trust by Servicer for the benefit of Client and Agent and
will be deposited into Depository Accounts which are not subject to any Lien in
favor of any other Person.
(b) Contemporaneously with the execution and delivery of this Servicing
Agreement and on the Effective Date, Servicer shall deliver to Client and Agent
a list of the servicing locations of Servicer and the officers involved in, or
responsible for, the administration and servicing of the Receivables, which list
shall be promptly updated in writing by the Servicer to Client and Agent as
changes are made. From and after the Effective Date, Servicer shall not change a
location where it administers or services the Receivables unless it first gives
Client and Agent sixty (60) days written
20
21
notice and takes what action Client and Agent reasonably request in order to
protect Client and Agent's interest in the Receivables and Documents at the new
location.
(c) The Servicer acknowledges that: (i) the Agent has advised it that
the Agent has a first priority security interest in the Receivables and the
proceeds therefrom, and (ii) Servicer has no interest, except as provided in
Section 3.01(b) for the payment and reimbursement of amounts pursuant to this
Servicing Agreement, in the Receivables and the proceeds therefrom deposited in
the Depository Accounts. Except as otherwise provided in this Servicing
Agreement, the Servicer agrees to hold the Receivables and the proceeds
therefrom in its possession as agent for the Agent for the purpose of perfecting
the security interest granted by the Client to the Agent therein.
(d) The Servicer and UDC agree to give written notice to Client and
Agent within two (2) Business Days of the occurrence of any Event of Default by
Servicer or UDC of which it has knowledge.
(e) From the date of this Agreement, if the Servicer is not part of the
consolidated group of UDC and its subsidiaries, the Servicer shall provide
Client and Agent with quarterly financial statements for Servicer within sixty
(60) days of the end of each of Servicer's fiscal quarters, and with annual
audited financial statements within one hundred twenty (120) days of the fiscal
year-end. The annual financial statements shall be audited by a public
accounting firm acceptable to Client and Agent. So long as Servicer is a
Controlled Servicer, UDC shall provide Client and Agent with UDC's and
Servicer's quarterly and audited annual financial statements within ten (10)
Business Days after such statements are first made available by UDC to third
parties.
ARTICLE V
DEFAULT, REMEDIES AND LIABILITY
Section 5.01. Events of Default by Servicer or UDC. Any of the following
acts or occurrences shall constitute an Event of Default by Servicer or UDC
under this Servicing Agreement:
(a) The intentional failure of Servicer to make any payment, transfer,
or deposit of monies required to be made under the terms of this Servicing
Agreement on the date such payment, transfer, or deposit of monies is required
to be made;
(b) The failure of Servicer (other than an intentional failure) to make
any payment, transfer, or deposit of monies required to be made under the terms
of this Servicing Agreement on the date such payment, transfer, or deposit is
required to be made, which failure continues unremedied for a period of two (2)
Business Days after the date when originally due, provided, however, that such
grace period shall no longer apply upon the failure of Servicer to make, in any
given rolling ninety (90) day period, more than three (3) failures in excess of
$50,000 of payments, transfers, or deposits of monies each required to be made
under the terms of this Servicing Agreement on the date such payments,
transfers, or deposits were required to be made;
(c) The failure of Servicer or UDC to observe or perform in any material
respect any other covenant or agreement required to be performed under this
Servicing Agreement which failure continues unremedied for a period of five (5)
Business Days after written notice of such failure shall have been given to the
breaching party, provided that, if such failure cannot be cured by diligent
efforts of the breaching party within such five (5) Business Day period, then
such time period shall be extended by the Interested Party for the shorter of
(i) the period reasonably required to cure such failure using the diligent
efforts of the breaching party, and (ii) thirty (30) days;
21
22
(d) The entry with respect to Servicer or UDC of a decree or order for
relief by a court or agency or supervisory authority having jurisdiction under
any present or future federal or state bankruptcy, insolvency or similar law;
(e) UDC or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
(f) An involuntary case shall be commenced against UDC or Servicer and
the petition shall not be dismissed, stayed, bonded or discharged within sixty
(60) days after commencement of the case; or a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of UDC or the
Servicer in an involuntary case, under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect; or any other similar relief shall
be granted under any applicable federal, state, local or foreign law; or the
board of directors of UDC or the Servicer adopts any resolution or otherwise
authorizes any action to approve any of the foregoing. A decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over UDC or the Servicer or over all or a substantial part of the assets
of UDC or the Servicer shall be entered; or an interim receiver, trustee or
other custodian of UDC or the Servicer or of all or a substantial part of the
assets of UDC or the Servicer shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the assets of UDC
or the Servicer shall be issued and any such event shall not be stayed,
dismissed, bonded or discharged within sixty (60) days after entry, appointment
or issuance; or the board of directors of UDC or the Servicer adopts any
resolution or otherwise authorizes any action to approve any of the foregoing;
(g) UDC or the Servicer shall fail to make any payment when due with
respect to any Indebtedness of UDC or the Servicer (other than an obligation
payable hereunder), or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the holder or holders of such
Indebtedness accelerate the maturity of any such Indebtedness or require a
redemption or other repurchase of such Indebtedness and such failure relates to
the acceleration or redemption of an amount in excess of $10,000,000, in the
case of UDC and $2,000,000 in the case of Servicer, and such acceleration shall
continue for a period of five (5) Business Days;
(h) There shall have occurred any event which materially adversely
affects the ability of the Servicer or UDC to perform its obligations hereunder,
or there is a material adverse change in the financial condition or operations
of the Servicer or UDC;
(i) Except with the written consent of the Interested Party, which shall
not be unreasonably withheld, there shall occur a "Change of Control of
Servicer" or a "Change of Control of UDC." For purposes of the preceding
sentence and subject to Section 6.05(a), a "Change of Control of Servicer" shall
mean the occurrence of any event following which at least fifty percent (50%) of
the outstanding voting securities of Servicer shall not at such time be
beneficially owned by UDC or a direct or indirect subsidiary of UDC. A "Change
of Control of UDC" shall mean any one or more of the following events:
(1) A change of control of UDC of a nature that would be
required to be reported in response to Item 6(e) of
Schedule 14A of the Securities Exchange Act of 1934, as
amended ("1934 Act");
(2) A change of control of UDC through a transaction or series
of transactions, such that any person (as that term is
used in Section 13(d) and 14(d)(2) of
22
23
the 1934 Act), excluding affiliates of UDC as of the date
hereof, is or becomes the beneficial owner (as that term
is used in Section 13(d) of the 1934 Act), directly or
indirectly, of securities of UDC representing eighty
percent (80%) or more of the combined voting power of
UDC's then outstanding securities;
(3) Any consolidation or merger of UDC in which UDC is not the
continuing or surviving company or pursuant to which stock
would be converted into cash, securities or other
property, other than a merger of UDC in which the holders
of the shares of stock immediately before the merger have
at least fifty percent (50%) of the ownership of common
stock of the surviving company immediately after the
merger;
(4) The shareholders of UDC approve any plan or proposal for
the liquidation or dissolution of UDC; or
(5) Substantially all of the assets of UDC (equal to at least
75% of the total assets of UDC as shown on its most recent
balance sheet prepared prior to the sale or transfer) are
sold or otherwise transferred to parties that are not
within a "controlled group of corporations" (as defined in
Section 1563 of the Internal Revenue Code of 1986, as
amended) in which UDC is a member.
Notwithstanding anything to the contrary above, this provision shall not apply
to any "Change of Control of UDC" if the person obtaining such control has a net
worth equal to or greater than the net worth of UDC as of the date of such
Change of Control.
(j) At any time, for any reason, any Depository Account is subject to a
Lien;
(k) The Master Agency Agreement is amended without the consent of the
Interested Party; and
(l) Any representation, warranty or statement made by Servicer or UDC in
this Servicing Agreement or in any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made
Section 5.02. Events of Default by Client. Any of the following acts or
occurrences shall constitute an Event of Default by Client under this Servicing
Agreement:
(a) Failure of Client (or any party on Client's behalf) to make any
payment required to be made under the terms of this Servicing Agreement which
failure continues unremedied for a period of fifteen (15) days after written
notice of such failure shall have been given by Servicer to the Client and
Agent;
(b) The failure of Client (or any party on Client's behalf) to observe
or perform in any material respect any other covenant or agreement required to
be performed under this Servicing Agreement which failure continues unremedied
for a period of five (5) Business Days after written notice of such failure
shall have been given to Client and Agent; provided that, if such failure cannot
be cured by diligent efforts of or for Client within such five (5) Business Day
period, then such time period shall be extended by the shorter of (i) the period
required to cure such failure using the diligent efforts of Client, and (ii)
thirty (30) days;
23
24
(c) The entry with respect to Client of a decree or order for relief by
a court or agency or supervisory authority having jurisdiction under any present
or future federal or state bankruptcy, insolvency or similar law;
(d) Client shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its obligations;
(e) An involuntary case shall be commenced against Client and the
petition shall not be dismissed, stayed, bonded or discharged within sixty (60)
days after commencement of the case; or a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of Client in an
involuntary case, under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect; or any other similar relief shall be granted
under any applicable federal, state, local or foreign law; or the board of
directors of Client adopts any resolution or otherwise authorizes any action to
approve any of the foregoing. A decree or order of a court having jurisdiction
in the premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over Client or over
all or a substantial part of the assets of Client shall be entered; or an
interim receiver, trustee or other custodian of Client or of all or a
substantial part of the assets of Client shall be appointed or a warrant of
attachment, execution or similar process against any substantial part of the
assets of Client shall be issued and any such event shall not be stayed,
dismissed, bonded or discharged within sixty (60) days after entry, appointment
or issuance; or the board of directors of Client adopts any resolution or
otherwise authorizes any action to approve any of the foregoing;
(f) Client shall fail to make any payment when due with respect to any
Indebtedness of Client (other than an obligation payable hereunder), or any
breach, default or event of default shall occur, or any other condition shall
exist under any instrument, agreement or indenture pertaining to any such
Indebtedness, if the holder or holders of such Indebtedness accelerate the
maturity of any such Indebtedness or require a redemption or other repurchase of
such Indebtedness and such failure relates to the acceleration or redemption of
an amount in excess of $10,000,000, and such acceleration shall continue for a
period of five (5) Business Days.
(g) Any representation, warranty or statement made by Client in this
Servicing Agreement or in any report or other writing delivered pursuant hereto
shall prove to be incorrect in any material respect as of the time when the same
shall have been made.
Notwithstanding (c), (d), (e), and (f) above, the Bankruptcy Case, or any
actions or lack of actions as a result of the Bankruptcy Case or Bankruptcy
Code, shall not by itself be an Event of Default as to Client.
Section 5.03. Remedies of Client and Agent.
(a) If an Event of Default as described in Section 5.01 shall have
occurred and be then continuing, the Interested Party may exercise any right or
remedy available to Client or Agent under this Servicing Agreement or under
applicable law and, in addition, may terminate the appointment of Servicer under
this Servicing Agreement by giving sixty (60) days prior written notice of such
termination to Servicer and UDC. Such termination of the appointment of Servicer
shall be without prejudice to any claims of Client or Agent resulting from an
Event of Default by Servicer or UDC. If an Event of Default occurs as described
in Section 5.01(d) through (f) above as to the Servicer, the appointment of
Servicer under this Servicing Agreement may be terminated effective immediately
by the Interested Party upon written notice to the Servicer and UDC.
24
25
(b) Notwithstanding any termination of Servicer pursuant to this Section
5.03, Servicer agrees, at Servicer's expense, to cooperate with Client and Agent
during such sixty (60) day period with respect to the transition of all or part
the duties and obligations of Servicer hereunder to another party as set forth
in Section 6.04 to this Servicing Agreement.
Section 5.04. Remedies of Servicer.
(a) If an Event of Default as described in Section 5.02 shall have
occurred and be then continuing, Servicer may exercise any right or remedy
available to it under this Servicing Agreement or under applicable law,
including termination of Servicer's appointment under this Servicing Agreement
(but not termination of this Servicing Agreement itself) by giving sixty (60)
days prior written notice of such termination to Client and Agent. Such
termination of the appointment of Servicer shall be without prejudice to any
claims of Servicer or UDC resulting from an Event of Default by Client,
provided, however, that Servicer and UDC agree and acknowledge that so long as
Agent does not own any of the Receivables, Agent shall have no liability to
Servicer or UDC pursuant to this Servicing Agreement other than resulting (i)
from a breach of representation or warranty of Agent hereunder or (ii)
instructions given by the Agent as the Interested Party. If an Event of Default
occurs as described in Section 5.02(c) through (e) above as to RAC, Servicer's
appointment under this Servicing Agreement may be terminated effective
immediately by Servicer and UDC upon written notice to the Agent and Client.
(b) Notwithstanding any termination of Servicer pursuant to this Section
5.04, Servicer agrees to cooperate with Client and Agent during such sixty (60)
day period with respect to the transition of all or part the duties and
obligations of Servicer hereunder to another party as set forth in Section 6.04
to this Servicing Agreement; provided that such transition shall be at Client's
expense, and the Servicer shall be entitled to compensation for the services of
Management Employees at a rate of $200 per hour for services related to the
transition.
Section 5.05. Liability and Indemnity.
(a) The Servicer and UDC shall be strictly accountable to Client and
Agent for all payments actually received by it (or any party with which it has
contracted) on Receivables and shall be liable for any actual damages resulting
from its breach of such obligation. However, in no event shall any party to this
Servicing Agreement be liable for any consequential, incidental or special
damages.
(b) Servicer and UDC hereby indemnify Client and Agent from any and all
losses, damages, costs, good faith settlements, expenses, taxes, reasonably
attorneys' and paralegals' fees, and all other liabilities of any kind or nature
whatsoever, resulting, directly or indirectly, in whole or in part, from any
claim, demand or suit by any third party against Client or Agent arising from an
action or omission by the Servicer under this Servicing Agreement or from the
action or inaction of any Servicer Provider.
(c) The following procedures shall apply with respect to any indemnity
obligation pursuant to this Servicing Agreement:
(1) Any party seeking indemnification pursuant to this Servicing
Agreement (the "Indemnified Party") shall give to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a "Claim
Notice") describing in reasonable detail the facts giving rise to any claim for
indemnification and shall include in such Claim Notice (if then known) the
amount or the method of computation of the amount of such claim, and a reference
to the provision of this Servicing Agreement or any other agreement, document or
instrument executed hereunder
25
26
or in connection herewith upon which such claim is based; provided, that a Claim
Notice in respect of any action at law or suit in equity by or against a third
Person as to which indemnification will be sought shall be given promptly after
the action or suit is commenced; provided further that failure to give such
notice shall not relieve the Indemnitor of its obligations hereunder except to
the extent it shall have been prejudiced by such failure.
(2) In calculating any amount claimed pursuant to a Claim Notice,
there shall be deducted (i) any insurance recovery in respect thereof (and no
right of subrogation shall accrue hereunder to any insurer), and (ii) the amount
of any tax benefit to the Indemnified Party (or any of its Affiliates) with
respect to such amount (after giving effect to the tax effect of receipt of the
indemnification payments).
(3) After the giving of any Claim Notice pursuant hereto, the
amount of indemnification to which an Indemnified Party shall be entitled shall
be determined: (i) by the written agreement between the Indemnified Party and
the Indemnitor; (ii) by a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnified Party and the
Indemnitor shall agree. The judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken shall have been finally determined. The
Indemnified Party shall have the burden of proof in establishing the amount
sought through indemnification.
(4) The Indemnified Party shall have the right to conduct and
control, through counsel of its choosing, the defense, compromise or settlement
of any third Person claim, action or suit against such Indemnified Party as to
which indemnification will be sought by any Indemnified Party from any
Indemnitor hereunder, and in any such case the Indemnitor shall cooperate in
connection therewith and shall furnish, at its own expense, such records,
information and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the Indemnified
Party in connection therewith; provided, that the Indemnitor may participate,
through counsel chosen by it and at its own expense, in the defense of any such
claim, action or suit as to which the Indemnified Party has so elected to
conduct and control the defense thereof; and provided, further, that the
Indemnified Party shall not, without the written consent of the Indemnitor
(which written consent shall not be unreasonably withheld), pay, compromise or
settle any such claim, action or suit, except that no such consent shall be
required if, following a written request from the Indemnified Party, the
Indemnitor shall fail, within 14 days after the making of such request, to
acknowledge and agree in writing that, if such claim, action or suit shall be
adversely determined, such Indemnitor has an obligation to provide
indemnification hereunder to such Indemnified Party. Notwithstanding the
foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such claim, action or suit without such consent, provided that in
such event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless such consent is unreasonably withheld.
(d) UDC, until such time as it has transferred all of its rights and
obligations pursuant to this Servicing Agreement to a Spin-Off or another entity
which is not an Affiliate in compliance with Section 6.05, shall be liable to
Client and Agent for any and all liability of Servicer to Client or Agent.
Thereafter, (i) UDC shall not be liable for the liability of Servicer except for
claims against Servicer arising before the effective date of the Spin-Off or
assignment to such other non-Affiliate entity, and (ii) the events of default
listed in Section 5.01 shall not apply to UDC, except for defaults occurring
prior to the effective date of the Spin-Off or such assignment to such other
non-Affiliate entity.
Section 5.06. Force Majeure. Notwithstanding anything herein to the
contrary, no party to this Servicing Agreement shall be considered in default
hereunder or have any liability to any party
26
27
for any failure to perform if such failure arises out of the following causes
beyond the control of such party: acts of God or a public enemy, fire, flood or
war.
ARTICLE VI
TERMINATION
Section 6.01. Term of Agreement. The term of this Servicing Agreement
shall begin on the Effective Date as set forth above and shall continue until
the sixtieth (60th) day after the last Scheduled Payment of the last unpaid
Receivable that is then being serviced by the Servicer (such 60th day, the
"Expiration Date").
Section 6.02. Effect of Termination of Agreement. Upon termination of
this Servicing Agreement, the Servicer shall, at the direction and expense of
the Interested Party, promptly return all Documents and any related files and
correspondence in its possession as are related to the management of the
Receivables and the services provided hereunder.
Section 6.03. Termination of Appointment of Servicer Without Cause.
(a) The Interested Party may terminate the Servicer upon sixty (60) days
written notice to Servicer upon the occurrence of a Performance Event. Upon such
termination, Servicer shall be entitled to receive (i) the accrued and unpaid
servicer fee pursuant to Section 2.07(a)(i), the accrued and unpaid costs and
expenses pursuant to Section 2.10(b), plus (iii) the Deboarding Charge from
Client, but shall not have any other claim resulting from such termination.
(b) Notwithstanding the lack of an Event of Default by Client pursuant
to this Servicing Agreement, Servicer may, so long as there exists no Event of
Default by Servicer or UDC, terminate its appointment as Servicer pursuant to
this Servicing Agreement at any time (1) at least upon at least ninety (90) days
prior written notice to the Client and Agent, and (2) payment of $2 million to
Client as a transition fee (but not as a penalty), which funds will be subject
to the Agent's lien pursuant to the Loan and Security Agreement or any other
documents granting a lien in favor of Agent and Lenders.
(c) Notwithstanding the lack of an Event of Default or a Performance
Event by the Servicer or UDC pursuant to this Servicing Agreement, the
Interested Party may terminate the appointment of Servicer pursuant to this
Servicing Agreement at any time (1) at least upon at least ninety (90) days
prior written notice to the Servicer, and (2) payment by Client of (i) the
accrued and unpaid servicer fee pursuant to Section 2.07(a)(i), the accrued and
unpaid costs and expenses pursuant to Section 2.10(b), plus (iii) $2,000,000 to
the Servicer.
Section 6.04. Transfer of Servicing. Upon termination of the appointment
of Servicer, the Servicer shall cooperate, at the expense of Client (unless such
termination results from an Event of Default by Servicer or UDC or as a result
of Section 6.03(b), in which case at the expense of Servicer), in the transfer
of the Receivables (including any Documents) to such party or parties designated
by the Interested Party in writing. Any matters pending at the effective
termination date will continue to be processed in an orderly and timely fashion;
it being intended, however, that responsibility for the Receivables shall
transfer as quickly as practicable and in any event no later than ninety (90)
days after the giving of notice of termination. After the effective date of the
termination of the appointment of Servicer until such transfer of servicing,
and, if requested, for one hundred twenty (120) days thereafter, the Servicer
shall provide consulting services pursuant to the terms of the Transition
Agreement.
27
28
Section 6.05. Merger or Consolidation of, or Assumption of the
Obligations of, Servicer. (a) Servicer may assign all (but not less than all) of
its rights and obligations pursuant to this Servicing Agreement to any Affiliate
of UDC so long as (1) such Affiliate upon assignment has executed an agreement
of assumption to perform every obligation of the Servicer hereunder, and (2)
immediately after giving effect to such transaction, no Event of Default (as
defined in Section 5.01), and no event which, after notice or lapse of time, or
both, would become an Event of Default as to Servicer or UDC, shall have
happened and be continuing. Such assignment shall not affect UDC's liability to
Client or Agent for any liability of Servicer. In addition, Servicer may assign
all (but not less than all) of its rights and obligations pursuant to this
Servicing Agreement to any Spin-Off of UDC at the time of assignment so long as
such Spin-Off (1) upon assignment has executed an agreement of assumption to
perform every obligation of the Servicer hereunder, and (2) has a tangible net
worth of not less than $20,000,000 at the time it becomes the Servicer, and
agrees in writing not to have less than one (1) full-time collector for every
350 Receivables being serviced under this Servicing Agreement at all future
times when it has obligations pursuant to this Servicing Agreement, and
provided, that immediately after giving effect to such transaction, no Event of
Default (as defined in Section 5.01), and no event which, after notice or lapse
of time, or both, would become an Event of Default as to Servicer or UDC shall
have happened and be continuing. Upon such assignment, UDC shall no longer be
liable to Client or Agent for any liability of Servicer arising after the
effective date of such assignment, but UDC shall remain liable to Client and
Agent for any liability of UDC or Servicer arising on or prior to such date.
(b) Any Person (i) into which the Servicer may be merged or
consolidated, (ii) which may result from any merger or consolidation to which
the Servicer shall be a party, or (iii) which may succeed to the properties and
assets of the Servicer substantially as a whole, which Person, if not an
Affiliate of UDC, has, at the time of such merger or consolidation, (x) a
tangible net worth of not less than $20,000,000, and (y) not less than one (1)
full-time collector for every 350 Receivables being serviced under this
Servicing Agreement, shall be the successor to the Servicer or under this
Servicing Agreement upon execution of an agreement of assumption to perform
every obligation of the Servicer hereunder (which agreement shall require such
Person If not an Affiliate of UDC, to maintain such net worth and ratio of
collectors at all time when it has any obligation pursuant to this Servicing
Agreement) so long as immediately after giving effect to such transaction, no
Event of Default (as defined in Section 5.01), and no event which, after notice
or lapse of time, or both, would become an Event of Default as to Servicer or
UDC shall have happened and be continuing.
(c) Notwithstanding anything to the contrary in this Servicing
Agreement, UDC and Servicer shall be liable to Client and Agent for all actions
and inactions of any Service Provider, and the delegation to a Servicer Provider
of any obligations of UDC or Servicer under this Servicing Agreement shall not
relieve UDC or Servicer of such obligations.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.01. Amendment. This Servicing Agreement may only be amended by
mutual written consent of the parties hereto.
Section 7.02. Waivers. The provisions of this Servicing Agreement may
only be waived by written consent of the party making the waiver. The failure of
either party at any time to require performance by the other of any provision of
this Servicing Agreement shall in no way affect that party's right to enforce
such provision, nor shall the waiver by either party of any breach of any
28
29
provision of this Servicing Agreement be taken or held to be a waiver of any
further breach of the same provision or any other provision.
Section 7.03. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered personally
or mailed by first-class registered or certified mail, postage prepaid, or by
telephonic facsimile transmission and overnight delivery service, postage
prepaid, in any case addressed as follows:
To the Servicer:
Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Attn: Steven P. Johnson, Esq.
Fax: (602) 852-6696
With a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
400 East Van Buren
Phoenix, Arizona 85004-0001
Attn: Timothy W. Moser, Esq.
Fax: (602) 382-6070
To Client:
Reliance Acceptance Group, Inc.
400 North Loop
1604 East Suite 210
San Antonio, Texas 87232
Attn: James T. Moran
Fax: (210) 402-0761
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James Stempel, Esq.
Fax: (312) 861-2200
To Agent:
BankAmerica Business Credit, Inc.
40 E. 52nd St.
New York, NY 10022
Attn: Richard Gennario
Fax: (212) 836-5169
29
30
With a copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attn: Larry J. Nyhan, Esq.
Fax: (312) 853-7036
Such notice, request, consent or other communication shall be deemed given when
so delivered, or if mailed two days after deposit with the U.S. Postal Service.
Section 7.04. Severability of Provisions. If one or more of the
provisions of this Servicing Agreement shall be held invalid for any reason,
such provisions shall be deemed severable from the remaining provisions of this
Servicing Agreement and shall in no way affect the validity or enforceability of
such remaining provisions. To the extent permitted by law, the parties hereto
hereby waive any law which renders any provision of this Servicing Agreement
prohibited or unenforceable.
Section 7.05. Rights Cumulative. All rights and remedies under this
Servicing Agreement are cumulative, and none is intended to be exclusive of
another. No delay or omission in insisting upon the strict observance or
performance of any provision of this Servicing Agreement, or in exercising any
right or remedy, shall be construed as a waiver or relinquishment of such
provision, nor shall it impair such right or remedy. Every right and remedy may
be exercised from time to time and as often as deemed expedient.
Section 7.06. Servicer and UDC Offset. The obligations of Servicer and
UDC pursuant to this Servicing Agreement shall be subject to any defense,
counterclaim or right of offset which Servicer or UDC may have against any other
party to this Servicing Agreement, any Receivable or otherwise except to the
extent provided in the Payment Reimbursement Dispute Resolution Policy, a copy
of which is attached to this Servicing Agreement as Exhibit F.
Section 7.07. Client and Agent Offset. The obligations of Client
pursuant to this Servicing Agreement shall be subject to any defense,
counterclaim or right of offset which Client may have against UDC or Servicer
pursuant to this Servicing Agreement, any Receivable or otherwise except to the
extent provided in the Payment Reimbursement Dispute Resolution Policy, a copy
of which is attached to this Servicing Agreement as Exhibit F.
Section 7.08. Powers of Attorney. Servicer is made Client's
attorney-in-fact for the limited purpose of signing documents necessary to
maintain perfection of the liens and security interests in the Financed
Vehicles, release a lien upon full payment of a Receivable, to transfer title to
the buyer of a Financed Vehicle at a sale foreclosing such security interest
following repossession, file insurance claims and endorse checks for deposit to
the Client's lock box account. With respect to other matters, Client shall, from
time to time, provide to the employees of the Servicer limited, revocable powers
of attorney or other such written authorizations as may be appropriate to enable
the Servicer to perform its obligations under this Servicing Agreement; provided
however, that Client shall not be required to provide such powers with respect
to any matter for which Client does not have authority to perform itself.
Section 7.09. Captions. The article, paragraph and other headings
contained in this Servicing Agreement are for reference purposes only, and shall
not limit or otherwise affect the meaning hereof.
30
31
Section 7.10. Decisions and Direction. Notwithstanding anything to the
contrary in this Servicing Agreement, when the Servicer shall be required to
submit a matter in writing for approval or consent of the Interested Party, the
following procedures shall apply:
(a) So long as the Agent is the Interested Party, the Servicer shall
submit such request simultaneously to both the Client and Agent with all
relevant information necessary to permit Client and Agent to make an informed
decision on such request. If, by 3:00 p.m. (Phoenix time) on the fourth (4th)
Business Day after the submission of such request and information to Client and
Agent (the "Initial Response Date"), Client shall not have informed Servicer in
writing of its response to such request, Client shall be deemed to have accepted
such request. If Client does respond to such request, it shall submit such
response in writing to Servicer by 3:00 p.m. (Phoenix time) on the Initial
Response Date. After receiving a written response to its request from Client,
Servicer shall cause Agent to receive such written response promptly, but no
later than 5:00 p.m. (Phoenix time) on the Initial Response Date. If Servicer
has not received a written response to its request by 3:00 p.m. (Phoenix time)
on the Initial Response Date, it shall inform Agent in writing by 5:00 p.m.
(Phoenix time) on the Initial Response Date of such lack of response. So long as
Agent, by 5:00 p.m. (Phoenix time) on the Initial Response Date, shall have
received from Servicer Client's written response or notice in writing that
Client has not responded, Agent shall respond in writing to Servicer, by 5:00
p.m. (Phoenix time) on the third Business Day after it receives from Servicer
either Client's written response or notice in writing that Client has not
responded (the "Second Response Date"), as to whether it agrees with Client's
response. If Agent does not agree with Client's response, Agent's response shall
control and the Servicer may act accordingly. So long as Agent shall have
received the proper written notice from Servicer by 5:00 p.m. (Phoenix time) on
the Initial Response Date, if Agent does not respond by 5:00 p.m. (Phoenix time)
on the Second Response Date, Agent shall be deemed to have accepted (1) Client's
response, if one has been give by Client, or (2) Servicer's request, if Client
did not respond to such request by 3:00 p.m. (Phoenix time) on the Initial
Response Date and the Servicer may act accordingly.
(b) So long as Client is the Interested Party, the Servicer shall submit
such request to Client with all relevant information necessary to permit Client
to make an informed decision on such request. If, by 5:00 p.m. (Phoenix time) on
the Initial Response Date, Client shall not have informed Servicer in writing of
its response to such request, Client shall be deemed to have accepted such
request. If Client does respond to such request, it shall submit such response
in writing to Servicer by 5:00 p.m. (Phoenix time) on the Initial Response Date.
All decisions to be made by Servicer pursuant to this Agreement shall be made by
the Servicer in its sole discretion using the Standard of Care set forth in
Section 2.15 of this Servicing Agreement.
Section 7.11. Assignment and Binding Effect. Except as provided in this
Servicing Agreement, no party to this Servicing Agreement other than the Agent
may assign any of its rights or obligations pursuant to this Servicing Agreement
without the consent of the other parties hereto, provided, however, that
Servicer and UDC acknowledge that Client's rights under this Servicing Agreement
may be assigned to Agent with the prior notice to them but without their prior
consent, and Servicer and UDC agree, upon such assignment, to recognize Agent as
having all rights of Client under this Servicing Agreement.
Section 7.12. Legal Holidays. In the case where the date on which any
action required to be taken, document required to be delivered or payment
required to be made is not a Business Day, such action, delivery or payment need
not be made on that date, but may be made on the next succeeding Business Day.
31
32
Section 7.13. Counterparts. This Servicing Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 7.14. Governing Law. This Servicing Agreement shall be deemed
entered into with and shall be governed by and interpreted in accordance with
the laws (except for the conflict of law principles) of the State of Arizona,
except to the extent that it is mandatory that the laws of some other
jurisdiction apply.
Section 7.15. Parties. This Servicing Agreement shall inure solely to
the benefit of and shall be binding upon the parties hereto, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any equitable right, remedy or claim under or
in respect of or by virtue of this Servicing Agreement or any provision
contained herein.
Section 7.16. Confidentiality of Servicer's Proprietary Information.
Client and Agent acknowledge that the designs, specifications, manuals,
documentation and other materials produced by Servicer and related to the
services performed and the products provided hereunder (collectively
"Documentation"), and all other systems, programs, designs, specifications,
manuals, documentation and other materials which are developed by the Servicer
in connection with this Servicing Agreement (collectively "Other Materials") are
the confidential property and information of the Servicer and shall remain as
such property and information of the Servicer, both before and after the term of
this Servicing Agreement. Client and Agent shall not copy, sell, assign,
transfer, distribute or disclose all or any part of the Documentation or Other
Materials to any other person, partnership, corporation or other entity, except
its Advisors or as otherwise permitted herein. Client and Agent shall confine
the knowledge and use of the Documentation and Other Materials only to their
employees and Advisors who require such knowledge and use in the ordinary course
and scope of their employment, and Client and Agent and such employees shall use
such Documentation and Other Materials solely in connection with Client's and
Agent's own purposes under this Servicing Agreement. Further, employees and
Advisors of Client or Agent shall be advised of the confidential nature of the
Documentation and Other Materials and be directed by Client and Agent to keep
such information confidential. Notwithstanding the foregoing, the Client and
Agent may disclose such Documents and Other Materials to Persons in addition to
Advisors provided that Client and Agent give the Servicer ten (10) days prior
written notice of such disclosure and, if required by the Servicer in its sole
discretion, such person(s) signs a Confidentiality Letter in the form attached
hereto as Exhibit G.
Section 7.17. No Solicitation of Employees. During the term of this
Servicing Agreement, Client and Agent shall not directly or indirectly solicit
employees to leave the employ of the Servicer.
Section 7.18. Attorneys' Fees. In the event of any action at law or suit
in equity or a claim in bankruptcy or other proceeding to enforce this Servicing
Agreement, the prevailing party shall be entitled to receive, in addition to any
other sums which it is awarded, all costs and expenses of such action or suit,
including reasonable attorneys fees paid.
Section 7.19 Entire Agreement. This Servicing Agreement, the Transition
Agreement, the documents incorporated by reference herein and therein, express
the entire agreement of the parties hereto, and supersede all prior promises,
representations, understandings, arrangements and agreements between the parties
with respect to the subject matter contained herein. The parties hereto further
acknowledge and agree that neither of them has made any representations to
induce the execution and delivery of this Servicing Agreement except those
expressly set forth herein.
32
33
IN WITNESS WHEREOF, the parties have caused this Servicing
Agreement to be duly executed by their respective authorized representatives on
the 9th day of February 1998.
UGLY DUCKLING CORPORATION, a Delaware
corporation
By: /s/ Ernest C. Garcia
----------------------------------------------
Its: CEO
---------------------------------------------
"Servicer"
RELIANCE ACCEPTANCE CORPORATION, a
Delaware corporation
By: /s/ James T. Moran
----------------------------------------------
Its: Pres & CEO
---------------------------------------------
"Client"
BANKAMERICA BUSINESS CREDIT, INC., a
Delaware corporation
By: /s/ G C Markowsky
----------------------------------------------
Its: Vice President
---------------------------------------------
"Agent"
33
34
Schedule 1 Receivables
Schedule 2 Bonus Fees
Exhibit A Collection Policy
Exhibit B Depository Accounts
Exhibit C Performance Events
Exhibit D Receivable Reports
Exhibit E Servicer Certificates
Exhibit F Payment Reimbursement Dispute Resolution Policy
Exhibit G Confidentiality Letter
Exhibit H Master Agency Agreement
Exhibit I Management Employees
Exhibit J Senior Management Employees
Exhibit K Form of Expense Report
34
35
SCHEDULE 1
RECEIVABLES
Name Account No. Principal Balance
---- ----------- -----------------
36
SCHEDULE 2
BONUS FEES
As additional consideration for agreeing to service the
Receivables, the Servicer shall receive:
1. The first One Million Three Hundred Thousand Dollars
($1,300,000.00) in proceeds realized by Client from the sale of the pool of
Defaulted Receivables existing as of the date Client files its petitions for
relief under Chapter 11 of the Bankruptcy Code (including any sale to UDC or an
Affiliate that bids at least $1.3 million) so long as UDC or an Affiliate has
bid at least $1.3M in cash upon sale for such Receivables; and
2. After all claims of the Lenders (the "Bank Debt") have been
paid (i) in cash in full, or (ii) in other than cash in full, with the consent
of Lenders in full and final satisfaction;
(A) without the use of any Litigation Proceeds, Warrant
Proceeds or Equity Proceeds (collectively, the
"Excluded Proceeds"), (I) the first amount equal to
Base Amount (as defined below) of Cash Flow (as
defined below); and (II) after payment of such
amount in (I), thereafter, 25% of the Cash Flow (as
defined below), or
(B) with the use of Excluded Proceeds, then
additionally after net collections on the
Receivables in an amount equal to such Excluded
Proceeds applied to the Bank Debt (which such
Excluded Proceeds shall remain the property of the
Client) (I) the first amount equal to Base Amount
(as defined below) of Cash Flow (as defined below);
and (II) after payment of such amount in (I),
thereafter, 25% of the Cash Flow (as defined
below).
The amounts payable pursuant to Items 1 or 2 shall be payable immediately upon
Client's receipt of the relevant proceeds or Cash Flow.
The term "Base Amount" shall mean $4,700,000, minus any and all
Exit Sale Proceeds previously paid to the Servicer pursuant to Section 2.20(c).
The term "Cash Flow" shall mean any and all cash proceeds of
Client's (including Client, as reorganized) assets, including, without
limitation, collections with respect to the Receivables, the Bank Portfolio,
disposition and recovery proceeds from Defaulted Receivables and other
Receivables, proceeds from the sale of other miscellaneous assets previously or
currently owned by Client, including, without limitation, any securitization
transactions and tax refunds. "Cash Flow" shall not include any proceeds from
claims and causes of action of Client.
The terms "Litigation Proceeds," "Warrant Proceeds" and "Equity
Proceeds" shall have the meaning set forth in the Plan of Reorganization of the
Client as originally filed, without amendment, on February 9, 1998.
37
EXHIBIT A
COLLECTION POLICY
[Full copy of Collection Manual to be attached]
38
EXHIBIT B
DEPOSITORY ACCOUNTS
Bank One, Arizona, N.A.
201 North Central Avenue, 26th Floor
Phoenix, Arizona 85004
Attn: Mr. Russ Gunderson
Phone: (602) 221-1033
Acct: 0987-4687 (Collection)
Acct: 0987-4628 (ARD)
Bank One, Texas, N.A.
PO Box 655415
Dallas, Texas 75265-5415
Attn: Ms. Kim Spencer
Phone: (214) 290-2533
Acct: 1826339630
Barnett Bank, Inc.
1 Progress Plaza, Suite 290
St. Petersburg, Florida 33701
Attn: Mr. Jeff McRae
Phone: (813) 892-1559
Acct: 1266693164 (Collection)
Acct: 1266692930 (ARD)
Las Vegas Business Bank
PO Box 82503
Las Vegas, Nevada 89180
Attn: Ms. Mary Gould
Phone: (702) 794-0070
Acct: 1008625
NationsBank
PO Box 25500
Albuquerque, New Mexico 87125
Attn: Ms. Claire Dobbins
Phone: (505) 282-4361
Acct: 2864323730
39
EXHIBIT C
PERFORMANCE EVENTS
The occurrence of either of the following shall constitute a
Performance Event:
1. The percentage (computed on the Outstanding Principal Balance)
of Receivables other than Defaulted Receivables that are Delinquent Receivables
but not Defaulted Receivables (computed on the Outstanding Principal Balance) as
of the end of any two consecutive Collection Periods shall exceed the aggregate
of the Effective Date Delinquency Rate plus 300 basis points.
2. The Annualized Defaulted Receivable Loss shall exceed:
For any of the first 4 full Collection Periods
after the Effective Date 33%
For any of the 5th through the 8th, inclusive, full
Collection Periods after the Effective Date 30%
Thereafter for any Collection Period 27%
For purposes of the Performance Events, the following words and
phrases shall have the following meaning:
A. "Annualized Defaulted Receivable Loss" shall mean (i) the
Outstanding Principal Balance of all Receivables that first became a Defaulted
Receivable during a Collection Period divided by the Outstanding Principal
Balance of all Receivables (other than Receivables that previously became
Defaulted Receivables) as of the first day of the same Collection Period, (ii)
multiplied by 12.
B. "Delinquent Receivables" shall mean any Receivables that are
not Defaulted Receivables for which at least 10% of the Scheduled Payment is 30
days or more delinquent on a contractual basis.
C. "Effective Date Delinquency Rate" shall mean the percentage
(computed on the Outstanding Principal Balance) of Receivables that are not
Defaulted Receivables which were Delinquent Receivables but not Defaulted
Receivables as of the last day of the Collection Period immediately preceding
the Effective Date.
40
EXHIBIT D
SERVICER REPORTS
A. Daily Reports (to be provided by 3:00 P.M. (New York time) the next
Business Day)
1. Daily cash collection report by branch and by source (e.g. A/R
cash, repossession cash, refund cash, fee cash, N.S.F. checks,
etc.).
2. Total amount wired to Agent each day.
B. Weekly Reports (to be provide within three (3) Business Days of the end
of the week)
1. Balance in the cash collection account as of the end of the week
C. Monthly Reports (to be provide within fifteen (15) Days of the end of
the calendar month)
1. Aging of accounts receivable to 120 days
2. Defaulted Receivable Report showing (i) the deficient balance of
each account charged-off and the status of such account (e.g. in
litigation, skipped account, etc.), and (ii) the aggregate
balance of all charged-off accounts by category (e.g. in
litigation, skipped account, etc.), with a separate listing for
charge-offs occurring during the month.
3. Reconciliation of accounts receivable showing (i) all additions
and subtractions by category to the balance of each Receivable
during the month (e.g. additions or subtractions by way of
collections, fees, late charges, write downs, charge-offs,
returned checks, etc.), and (ii) by such categories, the
aggregate additions and subtractions for all Receivables, with
separate listings for additions and subtractions during the
month.
4. Deferment and Extensions Report listing (i) any deferment or
extension granted, and its duration, for each Receivable, and
(ii) the aggregate number of deferments or extensions granted for
all Receivables with a separate listing for deferments and
extensions granted during the month.
5. Due Date Change Report listing (i) the current due date for each
Receivable and any change to the due date, and (ii) any change to
the balance for each future day made during the current month,
with a separate listing for changes made to individual
Receivables during the current month and all due date changes
made during the life of the Receivable, including the current
month.
6. Bankruptcy Report listing each account in bankruptcy and the
aggregate balance of all accounts in bankruptcy, including a
separate listing showing each account which has entered or exited
bankruptcy during the current month and the aggregate balance of
all such accounts.
7. Repossession Report, in detail acceptable to the Client and
Agent, detailing separately (i) each account in repossession and
the aggregate balance of all
41
accounts in repossession, (ii) all vehicles sold at auction
during the current month, the loan balance for each such account
and the aggregate balance for all such accounts, the value of
each vehicle and the aggregate value of all vehicles at the time
of repossession, and the individual and aggregate gross and net
amounts received from auction, and (iii) all fees by category for
repossessing vehicles both by account and in the aggregate (for
the current month and during the term of the Servicing
Agreement).
42
EXHIBIT E
SERVICER CERTIFICATE
The undersigned, ____________________________, the _____________ of
_____________________________ ("Company") does hereby certify on behalf of
Company pursuant to that certain Servicing Agreement dated February _____, 1998,
between UGLY DUCKLING CORPORATION, a Delaware corporation ("UDC"), RELIANCE
ACCEPTANCE CORPORATION, a Delaware corporation ("Client') and BANKAMERICA
BUSINESS CREDIT, INC., a Delaware corporation ("Agent") (the "Servicing
Agreement") that (i) all reports and data, regardless of the form or medium in
which delivered to Client or Agent, prior to or contemporaneously with this
Certificate, are accurate and complete, (ii) the representations and warranties
of the undersigned and UDC contained in the Servicing Agreement and made as of
the execution thereof are true and correct on and as of the date of this
Certificate, (iii) Servicer is entitled pursuant to the Servicing Agreement to
reimbursement of all expenses for which Servicer seeks reimbursement hereunder
and Servicer has incurred such expenses prior to the date hereof; and (iv) the
undersigned and UDC are not in default of the Servicing Agreement as of the date
of this Certificate.
Date: __________________, ____ ___________________________________________
a ___________ corporation
By:______________________________________
Its:_____________________________________
43
EXHIBIT F
PAYMENT REIMBURSEMENT DISPUTE RESOLUTION POLICY
(a) In the event of a dispute between the parties hereto regarding the
subject matter hereof, the parties hereto agree to explore resolution of the
dispute through negotiation or alternative dispute resolution techniques
including, but not limited to, the appointment of unrelated third parties who
may act as an independent arbitration panel.
(b) Should the Servicer and Interested Party agree to arbitration, the
number of arbitrators shall be three (3) and shall be appointed as follows:
within ten (10) days of written agreement to arbitrate, Servicer and Interested
Party shall each designate one (1) arbitrator who has knowledge and experience
in commercial matters, and the (2) arbitrators so designated shall jointly
appoint a third arbitrator within ten (10) days of their respective
appointments. The arbitrators so selected shall schedule a hearing on the
disputed issues within forty-five (45) days after the last appointment. The
decision of a majority of the arbitrators shall become binding on the parties,
and the arbitrator shall deliver their written decision to the parties as
expeditiously as possible. The arbitration shall be conducted either in Phoenix,
Arizona or in Chicago, Illinois, and shall be governed by the law of the state
where the arbitration is held. The cost of the arbitration, including reasonable
attorneys' fees, shall be charged against the non-prevailing party. A default
judgment may be entered against any party who fails to appear at the arbitration
hearing. The decision of the arbitrators shall be final and unappealable and
shall be filed as a judgment of record in the appropriate jurisdiction and shall
be grounds for dismissal of any court action commenced by any party with respect
to a dispute arising out of the issues submitted for arbitration.
(c) In the event that Servicer in good faith believes that it is owed
any amounts pursuant to Section 2.07 or 2.10(b) after the applicable due date
for payment, it shall notify the other parties to this Servicing Agreement, and
the parties shall in good faith attempt to resolve such claim. To the extent
that the claim cannot be resolved by the parties within five (5) Business Days,
then the parties hereby agree to determine, within ten (10) Business Days
thereafter, whether the claim will be resolved by arbitration as provided above.
The amount in dispute may be deposited by Servicer from Collections into a joint
order, interest bearing account at a mutually acceptable depository institution
no earlier than three (3) Business Days after the expiration of the initial five
(5) Business Day period. The prevailing party in any dispute over such amounts
shall be entitled to all funds placed in such escrow, plus all accrued interest
thereon.
44
EXHIBIT G
CONFIDENTIALITY LETTER
[DATE]
[NAME AND ADDRESS OF COMPANY/
PERSON BOUND BY LETTER]
RE: CONFIDENTIALITY LETTER -- ACCEPTANCE OF CONFIDENTIALITY
PROVISIONS TO PROTECT CONFIDENTIAL PROPERTY AND INFORMATION
Ladies and Gentlemen:
__________________ ("Company") hereby acknowledges the
confidentiality provisions ("Confidentiality Provisions") to protect
Confidential Information (as defined below) to which this letter relates, made
by Reliance Acceptance Corporation ("RAC") and BankAmerica Business Credit,
Inc., as agent for a lending group ("BABCI"), for the benefit of Ugly Duckling
Corporation ("UDC") and one or more of its subsidiaries or affiliates
("Servicer"), found in the Servicing Agreement by and between the preceding
parties, dated as of _______________, 1998, ("Servicing Agreement"). Company
hereby agrees to be bound by the terms and conditions of the Confidentiality
Provisions found at Section 7.16 of the Servicing Agreement with respect to all
Confidential Information provided by RAC, BABCI, UDC and/or Servicer to Company.
Company also acknowledges that the Confidential Information includes property
and information of the Servicer both before and after the term of the Servicing
Agreement. Company shall not copy, sell, assign, transfer, distribute or
disclose all or any part of the Confidential Information to any other person,
partnership, corporation or other entity, without the prior written consent of
Servicer. Company shall confine the knowledge and use of the Confidential
Information only to its employees who require such knowledge and use in the
ordinary course and scope of their employment, and Company and its employees
shall use such Confidential Information solely in connection with assisting
RAC's and/or BABCI's purposes under the Servicing Agreement. Further, employees
of Company shall be advised of the confidential nature of the Confidential
Information and be directed by Company to keep such information confidential.
Upon any expiration or termination of the Servicing Agreement or earlier if
appropriate, Company shall promptly return to the Servicer all property or
information that is covered by this confidentiality letter and which is not
required by Company to service its "Receivables" or to realize upon its
"Collateral" (each as defined in the Servicing Agreement).
"Confidential Information" shall mean the designs,
specifications, manuals, documentation and other materials produced by Servicer
and related to the services performed and the products provided hereunder, and
all other systems, programs, designs, specifications ,manuals, documentation and
other materials which are developed by the Servicer in connection with the
Servicing Agreement.
Date: __________________, 1998 [NAME OF COMPANY OR PERSON]
By:____________________________________
Name:__________________________________
Its:___________________________________
45
EXHIBIT H
MASTER AGENCY AGREEMENT
[To be provided by Ugly Duckling]
46
EXHIBIT I
MANAGEMENT EMPLOYEES
47
EXHIBIT J
SENIOR MANAGEMENT EMPLOYEES
48
EXHIBIT K
FORM OF EXPENSE REPORT