Exhibit 10.54
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MASTER LOAN AND SERVICING AGREEMENT
DATED AS OF DECEMBER 1, 2001
BY AND AMONG
CREDIT STORE FINANCIAL, INC.,
AS BORROWER
AND
THE CREDIT STORE, INC.,
AS SERVICER,
AND
THE VARDE FUND IV-A, L.P.,
AS LENDER
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TABLE OF CONTENTS
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PAGE
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ARTICLE I THE LOANS......................................................................................1
Section 1.1 Definitions...................................................................1
Section 1.2 The Loans.....................................................................1
Section 1.3 Procedures for Loan Advances..................................................1
Section 1.4 The Notes.....................................................................2
Section 1.5 Financed Amount...............................................................2
Section 1.6 Interest......................................................................2
Section 1.7 Conditions to Loan Advances; Loan Closings....................................3
Section 1.8 Repayment of Principal, Fixed Interest and Lender's Residual..................5
Section 1.9 Survival of Obligation to Pay the Lender's Residual...........................5
Section 1.10 Prepayment....................................................................6
ARTICLE II COLLATERAL....................................................................................7
Section 2.1 Perfection of Lender's Security Interest......................................7
Section 2.2 Administration of Collateral and Collections..................................8
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ARTICLE III REPRESENTATIONS AND WARRANTIES..............................................................10
Section 3.1 Corporate Existence and Power................................................10
Section 3.2 Authorization................................................................11
Section 3.3 Compliance with Law and Other Agreements.....................................11
Section 3.4 Litigation...................................................................11
Section 3.5 Ownership; Liens.............................................................11
Section 3.6 No Materially Adverse Contracts..............................................11
Section 3.7 Disclosure...................................................................11
Section 3.8 Government Approval..........................................................12
Section 3.9 Collection History...........................................................12
Section 3.10 Limited Authority over Lockbox and Collection Account........................12
Section 3.11 Credit Collection Policy.....................................................12
ARTICLE IV LOAN SERVICING...............................................................................12
Section 4.1 Servicer.....................................................................12
Section 4.2 Replacement Servicer.........................................................12
Section 4.3 Duties of Servicer...........................................................12
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Section 4.4 Servicer's Indemnification...................................................14
Section 4.5 Termination of Servicer......................................................14
Section 4.6 Rights upon the Occurrence of a Servicer Termination Event...................16
ARTICLE V COVENANTS OF BORROWER AND SERVICER............................................................17
Section 5.1 Business and Existence.......................................................17
Section 5.2 Payment of Obligations and Expenses..........................................17
Section 5.3 Payment of Taxes and Assessments.............................................17
Section 5.4 Notice of Event of Default...................................................17
Section 5.5 Asset Information............................................................17
Section 5.6 Asset Information Related to Forward Flow Agreements.........................18
Section 5.7 Other Information............................................................18
Section 5.8 Right of Inspection..........................................................18
Section 5.9 Portfolio Acquisition List...................................................18
Section 5.10 Compliance Certificate.......................................................18
Section 5.11 Reimbursement of Collection Expenses.........................................18
Section 5.12 Liens; Other Debt............................................................18
Section 5.13 Consolidation, Merger, Sale of Collateral; Changes to Organizational Documents19
Section 5.14 Other Agreements.............................................................19
Section 5.15 Use of Loan Proceeds.........................................................19
Section 5.16 Notification of Legal Process................................................19
Section 5.17 Transactions with Affiliates.................................................19
Section 5.18 Annual Financial Statements..................................................19
Section 5.19 Quarterly Financial Statements...............................................19
Section 5.20 Single Purpose Entity........................................................20
Section 5.21 Charge-off Policy............................................................21
Section 5.22 Unwind Policy................................................................21
Section 5.23 Re-Aging Policy..............................................................21
Section 5.24 Minimum Monthly Payment Policy...............................................21
Section 5.25 Credit Line Increase Policy..................................................22
Section 5.26 Amendments to TCSI Account Purchase Agreement or Converted Accounts Agreement22
Section 5.27 Transactions Involving Collateral............................................22
ARTICLE VI DEFAULT......................................................................................22
Section 6.1 Events of Default............................................................22
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Section 6.2 Effect of Event of Default...................................................24
Section 6.3 Remedies with Respect to Residual Interest...................................24
ARTICLE VII DISPOSITIONS OF ASSETS......................................................................24
Section 7.1 Unconverted Account Sales....................................................24
Section 7.2 Whole Loan Sales.............................................................25
Section 7.3 Securitizations..............................................................25
Section 7.4 Retained Interests...........................................................26
ARTICLE VIII DEFINITIONS................................................................................26
ARTICLE IX MISCELLANEOUS................................................................................34
Section 9.1 Survival of Representations and Warranties...................................34
Section 9.2 Cure.........................................................................34
Section 9.3 Relationship between Parties.................................................34
Section 9.4 Confidentiality..............................................................34
Section 9.5 Amendment and Modification...................................................35
Section 9.6 Waivers......................................................................35
Section 9.7 Transferability of Loan Agreement; Loan Participations.......................35
Section 9.8 Actions in Connection with Bankruptcy........................................36
Section 9.9 GOVERNING LAW; JURISDICTION; VENUE...........................................36
Section 9.10 WAIVER OF JURY TRIAL.........................................................36
Section 9.11 Enforceability of Loan Agreement.............................................37
Section 9.12 Titles.......................................................................37
Section 9.13 Accounting Terms.............................................................37
Section 9.14 Notice.......................................................................37
Section 9.15 Entire Agreement.............................................................38
Section 9.16 Borrower's Indemnification...................................................38
Section 9.17. Savings Provision............................................................38
EXHIBITS
Exhibit A.........FORM OF PROPOSAL
Exhibit B.........FORM OF COMMITMENT
Exhibit C.........FORM OF NOTE
Exhibit D.........FORM OF NOTE REGISTER
Exhibit E.........CALCULATION OF INTERNAL RATE OF RETURN
Exhibit F.........FORM OF SECURITY AGREEMENT
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MASTER LOAN AND SERVICING AGREEMENT
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THIS MASTER LOAN AND SERVICING AGREEMENT (this "LOAN AGREEMENT") is
made and entered into as of December 1, 2001, by and among CREDIT STORE
FINANCIAL, INC., a Delaware corporation ("BORROWER"), THE CREDIT STORE, INC., a
Delaware corporation, as servicer ("SERVICER" or "TCSI"), and THE VARDE FUND
IV-A, L.P., a Delaware limited partnership ("LENDER").
RECITALS
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Borrower desires that Lender make one or more Loans to finance
Borrower's acquisition of Assets from various Asset Sellers.
Lender is willing to make the Loans, up to an aggregate original
principal amount of Twenty-five Million Dollars ($25,000,000), subject to the
terms and conditions herein set forth.
Borrower and Lender desire that Servicer service the Assets, and
Servicer is willing to perform such duties.
In consideration of the foregoing premises and the agreements
hereinafter set forth, Borrower, Servicer and Lender agree as follows:
ARTICLE I
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THE LOANS
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Section 1.1 Definitions. Capitalized terms used in this Loan Agreement
are defined in Article 8 hereof.
Section 1.2 The Loans. Subject to the terms and conditions set forth
herein, Lender agrees to make one or more Loans (each, a "LOAN" and
collectively, the "LOANS") up to an aggregate original principal amount of
Twenty-five Million Dollars ($25,000,000), in order to finance Borrower's
acquisition(s) of Assets; provided, however, that unless otherwise agreed by
Lender in its sole discretion, in no event shall Lender make a Loan from and
after the earlier of (a) October 31, 2003 and (b) the termination of this Loan
Agreement in accordance with its terms. The Loans will not be made on a
revolving basis.
Section 1.3 Procedures for Loan Advances.
(a) Proposals. Borrower shall request each Loan (or series of
Loans, in the case of a Forward Flow Agreement) by presenting a
Proposal to Lender.
(b) Commitments.
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(i) Lender shall have up to five (5) calendar days
(or such lesser number of days as the parties may agree upon
based on the circumstances of the Proposal) from the receipt
thereof, to accept or reject the Proposal. If Lender accepts
the Proposal, such acceptance shall be in the form (and only
in the form) of a Commitment. If Lender does not respond
within five (5) calendar days (or such lesser number of days
as the parties may agree upon based on the circumstances of
the Proposal) after Lender's receipt of the Proposal, Lender
shall be deemed to have rejected the Proposal. All Loans from
Lender to Borrower shall be made at Lender's sole and absolute
discretion, and Lender may decline to accept any Proposal that
is the subject of a Commitment for any reason or for no
reason. Lender shall have no obligation to make any Loan
except pursuant to and in accordance with the terms and
conditions of this Loan Agreement and a written Commitment
made to Borrower with respect to a specific Portfolio or, in
the case of a Forward Flow Agreement, the Portfolios subject
thereto. Any Commitment delivered by Lender to Borrower may be
withdrawn by Lender for any reason at any time prior to TCSI's
submission of a written and binding bid to the respective
Asset Seller for the purchase of the related Portfolio or, in
the case of a Forward Flow Agreement, the related Portfolios.
For the purposes of this Section 1.3(b)(i), if an Asset Seller
permits use of an online bid, then such online bid shall be
considered a written bid.
(ii) In the case of a Forward Flow Agreement that is
the subject of a Commitment, so long as no Event of Default
has occurred and is continuing and subject to the conditions
precedent to Loans contained in Section 1.7, Lender agrees to
make Loans to finance all of Borrower's purchases of
Portfolios from TCSI related to such Forward Flow Agreement;
provided, however, that Lender may decline to make a Loan with
respect to a Portfolio related to such a Forward Flow
Agreement if Lender provides TCSI with timely notice
sufficient to enable TCSI to decline to purchase such
Portfolio in accordance with the terms of such Forward Flow
Agreement. To facilitate the making of each Loan under a
Forward Flow Agreement, Borrower will submit to Lender
information on the related Portfolio in the same format as a
Proposal as early as possible prior to the closing date
related to such Portfolio but no additional Commitment shall
be required by Lender with respect to such information.
Section 1.4 The Notes. Each Loan shall be evidenced by a Note duly
executed by Borrower. Each Note shall bear interest from the applicable
Borrowing Date, represent a borrowing from the Borrowing Date and shall mature
on the respective Maturity Date. Payments on the Notes will be made in
accordance with Section 1.10 and Section 2.2. Borrower shall maintain, or cause
to be maintained a register in the form attached as Exhibit D. Upon surrender of
a Note by the holder thereof for registration of transfer, Borrower shall
execute one or more replacement Notes in an aggregate principal amount equal to
that of the surrendered Note, issued to, and registered in the name of, the
transferee holder(s); provided that, in any event, Borrower shall have no
liability to any party in connection with the form or substance of the register.
Section 1.5 Financed Amount. Lender will not make any Loan in an
original principal amount greater than ninety-five percent (95.0%) of the Total
Cost of the related Portfolio.
Section 1.6 Interest.
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(a) Fixed Interest. Fixed interest will accrue on the unpaid
principal balance of each Note from the applicable Borrowing Date, at
the rate of fifteen percent (15%) per annum (such interest is referred
to herein as "FIXED INTEREST"), and is payable in accordance with
Section 2.2 commencing on the Distribution Date occurring in the first
calendar month following the applicable Borrowing Date. If available
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Collections from the related Portfolio on the first four Distribution
Dates following the Borrowing Date with respect to a Loan are
insufficient to pay the accrued Fixed Interest, such accrued but unpaid
Fixed Interest shall be added to the principal amount of the respective
Note, effective as of the Distribution Date on which such Fixed
Interest is not paid; provided, however, that beginning on the fifth
Distribution Date following the Borrowing Date for such Loan, Fixed
Interest (including any accrued but unpaid Fixed Interest) shall be due
and payable regardless of the sufficiency of Collections. Any payment
of Fixed Interest made by Borrower from funds other than Collections
from the related Portfolio shall increase the Borrower's Contribution
with respect to such Portfolio. Fixed Interest will be computed on the
basis of the actual number of days principal remains unpaid and a
360-day year.
(b) [Reserved.].
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(c) Default Interest. Upon the occurrence of an Event of
Default, Fixed Interest shall accrue at the lesser of (i) nineteen
percent (19%) per annum or (ii) the maximum interest rate permitted by
law (hereinafter referred to as the "DEFAULT RATE").
Section 1.7 Conditions to Loan Advances; Loan Closings. This Loan
Agreement shall be effective upon the execution and delivery by Borrower, Lender
and Servicer; provided, however, that the obligation of Lender to advance any
Loan hereunder is subject in each case to the satisfaction or waiver of the
following conditions precedent on or before the applicable Borrowing Date:
(a) Conditions to Initial Loan Advance. The obligation of
Lender to advance the initial Loan hereunder is subject in each case to
the satisfaction or waiver of the following conditions precedent on or
before the applicable Borrowing Date:
(i) Loan Documents. All of the Loan Documents shall
have been fully executed on behalf of the applicable parties,
including, without limitation, a Note with respect to such
Loan.
(ii) Certified Resolutions. Borrower and Servicer
shall have delivered to Lender certified copies of resolutions
or other evidence of corporate action authorizing the
execution, delivery and performance of the Loan Documents
(including the borrowing of Loans subsequent to the initial
Loan) and the acquisition of Portfolios (including Portfolios
with respect to Loans subsequent to the initial Loan).
(iii) Opinions. Lender shall have received opinions
from Borrower's counsel regarding the existence of Borrower
and Servicer, their corporate authority to enter into the Loan
Documents, the enforceability of the Loan Documents under
Minnesota law and the creation and perfection of Lender's
security interest in the Collateral.
(iv) Borrower and Servicer Organizational Documents.
Lender shall have received the following with respect to
Borrower and Servicer: (A) recent Good Standing Certificate
issued by the Secretary of State of the State of Delaware, (B)
certificate of incorporation, certified by the Secretary of
State of the State of Delaware, and (C) current by-laws,
certified by an authorized officer.
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(v) Credit and Collection Policy. Servicer shall
deliver to Lender a true, correct and complete copy of the
Credit and Collection Policy.
(vi) CSSI Documents. Servicer shall have delivered to
Lender fully executed copies of Amendment No. 1 of even date
herewith to the Master Loan and Servicing Agreement dated as
of October 31, 2000, among CSSI, Servicer and Lender and
Amendment No. 1 of even date herewith to the Security
Agreement dated as of October 31, 2000, between CSSI and
Lender and any other documents, instruments and certificates
to be delivered pursuant thereto or in connection therewith.
(b) Conditions to All Advances. The obligation of Lender to
advance each Loan hereunder is subject in each case to the satisfaction
or waiver of the following conditions precedent on or before the
applicable Borrowing Date:
(i) Proposal and Commitment. Borrower shall have
delivered to Lender a Proposal relating to the requested Loan,
duly executed by an authorized officer, and the Proposal shall
have been accepted and agreed to by Lender by the issuance of
its Commitment.
(ii) Note. Borrower shall have executed and delivered
to Lender a Note with respect to such Loan.
(iii) Officer's Certificates. Borrower shall have
caused an authorized officer to deliver to Lender a
certification to Lender that as of such Borrowing Date, that
no Event of Default exists and that there exists no condition,
event or act which, with the giving of notice or passage of
time, or both, would constitute an Event of Default, and
Servicer shall have caused an authorized officer to deliver to
Lender a certification to Lender that as of such Borrowing
Date, that no Servicer Termination Event exists and that there
exists no condition, event or act which, with the giving of
notice or passage of time, or both, would constitute a
Servicer Termination Event.
(iv) Asset Purchase Agreement Documentation. Lender
shall have received all information and copies of all
documents relating to the respective Asset Purchase Agreement
as Lender shall reasonably request.
(v) Portfolio Budget. Borrower shall have delivered
to Lender the Portfolio Budget for the applicable Portfolio.
(vi) No Default. As of such Borrowing Date, there
shall exist no Event of Default and no condition, event or act
which, with the giving of notice or passage of time, or both,
would constitute an Event of Default.
(vii) Representations and Warranties. All
representations and warranties of Borrower and Servicer
contained herein shall be true and correct in all material
respects on such Borrowing Date, with the same force and
effect as though such representations and warranties had been
made at such time except to the extent such representations
and warranties expressly relate to an earlier date, in which
case such representations and warranties will be true and
correct in all material respects as of such earlier date or,
in the case of financial statements, shall refer to the
financial statements last delivered to Lender.
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(viii) Acquisition of Portfolio by Borrower. TCSI and
the Asset Seller shall have performed all of their respective
obligations under the respective Asset Purchase Agreement as
of the respective Borrowing Date. Contemporaneously with the
closing of the Loan, TCSI shall pay the purchase price of the
Portfolio and the Asset Seller shall transfer the Portfolio to
TCSI pursuant to the terms of such Asset Purchase Agreement,
free and clear of all liens, claims and encumbrances, and TCSI
shall transfer the Portfolio and TCSI's rights under the Asset
Purchase Agreement to Borrower pursuant to the terms of the
TCSI Account Purchase Agreement.
(ix) Delivery of Documents. Borrower shall have
delivered to Lender, or Lender's agent, the original copies of
all Account Documents relating to the Assets in such Portfolio
then in its possession that are Chattel Paper or Instruments,
and will immediately deliver (or cause the Asset Seller to
deliver) upon its receipt (or right to receive) any additional
Account Documents that are Chattel Paper or Instruments as may
be reasonably requested by Lender; provided, however, that all
such Instruments must be delivered to Lender or Lender's agent
within the time necessary for Lender to obtain a first
priority perfected purchase money security interest therein.
To the extent that Servicer holds any such Chattel Paper or
Instruments, Servicer shall hold them in a custodial capacity
as bailee for Borrower.
(x) Compliance with Agreements. Borrower shall have
otherwise complied with all of the terms and conditions of the
Loan Documents.
(c) Closing. Unless otherwise agreed by Borrower and Lender,
the closing of each Loan will take place in Minneapolis, Minnesota,
upon satisfaction of the conditions precedent set forth in this Section
1.7.
Section 1.8 Repayment of Principal, Fixed Interest and Lender's
Residual. Borrower covenants to repay principal amounts advanced under the Notes
and Fixed Interest thereon, and to pay the Lender's Residual to the extent of
available Collections, as more particularly set forth herein.
Section 1.9 Survival of Obligation to Pay the Lender's Residual.
Borrower's obligation to pay the Lender's Residual with respect to a Loan shall
not be discharged upon payment in full of the principal amount of the respective
Note, and Borrower's obligation to pay the Lender's Residual with respect to a
Loan shall continue unless and until such time as the following events have
occurred: Borrower has disposed of substantially all of the Assets in a
Portfolio through one or more Unconverted Account Sales, Whole Loan Sales or
Securitizations (and the net proceeds thereof have been distributed in
accordance with Section 2.2 of this Loan Agreement) and (i) Borrower has prepaid
the Lender's Residual, if any, with respect to such Portfolio, in accordance
with terms of Section 1.10 of this Loan Agreement or (ii) Lender has purchased
the Borrower's remaining interest, if any, in the Portfolio in accordance with
the terms of Section 1.10 of this Loan Agreement.
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Section 1.10 Prepayment.
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(a) Prepayment of Principal and Fixed Interest. Except as
provided in Section 2.2 with respect to the application of Collections
or in connection with a Compliance Prepayment, principal may not be
prepaid in whole or in part. If and to the extent Borrower makes a
Compliance Prepayment, the amount of such Compliance Prepayment will be
added to Borrower's Contribution on account of the respective Loan,
effective as of the payment of such Compliance Prepayment.
(b) Prepayment Offers. The occurrence of any of (i), (ii) or
(iii), below, is referred to herein as a "PREPAYMENT OFFER":
(i) if, beginning on the earlier of (A) the date that
is six (6) full months after the Maturity Date or (B) the date
on which principal and Fixed Interest are paid in full,
Borrower gives written notice to Lender that Borrower desires
to initiate the Prepayment Option with respect to the
respective Loan;
(ii) if, beginning on the earlier of (A) the date
that is six (6) full months after the Maturity Date or (B) the
date on which principal and Fixed Interest are paid in full,
Lender gives written notice to Borrower that Lender desires to
initiate the Prepayment Option with respect to the respective
Loan; or
(iii) if Lender gives written notice to Borrower that
Lender desires to initiate the Prepayment Option with respect
to the respective Loan pursuant to Section 6.3.
The date on which Lender receives notice of the Prepayment Offer pursuant to
subparagraph (i) or initiates the Prepayment Offer pursuant to subparagraph (ii)
is referred to herein as the "PREPAYMENT NOTICE DATE."
(c) Prepayment Option Procedures.
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(i) Within ten (10) Business Days after the
Prepayment Notice Date, Borrower shall deliver to Lender a
schedule setting forth in detail its written good faith
estimate of the future net cash flows from the respective
Portfolio as of the Prepayment Notice Date (the "PORTFOLIO
PREPAYMENT SCHEDULE"). The Portfolio Prepayment Schedule shall
also show the present value of the Lender's Residual with
respect to such Loan (the "RESIDUAL PREPAYMENT VALUE") and the
present value of the Borrower's Residual (the "BORROWER'S
BUY-OUT VALUE"). The Residual Prepayment Value and the
Borrower's Buy-Out Value must be calculated using the same
cash flow and discount rate.
(ii) Within ten (10) Business Days after Lender's
receipt of the Portfolio Prepayment Schedule, Lender shall
give notice to Borrower that on a date that is not more than
twenty (20) Business Days following the date such notice is
given to Borrower (the "PREPAYMENT DATE"), Lender will, at
Lender's sole discretion and option (such option, the
"PREPAYMENT Option"), either:
(A) require Borrower to pay Lender the
Residual Prepayment Value as payment in full of
Borrower's obligation to pay the Lender's Residual on
account of the respective Assets; or
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(B) purchase or have Lender's designee
purchase Borrower's remaining interest in the
Portfolio for an amount equal to the sum of (1) any
unpaid Borrower Advances, (2) the unpaid balance of
the Borrower's Contribution, (3) the unpaid balance
of any amounts due to Borrower pursuant to Section
2.2(c)(vii), and (4) Borrower's Buy-Out Value.
(iii) All payments under this Section 1.10 shall be
made in immediately available funds. Following payment of the
Residual Prepayment Value in accordance with Section
1.10(c)(ii)(A), all rights and obligations of Lender with
respect to such Portfolio shall terminate. Upon completion of
the purchase by Lender pursuant to Section 1.10(c)(ii)(B), all
rights and obligations of Borrower with respect to the related
Collateral and Loan (including all obligations with respect to
payment of principal, Fixed Interest and Lender's Residual in
connection with the related Note and all obligations to fund
new charges and advances with respect to any Credit Card
Receivables with respect to such Portfolio) shall terminate.
(iv) All parties agree to execute, deliver, and file
such documents as may be reasonably necessary to evidence the
transactions contemplated by Section 1.10(c)(ii)(A),
including, without limitation, the execution, delivery and
filing of any lien assignments or termination statements or
any other documents reflecting the release of liens or
encumbrances granted pursuant to the Security Agreement. All
parties agree to execute, deliver, and file such documents as
may be reasonably necessary to evidence the transactions
contemplated by Section 1.10(c)(ii)(B), including, without
limitation (a) appropriate instruments to transfer Borrower's
remaining interest in the Portfolio to Lender or Lender's
designee, and (b) instruments reasonably deemed necessary by
the parties with respect to servicing transfer arrangements,
including agreements by Lender or Lender's designee with
respect to obligations to the issuing banks in connection with
the funding of new charges and advances with respect to Credit
Card Receivables. Borrower and Lender authorize the filing of
financing statements in connection with such transactions.
ARTICLE II
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COLLATERAL
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Section 2.1 Perfection of Lender's Security Interest. Borrower shall
take all commercially reasonable steps necessary to perfect Lender's security
interest in the Collateral, including, without limitation, (i) appropriate
notations on the computer records with respect to the Portfolios, (ii) physical
delivery of Account Documents with respect to the Assets that are Chattel Paper
or Instruments to Lender or its designated agent, or (iii) filing or recording
of any assignment, financing statement, notice or other writing. Borrower
authorizes Lender to file financing statements to perfect its security interest
in the Collateral and agrees to execute, acknowledge and deliver all such
further and additional instruments and documents, and take such other actions as
may be reasonably necessary or as Lender or its counsel may reasonably request
from time to time in order to preserve, perfect and maintain Lender's rights
hereunder and under the Security Agreement.
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Section 2.2 Administration of Collateral and Collections.
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(a) Payment and Receipt Processing. Obligors will be
instructed to submit payments directly to the post office address for
the Lockbox. Pursuant to the Lockbox Agreement, the Lockbox Bank will
collect the contents of the post office box each Business Day and will
endorse all checks, money orders, and other negotiable instruments of
payment contained in such mail and deposit such amounts in the Deposit
Account; provided, however, that all payments unable to be processed by
the Lockbox Bank will be sent to Servicer for research and
identification and will then be deposited directly into the Deposit
Account within five (5) Business Days after receipt by Servicer.
Borrower shall direct that any and all other Collections from parties
other than Obligors (e.g. the net proceeds of Unconverted Account
Sales, Whole Loan Sales, Securitizations or putback rights against
Asset Sellers, etc.) shall be deposited into the Disbursement Account.
Each Business Day, the Lockbox Bank will transfer available funds in
the Deposit Account (net of NSF checks and refunds) to the Disbursement
Account. Collections remaining in the Disbursement Account after
application pursuant to subsection (b) below will be transferred to the
Collection Account pursuant to the provisions of the Paying Agent
Agreement.
(b) Funding of Purchases and Advances on Credit Card
Receivables.
(i) On each Business Day, Servicer will provide
Lender and Payment Processing Audit Firm with the information
contained in the Daily Report. Upon confirmation by the
Payment Processing Audit Firm that the amounts are correct in
the form of the Daily Verification Report, Servicer shall
instruct the Paying Agent to disburse amounts from the
Disbursement Account to the applicable credit card issuing
bank, all amounts due on such day with respect to Credit Card
Receivables in respect of the sum of (A) cash advances and
credit card purchases, (B) re-presentments and (C)
miscellaneous adjustments requiring funding, net of the sum of
(x) return merchandise credits, (y) chargebacks and (z)
miscellaneous credit advices ("FUNDING REQUIREMENTS")
according to the Daily Report and the Daily Verification
Report.
(ii) If amounts available in the Disbursement Account
are insufficient to make the payment referred to above, the
Servicer shall advance such amount in accordance with the
terms of its agreement with the applicable credit card issuing
bank (each such advance, a "FUNDING ADVANCE"). To the extent
that the Servicer fails to make Funding Advances as and when
required, Lender may make such Funding Advances.
(iii) On each Business Day on which one or more
unreimbursed Funding Advances exists, Lender shall instruct
the Bank to disburse to the party which made the Funding
Advance amounts then on deposit in the Collection Account, in
each case without respect to Portfolio, in an amount equal to
unreimbursed Funding Advances.
(iv) At the same time Servicer delivers the
Remittance Report, Servicer shall provide Lender and Borrower
with a summary of the applications of Collections and amounts
on deposit in the Collection Account pursuant to this
subsection (b) during the preceding calendar month. To the
extent that Collections with respect to any Portfolio in
excess of the Funding Requirements for such Portfolio were
applied to meet the Funding Requirements of one or more other
Portfolios, Borrower shall deposit into the Collection Account
an amount equal to such excess (such deposit, a "BORROWER
ADVANCE").
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(c) Distribution of Payment and Collections. All amounts in
the Collection Account received on account of each Portfolio as of the
end of the previous calendar month, together with all Borrower Advances
in the Collection Account made on account of each such Portfolio with
respect to the prior calendar month, and together with any interest
earned on such amounts, will be distributed by the Bank from the
Collection Account pursuant to Lender's instructions on each
Distribution Date in the following order, as more particularly
specified in a Remittance Report as reasonably approved by Lender:
(i) First, to the Lockbox Bank, the Paying Agent and
the Bank, the pro rata portion allocated to such Portfolio of
any fees due from Borrower or Lender for their services
pursuant to the terms of the Lockbox Agreement, the Paying
Agent Agreement and the Blocked Account Agreement (and, if
amounts in the Collection Account with respect to the related
Portfolio are not sufficient to pay such fees with respect to
such Portfolio, the Borrower will be required to advance the
difference and be entitled to repayment of such amounts on a
priority basis under this subsection from Collections with
respect to the related Portfolio received on subsequent days);
(ii) Second, to Borrower, any unpaid Borrower
Advances made with respect to such Portfolio made pursuant to
subsection (b) above and any unreimbursed payments made by
Borrower with respect to such Portfolio pursuant to subsection
2.2(c)(i) above on any previous Distribution Dates;
(iii) Third, to Servicer, all accrued but unpaid
Servicing Fees with respect to such Portfolio (and, if amounts
in the Collection Account with respect to the related
Portfolio are not sufficient to pay such Servicing Fees, the
Servicer will be entitled to repayment of such Servicing Fees
on a priority basis under this subsection from Collections
with respect to the related Portfolio received on subsequent
days);
(iv) Fourth, to Lender in an amount equal to accrued
but unpaid Fixed Interest with respect to such Loan and any
collection expenses owing to Lender pursuant to Section 5.11
for such Loan;
(v) Fifth, to the applicable Person, to pay the
reasonable administrative and operating expenses customary for
limited purpose entities similar to Borrower;
(vi) Sixth, to Lender, until such time as Lender has
received the balance of principal with respect to such Loan;
(vii) Seventh, to Borrower in an amount equal to
accrued but unpaid interest on Borrower's Contribution with
respect to such Loan at the rate of fifteen percent (15%) per
annum, compounded and accrued monthly on an actual/360 basis;
9
(viii) Eighth, to Borrower, until such time as
Borrower has received the balance of Borrower's Contribution
with respect to such Loan;
(ix) Ninth, as more particularly set forth below:
(A) Prior to IRR to Lender of xxx. Until
such time as Lender achieves an IRR of xxx with
respect to such Loan, any remaining Collections with
respect to such Portfolio will be distributed xxx to
Lender and xxx to Borrower.
(B) Prior to IRR to Lender of xxx. After
such time as Lender achieves an IRR of xxx with
respect to such Loan and until such time as Lender
achieves an IRR of xxx with respect to such Loan, any
remaining Collections with respect to such Portfolio
will be distributed xxx to Lender and xxx to
Borrower.
(C) After IRR to Lender of xxx. After such
time as Lender achieves an IRR of xxx with respect to
such Loan, any remaining Collections with respect to
such Portfolio will be distributed xxx to Lender and
xxx to Borrower.
Amounts required to be paid to Lender pursuant to Section 2.2(c) (ix)
above are referred to as the "LENDER'S RESIDUAL" and the amounts that
Borrower is entitled to retain pursuant to Section 2.2(c) (ix), above
are referred to as the "BORROWER'S RESIDUAL."
(d) Allocation of Certain Amounts to Shortfalls. To the extent
(and only to the extent) that there is a shortfall of Collections on a
Distribution Date with respect to amounts due under subsections
2.2(c)(iv) and 2.2(c)(vi) with respect to the related Loan or there is
a CSSI Shortfall, and on the same Distribution Date Borrower is
entitled to receive distributions pursuant to Section 2.2(c)(vii),
(viii) and/or (ix) on account of one or more different Portfolios,
Lender may, in its sole discretion, apply such excess Collections to
any shortfall with respect to any Loan or to any CSSI Shortfall.
Amounts applied to cover any Loan shortfall shall be deemed to be paid
from Borrower's funds and shall be added to Borrower's Contribution
with respect to the Portfolio that had the shortfall. Amounts applied
to a CSSI Shortfall shall be deemed to have been paid to Borrower
pursuant to Section 2.2(c)(vii), (viii) or (ix), as applicable.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lender to make Loans under this Loan Agreement, each of
Borrower and Servicer severally makes the following representations and
warranties as to itself, which shall survive the execution and delivery of the
Loan Documents and shall be deemed to be made as of each Borrowing Date and
shall continue in full force and effect until payment in full by Borrower of all
amounts payable hereunder or under the Loan Documents and termination of this
Loan Agreement.
Section 3.1 Corporate Existence and Power. Each of Borrower and
Servicer is a duly organized and validly existing corporation in good standing
under the laws of the State of Delaware with all requisite power and authority
to own and operate its property and assets, to conduct the businesses in which
it is engaged or proposes to engage, and to execute, deliver, and perform its
obligations under the Loan Documents to which it is a party. Borrower does
business only under the name of Credit Store Financial, Inc.
10
Section 3.2 Authorization. The execution, delivery and performance of
the Loan Documents by Borrower and Servicer have been duly authorized by all
necessary corporate action. Each of Borrower and Servicer has duly authorized,
executed and delivered the Loan Documents to which it is a party, and each such
Loan Document constitutes its legal, valid and binding obligation, enforceable
against the Borrower or the Servicer, as applicable, in accordance with its
respective terms subject to bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting creditor's rights generally and by general principles
of equity.
Section 3.3 Compliance with Law and Other Agreements. Each of Borrower
and Servicer is not in violation of, or in default under, any terms of its
certificate of incorporation, by-laws or any law or governmental regulation
applicable to it or any agreement to which it is a party, which violation or
default would have a Material Adverse Effect. The execution, delivery, and
performance by Borrower or Servicer of the Loan Documents, the consummation of
the transactions contemplated herein or therein and the compliance with the
terms and provisions hereof or thereof will not contravene any material
provision of any law or regulation to which Borrower or Servicer is subject or
any order or decree of any court of governmental authority applicable to
Borrower or Servicer and will not result in any material breach of or constitute
a default under any indenture, mortgage, deed of trust, agreement or other
instrument to which Borrower or Servicer is a party or by which it or its
properties are bound, or result (except as contemplated by this Loan Agreement
and the Security Agreement) in the creation or imposition of any Lien on any of
the property or assets of Borrower or Servicer. Each of Borrower and Servicer
holds all of the permits, licenses, certificates, consents and other
authorizations of applicable governmental entities required by law to own and
service the Portfolios, the absence of which would have a Material Adverse
Effect.
Section 3.4 Litigation. There are no actions, suits, proceedings, or
investigations pending, threatened against or affecting Borrower, Servicer, any
of their subsidiaries or the Key Principals or any of their respective
properties, nor is there any outstanding judgment, order, writ, injunction,
decree or award affecting Borrower, Servicer, any of their subsidiaries or the
Key Principals before any court or before any federal, state, municipal or other
governmental department, commission, board, bureau or agency, which, either
separately or in the aggregate, is reasonably likely to have a Material Adverse
Effect, and Borrower or Servicer knows of no basis for any such suit,
proceeding, or investigation.
Section 3.5 Ownership; Liens. Beginning on the applicable Borrowing
Date, Borrower has a valid, first priority ownership interest or valid first
perfected security interest in the respective Assets, free and clear of all
Liens other than (i) the Lien in favor of Lender created pursuant to the
Security Agreement, (ii) any Lien in favor of Borrower created pursuant to the
Converted Accounts Agreement, (iii) the lien of taxes not yet due and payable,
and (iv) the lien, if any, of attorneys or others in possession of Collateral
for the purposes of collection.
Section 3.6 No Materially Adverse Contracts. Each of Borrower and
Servicer is not obligated under any contract or agreement or under any law,
regulation or decree which is reasonably likely to have a Material Adverse
Effect.
Section 3.7 Disclosure. The Loan Documents and the certificates,
exhibits and schedules attached thereto or furnished to Lender by Borrower in
connection with the closing of any Loan or Loans, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading. To the best knowledge
of Borrower, except as previously disclosed to Lender in writing, there is no
fact or condition existing as of the date hereof which has, or in the future is
reasonably like to have a Material Adverse Effect.
11
Section 3.8 Government Approval. Except for the filing of financing
statements, or as may be provided in the Asset Purchase Agreements, Borrower is
not required to obtain any order, consent, approval or authorization of, or
presently required to make any declaration or filing with any governmental
authority in connection with, the execution and delivery of the Asset Purchase
Agreements and the Loan Documents.
Section 3.9 Collection History. The experience and past results of
Borrower and Servicer, including, without limitation, collections, conversions
and related measures as represented to Lender by Borrower or Servicer prior to
the date hereof, are true and correct in all material respects and Borrower or
Servicer has not failed to disclose to Lender any material fact that is
necessary to make such representations, in the light of the circumstances under
which they were made, not misleading.
Section 3.10 Limited Authority over Lockbox and Collection Account.
Borrower has no authority to withdraw funds from the Lockbox or the Collection
Account.
Section 3.11 Credit Collection Policy. The Credit and Collection Policy
delivered to Lender is true, correct and complete in all material respects,
except for such changes from and after the date of this Loan Agreement that
Servicer is not required to provide to Lender pursuant to Section 4.3(d).
ARTICLE IV
----------
LOAN SERVICING
--------------
Section 4.1 Servicer. The servicing, administering, and collection of
the Assets shall be conducted by the Person designated as the Servicer hereunder
( "SERVICER") from time to time in accordance with this Section 4.1. TCSI is
hereby designated as, and hereby agrees to perform the duties, obligations and
covenants of, Servicer pursuant to the terms of this Loan Agreement and the
other Loan Documents. Servicer shall be entitled to receive Servicing Fees from
Collections received on account of each particular Portfolio as provided in the
applicable Proposal and Section 2.2(c). In addition, Servicer shall be entitled
to a priority interest in all Collections to repay Funding Advances it was
obligated to make under Section 2.2(b) and a priority interest in Collections
from the related Portfolio with respect to fees advanced by Servicer pursuant to
Section 2.2(c).
Section 4.2 Replacement Servicer. If TCSI is terminated as Servicer
pursuant to Section 4.5 below, Borrower may enter into a new servicing agreement
with a replacement servicer for such Servicing Fees and on such other terms and
conditions as Lender, in its sole discretion, may determine.
Section 4.3 Duties of Servicer.
------------------
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(a) Unconverted Accounts. Servicer shall manage, administer,
and collect the Unconverted Accounts in accordance with the respective
provisions of the Credit and Collection Policy, as in effect from time
to time, with the goal of achieving the projections in the applicable
Portfolio Budget, including (i) performing standard accounting services
and general record keeping services with respect to the Unconverted
Accounts, (ii) responding to any telephone and written inquiries of
Obligors regarding the Unconverted Accounts and (iii) contacting
Obligors to effect collection and doing so by lawful means. Servicer
shall use all reasonable efforts consistent with its current practices
to perform the following tasks with respect to all credit files
relating to Unconverted Accounts purchased by Borrower: (1) identify
bankrupt or deceased Obligors, (2) update or locate current telephone
numbers and addresses, and (3) score and stratify Unconverted Accounts
for marketing and credit evaluation. Servicer shall use reasonable
efforts, consistent with its current practices as described by Servicer
to Lender, and subject to Credit Collection Laws, to cause Borrower's
Unconverted Accounts to become Converted in conformance with the Credit
Collection Policy; provided, however, that upon any Unconverted
Accounts Sale, Servicer shall cease all efforts to Convert such
Unconverted Accounts.
(b) Credit Card Receivables. Servicer shall manage, service,
administer, and collect the Credit Card Receivables in accordance with
the respective provisions of the Credit and Collection Policy, as in
effect from time to time, with the goal of achieving the projections in
the applicable Portfolio Budget.
(c) Standard of Care. In performing its duties and obligations
under this Loan Agreement, Servicer will comply with all applicable
Credit Collection Laws and will apply in performing such duties and
obligations, those standards, policies and procedures consistent with
the standards, policies and procedures Servicer applies with respect to
assets owned by Servicer that are similar to the Assets. In performing
its duties and obligations hereunder, Servicer shall maintain all state
and federal licenses, permits and franchises necessary for it to
perform its responsibilities hereunder, and shall not impair the rights
of Borrower or Lender in the Collateral.
(d) Credit and Collection Policy. Servicer will provide Lender
and Borrower with any changes to the Credit Collection Policy that
Servicer deems, in its reasonable discretion, to be material to
Borrower and Lender in light of their respective interests under this
Loan Agreement.
(e) Insurance. Servicer shall maintain an errors and omissions
insurance policy providing coverage in an amount of not less than
$1,000,000 and a fidelity bond in an amount of not less than $100,000,
in such form as is customary for loan servicers acting in respect of
consumer loans on behalf of institutional investors therein. Borrower
and Lender shall be named as additional insureds under such insurance
policy, and as beneficiaries under such bond, and shall be furnished
with not less than thirty (30) calendar days prior written notice
before any amendment or cancellation thereof.
(f) Defend Against Claims Through Servicer. Servicer shall
defend Borrower's and Lender's right, title and interest to and in the
Collateral against all claims of third parties claiming through or
under Servicer.
(g) No Transfers of Assets. Servicer shall not sell, pledge,
assign, or transfer to any other Person, or grant, create, incur,
assume, permit or suffer to exist any Lien on any Collateral owned by
Borrower other than as permitted by the Loan Documents.
13
(h) General. Servicer shall collect all payments due under the
Assets, account for such payments, comply with the Lockbox and
Collection Account procedures, set up a program for collecting data and
records, storing such records, and making reports to Lender and
Borrower with respect to the Collateral and collections on the Assets.
Servicer shall provide the Paying Agent with the Distribution Report
and the Remittance Report, subject to Lender's right to approve the
Remittance Report provided in Section 2.2.
(i) Term. Servicer shall commence servicing each Portfolio of
Assets on the date such Portfolio is acquired by Borrower and shall
continue servicing the Assets in such Portfolio until the earlier of
(i) collection, resolution, disposition or charge-off of all Assets in
such Portfolio to Borrower's and Lender's satisfaction, (ii) earlier
appointment of a new servicer under Section 4.5, (iii) Lender or
Lender's designee purchases Borrower's remaining interest in the
Portfolio pursuant to Section 1.10(c)(ii)(B) (provided that the
termination of such servicing responsibility shall be limited to the
Portfolio purchased by Lender or Lender's designee), or (iv) by written
agreement of Borrower, Servicer and Lender.
Section 4.4 Servicer's Indemnification. Servicer agrees to indemnify,
defend and hold Lender harmless from and against any and all losses, damages,
costs, claims, expenses (including reasonable attorneys fees) and liabilities to
third parties growing out of or resulting from (i) the failure of Servicer to
comply with all applicable Credit Collection Laws; (ii) the actions of any of
the agents, representatives or employees of Servicer taken in connection with
the collection activities with respect to the Assets; (iii) the misapplication
(whether negligent or intentional), misappropriation, conversion or theft of any
part of the Collateral by any officer, employee, agent or representative of
Servicer; (iv) a Servicer Termination Event, or (v) fraud or material
misrepresentation. No indemnification under this Section shall provide recourse
to Servicer for the collectibility of any Asset or repayment of any Loan.
Section 4.5 Termination of Servicer. Notwithstanding the foregoing,
upon the occurrence and continuance of any of the following (a "Servicer
Termination Event"):
(a) Servicer's failure to deliver the Distribution Report to
the required parties within five (5) Business Days of the date that the
Daily Report is required to be delivered pursuant to the Paying Agent
Agreement;
(b) Servicer's failure to deliver the Remittance Report to the
required parties prior to the twenty-fifth (25th) calendar day of the
month in which such Remittance Report is due;
(c) Servicer's failure to make, transfer or deposit, or
deliver to Lender any proceeds or payment required under this Loan
Agreement or any other Loan Document or make a Funding Advance and such
failure remains unremedied for more than five (5) Business Days;
(d) Any breach by Servicer of any covenant, term, agreement or
condition contained in any Loan Document to which it is a party, which
breach has a Material Adverse Effect, and the same shall continue
unremedied for a period of thirty (30) calendar days after the Servicer
has or reasonably should have had notice thereof (provided that such
thirty (30) calendar day period shall only be applicable if Servicer
uses diligent efforts during such time to cure such breach) or such
other amount of time permitted for cure that is specifically provided
herein;
14
(e) Servicer delegates its duties under this Loan Agreement,
except to the extent that Servicer retains responsibility to Borrower
or Lender, as the case may be, for the performance of such duty or to
the extent otherwise permitted hereby;
(f) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of Servicer, or of a
substantial part of the property or assets of Servicer, under Title 11
of the United States Code, as now constituted or hereafter amended, or
any other federal or state bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for Servicer or for a
substantial part of the property or assets of Servicer or (iii) the
winding-up or liquidation of Servicer; and such proceeding or petition
shall continue undismissed for sixty (60) days or an order or decree
approving or ordering any of the foregoing shall be entered;
(g) Servicer shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United States
Code as now constituted or hereafter amended, or any other federal or
state bankruptcy, insolvency, receivership or similar law, (ii) consent
to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in
clause (d) above, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official for
Servicer or for a substantial part of the property or assets of
Servicer, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) become unable, admit in
writing its inability or fail generally to pay its debts as they become
due or (vii) take any action for the purpose of effecting any of the
foregoing;
(h) any representation or warranty made by Servicer in this
Loan Agreement, any certificate, any Distribution Report or any
Remittance Report delivered pursuant to this Loan Agreement shall prove
to have been false or misleading when made in any respect that has a
Material Adverse Effect, and the same shall continue unremedied for a
period of thirty (30) calendar days after the earlier to occur of (i)
discovery by a senior officer of Servicer and (ii) the date on which
written notice thereof, requiring the same to be remedied, shall have
been received by a senior officer of Servicer (provided that such
thirty (30) calendar day period shall only be applicable if Servicer
uses diligent efforts during such time to cure such breach);
(i) the occurrence and continuance of an Event of Default; or
(j) the occurrence and continuance of a "Servicer Termination
Event" under the CSSI Loan Agreement.
Lender may notify Servicer in writing that all future servicing of the Assets
shall be undertaken by a new Servicer designated by Lender (which new Servicer
may, but need not, be Lender (or its designee)). Upon receipt of such written
notice Servicer shall terminate its activities as Servicer hereunder and
facilitate as quickly as commercially practicable, the transition of the
performance of such activities to the new Servicer, and the new Servicer shall
assume each and all of Servicer's said obligations to service and administer the
Assets, on the terms and subject to the conditions herein set forth (including
the obligation to fund new purchases and advances with respect to the Credit
15
Card Receivables pursuant to Section 2.2(b)) and Servicer shall use its best
efforts to assist the new Servicer in assuming such obligations. Upon Lender's
request following the termination of Servicer hereunder, Servicer shall refer
inquiring Obligors to a telephone number provided by Lender or Lender's designee
and shall forward all correspondence received from Obligors to Lender or
Lender's designee within three (3) Business Days following Servicer's receipt of
such correspondence. If Servicer disputes the occurrence of a Servicer
Termination Event, Servicer may take appropriate action to resolve such dispute;
provided that Servicer must terminate its activities hereunder as Servicer and
must allow the new Servicer to perform such activities on the date specified by
Lender, notwithstanding the commencement or continuation of any proceeding to
resolve the aforementioned dispute; and provided, further, that once notified by
Lender that all future servicing of the Assets shall be undertaken by the new
Servicer, Servicer shall not be entitled to resume its servicing obligations
with respect to such Assets without the written consent of Lender,
notwithstanding that Servicer shall have remedied and cured Servicer Termination
Event giving rise to such assumption of servicing by the new Servicer.
If TCSI (or any subsequent Person acting as Servicer) is terminated as the
Servicer and servicing is performed by a new Servicer, such new Servicer shall
have all the rights and assume all the duties and obligations of the Servicer
under this Loan Agreement, including without limitation this Section 4.5.
Section 4.6 Rights upon the Occurrence of a Servicer Termination Event.
Upon the occurrence and during the continuance of a Servicer Termination Event
and following the appointment of a new Servicer, the power and authority of
TCSI, as initial Servicer (or any subsequent Person acting as the Servicer), to
collect the Assets in the ordinary course of business shall be deemed to be
immediately revoked and terminated, and with or without such general
notification, and, subject to the limitations and requirements of Section 4.3,
the new Servicer shall have the authority to do the following:
(a) issue a receipt to any person obligated to pay any amount
on account of any Asset, which shall be a full and complete release,
discharge, and acquittance to such person to the extent of any amount
so paid to the new Servicer;
(b) endorse the name of the Borrower, TCSI (as initial
Servicer) or any subsequent Person acting as Servicer (as applicable)
upon any check, draft, instrument, receipt, instruction, or other
document or item, including all items evidencing payment upon any Asset
or other indebtedness constituting Collateral, for which the new
Servicer is hereby granted an irrevocable power of attorney, which
grant is coupled with an interest; or
(c) endorse or otherwise execute all instruments, instructions
or other documents, agreements, or items on behalf of the Borrower,
TCSI (as initial Servicer) or any subsequent Person acting as the
Servicer, as shall be reasonably deemed by the new Servicer to be
necessary or advisable, in the sole discretion of the new Servicer, to
collect upon any Collateral or protect Lender's security interest in
any Collateral, for which the new Servicer is hereby granted an
irrevocable power of attorney, which is coupled with an interest.
16
ARTICLE V
---------
COVENANTS OF BORROWER AND SERVICER
----------------------------------
Each of Borrower and Servicer (where applicable), covenants and agrees
that from the date hereof and until payment in full of each Note and of all
other amounts due under this Loan Agreement:
Section 5.1 Business and Existence. Each of Borrower and Servicer will
perform all things necessary to preserve and keep in full force and effect its
corporate existence and use its best efforts to comply in all material respects
with all laws applicable to it. Borrower will not engage in any line of business
other than purchasing Unconverted Accounts from TCSI pursuant to the TCSI
Account Purchase Agreement or from third parties pursuant to Asset Purchase
Agreements, acquiring Credit Card Receivables pursuant to the Converted Accounts
Agreement or pursuant to other agreements, and holding and disposing of the
Assets, without the prior written consent of Lender, which consent may be
withheld for any reason or no reason. The Borrower will not own assets other
than the Assets (except for cash and contract rights incidental to the operation
of Borrower as contemplated by this Loan Agreement).
Section 5.2 Payment of Obligations and Expenses. Borrower will pay and
discharge all of its indebtedness, obligations and expenses promptly in
accordance with normal terms and practices of its business, before the same
shall become delinquent, as well as all lawful claims for labor, materials and
supplies which otherwise, if unpaid, might become a lien or charge upon its
properties or assets or any part thereof. Borrower shall not be required to pay
any obligation so long as Borrower shall contest, in good faith and at its own
cost and expense, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings which shall operate during the pendency thereof to
prevent the collection of or other realization upon the obligations so
contested, provided that no such contest shall subject Lender to the risk of any
liability. Borrower shall give Lender prompt written notice of any such contest.
Section 5.3 Payment of Taxes and Assessments. Borrower shall pay when
due all taxes, assessments and other governmental charges or levies which become
due and payable by Borrower to any political entity, subdivision or department
thereof under any law now or hereafter in force or effect. Borrower, however,
shall not be required to pay any tax, charge or assessment so long as Borrower
shall contest, in good faith and at its cost and expense, in its own name and
behalf, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings which shall operate during the pendency thereof to
prevent the collection of or other realization upon the tax, assessment, levy or
charge, so contested, provided that no such contest shall subject Lender to the
risk of any liability. Borrower shall give Lender prompt written notice of any
such contest.
Section 5.4 Notice of Event of Default. As soon as practicable after an
officer of Borrower or Servicer has knowledge of an Event of Default or any
condition which, with the passage of time could become an Event of Default,
Borrower or Servicer, as the case may be, will furnish Lender with written
notice of the occurrence of any such event or the existence of any such
condition which constitutes or upon written notice or lapse of time could
constitute an Event of Default.
Section 5.5 Asset Information. Borrower and Servicer will provide
Lender sufficient information to allow Lender to make an informed decision with
respect to a Proposal. Such information shall include but not be limited to,
information provided to Borrower by Asset Sellers related to the Assets,
internally generated stratifications and analyses of the Assets, portfolio
write-ups prepared by Borrower, key assumptions used in projecting future cash
flows of the Assets and Credit Card Receivables created from the Assets,
historical numbers on the Assets, and proposed Asset Purchase Agreements.
17
Section 5.6 Asset Information Related to Forward Flow Agreements. For
all Portfolios purchased pursuant to a Forward Flow Agreement, Borrower or
Servicer will submit to Lender a stratification report (by dollars and number of
Assets with percentages for each) containing detailed Asset information for each
such Portfolio within ten (10) Business Days after the relevant Borrowing Date.
The form and content of such stratification reports will be as determined by
Lender in its sole but reasonable discretion.
Section 5.7 Other Information. Borrower and Servicer will furnish such
other information regarding the operations, business affairs and financial
condition of Borrower or Servicer or their property or assets (including but not
limited to the Portfolios of Assets) as Lender may reasonably request for the
purpose of determining compliance with the Loan Documents, except that, subject
to Section 5.9, Servicer will not be required to deliver specific asset or
property information and may withhold the identity of other parties.
Section 5.8 Right of Inspection. Upon request of reasonable notice by
Lender, Borrower and Servicer shall permit any person designated by Lender, at
Lender's expense, to visit and inspect any of the properties, books and
financial reports of Borrower or Servicer and to discuss its affairs, finances
and accounts all at such reasonable times during ordinary business hours of
Borrower or Servicer and as often as Lender may reasonably request for the
purpose of determining compliance with the Loan Documents, or the status of the
Collateral; provided, however, that Lender will use reasonable efforts to
conduct (or have conducted) any such examination or inspection so as to minimize
disruptions to the operations of Borrower or Servicer.
Section 5.9 Portfolio Acquisition List. Furnish to Lender, no later
than twenty (20) calendar days after each month-end, a list of all Portfolios
acquired by Borrower or its Affiliates during the previous month. Such list
shall be certified by an officer of Borrower or Servicer as to its completeness
and include the following pieces of information: name of Asset Seller; size of
Portfolio; purchase price; and general collateral characteristics.
Notwithstanding the foregoing, Servicer will not be required to deliver specific
asset or property information and may withhold the identity of other parties
other than the Asset Seller.
Section 5.10 Compliance Certificate. Borrower or Servicer will each
deliver to Lender, within forty-five (45) calendar days after the end of each
calendar quarter, a certificate dated as of the end of the quarter in question
and signed by a responsible officer of such party stating (i) that as of the
date thereof no Event of Default has occurred and is continuing or exists, (ii)
that all respective representations and warranties of Borrower and Servicer set
forth in this Loan Agreement remain true and correct as of the date of such
compliance certificate, and (iii) that each has carried out its respective
obligations under this Loan Agreement in all material respects.
Section 5.11 Reimbursement of Collection Expenses. Borrower will
reimburse Lender, upon demand, for any and all costs, including reasonable
attorneys' fees, incurred in collecting any sums payable by Borrower under the
Loan Documents.
18
Section 5.12 Liens; Other Debt. Each of Borrower and Servicer will not
sell, transfer or assign the Collateral, except as permitted herein, or
contract, create, or incur any Liens upon or grant any security interest in any
of the Collateral, whether now owned or hereafter acquired, except (i) the Lien
in favor of Lender created pursuant to the Security Agreement, (ii) any Lien in
favor of Borrower created pursuant to the Converted Accounts Agreement, (iii)
the lien of taxes not yet due and payable, and (iv) the lien, if any, of
attorneys or others in possession of Collateral for the purposes of collection.
The Borrower will not incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Loans.
Section 5.13 Consolidation, Merger, Sale of Collateral; Changes to
Organizational Documents. Borrower will not (a) wind up, liquidate, or dissolve
its affairs, (b) enter into any transaction of merger or consolidation or (c)
convey, sell, lease or otherwise dispose of the Collateral or any part thereof,
except in the normal course of collections on the Portfolios or in connection
with an Unconverted Accounts Sale, a Whole Loan Sale or a Securitization
pursuant to Article VII. Borrower will not amend its certificate of
incorporation or by-laws without the prior written consent of Lender, determined
in Lender's reasonable discretion.
Section 5.14 Other Agreements. Borrower and Servicer will not enter
into any agreement containing any provision that would be violated or breached
by the performance of Borrower's or Servicer's obligations under any Loan
Document.
Section 5.15 Use of Loan Proceeds. Borrower will use the proceeds of
the Loans only to pay for the Total Cost of the Portfolios and for no other
purpose.
Section 5.16 Notification of Legal Process. Borrower or Servicer will
promptly notify Lender of any attachment or other legal process levied against
any of the Collateral and any information received by Borrower or Servicer
relative to the Collateral that may materially or adversely affect the value
thereof or the rights and remedies of Lender with respect thereto.
Section 5.17 Transactions with Affiliates. Except for Permitted
Affiliated Transactions, Borrower will not, either directly or indirectly, enter
into any contracts, agreements or transactions, including but not limited to,
brokerage contracts, property management agreements, sales contracts for the
providing of any other goods or services, or the reimbursement or payment of any
fees or expenses with its shareholders, officers or directors or with any of
Borrower's Affiliates (including, without limitaton, TCSI) or entities owned in
whole or in part by Borrower or its shareholders, officers or directors without
the prior written consent of Lender, which consent may be withheld for any
reason.
Section 5.18 Annual Financial Statements. (a) No later than one hundred
twenty (120) calendar days after Borrower's fiscal year end, Borrower will
provide to Lender, annual financial statements of Borrower prepared in
accordance with generally accepted accounting principles and reviewed by an
independent public accounting firm acceptable to Lender in its reasonable
discretion and certified as correct by a reliable officer of Borrower. (b) No
later than one hundred twenty (120) calendar days after Servicer's fiscal year
end, Servicer will provide to Lender, audited annual financial statements of
Servicer prepared in accordance with generally accepted accounting principles
and audited by an independent accounting firm acceptable to Lender in its
reasonable discretion and certified as correct by a reliable officer of
Servicer.
Section 5.19 Quarterly Financial Statements. No later than sixty (60)
calendar days after each fiscal quarter of Borrower and Servicer, Borrower and
Servicer will each provide to Lender, financial statements for such quarter of
Borrower and Servicer prepared in accordance with generally accepted accounting
principles and certified as correct by a reliable officer of Borrower and
Servicer, respectively.
19
Section 5.20 Single Purpose Entity.
----------------------
(a) Composition of the Borrower's Board. At least one member
of the Borrower's board of directors will be an individual who
satisfies the independent director eligibility requirements set forth
in the Borrower's certificate of incorporation. No such individual will
be a direct, indirect or beneficial stockholder, officer, director,
employee, Affiliate, associate, customer, or supplier of TCSI;
provided, however, that such individual may be a director of a
subsidiary of TCSI that is a limited purpose corporation similar to the
Borrower. No such director shall at any time serve as a trustee in
bankruptcy for TCSI.
(b) Compensation of Employees, Agents and Consultants;
Limitation on Agency. Any employee, consultant, director, or agent of
the Borrower will be compensated from the Borrower's own bank accounts
for services provided to the Borrower. The Borrower will engage no
agents other than: (i) the Servicer to service the Assets and (ii) TCSI
to provide employees and organizational services; the Servicer and TCSI
will be fully compensated for their services to the Borrower by payment
of negotiated fees.
(c) Servicing; Fees. The Borrower is contracting with the
Servicer in this Loan Agreement to perform all operations required on a
daily basis to service the Assets. The Borrower will pay Servicing Fees
to the Servicer from Collections from the related Assets as specified
in this Loan Agreement. The Borrower does not expect to incur any
material indirect or overhead expenses for items shared between the
Borrower and TCSI which are not reflected in documented service or
administration fees. To the extent, if any, the Borrower and TCSI share
items of expenses not reflected in its respective service or management
fees (including, without limiting, legal, auditing, and other
professional services), such expenses will be allocated to the extent
practical on the basis of actual use of the services rendered, and
otherwise on a basis reasonably related to actual use or value of
services rendered.
(d) Expenses. With the exception of start-up expenses, the
Borrower's operating expenses will not be paid by TCSI.
(e) Mailing Address. The Borrower will have its own separate
mailing address and its own stationery.
(f) Books and Records. The Borrower's books and records will
be maintained separately from those of TCSI.
(g) Financial Statements. Any financial statements of TCSI
which are consolidated to include the Borrower shall contain detailed
notes clearly stating that the Borrower is a separate legal entity with
its own separate creditors which will be entitled to be satisfied out
of the Borrower's assets prior to any value in the Borrower becoming
available to the Borrower's stockholders.
(h) Holding of Funds and Assets. The assets of the Borrower
will be maintained in a manner that facilitates their identification
and segregation from those of TCSI. Funds or other assets of the
Borrower will not be commingled with those of TCSI (except during such
times as funds of the Borrower are on deposit in the Lockbox). The
Borrower shall not maintain joint bank accounts or other depository
20
accounts to which TCSI (other than in its capacity as the Servicer in
the exercise of its servicing responsibilities) has independent access.
No funds of the Borrower will at any time be pooled with any funds of
TCSI other than while such funds are in the Deposit Account or the
Disbursement Account.
(i) Separate Legal Entities. The Borrower acknowledges that
all the parties entering into the Loan Documents, and any other related
documents do so in reliance on the Borrower's identity as a legal
entity separate from TCSI.
(j) Arm's Length Relationships. The Borrower will maintain
arm's length relationships with TCSI and its Affiliates. Neither the
Borrower nor TCSI or its Affiliates will be or will hold itself out to
be responsible for the debts of the other or the decisions or actions
relating to the daily business and affairs of the other; provided,
however, that certain Collections may be used to cover obligations of
CSSI as provided in Section 2.2(d) and the Collateral may secure debt
of CSSI as provided in the Security Agreement.
(k) Loans to Other Parties. Except for Borrower Advances and
advances under the Servicing Fee Advance Agreement, the Borrower will
not make any loans or advances to any third party (including any
Affiliate).
Section 5.21 Charge-off Policy. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld, Servicer will not
change its general policy regarding Charge-offs from the following: Servicer
will charge off Delinquent Credit Card Receivables if payment of not less than
the amount of the required minimum monthly payment has not been received from
the respective Obligor within 180 days after the applicable statement date.
Section 5.22 Unwind Policy. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld, Servicer will not
change its general policy regarding Unwinds from the following: Servicer will
unwind Credit Card Receivables on which the related Obligors (a) fail to make a
payment of not less than the amount of the required minimum monthly payment
within ninety (90) days after the initial statement date and (b) have charges of
less than $10.00 within ninety (90) days after the initial statement date.
Servicer shall be entitled to make exceptions to its general policy for
individual Obligors under the same terms and conditions it makes exceptions for
other cardholders in portfolios of credit card receivables that it owns or
services so long as such exceptions (in the aggregate) are not likely to have a
Material Adverse Effect.
Section 5.23 Re-Aging Policy. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld, Servicer will not
change its general policy regarding re-aging the Credit Card Receivables from
the following: a credit card account is re-aged if (i) either (a) two
consecutive payments of at least the minimum payment due are received or (b) one
payment of at least 6% of the total outstanding balance is received and (ii) the
credit card account has been open for at least six months and is no more than
210 days delinquent at the time of re-aging. Servicer shall be entitled to make
exceptions to its general policy for individual Obligors under the same terms
and conditions it makes exceptions for other cardholders in portfolios of credit
card receivables that it owns or services so long as such exceptions (in the
aggregate) are not likely to have a Material Adverse Effect.
Section 5.24 Minimum Monthly Payment Policy. Without the prior written
consent of Lender, which consent shall not be unreasonably withheld, Servicer
will not change its general policy regarding minimum monthly payments from the
following: the minimum monthly payment due with respect to the Credit Card
21
Receivables is (a) if the account is not past due, 3% of the total outstanding
balance on the related credit card account and (b) if the account is past due,
the current minimum payment as calculated under clause (a) above plus all past
due amounts. Servicer shall be entitled to make exceptions to its general policy
for individual Obligors under the same terms and conditions it makes exceptions
for other cardholders in portfolios of credit card receivables that it owns or
services so long as such exceptions (in the aggregate) are not likely to have a
Material Adverse Effect.
Section 5.25 Credit Line Increase Policy. Without the prior written
consent of Lender, which consent shall not be unreasonably withheld, Servicer
will not change its general policy on credit line increases from the following:
an Obligor can request a credit line increase twenty days after Servicer
receives the first payment. If granted, the increase is limited to 10% of the
credit line with a minimum of $50.00 and a maximum of $150.00. After six months
of consecutive payments (each not less than the minimum payment due), the
Obligor can request another credit line increase of 10% of the credit line with
a minimum of $50.00 and a maximum of $150.00. Additional credit line increases
can then be requested annually, thereafter. Servicer processes credit line
increases only in response to an Obligor request and does not initiate automatic
credit line increases. An account can be over its credit limit at the time the
request is made, but cannot be delinquent. The maximum credit line achievable is
$5,150.00. Servicer shall be entitled to make exceptions to its general policy
for individual Obligors under the same terms and conditions it makes exceptions
for other cardholders in portfolios of credit card receivables that it owns or
services so long as such exceptions (in the aggregate) are not likely to have a
Material Adverse Effect.
Section 5.26 Amendments to TCSI Account Purchase Agreement or Converted
Accounts Agreement. Borrower will not amend either the TCSI Account Purchase
Agreement or the Converted Accounts Agreement without the prior written consent
of Lender in its sole discretion.
Section 5.27 Transactions Involving Collateral. Except for Funding
Advances, Borrower Advances, investments by TCSI in Borrower, and comparable
advances made in the ordinary course of servicing, neither Borrower, nor any of
Borrower's Affiliates (including, without limitation, TCSI) will lend or invest
money in, or borrow from, any person or entity that purchases all or any portion
of the Collateral, or any interest therein, without the prior written consent of
Lender, which consent shall not be unreasonably withheld.
ARTICLE VI
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DEFAULT
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Section 6.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an "EVENT OF DEFAULT" under this Loan
Agreement:
(a) Payment. Failure to make payments of Fixed Interest,
principal, Borrower Advances or other amounts payable to Lender under
any Note, this Loan Agreement or any other Loan Document within five
(5) Business Days after such payment is due;
(b) Representations and Warranties. Any representation or
warranty made by Borrower in any Loan Document shall prove to be false,
misleading, incomplete or untrue in any respect when made that has a
Material Adverse Effect and, if susceptible of being remedied, has not
been remedied within ten (10) Business Days after the Borrower has or
reasonably should have had notice thereof;
22
(c) Covenants. Any breach by Borrower of any covenant, term,
agreement or condition contained in any Loan Document, which breach has
a Material Adverse Effect, and the same shall continue unremedied for a
period of thirty (30) calendar days after the Borrower has or
reasonably should have had notice thereof (provided that such thirty
(30) calendar day period shall only be applicable if Borrower uses
diligent efforts during such time to cure such breach) or such other
amount of time permitted for cure that is specifically provided herein;
(d) Bankruptcy or Insolvency. (i) The commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower and such proceeding shall not be dismissed within sixty (60)
calendar days after the date of filing; (ii) Borrower is unable, or
admits in writing its inability, to pay its recourse debts as they
become due; (iii) Borrower makes an assignment for the benefit of
creditors; (iv) Borrower files a petition or applies to any tribunal
for the appointment of a custodian, receiver or any trustee for all or
a substantial part of its assets; (v) Borrower, by any act or omission,
indicates its consent, approval of, or acquiescence in the appointment
of a receiver, custodian or trustee for all or a substantial part of
its property; (vi) Borrower is adjudicated a bankrupt; (vii) Borrower
becomes insolvent however otherwise evidenced; or (viii) Borrower
ceases doing business as a going concern;
(e) Default in or Breach of Other Agreements. The occurrence
and continuance of an "Event of Default" under the CSSI Loan Agreement,
the Revolving Loan Agreement or the Servicing Fee Advance Agreement, or
the enforcement of remedies under any other agreement to which Borrower
or Servicer is a party by another party thereto following the
occurrence of any default or event of default under or the breach by
the Borrower or the Servicer thereunder, which enforcement has a
Material Adverse Effect;
(f) Judgments. A judgment or order for the payment of money is
entered against Borrower for more than $100,000 and such judgment is
not, within thirty (30) calendar days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal;
(g) Ownership; Liens. The Borrower shall fail for any reason
to have a valid, first priority ownership interest or valid first
priority perfected security interest in the Assets, or if Lender shall
fail to have a first priority perfected security interest in the
Collateral;
(h) Key Employees. Any two (2) of the Key Principals shall
cease to be senior officers of the Borrower or TCSI and successors for
such Persons that are satisfactory to Lender in its sole and absolute
discretion shall not have been hired within six (6) months of any such
Persons' cessation of employment, or the Key Principals and their
successors shall fail to devote substantially all of their time to the
operation of TCSI and its Affiliates;
(i) Maximum Principal Balance. The quotient of the outstanding
principal balance of a Loan, divided by the original principal amount
of the Loan, exceeds the respective percentage specified in Schedule 2
of the respective Proposal as of the related Distribution Date
specified in Schedule 2 and such event is not cured within five (5)
Business Days after such Distribution Date;
23
(j) Minimum Credit Card Receivables. The quotient of the
aggregate dollar amount of Credit Card Receivables in a Portfolio that
are less than ninety (90) days delinquent, divided by the outstanding
principal balance of the Loan, is less than the respective percentage
specified in Schedule 2 of the respective Proposal as of the related
Distribution Date specified in Schedule 2 and such event is not cured
within five (5) Business Days after such Distribution Date;
(k) Ownership of Borrower. TCSI ceases to own, directly or
indirectly, at least 51% of the capital stock of Borrower;
(l) Servicer Termination Event. The occurrence of a Servicer
Termination Event; or
(m) Loss or Damage. The occurrence of loss, theft, damage or
destruction of any material portion of the Collateral, or the making of
any seizure, unauthorized sale or other unauthorized transfer of any
Collateral.
Section 6.2 Effect of Event of Default. Upon the occurrence of any
Event of Default, Lender may at its option, by written notice to Borrower,
declare the entire unpaid principal balance of all Notes, and all other amounts
due hereunder, immediately due and payable, without presentment, demand, protest
or further notice of any kind, all of which are expressly waived by Borrower. An
Event of Default with respect to any Loan shall be deemed an Event of Default
with respect to all other Loans, it being Borrower's and Lender's intention that
the Loans be fully cross-defaulted. Notwithstanding any Event of Default or
acceleration of the Loans under this Section 6.2, Lender shall apply Collections
or other proceeds of the Assets to pay any accrued but unpaid Servicer Fees and
any Funding Advances made pursuant to this Loan Agreement as set forth Section
2.2 (or any funding advances made pursuant to TCSI's funding obligations with
the credit card issuing banks with respect to the Credit Card Receivables).
Section 6.3 Remedies with Respect to Residual Interest. Notwithstanding
anything to the contrary herein or in the Security Agreement or any of the other
Loan Documents, at any time Lender has received all of its principal and Fixed
Interest with respect to a specific Loan, but has not received all of its
Lender's Residual with respect to such Loan, upon the occurrence of an Event of
Default hereunder with respect to such Loan, Lender may, in its sole discretion
and by written notice to Borrower and without prejudice to any other rights or
remedies available under this Loan Agreement, pursuant to the procedures set
forth in Section 1.10(c) and subject to all of the terms and conditions of
Section 1.10(c), require Borrower to pay Lender the Residual Prepayment Value as
payment in full of Borrower's obligation to pay the Lender's Residual on account
of the respective Assets or purchase or have Lender's designee purchase
Borrower's remaining interest in the Portfolio for an amount equal to the
balance of the Borrower's Contribution pursuant to Sections 2.2(c)(vii) and
(viii) and Borrower's Buy-Out Value.
ARTICLE VII
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DISPOSITIONS OF ASSETS
----------------------
Section 7.1 Unconverted Account Sales. From time to time, Borrower may
present Lender with a proposal to sell its rights and title in and to all or a
portion of the Unconverted Accounts in one or more Portfolios (each such sale an
"UNCONVERTED ACCOUNTS SALE"). Such proposal will contain information regarding
estimated transactional costs (including broker's fees, accounting fees, rating
agency fees and legal fees and expenses), together with the estimated present
fair market value of such Unconverted Accounts and/or a "break even" point with
24
respect to such proposed sale (either of which may be a range). Any Unconverted
Accounts Sale shall be subject to the Lender's approval in its sole but
reasonable discretion and determination taking into account Lender's desire to
either (i) maximize the present value of Lender's Residual, or (ii) enhance the
likelihood of full principal and Fixed Interest payment in connection with the
Loan. If Lender consents to an Unconverted Accounts Sale, Borrower shall be
entitled to market such Unconverted Accounts and to sell them to any Person at
any price greater than the minimum price specified by Lender in its approval
without seeking further approval from Lender. The proceeds of an Unconverted
Accounts Sale, net of transactional costs shall be disbursed as provided in
Section 2.2. Lender agrees to release its security interest in the Unconverted
Accounts that are the subject of an Unconverted Accounts Sale and to file
appropriate UCC partial releases of financing statements in connection
therewith. If a Retained Interest exists following the closing of an Unconverted
Accounts Sale and the application of the net proceeds thereof received on the
closing date of such sale, Lender shall continue to be entitled to receive the
Lender's Residual with respect to such Unconverted Accounts.
Section 7.2 Whole Loan Sales. From time to time, Borrower and Servicer
may present Lender with a proposal to sell Borrower's rights and title in and to
all or a portion of the Credit Card Receivables in one or more Portfolios along
with the Servicer's and the card issuing bank's respective interests in the
related credit card account (each such sale a "WHOLE LOAN SALE"). Such proposal
will contain information regarding estimated transactional costs (including
broker's fees, accounting fees, rating agency fees and legal fees and expenses)
together with the estimated present fair market value of such Credit Card
Receivables (taking into account the estimated Charge-offs, servicing costs,
finance charges and other factors) and/or a "break even" point with respect to
such proposed sale (either of which may be a range). Any Whole Loan Sale shall
be subject to the Lender's approval in its sole but reasonable discretion and
determination taking into account Lender's desire to either (i) maximize the
present value of Lender's Residual, or (ii) enhance the likelihood of full
principal and Fixed Interest payment in connection with the Loan. If Lender
consents to a Whole Loan Sale, Borrower shall be entitled to market such Credit
Card Receivables and to sell them to any Person at any price greater than the
minimum price specified by Lender in its approval without seeking further
approval from Lender. The proceeds of a Whole Loan Sale, net of transactional
costs shall be disbursed as provided in Section 2.2. Following the closing of
such sale and the application of the net proceeds thereof, Lender shall have no
Lender's Residual with respect to such Credit Card Receivables. Lender agrees to
release its security interest in the Credit Card Receivables that are the
subject of a Whole Loan Sale and to file appropriate UCC partial releases of
financing statements in connection therewith. If a Retained Interest exists
following the closing of a Whole Loan Sale and the application of the net
proceeds thereof received on the closing date of such sale, Lender shall
continue to be entitled to receive the Lender's Residual with respect to such
Credit Card Receivables.
Section 7.3 Securitizations. From time to time, Borrower may present
Lender with a proposal to sell, transfer or grant a security interest in all or
a portion of the Credit Card Receivables in one or more Portfolios in connection
with a securitization of such Credit Card Receivables (each such transaction a
"SECURITIZATION"). Such proposal will contain information regarding the
estimated present fair market value of such Credit Card Receivables (taking into
account factors including the estimated Charge-offs, servicing costs, finance
charges and other factors), estimated transactional costs (including broker's
25
fees, accounting fees, rating agency fees and legal fees and expenses), in
connection with the proposed Securitization, the estimated interest cost on the
note or notes issued pursuant to the proposed Securitization (either of which
may be a range), the estimated advance rate (which may be a range), and the
estimated final pay-out date with respect to the proposed Securitization. Any
Securitization shall be subject to the Lender's approval in its sole but
reasonable discretion and determination taking into account Lender's desire to
either (i) maximize the present value of Lender's Residual, or (ii) enhance the
likelihood of full principal and Fixed Interest payment in connection with the
Loan. If Lender consents to a Securitization, Borrower shall be entitled to
complete any Securitization with or through any Person at any advance rate
greater than the minimum advance rate and any interest costs less than the
maximum interest cost specified by Lender in its approval without seeking
further approval from Lender. The advance rate proceeds of a Securitization, net
of transactional costs shall be disbursed as provided in Section 2.2. Lender
agrees to release its security interest in the Credit Card Receivables that are
the subject of a Securitization and to file appropriate UCC partial releases of
financing statements in connection therewith. If a Retained Interest exists
following the closing of a Securitization and the application of the net
proceeds thereof on the closing date of such Securitization, Lender shall
continue to be entitled to receive the Lender's Residual with respect to such
Credit Card Receivables.
Section 7.4 Retained Interests. In connection with any Unconverted
Accounts Sale, Whole Loan Sale or Securitization, Lender and Borrower agree that
the "RETAINED INTEREST" shall be the difference, if any, between the present
fair market value of the Assets being sold (or otherwise transferred) and the
advance rate, or the sale price, as the case may be, received by Borrower in
connection therewith. The Retained Interest shall be used to determine the
Lender's Residual and the Borrower's Residual with respect to the Assets being
sold (or otherwise transferred).
ARTICLE VIII
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DEFINITIONS
-----------
For purposes of this Loan Agreement, the following terms shall have the
following meanings:
"ACCOUNT DOCUMENTS" shall mean customer agreements, notes,
security agreements, financing statements, and such other evidences of
indebtedness or documents and electronic tapes relating to the Assets
in the Portfolios, provided, however, that credit card account
agreements with respect to any Credit Card Receivables in the
Portfolios are not the property of Borrower and shall not be considered
part of the Account Documents.
"AFFILIATE" shall mean, as to any Person, any other Person
which, directly or indirectly, is in control of, is controlled by, or
is under common control with, such Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, by contract or otherwise.
"ASSETS" shall mean (a) non-performing consumer debt
obligations, consisting principally of charged off consumer credit and
accounts receivable, that are identified in a Proposal or the
acquisition of which by Borrower has been approved by Lender and are
made subject to the Loan Documents, and including any amendments,
modifications, replacements or renewals of such consumer debt
obligations and (b) Credit Card Receivables with respect to Assets that
have been Converted.
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"ASSET PURCHASE AGREEMENT" shall mean an agreement under which
TCSI or Borrower has purchased Assets from an Asset Seller.
"ASSET SALE FEE" shall mean the asset sale fee agreed upon by
Borrower and Servicer and approved by Lender at the time of Borrower's
acquisition of each Portfolio as detailed in Schedule 1 of the related
Proposal.
"ASSET SELLER" shall mean the Person from whom Borrower
acquires Assets.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Assignment and
Assumption Agreement of even date herewith between CSSI and CSFI
pursuant to which CSFI acquires all assets of and assumes all
liabilities of, CSSI, as such agreement may be amended, restated,
replaced or other otherwise modified from time to time in accordance
with the terms thereof.
"BANK" shall mean Wells Fargo Bank Minnesota, National
Association, and any successor under the Blocked Account Agreement.
"BLOCKED ACCOUNT AGREEMENT" shall mean that certain Blocked
Account Agreement dated as of even date herewith among Borrower, Lender
and the Bank, as such agreement may be amended, restated, replaced or
other otherwise modified from time to time.
"BORROWER ADVANCE" shall have the meaning contained in Section
2.2.
"BORROWER'S BUY-OUT VALUE" shall have the meaning set forth in
Section 1.10.
"BORROWER'S CONTRIBUTION" shall mean with respect to a
particular Loan, the sum of (a) Borrower's financial contribution
toward payment of the Total Cost with respect to the related Portfolio,
(b) the amount of any Compliance Prepayments paid on account of such
Loan, and (c) any other Fixed Interest and principal on account of such
Loan, in each case paid from funds other than Collections from the
related Portfolio in accordance with Section 2.2(d).
"BORROWER'S RESIDUAL" shall have the meaning contained in
Section 2.2(c).
"BORROWING DATE" with respect to any Loan shall mean the date
of funding of such Loan.
"BUSINESS DAY" shall mean any day other than a Saturday or
Sunday, or a date on which Lender, Borrower or commercial banks in the
States of Minnesota and South Dakota generally are closed for regular
business.
"CHARGE-OFF" shall mean a Credit Card Receivable that is
charged off and that has a Z status placed on it through the First Data
Resources System or other third party processor.
"CHATTEL PAPER" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by Borrower.
27
"CLOSING FEES AND EXPENSES" shall mean the broker's fees,
legal expenses and the other fees and expenses agreed upon by Lender
and Borrower for each Loan to be paid on the applicable Borrowing Date
and which shall be included in the Total Cost of each Portfolio.
"CODE" means the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of Minnesota;
provided, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Lender's Lien on any Collateral is governed
by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Minnesota, the term "Code" shall
mean the Uniform Commercial Code as from time to time enacted and in
effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority or remedies
and for purposes of definitions related to such provisions.
"COLLATERAL" shall have the meaning set forth in the Security
Agreement.
"COLLECTION ACCOUNT" shall mean Account #3110135393 at the
Bank pursuant to the Blocked Account Agreement.
"COLLECTION FEE" shall mean the collection fee agreed upon by
Borrower and Servicer and approved by Lender at the time of Borrower's
acquisition of each Portfolio as detailed in Schedule 1 of the related
Proposal.
"COLLECTIONS" with respect to any Portfolio shall mean all
payments made by Obligors on account of the Assets in such Portfolio,
together with any other collections, income, interest, principal,
penalty, late fees, extension fees, prepayment fees, or other fees on
account of such Assets, any proceeds from the sale or other disposition
of such Assets, including amounts received from any Asset Seller and
the proceeds of any Unconverted Accounts Sale, Whole Loan Sale or
Securitization, net of fees and expenses of the transaction (including
broker's fees, accounting fees, rating agency fees and legal fees and
expenses).
"COMMITMENT" shall mean Lender's written acceptance of a
Proposal including any additional terms that Lender may require as a
condition to making the requested Loan, substantially in the form of
Exhibit B hereto.
"COMPLIANCE PREPAYMENT" means a prepayment of principal made
by Borrower to the extent that a principal prepayment is required in
order for Borrower to be in compliance with Section 6.1(i) or Section
6.1(j).
"CONVERT" OR "CONVERSION" means the act of causing an Obligor
to agree to convert all or part of the outstanding balance of an Asset
that is a charged off consumer credit account receivable to a current
outstanding balance on a newly issued credit card, the receivables on
which will be sold or transferred to Borrower pursuant to the Converted
Accounts Agreement.
"CONVERTED ACCOUNTS AGREEMENT" shall mean that certain
Converted Accounts/Receivables Sale Agreement of even date herewith
between Borrower and TCSI, as such agreement may be amended, restated,
or other otherwise modified from time to time.
28
"CREDIT AND COLLECTION POLICY" shall mean those credit,
collection, customer relations and customer service policies and
practices and other written policies and procedures of the Servicer
relating to the Unconverted Accounts and Credit Card Receivables as in
effect from time to time.
"CREDIT CARD RECEIVABLE" shall mean (a) "Receivables" as
defined in the Converted Accounts Agreement and (b) credit card
receivables arising pursuant to a credit card account established
between a card-issuing bank and a cardholder obligor (each as defined
in the Converted Accounts Agreement and acquired by Borrower. A Credit
Card Receivable shall not include any rights in and to the underlying
credit card account.
"CREDIT COLLECTION LAWS" shall mean state and federal laws
governing the business of collecting consumer debt, including without
limitation, the Fair Debt Collection Practices Act, the Federal
Consumer Credit Protection Act and Regulation Z issued thereunder, the
Federal Equal Credit Opportunity Act and Regulation B issued thereunder
and the United States Bankruptcy Code.
"CSSI" shall mean Credit Store Services, Inc., a Delaware
corporation and a wholly-owned subsidiary of TCSI and an Affiliate of
Borrower.
"CSSI LOAN AGREEMENT" shall mean that certain Master Loan and
Servicing Agreement dated as of October 31, 2000, among CSSI, TCSI and
Lender, as amended by Amendment No. 1 of even date herewith, and as
such agreement may be further amended, restated or otherwise modified
from time to time.
"CSSI SHORTFALL" shall mean amounts that remain owing under
Sections 2.2(c)(iv) and 2.2(c)(vi) of the CSSI Loan Agreement on any
Distribution Date after application of funds as set forth in the CSSI
Loan Agreement.
"DAILY REPORT" shall have the meaning contained in the Paying
Agent Agreement.
"DAILY VERIFICATION REPORT" shall have the meaning contained
in the Paying Agent Agreement.
"DEFAULT RATE" shall have the meaning contained in Section
1.6(c).
"DELINQUENT" shall mean a Credit Card Receivable on which no
payment has been received more than 30 days past the related statement
date.
"DEPOSIT ACCOUNT" shall mean Account #0835014153 maintained at
the Lockbox Bank as more particularly described in the Lockbox
Agreement.
"DISBURSEMENT ACCOUNT" shall mean Account #13437500 maintained
at the Paying Agent as more particularly described in the Lockbox
Agreement and the Paying Agent Agreement.
"DISTRIBUTION DATE" shall mean either (i) if the Remittance
Report is delivered to Lender on or before the fourteenth (14th)
calendar day of the month, a date that is on or before the sixteenth
(16th) calendar day of such month (or, if such date is not a Business
29
Day, the next succeeding Business Day), or (ii) if the Remittance
Report is delivered to Lender after the fourteenth (14th) calendar day
of the month, a date that is not later than two (2) Business Days after
Lender's receipt of the Remittance Report, but in no event later than
the twenty-seventh (27th) calendar day of the month. With respect to
any Loan, the first Distribution Date will be in the first month
following the Borrowing Date.
"DISTRIBUTION REPORT" shall mean the Daily Report as it
relates to the Portfolios.
"EVENT OF DEFAULT" shall have the meaning set forth in Article
VI.
"FIXED INTEREST" shall have the meaning contained in Section
1.6.
"FORWARD FLOW AGREEMENT" shall mean an Asset Purchase
Agreement pursuant to which TCSI purchases a series of Portfolios over
a fixed period of time at a fixed price.
"FUNDING ADVANCE" shall have the meaning contained in Section
2.2.
"FUNDING REQUIREMENTS" shall have the meaning contained in
Section 2.2.
"GOVERNING STATE" shall mean the State of Minnesota.
"INSTRUMENT" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by Borrower,
wherever located.
"IRR" shall mean an annual internal rate of return calculated
monthly based on the cash flows received by Lender, provided that for
purposes of such calculation, the cash flow distributed on any
Distribution Date shall be credited as if the same were received on the
last day of the calendar month preceding such Distribution Date. The
formula for determining IRR is more particularly set forth in Exhibit E
hereto.
"KEY PRINCIPALS" shall mean Kevin Riordan, Michael J. Philippe
and Richard S. Angel.
"LENDER'S RESIDUAL" shall have the meaning contained in
Section 2.2(c).
"LIEN" shall mean a lien, security interest, pledge,
hypothecation, collateral assignment, charge, encumbrance, or other
right or claim of any Person other than an unfiled lien for tax accrued
but not yet payable
"LOAN" shall have the meaning set forth in Section 1.2 of this
Loan Agreement.
"LOAN DOCUMENTS" shall mean this Loan Agreement and all Notes,
Proposals and Commitments, the Security Agreement, the Converted
Accounts Agreement, the TCSI Account Purchase Agreement, the Lockbox
Agreement, the Paying Agent Agreement, the Blocked Account Agreement,
any Asset Purchase Agreement to which Borrower is a party, the
Assignment and Assumption Agreement, and other documents, instruments
or certificates delivered pursuant hereto or in connection therewith.
"LOCKBOX" shall mean the post office box maintained at the
Lockbox Bank pursuant to the Lockbox Agreement and described therein as
the "Lockbox."
30
"LOCKBOX AGREEMENT" shall mean that certain Lockbox Agreement
dated as of November 1, 2001 among various subsidiaries of TCSI,
Lender, TCSI (individually and as the Servicer), Borrower, the Lockbox
Bank, the Paying Agent, and lenders of such TCSI subsidiaries, as such
agreement may be amended, restated, supplemented or otherwise modified
or replaced from time to time.
"LOCKBOX BANK" shall mean First Premier Bank, and any
successor under the Lockbox Agreement.
"MANAGEMENT FEE" shall mean the management fee agreed upon by
Borrower and Servicer and approved by Lender at the time of Borrower's
acquisition of each Portfolio as detailed in Schedule 1 of the related
Proposal. Management Fees will not be applicable to Unwinds and
Charge-offs after the date they become such.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any
event or circumstance, a material adverse effect on:
(a) the ability of the Borrower (or applicable party, as the
context requires) to perform its obligations under any Loan Document to
which it is a party;
(b) the validity or enforceability of any Loan Document;
(c) the status, existence, perfection, priority, or
enforceability of any lien or security interest granted to the Lender
pursuant to the Loan Documents; or
(d) the validity, enforceability or collectibility of the
Assets, taken as a whole.
"MATURITY DATE" shall mean the maturity date for principal and
accrued but unpaid Fixed Interest on each Loan, which shall be the
earlier of (i) the date twenty-four (24) months following the
applicable Borrowing Date or (ii) the date of acceleration of the
related Note pursuant to Section 6.2.
"NOTE" shall mean a promissory note substantially in the form
of Exhibit C hereto evidencing a Loan.
"NOTICE" shall have the meaning contained in Section 9.14.
"OBLIGOR" shall mean each signer, co-signer, guarantor or
other person responsible for payment of an Asset.
"ORIGINATION FEE" shall mean the origination fee agreed upon
by Borrower and Servicer and approved by Lender at the time of
Borrower's acquisition of each Portfolio as detailed in Schedule 1 of
the related Proposal.
"OUTSTANDING CREDIT CARD RECEIVABLE BALANCE" shall mean, at
any point in time, the amount contractually owed by the cardholder on
the related Credit Card Receivable.
"PAYING AGENT" shall mean Wells Fargo Bank Minnesota, National
Association, and any successor under the Paying Agent Agreement.
31
"PAYING AGENT AGREEMENT" shall mean that certain Lockbox
Paying Agent Agreement dated as of November 1, 2001 among various
subsidiaries of TCSI, Lender, Borrower, TCSI (individually and as the
Servicer), the Lockbox Bank, the Paying Agent, and lenders of such TCSI
subsidiaries, as such agreement may be amended, restated, supplemented
or otherwise modified or replaced from time to time.
"PAYMENT PROCESS AUDITING FIRM" shall mean McGladrey & Pullen
or any successor appointed as such by Servicer with Lender's consent,
which shall not be unreasonably withheld.
"PERMITTED AFFILIATED TRANSACTIONS" shall mean (i) the
transactions described in this Loan Agreement, the Security Agreement,
the CSSI Loan Agreement, the Assignment and Assumption Agreement, the
Revolving Loan Agreement and the Servicing Fee Advance Agreement, (ii)
a Securitization approved by Lender pursuant to Section 7.3, (iii)
agreements to pay directors compensation (as directors) in the ordinary
course of business, and (iv) the TCSI Account Purchase Agreement, (v)
the Converted Accounts Agreement, (vi) agreements to pay allocated
overhead and expenses to TCSI, (vii) agreements to pay expenses
approved by Lender related to Whole Loan Sales, Unconverted Accounts
Sales and Securitizations, and (viii) agreements related to the
foregoing.
"PERSON" shall mean any natural person, limited liability
company, corporation, partnership, joint venture, firm, association,
trust, unincorporated organization, governmental agency or political
subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.
"PORTFOLIO" shall mean each pool or grouping of Assets
purchased from time to time by Borrower from an Asset Seller and any
Credit Card Receivables related to Assets that have been Converted,
which is financed in part by a Loan from Lender.
"PORTFOLIO BUDGET" shall mean a strategic budget developed by
Borrower and Servicer and approved by Lender for each Portfolio of
Assets, representing Borrower's good faith estimate of the projected
cash inflows and outflows including, but not limited to, payments on
account of Credit Card Receivables, payments on account of Unconverted
Accounts, net proceeds from Unconverted Accounts Sales, Securitizations
and Whole Loan Sales, funding for purchases and advances on Credit Card
Receivables, Servicing Fees and other fees and expenses.
"PORTFOLIO PREPAYMENT SCHEDULE" shall have the meaning set
forth in Section 1.10.
"PREPAYMENT DATE" shall have the meaning set forth in Section
1.10.
"PREPAYMENT NOTICE DATE" shall have the meaning set forth in
Section 1.10.
"PREPAYMENT OFFER" shall have the meaning set forth in Section
1.10.
"PREPAYMENT OPTION" shall have the meaning set forth in
Section 1.10.
"PROCESSING FEE" shall mean the processing fee agreed upon by
Borrower and Servicer and approved by Lender at the time of Borrower's
acquisition of each Portfolio as detailed in Schedule 1 of the related
Proposal. Processing Fees will not be applicable to Unwinds and
Charge-offs after the date they become such.
32
"PROPOSAL" shall mean a written proposal from Borrower to
Lender requesting a Loan in connection with Borrower's purchase of a
particular Portfolio (or a series of Portfolios pursuant to a Forward
Flow Agreement), substantially in the form of Exhibit A hereto.
"QUALIFIED ASSIGNEE" shall mean (i) a financial institution
that is not a business competitor of TCSI with total assets of at least
$250,000,000, or (ii) an assignee that is not a business competitor of
TCSI that gives substantially all decision-making authority with
respect to this Agreement to The Varde Fund IV-A, L.P.
"REMITTANCE REPORT" shall mean a report submitted monthly by
Servicer to Borrower and Lender listing Collections received during
such month and disbursements out of the Collection Account during such
month pursuant to Sections 2.2(b), 2.2(c) and 2.2(d). All such amounts
should be identified by Portfolio.
"RESIDUAL PREPAYMENT VALUE" shall have the meaning contained
in Section 1.10.
"RETAINED INTEREST" shall have the meaning contained in
Section 7.4.
"REVOLVING LOAN AGREEMENT" means the Revolving Loan and
Security Agreement of even date herewith between Borrower and Lender,
as such agreement may be amended, restated, or otherwise modified from
time to time.
"SECURITIZATION" shall have the meaning set forth in Section
7.3.
"SECURITY AGREEMENT" shall mean the Security Agreement in the
form attached hereto as Exhibit F, pursuant to which Borrower shall
assign to and grant Lender a security interest in the respective Assets
and related Collateral, as such agreement may be amended, restated,
other otherwise modified from time to time.
"SERVICER" shall mean TCSI or any successor Servicer appointed
by Lender pursuant to Section 4.5.
"SERVICER TERMINATION EVENT" shall have the meaning set forth
in Section 4.5.
"SERVICING FEE ADVANCE AGREEMENT" means the Servicing Fee
Advance Agreement of even date herewith between Borrower and TCSI, as
such agreement may be amended, restated, or otherwise modified from
time to time in accordance with the terms thereof.
"SERVICING FEES" shall mean the aggregate of the Origination
Fee, Processing Fee, Management Fee, Collection Fee and Asset Sale Fee.
"TCSI" shall mean The Credit Store, Inc., a Delaware
corporation, and its successors and assigns.
33
"TCSI ACCOUNT PURCHASE AGREEMENT " shall mean the Account
Purchase Agreement dated as of even date herewith between TCSI, as
seller, and Borrower, as buyer, as such agreement may be amended,
restated, or otherwise modified from time to time.
"TOTAL COST" shall mean, for each Portfolio of Assets, the sum
of (i) Borrower's purchase price therefor, (ii) an agreed-upon amount
of Closing Fees and Expenses relating to the closing of the related
Loan as specified in the Proposal, and (iii) an agreed-upon amount of
scrubbing costs and expenses related to such Portfolio as specified in
the Proposal.
"UNCONVERTED ACCOUNT" shall mean an Asset that has not been
Converted into a Credit Card Receivable, an Unwind or a Charge-off.
"UNCONVERTED ACCOUNT SALE" shall have the meaning set forth in
Section 7.1.
"UNWIND" shall mean a credit card account that is initially
treated as a Credit Card Receivable but subsequently has a Z status
placed on it through the First Data Resources System or other third
party processor and is thereafter treated as if it never was a Credit
Card Receivable under the Servicer's Unwind Policy.
"WHOLE LOAN SALE" shall have the meaning set forth in Section
7.2.
ARTICLE IX
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MISCELLANEOUS
-------------
Section 9.1 Survival of Representations and Warranties. All
representations and warranties made herein shall be true and correct as of each
Borrowing Date and shall survive the Borrowing Date and the execution and
delivery of this Loan Agreement, the Security Agreement, and each Note, and
shall continue in full force and effect until payment in full by Borrower of all
amounts payable hereunder, under the Security Agreement or under the Notes.
Section 9.2 Cure. Lender shall have the right to cure any default by
Borrower upon any lease, insurance policy, indenture, security agreement,
mortgage, deed of trust, agreement or other instrument to which Borrower is a
party or by which its properties are bound or may be subject if such default
shall in any manner affect Lender's rights hereunder, or in and to the
Collateral, or the ability of Borrower to perform its obligations hereunder or
under the Security Agreement or the Notes, and Borrower shall immediately
reimburse Lender for any amounts paid to cure such defaults.
Section 9.3 Relationship between Parties. The relationship between
Lender and Borrower shall be solely one of commercial lender and borrower, and
nothing contained in this Loan Agreement or in any Loan Document shall
constitute the parties as partners or co-venturers with one another or with any
other party, or agents for one another or for any other party with regard to any
activities contemplated by this Loan Agreement or otherwise, or render any party
liable for any debts or obligations of any other party.
Section 9.4 Confidentiality. Borrower, Servicer and Lender each agree
to use all commercially reasonably efforts (equivalent to the efforts such
parties apply to maintain the confidentiality of their own confidential
information) to maintain as confidential all information with respect to the
Assets, any Proposal, the terms of the Loan Documents or other confidential
information regarding the business of the others (to the extent such
confidential information was provided by or on behalf of one or more of the
34
other parties), except that any of Borrower, Servicer or Lender, as the
"Disclosing Party" may disclose such information (a) to Persons employed or
engaged by the Disclosing Party in evaluating, approving, structuring or
administering the Loans and Commitments, (b) to any bona fide or potential
assignee of Lender or participant in a Loan that has agreed in writing to comply
with the covenant contained in this Section (and any such bona fide or potential
assignee or participant may disclose such information to Persons employed or
engaged by them as described in clause (a) above); (c) to any bona fide or
potential investor in Lender, but only to the extent of the terms of the Loan
Documents and general performance information with respect to Lender's interest
in the Loans, (d) as required or requested of any governmental authority or
reasonably believed by the Disclosing Party to be compelled by, or required
under, any regulation or law (including, without limitation, any securities
regulation or law), or any court decree, subpoena or legal or administrative
order or process; (e) as, on the advice of the Disclosing Party's counsel, is
required by law; (f) in connection with the exercise of any right or remedy
under the Loan Documents or in connection with any litigation to which the
Disclosing Party is a party; or (g) that ceases to be confidential through no
fault of the Disclosing Party. To the extent that either Borrower or Servicer
reasonably believes that it is required to issue a press release in connection
with this Loan Agreement, any such press release shall be subject to the prior
review and approval of Lender in its reasonable discretion. Lender shall not use
any proprietary business information or trade secrets provided by or on behalf
of Borrower or TCSI for the purpose of competing, directly or indirectly, with
Borrower or TCSI or for any other purpose other than in connection with this
Agreement. Notwithstanding the foregoing, TCSI may file this Loan Agreement with
the Securities Exchange Commission but will request confidentiality treatment
with respect to the financed amount described in Section 1.5, the rate used when
computing Fixed Interest and any percentages contained in Section 2.2(c) (ix)
and, following such filing, no filed portion of this Loan Agreement shall be
deemed to be confidential information.
Section 9.5 Amendment and Modification. Any amendments or modifications
to any provisions of this Loan Agreement, a Note or any other Loan Document must
be (i) in writing and (ii) signed by the parties thereto.
Section 9.6 Waivers. Lender shall not be deemed to have waived any of
its rights or remedies hereunder, under any Note or any other Loan Document
unless such waiver is (i) in writing and (ii) signed by Lender, and then only to
the extent specifically recited. No failure to exercise and no delay or omission
in exercising any right, remedy or recourse on the right of Lender shall operate
or be deemed as a waiver of such right, remedy or recourse hereunder or
thereunder or preclude any other or further exercise thereof. A waiver or
release on any one occasion shall not be construed as continuing, as a bar to,
or as a waiver or release of any subsequent right, remedy or recourse on any
subsequent occasion. All rights and remedies of Lender, whether pursuant to this
Loan Agreement, the Notes, the Security Agreement, or any other Loan Document,
shall be cumulative and concurrent and may be exercised singularly, successively
or concurrently, at the sole discretion of Lender and may be exercised as often
as occasion therefor may exist.
Section 9.7 Transferability of Loan Agreement; Loan Participations.
This Loan Agreement shall be binding upon Borrower, Lender and Servicer and
their respective successors and assigns; provided, however, that (i) neither
Borrower nor Servicer may transfer or assign any or all of their respective
35
rights or obligations hereunder without the prior written consent of Lender;
(ii) Lender may, upon written notice to Borrower, transfer and assign any or all
of its rights or obligations hereunder or under any Loan or Note, including
without limitation the sale of participations in any Loan or Note to any
Affiliate of Lender or to a Qualified Assignee; and (iii) Lender may not
transfer and assign any or all of its rights or obligations hereunder or under
any Loan or Note, including without limitation the sale of participations in any
Loan or Note to any party other than an Affiliate of Lender or a Qualified
Assignee without the prior written consent of Borrower, which consent may not be
unreasonably withheld or delayed. This Loan Agreement shall be for the benefit
of Lender and those of its affiliated funds which act as lenders pursuant
hereto.
Section 9.8 Actions in Connection with Bankruptcy. Without the
necessity of an evidentiary hearing and without the necessity or requirement
that Lender establish or prove the value of the Collateral (or any other
collateral pledged to Lender pursuant to the Loan Documents), or the lack of
adequate protection of Lender's interest in the Collateral (or any other
collateral pledged to Lender pursuant to the Loan Documents), Lender shall be
entitled to the immediate termination of the automatic stay of 11 U.S.C. ss. 362
in order to permit Lender to exercise all of its rights and remedies in respect
of the Collateral (or any other collateral pledged to Lender pursuant to the
Loan Documents), the existence of this provision constituting sufficient "cause"
for purposes of 11 U.S.C. ss. 362(d)(1). Borrower agrees not to directly or
indirectly oppose or otherwise defend against the termination of the automatic
stay. Any reasonable attorney's fees and other expenses incurred by Lender in
connection with Borrower's bankruptcy or any of the other aforesaid events shall
be additional indebtedness of Borrower.
Section 9.9 GOVERNING LAW; JURISDICTION; VENUE. THIS LOAN AGREEMENT,
THE NOTES, AND ALL OTHER LOAN DOCUMENTS, AND WITHOUT LIMITATION ANY QUESTIONS
CONCERNING THE INTERPRETATION OR ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE GOVERNING STATE. Borrower and
Lender each hereby irrevocably submit to the jurisdiction of any state or
federal court sitting in the Governing State over any suit, action or proceeding
arising out of or relating to a Loan or the Loan Documents. Borrower and Lender
each irrevocably waive, to the fullest extent permitted by law, any objection
that Borrower or Lender may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in any such court and any claims that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Nothing in this Section shall limit the right of
Lender to bring proceedings against Borrower in the courts of any other
jurisdiction. Borrower agrees that any forum other than the Governing State is
an inconvenient forum and that a suit brought by Borrower against Lender in a
court of any state other than the Governing State should be forthwith dismissed
or transferred to a court located in the Governing State by that court.
Section 9.10 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG LENDER AND BORROWER OR SERVICER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS LOAN AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
36
Section 9.11 Enforceability of Loan Agreement. Should any one or more
of the provisions of this Loan Agreement be determined to be illegal or
unenforceable, all other provisions shall remain effective and binding on the
parties hereto.
Section 9.12 Titles. Titles of the Sections of this Loan Agreement are
merely for convenience in reading and shall not be construed to alter, modify or
interpret the meaning of the provisions under said titles.
Section 9.13 Accounting Terms. All accounting terms used in this Loan
Agreement shall have the meanings ascribed to them by generally accepted
accounting principles.
Section 9.14 Notice. Unless otherwise required or provided by this Loan
Agreement, all demands, notices, approvals and other communications hereunder
(including Borrower's reporting obligations set forth in herein) (individually
and collectively, "NOTICES") shall be in writing and shall be served personally,
delivered by facsimile or sent by a national overnight delivery or courier
company, or by United States registered or certified mail, postage prepaid
return receipt requested, and addressed as set forth below. Any such Notices
shall be deemed delivered upon delivery or refusal to accept delivery as
indicated in writing by the person attempting to make personal service, on the
United States Postal Service return receipt, or by similar written advice from
the overnight delivery company; provided, however, that if any such Notice shall
be sent by telecopier to the telecopier number, if any, set forth above, such
Notice shall be deemed given at the time and on the date of machine transmittal
(except if sent after 5:00 p.m. recipient's time, then the notice shall be
deemed given at 9:00 a.m. on the next Business Day) if the sending party
receives a written send verification on its machine and sends a duplicate Notice
on the same day or the next Business Day by personal service, registered or
certified United States mail, or overnight delivery in the manner described
above. Each party hereto shall make an ordinary, good faith effort to ensure
that it will accept or receive Notices that are given in accordance with this
Section 9.14, and that any person to be given Notice actually receives such
Notice. Any party to whom Notices are to be sent pursuant to this Loan Agreement
may from time to time change its address and/or facsimile number for future
communication hereunder by giving Notice in the manner prescribed herein to all
other parties hereto, provided that the address and/or facsimile number change
shall not be effective until five (5) Business Days after the Notice of change
has been given.
If to Lender: With a Copy to:
The Varde Fund IV-A, L.P. Leonard, Street and Deinard
c/o Varde Partners, L.P. Professional Association
3600 West 80th Street, Suite 425 150 South Fifth Street, Suite 2300
Minneapolis, MN 55435 Minneapolis, MN 55402
Attention: Rick J. Noel Attention: Andrew Lee, Esq.
Telephone No.: 952.893.1554 Telephone No.: 612.335.1881
Facsimile No.: 952.893.9613 Facsimile No.: 612.335.1657
37
If to Borrower: With a Copy to:
Credit Store Financial, Inc. Faegre & Benson LLP
Suite 107 2200 Wells Fargo Center
3401 North Louise Avenue 90 South Seventh Street
Sioux Falls, SD 57107 Minneapolis, MN 55402-3901
Attention: Chief Financial Officer Attention: Michael J. Macaluso
Telephone No.: 605.339.7250 Telephone No.: 612.766.7660
Facsimile No.: 605.338.3486 Facsimile No.: 612.766.1600
If to Servicer: With a Copy to:
The Credit Store, Inc. Faegre & Benson LLP
3401 North Louise Avenue 2200 Wells Fargo Center
Sioux Falls, SD 57107 90 South Seventh Street
Attention: Chief Financial Officer Minneapolis, MN 55402-3901
Telephone No.: 605.339.7250 Attention: Michael J. Macaluso
Facsimile No.: 605.338.3486 Telephone No.: 612.766.7660
Facsimile No.: 612.766.1600
Section 9.15 Entire Agreement. This Loan Agreement (including all
Exhibits hereto), and the Security Agreement, Proposals, Notes, and all other
Loan Documents shall constitute the full and entire understanding and agreement
of the parties hereto and there are no further or other agreements or
undertakings, written or oral, in effect between the parties relating to the
subject matter hereof unless expressly referred to herein. All prior
negotiations, agreements, representations and warranties, statements and
undertakings concerning the subject matter hereof between the parties are
superseded by this Loan Agreement and the other Loan Documents.
Section 9.16 Borrower's Indemnification. Borrower agrees to indemnify,
defend and hold Lender harmless from and against any and all losses, damages,
costs, claims, expenses (including reasonable attorneys fees) and liabilities to
third parties growing out of or resulting from (i) the failure of Borrower to
comply with the Credit Collection Laws; (ii) the actions of any of the agents,
representatives or employees of Borrower taken in connection with the collection
activities with respect to the Assets; (iii) the misapplication (whether
negligent or intentional), misappropriation, conversion or theft of any part of
the Collateral by any officer, employee, agent or representative of Borrower;
(iv) the failure to pay and discharge any liens, encumbrances or security
interests in the Collateral (other than liens granted to Lender to secure
repayment of Loans) created or which could be created as a result of the actions
of Borrower; (v) fraud or material misrepresentation; (vi) the misapplication of
receipts or proceeds from the Collateral received by Borrower after notice of
default on any Loan which are not applied to the outstanding balance of the
related Note, to payment of debt service on any Loan, or to the payment of any
other amounts payable under this Loan Agreement or (vii) the breach by Borrower
of Sections 5.12, 5.13, 5.17 and 5.20 of this Loan Agreement.
Section 9.17. Savings Provision. All agreements between Borrower and
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance, loaning or detention of the indebtedness
evidenced hereby exceed the maximum permissible amount under applicable law. If
from any circumstances whatsoever, fulfillment of any provisions hereof or of
any other Loan Document at any time given shall exceed the maximum permissible
38
amount under applicable law, then the obligation to be fulfilled shall
automatically be reduced to an amount which complies with applicable law, and if
from any circumstances Lender should ever receive as interest an amount which
would exceed the highest lawful rate of interest, such amount which would be in
excess of such lawful rate of interest shall be applied to the reduction of the
principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between Borrower
and Lender and shall also be binding upon and available to any subsequent holder
of a Note.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK.]
39
The undersigned have executed this Loan Agreement as of the date first
above written.
BORROWER: SERVICER:
CREDIT STORE FINANCIAL, INC., THE CREDIT STORE, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Charles A. Schultz, Jr. By: /s/ Charles A. Schultz, Jr.
--------------------------- ---------------------------
Name: Charles A. Schultz, Jr. Name: Charles A. Schultz, Jr.
Its: Vice President Its: Vice President
LENDER:
THE VARDE FUND IV-A, L.P., a
Delaware limited partnership, by
Varde Partners, L.P., a Delaware
limited partnership, its General
Partner, by Varde Partners,
Inc., a Delaware corporation,
its General
Partner
By: /s/ Gregory S. McMillan
--------------------------
Name: Gregory S. McMillan
Its: Vice President
(Signature page to Master Loan and Servicing Agreement-CSFI)
40
MASTER LOAN AND SERVICING AGREEMENT
EXHIBIT B:
----------
FORM OF COMMITMENT
------------------
THE VARDE FUND IV-A, L.P.
c/o Varde Partners, L.P.
3600 West 80th Street, Suite 425
Minneapolis, MN 55435
Attention: Rick J. Noel
Telephone No.: 952.893.1554
Facsimile No.: 952.893.9613
Credit Store Financial, Inc.
Suite 107
3401 North Louise Avenue
Sioux Falls, SD 57107
Attention: Chief Financial Officer
Re Master Loan and Servicing Agreement dated as of December 1, 2001 among
Credit Store Financial, Inc., a Delaware corporation ("BORROWER"), The
Credit Store, Inc., a Delaware corporation ("SERVICER"), and The Varde
Fund IV-A, L.P., a Delaware limited partnership ("LENDER") (the "LOAN
AGREEMENT")
Ladies and Gentlemen:
This letter shall serve as our "Commitment" (as defined in the Loan Agreement)
with respect to your Proposal dated ______, 200__ (the "PROPOSAL"). Lender
hereby agrees to make a "Loan" (as defined in the Loan Agreement) with respect
to the Proposal, subject to, and in accordance with, the terms and conditions
set forth in the Proposal and the Loan Agreement.
Dated: __________, 200___
THE VARDE FUND IV-A, L.P., a Delaware limited
partnership, by Varde Partners, L.P., a Delaware
limited partnership, its General Partner, by Varde
Partners, Inc., a Delaware corporation, its General
Partner
By: ________________________________
Name: _____________________________
Its: ________________________________
MASTER LOAN AND SERVICING AGREEMENT
EXHIBIT C:
----------
FORM OF NOTE
------------
PROMISSORY NOTE
$_______________ [ ], 200__
For value received, CREDIT STORE FINANCIAL, INC., a Delaware
corporation, having a mailing address of 3401 North Louise Avenue, Suite 107
Sioux Falls, SD 57107 (hereinafter referred to as "BORROWER") promises to pay to
the order of THE VARDE FUND IV-A, L.P., a Delaware limited partnership, having a
mailing address of c/o Varde Partners, Inc., 3600 West 80th Street, Suite 425,
Minneapolis, Minnesota 55431 (hereinafter referred to as "Lender"), the
principal sum of ______________________________________________Dollars
($_____________) in lawful money of the United States of America, together with
Fixed Interest on the advanced but unpaid principal balance and the Lender's
Residual, all in accordance with the terms set forth herein and in the Master
Loan and Servicing Agreement among Borrower, Lender and The Credit Store, Inc.,
as servicer, dated as of December 1, 2001 (the "LOAN AGREEMENT"). Reference is
hereby made to the Loan Agreement, the terms and conditions of which are
incorporated herein by reference as fully and with the same effect as if set
forth herein at length. All capitalized terms not otherwise defined herein have
the respective meanings contained in the Loan Agreement. Reference is also
hereby made to the Security Agreement described in the Loan Agreement for a more
complete description of certain Collateral, a statement of certain covenants and
agreements, a statement of the rights and remedies and securities afforded
thereby and all other matters contained therein. This Note is entitled to the
benefit of the Loan Agreement and the Security Agreement.
Borrower and all endorsers and guarantors jointly and severally waive
presentments, demand, protest, and notice (except such notice as is required
under the Loan Documents) of any kind.
This Note shall be governed by and construed according to the internal
laws of the State of Minnesota.
Time is of the essence of this Note and each of the provisions hereof.
IN WITNESS WHEREOF, Borrower has executed this Promissory Note as of
the date and year first above written.
CREDIT STORE FINANCIAL, INC.,
a Delaware corporation
By: _____________________________
Name: ___________________________
Its: ____________________________
11
MASTER LOAN AND SERVICING AGREEMENT
EXHIBIT D:
----------
FORM OF NOTE REGISTER
---------------------
NOTE REGISTER
Varde/Credit Store Financial, Inc.
- ---------------------------------- -------------------------------- ------------
Date of Note Face Amount of Note Name of Holder of Note
________________ $_______________ The Varde Fund IV-A, L.P.
- --------------------------------------------------------------------------------
MASTER LOAN AND SERVICING AGREEMENT
EXHIBIT F:
----------
FORM OF SECURITY AGREEMENT
--------------------------