AMENDED AND RESTATED MOTOR VEHICLE INSTALLMENT CONTRACT
LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement ("Agreement") is
entered into by and between Ugly Duckling Corporation successor in interest to
Ugly Duckling Holdings, Inc. ("Ugly Duckling") a Delaware corporation, Duck
Ventures, Inc. ("Ventures"), Champion Acceptance Corporation ("CAC")formerly
known as Ugly Duckling Credit Corporation , Ugly Duckling Car Sales, Inc.
("Sales"), and Champion Financial Services, Inc. ("Champion"), all Arizona
corporations, and Ugly Duckling Car Sales Florida, Inc. ("Car Sales Florida")
a Florida corporation and Ugly Duckling Car Sales Texas, L.L.P. ("Car Sales
Texas"), an Arizona limited liability partnership, and Ugly Duckling Car Sales
New Mexico, Inc. ("Car Sales New Mexico"), a New Mexico corporation (Ugly
Duckling, Ventures, Credit, Sales, Champion, Car Sales Florida, Car Sales
Texas, and Car Sales New Mexico, collectively called (hereinafter referred to
as "Borrower"), and General Electric Capital Corporation, a New York
corporation (hereinafter referred to as "Lender"). The obligations of
Borrower to Lender under this Agreement are the joint and several liability of
each Borrower. The maximum Borrowing Base set forth herein is an aggregate
combined total for Borrower. In consideration of the mutual covenants and
agreements contained herein, Borrower and Lender agree as follows:
RECITALS
A. Borrower and GE Capital are parties to that certain Motor Vehicle
Installment Contract Loan and Security Agreement dated as of June 1, 1994 as
amended (the "Original Agreement") pursuant to which GE Capital made certain
loans to Borrower which loans were secured by, among other things, Borrower's
motor vehicle installment contracts;
B. Borrower and Lender have agreed to enter into this Agreement in order
to amend and restate the Original Agreement in its entirety; and document such
other changes in the lending relationship between the parties as have occurred
since the Original Agreement.
C. It is the intent of Borrower and Lender that the execution and delivery
of this amendment and restatement of the Original Agreement shall not
effectuate a novation of the indebtedness outstanding under the Original
Agreement, but rather as it pertains to the indebtedness outstanding under the
Original Agreement, shall constitute a substitution of certain of the terms
governing the payment and performance of such indebtedness.
ARTICLE I. - DEFINITIONS.
Section 1.0 DEFINITIONS. Capitalized terms used in this Agreement shall
have the meanings given to such terms in Section 16 of this Agreement. When
such defined terms are used in this Agreement in the plural, the terms shall
have the plural of such meanings. All other terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided for
by the UCC to the extent the same are defined therein.
ARTICLE II. - LOAN: GENERAL TERMS
Section 2.0. REVOLVING CREDIT; LOAN AMOUNT. Subject to all of the terms
and conditions of this Agreement, Lender agrees to loan funds to Borrower
against Eligible Contracts from time to time in a series of Advances during
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the term of this Agreement. Funds may be borrowed, repaid and reborrowed on a
revolving basis subject to the terms and conditions set forth in this
Agreement, provided that the Loan shall not at any time exceed the Borrowing
Base. Borrower's obligation to pay the Loan is evidenced by this Agreement.
Borrower shall pay Lender when due all Obligations in accordance with the
terms of this Agreement whether or not Borrower has executed a promissory
note. The actual amount Borrower is obligated to pay Lender hereunder shall
be determined by this Agreement and the records of Lender, regardless of the
terms of any promissory note. Any promissory note executed in connection with
the Indebtedness need not be amended to reflect changes made to this
Agreement.
Section 2.1. SINGLE LOAN. All Advances by Lender to Borrower shall
constitute one loan and all indebtedness and obligations of Borrower to Lender
under the Loan Documents shall constitute an obligation secured by Lender's
security interest in all of the Collateral.
Section 2.2. GENERAL INTEREST RATE AND FEES. (A) Except as modified by
Sections 2.4 and 15.1, the average daily balance of the Loan shall bear
interest, calculated daily on the basis of a 365-day year, at a per annum rate
equal to Three Hundred Fifteen (315) basis points plus the LIBOR Rate.
(B) Borrower shall pay to Lender the Line Fee on the date hereof and
each anniversary thereof.
(C) Borrower shall pay to Lender the Underutilization Fee within ten
(10) days after the end of an Accounting Period for which an Underutilization
Fee is due.
Section 2.3. LOAN TERM; RIGHT TO TERMINATE. Unless sooner terminated as
hereinafter provided, this Agreement shall terminate on December 31, 1998 and
may be renewed by agreement of the parties for one additional year. Both
Lender and Borrower have the right to terminate this Agreement as of the end
of the term hereof upon at least ninety (90) days prior written notice to the
other. If an Event of Default has occurred, Lender may without prior notice
to Borrower, immediately terminate this Agreement. A prepayment in full of
the Loan shall be a termination of this Agreement. Notwithstanding
termination of this Agreement in any manner, the Indebtedness shall be payable
in accordance with this Agreement, and all rights and remedies granted to
Lender hereunder or pursuant to applicable law shall continue until all
obligations of Borrower to Lender have been fully paid and performed.
Section 2.4. MAXIMUM LAWFUL RATE.
(A) INTEREST RATE. Notwithstanding any provision in this
Agreement, or in any other document, if at any time before the payment in full
of the Indebtedness, any of the rates of interest specified in this Agreement
(the "Stated Rates") exceeds the highest rate of interest permissible under
any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto (the "Maximum Lawful Rate"), then in
such event and so long as the Maximum Lawful Rate would be so exceeded, the
rate of interest payable shall be equal to the Maximum Lawful Rate; provided,
however, that if at any time thereafter the Stated Rates shall be less than
the Maximum Lawful Rate, then, subject to (B) below, Borrower shall continue
to pay interest at the Maximum Lawful Rate until such time as the total
interest received by Lender is equal to the total interest which Lender would
have received had the Stated Rates been (but for the operation of this Section
2.4(A)) the interest rates payable; thereafter, the interest rates payable
shall be the Stated Rates unless and until any of the Stated Rates shall again
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exceed the Maximum Lawful Rate, in which event this Section 2.4(A) shall again
apply. In the event interest payable hereunder is calculated at the Maximum
Lawful Rate, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made.
(B) AMOUNT OF INTEREST. In no event shall the total interest
contracted for, charged, received or owed pursuant to the terms of this
Agreement exceed the amount which Lender may lawfully receive. In the event
that a court of competent jurisdiction, notwithstanding the provisions of this
Section 2.4, shall make a final determination that Lender has received,
charged, collected, or contracted for interest hereunder in excess of the
amount which Lender could lawfully have, Lender shall, to the extent permitted
by law, promptly apply such excess first to any interest due (calculated at
the Maximum Lawful Rate if applicable) and not yet paid, then to the
prepayment of principal, and any excess remaining thereafter and after
application to any other amounts Borrower owes Lender shall be refunded to
Borrower. In determining whether the interest exceeds the Maximum Lawful Rate
or the maximum amount which Lender could lawfully have received, the total
amount of interest shall, to the extent allowed by law, be spread over the
term of the Loan. Any provisions of this Agreement regarding the time during
which interest accrues on Advances are only elements of the formula for
calculating interest on the total Loan and are not intended to cause interest
to be applied to specific Advances for usury determination purposes.
ARTICLE III - LOAN DISBURSEMENTS
Section 3.0. LOAN - BORROWING BASE. Provided that there does not then
exist an Event of Default or a Pre-Default Event, and provided that Lender has
not taken over all or some of the administration of the Contracts, Lender
shall, upon written request of Borrower and subject to all of the terms and
conditions of this Agreement, make Advances to Borrower pursuant to Section
3.2.
Section 3.1. ELIGIBLE CONTRACTS. Borrower shall from time to time
deliver to Lender Eligible Contracts which Borrower desires to be included in
the Borrowing Base. Along with the Contracts Borrower shall also deliver a
List of Contracts. An Eligible Contract shall be included in the Borrowing
Base only when and for so long as, in Lender's sole determination, each of the
requirements in the definition of Eligible Contracts continues to be
satisfied. If a Contract is determined by Lender to be, or is treated by
Lender as, an Eligible Contract, Lender reserves the right to change its
determination or treatment and to remove the Contract from the Borrowing Base
if it later determines that the Contract is not or was not an Eligible
Contract. A determination by Lender that a Contract is an Eligible Contract
is not a waiver by Lender of, or an admission by Lender of the truth of, any
of Borrower's representations and warranties in this Agreement.
Section 3.2. PROCEDURE FOR BORROWING. (A) The first Advance shall not
exceed the Borrowing Base. Subsequent Advances shall not be made more
frequently than daily. Each subsequent Advance shall not exceed the Loan
Availability determined at Lender's election either as of the end of the most
recent Accounting Period for which Lender has received the monthly reports
required by Section 5.1 (C), or, as of such other date thereafter designated
by Lender. Lender is not obligated to make an Advance if the amount available
or requested is less than Twenty-Five Thousand Dollars ($25,000.00). Lender
is not obligated to make an Advance unless Borrower provides Lender with
sufficient information to calculate the Loan Availability. Lender's use of
the information provided by Borrower to determine the amount available for
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Advances is not an admission by Lender as to the accuracy of the information,
and Lender reserves the right to verify the information and redetermine the
amount available for Advances.
(B) Lender shall disburse each Advance requested by Borrower
within one (1) Business Day after receipt of Borrower's written request for
the Advance. Lender shall disburse each Advance requested by Borrower by
means of a draft, or, upon the request of and at the expense of Borrower,
Lender shall wire transfer the funds to Borrower.
ARTICLE IV - LOANS: PAYMENTS
Section 4.0. PAYMENTS BY BORROWER. (A) All payments by Borrower to
Lender shall be deposited in the Depository Account; or shall be sent to such
other location that Lender notifies Borrower to send payments to.
(B) Upon the effective date of termination of this Agreement,
Borrower shall pay to Lender the entire Indebtedness. If there is an Event of
Default, Borrower shall pay the entire Indebtedness on demand if the
Indebtedness is accelerated pursuant to Section 15.2.
(C) Interest shall accrue on the Loan daily and be paid from the
Remittances as provided in Section 4.2. If at the end of an Accounting Period
there is more than one Business Day of accrued unpaid interest, Borrower shall
pay the more-than- one-day accrued interest to Lender within one (1) Business
Day after the end of the Accounting Period. Accrued interest shall not be
added to the Loan balance and bear interest, unless the interest is past due
and paid with an Advance requested by Borrower and approved by Lender;
provided that, such an approval by Lender shall not constitute a waiver of the
Event of Default consisting of the failure to pay the interest except to the
extent provided in Section 16.9.
(D) Whenever Lender shall notify Borrower, with a Statement of
Borrowing Base or otherwise, that the Loan exceeds the Borrowing Base,
Borrower shall within one (1) Business Day after receipt of such notice,
either pay down the Loan by the amount of such excess, or, if Lender consents,
deliver additional Eligible Contracts to Lender which are sufficient to
increase the Borrowing Base above the Loan.
(E) The payment of all elements of the Indebtedness not covered
by Subsections (B), (C), or (D) shall be payable by Borrower to Lender as and
when provided in the Loan Documents, and, if not specified, then on demand.
(F) Borrower has the right to prepay the Loan in full or in part
at any time without penalty.
(G) If the Loan is less than One Million Dollars
($1,000,000.00), Borrower is not required to forward cash deposits to Lender,
unless otherwise directed by Lender.
Section 4.1. CONTRACT PAYMENTS. Borrower shall direct all Contract
Debtors for Pledged Contracts, and all other Persons (including Contract
Rights Payors) who make payments to Borrower relating to Pledged Contracts, to
make, when paying by mail, all payments directly to the Post Office Box. In
the event Borrower receives any Remittances, Borrower shall, as soon as
possible but no later than the two (2) Business Days following receipt,
deposit the Remittances in kind in the Depository Account. Borrower shall
hold Remittances in trust for Lender until delivery to Lender or deposit in
the Depository Account. Borrower shall pay all expenses associated with the
Post Office Box.
Section 4.2. APPLICATION OF PAYMENTS. All Remittances received by Lender
shall be applied by Lender to the Indebtedness within one two (2) Business
Days after the Remittance has been deposited in Lender's account. No
Remittance other than cash shall be treated as a final payment to Lender
unless and until such item has actually been collected by Lender's bank and
such collection has been finally credited to Lender's account; provided,
further that if a Remittance applied to the Indebtedness is charged back to
Lender's bank, Lender can retroactively remove the application of the
Remittance to the Indebtedness and accrue any interest not accrued because of
the application of the Remittance to the Indebtedness. Each Remittance shall
be applied by Lender to the Indebtedness (i) first to accrued interest, and,
if sufficient to pay accrued interest, (ii) then to the Indebtedness, other
than the Advances, and (iii) then to the Loan. Lender reserves the right to
use a different order of application if there is an Event of Default or
Pre-Default Event, or Lender has given prior written notice to Borrower of a
different order. All Remittances received by Lender may be applied to the
Indebtedness even though no portion of the Indebtedness is otherwise then due
and even though Lender has not sent Borrower a demand, notice or request for
payment of the Indebtedness. Payments shall be deemed to be due by Borrower
when received by Lender unless they are due sooner by the terms of the Loan
Documents.
ARTICLE V - CONTRACT ADMINISTRATION
Section 5.0. LENDER ADMINISTRATION. (A) Lender shall have no liability
to Borrower with respect to Remittances received by Lender, the Post Office
Box, or the Depository Account, other than to: (i) apply the Remittances
pursuant to Section 4.2 of this Agreement and (ii) upon termination of this
Agreement and Borrower's satisfaction of all of its obligations under this
Agreement, to assign the Post Office Box and its contents to Borrower. Lender
shall have no liability to Borrower with respect to any interest or other
earnings which are earned, or could have been earned, on the Remittances while
they are in the Post Office Box, the Depository Account, or otherwise.
Section 5.1. BORROWER ADMINISTRATION. (A) Borrower shall perform all
aspects of servicing, administering, collecting, liquidating, accounting for
and managing (collectively, "administering", "administer", or
"administration") the Pledged Contracts it customarily performs in accordance
with Borrower's current practices for contract administration, which practices
are in accordance with applicable law and have been disclosed to Lender prior
to the date hereof. Borrower shall provide such administration in a
reasonable and prudent way that does not, in Lender's determination, adversely
affect the value of the Collateral to Lender. If in Lender's opinion,
Borrower fails to administer the Pledged Contracts in accordance with
Borrower's practices disclosed to Lender prior to the date hereof, Lender
shall notify Borrower of the deficiencies in Borrower's administration and
Borrower shall have ten (10) Business Days to cure any such deficiencies. If
Borrower fails to cure such deficiency within such ten (10) Business Day
period, Lender may thereafter, in its sole discretion, take over all or part
of the administration of the Pledged Contracts. The administration provided
by Borrower shall include but not be limited to all servicing currently
provided by Borrower, and Financed Vehicle titling and lien perfection,
customer service, insurance claim tracking and collection, insurance
maintenance, Contract enforcement, Contract billing, payment processing,
portfolio and Contract accounting, portfolio management, delinquency
collection, repossession, foreclosure, resale, and maintaining current
Contract Debtor and Financed Vehicle location information (name, address and
phone number). Borrower shall maintain current, accurate, and complete
records of activity and comments regarding collection, insurance, payments,
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and other material events. The records regarding collection history,
payments, Contract accounting, customer service notes, Contract Debtor names
and addresses and Outstanding Principal Balance shall be computerized.
Borrower shall require Contract Debtors to maintain Required Contract Debtor
Insurance. Borrower shall administer and otherwise deal with the Contracts in
compliance with all applicable laws. Borrower shall conduct foreclosure sales
in a commercially reasonable manner and take the steps necessary to preserve
the deficiency liability of the Contract Debtors.
(B) Borrower shall administer the Pledged Contracts at its
existing service centers in Arizona, Florida and Texas or at such other
locations that Borrower provides prior notice of to Lender and Lender approves
for Contract administration.
(C) Borrower shall furnish to Lender such reports in such form
that Lender determines are necessary for it to track and monitor the Pledged
Contracts, Remittances, Financed Vehicles, and insurance. Such reports shall
be in a format and on a medium readable by Lender's computer software, or such
other format or medium acceptable to Lender. The reports shall include but
not be limited to those reports set forth on Exhibit 5.1(C) attached hereto
and made a part hereof, and shall be delivered to Lender in accordance with
such Exhibit.
(D) Notwithstanding anything herein to the contrary, (i)
Borrower shall remain liable under all Contracts, and any other contracts and
agreements with Contract Rights Payors or otherwise included in or related to
the Collateral, to the extent set forth therein to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not
been executed, and (ii) the exercise by Lender of any rights under any of the
Loan Documents shall not release Borrower from any of its duties or
obligations under the Contracts, or the other contracts and agreements, and
(iii) Lender shall not have any obligation or liability under the Contracts,
or the other contracts and agreements, nor shall Lender be obligated to
perform any of the obligations or duties of Borrower thereunder or to take any
action to collect or enforce any rights thereunder.
(E) Borrower shall administer the Contracts at its own expense.
In the event that Borrower fails to administer the Contracts in accordance
with Section 5.1(A) or there is an Event of Default or a Pre-Default Event,
Lender may in Lender's or Borrower's name take over all or part of the
Contract administration Borrower is required by this Agreement to perform. If
Lender takes over all or part of such administration, Borrower shall pay to
Lender on demand all out-of-pocket costs incurred by Lender in the performance
of Borrower's administration obligations, and Borrower shall pay Lender for
the administration performed by Lender an administration fee (exclusive of
out-of-pocket costs) established by Lender consistent with generally
prevailing fees charged by servicers of contracts of similar credit quality,
and until so paid such costs and fee shall be part of the Loan.
ARTICLE VI - COLLATERAL: GENERAL TERMS
Section 6.0. SECURITY INTEREST. To secure the performance and payment of
the Indebtedness and all of Borrowers existing and future obligations to
Lender whether arising under or related to this Agreement or otherwise,
Borrower hereby grants to Lender a continuing security interest in and to all
of the following property of Borrower, whether now owned or existing or
hereafter arising or acquired and regardless of where located:
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Contracts; Contract Debtor Documents; Contract Rights; payments from
Contract Debtor bank accounts; chattel paper; leases; installment sale
contracts; installment loan contracts; payments from chattel paper obligors;
security deposits; Motor Vehicles (including but not limited to cars, trucks
and motorcycles); certificates of title; contract purchase discounts;
accounts; general intangibles; security interests; collateral securing chattel
paper; dealer agreements; dealer reserves and rate participation; rights of
Debtor related to chattel paper, installment contracts, motor vehicles, and
collateral securing chattel paper; documents; instruments; deposit accounts;
electronic funds transfers; equipment; inventory; parts and accessories for
motor vehicles; payments from account debtor bank accounts; reserve accounts;
insurance policies, and benefits and rights under insurance policies, which
Borrower is solely or jointly the owner of, insured under, the lienholder or
loss payee under, or the beneficiary of; and all payments and property of any
kind, now or at any time or times hereafter, in the possession or under the
control of Secured Party, or a bailee of Secured Party;
accessions to, substitutions for and all replacements, products and
proceeds of, any of the foregoing property; and
books and records (including, without limitation, financial statements,
accounting records, customer lists, credit files, computer programs,
electronic data, print-outs and other computer materials and records) of
Borrower pertaining to any of the foregoing property.
Section 6.1. DISCLOSURE OF SECURITY INTEREST. Borrower shall make
appropriate entries upon its financial statements and its books and records
disclosing Lender's security interest in the Collateral. Borrower shall stamp
all original, duplicates and reproductions of Pledged Contracts with an
assignment to Lender.
Section 6.2. ADDITIONAL ACTS. Borrower shall perform all other acts
requested by Lender for the purpose of perfecting, protecting, maintaining and
enforcing Lender's security interest in the Collateral and the priority of
such security interest. Borrower agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement. Borrower, upon request of
Lender, shall either pay or reimburse Lender for all costs, filing fees, and
taxes associated with the perfection of Lender's security interest.
Section 6.3. INSPECTION AND ACCESS. Lender and its agents shall have the
right, at any time, to (i) during Borrower's usual business hours, inspect the
Collateral and the premises upon which any of the Collateral is located; (ii)
during Borrower's usual business hours, inspect, audit and make copies or
extracts from any of Borrower's records, computer systems, files, and books of
account; (iii) during Borrower's usual business hours, monitor Borrower's
performance of its obligations with respect to this Agreement; and (iv) obtain
information about Borrower's affairs and finances from any Person; and (v)
verify, in Lender's name or in the name of Borrower, the validity, amount,
quality, quantity, value and condition of, or any other matter relating to,
the Collateral including but not limited to verifying Contract information
with Contract Debtors. Borrower shall, upon Lender's request from time to
time, instruct its vendors, banking and other financial institutions and its
accountants to make available to Lender and discuss with Lender such
information and records as Lender may request. Borrower authorizes Lender, if
requested by a Person other than a credit reporting agency and without request
if the Person is a credit reporting agency, to provide that Person with
information about the Indebtedness, Collateral and Borrower's performance of
this Agreement. If Borrower maintains or stores any data with respect to
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Collateral on a computer data system, Borrower shall upon request of Lender
provide Lender with (a) on-line access to such computer data system or (b)
deliver to Lender duplicate copies of the requested data in machine readable
form acceptable to Lender along with a printout or other hard copy of such
data. Borrower shall, on request of Lender, provide to Lender (at the
location designated by Lender) the Contract Debtor Documents. If at any time
during the Agreement, Lender establishes on-line access to Borrower's computer
system, Lender shall exercise such care as it exercises with respect to its
own computer systems regarding the integrity and confidentiality of Borrower's
information therein and Lender shall observe all reasonable security
requirements relating to Borrower's computer system as Lender is advised of by
Borrower, provided however, that such observance shall in no way prevent
Lender from accessing Borrower's information.
Section 6.4. RIGHT TO NOTIFY AND ENDORSE. Borrower hereby irrevocably
authorizes Lender to notify any or all Contract Debtors and Contract Rights
Payors that Lender has a security interest in Contracts, Contract Rights, and
other items of Collateral at any time (i) prior to the occurrence of an Event
of Default, in the name of Borrower, and (ii) after the occurrence of an Event
of Default, in Lender's or Borrower's name. Any such notice shall, at
Lender's election, be signed by Borrower and may be sent on Borrower's
stationery.
Section 6.5. LENDER APPOINTED ATTORNEY-IN-FACT. Borrower hereby
irrevocably appoints Lender (and all Persons designated by Lender for that
purpose) as Borrower's true and lawful attorney-in-fact to act in Borrower's
place in Borrower's or Lender's name (i) to endorse Borrower's name on any
Remittance; (ii) to sign Borrower's name on any assignment or termination of a
security interest in a Financed Vehicle, on any application for a Certificate
of Title for a Financed Vehicle, or on any UCC financing statement related the
Collateral, and on any other public records regarding the Collateral; (iii) to
send requests for verification to Contract Debtors and (iv) to execute an
assignment to Lender of any Pledged Contract for which Lender has made an
Advance which was delivered to Lender without such assignment. Borrower
ratifies and approves all acts of Lender as Borrower's attorney-in-fact.
Lender shall not, when acting as attorney-in-fact, be liable for any acts or
omissions as or for any error of judgment or mistake of fact or law, except
for actions taken in bad faith or resulting from Lender's gross negligence or
willful misconduct. This power, being coupled with an interest, is
irrevocable until all payment and performance obligations of Borrower to
Lender have been fully satisfied. Borrower shall upon request of Lender
execute powers of attorney to separately evidence the foregoing powers granted
to Lender. After an Event of Default or Pre-Default Event has occurred, all
costs, fees and expenses thereafter incurred by Lender, or for which Lender
becomes obligated, in connection with exercising any of the foregoing powers
shall be payable to Lender by Borrower on demand by Lender and until paid
shall be part of the Loan.
Section 6.6. CHANGE OF COLLATERAL, LOCATION, OFFICE OR STRUCTURE.
Borrower shall keep the Collateral, other than Collateral delivered to Lender
and Financed Vehicles, at Borrower's address set forth in Section 16.1 or its
service center(s) listed in Section 5.1. Borrower shall not change its name,
tradename, principal place of business and chief executive office or the
location of any service center, unless Borrower gives Lender at least sixty
(60) days prior written notice of such change and prior thereto has taken all
action Lender requires to maintain the priority and perfection of its security
interest in, and access to, the Collateral.
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Section 6.7. LENDER'S PAYMENT OF CLAIMS ASSERTED AGAINST BORROWER.
Lender may, at any time, in its sole discretion and without obligation to do
so and without waiving or releasing any obligation, liability or duty of
Borrower under the Loan Documents or any Event of Default, pay, acquire or
accept an assignment of any security interest, lien, claim or encumbrance
asserted by any Person against the Collateral; provided that Lender shall
first give Borrower writ-ten notice of its intent to do the same, and Borrower
does not, within five (5) days of such notice, pay such claim and/or obtain to
Lender's reasonable satisfaction the release of the security interests, liens,
claims or encumbrances to which such notice relates. All sums paid by Lender
in respect thereof and all costs, fees and expenses, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto,
which are incurred by Lender on account thereof, shall be payable by Borrower
to Lender on demand by Lender and until paid shall be part of the Loan.
Section 6.8. TERMINATION OF SECURITY INTEREST. Lender's security
interest in the Collateral shall continue until performance and payment in
full of all of Borrower's obligations to Lender in accordance with the terms
of agreements creating such obligations; and if, at any time, all or part of a
payment or transfer made by Borrower or any other Person and applied by Lender
to Borrower's obligations to Lender is rescinded or otherwise must be returned
by Lender for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of Borrower or such other Person),
the security interest granted hereunder or under any other present or future
agreement between Borrower and Lender, and all rights of Lender, shall be
reinstated as to the obligations which were satisfied by the payment or
transfer rescinded or returned, all as though such payment or transfer had not
been made, and Borrower shall take the action requested by Lender to reperfect
all terminated security interests and to reinstate all satisfied obligations.
Lender shall release its security interest in Contracts which are sold or
pledged to other Persons in accordance with Section 14.8.
Section 6.9. RETURN OF CONTRACT DELIVERY DOCUMENTS. Lender shall return
to Borrower within Two (2) Business Days of Borrower's request any Contract
Delivery Document originals for Contracts paid in full. In addition, provided
that there is no Event of Default or Pre-Default Event and the removal of the
Contract will not result in the Loan exceeding the Borrowing Base, Lender
shall return Contract Delivery Document originals for other Contracts
requested by Borrower for the time and to the extent necessary for Borrower to
make corrections or to enforce the Contracts or the obligations of the
Contracts Rights Payors. Whenever Borrower is in possession or control of
Contract Delivery Documents for Contracts not paid in full, Borrower shall
hold them in trust for Lender.
ARTICLE VII - COLLATERAL: CONTRACTS
Section 7.0. NOTICE REGARDING CONTRACTS. (A) In the event any amounts
due and owing in excess of Five Thousand Dollars ($5,000) on a Pledged
Contract become disputed between the Contract Debtor and Borrower, or in the
event a Contract Debtor for a Pledged Contract asserts a claim, offset, or
defense, or in the event a Person other than Borrower or a Contract Debtor
makes a claim of ownership or other interest in a Financed Vehicle or
Contract, then Borrower shall provide Lender with written notice thereof
within three (3) Business Days of learning of the same, explaining in detail
the nature of the matter and the amount in controversy. Borrower shall
promptly, but in no event later than three (3) Business Days after learning
thereof, inform Lender of all material adverse information relating to the
financial condition of any Contract Debtor, or the value of any Pledged
Contract or Financed Vehicle.
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(B) After an Eligible Contract is included in the Borrowing Base,
in the event that Borrower becomes aware that one of the requirements in the
definition of Eligible Contracts or one of the conditions in Section 9.0 are
no longer being satisfied with respect to the Contract, Borrower shall provide
Lender with written notice thereof within five (5) Business Days of Borrower
becoming aware, explaining in detail the timing and reasons why the
requirement or condition is not satisfied.
(C) Upon request of Lender, Borrower shall to the extent authorized
by law obtain current credit bureau reports on Contract Debtors.
ARTICLE VIII - COLLATERAL: REMITTANCES AND INSURANCE
Section 8.0. ASSIGNMENT OF LIEN IN FINANCED VEHICLES. In addition to the
security interest granted in Section 6.0, Borrower hereby assigns absolutely
to Lender Borrower's rights of foreclosure as lienholder of the Financed
Vehicles for Contracts delivered to Lender. This assignment is solely for the
purpose of Lender foreclosing on the liens following an Event of Default.
Until an Event of Default, Borrower has the right to foreclose on a Financed
Vehicle. In the event Lender exercises the right to foreclose, Lender shall
be the owner of the foreclosure sale proceeds and shall apply them to the
Indebtedness.
Section 8.1. ABSOLUTE ASSIGNMENT OF REMITTANCES. In addition to the
security interest granted in Section 6.0, Borrower hereby absolutely assigns
to Lender Borrower's interest in and right to all Remittances arising on or
after the date of this Agreement, and such Remittances shall be the property
solely of Lender.
Section 8.2. INSURANCE. In addition to the security interest granted in
Section 6.0, Borrower hereby assigns absolutely to Lender Borrower's right to
refunds and benefits under Required Contract Debtor Insurance, and Optional
Contract Debtor Insurance for Pledged Contracts. This assignment is evidenced
by Exhibit 8.2. In the event Lender uses this assignment to collect insurance
benefits or refunds, Lender shall be the owner of the benefits and refunds and
shall apply them to the Indebtedness.
ARTICLE IX - CONDITIONS TO ADVANCES
Section 9.0. CONDITIONS TO EACH ADVANCE. Notwithstanding any other
provision of this Agreement and without affecting in any manner the rights of
Lender hereunder, Lender shall not be obligated to make any Advances
(including the initial Advance) unless at the time of the Advance, all of the
following conditions shall, in Lender's sole determination, be satisfied:
(A) For each Eligible Contract, Borrower shall have included the
Eligible Contract on a List of Contracts delivered to Lender and shall have
delivered to Lender the Contract Delivery Documents; except that, if a
Certificate of Title has not been issued and Borrower has provided Lender with
proof acceptable to Lender that a Certificate of Title has been applied for,
then the Certificate of Title must be delivered to Lender within ninety (90)
days of the Contract date;
(B) All of the representations and warranties of Borrower in all
of the Loan Documents shall be true and correct on and as of the date of such
Advance as though they were made on and as of such date and Borrower shall
have performed all of its obligations contained in the Loan Documents required
to be performed as of such date;
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(C) The making of the Advance will not constitute an Event of
Default or Pre-Default Event;
(D) There shall have been no material adverse change in the
financial condition of Borrower, the Validity of Collateral Guarantor, or
Guarantor, after March 31, 1997;
(E) No claim has been asserted or proceeding commenced
challenging this Agreement or Lender's rights under this Agreement, and no
claim has been asserted which if true would be a breach of a representation
and warranty in the Loan Documents;
(F) No Event of Default shall have occurred, and no Pre-Default
Event shall have occurred and still be in existence;
(G) Lender has a first priority perfected security interest in
the Collateral except to the extent otherwise allowed by this Agreement or
Lender in writing;
(H) An event has not occurred which entitles Lender pursuant to
Section 5.1 (E) to take over administration of the Contracts;
(I) Lender's most recent inspection of the Collateral or
Borrower's records or operations has been satisfactory to Lender;
(J) Borrower shall have provided such additional information and
documents as Lender may reasonably request; and
(K) None of the actions taken or supplemental documents executed
listed on Exhibit 9.0 attached hereto and made a part hereof have been
revoked, rescinded, terminated, or canceled without Lender's prior consent.
ARTICLE X - REPRESENTATIONS AND WARRANTIES OF BORROWER
Section 10.0. REPRESENTATIONS OF BORROWER. Borrower hereby makes the
following representations and warranties. The representations and warranties
are made as of the execution and delivery of the Agreement, and each time
Borrower delivers Contracts to Lender or requests an Advance the
representations and warranties are deemed to be made again at that time.
Lender's knowledge of any breach of the representations and warranties
contained herein shall not void any of the representations or warranties or
affect Lender's rights with respect to the breach.
(a) ORGANIZATION, GOOD STANDING, NAME, AND LOCATION. Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the States where it conducts business, with power and authority to own
its properties and to conduct its business, and, at all relevant times, has
the power, authority and legal right to acquire, own, and pledge the Pledged
Contracts. Borrower has, is in good standing under, and is in compliance
with, all governmental approvals, licenses, permits, certificates,
inspections, consents and franchises necessary to conduct its business, to
enter into and perform this Agreement, and to own and operate its business.
Borrower's principal place of business and chief executive office is the
Borrower address set forth in Section 16.1. During the preceding five (5)
years, Borrower has not, been known by or used any other corporate, trade or
fictitious name, except as disclosed in Exhibit 10(a). Ugly Duckling is the
sole shareholder of Ventures; Ventures is the sole shareholder of CAC, Sales
CAC is the sole shareholder of Champion Financial Services, Inc. Sales is the
sole shareholder of Car Sales Florida and Car Sales New Mexico and is the
general partner of Car Sales Texas.
(b) DUE QUALIFICATION. Borrower has, and is in good standing
under, all licenses, permits, and approvals in all jurisdictions which are
required for Borrower's initial acquisition of the Pledged Contracts and for
Borrower's performance of this Agreement.
(c) POWER AND AUTHORITY. Borrower has the power and authority to
execute this Agreement and carry out its terms, and the execution and
performance of the Agreement have been duly authorized by all necessary
corporate action. The execution and performance of this Agreement by Borrower
does not require the consent or approval of any Person.
(d) VALID AND BINDING OBLIGATIONS. The Agreement constitutes a
valid loan obligation of Borrower and a valid granting of a security interest
in the Collateral to Lender, enforceable against creditors of and purchasers
from Borrower; and is a legal, valid and binding obligation of Borrower
enforceable in accordance with its terms. The Guaranty and the Validity of
Collateral Guaranty are valid and binding obligations of the Validity of
Collateral Guarantor and Guarantor enforceable according to their terms.
Borrower's use of the Advances is a legal and proper corporate use. Borrower
has not used Advances to give any preference to any creditor or to make a
fraudulent transfer.
(e) NO VIOLATION. Borrower's execution and performance of this
Agreement does not conflict with, result in any breach of, nor constitute
(with or without notice or lapse of time) a default under, (i) the articles of
incorporation or bylaws of Borrower, or (ii) any indenture, instrument,
agreement, or court order by which it is bound, or (iii) nor does it result in
the creation or imposition of any lien upon any of Borrower's properties other
than that granted to Lender.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending, or to the best of Borrower's knowledge, threatened, before any court,
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over Borrower or its properties, which (i) assert the
invalidity of the Agreement, (ii) seek to prevent the consummation of any of
the transactions contemplated by the Agreement, (iii) seek any determination
or ruling that, if determined adversely to Borrower, would materially and
adversely affect the Collateral, Borrower's ability to perform its obligations
under the Agreement, the validity or enforceability of the Agreement, Lender's
rights under the Agreement, or Borrower's financial condition or business, or
(iv) allege that Borrower is in violation of any statute, regulation, rule or
ordinance of any governmental entity, including, without limitation, the
United States of America, any state, city, town, municipality, county or of
any other jurisdiction, or of any agency thereof except in connection with
complaints of Contract Debtors made in the normal course of Borrower's
business and not of a material nature.
(g) COLLATERAL. Borrower has good and marketable ownership of the
Collateral, and the Collateral is free and clear of all liens, claims,
charges, defenses, counterclaims, offsets, encumbrances and security interests
of any kind or nature, except the Permitted Liens. The security interests
granted to Lender pursuant hereto are perfected first priority security
interests, assuming delivery to Lender of any Collateral as to which
possession is the only method of perfecting a security interest and assuming
the filing of a UCC financing statement with the collateral description in
Exhibit G with the office of Secretary of State of Arizona; Florida, Nevada,
Texas and New Mexico and no claim of ownership or other interest has been
asserted which would be a breach of this Section 10.0(g).
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(h) TAXES. All required federal, state and local tax returns of
Borrower have been accurately prepared and duly and timely filed (within the
initial or extended time period allowed therefor) and all federal, state and
local taxes required to be paid with respect to the periods covered by such
returns have been paid. Borrower has not been delinquent in the payment of
any tax, assessment or other governmental charge which could adversely affect
in any way the Collateral.
(i) BROKERS. Except as otherwise disclosed on Exhibit 10(i)
attached hereto, no person has, or as a result of the transactions
contemplated hereby will have by reason of any Borrower conduct or any
agreement to which Borrower is a party, any right, interest or claim against
Borrower, Lender or the Collateral for any commission, fee or other
compensation as a finder or broker or in any similar capacity.
(j) STATUS AND CONDITION. Borrower is solvent, in stable financial
condition and is able to and does pay its liabilities as they mature. Except
as otherwise disclosed on Exhibit 10(j) attached hereto, Borrower is not a
party to any labor dispute or any collective bargaining contract.
(k) DISCLOSURE. There is no fact known to Borrower which Borrower
has not disclosed to Lender in writing with respect to the Collateral or the
assets, liabilities, financial condition or activities of Borrower or its
Affiliates which would or may be likely to have a material adverse effect upon
the Collateral or Borrower's ability to perform its obligations under the
Agreement. All information and documents prepared by Borrower and provided to
Lender at any time are true and accurate at the time of delivery. Borrower
does not have knowledge that any information or documents, not prepared by
Borrower but delivered by Borrower to Lender were not true and accurate at the
time of delivery.
(l) ARTICLES OF INCORPORATION AND CERTIFICATES OF GOOD STANDING.
The Borrower's Articles of Incorporation received by Lender pursuant to
Section 9.0 have not been modified. Borrower has not taken or allowed any
action which would result in it not being in good standing. Borrower has not
received notice of any actual or threatened action to revoke its articles of
incorporation or good standing.
(m) FINANCIAL STATEMENTS. All financial statements of Borrower,
Affiliates, Validity of Collateral Guarantor, and Guarantor delivered to
Lender fairly present the assets, liabilities and financial condition and
income as of the dates thereof. There are no material omissions from the
financial statements and there has been no adverse change in the assets,
liabilities or financial condition since the date of the most recently
delivered financial statements. There exists no equity or long-term
investments in, or outstanding advances to, or guaranties of, any Person
except such equity, investment, advances, or guaranties disclosed in the
financial statements. The financial statements accurately disclose all
transactions with Affiliates.
(n) CONDITIONS. Each time Borrower requests an Advance, the
Conditions in Section 9.0 have been met.
(o) CHARACTERISTICS OF CONTRACTS. Each Pledged Contract delivered
to Lender as an Eligible Contract meets all of the requirements listed in the
definition of Eligible Contract, except that Borrower makes no representation
or warranty as to whether (i) the Contract meets such requirements to Lender's
satisfaction, or (ii) the Contract presents a credit, collateral, or
documentation risk unacceptable to Lender. No selection procedures adverse to
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Lender have been utilized in selecting the Eligible Contracts delivered to
Lender.
(p) NO DEFAULTS. No event has occurred and no condition exists
which would, upon the execution and delivery of this Agreement or Borrower's
performance hereunder, constitute an Event of Default. Borrower is not in
default, and no event has occurred and no condition exists which constitutes,
or with the passage of time or the giving of notice or both, would constitute,
a default under any material agreement between Borrower and any Person,
including the payment of any debt or other obligation permitted under this
Agreement to any Person for borrowed funds, or any obligation relating to the
securitization of any assets of Borrower or any Affiliate of Borrower.
ARTICLE XI - REPRESENTATIONS AND WARRANTIES OF THE LENDER
Section 11.0. REPRESENTATIONS OF LENDER. The Lender hereby makes the
following representations and warranties:
(a) DUE ORGANIZATION. The Lender is a corporation, duly organized,
validly existing and in good standing under the laws of the State of New York,
and has the power to own its assets and to transact the business in which it
is presently engaged with regard to this Agreement;
(b) REQUISITE POWER. The Lender has the power to execute, deliver
and perform this Agreement, and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement; and
(c) BINDING AGREEMENT. This Agreement has been duly executed and
delivered by the Lender and constitutes the legal, valid and binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE XII - INDEMNITIES
Section 12.0. INDEMNITY. Borrower shall indemnify and hold Lender
harmless from any and all losses, claims, damages, costs, good faith
settlements, expenses, taxes, reasonable attorneys' fees or other liabilities,
including but not limited to costs of investigation, litigation fees and
expenses, and costs in successfully asserting the right to indemnification
hereunder, (collectively, "Losses") incurred by Lender at any time and
pertaining to (i) facts which are, or allegations which if true would be, a
breach of any representation, warranty, obligation, agreement or covenant of
Borrower contained in the Loan Documents, or (ii) Lender entering into the
Loan Documents or making Advances or handling Remittances or administering
Pledged Contracts, (iii) an Event of Default or a Pre-Default Event, or (iv)
activities, operations or conduct of Borrower, Validity of Collateral
Guarantor or Guarantor, or Affiliates.
ARTICLE XIII - AFFIRMATIVE COVENANTS
The following covenants shall remain in effect until the full payment and
performance of all of Borrower's obligations to Lender:
Section 13.0. FINANCING STATEMENTS. At the request of Lender, Borrower
shall execute such financing statements as Lender determines may be required
by law to perfect, maintain and protect the interest of Lender in the
Collateral and in the proceeds thereof.
Section 13.1. BOOKS AND RECORDS. Borrower shall maintain accurate and
complete books and records with respect to the Collateral, Borrower's
56
business, and Borrower's administration of the Pledged Contracts. All
accounting books and records shall be maintained in accordance with generally
accepted accounting principles consistently applied.
Section 13.2. PAYMENT OF FEES AND EXPENSES. Borrower shall pay to
Lender, on demand, any and all fees, costs or expenses which Lender pays to a
bank or other similar institution arising out of or in connection with (i) the
forwarding to Borrower, or any other Person on behalf of Borrower, by Lender
of Advances pursuant to this Agreement and (ii) the return of payments
deposited for collection by Lender, including but not limited to payments by
Borrower and payments by Contract Debtors.
Section 13.3. CONTINUITY OF BUSINESS AND COMPLIANCE WITH AGREEMENT.
Borrower shall continue in business in a prudent, reasonable and lawful manner
with all necessary licenses, permits, and qualifications necessary to perform
this Agreement. Borrower shall regularly and properly train its employees to
comply with all applicable laws governing the administration and purchase of
Contracts. Borrower shall take the steps necessary for the representations
and warranties in Article X to be true at all times. In the event that
Borrower learns that a representation and warranty in Article X is no longer
true, it shall notify Lender within one (1) Business Days after learning
thereof.
Section 13.4. FINANCIAL STATEMENTS AND ACCESS TO RECORDS. Borrower shall
provide Lender with quarterly UNAUDITED CONSOLIDATED financial statements
within forty-five (45) days of the end of each of Borrower's fiscal quarters,
and with audited annual CONSOLIDATED financial statements within one hundred
and twenty (120) days of Borrower's fiscal year-end audited by an independent
certified public accounting firm acceptable to Lender. Upon request of
Lender, Borrower shall provide Lender with unaudited (or audited if Borrower
so chooses) consolidated and consolidating monthly financial statements.
Borrower shall deliver to Lender with each financial statement a certificate
by Borrower's chief financial officer in the form of Exhibit 13.4. Borrower
shall provide Lender with audited or unaudited annual financial statements of
the Validity of Collateral Guarantor and Guarantor within sixty (60) days
after the end of each calendar year, and for such other periods as Lender may
request but no more frequently than every six (6) months.
Section 13.5. SUBSEQUENT ACTIONS. At the request of Lender, Borrower
shall execute and deliver to Lender after execution of this Agreement such
documents or take such action as Lender deems necessary to carry out the
Agreement.
Section 13.6. FINANCIAL CONDITION. Borrower shall not allow its Debt
Ratio to exceed 2.1:1. Borrower shall maintain a Net Worth of at least
Seventy-Five Million Dollars ($75,000,000.00). If Borrower is in default of
any securitized tranche/trust, the Net Worth will be reduced by the residual
value associated with that securitization. Borrower shall maintain Interest
Coverage of at least 1.5. Borrower shall notify Lender in writing, promptly
upon its learning thereof of any material adverse change in the financial
condition of Borrower, Validity of Collateral Guarantor, or Guarantor.
Borrower's Rolling Average Delinquency shall not exceed 8.5%. Borrower's
Average Charged-Off Losses shall not exceed 1.75%. Lender may, in its sole
discretion, amend the Rolling Average Delinquency on an annual basis.
Section 13.7. LITIGATION MATTERS. Borrower shall notify Lender in
writing, promptly upon its learning thereof, of any litigation, arbitration or
administrative proceeding which may materially and adversely affect the
operations, financial condition or business of Borrower or Borrower's ability
57
to perform this Agreement or which in any way involve Lender's security
interest in the Collateral or other rights under the Loan Documents.
Section 13.8. VALUE OF COLLATERAL. If in Lender's judgment the
Collateral has materially decreased in value, other than the ordinary
depreciation of Financed Vehicles, Borrower shall either provide enough
additional Collateral to satisfy Lender or reduce the Loan by an amount
sufficient to satisfy Lender.
Section 13.9 PAYMENT OF OBLIGATIONS. Borrower shall pay and perform, as
and when due, all of its obligations, including, without limitation, all of
its obligations to Lender.
Section 13.10. BORROWER INSURANCE. Borrower shall maintain customary
amounts of insurance covering, without limitation, fire, theft, burglary,
public liability, property damage, product liability, workers' compensation,
and liability arising from Borrower's collection of Contracts and sale of
motor vehicles. Borrower shall pay all insurance premiums payable for such
coverage and shall upon request of Lender deliver a copy of the policies of
such insurance to Lender, together with evidence of payment of all premiums
therefor.
Section 13.11. CERTIFICATES OF TITLE. Borrower shall promptly apply for
and obtain Certificates of Title for all Financed Vehicles. Borrower shall
promptly deliver to Lender all Certificates of Title it receives for Financed
Vehicles for Pledged Contracts.
Section 13.12. INTEREST RATE CAP. Borrower shall purchase an Interest
Rate Cap issued by a financial institution acceptable to Lender, if payment to
Borrower of an interest rate differential equal to the amount by which the
average annual percentage rate of the Pledged Contracts is less than (i) the
applicable interest rate under this Agreement plus (ii) fourteen percent (14%)
Section 13.13. UNENCUMBERED INVENTORY. Sales shall at all times
maintain an inventory of Motor Vehicles held for sale which are free and clear
of all liens, security interests and encumbrances and valued at not less than
Five Million Seven Hundred Thousand Dollars ($5,700,000.00) in the aggregate.
Section 13.14. LOSS RESERVE. Borrower shall at all times maintain a
funded loss reserve equal to not less than such percentage of the net
Outstanding Principal Balance of each Pledged Contract owned by Borrower as
Borrower's independent certified public accountants require to issue
unqualified financial statements for Borrower at any time from and after the
date hereof.
Section 13.15. CYGNET FINANCE, INC. Borrower pledges to Lender a
security interest in the stock and all proceeds thereof in Cygnet Finance,
Inc. Borrower shall not invest more than Twenty Million Dollars
($20,000,000.00) in Cygnet Finance, Inc. Cygnet Finance, Inc. shall guaranty
the obligations of Borrower and shall execute a guaranty that conforms to
Exhibit 9.0(B), attached hereto (the "Guaranty").
ARTICLE XIV - NEGATIVE COVENANTS
Borrower covenants and agrees that hereafter, without Lender's prior
written consent, which Lender may or may not give, in its sole discretion,
until all of Borrower's obligations to Lender with respect to this Agreement
are performed and paid in full:
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Section 14.0. MERGERS, ETC. Borrower shall not merge with, consolidate
with, acquire or otherwise combine with any Person, transfer any division or
segment of its operations to any Person or form any subsidiary.
Section 14.1. INVESTMENTS. Borrower shall not make any investment in any
Person through the direct or indirect holding of securities or otherwise.
Section 14.2. DIVIDENDS. Borrower shall not declare or pay dividends
except in accordance with all applicable laws and any dividends declared or
paid shall not exceed, in the aggregate, fifteen percent (15%) of each year's
net income available for distribution.
Section 14.3. LOANS AND ADVANCES. Except for routine and customary
salary advances, Borrower shall not make any unsecured loans or other advances
of money to officers, directors, employees, stockholders or Affiliates in
excess of Twenty-Five Thousand Dollars ($25,000.00) in total. Borrower shall
not incur any long term or working capital debt (other than the Indebtedness)
secured by Contracts, and shall not create, incur, assume or suffer to exist
any short term indebtedness which is not Subordinated Debt.
Section 14.4. CAPITAL STRUCTURE. Borrower shall not (i) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock, or (ii) make any change in Borrower's capital structure, or (iii) make
any change in any of its business objectives, purposes and operations which
might in any way adversely affect the payment or performance of, or Borrower's
ability to pay and perform, its obligations to Lender with respect to this
Agreement. Borrower shall not allow a transfer of ownership of Borrower which
results in less than fifteen percent (15%) of the voting stock of Borrower
being owned by Ernest C. Garcia, II. Notwithstanding the foregoing, Borrower
may issue up to 2,000,000 shares of common stock in connection with Borrower's
acquisition of businesses or assets in one or more transactions, In addition,
Borrower may issue up to $200,000,000 in debt securities that are subordinate
to the Loan in one or more transactions provided such subordination shall be
in a form and substance approved by Lender.
Section 14.5. TRANSACTIONS WITH AFFILIATE. Borrower shall not enter
into, or be a party to, any transaction with any Affiliate, or stockholder of
Borrower, except, consistent with Borrower's practice before entering into
this Agreement, in the ordinary course of, and pursuant to the reasonable
requirements of, Borrower's business and upon fair and reasonable terms which
are fully disclosed to Lender and are no less favorable to Lender than would
obtain in a comparable arm's length transaction with a Person not an Affiliate
or stockholder of Borrower.
Section 14.6. ADVERSE TRANSACTIONS. Borrower shall not enter into any
transaction which adversely affects the Collateral or Borrower's ability to
perform this Agreement or Lender's rights under the Loan Documents; or permit
or agree to any extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Pledged Contract,
including any of the terms thereof or the amounts due thereunder except for
customary payment extensions of Pledged Contracts done, in accordance with
Borrower's policies and routines in existence on the Closing Date, no more
frequently than once every twelve (12) months but not to exceed two (2)
extensions over the life of the Contract, for a period of no more than thirty
(30) days for each extension. In the event a Contract exceeds two extensions,
Borrower must notify Lender and provide a list of such Contracts for
exclusion from Eligible Contracts.
Section 14.7. GUARANTIES. Borrower shall not guaranty or otherwise in
59
any way, become liable with respect to the obligations or liabilities of any
other Person except (i) the Affiliates' obligations to Lender, and (ii) by
customary endorsement of instruments or items of payment for deposit to the
general account of Borrower or for delivery to Lender.
Section 14.8. COLLATERAL. Except as otherwise expressly permitted in the
Loan Documents, Borrower shall not convey or allow any ownership, security, or
other, interest in the Collateral other than Borrower's ownership interest and
Lender's security interest. Borrower shall not interfere with or countermand
Lender's instructions to any Person to send Remittances to the Post Office
Box, the Depository Account or Lender. Borrower can sell or pledge Contracts
which are not Eligible Contracts provided that the sale or loan proceeds are
delivered to Lender for application to the Indebtedness Borrower can grant
purchase money security interests in its equipment to Persons other than
Lender. Borrower can lease, as lessee, equipment it uses.
ARTICLE XV - EVENTS OF DEFAULT
Section 15.0. EVENTS OF DEFAULT. An Event of Default means the
occurrence or existence of one or more of the following events or conditions
(whatever the reason for the Event of Default and whether voluntary,
involuntary or caused by operation of law) which is not waived in writing by
Lender or cured to the extent a cure is applicable:
(A) A breach by Borrower of any representation, warranty or
obligation contained herein or in the other Loan Documents or in any other
agreement with Lender.
(B) A breach by a Validity of Collateral Guarantor, Guarantor, or
an Affiliate of any representation, warranty, or obligation contained in a
Guaranty or a Validity of Collateral Guaranty, or any other agreement with
Lender.
(C) Any default by Borrower or any Affiliate of Borrower (including
but not limited to a default due to non-payment, or a default relating to the
securitization of any assets of Borrower or any Affiliate of Borrower) under
any material agreement, document or instrument to which it is a party or by
which any of its property is bound, creating or relating to any debt or other
obligation (other than the Loan hereunder), if the payment or maturity of such
debt or obligation is accelerated as a consequence of such default or demand
for payment thereof is made.
(D) The Collateral or any other of Borrower's or a Validity of
Collateral Guarantor's or Guarantor's or an Affiliate's assets are attached,
seized, levied upon or subjected to a writ or distress warrant, or come within
the possession of any receiver, trustee, custodian or assignee for the benefit
of creditors and the same is not dissolved within thirty (30) days thereafter;
an application is made by any Person other than Borrower for the appointment
of a receiver, trustee, or custodian for the Collateral or any other of
Borrower's or Validity of Collateral Guarantor's or Guarantor's or an
Affiliate's assets and the same is not dismissed within thirty (30) days after
the application therefor; or Borrower or a Validity of Collateral Guarantor or
Guarantor or an Affiliate shall have concealed, removed or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay
or defraud its creditors or made or suffered a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or other
similar law.
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(E) An application is made by Borrower or a Validity of
Collateral Guarantor or Guarantor or an Affiliate for the appointment of a
receiver, trustee or custodian for the Collateral or any other of Borrower's
or a Validity of Collateral Guarantor's or Guarantor's or an Affiliate's
assets; a petition under any section or chapter of the Bankruptcy Code or any
similar federal or state law or regulation shall be filed by Borrower or a
Validity of Collateral Guarantor or Guarantor or an Affiliate; Borrower,
Validity of Collateral Guarantor, or Guarantor or an Affiliate shall make an
assignment for the benefit of its creditors or any case or proceeding is filed
by Borrower, or a Validity of Collateral Guarantor or Guarantor or an
Affiliate for its dissolution, liquidation, or termination; Borrower ceases to
conduct its Contract purchase and servicing business.
(F) Borrower is enjoined, restrained or in any way prevented by
court order from conducting all or any material part of its business affairs,
or a petition under any section or chapter of the Bankruptcy Code or any
similar federal or state law or regulation is filed against Borrower or a
Validity of Collateral Guarantor or Guarantor or an Affiliate, or any case or
proceeding is filed against Borrower or a Validity of Collateral Guarantor or
Guarantor or an Affiliate for its dissolution or liquidation, and such
injunction, restraint, petition, case or proceeding is not dismissed within
thirty (30) days after the entry or filing thereof.
(G) A notice of lien, levy or assessment is filed of record with
respect to all or any of Borrower's or a Validity of Collateral Guarantor's or
Guarantor's or an Affiliate's assets by the United States, or any department,
agency or instrumentality thereof, or by any state, county, municipal or other
governmental agency and it is not released within thirty (30) days after the
filing; or if any taxes or debts become a lien or encumbrance upon the
Collateral or any other of Borrower's or a Validity of Collateral Guarantor's
or Guarantor's or an Affiliate's assets, and the same is not released within
thirty (30) days after the same becomes a lien or encumbrance.
(H) Borrower or a Validity of Collateral Guarantor or Guarantor
or an Affiliate becomes insolvent or admits in writing to its inability to pay
its debts as they mature.
(I) An event has occurred which entitles Lender pursuant to Section
5.1(E) to take over administration of the Contracts.
(J) There occurs or exists any situation which leads Lender to
believe, in good faith, that Borrower may not, or may be unable to, pay in the
normal course one or more payment obligations to Lender, and Lender has given
Borrower at least ten (10) days' notice thereof.
(K) A financial statement of Borrower or an Affiliate or a
Validity of Collateral Guarantor or Guarantor reveals that its financial
condition has materially adversely deteriorated after the execution of this
Agreement.
(L) An audited financial statement of Borrower is not
unqualified.
(M) Any other event occurs which will, in Lender's reasonable
opinion, have a material adverse effect on the Collateral, Lender's rights
under the Loan Agreements, or on Borrower's financial or business condition,
operations or prospects, including, without limitation, any change in the due
diligence procedures used by Borrower to qualify Contract Debtors for
Contracts, and Lender has given Borrower at least ten (10) days' notice
thereof.
(N) Validity of Collateral Guarantor or Guarantor fails to make
payment pursuant to the terms of the Validity of Collateral Guaranty or
Guaranty.
(O) Any Validity of Collateral Guarantor or Guarantor shall
revoke or attempt to revoke its Validity of Collateral Guaranty or Guaranty,
or shall repudiate its liability thereunder or be in default of the terms of
such Validity of Collateral Guaranty or Guaranty.
Section 15.1. DEFAULT RATE OF INTEREST. Upon and after an Event of
Default and subject to Section 2.5, Borrower's obligations to Lender shall
continue to bear interest, calculated daily on the basis of a 365-day year at
the per annum rate set forth in Section 2.3, plus additional post-default
interest of two percent (2%) per annum until paid in full.
Section 15.2. LENDER'S REMEDIES. Whenever a Pre-Default Event or an
Event of Default has occurred and whenever Lender is entitled to take over
Contract administration, Lender may without prior notice immediately suspend
making Advances. Upon and after an Event of Default, Lender shall have the
following rights and remedies. The rights and remedies shall be cumulative,
and none exclusive, except to the extent required by law. Lender's exercise
of any right, remedy, or attorney-in-fact appointment shall not relieve
Borrower of any of its obligations to Lender.
(A) The right, at Lender's discretion and without notice, (i) to
immediately cease further Advances and/or terminate this Agreement, and (ii)
to declare Borrower's obligations to Lender immediately due and payable,
whereupon Borrower's obligations shall become and be due and payable, without
presentment, demand, protest or further notice or process of any kind, all of
which are expressly waived by Borrower. Borrower's obligations to Lender
shall be immediately due and payable without declaration by Lender if the
Event of Default consists of a petition filed under the Bankruptcy Code or any
similar federal or state law.
(B) All of the rights and remedies of a secured party under the
UCC and other applicable laws, including the right to appoint a receiver.
(C) The right at any time to (i) enter through self-help and
without judicial process, upon the premises of Borrower, without any
obligation to pay rent to Borrower, or to enter any other place or places
where the Collateral is located and kept, and remove the Collateral or remain
on and use the premises for the purpose of collecting or disposing of the
Collateral, and (ii) require Borrower to assemble the Collateral and make it
available to Lender at a place to be designated by Lender.
(D) The right to sell or otherwise dispose of all or any of the
Collateral at public or private sale, as Lender in its sole discretion may
deem advisable, with such notice as may be required by law; and such sales may
be adjourned from time to time with or without notice. Lender shall have the
right to conduct such sales on Borrower's premises without charge for such
time and Collateral as Lender may see fit. Lender is hereby granted a license
or other applicable right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure
to Lender's benefit for this purpose. Lender shall have the right to sell,
lease or otherwise dispose of the Collateral, or any part thereof, for cash,
credit or any combination thereof, and Lender may purchase all or any part of
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the Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against Borrower's obligations to Lender. Without excluding other methods of
disposition which may be commercially reasonable, it shall be a commercially
reasonable disposition of the Pledged Contracts and Contract Rights for Lender
to collect and enforce the Contracts and Contract Rights in the same manner
that it collects and enforces similar Contracts and Contract Rights for its
own account or for the account of other Persons. If any deficiency shall
arise from the disposition of Collateral, Borrower shall remain liable to
Lender therefor.
(E) The right at any time and from time to time thereafter, at
Lender's sole discretion and without notice to Borrower, (i) to enforce
payment of the Contract Debtor's and Contract Rights Payor's obligations, and
to collect and foreclose, by legal proceedings or otherwise, the Collateral in
the name of Lender or Borrower and (ii) to take control, in any manner, of any
item of payment for or proceeds of the Collateral. Lender is not obligated to
pursue the Collateral or the Guarantor or the Validity of Collateral Guarantor
or any other Person in order to enforce Borrower's obligations to Lender.
(F) The right to take over in Lender's or Borrower's name all or
part of the administration of the Contracts.
(G) The right to carry out the actions within the scope of
Borrower's appointment of Lender as attorney-in-fact.
(H) The right to offset or apply the funds in the Depository
Account.
Section 15.3. INJUNCTIVE RELIEF. Borrower recognizes that if there is an
Event of Default then, depending on the nature of the Event of Default, it may
be that no remedy at law will provide complete or adequate relief to Lender,
and Lender shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages. The injunctive
relief shall not be a waiver of Lender's rights to other relief and remedies.
Section 15.4. NOTICE. Any notice required to be given by Lender of a
sale, lease, or other disposition of the Collateral which is given pursuant to
Section 16.1 at least five (5) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to Borrower.
Notice of less duration shall not be presumed to be commercially unreasonable
or unfair.
Section 15.5. APPOINTMENT OF LENDER AS BORROWER'S LAWFUL ATTORNEY.
Borrower irrevocably appoints Lender (and all persons designated by Lender) as
Borrower's true and lawful attorney-in- fact to act in Borrower's place in
Borrower's or Lender's name to: (i) demand payment of the Pledged Contracts,
other Collateral consisting of payment obligations and Contract Rights; (ii)
enforce payment of the Pledged Contracts, other Collateral consisting of
payment obligations and Contract Rights, by legal proceedings or otherwise;
(iii) exercise all of Borrower's rights and remedies with respect to the
collection and enforcement of the Pledged Contracts, other Collateral
consisting of payment obligations, and Contract Rights; (iv) settle, adjust,
compromise, discharge, release, extend or renew the Pledged Contracts, other
Collateral consisting of payment obligations, and Contract Rights; (v) if
permitted by applicable law, sell or assign the Collateral upon such terms,
for such amounts and at such time or times as Lender deems advisable; (vi)
take control, in any manner, of any item of payment or proceeds with respect
to the Collateral; (vii) prepare, file and sign Borrower's name on any proof
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of claim in Bankruptcy or similar document against any Contract Debtor or
Contract Rights Payor; (ix) prepare, file and sign Borrower's name on any
notice of lien, assignment or satisfaction of lien or similar document in
connection with the Collateral; (x) do all acts and things necessary, in
Lender's sole discretion, to exercise Lender's rights granted in or referred
to in Section 15.2 of this Agreement; (xi) endorse the name of Borrower upon
any item of payment or proceeds consisting of or relating to the Collateral
and deposit the same to the account of Lender for application to the
Indebtedness; (xii) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Collateral to which Borrower has access; (xiii) open Borrower's mail to
collect Collateral and direct the Post Office to deliver Borrower's mail to an
address designated by Lender; and (xiv) do all things necessary to carry out
and enforce this Agreement which Borrower has failed to do. Borrower ratifies
and approves all acts of Lender as Borrower's attorney-in-fact. Lender shall
not, when acting as attorney-in-fact, be liable for any acts or omissions as
or for any error of judgment or mistake of fact or law, except for actions
taken in bad faith or resulting from Lender's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until
all payment and performance obligations of Borrower to Lender have been fully
satisfied. Borrower shall upon request of Lender execute powers of attorney
to separately evidence the foregoing powers granted to Lender. All costs,
fees and expenses incurred by Lender, or for which Lender becomes obligated,
in connection with exercising any of the foregoing powers shall be payable to
Lender by Borrower on demand by Lender and until paid shall be part of the
Loan.
Section 15.6. LENDER'S DEFAULT. In the event of any default of the Loan
Documents by Lender or any claim by Borrower related to the Loan Documents,
Borrower's sole and exclusive remedy against Lender shall be a cause of action
sounding in contract with damages limited to actual and direct damages
incurred. Lender shall in no event be liable for ordinary negligence, delay
in performance or any consequential, special, punitive, incidental or indirect
damages, including without limitation, loss of profit or goodwill. Lender
shall in no event be liable for any loss or damage directly or indirectly
resulting from the furnishing of services or reports under this Agreement.
With respect to any goods and services provided by Lender, LENDER MAKES NO
warranties, whether expressed or implied, including, without limitation,
implied WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Borrower shall have no cause of action against Lender for a default of the
Loan Documents unless Borrower first notices Lender of the default and allows
Lender a reasonable time of at least thirty (30) Business Days to cure the
default and Lender fails to cure the default.
Section 15.7. BORROWER'S RIGHT TO CURE. In the event of an unintentional
Pre-Default Event by Borrower with respect to payment obligations or the
delivery of Contract Delivery Documents or Remittances, Borrower shall have
three (3) Business Days to cure the Pre-Default Event before Lender exercises
its right to sue Borrower or repossess the Collateral. In the event of any
other type of unintentional default by Borrower, Borrower shall have thirty
(30) calendar days to cure the default before Lender exercises its right to
sue Borrower or repossess the Collateral. Regardless of whether Borrower
cures a default, Lender shall be entitled to indemnification pursuant to
Article XII with respect to any Losses arising from claims asserted against
Lender.
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ARTICLE XVI - DEFINITIONS
Section 16.0 DEFINED TERMS. Whenever used in this Agreement with such
upper case letters as are shown below, the following terms shall have the
respective meanings set forth below. When the terms are used in the plural,
the plural forms of the meanings shall apply.
ACCOUNTING DATE: the last day of an Accounting Period.
ACCOUNTING PERIOD: a calendar month, beginning with the month during
which this Agreement is executed and ending with the calendar month during
which the Indebtedness has been paid in full following termination of this
Agreement.
ADVANCE: each of the Loan advances described in Article III of this
Agreement.
AFFILIATE: Guarantors, and any Person, now or in the future (i) directly
or indirectly owned or controlled in whole or in part by Borrower or a
Guarantor, or (ii) under common ownership or control with Borrower. For the
purpose of this definition, "control" shall mean the power to direct, or
cause the direction of, management or policies, whether through the ownership
of voting securities, by contract or otherwise. For the purpose of this
definition, "owned" shall mean at least 10% ownership.
AVERAGE CHARGED-OFF LOSSES: the Accounting Period average of the
Charged-Off Losses for any six consecutive Accounting Periods; provided that,
until the first six Accounting Periods have expired, the Average Charged-Off
Losses shall be the Accounting Period average of the Charged-Off Losses for
the Accounting Periods which have expired.
BORROWING BASE: the amount equal to the lesser of (i) One Hundred
Million Dollars ($100,000,000.00), or (ii) (A) sixty five percent (65%) of the
Outstanding Principal Balance of all Eligible Contracts during the time they
are included in the Borrowing Base pursuant to Section 3.1, which Eligible
Contracts are originated by any Affiliate of Borrower which is a captive
Dealer to Borrower, or (B) eighty-six percent (86%) of the Outstanding
Principal Balance of all Eligible Contracts not to exceed one hundred seven
percent (107%) of wholesale Kelly Blue Book for all such Eligible Contracts in
the aggregate during the time they are included in the Borrowing Base pursuant
to Section 3.1 which Eligible Contracts are purchased by Borrower from Dealers
who are not Affiliates of Borrower through Champion Financial Services, Inc.,
(C) seventy-five percent (75%) of the Outstanding Principal Balance of all
Eligible Contracts during the time they are included in the Borrowing Base
pursuant to Section 3.1, which Eligible Contracts were purchased from Seminole
Finance, or (D) a percentage, as determined by Lender in its sole discretion
and not to exceed ninety-eight percent (98%) of Borrower's Net Investment of
Bulk Purchase Contracts, excluding any premium or goodwill paid by Borrower.
BULK PURCHASE CONTRACT: a Contract acquired on a group basis through
purchase of a Dealer's portfolio of existing installment sales contracts.
BUSINESS DAY: any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in the States of Arizona, Florida and Texas are
required by law to be closed.
CERTIFICATE OF TITLE: with respect to each Financed Vehicle, the
certificate of title (or other evidence of ownership) issued by the department
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of motor vehicles, or other appropriate governmental body, of the state in
which the Financed Vehicle is to be registered showing the Contract Debtor as
owner, with either notation of the Borrower's first lien or such other status
indicated thereon which is necessary to perfect Borrower's security interest
in the Financed Vehicle as a first priority interest, and showing no other
actual or possible lien interest in the Financed Vehicle.
CHARGED-OFF CONTRACT: a Pledged Contract (i) for which all or part of
the Scheduled Payments are due and unpaid, ninety (90) days after the due date
for such Scheduled Payments, (ii) for which the Financed Vehicle has been
surrendered, repossessed, or unable to be located, or (iii) which has been
settled for less than the Outstanding Principal Balance.
CHARGED-OFF LOSSES: as of the end of an Accounting Period, the
Outstanding Principal Balance of Charged-Off Contracts which become
Charged-Off Contracts during the Accounting Period minus amounts received by
Borrower during the Accounting Period and applied to Charged-Off Contracts
which became Charged-Off Contracts during a previous Accounting Period,
divided by the Outstanding Principal Balance of all Contracts owned by
Borrower which are not Charged-Off Contracts; expressed as a percentage.
CLOSING DATE: the date of execution of this Agreement.
COLLATERAL: any and all real and personal, tangible and intangible,
property in which Lender is granted a security interest now or hereafter, in
this Agreement or otherwise, to secure Borrower's obligations to Lender.
CONTRACT: an installment or conditional sale contract, with any
amendments, owned or acquired by Borrower pursuant to which a Contract Debtor
has: (i) purchased a new or used Motor Vehicle, (ii) granted a security
interest in the Motor Vehicle to secure the Contract Debtor's payment
obligations, and (iii) agreed to pay the unpaid purchase price and a finance
charge in periodic installments no less frequently than monthly.
CONTRACT DEBTOR: the Person that has executed a Contract as a purchaser,
and any guarantor, co-signer or other Person obligated to make payments under
the Contract.
CONTRACT DEBTOR DOCUMENTS: those documents as are identified on the
attached Exhibit 6.3 attached hereto and made apart hereof.
CONTRACT DELIVERY DOCUMENTS: the original Certificate of Title, and the
original executed Contract with original Contract Debtor and Dealer signatures
and bearing on its front or back surface an assignment to Lender.
CONTRACT RIGHTS: with respect to Pledged Contracts, (i) Borrower's
interest in the Financed Vehicle; (ii) all rights of Borrower regarding the
Contract and Financed Vehicle, including but not limited to rights to
electronic funds transfers and rights under all dealer agreements and purchase
agreements pursuant to which the Contract was acquired by Borrower; (iii) all
rights of Borrower with respect to Optional Contract Debtor Insurance,
Required Contract Debtor Insurance, and any other policies of fire, theft or
comprehensive insurance, collision insurance, public liability insurance or
property damage insurance maintained with respect to the Financed Vehicle, the
Contract, or the Contract Debtor; (iv) all rights of Borrower, if any, to
prepaid dealer rate participation in connection with the Contract; (v)
Remittances, and (vi) all rights of Borrower to the originals of all books,
records (including electronic data), reports, files, and documents relating to
the Contracts, including, but not limited to, Contract Debtor Documents,
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financial statements of Contract Debtors, and all payment reports or records
relating to the Contracts.
CONTRACT RIGHTS PAYORS: Persons, other than Contract Debtors, against
whom Contract Rights can be asserted.
CREDIT LINE: the dollar component in the definition of Borrowing Base
which is One Hundred Million Dollars ($100,000,000.00)
DEALER: the seller of the Financed Vehicle to the Contract Debtor.
DEALER INVOICE: as to new Financed Vehicles, the invoice prepared by the
manufacturer showing the net cost; and, as to used Financed Vehicles, the
Kelly Blue Book value.
DEBT RATIO: the debt-to-equity ratio of Borrower, calculated in
accordance with generally accepted accounting principles, by comparing total
liabilities, other than Subordinated Debt, to Net Worth.
DELINQUENCY MEASUREMENT: as of the end of an Accounting Period, the sum
of the Outstanding Principal Balances of all Delinquency Measurement Contracts
which have Scheduled Payments which are due and partially or completely unpaid
more than thirty (30) days from the due date of such Scheduled Payments,
divided by the sum of the Outstanding Principal Balances of all Delinquency
Measurement Contracts; expressed as a percentage.
DELINQUENCY MEASUREMENT CONTRACTS: all Pledged Contracts which do not
constitute Charged-Off Losses.
DEPOSITORY ACCOUNT: a bank account owned by Lender at a bank designated
by Lender for the purpose of receiving Remittances made payable to it or
Borrower.
ELIGIBLE CONTRACT: each Contract delivered by Borrower to Lender which
is listed on a List of Contracts delivered to Lender at the same time, and
which in Lender's sole determination satisfies each of the requirements set
forth on Exhibit 3.1 at the time of delivery and thereafter except to the
extent expressly stated in Exhibit 3.1 to apply only at delivery or only
thereafter.
EVENT OF DEFAULT: this term has the meaning provided in Section 15.0 of
this Agreement.
FINANCED VEHICLE: the new or used Motor Vehicle purchased by a Contract
Debtor pursuant to a Contract, or any substituted vehicle which is properly
documented and approved by Lender.
GUARANTOR: Cygnet Finance, Inc.
INDEBTEDNESS: the Loan and all other amounts, including but not limited
to interest, that Borrower owes Lender in connection with this Agreement.
INTEREST COVERAGE: the sum of Borrower's year-to-date pre-tax income
plus Borrower's year to date interest expense, compared to Borrower's
year-to-date interest expense.
LIBOR RATE: the average of the "one month" London Interbank Offered
Rates ("LIBOR") published in the Money Rates column of the Wall Street Journal
during the calendar month immediately preceding the calendar month for which
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interest is being calculated, or published in such other publication as Lender
may designate.
LINE FEE: the fee payable annually by Borrower to Lender equal to one
quarter of one percent (.25%) times the Credit Line.
LIST OF CONTRACTS: the list delivered to Lender by Borrower with each
Contract or group of Contracts which: (i) identifies each Contract being
delivered by account number, the name of the Contract Debtor, the Outstanding
Principal Balance, and the year, make, model, and VIN of the Financed Vehicle,
and (ii) shows the total number of Contracts and the total of the Outstanding
Principal Balances.
LOAN: the outstanding principal amount of the Advances, plus all other
amounts advanced, expended or applied by Lender under this Agreement to or for
the benefit of Borrower or to perform or enforce Borrower's covenants in this
Agreement.
LOAN AVAILABILITY: the amount by which the Borrowing Base exceeds the
Loan.
LOAN DOCUMENTS: this Agreement, the Note, the guaranties signed by the
Guarantors, and the Supplemental Documentation.
MOTOR VEHICLE: A passenger motor vehicle, van, or light duty truck which
is not manufactured for a particular commercial purpose and which can be
registered for use on public highways and is not a "grey market" vehicle.
NET INVESTMENT: The gross finance receivable from a Contract owned by a
Borrower minus unearned interest income minus unamortized discounts and minus
any refundable reserves.
NET WORTH: the total of shareholders' equity (including capital stock,
additional paid-in capital, and retained earnings) plus Subordinated Debt,
less (i) the total amount of loans and debts due from Affiliates,
shareholders, officers, or employees, and (ii) the total amount of any
intangible assets, including without limitation unamortized discounts,
deferred charges, and goodwill.
OPTIONAL CONTRACT DEBTOR INSURANCE: any insurance, other than Required
Contract Debtor Insurance which insures a Financed Vehicle or a Contract
Debtor's obligations under a Contract, including but not limited to credit
life, credit health, credit disability, unemployment insurance; and any
service contract, mechanical breakdown coverage, warranty, or extended
warranty for a Financed Vehicle.
OUTSTANDING PRINCIPAL BALANCE: the outstanding principal balance of a
Contract calculated by subtracting the unearned finance charge (determined by
the finance charged refund method applicable to the Contract) from the sum of
the unpaid Scheduled Payments.
PERMITTED LIEN: (i) any security interest or lien at any time granted in
favor of Lender; (ii) liens securing claims of materialmen, mechanics,
carriers, warehousemen, landlords and other similar Persons for labor,
materials, supplies or rentals incurred in the ordinary course of Borrower's
business; and (iii) liens resulting from deposits made in the ordinary course
of business in connection with workers compensation, unemployment insurance,
social security and other similar laws.
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PERSON: any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, institution,
entity, party, or government (including, any instrumentality or division
thereof).
POST OFFICE BOX: the post office box owned by Lender into which Borrower
shall receive all Remittances.
PLEDGED CONTRACT: a Contract owned on the Closing Date or in the future
by Borrower.
PRE-DEFAULT EVENT: an event which with the passage of time, the giving
of notice, or both, would constitute an Event of Default if Lender gave any
notice required by this Agreement for the event to be an Event of Default, or
if the event continued past the end of any period specifically allowed by this
Agreement for the event to continue before it becomes an Event of Default.
REMITTANCES: all payments made with respect to Pledged Contracts,
including, but not limited to, Scheduled Payments, full and partial
prepayments, liquidation proceeds, insurance proceeds and refunds, late
charges, fees (including but not limited to NSF fees and extension fees), and
payments from Contract Rights Payors.
REQUIRED CONTRACT DEBTOR INSURANCE: (i) the liability insurance coverage
required by law and (ii) at such time as Borrower experiences losses at any
time equal to or in excess of one percent (l.0%) of the Loan which are
attributable to a lack of insurance covering physical damage to, and theft or
loss of a Financed Vehicle, insurance for physical damage to, and theft or
loss of, the Financed Vehicle, having a deductible no higher than $500 and
providing coverage at least equal to the actual cash value of the Financed
Vehicle for all Vehicles with an actual cost to Borrower of $3500.00 or more.
ROLLING AVERAGE DELINQUENCY: the average of the Delinquency Measurements
for any six (6) consecutive Accounting Periods; provided that, until the first
six (6) Accounting Periods have expired, the Rolling Average Delinquency shall
be the average of the Delinquency Measurements for the Accounting Periods
which have expired.
SCHEDULE OF PAYMENTS: the schedule of payments disclosed on a Contract.
SCHEDULED PAYMENT: the periodic installment payment amount disclosed in
the Schedule of Payments for the Contract.
SKIP LOSS INVESTIGATION: an investigation initiated by Borrower of the
whereabouts of a Financed Vehicle or a Contract Debtor.
STATEMENT OF BORROWING BASE: a statement issued by Lender which contains
the amount of the Borrowing Base, the amount of the Loan or Indebtedness, and
either the amount available for Advances or the amount by which the Loan or
Indebtedness exceeds the Borrowing Base.
SUBORDINATED DEBT: a debt obligation of Borrower which is subordinated to
Lender pursuant to a subordination agreement which is in the form of Exhibit
16 or pursuant to some other agreement approved in writing by Lender.
SUPPLEMENTAL DOCUMENTATION: all agreements, instruments, documents,
certificates of title, financing statements, notices of assignment, Lists of
Contracts, chattel mortgages, powers of attorney, subordination agreements,
and other written matter necessary or reasonably requested by Lender to
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perfect and maintain perfected Lender's security interest in the Collateral or
to consummate the transactions contemplated by this Agreement.
UCC: Uniform Commercial Code.
UNDERUTILIZATION FEE: the fee payable by Borrower to Lender equal to
thirty-five basis points (0.35%) on an annualized basis or .000959% times the
unused portion of the Credit Line below Forty Million Dollars
($40,000,000.00), with the unused portion being equal to the difference
between Forty Million Dollars ($40,000,000.00) and the actual daily balance of
the outstanding Advance. This fee will be due monthly for the previous month
and will be billed immediately following the month end.
VALIDITY OF COLLATERAL GUARANTOR: Ernest C. Garcia, II
Section 16.1 OTHER TERMS: All other terms contained in this Agreement
shall, unless the context indicates otherwise, have the meanings provided in
the UCC to the extent the same are defined therein.
Section 16.2 ACCOUNTING TERMS. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings
customarily given them in accordance with generally accepted accounting
principles.
ARTICLE XVII - GENERAL TERMS AND CONDITIONS
Section 17.0. APPLICABLE LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Arizona.
Section 17.1. NOTICES. Any notice, request, demand, instruction or other
communication to be given any party hereto in writing shall be effective upon
delivery during regular business hours at the offices of Borrower and Lender
hereinafter set forth or at such other offices that either party notifies the
other of in writing. The failure to deliver a copy as set forth below shall
not affect the validity of the notice to the Borrower or Lender. Such
communications shall be given by telecopy, commercial delivery service, or
sent by certified mail, postage prepaid and return receipt requested, as
follows:
If to Borrower: Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Electronic FAX (602) 852-6696
ATTN: Steven P. Johnson
If to Lender: General Electric Capital Corporation
1000 Hart Road
Barrington, IL 60010
Electronic FAX (847) 304-3456
Attention: Manager, Asset Based Financing
with a copy to: General Electric Capital Corporation
600 Hart Road
Barrington, IL 60010
Electronic FAX (847) 304-3444
Attention: Counsel -Auto Financial Services
Section 17.2. HEADINGS. Paragraph headings have been inserted in this
Agreement as a matter of convenience for reference only. The paragraph
headings shall not be used in the interpretation of this Agreement.
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Section 17.3. SEVERABILITY. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision or
provision in every other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.
Section 17.4. OFFSET. Lender has the right to offset, apply, or recoup
any obligation of Borrower to Lender, arising under the Loan Documents or
otherwise, against any obligations or payments Lender owes to Borrower,
arising under the Loan Documents or otherwise, or against any property of
Borrower held by Lender. Borrower waives any right to offset, apply, or
recoup against any obligation it owes to Lender. Lender is not obligated to
collect any of the Contracts or pursue any of the other Collateral or any of
Lender's rights at any time as a condition to payment and performance by
Borrower.
Section 17.5. INDEPENDENT CONTRACTOR. Borrower is an independent
contractor in all matters relating to this Agreement and the Collateral and is
not an agent or representative of Lender. Borrower has no authority to act on
behalf of or bind Lender.
Section 17.6. EXPENSES. Each party shall bear the expenses of its own
performance of this Agreement.
Section 17.7. MODIFICATION OF LOAN DOCUMENTS; SALE OF INTEREST. This
Agreement may not be modified, altered or amended, except by an agreement in
writing signed by Borrower and Lender. The rights of Lender granted in or
referred to in this Agreement shall apply to any modification of or supplement
to the Loan Documents. Borrower may not without Lender's prior written
permission sell, assign or transfer any of the Loan Documents, or any portion
thereof, including, without limitation, Borrower's rights, title, interests,
remedies, powers and duties thereunder. Any sale, assignment, or transfer by
Borrower without Lender's permission shall be void ab initio. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of any of the Loan Documents, or
of any portion thereof, including, without limitation, Lender's rights, title,
interests, remedies, powers and duties thereunder. The Loan Documents shall
be binding upon and inure to the benefit of the permitted successors and
assigns of Borrower and Lender.
Section 17.8. ATTORNEYS' FEES AND LENDER'S EXPENSES. If, following an
Event of Default, Lender shall in good faith employ counsel for advice or
other representation or shall incur other costs and expenses in connection
with (A) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, Borrower or any other Person) in any way relating to the
Collateral, any of the Loan Documents or any other agreements executed or
delivered in connection herewith, (B) any attempt to enforce, or enforcement
of, any rights of Lender against Borrower or any other Person, including,
without limitation, Contract Debtors, that may be obligated to Lender by
virtue of any of the Loan Documents, or (C) any actual or attempted
inspection, audit, monitoring, verification, protection, collection, sale,
liquidation or other disposition of the Collateral; then, in any such event,
the attorneys' fees arising from such services and all expenses, costs,
charges and other fees (including expert's fees) incurred by Lender in any way
arising from or relating to any of the events or actions described in this
Section shall be payable to Lender by Borrower on demand by Lender and until
paid shall be part of the Loan.
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Section 17.9. WAIVER BY LENDER. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement or any of the other Loan Documents shall not waive, affect or
diminish any right of Lender thereafter to demand strict performance
therewith. Any suspension or waiver by Lender of an Event of Default by
Borrower under the Loan Documents shall not suspend, waive or affect any other
Event of Default by Borrower under the Loan Documents, whether the same is
prior or subsequent thereto and whether of the same or of a different type.
None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in the Loan Documents and no Event of
Default by the Borrower under the Loan Documents shall be deemed to have been
suspended or waived by Lender unless such suspension or waiver is by an
instrument in writing signed by a manager of Lender and identifies the matter
waived or suspended. Any consent or approval by Lender pursuant to this
Agreement is not a waiver by Lender of, or an admission by Lender of the truth
of, any of Borrower's representations and warranties in this Agreement.
Section 17.10. WAIVERS BY BORROWER. Except as otherwise provided for in
this Agreement, Borrower waives (i) notice and consummation of presentment,
demand, protest, dishonor, intent to accelerate, acceleration; (ii) all rights
to notice and a hearing prior to taking possession or control of, or Lender's
replevy, attachment or levy upon, the Collateral; (iii) any bond or security
in a judicial proceeding as a condition to Lender exercising any of Lender's
remedies; (iv) the benefit of all valuation, appraisement and exemption laws,
and (v) TRIAL BY JURY in any dispute with Lender arising out of or related to
any of the Loan Documents. The failure or delay of Borrower to strictly
enforce the terms of this Agreement shall not be a waiver of Borrower's right
to do so.
Section 17.11. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
Section 17.12. ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties regarding the loan by Lender to Borrower based on
Contracts and supersedes all prior agreements, whether written or oral, with
respect thereto.
Section 17.13. STATEMENTS OF ACCOUNT. Each report, billing statement,
Statement of Borrowing Base, and payment transcript which is prepared by
Lender shall, except for manifest errors, be deemed final, binding and
conclusive upon Borrower in all respects as to all matters reflected therein,
and shall constitute an account stated between Borrower and Lender, unless
thereafter waived in writing by Lender or unless, within thirty (30) days
after Borrower's receipt of such document, Borrower delivers to Lender notice
of a written objection thereto specifying the claimed error. In the event of
such an error, only those items expressly objected to in such notice shall be
deemed to be disputed by Borrower and Lender's only liability to Borrower
shall be to issue a corrected document.
Section 17.14. PUBLICITY. Borrower shall not (i) issue any press release
or make any public announcement or otherwise publicize the consummation of
this Agreement with Lender, or (ii) make a public disclosure of any kind
regarding the subject matter hereof, or (iii) make use of Lender's name,
tradename, logo or trademark without the express written consent of Lender,
except that Borrower may publicly disclose information relating to this
Agreement if Borrower gives Lender 48 hours advance written notice prior to
releasing any disclosure required by law or in connection with its
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registration of securities with the U.S. Securities and Exchange Commission or
any state securities commission, or in connection with a filing pursuant to
Borrower's listing with a national securities exchange or governmental entity.
Section 17.15. CONTRACT DOCUMENTS. After Lender reviews a Contract form
or any other form used in connection with a Contract (collectively, the
"Form") Lender may inform Borrower that the Form may not comply with certain
laws or that the Form is not acceptable to Lender as an Eligible Contract form
unless certain changes are made. Borrower is responsible for its use of the
Forms and for any changes Borrower makes to the Forms in response to Lender's
comments. Lender shall have no liability to Borrower arising from Borrower's
use of, or changes to, any Form regardless of whether Lender approved the Form
or the changes or whether Lender conditioned the use of the Form as an
Eligible Contract form upon the changes being made. Regardless of Lender's
approval of a Form or Lender's comments regarding a Form, Borrower remains
obligated to Lender to conduct its business in a lawful manner, including the
use of Forms which comply with applicable laws.
Section 17.16. FAXED DOCUMENTS. In order to expedite the acceptance and
execution of this Agreement and any of the Supplemental Documents, each of the
parties hereto agrees that a faxed copy of any original executed document
shall have the same binding effect on the party so executing the faxed
document as an original handwritten executed copy thereof.
Entered into as of: _________________, 1997
GENERAL ELECTRIC CAPITAL CORPORATION UGLY DUCKLING CAR SALES, INC.
Its: General Partner
By: ________________________________ By: ______________________________
Title: ____________________________ Title: ___________________________
UGLY DUCKLING CORPORATION UGLY DUCKLING CAR SALES NEW MEXICO, INC.
By: ________________________________ By: ______________________________
Title: ____________________________ Title: ___________________________
DUCK VENTURES, INC. CHAMPION FINANCIAL SERVICES, INC.
By: ________________________________ By: ______________________________
Title: ____________________________ Title: ___________________________
Signatures Continued on Following Page
CHAMPION ACCEPTANCE UGLY DUCKLING CAR SALES FLORIDA,
CORPORATION formerly known as UGLY INC.
DUCKLING CREDIT CORPORATION By: _______________________________
Title: ____________________________
By: ________________________________
Title: ____________________________
UGLY DUCKLING CAR SALES TEXAS,
L.L.P.
By: Ugly Duckling Car Sales, Inc.
Its: General Partner
By: ________________________________
Title: _____________________________
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LOAN AND SECURITY AGREEMENT BETWEEN UGLY DUCKLING
CORPORATION, ETAL. AND GENERAL ELECTRIC CAPITAL CORPORATION
LIST OF EXHIBITS
EXHIBIT 3.1 ELIGIBILITY REQUIREMENTS
EXHIBIT 3.1(A) CONTRACT FORM
EXHIBIT 3.1(B) CREDIT AND ADVANCE CRITERIA
EXHIBIT 5.1(C) REPORTS
EXHIBIT 5.1(C)(1) SERVICING REPORT CERTIFICATE
EXHIBIT 6.3 CONTRACT DEBTOR DOCUMENTS
EXHIBIT 8.2 ASSIGNMENT
EXHIBIT 8.3 ASSIGNMENT OF BORROWER'S RIGHTS TO DIRECT
DEBIT
EXHIBIT 9.0 SUPPLEMENTAL DOCUMENTS
EXHIBIT 9.0(A) VALIDITY OF COLLATERAL GUARANTY
EXHIBIT 9.0(B) GUARANTY FOR CYGNET FINANCE INC.
EXHIBIT 9.0(G) OPINION OF COUNSEL
EXHIBIT 9.0(L) OFFICER'S CERTIFICATE
EXHIBIT 9.0(P) CORPORATE RESOLUTION OF EACH BORROWER
EXHIBIT 9.0(Q) POWER OF ATTORNEY
EXHIBIT 9.0(V) LANDLORD LIEN WAIVER
EXHIBIT 10.0(a) BORROWERS' NAMES, LOCATIONS AND SUBSIDIARIES
EXHIBIT 10.0(g) UCC LANGUAGE
EXHIBIT 10.0(i) BROKER DISCLOSURE
EXHIBIT 10.0(j) LABOR DISCLOSURE
EXHIBIT 13.4 FINANCIAL STATEMENT CERTIFICATE
EXHIBIT 16.0 DEBT SUBORDINATION AGREEMENT
[NOTE: ALL EXHIBITS NOT INCLUDED WITH UGLY DUCKLING CORPORATION'S SEC FILING.
HOWEVER, EXHIBITS ARE AVAILABLE UPON AN APPROPRIATE REQUEST.]