SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
May 14, 1998
Date of Report (Date of earliest event reported)
FIDELITY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 00029182 11-3292094
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
80-02 Kew Gardens Road, Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 718/520-65005
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On April 21, 1997, the Company and its wholly-owned subsidiary, Major
Acquisition Corp., entered into a merger agreement (the "Merger Agreement") with
Major Automotive Group, Inc. ("Major Auto") and its sole stockholder, Bruce
Bendell, who is the Company's chairman and the beneficial owner of approximately
48.2% of the Company's outstanding common stock. Mr. Bendell owned all of the
issued and outstanding shares of common stock of Major Chevrolet, Inc. ("Major
Chevrolet") and Major Subaru, Inc. ("Major Subaru") and 50% of the issued and
outstanding shares of common stock of Major Dodge, Inc. ("Major Dodge") and
Major Chrysler, Plymouth, Jeep Eagle, Inc. ("Major Chrysler, Plymouth, Jeep
Eagle"), which, collectively, operated five franchised automobile dealerships
(collectively, the "Major Auto Group").
On May 14, 1998, pursuant to the Merger Agreement, Bruce Bendell
contributed to Major Auto all of his shares of common stock of Major Chevrolet,
Major Subaru, Major Dodge and Major Chrysler, Plymouth, Jeep Eagle. Major
Acquisition Corp. then acquired from Bruce Bendell all of the issued and
outstanding shares of common stock of Major Auto in exchange for shares of a new
class of the Company's preferred stock. Major Acquisition Corp. purchased the
remaining 50% of the issued and outstanding shares of common stock of Major
Dodge and Major Chrysler, Plymouth, Jeep Eagle from Harold Bendell, Bruce
Bendell's brother, for $4 million in cash pursuant to a stock purchase
agreement. In addition, Major Acquisition Corp. acquired two related real estate
components (the "Major Real Estate", defined hereinafter) from Bruce Bendell and
Harold Bendell (collectively "the Bendells") for $3 million.
The preferred stock issued to Bruce Bendell is designated as the
"1997-MAJOR Series of Convertible Preferred Stock." It has voting rights and is
convertible into the Company's common stock (the "Common Stock'). The number of
shares of Common Stock into which the new class is convertible is 1.8 million
shares. The foregoing acquisitions from Major Auto and Harold Bendell are
collectively referred to herein as the "Major Auto Acquisition."
The Merger Agreement allocated the value of the consideration paid to
Bruce Bendell as follows: (i) 61% to Major Chevrolet; (ii) 5.8% to Major Subaru;
(iii) 16.6% to Major Dodge; and (iv) 16.6% to Major Chrysler, Plymouth, Jeep
Eagle. The stock purchase agreement allocated the value of the consideration
paid to Harold Bendell 50% to each of Major Dodge and Major Chrysler, Plymouth,
Jeep Eagle. The Major Auto dealerships were valued for purposes of the merger at
eight times adjusted earnings before interest and taxes for their respective
1996 fiscal years. Adjusted earnings included officers' salaries, expenses not
directly related to operations, non-recurring legal expenses and LIFO
adjustments. The Company believes that the eight times earnings multiple is a
relatively common pricing/valuation convention in the automobile industry.
To finance the cash portion of the Major Auto Acquisition, aggregating $7
million ($4 million for Harold Bendell and $3 million to purchase the Major Real
-2-
<PAGE>
Estate), Major Acquisition Corp. borrowed $7.5 million from Falcon Financial,
LLC ("Falcon") pursuant to a loan and security agreement dated May 14, 1998, for
a 15 year term with interest equal to 10.18%. Prepayment is not be permitted for
the first five years, after which prepayment may be made, in full only, along
with the payment of a premium.
The collateral securing the loan transaction includes the Major Real
Estate and, subject to the interests of any current or prospective "floor plan
or cap loan lender," the assets of Major Acquisition Corp. Major Acquisition
Corp. is required to comply with certain financial covenants related to net
worth and cash flow. In addition, the Company provided an unconditional
guarantee of the loan pursuant to a guarantee agreement dated May 14, 1998.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
As of the date of filing this Current Report on Form 8-K, it
is impracticable for the Registrant to provide the financial
statements required by this Item 7(a). In accordance with Item
7(a)(4) of Form 8-K, such financial statements shall be filed by
amendment to this Form 8-K no later than 60 days after May 14, 1998.
(b) Pro Forma Financial Information.
As of the date of filing this Current Report on Form 8-K, it
is impracticable for the Registrant to provide the pro forma
financial information required by this Item 7(b). In accordance with
Item 7(b) of Form 8-K, such financial statements shall be filed by
amendment to this Form 8-K no later than 60 days after May 14, 1998.
(c) Exhibits.
4.11 Certificate of Designation for the Company's 1997-MAJOR Series
of Convertible Preferred Stock. __
10.18* Plan and Agreement of Merger, dated April 21, 1997, the
Company, Major Automotive Group, Inc., Major Acquisition Corp. and
Bruce Bendell, incorporated by reference to Exhibit 10.19 of
Company's Registration Statement on Form 10-SB,
-3-
<PAGE>
as amended, filed with the Securities and Exchange Commission on
March 7, 1997. N/A
10.18(i)** Amendment to Plan and Agreement of Merger, dated August 1,
1997, between Fidelity Holdings, Inc., Major Automotive Group, Inc.,
Major Acquisition Corp. and Bruce Bendell, incorporated by reference
to Exhibit 10.18(i) of the Company's Registration Statement on Form
10-KSB, as amended, filed with the Securities and Exchange
Commission on April 16, 1998. N/A
10.18(ii)** Amendment to Plan and Agreement of Merger, dated August 26,
1997, between Fidelity Holdings, Inc., Major Automotive Group, Inc.,
Major Acquisition Corp. and Bruce Bendell, incorporated by reference
to Exhibit 10.18(ii) of the Company's Registration Statement on Form
10-KSB, as amended, filed with the Securities and Exchange
Commission on April 16, 1998. N/A
10.18(iii)** Amendment to Plan and Agreement of Merger, dated November 20,
1997, between Fidelity Holdings, Inc., Major Automotive Group, Inc.,
Major Acquisition Corp. and Bruce Bendell, incorporated by reference
to Exhibit 10.18(iii) of the Company's Registration Statement on
Form 10-KSB, as amended, filed with the Securities and Exchange
Commission on April 16, 1998. N/A
10.18(iv) Amendment to Plan and Agreement of Merger, dated March 20,
1998, between Fidelity Holdings, Inc., Major Automotive Group, Inc.,
Major Acquisition Corp. and Bruce Bendell. N/A
10.19* Stock Purchase Agreement with Escrow Agreement attached,
incorporated by reference to Exhibit 10.20 of Company's Registration
Statement on Form 10-SB, as amended, filed with the Securities and
Exchange Commission on March 7, 1997. N/A
10.20* Management Agreement, incorporated by reference to Exhibit
10.21 of Company's Registration Statement on Form 10-SB, as amended,
filed with the Securities and Exchange Commission on March 7, 1997.
N/A
10.56 Security Agreement, dated May 14, 1998, made by Major
Acquisition Corp., Major Automotive Realty Corp., and Falcon
Financial, LLC. __
10.57 Gaurantee, dated as of May 14, 1998, made by Fidelity
Holdings, Inc. in favor of Falcon Financial, LLC. __
10.58 Amended and restated secured promissory note, dated May 14,
1998 by and between Major Acquisition Corp., Major Automotive Realty
Corp. and Falcon Financial, LLC. __
- ------------
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the registrant's registration statement on Form
10-SB (File No. 0-29182).
** Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the registrant's statement on Form 10-KSB (File
No. 0-29182).
-4-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIDELITY HOLDINGS, INC.
(Registrant)
/s/ Bruce Bendell
-----------------------------
Bruce Bendell, President
Dated: May 29, 1998
-5-
Certificate of Designation
of the Powers, Preferences, Limitations,
Restrictions, and Relative Rights of the
1997-MAJOR Series of Convertible Preferred Stock
$.01 Par Value
(Under Section 78.195 of the General Corporation Law
of the State of Nevada)
It is hereby certified that:
I. The name of the corporation is FIDELITY HOLDINGS, INC. (the
"Corporation").
II. Set forth hereinafter is a statement of the powers, preferences,
limitations, restrictions and relative rights of shares of the 1997-MAJOR Series
of Convertible Preferred Stock hereinafter designated, as contained in a
resolution of the Board of Directors of the Corporation, pursuant to a provision
of the Articles of Incorporation of the Corporation permitting the designation
and issuance of said 1997-MAJOR Series of Convertible Preferred Stock by
resolution of the Corporation's Board of Directors:
1. Designation; Number of Shares.
The designation of said series of Preferred Stock shall be the
1997-MAJOR Series of Convertible Preferred Stock (the "1997-Major Series"). The
number of shares of the 1997-Major Series shall be 900,000.
2. Dividends.
The holders of outstanding shares of the 1997-Major Series shall be
entitled to receive participating dividends equivalent to any dividend declared
for payment on any shares of any Common Stock out of funds of the Corporation
legally available therefor when, as and if declared, except that each share of
the 1997-Major Series shall receive twice the dividend payable with respect to
each share of Common Stock.
3. Liquidation Rights.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the 1997-Major
Series shall be entitled to receive, before any payment or distribution shall be
made on the Common Stock or any other series of preferred stock of the
Corporation that has a liquidation preference that is junior to that of the
1997-Major Series (collectively with the Common Stock, the "Junior Stock"), out
of the assets of the Corporation available for distribution to stockholders, an
amount equal to the Liquidation Value per share of the 1997- Major Series (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) and all accrued and unpaid dividends to and including the date of
payment thereof. Upon the payment in full of all amounts due to holders of the
1997-Major Series, the holders of the Common Stock of the Corporation and any
other Junior Stock shall receive all remaining assets of the Corporation legally
available for distribution. If the assets of the Corporation available for
distribution to the holders of the 1997-Major Series shall be insufficient to
permit payment in full of the amounts payable as aforesaid to the holders of the
1997-Major Series upon such liquidation, dissolution or winding-up, whether
voluntary or involuntary, then all such assets of the Corporation shall be
distributed, to the exclusion of the holders of shares of Junior Stock, among
the holders of the 1997-Major Series, and any other series of preferred stock of
the Corporation that is not Junior Stock, ratably in accordance with their
respective liquidation values.
(b) Neither the purchase nor the redemption by the Corporation of
shares of any class of stock, nor the merger or consolidation of the Corporation
with or into any other corporation or corporations, nor the sale or transfer by
the Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the purposes of
this paragraph 3. Holders of the 1997-Major Series shall not be entitled, upon
the liquidation, dissolution or winding-up of the Corporation, to receive any
amounts with respect to such stock other than the amounts referred to in this
paragraph 3.
<PAGE>
4. Redemption.
The shares of the 1997-Major Series may not be redeemed.
5. Conversion into Common Stock.
Shares of the 1997-Major Series shall have the following conversion
rights and obligations:
(a) Subject to the further provisions of this paragraph 5, each
holder of shares of the 1997-Major Series shall have the right, at any time, to
convert such shares into fully paid and non-assessable shares of Common Stock of
the Corporation (as defined in subparagraph 5(h) below) at the Conversion Rate
(which shall be the Initial Conversion Rate, as adjusted to the date of
Conversion pursuant to paragraph (d) below). As used herein (i) "Initial
Conversion Rate" means the rate of the Applicable Number of Shares of Common
Stock divided by 900,000 and (ii) "Applicable Number of Shares of Common Stock"
means (A) if the Market Value of 1,800,000 shares of Common Stock on the Issue
Date is equal to or greater than $6,000,000, and (B) if the Market Value of
1,800,000 shares of Common Stock on the Issue Date is less than $6,000,000, such
number of shares of Common Stock as shall have a Market Value on the Issue Date
equal to $6,000,000, with any fraction of a share of Common Stock rounded
upwards to the nearest integer.
(b) On the fifth anniversary of the date of initial issuance of the
1997-Major Series (the "Issue Date"), all outstanding shares of the 1997-Major
Series shall automatically be converted into shares of Common Stock at the
then-applicable Conversion Rate for such shares.
(c) The holder of any certificate(s) for shares of the 1997-Major
Series desiring to convert any of such shares or whose shares where
automatically converted pursuant to the provisions of this paragraph 5 shall
surrender such certificate(s), at the principal office of any transfer agent for
said stock (the "Transfer Agent"), with a written notice of such election to
convert (if such conversion is voluntary) such shares into Common Stock duly
completed and executed and, if necessary under the circumstances of such
conversion, with such certificate(s) properly endorsed for, or accompanied by
duly executed instruments of, transfer (and such other transfer papers as said
Transfer Agent may reasonably require). The holder of the shares so surrendered
for conversion shall be entitled to receive a certificate or certificates, which
shall be expressed to be fully paid and non-assessable, for the number of shares
of Common Stock to which such stockholder shall be entitled upon such
conversion, registered in the name of such holder or in such other name or names
as such stockholder in writing may specify. In the case of a partial conversion
of the 1997-Major Series, the holder of shares of the 1997-Major Series shall
upon delivery of the certificate or certificates representing Common Stock also
receive a new share certificate representing the unconverted portion of the
shares of the 1997-Major Series. Nothing herein shall be construed to give any
holder of shares of the 1997-Major Series surrendering the same for conversion
the right to receive any additional shares of Common Stock or other property
which results from an adjustment in conversion rights under the provisions of
subparagraphs (d) of this paragraph 5 until holders of Common Stock are entitled
to receive the shares or other property giving rise to the adjustment.
In the case of the exercise of the conversion rights set forth in
paragraph 5(a), the conversion privilege shall be deemed to have been exercised,
and the shares of Common Stock issuable upon such conversion shall be deemed to
have been issued, upon the date of receipt by such Transfer Agent for conversion
of the certificate for such shares of the 1997-Major Series. In the case of the
automatic conversion set forth in paragraph 5(b), conversion shall be deemed to
have occurred, and the shares of Common Stock issuable upon such conversion
shall be deemed to have been issued, on the fifth anniversary of the Issue Date.
The Person entitled to receive Common Stock issuable upon such conversion shall
on the date such conversion privilege is deemed to have been exercised and
thereafter be treated for all purposes as the record holder of such Common Stock
and shall on the same date cease to be treated for any purpose as the record
holder of such shares of the 1997-Major Series so converted.
Notwithstanding the foregoing, if the stock transfer books are
closed on the date such shares are received by the Transfer Agent, the
conversion privilege shall be deemed to have been exercised, and the Person
shall be treated as a record holder of shares of Common Stock, on the next
succeeding date on which the transfer books are open, but the Conversion Rate
shall be that in effect on the date such conversion privilege was exercised. The
Corporation shall not be
-3-
<PAGE>
required to deliver certificates for shares of its Common Stock or new
certificates for unconverted shares of its 1997-Major Series while the stock
transfer books for such respective classes of stock are duly closed for any
purpose; but the right of surrendering shares of the 1997-Major Series for
conversion shall not be suspended during any period that the stock transfer
books of either of such classes of stock are closed.
Upon the conversion of any shares of the 1997-Major Series, no
adjustment or payment shall be made with respect to such converted shares on
account of any dividend on shares of such stock or on account of any dividend on
the Common Stock, except that the holder of such converted shares shall be
entitled to be paid any dividends declared on shares of Common Stock after
conversion thereof.
If the Corporation shall at any time be liquidated, dissolved or
wound-up, the conversion privilege shall terminate at the close of business on
the last business day next preceding the effective date of such liquidation,
dissolution or winding-up.
The Corporation shall not be required, in connection with any
conversion of 1997-Major Series, to issue a fraction of a share of its Common
Stock nor to deliver any stock certificate representing a fraction thereof, but
in lieu thereof the Corporation shall make a cash payment equal to such fraction
multiplied by the Payout Price of the Common Stock determined as hereinafter set
forth. The "Payout Price" of the Common Stock for the purpose of computing
payments to be made for fractional shares shall be the closing sales price (or
if there were no sales, the closing bid price) on the principal stock exchange
on which the Common Stock is listed or, if the Common Stock is not listed, the
closing bid price in the over-the-counter market. Such price shall be determined
as of the close of business on the last business day of each week and such price
as so determined shall continue in effect during the next succeeding week. In
all other cases, the Payout Price of the Common Stock shall mean the amount
determined by the Board of Directors to be the market price based upon a good
faith attempt to value the Common Stock accurately and computed in accordance
with applicable law.
(d) The Conversion Rate shall be subject to adjustment from time to
time as follows:
(i) If the Corporation shall at any time (A) declare any
dividend or distribution on its Common Stock or other
securities of the Corporation, (B) split or subdivide
the outstanding Common Stock, (C) combine the
outstanding Common Stock into a smaller number of shares
or (D) issue by reclassification of its Common Stock any
shares or other securities of the Corporation, then, in
each such event, the Conversion Rate shall be adjusted
proportionately so that the holders of 1997-Major Series
shall be entitled to receive the kind and number of
shares or other securities of the Corporation which such
holders would have owned or have been entitled to
receive after the happening of any of the events
described above had such shares of 1997-Major Series
been converted immediately prior to the happening of
such event (or any record date with respect thereto).
Such adjustment shall be made whenever any of the events
listed above shall occur. An adjustment made to the
Conversion Rate pursuant to this paragraph 5(d)(i) shall
become effective immediately upon the effective date of
the event or, if earlier, shall become effective
retroactive to the record date for the event.
(ii) If the Corporation shall consolidate or merge with
or into any other corporation (other than a merger or
consolidation in which the Corporation is the surviving
or continuing corporation and which does not result in
any reclassification, conversion or change of the
outstanding shares of Common Stock), then, unless the
right to convert shares of the 1997- Major Series shall
have terminated, as part of such consolidation or
merger, lawful provision shall be made so that holders
of the 1997-Major Series shall thereafter have the right
to convert each share of the 1997-Major Series into the
kind and amount of shares of stock and/or other
securities or property receivable upon such
consolidation or merger by a holder of the number of
shares of Common Stock into which such shares of the
1997-Major Series might have been converted immediately
prior to such consolidation or merger. Such provision
shall also provide for adjustments which shall be as
nearly equivalent as may be practicable to the
adjustments provided for in the foregoing paragraph (i).
The foregoing provisions of this paragraph (ii) shall
similarly apply to successive consolidations and
mergers.
<PAGE>
(iii) If the Corporation shall sell or convey to another
Person the property of the Corporation as an entirety,
or substantially as an entirety, in connection with
which shares or other securities or cash or other
property shall be issuable, distributable, payable or
deliverable for outstanding shares of Common Stock,
then, unless the right to convert such shares shall have
terminated, lawful provision shall be made so that the
holders of the 1997-Major Series shall thereafter have
the right to convert each share of the 1997-Major Series
into the kind and amount of shares of stock or other
securities or property that shall be issuable,
distributable, payable or deliverable upon such sale or
conveyance with respect to each share of Common Stock
immediately prior to such conveyance.
(e) Whenever the number of shares to be issued upon conversion of
the 1997-Major Series is required to be adjusted as provided in this paragraph
5, the Corporation shall forthwith compute the adjusted number of shares to be
so issued and prepare a certificate setting forth such adjusted conversion
amount and the facts upon which such adjustment is based, and such certificate
shall forthwith be filed with the Transfer Agent for the 1997-Major Series and
the Common Stock, and the Corporation shall mail to each holder of record of the
1997-Major Series notice of such adjusted conversion price.
(f) If at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in
shares upon its Common Stock or make any distribution
(other than cash dividends) to the holders of its Common
Stock;
(ii) to offer for subscription to the holders of its
Common Stock any additional shares of any class or any
other rights;
(iii) any capital reorganization or reclassification of
its shares, or the consolidation or merger of the
Corporation with another corporation; or
(iv) the voluntary dissolution, liquidation or
winding-up of the Corporation; the Corporation shall
cause at least fifteen (15) days' prior notice of the
date on which (A) the books of the Corporation shall
close, or a record be taken for such stock . dividend,
distribution or subscription rights, or (B) such capital
reorganization, reclassification, consolidation, merger,
dissolution, liquidation or winding-up shall take place,
as the case may be, to be mailed to the Transfer Agent
for the 1997-Major Series and for the Common Stock and
to the holders of record of the 1997-Major Series
(g) So long as any shares of the 1997-Major Series shall remain
outstanding and the holders thereof shall have the right to convert the same in
accordance with provisions of this paragraph 5, the Corporation shall at all
times reserve from the authorized and unissued shares of its Common Stock a
sufficient number of shares to provide for such conversions.
(h) The term "Common Stock" as used in this paragraph 5 shall mean
Common Stock of the Corporation as such stock is constituted at the date of
issuance thereof or as it may from time to time be changed, or shares of stock
of any class, other securities and/or property into which the shares of the
1997-Major Series shall at any time become convertible pursuant to the
provisions of this paragraph 5.
(i) The Corporation shall pay the amount of any and all issue taxes
which may be imposed in respect of any issue or delivery of stock upon the
conversion of any shares of the 1997-Major Series, but all transfer taxes that
may be payable in respect of any change of ownership of the 1997-Major Series,
or any rights represented thereby, or of stock receivable upon conversion
thereof, shall be paid by the Person or Persons surrendering such stock for
conversion.
<PAGE>
6. Voting Rights.
Each share of the 1997-Major Series shall entitle its holder to two
votes, and with respect to such votes, a holder of shares of the 1997-Major
Series shall have full voting rights and powers equal to the voting rights and
powers of a holder of shares of Common Stock, and shall be entitled to a notice
of any stockholders' meeting in accordance with the By-laws of the Corporation
and shall be entitled to vote with holders of Common Stock together as a single
class.
7. Status of Converted Stock.
In case any shares of the 1997-Major Series shall be converted
pursuant to paragraph 5, or otherwise repurchased or reacquired, the shares so
converted or otherwise repurchased or reacquired shall resume the status of
authorized but unissued shares of Preferred Stock and shall no longer be
designated as shares of the 1997-Major Series.
8. No Preemptive Rights.
No holder of any shares of the 1997-Major Series, as such, shall be
entitled as a matter of right to subscribe for or purchase any part of any new
or additional issue of shares of any class or series, junior or senior thereto,
or securities convertible into, exchangeable for, or exercisable for the
purchase of, shares of any class or series, junior or senior, whether now or
hereafter authorized, and whether issued for cash, property, services, by way of
dividends, or otherwise.
9. Defined Terms.
As used herein the following terms have the following respective
meanings:
"Conversion Rate" has the meaning assigned to such term in Section
5(a) hereof.
"Corporation" has the meaning assigned to such term in certification
I hereof.
"Issue Date" has the meaning assigned to such term in paragraph 5(b)
hereof.
"Junior Stock" has the meaning assigned to such term in paragraph
3(a) hereof.
"Liquidation Value" means $4.00 per share of the 1997-Major Series.
"Payout Price" has the meaning assigned to such term in paragraph
5(c) hereof.
"Market Value" means the mean between the closing bid and asked
prices per share of the Common Stock over the 20 consecutive trading days prior
to the Issue Date.
"1997-Major Series" has the meaning assigned to such term in
paragraph 1 hereof.
"Person" means any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated association or
government (or any agency, instrumentality or political subdivision thereof).
"Transfer Agent" has the meaning assigned to such term in paragraph
5(c) hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed on its behalf by its undersigned President and attested to by its
Secretary this ____ day of _____________.
FIDELITY HOLDINGS, INC.
ATTEST:
(Corporate Seal]
By:
----------------------------------
President
By:
----------------------------------
Secretary
THIRD AMENDMENT TO PLAN AND AGREEMENT OF MERGER
This is an Amendment to that certain Plan and Agreement of Merger
("Agreement of Merger") by and between Fidelity Holdings, Inc., a Nevada
Corporation ("Fidelity"), Major Automotive Group, Inc., a New York Corporation
(the "Merging Corporation"), Major Acquisition Corp., a New York Corporation
(the "Surviving Corporation") and Bruce Bendell(the "Shareholder of the Merging
Corporation").
BACKGROUND
A. The Merger Agreement was executed by all parties on or about April
21,1997.
B. Article 1.2 of the Merger Agreement set a closing date (the "Closing
Date") on or before One Hundred Twenty (120) days from the execution of the
Merger Agreement unless such time period was mutually extended.
C. By amendment effective August 1, 1997, the parties hereto mutually
extended the Closing Date One Hundred Twenty (120) days from August 1,1997.
D. By second amendment effective November 20, 1997, the parties hereto
mutually extended the closing date One Hundred Twenty (120) days from November
20, 1997.
E. The parties hereto have agreed that it is in their best interest to
once again mutually extend the closing date to a time and date mutually agreed
upon but in no event beyond One Hundred Twenty (120) days from the effective
date of this amendment, unless further extended by mutual consent.
NOW, THEREFORE, with the foregoing recital paragraphs incorporated herein
by this reference, and for other good and valuable consideration acknowledged to
have been exchanged and received, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE 1
EXTENSION OF CLOSING DATE
The closing of the transaction contemplated by the Merger Agreement (the
"Closing") shall occur on a mutually agreed upon date at the offices of
Fidelity, which date shall be not more than One Hundred Twenty (120) days from
March 20, 1998 unless mutually extended.
<PAGE>
ARTICLE 2
SURVIVAL OF MERGER AGREEMENT TERMS
All of the terms, conditions, liabilities, limitations and obligations set
forth in the Merger Agreement, except as expressly amended in this Agreement,
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
20th day of March 1998.
Fidelity Holdings, Inc.
/s/ Doron Cohen
----------------------------------
By: Doron Cohen, President
Major Automotive Group, Inc.
/s/ Bruce Bendel
----------------------------------
By: Bruce Bendell, President
Major Acquisition Corp.
/s/ Bruce Bendell
----------------------------------
By: Bruce Bendell, President
As to Article 2
Major Chevrolet, Inc.
/s/ Bruce Bendell
----------------------------------
By: Bruce Bendell, President
<PAGE>
As to Article 2
Major Dodge, Inc.
/s/ Bruce Bendell
----------------------------------
By: Bruce Bendell, President
As to Article 2
Major Subaru, Inc.
/s/ Bruce Bendell
----------------------------------
By: Bruce Bendell, President
As to Article 2
Major Chrysler, Plymouth, Jeep,
Eagle, Inc.
/s/ Bruce Bendell
----------------------------------
By: Bruce Bendell, President
/s/ Bruce Bendell
----------------------------------
Bruce Bendell
SECURITY AGREEMENT
made by
MAJOR ACQUISITION CORP.,
MAJOR CHRYSLER PLYMOUTH JEEP EAGLE, INC.,
MAJOR CHEVROLET, INC.,
MAJOR DODGE, INC.,
MAJOR SUBARU, INC. and
MAJOR AUTOMOTIVE REALTY CORP.
in favor of
FALCON FINANCIAL, LLC,
a Delaware limited liability company, its successors and assigns,
as secured party
May __, 1998
<PAGE>
SECURITY AGREEMENT
TABLE OF CONTENTS
INDEX ITEM Page
Preliminary Statement..........................................................1
1. GRANT.................................................................1
2. REPRESENTATIONS, WARRANTIES AND COVENANTS.............................1
2.1 Borrower's Name..................................................1
2.2 Location of Borrower, Business and Collateral; Inspection........1
2.3 Organization; Chief Executive Office; Affiliates.................2
2.4 No Change in Name or Location....................................2
2.5 Power and Authority..............................................2
2.6 Due Execution and Delivery, Enforceability.......................2
2.7 Operating Experience.............................................2
2.8 Financial Covenants..............................................2
2.9 Limitation on Indebtedness, Lease Obligations and Payments
to Affiliates....................................................2
2.10 Title; No Liens, Claims or Encumbrances..........................3
2.11 No Further Disposition or Encumbrances...........................3
2.12 Principal Agreements.............................................3
2.13 Renewal of Principal Agreements; Encumbrance of Principal
Agreements.......................................................3
2.14 Financing Statements; Perfected Security Interest................4
2.15 No Conflict......................................................4
2.16 No Consent Required..............................................4
2.17 Purpose for Loans................................................4
2.18 Compliance Certificates; Reports; Communications.................4
2.19 Accuracy of Information..........................................5
2.20 Maintenance of Collateral and Business; Casualty and
Condemnation.....................................................5
2.21 Insurance........................................................6
2.22 Compliance with Laws; No Violation; Indemnity....................7
2.23 Subsidiaries.....................................................7
2.24 Tax Returns......................................................8
2.25 Litigation.......................................................8
2.26 Bring Down of Representations; Survival of Warranties;
Cumulative.......................................................8
2.27 Capitalization; Solvency.........................................8
2.28 Maintenance of Existence.........................................9
2.29 Notice of Material Adverse Changes...............................9
2.31 Sale of Assets, Consolidation, Merger, Dissolution, Etc..........9
2.32 Encumbrances.....................................................9
2.33 Indebtedness....................................................10
2.34 Loans, Investments, Guarantees, Etc.............................10
2.35 Distributions and Redemptions...................................10
2.36 Transactions with Affiliates....................................11
2.37 Deposit Accounts................................................11
2.38 Payments........................................................11
2.39 Costs and Expenses..............................................11
2.40 Brokers and Financial Advisors..................................12
2.41 Chevrolet Lease. ...............................................12
3. SPECIAL PROVISIONS ON REAL PROPERTY, ACCOUNTS, INVENTORY
AND EQUIPMENT........................................................12
3.1 New Locations...................................................12
3.2 Accounts........................................................12
3.3 Inventory Covenants.............................................13
3.4 Equipment Covenants.............................................13
3.5 Power of Attorney...............................................14
3.6 Right to Cure...................................................14
3.7 Access to Premises..............................................14
-i-
<PAGE>
Page
----
4. SPECIAL PROVISIONS CONCERNING COLLATERAL REVENUES....................15
5. SPECIAL PROVISIONS CONCERNING RIGHTS AND DUTIES WHILE IN
POSSESSION OF COLLATERAL.............................................15
5.1 Borrower's Possession..........................................15
5.2 Secured Party's Possession.....................................15
6. EVENTS OF DEFAULT....................................................16
6.1 Nonpayment, default, breach, etc...............................16
6.2 Other defaults of Borrower and other liable parties............16
7. REMEDIES.............................................................16
7.1 Cumulative Rights and Remedies.................................16
7.2 Acceleration of Obligations....................................16
7.3 Additional Rights of Secured Party.............................17
7.4 Application of Proceeds; Deficiency............................17
7.5 Required Notice of Sale........................................17
8. POST-DEFAULT POWER OF ATTORNEY.......................................18
9. DISCLOSURE...........................................................18
10.INDEMNIFICATION......................................................18
11.OBLIGATIONS AND SECURITY INTEREST ABSOLUTE...........................19
12.ASSIGNMENT...........................................................19
13.FURTHER ASSURANCES...................................................19
14.TERM.................................................................20
15.MISCELLANEOUS........................................................20
15.1 FINAL AGREEMENT; AMENDMENTS, CONSENTS, AUTHORIZATIONS..........20
15.2 Notices........................................................20
15.3 Reasonableness.................................................21
15.4 Recovery of Sums Required To Be Paid...........................21
15.5 WAIVERS........................................................21
15.6 WAIVER OF TRIAL BY JURY........................................21
15.7 Waiver of Notices..............................................22
15.8 Relationship...................................................22
15.9 Waiver of Counterclaims........................................22
15.10 No Conflict with Principal Agreements..........................22
15.11 LIMITATION ON INTEREST.........................................22
15.12 Governing Law; Binding Effect..................................23
15.13 Severability...................................................23
15.14 Counterparts; Captions; Construction...........................23
SIGNATURE PAGE................................................................41
Schedules List
Exhibits List
-ii-
<PAGE>
SCHEDULES LIST
DEFINITIONS SCHEDULE
INFORMATION CERTIFICATE (ss. 2)
SCHEDULE 2.1 MERGERS, CONSOLIDATIONS, OTHER NAMES USED
SCHEDULE 2.14 FILING OFFICES
SCHEDULE 2.22 COMPLIANCE WITH LAWS
SCHEDULE 2.25 LITIGATION
SCHEDULE 2.3 AFFILIATES
SCHEDULE 2.31 SALE OF ASSETS
SCHEDULE 2.32 PERMITTED ENCUMBRANCES
SCHEDULE 2.33 CERTAIN PERMITTED INDEBTEDNESS
SCHEDULE 2.37 BANKS
SCHEDULE 2.40 BROKERS AND FINANCIAL ADVISORS
<PAGE>
EXHIBITS LIST
EXHIBIT A Note (Preliminary Statement)
EXHIBIT B UCC Search (ss. 2.10)
EXHIBIT C Local Bank Direction Letters (ss. 2.37)
EXHIBIT D Compliance Certificate (ss. 2.18)
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated May 14, 1998, made by Major Acquisition Corp.
and its existing subsidiaries, Major Chrysler Plymouth Jeep Eagle, Inc., Major
Chevrolet, Inc., Major Dodge, Inc., Major Subaru, Inc. and Major Automotive
Realty Corp., each a New York corporation , each a borrower and collectively and
jointly and severally, the Borrower ("Borrower") in favor of FALCON FINANCIAL,
LLC, a Delaware limited liability company, as secured party subject to Section
12 hereof ("Secured Party").
Preliminary Statement
Borrower has requested that Secured Party make the Loan (as defined below)
and Borrower has agreed to evidence such Loan by executing and delivering to
Secured Party an Amended and Restated Secured Promissory Note in the form of
EXHIBIT A ("Note"), dated the date thereof, made payable to Secured Party in the
original principal amount set forth therein and for the term and on the terms
and conditions set forth therein. As a condition to the making of the Loan,
Secured Party has requested and Borrower has agreed to, among other things,
grant to Secured Party a security interest in the Collateral (as defined below).
The terms used herein (whether or not capitalized) have the meanings accorded
such terms in the text hereof and in the DEFINITIONS SCHEDULE attached hereto
and made a part hereof and, to the extent not inconsistent therewith, the UCC.
In consideration of the foregoing, the benefits accruing to Borrower and
for other good and valuable consideration, the receipt and sufficiency of which
Borrower hereby acknowledges, Borrower hereby makes the following
representations and warranties to Secured Party and covenants and agrees with
Secured Party as follows:
1. GRANT: To secure the Obligations, Borrower hereby pledges, assigns,
transfers and grants to Secured Party a continuing security interest and Lien on
and right of set off with respect to the following property and assets, whether
now owned and existing or hereafter acquired or arising (collectively
"Collateral"): all Goods (including Equipment and Inventory (but excluding
Inventory subject to a Permitted Encumbrance)), General Intangibles, Accounts,
certificates of title, fixtures, money, instruments, securities, investment
property, documents, chattel paper, credit balances, deposits, deposit accounts,
letters of credit, bankers' acceptances, guaranties, credits, claims, choses in
action, demands, and all present and future liens, security interests, rights,
insurance, remedies, title and interest in, to and in respect of Accounts and
other Collateral and all other personal property, now or hereafter owned,
acquired, existing, arising, held, used, sold or consumed in connection with
Borrower's Business or Property and any other property, rights and interests of
Borrower which at any time relate to, arise out of or in connection with the
foregoing or which shall come into the possession or custody or under the
control of Secured Party or any of its agents, representatives, associates or
correspondents, for any purpose; all additions and accessions thereto,
substitutions therefor and replacements and improvements of or to any or all of
the foregoing, all interest, income, dividends, distributions and earnings
thereon or other monies or revenues derived therefrom, including any such
property received in connection with any disposition of the Franchise Agreements
and all moneys which may become payable under any policy insuring the Collateral
or otherwise required to be maintained hereunder (including return of unearned
premium) ("Collateral Revenues"); and all products and Proceeds of the foregoing
(but excluding Proceeds from the disposition of Inventory subject to a Permitted
Encumbrance, provided, however that (i) such Proceeds are used to pay off the
related Permitted Encumbrance and (ii) to the extent such Proceeds are in excess
shall be subject to the security interest and Lien of the Secured Party).
Without limiting the generality of the foregoing, this Agreement also secures
the payment of all amounts which constitute part of the Obligations and would be
owed by the Borrower to the Secured Party but for the fact they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Borrower.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS: Borrower hereby represents,
warrants and covenants that:
2.1 Borrower's Name. Each of Borrower's legal name, federal taxpayer
identification number, and mailing address is accurately set forth on the
INFORMATION CERTIFICATE. Except as disclosed on SCHEDULE 2.1, Borrower, or any
company which has been merged into the Borrower, has not merged, consolidated,
acquired all or substantially all of the assets of any Person or used any other
name (whether in connection with the Business or the Collateral or for business,
obtaining credit or financing or otherwise) in the last twelve years.
2.2 Location of Borrower, Business and Collateral; Inspection. Under
its legal name, Borrower is and shall continue to be engaged in the business of
operating an automobile dealership at four existing locations and any new
locations permitted pursuant to this Security Agreement (the "Business")
pursuant to the franchise or license agreements identified on the INFORMATION
CERTIFICATE (the "Franchise Agreements") with the franchisors or licensors
identified on the INFORMATION CERTIFICATE
<PAGE>
("Franchisor") at the commercial properties ("Properties" and each a "Property")
with the addresses, in the Counties and States set forth on the INFORMATION
CERTIFICATE, and, under the legal names (or trade name(s), if any, referenced on
the INFORMATION CERTIFICATE) except as permitted hereunder. The INFORMATION
CERTIFICATE correctly discloses that Borrower (i) is the sole record owner of
the Properties or (ii) leases (or subleases) the Properties and the record
owners of the Properties are the person or entity disclosed on the INFORMATION
CERTIFICATE. Borrower has provided to Secured Party a true, correct and complete
copy of any Lease for the Properties and the terms of such Lease(s) are
accurately summarized in the INFORMATION CERTIFICATE. All personal property of
Borrower owned, acquired, held, used, sold or consumed in the Business including
Goods (including Inventory and Equipment), General Intangibles, Accounts,
chattel paper, instruments, investment property, documents, certificates of
title, fixtures, securities and money, and all writings relating thereto and
records thereof, books of record or account, employees, business, offices and
operations are located at and conducted out of such Properties or at Borrower's
chief executive office or such other off site locations as Borrower may use and
control provided it gives prior notice thereof to Secured Party. Borrower shall
allow Secured Party, its agents and representatives, from time to time, to
inspect upon reasonable notice during normal business hours the Collateral, the
Properties and Borrower's books and records pertaining thereto or otherwise to
the Business, and Borrower will assist (and permit abstracts and photocopies of
Borrower's books and records to be taken and retained by) Secured Party, its
agents and representatives in making any such inspection. Secured Party shall
have the right to review, monitor, and upon reasonable notice inspect Borrower's
operations with respect to compliance with Environmental Laws and conformity to
sound environmental management practices and to make recommendations to Borrower
with respect thereto.
2.3 Organization; Chief Executive Office; Affiliates. Borrower is
and will continue to be duly organized, validly existing and in good standing
under the laws of the state of its organization. Borrower is and will continue
to be duly qualified to do business and is in good standing in each jurisdiction
where it conducts its Business or where the Properties are located. Borrower has
not and shall not fail to qualify to do business and be and remain in good
standing in any jurisdiction where such qualification or standing is necessary,
required or proper in connection with Borrower's ownership or use of the
Collateral or the Properties or the conduct of its Business where such failure
has a Material Adverse Effect. Borrower's chief executive office address is
accurately set forth on the INFORMATION CERTIFICATE. SCHEDULE 2.3 contains a
complete and accurate list of all of Borrower's Affiliates who have executed and
delivered any guarantee or other loan document to Secured Party.
2.4 No Change in Name or Location. Borrower will neither change its
name, federal taxpayer identification number, or its chief executive office, nor
assume a different name, nor conduct its business or affairs under any other
name without providing Secured Party with 60 days prior written notice thereof.
Borrower will neither change the location of any of its Business, Property or
Collateral, nor merge, consolidate, or change its structure (whether by equity
sale, issuance, purchase or otherwise), nor change its use of any item of
Collateral during the term hereof except as otherwise permitted under this
Security Agreement. Borrower will not engage in any business or activities other
than the Business during the term hereof.
2.5 Power and Authority. Borrower has full power, authority and the
legal right and all necessary permits, consents, licenses and authorizations to
own the Collateral and to conduct its Business. Borrower has full power,
authority and the legal right and all necessary permits, consents, licenses and
authorizations to execute, deliver and perform its obligations under this
Security Agreement, the Note and the other Loan Documents.
2.6 Due Execution and Delivery, Enforceability. This Security
Agreement, the Note and the other Loan Documents have been duly and validly
executed and delivered by Borrower. Each of this Security Agreement, the Note
and other Loan Documents constitutes Borrower's legal, valid and binding
obligation, enforceable against Borrower in accordance with its terms except for
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights.
2.7 Operating Experience. During the term of this Security
Agreement, the Dealer Principal at each Property shall be identified in the
related Franchise Agreement and there will be no changes in the Dealer Principal
of a Property without the following criteria being met: (1) the new Dealer
Principal shall have at least ten year's experience as a dealer or general
manager; (2) the new Dealer Principal shall be approved in advance by the
Franchisor; and (3) the new Dealer Principal shall be of acceptable character
and moral standing to the Secured Party.
2.8 Financial Covenants. During the term of this Security Agreement,
(i) Borrower shall maintain their Borrower FCCR at not less than 1.20 each
quarter ("Minimum Borrower FCCR") and (ii) the Adjusted Net Worth of Borrower
shall not be less than $1,900,000 ("Minimum Adjusted Net Worth"). All
calculations of Borrower FCCR shall be based upon the quarterly financial
information furnished by Borrower hereunder (Section 2.18) for the prior
12-month period of operations.
2.9 Limitation on Indebtedness, Lease Obligations and Payments to
Affiliates. Borrower shall not, directly or indirectly, incur any Indebtedness
during the term hereof other than the Obligations and to the extent permitted by
Section 2.33.
-2-
<PAGE>
Borrower shall not, directly or indirectly, incur any Indebtedness, Lease
Obligations or become obligated to make any payments (including any Payments to
Affiliates) if after giving effect to such incurrence or payments, Borrower's
FCCR would be less than the Minimum Borrower FCCR or Borrower's Adjusted Net
Worth would be less than the Minimum Adjusted Net Worth. Borrower shall not,
directly or indirectly, make any distributions or other Payments to Affiliates
during any period in which Borrower's FCCR is less than the Minimum Borrower
FCCR or its Adjusted Net Worth is or would, as a result thereof, be less than
the Minimum Adjusted Net Worth, or otherwise upon and during the continuance of
an Event of Default.
2.10 Title; No Liens, Claims or Encumbrances. Borrower has and,
subject to Section 2.31.2. will maintain good and marketable title to the
Collateral free of all Liens, claims, encumbrances or rights of others (other
than the security interest granted to Secured Party hereunder and to the extent
of the Permitted Encumbrances) and such Collateral is sufficient to enable a
franchisee or licensee of the Franchisors to operate the Business at the
Properties in accordance with the Franchise Agreements. Except as reflected on
the UCC Search attached hereto as EXHIBIT B ("Current Filings") or individual
judgments of less than $10,000, there is no financing statement (or similar
statement, agreement, pledge, mortgage, notice or registration), Lien (including
any federal or state tax lien), suit (including any action, proceeding, or other
litigation pending, or to Borrower's knowledge, threatened) or judgment
(including any award, injunction, order) filed with, registered, indexed or
recorded in any public office, court, arbitration panel, administrative agency
or regulatory authority (or intended so to be), directly or indirectly,
identifying or encumbering or covering or involving the Collateral or the
Franchise Agreements or Licenses or which could have a Material Adverse Effect.
Borrower shall take all actions necessary to terminate all Current Filings other
than those consented to by Secured Party and relating solely to Permitted
Encumbrances, if any, prior to or concurrently with the funding of the Loan.
2.11 No Further Disposition or Encumbrances. Other than with respect
to the interest granted in favor of Secured Party, to the extent of the
Permitted Encumbrances, and except as provided in Section 2.31.2 hereof,
Borrower has not and will not enter into any agreement or understanding or take,
permit or suffer to exist any action (including the filing of a financing
statement, agreement, pledge, mortgage, notice or registration) or event
(whether by operation of law or otherwise) for the purpose of, or that may have
the effect of, directly or indirectly, granting a security interest in or lien
on (including any state or federal tax lien except to the extent permitted by
Section 2.32.2 hereof), pledging, transferring, assigning, selling, disposing
of, or encumbering any Collateral, any interest therein or rights pertaining
thereto or involving the Business, or increasing the amount of credit, loans,
Indebtedness or value secured by the Permitted Encumbrances, if any, or the
amount, property or assets encumbered thereby, or otherwise materially changing,
modifying, supplementing any such Permitted Indebtedness.
2.12 Principal Agreements. Borrower is and will continue to be a
franchisee or licensee in good standing with the Franchisors or any successor of
a Franchisor permitted by this Security Agreement. Borrower has not breached and
is not in default under any of the Principal Agreements; Borrower shall not
terminate, fail to renew, breach or be in default under any of the Principal
Agreements except as permitted in accordance with the terms of the this Security
Agreement; and Borrower has no knowledge of any claim of (or basis for any claim
of) any such termination, nonrenewal, breach or default. Borrower agrees to
fully comply, at Borrower's own cost and expense, with the terms of the
Principal Agreements (including any renewal option) and to promptly notify
Secured Party of any adverse development of which Borrower becomes aware with
regard to any of the Principal Agreements, including any claim of breach of or
default under, or threat of nonrenewal or termination of, or litigation
involving any of the Principal Agreements. Notwithstanding the foregoing,
Borrower may sell or assign its interest in a Principal Agreement and substitute
such interest with an interest in another Principal Agreement or with sufficient
cash collateral, in all cases, with the consent of the Secured Party, which
consent shall not be unreasonably withheld, and given (or denied) not later than
20 business days after the Lender is in possession of all relevant information.
Such consent shall be based on such factors as (but not limited to) there being
no negative tax implications for the Secured Party or any Securitization to
which the loan is contributed, there being no downgrade or withdrawal of any
rating assigned to a Securitization to which the Loan is contributed and that,
in all instances, such sale or assignment will not result in any event or
circumstance in an inability by Borrower to maintain its financial covenants set
forth in this Agreement and that, based upon a current Business Valuation, the
ratio of (i) the outstanding balance of the Note at the time of substitution
over (ii) the Collateral, including the substituted Principal Agreement and any
additional cash collateral, is not greater than .70 to 1.00. Borrower shall bear
all of Secured Party's fees and expenses in connection with any sale or
assignment of any of the Principal Agreements.
2.13 Renewal of Principal Agreements; Encumbrance of Principal
Agreements. Until such time as the Obligations of Borrower under the Loan
Documents (including the Note) have been fully satisfied, Borrower agrees to
make one or more timely elections to renew the term of any of the Principal
Agreements in accordance with the terms (subject to the provisions of Section
2.12) of the Principal Agreements and shall use its best efforts to satisfy any
and all conditions to any such renewal, and to obtain, procure, execute and
deliver, file and affix such further agreements, instruments, documents,
notices, statements, writings, powers and information, and to do or cause to be
done all such further acts and things as Secured Party may reasonably request,
from time to time, in its discretion, in connection with Borrower's obligations
set forth herein. Borrower agrees that until such time as Borrower's Obligations
under the Loan Documents (including the Note) have been fully satisfied, if,
whether because of a change in the Principal
-3-
<PAGE>
Agreements, applicable law or otherwise, at any time or from time to time,
Borrower is able to grant a security interest in the Franchise Agreement or
License or other Principal Agreements to the Secured Party to secure its
Obligations without breaching or defaulting under the respective Principal
Agreements, Borrower shall and hereby does grant such security interest in favor
of the Secured Party in the Franchise Agreement and License and Proceeds thereof
and shall promptly obtain, procure, execute and deliver, file and affix such
further agreements (including modification of the Security Agreement),
assignments, instruments, documents, notices, statements, writings (including
financing statements), powers (including stock and bond powers, and powers of
attorney), tax stamps and information, and shall do or cause to be done all such
further acts and things (including the execution, delivery and filing of
financing statements on Form UCC-1) as Secured Party may reasonably request,
from time to time, in its discretion, to evidence and perfect such security
interest or otherwise in connection with such security interest and the
perfection thereof. Without limiting the foregoing, Borrower authorizes Secured
Party to the extent permitted by law to execute and file or file without
Borrower's signature, any and all financing statements (including a copy of this
Security Agreement which shall be sufficient as a financing statement),
amendments thereto and continuations thereof as Secured Party deems necessary or
appropriate in connection therewith.
2.14 Financing Statements; Perfected Security Interest. The
execution and filing of the Financing Statements has been duly authorized by all
appropriate action on the part of Borrower and Borrower has duly executed the
Financing Statements. The execution and delivery of this Security Agreement and
the grant of the Collateral hereunder creates a valid security interest in the
Collateral which has attached and is enforceable. The filing offices set forth
on SCHEDULE 2.14 hereto ("Filing Offices") and made a part hereof are the only
offices where financing statements are required to be filed in order to perfect
such security interest in all Goods (including Inventory and Equipment), General
Intangibles, Accounts, fixtures, investment property, and chattel paper included
in the Collateral ("Filing Collateral").
2.15 No Conflict. Borrower's execution, delivery and consummation of
the transactions contemplated by this Security Agreement, the Note and other
Loan Documents do not and will not (with the passage of time or otherwise) (i)
conflict with, violate or constitute a default under any law, rule, regulation,
order, decree, contract, agreement (including the Principal Agreements), note,
mortgage, bond, indenture, lease, license, organizational documents, or
obligation of or applicable to Borrower or the Collateral or (ii) grant, create
or result in any Lien, claim, encumbrance or right in favor of any Person (other
than Secured Party as contemplated hereby) on or to Borrower's Business,
property or assets (including the Collateral and the Principal Agreements).
2.16 No Consent Required. Except for the filing of the Financing
Statements with the Filing Offices (and the recording of the mortgages included
in the Loan Documents), no consent, authorization, approval, license, permit,
registration, exemption, filing, notice or declaration of, from, with or to any
other Person or any court, government, agency or regulatory authority is
required prior to or otherwise in connection with (x) Borrower's execution,
delivery and performance of this Security Agreement, the Note and other Loan
Documents, (y) the grant of security interest granted hereby, or (z) the
validity, perfection and maintenance of the security interest created hereby.
2.17 Purpose for Loans. Borrower does not intend to (and will not)
use all or any portion of the Loan to purchase or carry any securities,
including, without limitation, Margin Stock. None of the proceeds of the Loan
will be used, directly or indirectly, for the purposes of reducing or retiring
any indebtedness which was originally incurred to purchase or carry any Margin
Stock or other security or for any other purpose which might cause any of the
Loans to be considered a "purpose credit" within the meaning of Regulations G,
U, T or X of the Board of Governors of the Federal Reserve System, as amended.
Borrower intends to and agrees to use the proceeds of the Loan solely for the
lawful, proper business or commercial purposes set forth in its application for
the Loans. Borrower shall use the proceeds of the Loans provided by Secured
Party to Borrower hereunder only for payments to each of the Persons listed in
the disbursement direction letter furnished by Borrower to Secured Party on or
about the date hereof including, without limitation, payments of the costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Loan Documents, and for general
operating, working capital and other proper corporate purposes of Borrower not
otherwise prohibited by the terms hereof.
2.18 Compliance Certificates; Reports; Communications. During the
term of this Security Agreement, Borrower agrees to provide to Secured Party:
(i) within 20 days after the end of each month, monthly manufacturers'
statements and Borrower's operating statements for each Property, (ii) within 45
days after the end of each quarter of each calendar year, copies of Fidelity
Holdings, Inc.'s form of 10-Q's as filed with the Securities and Exchange
Commission, (iii) within 45 days after March 31, June 30 and September 30 of
each calendar year, a compliance certificate (in the form attached hereto as
EXHIBIT D) and quarterly accountant-reviewed consolidated financial statements
of Borrower certified by Borrower's chief financial officer to fairly present in
all material respects Borrower's financial condition and results of operations
for such period, (iii) within 90 days of December 31 of each calendar year, a
compliance certificate (in the form attached hereto as EXHIBIT D) and
accountant-reviewed consolidated annual financial statements of Borrower
certified by the Borrower's chief financial officer to fairly present, in all
material respects, Borrower's financial condition and the results of operations
for the year then ended, (iv) within 90 days after December 31 of each calendar
year, copies of Fidelity Holdings, Inc.'s form 10-K as filed with the Securities
and Exchange Commission, (v) within 30 days of filing, Borrower's
-4-
<PAGE>
Federal and State Income Tax returns and (vi) the 13th Month Statement. Borrower
further agrees to provide to Secured Party: (i) promptly following receipt by
Borrower, complete copies of any communications that are or may be materially
adverse to Borrower in the reasonable judgment of the Borrower, its Business or
the Collateral and (ii) copies of such other information as Secured Party may
from time to time reasonably request promptly following any such request. The
consolidated financial statements furnished to Secured Party hereunder shall be
prepared in accordance with GAAP applied on a consistent basis and all financial
statements furnished to Secured Party shall be sufficiently detailed to allow
Secured Party to calculate the Borrower FCCR and determine compliance with other
financial covenants.
2.19 Accuracy of Information. All information, reports, statements
and financial and other data furnished (or hereafter furnished) by Borrower or
its agents or representatives to Secured Party, its agents or representatives
hereunder or in connection with the Loan and the Obligations, are (and shall be
on the date so furnished) true, complete and correct in all material respects,
shall not contain any untrue statement of material fact and shall not omit to
state any fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such statements
are made. All financial projections that have been or are hereafter prepared by
or on behalf of Borrower or its agents or representatives have been and shall be
prepared in good faith and based upon reasonable assumptions. Borrower shall
endeavor promptly to advise Secured Party, from time to time, when any
assumptions made in connection with any projections previously provided to
Secured Party prove to be incorrect or untrue in any material respect. No Event
of Default (or event which with the passage of time or the giving of notice or
both would be an Event of Default) has occurred and is continuing. To Borrower's
knowledge, no event or circumstance has occurred which has had or could, in the
reasonable judgment of the Borrower, be expected to have a Material Adverse
Effect which has not been fully and accurately disclosed to Secured Party in
writing and reflected in the Borrower's financial information and projections
and in the Business Valuation.
2.20 Maintenance of Collateral and Business; Casualty and
Condemnation. At Borrower's sole cost and expense, Borrower shall keep, use,
operate and maintain the Collateral, the Business and the Properties in
accordance with Requirements of Law and in accordance with the standards
established by Franchisor, operate the Business at the Properties and in
accordance with the Principal Agreements and customary, prudent business
practices, and at all times fully comply with terms and provisions of the
Principal Agreements, and not knowingly do or suffer to be done any act whereby
the value of the Collateral, the Properties or the Business or any part or
interest therein may be, in the reasonable judgment of the Borrower, lessened in
any material respect. Notwithstanding the foregoing, the Borrower may enter into
new Principal Agreements as provided in Section 2.12 hereof. Borrower shall
notify Secured Party promptly of any actual or threatened destruction or
material damage or impairment of the Business, or any of the Collateral or the
Properties or any event or condition which could have a Material Adverse Effect.
2.20.1 (i) In the event of any casualty or Condemnation (a "Loss"),
Borrower shall give prompt written notice thereof to Secured Party. With respect
to any loss in an amount less than $50,000, any insurance proceeds or awards
with respect to such Loss (the "Loss Proceeds") may be retained by Borrower;
with respect to any Loss in an amount of $50,000 or more, all Loss Proceeds with
respect to such Loss shall be payable to Secured Party. Borrower shall have no
right to settle or compromise, and shall not settle or compromise, any claim or
proceeding relating to such Loss or Loss Proceeds without Secured Party's
consent, which consent shall not be unreasonably withheld or delayed . Borrower
shall proceed promptly and diligently to prosecute in good faith the settlement
or compromise of any and all claims or proceedings relating to such Loss or Loss
Proceeds; provided, however, any such settlement or compromise shall be subject
to Secured Party's reasonable consent. Borrower hereby authorizes and directs
any affected insurance company and any affected governmental body responsible
for such Condemnation to make payment of the Loss Proceeds directly to Secured
Party. If, with respect to any Loss in an amount of $50,000 or more, Borrower
receives any Loss Proceeds, Borrower shall promptly pay over such Loss Proceeds
to Secured Party. Borrower hereby covenants that until such Loss Proceeds are so
paid over to Secured Party, Borrower shall hold such Loss Proceeds in trust for
the benefit of Lender and shall not commingle such Loss Proceeds with any other
funds or assets of Borrower or any other party.
(ii) Borrower hereby irrevocably assigns, subject to Section
2.20.1(iii) below, to Secured Party all Loss Proceeds to which Borrower may
become entitled if a Loss occurs. All Loss Proceeds shall be paid to Secured
Party and applied pursuant to this Section 2.20.1. Subject to the last sentence
of this Section 2.20.1, Borrower shall take all appropriate action in connection
with each such proceeding, settlement and adjustment and shall pay all expenses
thereof, including, if Secured Party shall elect to participate therein, the
actual and reasonable cost of Secured Party's participation; provided, however,
that any final settlement or adjustment shall be subject to the prior written
consent of Secured Party, which will not be unreasonably withheld, unless the
Loss Proceeds are sufficient to prepay the Note in full, together with the
Prepayment Premium and all accrued and unpaid interest thereon. So long as an
Event of Default shall have occurred and be continuing, Secured Party may, at
its option and with respect to its interests as set forth herein, commence,
appear in and prosecute, in its own name, any such action or proceeding or make
any compromise or settlement in connection with such damage, destruction or
taking and obtain directly all Loss Proceeds.
-5-
<PAGE>
(iii) Subject to Section 2.20.1(iv) below, so long as no Event
of Default shall have occurred and be continuing, if Borrower suffers a Loss,
Borrower shall provide Secured Party with a schedule for restoring the affected
Property as promptly as reasonably practicable and, subject to receipt of the
Loss Proceeds, shall restore the Property (or, in the case of a taking, the
remaining Property) on such schedule to the same condition, as nearly as
reasonably possible, as existed immediately prior to such casualty or taking,
whether or not the Loss Proceeds are sufficient therefor. If the cost of any
restoration made by Borrower pursuant to this Section 2.20.1 shall exceed the
amount of the Loss Proceeds, such deficiency shall be paid by Borrower. The Loss
Proceeds shall be held by Secured Party or its agent and shall be disbursed to
Borrower as hereinafter set forth, provided that if the estimated cost of such
restoration exceeds the amount of the Loss Proceeds, Borrower shall deliver to
Secured Party or its agent the estimated deficiency before commencing work.
Secured Party or its agent shall release such Loss Proceeds to Borrower, subject
to such reasonable procedural requirements as Secured Party or its agent may
prescribe, from time to time and provided that such amounts shall be disbursed
not more often than once monthly, as the restoration progresses, upon Borrower's
written request, accompanied by a certificate of the architect or engineer in
charge of the restoration or by an authorized officer or managing partner of
Borrower, stating that the sum then requested either has been paid by Borrower
or is justly due to the named persons (whose addresses shall also be stated) who
have rendered services or furnished materials for certain portions of the
restoration. The certificate shall give a brief description of such services and
materials, shall list the amounts so paid or owing to each of such persons,
shall state the estimated cost of the balance of the work yet to be performed,
and shall state that no part of such expenditures has been or is being made the
basis for any other request for payment. Upon compliance with the foregoing,
Secured Party or its agent shall pay out of the Loss Proceeds to the extent
available to the persons named in the certificate the respective amounts stated
to be due to them or shall pay to Borrower the amount stated to have been paid
by Borrower to such persons.
(iv) So long as an Event of Default shall have occurred and be
continuing, then such Loss Proceeds shall be applied at the option and direction
of Secured Party either to the restoration of the Property as set forth above
or, on the next Payment Date, to the prepayment of the outstanding Loan,
together with Prepayment Premium and all accrued and unpaid interest. If no
Event of Default shall be continuing and the Loss suffered by the Borrower is
not in excess of the Loss Proceeds, the balance of the Loss Proceeds shall be
paid to the Borrower.
2.21 Insurance. At Borrower's sole cost and expense, Borrower shall
(i) (a) keep the Collateral (which for purposes of this
Section 2.21 includes the Properties) insured against loss or damage by fire,
theft, collision and other hazards (including flood and earthquake, if no
certification or other evidence satisfactory to Secured Party is delivered to
Secured Party to the effect that the Properties are not located within a
federally designated special flood hazard area or an earthquake hazard area and
if, with respect to earthquake insurance, such insurance is required to conform
to the requirements or standards of any rating agency in connection with a
securitization or other disposition of all or a portion of the Loan) as may be
required by Franchisors or Secured Party and by policies of fire, extended
coverage and other insurance with such company or companies, in such amounts and
form (and, with respect to policies required for property, fire and flood
insurance in an amount not less than the lesser of (A) the replacement value
thereof and (B) the initial Principal Amount, as may be required by or
acceptable to Franchisors and Secured Party, but in no event less than the
minimum amount required to prevent the imposition of any coinsurance requirement
on the insured, (b) maintain liability insurance of not less than an amount
reasonably satisfactory to Secured Party, (c) maintain business interruption
insurance with scope and coverage reasonably satisfactory to Secured Party and
(d) maintain such other insurance (including certain minimum levels of
acceptable workers' compensation, property damage, general public liability
insurance) as may be required by the Franchisor.
(ii) cause all insurance policies required hereunder (a) to be
maintained by providers either (A) having ratings of not less than A-VI from
A.M. Best Company Inc. (or comparable ratings from a comparable rating agency)
or (B) who, if not so rated, have been approved by Secured Party and (b) to
contain a standard non-contributory lender's loss payable endorsement or
mortgagee's endorsement (or, with respect to life insurance policies, an
assignment bearing the consent of the provider) in form and substance
satisfactory to Lender providing for payment directly to Secured Party and/or
its designees and to provide for a minimum of 30-days notice to Secured Party
prior to cancellation or modification or nonrenewal and that Secured Party may
act as attorney for Borrower in obtaining, and at any time an Event of Default
exists or has occurred and is continuing, adjusting, settling, amending and
canceling such insurance. Such lender's loss payable endorsements (or
assignment) shall specify that the proceeds of such insurance shall be payable
to Secured Party as its interests may appear and further specify that Secured
Party shall be paid regardless of any act or omission by Borrower or any of its
affiliates.
(iii) timely pay, all premiums, fees and charges required in
connection with all of its insurance policies and otherwise continue to maintain
such policies in full force and effect; and
(iv) promptly deliver the insurance policies, certificates
(and renewals) thereof or other evidence of compliance herewith to Secured
Party.
-6-
<PAGE>
2.22 Compliance with Laws; No Violation; Indemnity.
(i) Borrower is, to its knowledge, and shall not knowingly
fail to be in compliance in all material respects with the requirements of all
Requirements of Law, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, the Internal Revenue
Code of 1986, as amended, and the rules and regulations thereunder, all federal,
state and local statutes, regulations, rules and orders relating to consumer
credit, all federal, state and local statutes, regulations, rules and orders
pertaining to sales of consumer goods (including, without limitation, the
Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended and all regulations, rules and orders
promulgated thereunder). Except as set forth on SCHEDULE 2.22 hereto, Borrower
to its knowledge has obtained all material permits, licenses, approvals,
consents, certificates, orders or authorizations of any Governmental Authority
required for the lawful conduct of its business and is in compliance in all
material respects with the requirements of all applicable laws, rules,
regulations, orders, permits, approvals and stipulations of any governmental
agency (including, but not limited to, the Department of State, the Department
of Commerce, the Bureau of Alcohol, Tobacco and Firearms, and the EPA) relating
to its business (including, without limitation, those set forth in or
promulgated pursuant to ERISA and those related to environmental pollution and
employee health and safety (including the Occupational Safety and Health Act of
1970, as amended, the Fair Labor Standards Act of 1938, as amended, the Code,
and the Environmental Laws).
(ii) Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has been maintained and operated in all material respects in accordance with its
terms, the applicable provisions of ERISA and the Code. Each Plan which is
intended to be qualified within the meaning of Section 401(a) of the Code has
been qualified since its inception and has received a determination letter from
the Internal Revenue Service to the effect that it is so qualified and that any
trust maintained pursuant thereto is exempt from federal income taxation under
Section 501 of the Code, and nothing has occurred or is expected to occur that
caused or could cause the loss of such qualification or exemption. No
"prohibited transaction" within the meaning of Section 4975 of the Code and
Section 406 of ERISA has occurred or is expected to occur with respect to any
Plan. Neither the Borrower, to its knowledge, nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither this Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. To the Borrower's knowledge, no such Multiemployer Plan is in
Reorganization or Insolvent.
(iii) Borrower has not and shall not acquire, obtain, make,
manufacture, produce, operate, hold, possess, maintain, use, sell, transfer,
grant, pledge, or dispose of (for purposes of this Section, collectively
"Borrower's use") any of its business (including the Business), securities,
property or assets (including any proceeds of the Loan, any Collateral and the
Properties) in violation of any Requirements of Law, contract, agreement
(including the Principal Agreements), understanding, or right or interest of any
other Person (for purposes of this Section collectively "violation"), and to
Borrower's knowledge no such violation has been made by any other Person and no
basis for a claim of any such violation exists. Borrower shall indemnify and
hold Secured Party harmless from and against any loss to the Secured Party
arising from any such violation or any breach of this Section 2.22, and any
other loss, liability, damage, cost or expense whatsoever (including attorneys
fees and disbursements) arising out of or in connection with Borrower's use of
any of its business (including the Business), securities, property or assets
(including any proceeds of the Loan, any Collateral and the Property). The
indemnification provisions of this Section 2.22 shall survive the payment of the
Obligations and the termination of this Agreement.
2.23 Subsidiaries. Borrower has the subsidiaries listed on Schedule
2.23 hereto. Borrower will not create or cause to be created any additional
subsidiaries unless all of the following conditions have been met: (a) Borrower
shall cause a pledge of its ownership interest in the additional subsidiary to
be made for the benefit of the Secured Party; (b) Borrower shall own a majority
of the voting control of the capital stock, partnership or membership interests
of such additional subsidiary; (c) Borrower, together with each additional
subsidiary, shall comply with the financial covenants set forth in this Security
Agreement on a consolidated basis; (d) the Borrower shall agree not to
guarantee, directly or indirectly, any obligation of the additional subsidiary,
unless otherwise agreed to by written consent of the Secured Party; (e) such
additional subsidiary shall covenant to comply with the "Separateness Covenants"
listed on Schedule 2.23; (f) such additional subsidiary shall incur no Debt
other than "Floor Plan Financing" necessary for the operation of the Business
and purchase money security interests in Equipment permitted by Section 2.32.5
of this Security Agreement; and (g) such additional subsidiary shall not open a
new automobile dealership within the same Franchise System engaged in the
business of selling the same brand of automobiles as the Borrower within five
(5) miles of any of Borrower's existing locations. The foregoing shall not apply
to an additional subsidiary's acquisition of an existing dealership.
-7-
<PAGE>
2.24 Tax Returns. Borrower and each of its Affiliates and each
Person which might have tax liabilities for which Borrower is or may be liable
("Tax Party") has filed, or caused to be filed, and will continue to file in a
timely manner all tax returns, reports and declarations which are required to be
filed by it. All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower and each Tax Party has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws all sales and/or use taxes applicable to the
conduct of its business, except taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been set aside on its
books. No extensions of the time for the assessment of deficiencies have been
granted by the Borrower or any of its Affiliates. There are no material Liens on
any properties or assets of the Borrower imposed or arising as a result of the
delinquent payment or the nonpayment of any tax, assessment, fee or other
governmental charge. The federal income tax returns of the Borrower have been
examined and reported upon by the relevant tax authorities, or, if applicable,
closed by applicable statutes of limitations, for all fiscal years through the
fiscal year ended December 31, 1994, and the Borrower has not given or consented
to any waiver of the statute of limitations with respect to its tax liabilities
for any such year. Adequate provision has been made for the payment of all other
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed. Borrower has
remitted to the appropriate tax authority all sales and/or use taxes applicable
to its business required to be collected under the laws of the United States and
each possession or territory thereof, and each State or political subdivision
thereof, including any State in which Borrower owns any Inventory or owns or
leases any other property, and the Borrower knows of no transaction or matter
which might or could result in additional tax assessments to the Borrower in the
ordinary course since the date of such balance sheet. There are no applicable
taxes, fees or other governmental charges payable by the Borrower in connection
with the execution and delivery of this Agreement, and the other Loan Documents
by the Borrower or the offer, issuance, sale and delivery of the Note by the
Borrower. Borrower shall be liable for any tax or penalties imposed on Secured
Party as a result of the financing arrangements provided for herein and Borrower
agrees to indemnify and hold Secured Party harmless with respect to the
foregoing, and to repay to Secured Party on demand the amount thereof, and until
paid by Borrower such amount shall be added and deemed part of the Loan,
provided, that, nothing contained herein shall be construed to require Borrower
to pay any income or franchise taxes attributable to the income of Secured Party
from any amounts charged or paid hereunder to Secured Party. The foregoing
indemnity shall survive the payment of the Obligations and the termination of
this Agreement.
2.25 Litigation. Except as set forth on SCHEDULE 2.25, individual
actions in which the claim for damages is less than $10,000 or actions in which
an insurance company is providing coverage or Chrysler Corporation or General
Motors is providing indemnification to Borrower for such actions, there is no
present investigation by any governmental agency pending, or to the best of
Borrower's knowledge threatened, against or affecting Borrower, its assets or
Business and there is no action, suit, proceeding or claim by any Person
pending, or to the best of Borrower's knowledge threatened, against Borrower or
its assets or Business, or against or affecting any transactions contemplated by
this Agreement. None of the investigations, actions, suits, proceedings or
claims identified on SCHEDULE 2.25 would, if adversely determined, have a
Material Adverse Effect.
2.26 Bring Down of Representations; Survival of Warranties;
Cumulative. Borrower will cooperate with Secured Party in connection with any
sale or other disposition of the Loan by Secured Party. In this regard, Borrower
hereby covenants and agrees to execute and deliver in connection with the sale
or other disposition of the Loan, or any interest therein, at such time and from
time to time, as required by Secured Party, such agreements, documents,
estoppels, consents or instruments as Secured Party may, from time to time,
reasonably request, upon reasonable notice, in connection with any such
disposition including certificates reaffirming the representations and covenants
of Borrower hereunder as if made on the date of any such reaffirmation. Secured
Party agrees to reimburse Borrower for any third party costs and expenses
incurred by Borrower in connection with Borrower's compliance with this Section
2.26. All representations and warranties contained in this Security Agreement or
any of the other Loan Documents shall survive the execution and delivery of this
Agreement. The representations and warranties set forth herein shall be
cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Secured Party.
2.27 Capitalization; Solvency.
2.27.1 All of the issued and outstanding capital stock, partnership
or membership interests of Borrower are directly and beneficially owned and held
by the Persons identified on the INFORMATION CERTIFICATE ("Control Persons") and
all of such capital stock, partnership or membership interests have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind.
2.27.2 Borrower (x) is solvent and will continue to be solvent after
giving effect to the Obligations, the security interests of Secured Party and
the other transactions contemplated hereunder, and (y) is able to pay its debts
as they mature and has (and has reason to believe it will continue to have)
sufficient capital (and not unreasonably small capital) to carry on its business
and all businesses in which it is about to engage. Based upon the Business
Valuation the assets and properties of Borrower at a fair valuation and at their
present fair salable value are, and will be, greater than the indebtedness of
Borrower, and including any
-8-
<PAGE>
subordinated and contingent liabilities computed at the amount which, to the
best of Borrower's knowledge, represents an amount which can reasonably be
expected to become an actual or matured liability.
2.28 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full force and effect its existence and rights and franchises
with respect thereto and maintain in full force and effect all permits,
licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted.
2.29 Notice of Material Adverse Changes. Borrower shall promptly
notify Secured Party in writing of the details of (i) any material loss, damage,
investigation, action, suit, proceeding or claim relating to the Collateral or
any other property which is security for the Obligations or which would result
in any Material Adverse Effect, and (ii) the occurrence of any Event of Default
or act, condition or event which, with the passage of time or giving of notice
or both, would constitute an Event of Default.
2.30 Reports, Budgets, Forecasts. Borrower shall, at Secured Party's
request, permit and assist Secured Party in obtaining access by electronic
transmission, or in such other manner as Secured Party shall request, to monthly
manufacturer's reports. Borrower shall furnish or cause to be furnished to
Secured Party such budgets, prepared by Borrower and other information
respecting the Collateral and the business of Borrower, as Secured Party may,
from time to time, reasonably request. Secured Party is hereby authorized to
deliver, from time to time, a copy of any financial statement or any other
information relating to the business of Borrower to any Governmental Authority
or to any participant or assignee or prospective participant or assignee.
Borrower hereby irrevocably authorizes and directs all accountants or auditors
to deliver to Secured Party, at Borrower's expense, copies of the financial
statements of Borrower. Any documents, schedules, invoices or other papers
delivered to Secured Party may (but shall not be required to) be destroyed or
otherwise disposed of by Secured Party at any time after the same are delivered
to Secured Party, except as otherwise designated by Borrower to Secured Party in
writing.
2.31 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly:
2.31.1 merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it other than
the merger of the subsidiaries into the Borrower to occur simultaneously with
the execution and delivery of this Security Agreement, or
2.31.2 sell, assign, lease, transfer, abandon or otherwise dispose
of any stock or indebtedness to any other Person or any of its assets to any
other Person and shall not take or omit to take any action which could impair
the rights of the Secured Party in the Collateral, except for the following in
the ordinary course of business of the Business and consistent with present
business practice and the requirements of the Franchise Agreements:
(i) sales of Inventory;
(ii) sales of assets as permitted by Section 2.12 of this
Security Agreement;
(iii) the disposition of worn-out or obsolete Equipment so
long as if an Event of Default exists or has occurred and is continuing, any
proceeds are paid to Secured Party;
(iv) the property set forth on SCHEDULE 2.31 hereof which
Borrower may sell or dispose of in accordance with commercially reasonable
business practices;
(v) other public or private sale of stock undertaken with the
consent of the Secured Party in its reasonable discretion; or
2.31.3 wind up, liquidate or dissolve; or
2.31.4 agree to do any of the foregoing.
2.32 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any Lien on any of its assets or properties, including, without
limitation, the Collateral, except the following permitted encumbrances
("Permitted Encumbrances"):
2.32.1 liens of Secured Party;
-9-
<PAGE>
2.32.2 liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
2.32.3 non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's business to the
extent: such liens secure indebtedness which is not overdue or such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books;
2.32.4 zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of Real Property which do not interfere in any
material respect with the use of such Real Property or ordinary conduct of the
business of Borrower as presently conducted thereon or materially impair the
value of the Real Property which may be subject thereto; and
2.32.5 purchase money security interests in Equipment (including
capital leases) and vehicles incurred in the ordinary course of business,
provided that (i) such security interest does not apply to any property of the
Borrower other than the Equipment and vehicles so acquired with the related
Indebtedness, (ii) the related Indebtedness secured thereby does not exceed the
cost of the Equipment and vehicles so acquired, as the case may be, (iii) notice
of security interest is provided to the Secured Party and (iv) such security
interest is identified on Schedule 2.32 hereto
2.32.6 Permitted Encumbrances described on SCHEDULE 2.32 hereto.
2.33 Indebtedness. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any obligations
or Indebtedness, except the following permitted indebtedness ("Permitted
Indebtedness"):
2.33.1 the Obligations;
2.33.2 trade obligations and normal accruals in the ordinary course
of business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books; and
2.33.3 indebtedness described on SCHEDULE 2.33 attached hereto, to
the extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement including Sections 2.8, 2.9
and 2.32.
2.33.4 indebtedness which is fully subordinate to the Obligations
(which terms of subordination must be satisfactory to Secured Party) so long as
no security interest is granted in the Properties encumbered by the Mortgage and
so long as the Company certifies to the Secured Lender that (i) proceeds of such
debt are to be utilized in the Business and (ii) Borrower shall have maintained
its Borrower FCCR at not less than 1.5 for the twelve preceding months (based on
an assumption that such proposed new debt had been outstanding for the twelve
preceding months).
2.34 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the equity securities or indebtedness or all or a
substantial part of the assets or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except:
2.34.1 the endorsement of instruments for collection or deposit in
the ordinary course of business;
2.34.2 investments in: (i) short-term direct obligations of the
United States Government, (ii) obligations of the Government National Mortgage
Association (including participation certificates issued by such Association),
(iii) obligations of the Federal National Mortgage Association (including
participation certificates issued by such Association), (iv) negotiable
certificates of deposit issued by any bank satisfactory to Secured Party,
payable to the order of the Borrower or to bearer and delivered to Secured
Party, (v) deposits, Federal funds or bankers' acceptances (with term to
maturity of 270 days or less) of any bank which has an unsecured, uninsured and
unguaranteed obligation rated in one of the top two rating categories by both
Moody's and S&P, (vi) both (a) shares of a diversified open-end management
investment company (as defined in the Investment Company Act of 1940) or a
regulated investment company (as defined in Section 851(a) of the Code) that is
a money market fund that is rated in the highest rating category by both Moody's
& S&P, and (b) shares of money market mutual funds that invest only in United
States Government
-10-
<PAGE>
Obligations and repurchase agreements secured by such obligations, which funds
are rated in the highest categories for such funds by both Moody's and S&P and
(vii) commercial paper rated A1 or P1; provided, that, as to any of the
foregoing, Borrower shall take such actions as are deemed necessary by Secured
Party to perfect the security interest of Secured Party in such investments; and
2.34.3 guarantees of Affiliate's obligations made for the benefit of
Secured Party; and
2.34.4 investments in subsidiaries permitted to be formed pursuant
to Section 2.23 hereof.
2.35 Distributions and Redemptions. Borrower shall not, directly or
indirectly, declare, or pay or make any distributions on account of any Capital
Stock now or hereafter outstanding, or set aside or otherwise deposit or invest
any sums for such purpose, or redeem, retire, defease, purchase or otherwise
acquire any Capital Stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing, either (i) following the
occurrence of and during the continuation of an Event of Default or an event
which with the passage of time or giving of notice or both would be or result in
an Event of Default, or (ii) if after giving effect to such distributions
Borrower would be in default or with the passage of time or the giving of notice
or both an Event of Default would occur.
2.36 Transactions with Affiliates. Borrower shall not directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any Affiliate or any officer, employee, member,
manager, director, or agent of any Affiliate or Borrower or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any Affiliate or any officer,
employee, member, manager, director, agent or any Affiliate or Borrower; except
in the ordinary course of business and pursuant to agreements in writing on
terms no less favorable to Borrower than would be available in agreements with
Persons other than those referenced in (a) or (b).
2.37 Deposit Accounts.
2.37.1 Schedule 2.37 Banks. The banks set forth on SCHEDULE 2.37
constitute all of the banks with whom Borrower has deposit account arrangements
as of the date hereof and identifies each of the deposit accounts at such banks
to a Property location of Borrower related to the Closing. The deposit accounts
identified therein constitute all deposit accounts of Borrower. The Borrower
will give notice to the Secured Party within two business days after any change
in or addition to the banks and accounts set forth on SCHEDULE 2.37.
2.37.2 Deposits. Borrower shall deposit all proceeds from sales of
Inventory and other receipts, in every form, including, without limitation,
cash, checks, credit card sales drafts, credit card sales or charge slips or
receipts and other forms of receipts, from each Property location of Borrower by
next business day into the deposit accounts of Borrower used solely for such
purpose and identified to each Property location as set forth on SCHEDULE 2.37.
Prior to an occurrence of an Event of Default, all such funds deposited into
such deposit accounts, excluding such funds which constitute collateral subject
to the lien of the permitted floor plan lenders as identified on Schedule 2.32
hereto, shall be remitted by intrabank account debit and credit, wire transfer
or otherwise (e.g., by ACH transfer) in immediately available funds to the
extent required to make timely payments on the Obligations, including payments
of Stated Payment Amount on the Note on each Payment Date. Upon and following
the occurrence of an Event of Default, Borrower shall and hereby does
irrevocably authorize and direct in writing, in form attached hereto as EXHIBIT
C, each of the banks required to be listed on SCHEDULE 2.37 to follow and comply
with the instructions of the Secured Party with respect to all matters
concerning the accounts including any directions by Secured Party with respect
to the disposition of funds in any account without notice to or consent of
Borrower, provided, however, that Secured Party hereby acknowledges and agrees
that its lien and encumbrance upon such accounts is subject and subordinate to
the lien of the permitted floor plan lenders. Upon and following the occurrence
of an Event of Default, such authorization and direction shall not be rescinded,
revoked or modified during the term hereof.
2.37.3 Subject to the limitations of Section 2.37 hereof, Borrower
and all of its affiliates, subsidiaries, shareholders, directors, employees or
agents shall, acting as trustee for Secured Party, receive, for the benefit of
Secured Party, any monies, checks, notes, drafts or any other payment relating
to and/or Proceeds of Accounts or other Collateral which come into their
possession or under their control and immediately upon receipt thereof, shall
deposit or cause the same to be deposited in the accounts in the banks listed on
SCHEDULE 2.37 or remit the same or cause the same to be remitted, in kind, to
Secured Party. In no event shall the same be commingled with moneys or property
of any other Person.
2.38 Payments. Borrower shall pay, and hereby authorize Secured
Party to cause to be paid, all Obligations as and when due from all amounts in
any bank required to be listed on SCHEDULE 2.37. Borrower shall make all
payments to Secured Party on the Obligations free and clear of, and without
deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any
-11-
<PAGE>
payment of, or Proceeds of Collateral applied to the payment of, any of the
Obligations, Secured Party is required to surrender or return such payment or
Proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or Proceeds shall be reinstated and continue and
Borrower shall be and remain liable to Secured Party hereunder and under other
Loan Documents and this Agreement and other Loan Documents shall continue in
full force and effect as if such payment or Proceeds had not been received by
Secured Party. Borrower shall be liable to pay to Secured Party, and does hereby
indemnify and hold Secured Party harmless for the amount of any payments or
Proceeds surrendered or returned. This Section 2.38 shall remain effective
notwithstanding any contrary action which may be taken by Secured Party in
reliance upon such payment or Proceeds. This Section 2.38 shall survive the
payment of the Obligations and the termination of this Agreement.
2.39 Costs and Expenses. Borrower shall pay to Secured Party on
demand all costs, expenses, filing fees and taxes (other than income and
franchise taxes of Secured Party) paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Secured
Party's rights in the Collateral, this Agreement, the other Loan Documents and
all other documents related hereto or thereto, including any amendments,
supplements, restatements or consents which may hereafter be contemplated
(whether or not executed) or entered into in respect hereof and thereof,
including, but not limited to: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) all title insurance and other insurance premiums, Business
Valuation fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining any account with any bank required to be listed on SCHEDULE 2.37
together with Secured Party's customary charges and fees with respect thereto;
(d) costs and expenses of preserving and protecting the Collateral; (e) costs
and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Secured Party,
selling or otherwise realizing upon the Collateral, and otherwise enforcing the
provisions of this Agreement and the other Loan Documents or defending any
claims made or threatened against Secured Party arising out of the transactions
contemplated hereby and thereby (including, without limitation, preparations for
and consultations concerning any such matters); (g) all out-of-pocket
third-party expenses and costs heretofore and from time to time hereafter
incurred by Secured Party in good faith during the course of periodic field
examinations of the Collateral and Borrower's operations; and (h) the actual and
reasonable fees and disbursements of counsel (including legal assistants) to
Secured Party in connection with any of the foregoing (excluding any counsel
fees relating to the Securitization of the Loan).
2.40 Brokers and Financial Advisors. Except as set forth on SCHEDULE
2.40, Borrower represents and warrants to Secured Party that no brokers or
finders were used in connection with the financing contemplated hereby and
Borrower hereby agrees to indemnify and hold Secured Party harmless from and
against any and all liabilities, costs and expenses (including attorneys's fees
and court costs) suffered or incurred by Secured Party as a result of or arising
out of any of the transactions contemplated hereby The provisions of this
Section shall survive the expiration and termination of this Security Agreement
and the repayment of the related Indebtedness.
2.41 Chevrolet Lease. Borrower shall either (a) exercise or cause to
be exercised, the options to extend the lease on the Chevrolet facilities which
currently expire on February 1, 2004 for three (3) additional five (5) year
terms, or (b) acquire control of a suitable alternative location, satisfactory
to Secured Party in its reasonable discretion taking into account Secured
Party's then current underwriting criteria, prior to the expiration of the lease
term.
3. SPECIAL PROVISIONS ON REAL PROPERTY, ACCOUNTS, INVENTORY AND
EQUIPMENT.
3.1 New Locations. Borrower may open an automobile dealership
location not then existing, provided that Borrower (i) gives Secured Party
thirty (30) days' prior written notice of the intended opening of any such new
location, (ii) Borrower's Borrower FCCR is not less than 115% of the Minimum
Borrower FCCR, and (iii) in the case of an automobile dealership within the same
Franchise System and engaged in the business of selling the same brand of
automobiles as the Borrower, such new location shall not be within five (5)
miles of any existing location which serves as Collateral for the Loan. The
foregoing shall not apply to Borrower's acquisition of an existing dealership.
3.2 Accounts.
3.2.1 With respect to each Account: there shall be no setoffs,
deductions, contras, defenses, counterclaims or disputes existing or asserted
with respect thereto except as reported to Secured Party in accordance with the
terms of this Agreement, all documentation will be legally sufficient under such
laws and regulations and all such documentation will be legally enforceable to
Borrower's knowledge in accordance with its terms which in the aggregate would
have a Material Adverse Effect on the Borrower.
-12-
<PAGE>
3.2.2 Secured Party may, at any time or times that an Event of
Default exists or has occurred and is continuing, and subject to the terms of
any Permitted Encumbrances (i) notify any or all account debtors that the
Accounts have been assigned to Secured Party and that Secured Party has a
security interest therein and Secured Party may direct any or all account
debtors to make payments of Accounts directly to Secured Party, (ii) extend the
time of payment of, compromise, settle or adjust for cash, credit, return of
merchandise or otherwise, and upon any terms or conditions, any and all Accounts
or other obligations included in the Collateral and thereby discharge or release
the account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Secured Party shall not be liable for its failure to collect or
enforce the payment thereof or for the negligence of its agents or attorneys
with respect thereto and (iv) take whatever other action Secured Party may
reasonably deem necessary or desirable for the protection of its interests. At
any time that an Event of Default exists or has occurred and is continuing, at
Secured Party's request, all invoices and statements sent to any account debtor
shall state that the Accounts due from such account debtor and such other
obligations have been assigned to Secured Party and are payable directly and
only to Secured Party and Borrower shall deliver to Secured Party such originals
of documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Secured Party may require, provided,
however, that the Secured Party hereby acknowledges and agrees that its lien and
encumbrance upon such Accounts is subject and subordinate to the lien of the
permitted floor plan lender, as identified on SCHEDULE 2.32 hereto.
3.2.3 Secured Party shall have the right at any time or times, in
the name of a nominee of Secured Party and after occurrence and during the
continuance of an Event of Default, in Secured Party's name, to verify the
validity, amount or any other matter relating to any Account or other
Collateral, by mail, telephone, facsimile transmission or otherwise.
3.2.4 To the extent that Borrower, now or hereafter, holds chattel
paper or instruments which alone or in the aggregate exceed $150,000, Borrower
shall deliver or cause to be delivered to Secured Party, with appropriate
endorsement and assignment, with full recourse to Borrower, all chattel paper
and instruments which Borrower now owns or may at any time acquire immediately
upon Borrower's receipt thereof, except (x) for instruments in transit which are
sold or pledged to lenders (including, without limitation Floorplan Lenders) in
the ordinary course of business and which have been held by Borrower for less
than three (3) weeks and (y) as Secured Party may otherwise agree upon written
request of the Borrower. Secured Party shall release and reassign aforesaid
chattel paper or instruments to the Borrower upon any one of the following
events: (1) payment in full by the obligor; (2) at any time the Borrower
certifies to the Secured Party that it is holding alone or in the aggregate less
than $150,000 of chattel paper or instruments; and (3) payment in full of the
Loan.
3.3 Inventory Covenants. With respect to the Inventory:
3.3.1 Borrower shall at all times maintain inventory records
reasonably satisfactory to Secured Party, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory
thereto, Borrower's cost therefor and daily withdrawals therefrom and additions
thereto;
3.3.2 Borrower shall conduct, from time to time, a physical count of
the Inventory in accordance with Franchisor requirements and otherwise prudent
business practice, and at any time or times as Secured Party may request on or
after an Event of Default. Promptly following request of Secured Party from time
to time, Borrower shall supply Secured Party with a report in the form and with
such specificity as may be reasonably satisfactory to Secured Party concerning
any such physical count;
3.3.3 Borrower shall not remove any Inventory from the locations set
forth or permitted herein (or other offsite premises owned or leased by the
Borrower), except for sales of Inventory in the ordinary course of Borrower's
business and permitted under Section 2.31 hereof.
3.3.4 Borrower shall produce, use, store and maintain the Inventory,
with all reasonable care and caution and in accordance with applicable standards
of Franchisor and any insurance and in conformity with Requirements of Law
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto);
3.3.5 Borrower assumes all responsibility and liability arising from
or relating to the production, use, sale or other disposition of the Inventory
except if such liability results solely from Secured Party's gross negligence or
willful misconduct; and
3.3.6 Borrower shall keep the Inventory in good and marketable
condition.
-13-
<PAGE>
3.4 Equipment Covenants. With respect to the Equipment, subject to
Section 2.31.2(ii):
3.4.1 On or after an Event of Default, Borrower shall, at its
expense, at any time or times as Secured Party may request on or after an Event
of Default, deliver or cause to be delivered to Secured Party written reports or
Business Valuations as to the Equipment in form, scope and methodology
acceptable to Secured Party in good faith and by an appraiser reasonably
acceptable to Secured Party;
3.4.2 Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear excepted);
3.4.3 Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of Franchisor and any
insurance and in conformity with all applicable laws;
3.4.4 The Equipment is and shall be used in Borrower's business and
not for personal, family, household or farming use;
3.4.5 Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower; and
3.4.6 Borrower assumes all responsibility and liability arising from
the use of the Equipment, except if such liability results solely from Secured
Party's gross negligence or willful misconduct.
3.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Secured Party (and all persons designated by Secured Party) as
Borrower's true and lawful attorney-in-fact, and authorizes Secured Party, in
Borrower's or Secured Party's name, at any time an Event of Default has occurred
and is continuing to (i) demand payment on Accounts or other proceeds of
Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies
to collect any Account or other Collateral, (iv) sell or assign any Account upon
such terms, for such amount and at such time or times as the Secured Party deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign Borrower's name
on any proof of claim in bankruptcy or other similar document against an account
debtor, notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Secured Party, and open and dispose
of all mail addressed to Borrower, and do all acts and things which are
necessary, in Secured Party's determination, to fulfill Borrower's obligations
under this Agreement and the other Loan Documents, (viii) take control in any
manner of any item of payment or proceeds thereof, (ix) have access to any
lockbox or postal box into which Borrower's mail is deposited, (x) endorse
Borrower's name upon any items of payment or proceeds thereof and deposit the
same in the accounts at banks listed on SCHEDULE 2.37, (xi) endorse Borrower's
name upon any chattel paper, document, instrument, invoice, or similar document
or agreement relating to any Account or any goods pertaining thereto or any
other Collateral, (xii) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (xiii) execute in Borrower's name and
file any UCC financing statements or amendments thereto. Borrower hereby
releases Secured Party and its officers, employees and designees from any
liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Secured Party's own gross negligence or wilful misconduct as determined pursuant
to a final non-appealable order of a court of competent jurisdiction.
3.6 Right to Cure. Secured Party may, at its option but without any
obligation,
3.6.1 after an Event of Default that is continuing, cure any default
by Borrower under any agreement with a third party including the Principal
Agreements and Leases or pay or bond on appeal any judgment entered against
Borrower;
3.6.2 after an Event of Default has occurred and is continuing,
discharge taxes, liens, security interests or other encumbrances at any time
levied on or existing with respect to the Collateral; and
3.6.3 after an Event of Default has occurred and is continuing, pay
any amount, incur any expense or perform any act which, in Secured Party's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Secured Party with respect thereto. Secured
Party may add any amounts so expended to the Obligations, such amounts to be
repayable by Borrower on demand. Secured Party shall be under no obligation to
effect such cure, payment or bonding and shall not, by doing so, be deemed to
have assumed any obligation or liability of Borrower. Any payment made or other
action taken by Secured Party under this Section shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed accordingly.
-14-
<PAGE>
3.7 Access to Premises. From time to time as reasonably requested by
Secured Party, at the cost and expense of Borrower,
3.7.1 Secured Party or its designee shall have complete access to
all of Borrower's premises during normal business hours and after reasonable
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records,
3.7.2 Borrower shall promptly furnish to Secured Party such copies
of such books and records or extracts ther efrom as Secured Party may request in
good faith, and
3.7.3 Secured Party or its designee shall have use during normal
business hours of such of Borrower's personnel, equipment, supplies and premises
as may be reasonably necessary for the foregoing, provided that such use does
not materially interfere with Borrower's ordinary business operations, and, if
an Event of Default exists or has occurred and is continuing, for the collection
of Accounts and realization of other Collateral.
3.7.4 Secured Party shall endeavor to conduct any visits to
Borrower's premises during the first three weeks of each calendar month;
provided that Secured Party shall retain all rights of access provided by this
Section 3.7.
4. SPECIAL PROVISIONS CONCERNING COLLATERAL REVENUES: Subject to the
terms of any Permitted Encumbrances and after an Event of Default has occurred
and is continuing, Borrower hereby directs any and all transferors, distributors
or payors (including insurance companies with whom Borrower maintains
insurance), upon receipt of notice from Secured Party, to make payment of all
Collateral Revenues directly to Secured Party and authorizes Secured Party, in
its sole discretion, to hold the same in its possession as Collateral, to apply
the same to repayment of the Obligations, to deposit the same into any of the
accounts with the banks listed on SCHEDULE 2.37, or, to apply the same, or,
toward replacement of the Collateral. All Collateral Revenues and proceeds
whether received by Secured Party or by Borrower, or by any other Person will be
included in the Collateral subject to the security interest granted to Secured
Party hereunder. Borrower shall (i) identify, earmark, segregate and keep
separate all Collateral Revenues and proceeds received by it, (ii) upon Secured
Party's request, promptly account to Secured Party for all Collateral Revenues
and proceeds, and (iii) hold all Collateral Revenues and proceeds received by
Borrower in trust for the benefit of Secured Party and shall promptly (and in
any event not later than the fifth day after receipt) deliver (or cause to be
delivered) the same to Secured Party and into its possession in the form
received by Borrower and at a time and in a manner satisfactory to Secured
Party.
5. SPECIAL PROVISIONS CONCERNING RIGHTS AND DUTIES WHILE IN
POSSESSION OF COLLATERAL.
5.1 Borrower's Possession. Upon and during the continuation of an
Event of Default, to the extent the same shall, from time to time, be in
Borrower's possession, Borrower will hold all securities, investment property,
instruments, chattel paper, documents, certificates and money and other writings
evidencing or relating to the Collateral in trust for Secured Party and, upon
request or as otherwise provided herein, promptly deliver the same to Secured
Party in the form received and at a time and in a manner satisfactory to Secured
Party. With respect to the Collateral in Borrower's possession Borrower shall at
Secured Party's request take such action as Secured Party in its discretion
deems necessary or desirable to create, perfect and protect Secured Party's
security interest in any of the Collateral and to preserve or enhance the value
thereof.
5.2 Secured Party's Possession. With respect to all of the
Collateral delivered or transferred to, or otherwise in the custody or control
of (including any items in transit to or set apart for) Secured Party or any of
its agents, associates or correspondents in accordance with this Security
Agreement, Borrower agrees that (i) such Collateral will be and be deemed to be
in the sole possession of Secured Party; (ii) Borrower has no right to withdraw
or substitute any such Collateral; (iii) Borrower shall not take or permit any
action, or exercise any voting and other rights, powers and privileges in
respect of the Collateral inconsistent with Secured Party's interest therein and
sole possession thereof and (iv) Secured Party may in it its sole discretion and
without notice, without obligation or liability except to account for property
actually received by it, and without affecting or discharging the Obligations,
(x) further transfer and segregate the Collateral in its possession; (y) receive
Collateral Revenues or Proceeds and hold the same as a part of the Collateral
and/or apply the same as hereinafter provided; and (z) exchange any of the
Collateral for other property upon reorganization, recapitalization or other
readjustment. Following the occurrence of an Event of Default, Secured Party is
authorized (i) to exercise or cause its nominee to exercise all or any rights,
powers and privileges (including to vote) on or with respect to the Collateral
with the same force and effect as an absolute owner thereof; (ii) whether any of
the Obligations be due, in
-15-
<PAGE>
its name or in Borrower's name or otherwise, to demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any compromise or settlement Secured Party deems
desirable with respect to, any of the Collateral; and (iii) to extend the time
of payment, arrange for payment in installments, or otherwise modify the terms
of, or release, any of the Collateral. Notwithstanding the rights accorded
Secured Party with respect to the Collateral and except to the extent provided
below or required by the UCC or other applicable law (which requirement cannot
be modified, waived or excused), Secured Party's sole duty with respect to the
Collateral in its possession (with respect to custody, preservation, safekeeping
or otherwise and whether under Section 9-207 of the UCC or otherwise) will be to
deal with it in the same manner that Secured Party deals with similar property
owned and possessed by it. Without limiting the foregoing, Secured Party, and
any of its officers, directors, members, partners, trustees, owners, employees,
representatives and agents, to the extent permitted by law (i) members will have
no duty with respect to the Collateral or the rights granted hereunder; (ii)
will not be required to sell, invest, substitute, replace or otherwise dispose
of the Collateral; (iii) will not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral; (iv) will
not be liable for (or deemed to have made an election of or exercised any right
or remedy on account of) any delay or failure to demand, collect or realize upon
any of the Collateral; and (v) will have no obligation or liability in
connection with the Collateral or arising under this Security Agreement.
Borrower agrees that such standard of care is reasonable and appropriate under
the circumstances.
6. EVENTS OF DEFAULT: The happening of any one or more of the
following events shall constitute an "Event of Default" hereunder:
6.1 Nonpayment, default, breach, etc.
6.1.1 Borrower default: (i) Borrower's failure to make any payment
when due under this Security Agreement, the Note, any Loan Document or any
Obligations or Borrower's disclaimer of liability under or enforceability of any
Loan Document within one Business Day; (ii) the nonrenewal or termination of the
Principal Agreements unless permitted hereunder; (iii) Guarantor's failure to
pay on the Guaranty when due and owing; or (iv) Borrower's default under,
failure to perform or observe any covenant or condition of or agreement in, or
breach of, or making of a material inaccuracy in or omission from, any
representation or warranty under or in, this Security Agreement, the Note, any
other Loan Document, the Principal Agreements or the License, any financial or
other statement delivered to Secured Party or any agreement, instrument or
obligation in connection with any Permitted Encumbrance, and (in the case of
(iv) only) such default, failure, breach, inaccuracy or omission shall continue
unremedied for the earliest of (a) five days following the date that notice of
such default, failure, breach, inaccuracy or omission is given to Borrower by
Secured Party, (b) five days following the date ("Discovery Date") that Borrower
first obtains knowledge of such default, failure, breach, inaccuracy or
omission, or (c) in the case of any Permitted Encumbrance or Permitted
Indebtedness or lease for the Property, the occurrence of such event (or, if
there exists an applicable cure period, the expiration of such cure period);
provided, that: (i) no grace period on payment of one Business Day may occur
more than three times annually and (ii) no such five (5) day period (or cure
period) shall apply in the case of: (x) any failure to observe any such term,
covenant, condition or provision which is not capable of being cured at all or
within such five (5) day period or which has been the subject of a prior failure
within a six (6) month period or (y) an intentional breach by Borrower of any
such term, covenant, condition or provision, or (z) the failure to observe or
perform any of the covenants or provisions contained in Sections 2.8, 2.9, 2.10,
2.11, 2.12, 2.13, 2.17, 2.18, 2.21, 2.32 and 2.37 of this Agreement; provided,
that in this Section 6.1.1(i), when a five (5) day cure period is permitted, if,
within such five (5) day period, (i) Borrower has commenced action to cure such
default, which action, in the reasonable judgment of Secured Party, will result
in such cure and (ii) Borrower has demonstrated to the satisfaction of Secured
Party that such default is not capable of being cured in such five (5) day
period, Secured Party in its reasonable discretion may extend the cure period;
or
6.2 Other defaults of Borrower and other liable parties: If Borrower
shall dissolve, merge or consolidate, suspend the transaction of business,
attempt to terminate, revoke or disclaim any obligation to Secured Party (except
strictly in accordance with its terms), or incur any material adverse change in
its financial condition or prospects; or any proceeding, procedure or remedy
supplementary to or in enforcement of judgment (involving an amount in excess of
$150,000 in the aggregate) shall be resorted to or commenced against, or with
respect to any property of, Borrower or any other liable party; or if Borrower
or any other liable party shall make an assignment for the benefit of, or
composition with, creditors, or shall be or become insolvent or unable, or
generally fail, to pay its debts when due, or shall be or become a party or
subject to any bankruptcy, reorganization, insolvency or other similar
proceeding, or a receiver or liquidator, custodian or trustee shall be appointed
for Borrower or any other liable party, or a substantial portion of any of
Borrower's or their respective assets and, if any of the foregoing shall occur
involuntarily as to Borrower and any other liable party, it shall not be
dismissed with prejudice, stayed or discharged within 30 days; or if Borrower or
any other liable party shall take any action to effect, or which indicates its
acquiescence in, any of the foregoing; or if a default occurs under the Escrow
Agreement-Major Chevrolet Guaranty dated as of the date hereof between Borrower,
Secured Party and Lawyers Title Insurance Company.
-16-
<PAGE>
7. REMEDIES.
7.1 Cumulative Rights and Remedies. Upon the occurrence of an Event
of Default, Secured Party shall have the rights, powers and remedies (i) granted
to secured parties under the UCC or other applicable Uniform Commercial Code;
granted to Secured Party under any other applicable statute, law, rule or
regulation; and (ii) granted to Secured Party under this Security Agreement, the
Note or any other Loan Document or any other agreement between Borrower and
Secured Party. In addition, all such rights, powers and remedies shall be
cumulative and not alternative and enforceable, in Secured Party's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Security Agreement or any of the other Loan Documents. Any single or partial
exercise of, or forbearance, failure or delay in exercising any right, power or
remedy shall not be, nor shall any such single or partial exercise of, or
forbearance, failure or delay be deemed to be a limitation, modification or
waiver of any right, power or remedy and shall not preclude the further exercise
thereof; and every right, power and remedy of Secured Party shall continue in
full force and effect until such right, power and remedy is specifically waived
by an instrument in writing executed and delivered with respect to each such
waiver by Secured Party.
7.2 Acceleration of Obligations. Upon the occurrence of an Event of
Default, and at any time thereafter if any Event of Default shall then be
continuing, Secured Party may, from time to time in its discretion, by written
notice to Borrower declare the Note (including an amount equal to that required
to be paid if the Loan were prepaid as described in paragraphs 4. "Prepayments"
and 5. "Acceleration; Expenses" of the Note) and any other Obligations to be
immediately due and payable whereupon (and, ipso facto, automatically without
any notice, demand or other action by any Person, upon the occurrence of any
Event of Default of the type referred to in Section 6.2 hereof) such principal,
interest and other Obligations shall be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by Borrower to the maximum extent permitted by law and such
amounts, to the extent not paid on the date of acceleration, shall thereafter
bear interest until paid at the Default Rate.
7.3 Additional Rights of Secured Party. Upon the occurrence of an
Event of Default, Secured Party may, from time to time, in its discretion, and
without Borrower's assent, without advertisements or notices of any kind (except
for the notice specified in Section 7.5 below regarding notice required in
connection with a public or private sale), or demand of performance or other
demand, or obligation or liability (except to account for amounts actually
received) to or upon Borrower or any other person (all such advertisements,
notices and demands, obligation and liabilities, if any, hereby being expressly
waived and discharged to the extent permitted by law), forthwith, directly or
through its agents or representatives, (i) disclose such default and other
matters (including the name of Borrower) in connection therewith to any Person
in Secured Party's reasonable discretion to any other Person (including other
creditors and the Franchisor); (ii) to the extent permitted by applicable law
enter any premises, with or without the assistance of other persons or legal
process; (iii) require Borrower to account for (including accounting for any
products and proceeds of any Collateral), segregate, assemble, make available
and deliver to Secured Party, its agents or representatives, the Collateral, at
any place and time designated by Secured Party; (iv) take possession of,
operate, render unusable, remove from any location, collect, transfer and
receive, recover, appropriate, foreclose, extend payment of, adjust, compromise,
settle, release any claims included in, and do all other acts or things
necessary or, in Secured Party's sole discretion appropriate, to protect,
maintain, preserve and realize upon, the Collateral and any products and
proceeds thereof, in whole or in part; and (v) exercise all rights, powers and
interests with respect to any and all Collateral, and sell, assign, lease,
license, pledge, transfer, negotiate (including endorse checks, drafts, orders,
or instruments), deliver or otherwise dispose (by contract, option(s) or
otherwise) of the Collateral or any part thereof. Any such disposition may be in
one or more public or private sales, at or upon an exchange, board or system or
in the County, in the State or elsewhere, at such price, for cash or credit (or
for future delivery without credit risk) and upon such other terms and
conditions as it deems appropriate, with the right of Secured Party to the
extent permitted by law upon any such sale or sales, public or private, to
purchase the whole or any part of said Collateral, free of any right, claim or
equity of redemption of or in Borrower (such rights, claims and equity of
redemption, if any, hereby being expressly waived). If any of the Collateral is
sold or leased by Secured Party upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefore is
finally collected by Secured Party. In the event Secured Party institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required. Notwithstanding that Secured Party, whether in its own
behalf and/or on behalf of another or others, may continue to hold the
Collateral and regardless of the value thereof, or any delay or failure to
dispose thereof, unless and then only to the extent that Secured Party proposes
to retain the Collateral in satisfaction of the Obligations by written notice in
accordance with the UCC, Borrower shall be and remain liable for the payment in
full of any balance of the Obligations and expenses at any time unpaid. Without
limiting the foregoing, upon Borrower's failure to abide by and comply with its
obligations under any of Sections 2.10, 2.12, 2.13, 2.21, 2.22 and 2.30 hereof,
in addition to its other rights and remedies, Secured Party may (but is not
required to), in its sole discretion and to the extent it deems necessary,
advisable or appropriate, take or cause to be taken such actions or things to be
done (including the payment or advancement of funds, or requiring advancement of
funds to be held by Secured Party to fund such obligations, including taxes or
insurance) as may be required hereby (or necessary or desirable in connection
herewith) to correct such failure (including causing the Collateral to be
-17-
<PAGE>
maintained or insurance protection required hereby to be procured and
maintained) and any and all costs and expenses incurred (including reasonable
attorneys fees and disbursements) in connection therewith shall be included in
Borrower's Obligations and shall be immediately due and payable and bear
interest at the Default Rate.
7.4 Application of Proceeds; Deficiency. Secured Party may apply the
net proceeds, if any, of any collection, receipt, recovery, appropriation,
foreclosure or realization, or from any use, operation, sale, assignment, lease,
pledge, transfer, delivery or disposition of all or any of the Collateral, after
deducting all reasonable costs and expenses (including attorneys fees, court
costs and legal expenses) incurred in connection therewith or with respect to
the care, safekeeping, custody, maintenance, protection, administration or
otherwise of any and all of said Collateral or in any way relating to the rights
of Secured Party under this Security Agreement, (i) first, to the satisfaction
of the Obligations, in whole or in part (whether or not due) in such order as
Secured Party may, in its discretion, elect; (ii) second, to the payment,
satisfaction or discharge of any other Indebtedness or obligation (including any
reimbursement, subrogation, contribution or other obligation to any Person), or
otherwise as may be permitted or as required by any law, rule or regulation
(including Section 9-504(1)(c) of the UCC); and (iii) lastly, the surplus, if
any, to Borrower. In connection with any disposition of the Collateral, Borrower
shall remain liable to Secured Party for the payment of any deficiency with
interest at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorneys' fees and legal
expenses.
7.5 Required Notice of Sale. In exercising its rights, powers and
remedies as secured party, Secured Party agrees to give Borrower ten days'
notice of the time and place of any public sale of Collateral or of the time
after which any private sale of Collateral may take place, unless the Collateral
is perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. Borrower agrees that such period and
notice is commercially reasonable under the circumstances.
8. POST-DEFAULT POWER OF ATTORNEY: Borrower hereby irrevocably
constitutes and appoints, effective on and after the occurrence of an Event of
Default, Secured Party acting through any officer or agent thereof, with full
power of substitution, as Borrower's true and lawful attorney-in-fact with full
irrevocable power and authority in Borrower's place and stead and in Borrower's
name or in its own name, from time to time in Secured Party's discretion, to
receive, open and dispose of mail addressed to Borrower, to take any and all
action, to do all things, to execute, endorse, deliver and file any and all
writings, documents, instruments, notices, statements (including financing
statements, and writings to correct any error or ambiguity in any Loan
Document), applications and registrations (including registrations and licenses
for securities, Copyrights, Patents, and Trademarks), checks, drafts,
acceptances, money orders, or other evidence of payment or proceeds, which may
be or become necessary or desirable in the sole discretion of Secured Party to
accomplish the terms, purposes and intent of this Security Agreement and the
other Loan Documents, including the right to appear in and defend any action or
proceeding brought with respect to the Collateral or Property, and to bring any
action or proceeding, in the name and on behalf of Borrower, which Secured
Party, in its discretion, deems necessary or desirable to protect its interest
in the Collateral or Property. Said attorney or designee shall not be liable for
any acts of commission or omission, nor for any error of judgment or mistake of
fact or law, unless and then only to the extent that the same constitutes its
gross negligence or willful misconduct. This power is coupled with an interest
and is irrevocable. THIS POWER DOES NOT AND SHALL NOT BE CONSTRUED TO AUTHORIZE
ANY CONFESSION OF JUDGMENT.
9. DISCLOSURE: Borrower hereby authorizes Secured Party and its
agents and representatives at any time and from time to time to obtain from,
disclose to and discuss with any Franchisor, creditor of Borrower or any other
Person information concerning or relating to the financial condition, operations
and other matters relating to the Borrower, its Business and Property and hereby
consents to the release to Secured Party by any such Person, at any time and
from time to time, of information relating to the Borrower, its Business and
Property upon request of Secured Party and without notice to or consent from
Borrower. Borrower hereby consents to the disclosure by the Secured Party of any
and all information (financial or otherwise) concerning Borrower to any Person
in connection with the sale or other disposition of Borrower's Loan (including
any securitization thereof). Borrower consents to the disclosure of the
transaction contemplated by this Agreement in any advertising or other public
announcements relating to the Secured Party's business. Secured Party agrees not
to knowingly disclose any non-public information to any direct competitor of the
Borrower.
10. INDEMNIFICATION: (i) Borrower hereby saves, indemnifies and
holds Secured Party harmless from and against all expenses, actions, judgments,
suits, costs, liabilities, obligations, losses, penalties or damages of any kind
or nature, including reasonable attorney's fees and expenses, imposed on,
asserted against, suffered or incurred by Secured Party in any way relating to,
or arising out of or in connection with this Security Agreement, the Loan
Documents or the transactions contemplated hereby or thereby. Without limiting
the foregoing, Borrower will pay to Secured Party all expenses (including
reasonable expenses for legal services of every kind) of, or incidental to, the
negotiation of, entering into and enforcement of any of the provisions hereof
-18-
<PAGE>
and of any of the Obligations, and any actual or attempted sale, lease or other
disposition of, and any exchange, enforcement, collection, compromise or
settlement of any of the Collateral and receipt of the Proceeds thereof, and for
the care of the Collateral and defending or asserting the rights and claims of
Secured Party in respect thereof, by litigation or otherwise, including expense
of insurance, and all such expenses shall be Borrower's Obligations. Borrower
shall indemnify and hold Secured Party, and its directors, agents, employees and
counsel, harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses imposed on, incurred by or asserted against any
of them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution,
delivery, enforcement, performance or administration of this Security Agreement,
any other Loan Documents, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including, without limitation, amounts paid in
settlement, court costs, and the reasonable fees and expenses of counsel, but
excluding any such losses, claims, damages, liabilities, costs and expenses
directly caused to be incurred by reason of the gross negligence or willful
misconduct of the person otherwise to be indemnified and held harmless under
this Section, as determined by a final, non-appealable judgment of a court of
competent jurisdiction. To the extent that the undertaking to indemnify, pay and
hold harmless set forth in this Section may be unenforceable because it violates
any law or public policy, Borrower shall pay the maximum portion which it is
permitted to pay under applicable law to Secured Party in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
(ii) In case any claims shall be made or action brought
against the Secured Party, in respect of which indemnity may be sought against
the Borrower, the Secured Party shall promptly notify the Borrower, in writing,
setting forth the particulars of such claim or action, and the Borrower shall
assume the defense thereof including the employment of counsel. However, if the
Secured Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Borrower (in which case the Borrower shall not have the right to direct the
defense of such action on behalf of the Secured Party) legal and other expenses
including the reasonable expenses of separate counsel, incurred by the Secured
Party shall be borne by the Borrower. The Secured Party shall have the right to
employ separate counsel in any action and to participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of the Secured
Party unless the employment and payment of such counsel has been specifically
authorized by the Borrower. The Secured Party, if it retains separate counsel,
shall instruct such counsel to cooperate to the fullest extent possible with
counsel retained by the Borrower.
11. OBLIGATIONS AND SECURITY INTEREST ABSOLUTE: Borrower's
Obligations will be absolute, unconditional and irrevocable and will be paid or
satisfied strictly in accordance with their respective terms under all
circumstances whatsoever, including, without limitation: (i) the invalidity or
unenforceability of all or any of, or any part of, this Security Agreement, the
Note or any other Loan Document, or any consent, waiver, amendment or
modification thereof; (ii) the existence of any claim, setoff, defense or other
right which Borrower may have at any time against Secured Party, or any other
Person, whether in connection with this Security Agreement, any other Loan
Documents, the transactions contemplated hereby, thereby or otherwise all of
which Borrower hereby waives to the maximum extent permitted by law; or (iii)
the loss, theft, damage, destruction or unavailability of the Collateral to
Borrower for any reason whatsoever, it being understood and agreed that Borrower
retains all liability and responsibility with respect to the Collateral. All
rights of the Secured Party and the security interests hereunder shall be
absolute and unconditional irrespective of: (a) any change in the time, manner,
amount or place of payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Note or any other Loan Document; (b) any exchange, release or
nonperfection of all or any part of the Collateral or any other collateral, or
any release from, amendment to, waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or (c) to the fullest extent
permitted by law, any other circumstances which might otherwise constitute a
defense available to, or a discharge of, the Borrower or a third party pledgor.
12. ASSIGNMENT: This Security Agreement (and each other Loan
Document) is freely assignable, in whole or in part, by Secured Party and, to
the extent of any such assignment, Secured Party shall be fully discharged from
all responsibility. Secured Party's assignee shall, to the extent of the
assignment, be vested with all the powers and rights of Secured Party hereunder
(including those granted under Sections 7 and 8 hereof or otherwise with respect
to the Collateral), and to the extent of such assignment the assignee may fully
enforce such rights and powers as secured party and all references to Secured
Party shall mean and refer to such assignee. Secured Party shall retain all
rights and powers hereby given not so assigned, transferred and/or delivered.
Without limiting the foregoing, Borrower understands and agrees that Secured
Party may, from time to time, sell, pledge, grant a security interest in and
collaterally assign, transfer and deliver or otherwise encumber or dispose of
the Note, this Security Agreement and the other Loan Documents and its rights
and powers hereunder and thereunder, in whole or in part, in connection with the
Securitization or any other assignment or other disposition of the Note.
Borrower may not, in whole or in part, directly or indirectly, assign this
Security Agreement or any Loan Document or its rights hereunder or thereunder or
delegate its duties hereunder or thereunder without, in each instance, the
specific prior written consent of Secured Party, which consent may be withheld
or delayed in Secured Party's reasonable
-19-
<PAGE>
discretion, and payment upon submission to the Secured Party of an amount equal
to (i) one percent (1%) of the outstanding principal amount of the Loan and (ii)
all reasonable costs and expenses incurred by Secured Party in connection with
such assignment (including, without limitation, reasonable and actual attorneys'
fees and disbursements). Secured Party will respond to a request for assignment
within forty-five (45) days of its receipt of all information it deems necessary
to make an informed decision on Borrower's request. Notwithstanding the
foregoing, the one percent (1%) fee will not be due and payable in connection
with the merger of Borrower and Major Automotive Group, Inc. For purposes of
this Security Agreement, a Change in Control (whether by equity sale, issuance
or otherwise) shall constitute an assignment hereof except in the case of a
public sale of stock.
13. FURTHER ASSURANCES: Borrower agrees at any time and from time to
time, at Borrower's sole cost and expense, to obtain, procure, execute and
deliver, file and affix or cause to be obtained, procured, executed, delivered,
filed and affixed such further agreements, bills of sale and assignments,
instruments, documents, warehouse receipts, bills of lading, vouchers, invoices,
notices, statements, writings (including financing statements, and writings to
correct any error or ambiguity in any Loan Document), powers (including stock
and bond powers, and powers of attorney), tax stamps and information, and to do
or cause to be done all such further acts and things (including the execution,
delivery and filing of financing statements, payment of filing fees and
transfer, gains and recording taxes) and do and cause to be done all such other
acts as Secured Party may reasonably request, from time to time, in its
discretion. Without limiting the foregoing, Borrower authorizes Secured Party to
the extent permitted under the UCC to file this Security Agreement or a copy
hereof, and the same shall be sufficient as a financing statement, and to
execute and file, or file without Borrower's signature, any and all financing
statements, amendments thereto and continuations thereof as Secured Party deems
necessary or appropriate and Borrower shall pay and indemnify Secured Party for
and hold Secured Party harmless from any and all costs and expenses in
connection therewith. Borrower further agrees that it will promptly notify
Secured Party of and, subject to Section 15.1 hereof, agree to correct any
defect, error or omission in the contents of any of the Loan Documents or in the
execution, delivery or acknowledgment thereof. The Borrower further agrees to
execute, from time to time, prior to or within three months of the date hereof,
and otherwise promptly following Secured Party's request, a Form 4506 Request
for Copy of Transcript of Tax Form or its successor form.
14. TERM:
This Security Agreement shall be immediately in full force and
effect as a security agreement under the UCC upon Borrower's execution below,
whether or not it is signed by Secured Party. Upon indefeasible payment in full
of the Obligations in accordance with the terms thereof, this Agreement and the
security interested granted hereunder shall terminate and Secured Party, at
Borrower's expense, will within a reasonable time following Borrower's request
execute and deliver to Borrower the proper instruments (including UCC
termination statements) acknowledging the termination of the security interest,
and will transfer (without recourse, representation or warranty except that
Secured Party shall represent and warrant to Borrower that it has not encumbered
the Collateral in any fashion during the period in which the Secured Party had a
security interest in such Collateral) such Collateral as may be in Secured
Party's possession, and not to be retained, sold, or otherwise applied or
released pursuant to this Security Agreement, to Borrower, except that the
provisions of Sections 10, 11, 13 and 15 shall survive indefinitely. No
termination of this Security Agreement or the other Loan Documents shall relieve
or discharge Borrower of its respective duties, obligations and covenants under
this Security Agreement or the other Loan Documents until all Obligations have
been fully and finally discharged and paid, and Secured Party's continuing
security interest in the Collateral and the rights and remedies of Secured Party
hereunder, under the other Loan Documents and applicable law, shall remain in
effect until all such Obligations have been fully and finally discharged and
paid.
15. MISCELLANEOUS.
15.1 FINAL AGREEMENT; AMENDMENTS, CONSENTS, AUTHORIZATIONS. THIS
SECURITY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BORROWER AND SECURED
PARTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF BORROWER AND SECURED PARTY. BORROWER UNDERSTANDS
AND AGREES THAT ORAL AGREEMENTS AND ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE.
BORROWER ACKNOWLEDGES AND AGREES THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER
AND SECURED PARTY. This Security Agreement and the Loan Documents represent the
entire understanding of Secured Party and Borrower with respect to the
transactions contemplated hereby and thereby. None of the terms or provisions of
this Security Agreement or any other Loan Document may be waived, altered,
modified, or amended except in each instance by a specific written instrument
duly executed by Secured Party. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Secured Party of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Secured Party would
otherwise have on any future occasion,
-20-
<PAGE>
whether similar in kind or otherwise. Without limiting the foregoing, no action
or omission to act shall be deemed to be a consent, authorization,
representation or agreement of Secured Party, under the UCC or otherwise,
unless, in each instance, the same is in a specific writing signed by Secured
Party. The inclusion of Collateral Revenues and Proceeds in the Collateral does
not and shall not be deemed to authorize Borrower to sell, exchange of dispose
the Collateral or the Principal Agreements or otherwise use the Collateral in
any manner not otherwise specifically authorized herein.
15.2 Notices. All notices and other communications given pursuant to
or in connection with this Security Agreement shall be in duly executed writing
delivered to the parties at the addresses set forth below (or such other address
as may be provided by one party in a notice to the other):
If to Secured Party:
FALCON FINANCIAL, LLC
2015 West Main Street
Stamford, CT 06902
Attention: Loan Administration Department
with a copy to:
BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
Attn: Structured Finance Group
If to Borrower, to Borrower's chief executive office,
as represented to by Borrower herein.
Major Acquisition Corp.
43-40 Northern Boulevard
Long Island City, NY 11101
Attn: Bruce Bendell
with a copy to:
Newman Tannenbaum Helpern Syracuse &
Hirschtritt LLP
900 Third Avenue
New York, New York 10022
Attn: Stuart B. Newman, Esq.
Notice delivered in accordance with the foregoing shall be effective (i) when
delivered, if delivered personally or by receipted-for telex, telecopier, or
facsimile transmission, (ii) two days after being delivered in the United States
(properly addressed and all fees paid) for overnight delivery service to a
courier (such as Federal Express) which regularly provides such service and
regularly obtains executed receipts evidencing delivery or (iii) five days after
being deposited (properly addressed and stamped for first-class delivery) in a
daily serviced United States mail box.
15.3 Reasonableness. If at any time Borrower believes that Secured
Party has not acted reasonably in granting or withholding any approval or
consent under the Note, this Security Agreement, or any other Loan Document or
otherwise with respect to the Obligations, as to which approval or consent
either Secured Party has expressly agreed to act reasonably, or absent such
agreement, a court of law having jurisdiction over the subject matter would
require Secured Party to act reasonably, then Borrower's sole remedy shall be to
seek injunctive relief or specific performance and no action for monetary
damages or punitive damages shall in any event or under any circumstance be
maintained by Borrower against Secured Party. Secured Party shall not have any
liability to Borrower (whether in tort, contract, equity or otherwise) for
losses suffered by Borrower in connection with, arising out of, or in any way
related to the transactions or relationships contemplated by this Security
Agreement, or any act, omission or event occurring in connection herewith,
unless and only to the extent that it is determined by a final and
non-appealable judgment or court order binding on Secured Party, that the losses
were the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Secured Party shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this Security
Agreement.
-21-
<PAGE>
15.4 Recovery of Sums Required To Be Paid. Secured Party shall have
the right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due, without regard to
whether or not the balance of the Obligations shall be due, and without
prejudice to the right of Secured Party thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Borrower existing
at the time such earlier action was commenced.
15.5 WAIVERS. BORROWER HEREBY MAKES AND ACKNOWLEDGES THAT IT MAKES
ALL OF THE WAIVERS SET FORTH IN THIS SECURITY AGREEMENT, THE NOTE AND THE OTHER
LOAN DOCUMENTS KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY
AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS
ATTORNEY; BORROWER FURTHER ACKNOWLEDGES THAT SUCH WAIVERS ARE A MATERIAL
INDUCEMENT TO SECURED PARTY TO MAKE THE LOAN TO BORROWER AND THAT SECURED PARTY
WOULD NOT HAVE MADE THE LOAN WITHOUT SUCH WAIVERS; AND BORROWER HEREBY MAKES AND
ACKNOWLEDGES THAT IT MAKES SUCH WAIVERS WITH RESPECT TO EACH OTHER LOAN
DOCUMENT.
15.6 WAIVER OF TRIAL BY JURY. BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, AND SECURED PARTY BY ITS ACCEPTANCE OF THE NOTE AND THIS
SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS IRREVOCABLY AND UNCONDITIONALLY
WAIVES, ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR COUNTERCLAIM
ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THE NOTE, THIS
SECURITY AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE OBLIGATIONS.
15.7 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Security Agreement and any Loan Documents, except such as are expressly
provided for herein. No notice to or demand on Borrower which Secured Party may
elect to give shall entitle Borrower to any other or further notice or demand in
the same, similar or other circumstances. Without limiting the generality of the
foregoing, Borrower waives notice prior to Secured Party's taking possession or
control of any of the Collateral or any bond or security which might be required
by any court prior to allowing Secured Party to exercise any of Secured Party's
remedies, including the issuance of an immediate writ of possession and the
benefit of all valuation, appraisement and exemption laws.
15.8 Relationship. The relationship of Secured Party to Borrower
hereunder is strictly and solely that of secured commercial lender on the one
hand and commercial borrower on the other in a commercial transaction and
nothing contained in the Note, this Security Agreement or any other Loan
Document or otherwise in connection with the Obligations is intended to create,
or shall in any event or under any circumstance be construed as creating, a
partnership, joint venture, tenancy-in-common, joint tenancy or other
relationship of any nature whatsoever between Secured Party and Borrower other
than as secured commercial lender on the one hand and commercial borrower and
guarantor on the other in a commercial transaction.
15.9 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding brought by Secured
Party with respect to this Security Agreement, any Loan Documents, the
Obligations, the Collateral or any matter arising therefrom or relating hereto
or thereto.
15.10 No Conflict with Principal Agreements. This Agreement and the
rights (including the remedies) granted and the duties imposed hereunder are not
intended to conflict with or contravene the Principal Agreements or the
Licenses.
15.11 LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION
HEREOF, IN NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE
EXTENT APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE,
CONTRACTED FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THE NOTE OR ANY
OTHER LOAN DOCUMENT, FROM TIME TO TIME OR FOR WHATEVER REASON, EXCEED THE
MAXIMUM RATE OR AMOUNT, IF ANY, SPECIFIED BY APPLICABLE LAW ("MAXIMUM INTEREST
RATE"). In the event any interest is charged or received in excess of the
Maximum Interest Rate ("Excess"), Borrower acknowledges and stipulates that any
such charge or receipt shall be the result of an accident and bona fide error,
and that any Excess received by Secured Party shall be applied, first, to the
payment of the then outstanding and unpaid principal hereunder; second to the
payment of the other Obligations then outstanding and unpaid; and third,
returned to Borrower, it being the intent of the parties hereto not to enter
into a usurious or otherwise illegal relationship. Borrower recognizes that such
an unintentional result could inadvertently occur. All monies paid to Secured
Party hereunder or under any of the other Loan Documents, whether at maturity or
by prepayment, shall be subject to any rebate of unearned interest as and to the
extent required by applicable law.
-22-
<PAGE>
15.11.1 By the execution of this Security Agreement, Borrower agrees
that (i) the credit or return of any Excess shall constitute the acceptance by
Borrower of such Excess, and (ii) Borrower shall not seek or pursue any other
remedy, legal or equitable, against Secured Party, based in whole or in part
upon contracting for, charging or receiving any interest or such amounts which
are deemed to constitute interest in excess of the Maximum Interest Rate. For
the purpose of determining whether or not any Excess has been contracted for,
charged or received by Secured Party, all interest at any time contracted for,
charged or received from Borrower in connection with this Security Agreement or
any of the other Loan Documents shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread during the entire term of this
Agreement in accordance with the amounts outstanding from time to time hereunder
and the Maximum Interest Rate from time to time in effect in order to lawfully
charge the maximum amount of interest permitted under applicable laws.
15.11.2 The provisions of this Section 15.11 shall be deemed to be
incorporated into each of the other Loan Documents (whether or not any provision
of this Section is referred to therein). Each of the Loan Documents and
communications relating to any interest owed by Borrower and all figures set
forth therein shall, for the sole purpose of computing the extent of the
Obligations, be automatically recomputed by Borrower, and by any court
considering the same, to give effect to the adjustments or credits required by
this Section.
15.12 Governing Law; Binding Effect. This Security Agreement shall
be governed by and construed in accordance with the laws of the State of New
York; provided, however, the parties agree that the states listed on SCHEDULE
2.14 are the proper places to file financing statements with respect to the
Collateral and the laws of such states governing perfection and effect of
perfection or non-perfection of security interests in all collateral in which a
security interest is perfected by filing a financial statement under the Uniform
Commercial Code. This Security Agreement shall be binding upon Borrower, and the
heirs, devisees, administrators, executives, personal representatives,
successors, receivers, trustees, and (without limiting Section 12 hereof)
assigns, including all successors in interest of Borrower in and to all or any
part of the Collateral, and shall inure to the benefit of Secured Party, and the
successors and assigns of Secured Party. Borrower and Secured Party irrevocably
consent and submit to the non-exclusive jurisdiction of the Supreme Court for
New York County, New York and the United States District Court for the Southern
District of New York and waive any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Security Agreement or any of the other Loan Documents or in any way connected
with or related or incidental to the dealings of the parties hereto in respect
of this Security Agreement or any of the other Loan Documents or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Secured Party shall have the right to bring
any action or proceeding against Borrower or its property in the courts of any
other jurisdiction which Secured Party deems necessary or appropriate in order
to realize on the Collateral or to otherwise enforce its rights against Borrower
or its property). Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, properly
addressed and postage prepaid, or, at Secured Party's option, by service upon
Borrower in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Borrower shall appear in answer to such
process, failing which Borrower shall be deemed in default and judgment may be
entered by Secured Party against Borrower for the amount of the claim and other
relief requested.
15.13 Severability. Whenever possible this Security Agreement, the
Note and each Loan Document and each provision hereof and thereof shall be
interpreted in such manner as to be effective, valid and enforceable under
applicable law. If and to the extent that any such provision shall be held
invalid and unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions hereof or
thereof, and any determination that the application of any provision hereof or
thereof to any person or under any circumstance is illegal and unenforceable
shall not affect the legality, validity and enforceability of such provision as
it may be applied to any other person or in any other circumstance.
15.14 Counterparts; Captions; Construction. This Security Agreement
and each other Loan Document may be executed in counterpart, each of which shall
be an original and all of which taken together shall be and be deemed to be one
and the same instrument. The headings, titles and captions used herein are for
convenience only and shall not affect the construction of this Security
Agreement or any term or provision hereof. The inclusion of an example by way of
illustration such as a parenthetical ("including . . .") shall not be construed
as or deemed a limitation on the generality of the general text to which it
refers. The terms Borrower and Secured Party shall include heirs, devisees,
executors, administrators, personal representatives, successors, receivers,
trustees and assigns. The liability of all Persons comprising or constituting
Borrower under this Security Agreement and each other Loan document shall be
joint and several.
[SIGNATURE PAGES TO FOLLOW]
-23-
<PAGE>
IN WITNESS WHEREOF, Secured Party and Borrower have caused these
presents to be duly executed as of the day and year first above written.
SECURED PARTY BORROWER
FALCON FINANCIAL, LLC MAJOR ACQUISITION CORP.
By: By:
-------------------------------- --------------------------------
Name: Name:
Title: Title:
Address: Address: Borrower's chief executive
2015 West Main Street office as set forth on Borrower's
Stamford, CT 06902 INFORMATION CERTIFICATE
BORROWER BORROWER
MAJOR CHRYSLER PLYMOUTH JEEP EAGLE, INC. MAJOR CHEVROLET, INC.
By: By:
-------------------------------- --------------------------------
Name: Name:
Title: Title:
Address: Borrower's chief executive Address: Borrower's chief executive
office as set forth on Borrower's office as set forth on Borrower's
INFORMATION CERTIFICATE INFORMATION CERTIFICATE
<PAGE>
BORROWER BORROWER
MAJOR DODGE, INC. MAJOR SUBARU, INC.
By: By:
-------------------------------- --------------------------------
Name: Name:
Title: Title:
Address: Borrower's chief executive Address: Borrower's chief executive
office as set forth on Borrower's office as set forth on Borrower's
INFORMATION CERTIFICATE INFORMATION CERTIFICATE
BORROWER
MAJOR AUTOMOTIVE REALTY CORP.
By:
--------------------------------
Name:
Title:
Address: Borrower's chief executive
office as set forth on Borrower's
INFORMATION CERTIFICATE
AFFILIATE GUARANTEE
THIS AFFILIATE GUARANTEE (this "Guarantee"), dated as of May __,
1998, is made by Fidelity Holdings, Inc. with an office at 80-02 Kew Gardens
Road, Suite 5000, Kew Gardens, New York 11415 (the "Guarantor"), in favor of
Falcon Financial, LLC, a Delaware limited liability company (together with its
successors and assigns, the "Secured Party").
PRELIMINARY STATEMENT
Major Acquisition Corp., a New York corporation and its existing
subsidiaries, Major Chrysler Plymouth Jeep Eagle, Inc., Major Chevrolet, Inc.,
Major Dodge, Inc., Major Subaru, Inc. and Major Automotive Realty Corp., each a
New York corporation, each a Borrower, and collectively and jointly and
severally the Borrower ("Borrower") with an office at 80-02 Kew Gardens Road,
Suite 5000, Kew Gardens, New York 11415 has requested that Secured Party make
the Loan (as defined in the Security Agreement (the "Security Agreement"), dated
the date hereof, between the Secured Party and the Borrower). Capitalized terms
used but not otherwise defined in this Guarantee shall have the same meanings
ascribed to such terms in the Security Agreement.
NOW, THEREFORE, in consideration of the foregoing, the benefits
accruing to the Borrower, to satisfy an express condition to Secured Party's
making of the Loan and to induce the Secured Party to make the Loan, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. Guarantee of Borrower's Obligations to Secured Party. The
Guarantor hereby irrevocably, absolutely and unconditionally guarantees to the
Secured Party the full and punctual payment and performance, when due, and in
accordance with their terms (at maturity, upon acceleration following default,
or otherwise) of all of the Obligations, whether now existing or subsequently
arising, including without limitation payment of all principal, interest, yield
maintenance amounts, prepayment premiums, indebtedness, fees, charges, expenses
(including attorneys' fees and expenses) and other monetary obligations arising
under or in connection with the Note, the Security Agreement or any of the other
Loan Documents, and compliance with the terms, conditions, covenants and other
obligations arising under or in connection with the Note, the Security Agreement
or any of the other Loan Documents. Notwithstanding the foregoing, except as
specifically set forth herein, in no event will the liability of the Guarantor
hereunder exceed the amount of the Obligations.
<PAGE>
2. Nature of Obligations; Interest.
(a) This Guarantee is a guarantee of payment and performance.
The obligations of the Guarantor under this Guarantee are direct and primary
obligations. The liability of the Guarantor hereunder is independent of the
Obligations, and a separate action or actions may be brought and prosecuted
against the Guarantor irrespective of whether action is brought against Borrower
or any other guarantor of the Obligations or whether Borrower or any other
guarantor of the Obligations is joined in any such action or actions. The
Guarantor understands and agrees that the Secured Party may, but is not required
to, proceed against the Guarantor under this Guarantee without first or ever
proceeding against any other person or party. Without limiting the generality of
the foregoing, the obligations of the Guarantor shall remain in force
irrespective of (a) any defect in, or invalidity, illegality or unenforceability
of the Obligations or the Loan Documents, (b) the existence or absence of any
legal action to enforce the Obligations or the Loan Documents or any security
therefor, the issuance of any judgment therefor or the execution of any such
judgment, (c) any claim, defense or offset which the Guarantor or Borrower may
have, (d) any other circumstance which might otherwise constitute a defense
available to or discharge of a guarantor or surety of any type or (e) the death,
or the bankruptcy, dissolution, liquidation, winding up or termination of the
Borrower.
(b) The obligations of the Guarantor hereunder shall not be
released, diminished, impaired, reduced, dependent upon or affected by any one
or more of the following: (i) the genuineness, validity, regularity or
enforceability of, or the existence of any default with respect to, the
Obligations, any security therefor, or any related instrument, documents,
obligation, transaction or matter; (ii) the nature, extent, condition, value or
continued existence of any security given in connection with the Obligations;
(iii) any action or failure to take action by any holder of the Obligations
under or with respect to this Guaranty or the Obligations, any security
therefor, or any related documents, transaction or matter; (iv) any other
dealings between any holder of the obligations and Secured Party; (v) any
exculpatory language or provisions limiting or restricting Secured Party's
rights or remedies against Borrower under the Loan Documents; or (vi) any claim
by or on behalf of Borrower of any credit or right of setoff with respect to the
Note or any of the Obligations. This Guaranty is irrevocable and the obligations
of the Guarantor hereunder shall terminate and cease only at the time Secured
Party receives payment in full of all of the Obligations or the Guarantor pays
the Obligations to the full and maximum extent of its liability hereunder.
(c) The Guarantor agrees that this Guarantee shall continue to
be effective or be reinstated, as the case may be, if at any time, payment of
the Obligations or any part thereof is rescinded or must otherwise be restored
by Secured Party upon or as a result of the bankruptcy or reorganization of
Borrower or otherwise. If after receipt of any payment of, or the proceeds of
any collateral for, all or any part of the Obligations, Secured Party is
compelled to surrender or voluntarily surrenders such payment or proceeds to any
person because such payment or application of proceeds is or may be avoided,
invalidated, recaptured or set aside as a preference, fraudulent conveyance,
-2-
<PAGE>
impermissible setoff, or for any other reason, whether or not such surrender is
the result of: (i) any judgment, decree or order of any court or administrative
body having jurisdiction over Secured Party; or (ii) any settlement or
compromise by Secured Party of any claims as to any of the foregoing, with any
person (including Borrower), then the Obligations or affected part thereof shall
be reinstated and continue and this Guarantee shall be reinstated and continue
in full force as to such Obligations or part thereof as if such payment or
proceeds had not been received, notwithstanding any previous cancellation of any
instrument delivered to evidence the satisfaction thereof. The provisions hereof
shall survive the termination of this Guarantee and any satisfaction and
discharge by Borrower by virtue of any payment, court order, or any federal or
state law.
(d) Interest. If the Guarantor fails to make when due any
payment required to be made by it under this Agreement (a "Payment"), then, to
the extent permitted by law and subject to the limitations set forth in Section
15.12 of the Security Agreement, such Payment shall bear interest from the due
date thereof until paid at the Default Rate, compounded monthly. The Guarantor
agrees to pay interest accrued hereunder on demand. All calculations of interest
hereunder will be made on the actual number of days elapsed on the basis of a
360-day year of twelve 30-day months, but in no event shall calculations result
in the Secured Party contracting for, charging or receiving interest in excess
of the maximum amount permitted by applicable law.
3. Additional Agreements and Waivers of the Guarantor. WITHOUT
LIMITING PARAGRAPHS 1 AND 2 HEREOF, THE GUARANTOR HEREBY ACKNOWLEDGES RECEIPT OF
COPIES OF THE LOAN DOCUMENTS AND AS THE GUARANTOR OF THE BORROWER'S OBLIGATIONS
THEREUNDER, HEREBY CONFIRMS AND MAKES ALL OF THE STATEMENTS, ACKNOWLEDGMENTS,
WAIVERS AND AGREEMENTS SET FORTH THEREIN (WHICH ARE HEREBY INCORPORATED BY
REFERENCE AS IF SET FORTH HEREIN IN THEIR ENTIRETY) BOTH WITH RESPECT TO THE
BORROWER'S AND THE GUARANTOR'S OBLIGATIONS (BUT ONLY TO THE EXTENT MADE BY THE
BORROWER) AND ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL
AGREEMENTS ("WAIVERS") SET FORTH IN THIS GUARANTEE, AND THAT EACH AND ALL SUCH
WAIVERS ARE BEING MADE KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS,
AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS BY
THE GUARANTOR IN CONSULTATION WITH ITS LEGAL COUNSEL; THE GUARANTOR FURTHER
ACKNOWLEDGES THAT THE GUARANTOR'S GUARANTEE AND SUCH WAIVERS ARE A MATERIAL
INDUCEMENT TO THE SECURED PARTY TO ENTER INTO THE LOAN DOCUMENTS, AND THAT THE
SECURED PARTY WOULD NOT MAKE THE LOAN WITHOUT SUCH GUARANTEES AND WAIVERS. THE
GUARANTOR ACKNOWLEDGES AND AGREES THAT NEITHER THE SECURED PARTY NOR THE
BORROWER, NOR ANY OF THEIR RESPECTIVE AFFILIATES, AGENTS OR REPRESENTATIVES HAS
MADE AND NO SUCH PERSON IS MAKING OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE GUARANTEE (OTHER THAN THOSE
REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR HEREUNDER).
-3-
<PAGE>
(a) The Guarantor understands and agrees that the Secured
Party may (and hereby authorizes Secured Party to) take the following actions,
at any time or from time to time, without the consent of but with prior notice
to the Guarantor, without incurring any responsibility to the Guarantor, and
without impairing, reducing, modifying, amending, releasing, discharging or in
any way affecting the obligations of the Guarantor or giving the Guarantor any
recourse or defense against the Secured Party:
(i) Accept or create new, modify, amend, accelerate,
increase, extend or renew any of the Obligations or any security therefor, or
provisions of the Note, the Security Agreement or any other Loan Document, and
this Guarantee will apply to the Obligations as so accepted, created, modified,
amended, accelerated, increased, extended or renewed;
(ii) Change the manner, place or terms of payment of the
Obligations, release, surrender, substitute, settle or compromise, or otherwise
alter or modify all or any of the Obligations, any security therefor, any Person
liable thereon, including any endorsers, accommodation parties or guarantors, or
any liability incurred directly or indirectly in respect thereof or in
connection with this Guarantee;
(iii) Subordinate the payment of all or any part of the
Obligations or any security therefor to the payment of or security for any other
liability (whether due or not) of the Borrower to its creditors, including the
Secured Party;
(iv) Exercise or refrain from exercising any rights or
remedies against the Guarantor, the Borrower or any other Person (including any
guarantor) or otherwise act or refrain from acting or take or fail to take any
action of any type whatsoever, and generally deal with the Borrower, the
Guarantor, endorser, accommodator, any other person, any indebtedness of the
Borrower to the Secured Party, or any security for any such indebtedness or
obligation, as the Secured Party sees fit;
(v) Consent to or waive any breach of any act, omission
or default, or reinstate following a default, under the Note, the Security
Agreement or any other Loan Documents in accordance with the terms thereof;
(vi) Grant to the Borrower any other indulgence,
concession or compromise with respect to all or any part of any of the
Obligations;
(vii) Apply any sums by whomsoever paid or howsoever
realized to any Obligations or other liabilities of Borrower or the Guarantor to
the Secured Party regardless of what Obligations, liability or liabilities
remain unpaid, provided that payments by the Guarantor pursuant to this
Guarantee shall be applied to the Obligations or its obligations or liabilities
hereunder, but in such order as the Secured Party may determine; or
-4-
<PAGE>
(viii) Fail to record or file against or possess any
collateral or property or Person whatsoever, or to perfect or protect any lien
or encumbrance, or sell, exchange, purchase, foreclose, realize upon or
otherwise deal with in any manner or order any property or Person at any time
securing or guaranteeing the Obligations or liabilities incurred directly or
indirectly in respect thereof or in connection with this Guarantee, the
Obligations or liabilities.
(b) The Guarantor understands and agrees that its obligations
under this Guarantee, and Secured Party's's rights to enforce this Guarantee,
shall not in any way be affected, diminished or impaired by the following
actions:
(i) Any insolvency, bankruptcy, liquidation,
reorganization, readjustment, composition, death, dissolution, winding up,
assignment for the benefit of creditors, receivership or trusteeship involving
the Borrower, the Guarantor, any of their respective Affiliates or any other
Person liable in respect of the Obligations as an obligor, endorser, guarantor,
pledgor or otherwise;
(ii) Any merger, consolidation, or sale of all or
substantially all of the assets, or of a controlling interest in, the Borrower,
the Guarantor, any of their respective Affiliates or any other person liable in
respect of the Obligations as an obligor, endorser, guarantor, pledgor or
otherwise;
(iii) The settlement by the Secured Party with Borrower
or the Guarantor, or the release or compromise by the Secured Party of any
claims against Borrower or the Guarantor; or
(iv) The existence of any other circumstances which
might constitute a legal or equitable discharge of a surety or guarantor under
applicable Law.
(c) Waiver of Claims and Set-Offs. With respect to all
Obligations and any other liabilities or obligations hereunder, the Guarantor
hereby waives and agrees not to assert or take advantage of any of the
following:
(i) Any right to require the Secured Party to proceed
against the Borrower or any other person or to resort to, proceed against or
exhaust any security obtained from the Borrower at any time or to pursue any
other remedy in its power before proceeding against any security obtained from
the Guarantor;
(ii) The defense of the statute of limitations in any
action hereunder or for the collection of any indebtedness or the performance of
any Obligation;
(iii) Any defense that may arise by reason of the
incapacity, lack of authority, death or disability of, insolvency or bankruptcy
of Borrower or any other Person, or revocation, illegibility or unenforceability
hereof or of any of the Obligations or Loan Documents, or the failure of the
Secured Party to file or enforce a
-5-
<PAGE>
claim against the estate (either in administration, bankruptcy, or any other
proceeding) of the Borrower or any other Person;
(iv) Demand, diligence presentment, protest, notice of
dishonor, nonpayment or default, suit or taking of any action and notice of any
other kind to any Person, including, without limiting the generality of the
foregoing, notice of acceptance of this Guarantee and notice of liability to
which may apply, notice under the Uniform Commercial Code (including Section
9-504(3) thereof) of any jurisdiction, and notice of the existence, creation or
incurring of any new or additional indebtedness or obligation or of any action
or non-action on the part of the Borrower, the Secured Party, any endorser or
guarantor under any instrument, or creditor of the Borrower, or any other Person
whomsoever, in connection with any Obligation or evidence of indebtedness or in
connection with any Obligation or any security therefor;
(v) All rights and defenses arising out of an election
of remedies by the Secured Party, even though that election of remedies, such as
but not limited to a non-judicial foreclosure under the Uniform Commercial Code
with respect to security for any Obligations, has destroyed or otherwise
impaired, the Guarantor's rights (including rights of subrogation and
reimbursement against the Borrower) or recourse against Borrower, any other
Person or any property;
(vi) Any right to be informed by Secured Party or any
other Person of the financial condition of Borrower or any other guarantor of
the Obligations or any change therein or any other circumstances bearing upon
the risk of nonpayment or nonperformance of the Obligations, or any duty on the
part of the Secured Party to disclose to the Guarantor or any other Person any
facts the Secured Party may now or hereafter know about the Borrower or any
other Person or the Obligations or any security therefor, regardless of whether
the Secured Party knows or has reason to believe that any such facts materially
increase the risk beyond that which the Guarantor intends to assume or knows or
has reason to believe that such facts are unknown to the Guarantor or has a
reasonable opportunity to communicate such facts to the Guarantor, it being
understood and agreed that the Guarantor represents, acknowledges and agrees
that the Guarantor has the ability and assumes the responsibility for keeping
informed of the financial condition of Borrower and any other guarantors of the
Obligations and of other circumstances affecting such nonpayment and
nonperformance risks and the Guarantor is fully responsible for being and
keeping informed of the financial condition of the Borrower, the condition of
the Collateral and of all circumstances bearing on the risk of nonpayment or
nonperformance of any Obligations; and
(vii) Any and all surety defenses, including any defense
based on lack of due diligence by the Secured Party in collection, protection or
realization upon any Collateral.
(d) Waiver of Deficiency; Appraisement, Etc. The Guarantor
hereby expressly waives: (i) any defense to the recovery of a deficiency against
the
-6-
<PAGE>
Borrower after any non-judicial sale of collateral under any mortgage or
security agreement, notwithstanding that such sale may result in a loss by the
Guarantor of the right to recover the deficiency from Borrower, (ii) any
appraisement, valuation, stay, extension, moratorium redemption or similar law
or similar rights for marshalling; and (iii) the benefit of all principles or
provisions of law, statutory or otherwise, which are or might be in conflict
with the terms of this Guarantee, and agrees that the obligations of the
Guarantor shall not be affected by any circumstances, whether or not referred to
in this Guarantee, which might otherwise constitute a legal or equitable
discharge of guarantors. Without limiting the generality of any of the
foregoing, the Guarantor hereby waives any right to be reimbursed by Borrower or
any other guarantor of the Obligations for any payment of the Obligations made
directly or indirectly by the Guarantor or from any property of the Guarantor,
whether arising by way of any statutory, contractual or other right of
subrogation, contribution, indemnification or otherwise. Without limiting the
foregoing, the Guarantor understands that in the absence of the waivers made in
this paragraph 3, the Guarantor might have a defense against an action by the
Secured Party to recover a deficiency from the Guarantor following a
non-judicial foreclosure sale of real property or other collateral securing the
Obligations, and the guarantor is specifically waiving those defenses and all
other defenses. The Guarantor expressly agrees to remain liable for any
deficiency remaining after foreclosure of any mortgage or security interest
securing any of the Obligations, whether or not the liability of the Borrower
with respect to any of the Obligations for such deficiency is discharged
pursuant to statute or judicial decision.
4. Subordination. The Guarantor hereby subordinates any
indebtedness, liabilities or obligations incurred by Borrower as a result of a
payment under this Guarantee ("Guaranty Debt") to, but only to, the Guarantor,
to the Obligations. The Guarantor agrees that Secured Party shall be entitled to
receive payment of all Obligations, other than liabilities incurred in the
ordinary course of business, before the Guarantor receives payment of any
Guaranty Debt. Any payments on Guaranty Debt to the Guarantor, if Secured Party
so requests, shall be collected, enforced and received by the Guarantor as
trustee for Secured Party and be paid over to Secured Party on account of the
Obligations, but without reducing or affecting in any manner the liability of
the Guarantor under the other provisions of this Guarantee.
5. Setoff; Non-Waiver.
(a) Setoff. In addition to any rights and remedies of any
Secured Party provided by law, Secured Party shall have the right, with prior
notice to the Guarantor, upon the occurrence and during the continuance of a
Default or an Event of Default, to set-off and apply against the Obligations,
whether matured or unmatured, any amount owing from Secured Party to the
Guarantor with respect to the Guaranty Debt, including all deposits, accounts
and moneys of the Guarantor then or thereafter maintained with Secured Party, at
or at any time after, the happening of any of the above mentioned events.
-7-
<PAGE>
(b) Non-waiver. No security interest or right of setoff shall
be deemed to have been waived by any act or conduct on the part of Secured Party
or by any failure to exercise such right of setoff or to enforce such security
interest, or by any delay in so doing; and every right of setoff and security
interest shall continue in full force and effect until such right of setoff or
security interest is specifically waived or released by an instrument in writing
executed by Secured Party.
6. Amounts Reclaimed.
(a) In the event that, any payments made to the Secured Party
with respect to the Obligations are required to be rescinded or must otherwise
be restored or surrendered by the Secured Party in the event of the bankruptcy,
insolvency, reorganization or similar event involving the Borrower, the
Guarantor, any of its respective Affiliates, or any other Person who may be
liable in respect of the Obligations as obligor, endorser, guarantor or pledgor
or otherwise, agrees that this Guarantee shall continue in effect or shall be
reinstated, as the case may be, and that the Guarantor shall remain liable under
this Guarantee for the payment and performance in full of the Obligations,
including without limitation, any portion so required to be rescinded, restored
or surrendered by the Secured Party.
(b) In the event that, pursuant to any proceeding before any
court, administrative body or trustee in bankruptcy having jurisdiction, or any
settlement or compromise of such a proceeding, a claim is made upon the Secured
Party for repayment or recovery of any amount received in payment of the
Obligations, the Guarantor agrees that such proceeding or settlement or
compromise shall be binding upon the Guarantor, and that in addition to the
other obligations of the Guarantor under this Guarantee, the Guarantor shall be
liable to the Secured Party for the entire amount so repaid or recovered, to the
same extent as if such amount had never been received by the Secured Party.
(c) Any acknowledgment or new promise in respect of the
Obligations, whether by payment or otherwise, and whether made by Borrower, the
Guarantor, any of their respective Affiliates or any other Person liable in
respect of the Obligations as obligor, endorser, guarantor, pledgor or
otherwise, shall toll the running of any statute of limitations which may have
begun to run against the Secured Party in favor of the Guarantor or, if the
limitations period has expired, shall negate the operation of the statute of
limitations in favor of the Guarantor. The provisions of this Section 6 shall
survive indefinitely.
7. Representations and Warranties. The Guarantor makes the following
representations, warranties and covenants which survive the execution and
delivery of this Guarantee:
(a) Affiliate's Identity. Schedule A attached hereto correctly
and completely sets forth the Guarantor's: (i) legal name, (ii) type of entity,
(iii) jurisdiction of
-8-
<PAGE>
organization, (iv) other jurisdictions in which it is qualified to do business,
(v) tax identification number, (vi) chief executive office, (vii) mailing
address, and (viii) existing debt and current business purpose. Schedule A also
sets forth a correct and complete description of the relationship of the
Guarantor to the Borrower.
(b) Organizational Status and Power. The Guarantor is an
entity is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and is duly qualified to do business and in
good standing in each jurisdiction where the conduct of its business or the
character of its assets makes such qualification necessary, except for any such
jurisdiction where the failure to so qualify or be licensed, individually and in
the aggregate for all such jurisdictions, would not reasonably be expected to
have a Material Adverse Effect upon the Guarantor. The Guarantor has all
requisite power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted, and to execute, deliver and perform
its obligations under this Guarantee.
(c) Authority. The execution, delivery and performance by the
Guarantor of this Guarantee and any other Loan Document to which the Guarantor
is a party are within the powers of the Guarantor and have been duly authorized
by all necessary corporate and other actions and do not contravene any provision
of the Guarantor's Certificate of Incorporation, by-laws, or organizational
documents, or to its knowledge, any existing law or any legal order applicable
to, or license or permit granted to it or any material agreement or instrument
to which it is a party or to which it or any of its assets are subject, the
contravention of which would have a Material Adverse Effect on its ability to
perform its obligations hereunder.
(d) Binding Effect; Solvency; Enforceability. The transactions
contemplated by this Guarantee are in furtherance of the Guarantor's ordinary
business purposes, with no contemplation of solvency and with no intent to
delay, hinder or defraud any present or future creditors. The Guarantor is (and,
after giving effect to this Guarantee, will be) solvent and will not have an
unreasonably small capital for the conduct of its business and the payments of
anticipated obligations. The Guarantor's assets and cash flow enable it to meet
its present obligations in the ordinary course of business as they become due,
and the Guarantor has not and does not believe that it will incur debts and
obligations beyond its ability to pay. This Guarantee has been duly authorized,
executed and delivered by the Guarantor and constitute the legal, valid and
binding obligations of the Guarantor, enforceable against the Guarantor in
accordance with their respective terms, except as enforceability may be limited
(i) by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally, and (ii) to the
extent that the remedies of specific performance and injunctive or other forms
of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(e) Litigation; No Violation of Orders or Laws; Governmental
Approvals. Except as set forth on Schedule B attached hereto, there are no
material
-9-
<PAGE>
actions, suits, investigations or proceedings pending, or to the Guarantor's
knowledge, threatened or proposed, against or affecting the Guarantor, or any of
the properties or rights of the Guarantor. To the Guarantor's knowledge, there
is no basis for any claims being asserted against the Guarantor except to the
extent that any such claims have been fully disclosed in writing to the Secured
Party. The Guarantor is not, nor will the Guarantor be after or as a result of
giving effect to the transactions contemplated herein, in default under or in
violation of any Requirements of Law the result of which would have a Material
Adverse Effect on its ability to perform its obligations hereunder. To its
knowledge, neither any actions by or with any governmental or public body or
authority, or any subdivision thereof, nor any other legal formality is required
in connection with the entering into, performance, or enforcement of the
Guarantee by the Guarantor.
(f) No Conflicts with Agreements, Etc. Neither the execution
and delivery by the Guarantor of this Guarantee or any of the Loan Documents to
which the Guarantor is a party, nor the fulfillment of or compliance with the
terms and provisions hereof or thereof, will conflict with, or result in a
breach or violation of the terms of, or constitute a default under, or result in
the creation of any Lien (other than Liens created pursuant to the Loan
Documents) on any assets of the Guarantor pursuant to (i) the organizational
documents of the Guarantor which is an entity, or (ii) any material agreement to
which the Guarantor is a party or to which the Guarantor's assets are subject or
(iii) any Requirements of Law to which the Guarantor is subject.
(g) Consents, Etc. No consent, approval or authorization of or
registration or filing with any Person is required in connection with the
execution, delivery or performance by the Guarantor of this Guarantee or any of
the Loan Documents to which the Guarantor is a party, or as a condition to the
legality, validity or enforceability of this Guarantee, except as set forth in
the Loan Documents.
(h) The Guarantor has copies of and is fully familiar with
each of the Loan Documents executed and delivered to Secured Party by Borrower.
(i) The Guarantor has derived or expects to derive a financial
advantage from the Loan and any other extension of credit and from each and
every renewal, extension, release of collateral or other relinquishment of legal
rights made or granted or to be made or granted by the Secured Party to the
Borrower in connection with the Obligations.
(j) Disclosure. Except as set forth in Schedule 7(j), the
financial statements of the Guarantor submitted to the Secured Party present
fairly the financial condition of the Guarantor. Neither this Guarantee nor any
other document, certificate or statement furnished to the Secured Party by or on
behalf of the Guarantor contains any misstatement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading. The Guarantor is not aware of any facts (other than general
industry conditions) that individually or in the aggregate have a material
-10-
<PAGE>
adverse effect or, so far as the Guarantor can now reasonably foresee, are
likely to have a material adverse effect in the future.
(k) Restriction on New Automobile Dealership Locations. The
Guarantor hereby agrees that neither it nor any of its Affiliates will open a
new automobile dealership within the same Franchise System and engaged in the
business of selling the same brand of automobiles as the Borrower within five
(5) miles of any existing location which serves as Collateral for the Loan. The
foregoing shall not apply to the acquisition of an existing dealership.
8. Information. The Guarantor will promptly furnish to the Secured
Party, at the sole cost and expense of the Guarantor, all such information
regarding the Guarantor's business condition and financial condition as the
Secured Party may from time to time reasonably request. The Guarantor hereby
authorizes Secured Party and its agents and representatives at any time and from
time to time to obtain from, disclose to and discuss with any Franchisor,
creditor of the Guarantor or any other Person, information concerning or
relating to the financial condition, operations and other matters relating to
the Guarantor, its business, property and assets and hereby consents to the
release to Secured Party by any such Person, at any time and from time to time,
of information relating to the Guarantor, its business, financial condition,
prospects, property and assets upon request of Secured Party with prior written
notice to the Guarantor. The Secured Party hereby agrees that it will sign a
confidentiality agreement, if requested by the Guarantor, with respect to
confidential information it may obtain about the Guarantor. The Guarantor hereby
consents to the disclosure by the Secured Party of any and all public
information (financial or otherwise) concerning the Guarantor to any Person in
connection with the sale or other disposition of the Loan (including any
securitization thereof). The Guarantor hereby agrees to deliver to Secured Party
notice of any Default or Event of Default of the Borrower or of any other event
or condition which could have a Material Adverse Effect on the Borrower. The
Guarantor hereby agrees, to the extent failure to do so could have a Material
Adverse Effect, to pay all taxes and other charges imposed by any Government
Authority upon the Guarantor or its property as and when they become due. The
Guarantor hereby agrees, to the extent failure to do so could have a Material
Adverse Effect, to comply with all Requirements of Law and Contractual
Obligations.
9. Corporate Activity. Nothing contained herein shall prohibit,
restrict, prevent or otherwise bar the Guarantor from all and any lawful
corporate activity, including, without limitation, incurrence, creation,
assumption or the permitting to exist any indebtedness, or any lien on any of
its properties or assets (including the capital stock of its subsidiaries
including the Borrower), whether owned at the date hereof or hereafter acquired,
or assign or convey any rights to or security interest in any future revenues;
guaranteeing or otherwise in any way becoming or be responsible for indebtedness
for borrowed money or obligations of any other party, contingently or otherwise;
declaring or paying, directly and indirectly, any dividends or make any
distributions, whether in cash, property, securities or a combination thereof,
with respect to (whether by reduction of
-11-
<PAGE>
capital or otherwise) any shares of its capital stock or directly or indirectly
redeeming, purchasing, retiring or otherwise acquiring for value any shares of
any class of its capital stock or set aside any amount for any such purpose.
10. NO JURY TRIAL. EACH OF THE GUARANTOR AND, BY ITS ACCEPTANCE
HEREOF, SECURED PARTY HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION OR OTHER PROCEEDING RELATING TO OR ARISING OUT OF THIS GUARANTEE, OR
ANY OF THE OTHER LOAN DOCUMENTS. THE GUARANTOR COVENANTS AND AGREES NOT TO SEEK
TO CONSOLIDATE ANY SUCH LITIGATION OR PROCEEDING IN WHICH A JURY TRIAL HAS BEEN
WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN
WAIVED. THE GUARANTOR FURTHER WAIVES, TO THE FULL EXTENT PERMITTED BY LAW, ANY
RIGHT TO AN APPRAISAL OF ANY COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, INCLUDING, WITHOUT LIMITATION, ANY SUCH RIGHTS PROVIDED BY STATUTE.
11. Miscellaneous.
(a) Payment of Expenses. The Guarantor hereby agrees to pay
for all reasonable expenses of the Secured Party arising in connection with this
Guarantee, including without limitation, the administration and enforcement of,
or preservation of rights under this Guarantee (including without limitation,
the reasonable fees and expenses of counsel for the Secured Party in connection
with costs of collection, and all other costs and expenses associated with court
and/or administrative proceedings through the appellate level, incurred by
reason of any action, suit, proceeding, hearing, motion or application before
any court or administrative body in which Secured Party may be or become a party
by reason of this Guarantee, including, but not limited to, bankruptcy and
administrative proceedings, as well as any other of the foregoing where a proof
of claim is by law required to be filed, or in which it becomes necessary to
defend or uphold the terms hereof (the "Costs"), in the event that (a) there
shall occur any default under this Guarantee; (b) Secured Party is made party to
any litigation merely because of the existence of this Guarantee; (c) it becomes
necessary, by reason of acts of or omissions of the Guarantor for Secured Party
to seek the advice of counsel with respect to this Guarantee; or (d) it becomes
necessary for Secured Party to seek the advice of or retain counsel by reason of
any request of the Guarantor. Said Costs shall be paid in addition to the
amounts guaranteed in accordance with the provisions hereof.
(b) Waiver of Notice of Acceptance. Notice of acceptance of
this Guarantee is hereby waived..
(c) Entire Agreement. This Guarantee and the other Loan
Documents to which the Guarantor is a party represents the entire understanding
between the Secured Party and the Guarantor. None of the terms or provisions of
this Guarantee may be waived, altered, modified, or amended except in each
instance by a specific written instrument duly executed by the Secured Party.
-12-
<PAGE>
(d) Notices. All notices and other communications given
pursuant to or in connection with this Guarantee shall be in duly executed
writing delivered to the parties at the addresses set forth below (or such other
address as may be provided by one party in a notice to the other):
If to the Guarantor: To it at its office set forth above;
with a copy to:
Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, New York 10017
Attention: Mitchell C. Littman, Esq.
If to the Borrower:
Major Acquisition Corp.
43-40 Northern Boulevard
Long Island City, New York 11101
Attention: Bruce Bendell
-13-
<PAGE>
with a copy to:
Newman Tannenbaum Helpern Syracuse & Hirchtritt LLP
900 Third Avenue
New York, New York 10022
Attention: Stuart B. Newman, Esq.
If to the Secured Party:
Falcon Financial, LLC
2015 West Main Street
Stamford, CT 06902
Attention: Loan Administration Department
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attn: Structured Finance Group
Notice delivered in accordance with the foregoing shall be effective
(i) when delivered, if delivered personally or by receipted-for telex,
telecopier, or facsimile transmission, (ii) two days after being delivered in
the United States (properly addressed and all fees paid) for overnight delivery
service to a courier (such as Federal Express) which regularly provides such
service and regularly obtains executed receipts evidencing delivery or (iii)
five days after being deposited (properly addressed and stamped for first-class
delivery) in a daily serviced United States mail box.
(e) Binding Effect; Assignment; Benefit of Agreement. This
Guarantee shall be binding upon and inure to the benefit of parties hereto and
their respective successors in interest and assigns. This Guarantee (i) is
freely assignable by Secured Party, in whole or in part, at any time or from
time to time, without prior notice to or consent of the Guarantor or Borrower,
and (ii) is not assignable by the Guarantor or the Borrower without the prior
written consent of the Secured Party, which consent may be withheld or delayed
by the Secured Party in its sole discretion. The provisions of paragraph 11(j)
are for the benefit of and may be enforced by the Borrower.
(f) Interpretation; Construction; Severability.
(i) The terms of this Guarantee have been fully reviewed
and negotiated by the Borrower and the Guarantor in consultation with
independent legal counsel of their respective choice. The Guarantor represents
and warrants that it has personally reviewed this Guarantee, and that it has the
requisite experience and sophistication to understand its terms and conditions
and the consequences of the duties
-14-
<PAGE>
assumed and rights waived herein. In the event of an ambiguity in or dispute
regarding the interpretation of this Guarantee, the interpretation shall not be
resolved by any rule providing for interpretation against the party who cause
the uncertainty to exist or against the drafting party.
(ii) Except as may be otherwise noted in context, all
references to "paragraphs" shall be deemed to refer to the paragraphs or
subparagraphs, as appropriate, of this Guarantee. References to "Schedules" mean
the Schedules attached to and made a part of this Guarantee. The descriptive
headings used in this Guarantee are for convenience only and shall not be deemed
to affect the meaning or construction of any provision hereof.
(iii) Whenever possible this Guarantee and each
provision hereof shall be interpreted in such manner as to be effective, valid
and enforceable under applicable law. If and to the extent that any such
provision shall be held invalid and unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provisions hereof, and any determination that the application of any
provision hereof to any person or under any circumstance is illegal and
unenforceable shall not affect the legality, validity and enforceability of such
provision as it may be applied to any other person or in any other circumstance.
(g) Further Assurances. The Guarantor agrees at any time and
from time to time, at the Guarantor's sole cost and expense, to obtain, procure,
execute and deliver, file and affix or cause to be obtained, procured, executed,
delivered, filed and affixed such further agreements, instruments, documents,
powers (including stock powers, and powers of attorney) and information, and to
do or cause to be done all such further acts and things (including the
execution, delivery and filing of financing statements, payment of filing fees
and transfer, gains and recording taxes) and do and cause to be done all such
other acts as the Secured Party may reasonably request, from time to time, in
its sole discretion.
(h) Term; Survival. This Guarantee is in full force and effect
on the date hereof and shall continue until one year and one day after all
Obligations of the Guarantor hereunder have been indefeasibly paid or satisfied
in full. All representations, warranties, agreements and covenants contained in
this Guarantee shall survive the execution and delivery of this Guarantee, and
all of the waivers made and indemnification obligations undertaken by the
Guarantor and the provisions of paragraphs 2 through 11 shall survive the
termination, discharge or cancellation for any reason of this Guarantee until
the Obligations are paid in full.
(i) Cumulative Rights of and No Waiver by Secured Party. The
Secured Party's rights, powers, privileges and remedies under this Guarantee,
any Loan Document, any other agreement or applicable law are cumulative and not
exclusive and may be exercised successively or concurrently and shall not be
waived, precluded or limited by any failure or delay in the exercise thereof or
by the Secured Party's exercise, or
-15-
<PAGE>
partial exercise, of any thereof or by any course of dealing between the
Guarantor and the Secured Party. No notice to or demand on the Guarantor in any
case shall entitle the Guarantor to any other or further notice or demand in
similar or other circumstance or constitute a waiver of the right of the Secured
Party to any other or further action in any circumstance without notice or
demand.
(j) The Guarantor's Subordination of Claims; Rights of
Contribution; General Limitation . (i) Subordination. The Guarantor hereby
irrevocably subordinates, pursuant to paragraph 4 hereof, and agrees that until
such time as Secured Party has received indefeasible payment of all Obligations
in full, the Guarantor shall not assert any claim (as defined in 11 U.S.C.
Section 101), including, without limitation, any right or claim of subrogation,
payment or reimbursement, that the Guarantor now or hereafter may have against
any Borrower under any Loan Document or against any other security held by or
available to the Secured Party for any Obligations or the payment thereof
because, arising out of or on account of any payments or transfers made by the
Guarantor, or any payment or transfer which the Guarantor agreed to or is
obligated to make, for any reason, whether any such right or claim is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or unsecured.
(ii) General Limitation on Guarantee Obligations. In any
action or proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of the Guarantor, under its guarantee or
otherwise to Secured Party would, taking into account the provisions of Section
11(j) hereof, be held or determined to be void, invalid or enforceable, or
subordinated to the claims of any creditors other than the Secured Party, on
account of the amount of its liability under its guarantee or otherwise to the
Secured Party, then, notwithstanding any other provision hereof to the contrary,
the amount of such liability shall, without any further action by the Guarantor,
the Secured Party or any other Person, be automatically limited and reduced to
the highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding
(k) Time of the Essence. Time is of the essence with respect
to any payments to be made and obligations to be performed by the Guarantor
under this Guarantee.
(l) Governing Law. This Guarantee shall be governed by and
construed in accordance with the laws of the State of New York.
(m) Counterpart. This Guarantee may be signed in counterpart,
each of which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
-16-
<PAGE>
(n) Descriptive Headings. The descriptive headings used in
this Guarantee are for convenience only and shall not be deemed to affect the
meaning or construction of any provision hereof.
-17-
<PAGE>
THIS GUARANTEE CONTAINS WAIVERS OF VARIOUS RIGHTS, INCLUDING
(WITHOUT LIMITATION) WAIVERS OF RIGHTS OF JURY TRIAL. THE GUARANTOR HEREBY MAKES
AND ACKNOWLEDGES THAT IT MAKES ALL OF THE WAIVERS SET FORTH IN THIS GUARANTEE
KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY; THE
GUARANTOR FURTHER ACKNOWLEDGES THAT SUCH WAIVERS ARE A MATERIAL INDUCEMENT TO
THE SECURED PARTY TO MAKE THE LOAN TO THE BORROWER AND THAT THE SECURED PARTY
WOULD NOT HAVE ENTERED INTO THE SECURITY AGREEMENT AND ACCEPTED THE NOTE WITHOUT
SUCH WAIVERS.
[SIGNATURE PAGE FOLLOWS]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to
be executed and delivered as of the date first above written.
ATTEST: GUARANTOR:
FIDELITY HOLDINGS, INC.
(SEAL) By:
------------------------------------
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) :ss.
COUNTY OF )
This instrument was acknowledged before me this _______ day of
________________,1998 by _____________________, the ________________________ of
Fidelity Holdings, Inc., a corporation formed under the laws of the State of
Nevada.
[NOTARIAL SEAL] Notary Public in and for said State
-------------------------------
Notary Public
<PAGE>
SCHEDULE A
Legal Name of
Guarantor:
Fidelity Holdings, Inc.
Type of Entity:
"C" corporation
Jurisdiction of
Organization:
Nevada
Other Jurisdictions
Where Qualified:
None.
Chief Executive Office:
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, New York 11415
Mailing Address:
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, New York 11415
Relationship to
Borrower:
Owner
Equity Holders/
Controlling Persons:
N/A
<PAGE>
Existing Debt and
Business Purpose:
As described in Form 10-K for the year ended December 31, 1997.
<PAGE>
SCHEDULE B
Pending/Threatened Proceedings:
<PAGE>
SCHEDULE 7(j)
Addendum to Financial Statements
The Form 10-K for the year ended December 31, 1997 in which the Borrower's
financial statements are contained will be subsequently amended to provide pro
forma financial information with respect to the acquisition of Major Acquisition
Corp.
FALCON FINANCIAL, LLC
LOAN PROGRAM
AMENDED AND RESTATED SECURED PROMISSORY NOTE
This amended and restated secured promissory note (the "Note") is made in
connection with the Security Agreement, dated as of the date hereof ("Security
Agreement"), by and between the Borrower and FALCON FINANCIAL, LLC, a Delaware
limited liability company ("Secured Party"). All terms used herein and not
otherwise defined herein shall have the meaning accorded to such terms in the
table set forth below and in the Security Agreement. This Note is entitled to
the benefits of and is secured by the pledge, liens, security, title, rights and
security interests granted under the Security Agreement and the other Loan
Documents, as the same may be amended, supplemented or renewed, from time to
time.
- --------------------------------------------------------------------------------
Date of Note: May 14, 1998
New York, New York
- --------------------------------------------------------------------------------
Principal Amount: $7,500,000
- --------------------------------------------------------------------------------
Borrower: Major Acquisition Corp., Major Chrysler
Plymouth Jeep Eagle, Inc., Major Chevrolet,
Inc., Major Dodge, Inc., Major Subaru, Inc.
and Major Automotive Realty Corp., each a New
York corporation.
- --------------------------------------------------------------------------------
First Payment Date: July 1, 1998
- --------------------------------------------------------------------------------
Interest Rate: 10.18%
- --------------------------------------------------------------------------------
Funding Date Payment: $38,175.00
- --------------------------------------------------------------------------------
Stated Payment Amount: $81,423.28
- --------------------------------------------------------------------------------
Lockout Period: A period of 5 years (commencing on the Date
of Note)
- --------------------------------------------------------------------------------
Amortization Period: A period of 180 months commencing on the
first day of the month following the Date of
Note (or on the Date of Note if such date is
the first day of a month).
- --------------------------------------------------------------------------------
Maturity Date: May 1, 2013
- --------------------------------------------------------------------------------
<PAGE>
1. Payments of Principal: Borrower hereby promises to pay to the order of
Secured Party the Principal Amount outstanding under this Note (x) in monthly
installments from the date of the First Payment Date through the Maturity Date,
(y) at the option of Borrower, in full but not in part, at such time as this
Note is prepaid but only as permitted under paragraph 4 below, and (z) in full
either at such time as this Note is accelerated under paragraph 5 below or
matures under paragraph 3 below.
2. Interest: Interest will accrue and be charged on the Principal Amount
outstanding, from time to time (i) except as provided in (ii), at the Interest
Rate, and (ii) upon and during the continuation of an Event of Default, at a
rate per annum equal to the sum of (x) the Interest Rate and (y) 300 basis
points ("Default Rate"). Borrower promises to pay interest to the order of
Secured Party in arrears on each Payment Date except as provided in paragraph
3.a.i below. All calculations of interest shall be computed on the basis of a
360-day year comprised of twelve 30-day months but paid for the actual number of
days elapsed with respect to any partial month. In no event shall Borrower's
interest payment obligations or the amounts of interest payable, contracted for,
charged or received under or in connection with this Note exceed the limitations
set forth in paragraph 8 below.
3. Form, Place and Timing of Payments: Borrower agrees to make all
payments under this Note to the order of Secured Party in lawful money of the
United States of America and in immediately available funds, at such place or
places and by such method or methods (wire transfer or bank account debit) as
Secured Party may request.
a. Payment and Amortization Schedule; Maturity:
i. On the date of funding, Borrower's Funding Date Payment is
due. The Funding Date Payment equals the amount of the interest payable for the
period from the date of the funding of the Note, through and including the last
day of the month in which funding occurs (unless funding has occurred on the
first day of the month in which case, said interest is payable under paragraph
3.a.ii below).
ii. Commencing on the First Payment Date, and on the first day
of each month thereafter (each a "Payment Date"), Borrower agrees to pay the
Stated Payment Amount until the earliest of the acceleration, full prepayment or
Maturity Date of this Note.
iii. The Principal Amount outstanding on the Maturity Date,
together with any and all accrued and unpaid interest, charges, fees and
expenses, shall be due and payable on the Maturity Date.
b. Timing of Payments: Whenever a payment to be made under this Note
becomes due and payable on a Saturday or Sunday or on a legal holiday or a date
on which banking institutions located in the State of New York are authorized or
required to close, such payment shall be made on the next succeeding Business
Day.
-2-
<PAGE>
c. Late Payment Charge: If Secured Party has not received on any
Payment Date, on the Maturity Date, or on any other date on which any payment is
due (whether by acceleration or otherwise) the full amount due on such Payment
Date, Maturity Date or other date, as the case may be, Borrower promises to pay
to the order of Secured Party, promptly on demand, a late payment charge in an
amount equal to the product of (x) the difference between (1) the amount due on
any such due date and (2) the amount actually received on such due date
multiplied by (y) 0.05.
4. Prepayments:
a. Note Prepayable in Full: Subject to paragraph 4.b below, Borrower
may prepay the Note in full but not in part on any Payment Date. Borrower
understands that any prepayment shall require, in addition to payment of all
amounts outstanding hereunder on the date thereof, payment of a yield
maintenance amount (the "Yield Maintenance Amount") in an amount equal to the
excess, if any, of the Discounted Value over the outstanding Principal Amount.
For the purposes of this paragraph 4, the following terms have the following
meanings:
"Discounted Value" means on any Prepayment Date the amount calculated by
discounting all Remaining Scheduled Monthly Loan Payments from their respective
scheduled due dates to the Prepayment Date, at a discount factor (applied on a
monthly basis) equal to the Reinvestment Rate.
"Reinvestment Rate" means the bond equivalent yield to maturity implied by
either (i) the yield reported, as of 10:00 A.M. (New York City time) on the
business day next preceding the Prepayment Date, on the display designated as
"Page 500" on the Telerate Service (or such other display as may replace Page
500 on the Telerate Service) for actively traded United States Treasury
obligations having a maturity equal to the Remaining Average Life, or (ii) if
such yields shall not be reported as of such time or the yields reported as of
such time shall not be ascertainable, the Treasury Constant Maturity Series
yields reported (for the latest day for which such yields shall have been so
reported as of the business day next preceding the Prepayment Date) in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded United States Treasury obligations having a constant
maturity equal to the Remaining Average Life plus, in either case, 225 basis
points. Such implied yield shall be determined, if necessary, by (a) converting
United States Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice, and (b) interpolating linearly between
reported yields.
"Remaining Average Life" means on any Prepayment Date the number of years
(calculated to the nearest one-twelfth year, assuming a 360-day year of 12 equal
months of 30 days each) obtained by dividing (i) the outstanding Principal
Amount on the Prepayment Date into (ii) the sum of the products obtained by
multiplying (a) the principal portion of each Remaining Scheduled Monthly Loan
Payment by (b) the number of years (calculated to the
-3-
<PAGE>
nearest one-twelfth year) which will elapse between the Prepayment Date and the
scheduled due date of such Principal Payment.
"Remaining Scheduled Monthly Loan Payments" means on any Prepayment Date
an amount equal to the scheduled Stated Payment Amount that would be due during
the period from the Prepayment Date to and including the Maturity Date.
Borrower understands and agrees that the right to prepay is subject to payment
of the Yield Maintenance Amount, that Borrower has no right to prepay this Note
without payment of the Yield Maintenance Amount and that such Yield Maintenance
Amount applies to all prepayments, voluntary or otherwise. In the event that
Borrower elects to prepay this Note, Borrower will notify Secured Party in
writing of Borrower's election to prepay this Note in full and Borrower agrees
to specify in such notice the proposed date (the "Prepayment Date") for
prepayment (which date shall be a Payment Date not less than thirty (30) days
nor more than sixty (60) days from the date of said notice). Secured Party will
notify Borrower within twenty (20) days of its receipt of such notice from
Borrower of the scheduled amount of accrued and unpaid interest through the
Prepayment Date, the outstanding Principal Amount on such Prepayment Date, and
the Yield Maintenance Amount, which amount shall be subject to adjustment for
changes in the Reinvestment Rate payable on the Prepayment Date (collectively,
the "Prepayment Amount") and Borrower shall pay such Prepayment Amount in
accordance with Secured Party's instructions by 2:00 P.M. on such Prepayment
Date. Borrower may rescind its notice of prepayment if Borrower is not satisfied
that the Prepayment Amount is calculated in accordance with this Agreement.
b. Limitations of Prepayment. Borrower shall not be permitted to
make any prepayment during the Lockout Period and Borrower agrees that Borrower
has no right to (and shall not) elect to prepay this Note, in whole or in part,
during the Lockout Period. In addition, no prepayment shall be made without the
consent of Secured Party if an Event of Default has occurred and is continuing
(or an event has occurred or circumstance exists which with the passage of time
or the giving of notice, or both, would constitute an Event of Default). Partial
prepayments are not permitted hereunder.
5. Acceleration; Expenses: If an Event of Default occurs, the entire
Principal Amount may be accelerated by Secured Party and Secured Party may
pursue it remedies against Borrower and the personal and real property that
secures Borrower's Obligations, including Borrower's obligation to pay the
Principal Amount evidenced by this Note, from time to time and in such order as
Secured Party shall determine. If an Event of Default described in Section 6.2
of the Security Agreement occurs, the entire Principal Amount shall be
automatically accelerated without presentment, demand, protest or notice of any
kind. If the Principal Amount is accelerated, Borrower hereby agrees to pay to
the order of Secured Party on the date of acceleration an amount equal to the
full Prepayment Amount, including, without limitation, accrued and unpaid
interest and the Yield Maintenance Amount which would be due and payable on the
Payment Date immediately following the date of acceleration if the Note were
prepaid in full on such Payment Date, together with all accrued and unpaid
-4-
<PAGE>
Late Payment Charges. Borrower agrees that upon the occurrence of an Event of
Default, Borrower will pay all reasonable costs of collection (including,
without limitation, reasonable and actual attorneys' fees and disbursements,
whether or not a suit is commenced), which amounts (and all other amounts which
are due and payable by Borrower) shall be added to the Principal Amount of this
Note and will bear interest at the Default Rate.
6. WAIVERS AND SPECIAL AGREEMENTS: BORROWER HEREBY MAKES AND ACKNOWLEDGES
THAT IT MAKES ALL OF THE WAIVERS AND SPECIAL AGREEMENTS ("WAIVERS") SET FORTH IN
THIS NOTE KNOWINGLY, INTENTIONALLY, VOLUNTARILY, WITHOUT DURESS, AND ONLY AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEY;
BORROWER FURTHER ACKNOWLEDGES THAT BORROWER UNDERSTANDS THE RIGHTS BEING WAIVED
AND THAT THE WAIVERS ARE A MATERIAL INDUCEMENT TO SECURED PARTY TO MAKE THE LOAN
TO BORROWER; THAT THE TERMS OF THE LOAN ARE FAVORABLE TO BORROWER AND THAT
SECURED PARTY WOULD NOT HAVE MADE THE LOAN ON SUCH TERMS WITHOUT SUCH WAIVERS.
Borrower and any and all obligors, sureties, guarantors and endorsers of this
Note and all other parties now or hereafter liable hereon jointly and severally
("Obligors") (i) acknowledge that the transaction of which this Note is a part
is part of a commercial transaction, (ii) waive any and all (from time to time)
(a) rights to notice and hearing under any state or federal law with respect to
any prejudgment remedy which the Secured Party may desire to use, from time to
time, and (b) grace, diligence, demand, presentment for payment, protest, notice
of any kind (including notice to sureties, disclosure of facts which materially
increase risks, notice of protest, acceptance, liability suit, demand, or
action, dishonor, payment or nonpayment, protest, intention to accelerate or
acceleration, extension or renewal), surety defenses of any kind (including
defenses relating to impairment of recourse, release or modification of
underlying obligation, extension of time, impairment of collateral,
nondisclosure), rights of appraisal of any security or collateral for any
obligation or guaranteed obligation and diligence in collecting and bringing
suit against any party; (iii) agree (a) to all extensions of any obligation or
guaranteed obligations (including rescheduling and recalculation of
amortization), in whole or in part, from time to time, or any partial payments,
with or without notice, before or after maturity, (b) to any one or more
substitutions, exchanges or releases of any or all security, now or hereafter
given for any obligation, (c) to any and all releases, from time to time, of any
and all parties primarily, secondarily or otherwise liable for any obligation or
guaranteed obligation, (d) that it is not (and at no time will be) necessary for
Secured Party, or any other holder, transferee, obligee or beneficiary of any
note or obligation or guaranteed obligation (or any interest therein)
(collectively, "Obligee"), in order to enforce such note or obligation, to first
institute or exhaust such Person's remedies against any borrower or other Person
or against any collateral or other security for such note or obligation, and (e)
that any delay in exercising, failure to exercise, or non-exercise (or partial
exercise), from time to time, by Secured Party or any Obligee of any obligation
or guaranteed obligation of any rights or remedies (or to insist upon strict
performance) in any one or more instances shall not constitute a waiver thereof
(or preclude full exercise or insistence upon strict performance thereof) in
that or any other
-5-
<PAGE>
instance, and any single exercise of any such Person's right or remedies in any
one or more instances shall not preclude full exercise in any other instance;
and (iv) waive and agree not to assert any right of set off and any claim (as
defined in U.S.C. Section 101), including, without limitation, any claim of
subrogation, reimbursement, exoneration, contribution or indemnification that
Borrower or any other Obligor may now or hereafter have against Borrower or any
other Obligor or any security held by or available to Secured Party.
7. WAIVER OF TRIAL BY JURY AND APPRAISAL RIGHT: BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND SECURED PARTY BY ITS ACCEPTANCE OF
THE NOTE IRREVOCABLY AND UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR
OTHERWISE RELATING TO THE NOTE. BORROWER HEREBY FURTHER WAIVES ANY AND ALL
RIGHTS BORROWER MAY NOW OR HEREAFTER HAVE TO AN APPRAISAL OF ANY SECURITY OR
COLLATERAL FOR BORROWER'S OBLIGATIONS HEREUNDER.
8. LIMITATION ON INTEREST. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL THE AMOUNT OR RATE OF INTEREST (INCLUDING TO THE EXTENT
APPLICABLE ANY DEFAULT RATE INTEREST OR LATE PAYMENT CHARGE) PAYABLE, CONTRACTED
FOR, CHARGED OR RECEIVED UNDER OR IN CONNECTION WITH THIS NOTE, FROM TIME TO
TIME OR FOR WHATEVER REASON, EXCEED THE MAXIMUM RATE OR AMOUNT, IF ANY,
SPECIFIED BY APPLICABLE LAW. If from any circumstance whatsoever, fulfillment of
any provision hereof or of such other Loan Documents or other documents or
obligations at the time performance of such provision shall be due, shall
involve transcending the limit of validity proscribed by law, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from any such circumstance Secured Party shall ever receive an amount
deemed interest by applicable law which shall exceed the highest lawful rate,
such amount which would be excessive interest shall be applied to the reduction
of the Principal Amount owing hereunder or on account of any other principal
indebtedness of the Borrower to Secured Party, and not to payment of interest or
if such excessive interest exceeds the unpaid balance of Principal Amount and
such other indebtedness, or if Secured Party is prohibited by applicable law
from applying such excessive interest to the reduction of Principal Amount or on
account of any other indebtedness, the excess shall be refunded to Borrower. All
sums paid or agreed to be paid by the Borrower for the use, forbearance or
detention of the indebtedness of the Borrower to Secured Party shall, to the
extent permitted by applicable law, be amortized prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
actual rate of interest on account of such indebtedness is uniform though the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between the Borrower and
Secured Party and all obligations of Borrower to Secured Party.
-6-
<PAGE>
9. Application; Calculations of Amounts Due. Timely payments of Stated
Payment Amount shall be applied first to accrued and unpaid interest, then to
outstanding Principal Amount. All calculations and applications of amounts due
on any date, whether by acceleration or otherwise, will be made by Secured Party
(or its agent or representative) and Borrower agrees that all such calculations
and applications will be conclusive and binding absent manifest error.
10. Miscellaneous. This Note is freely assignable in whole or in part,
from time to time, by Secured Party and Secured Party may grant participation
interests herein, in each case without notice to or consent of Borrower and
without incurring any responsibility to Borrower. This Note and the rights and
obligations under this Note are not assignable or delegatable, directly or
indirectly, in whole or in part, by Borrower, except as provided in and then
only in accordance with the Security Agreement. This Note shall be binding upon
Borrower, its successors and, without limiting the preceding two sentences,
assigns. For all payments to be made and obligations to be performed under this
Note, Borrower agrees to perform strictly in accordance with the terms of this
Note and time is of the essence. Whenever possible, this Note and each provision
hereof, shall be interpreted in such manner as to be effective, valid and
enforceable under applicable law. If and to the extent that any such provision
shall be held invalid and unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provisions
hereof, and any determination that the application of any provision hereof to
any person or under any circumstance is illegal and unenforceable shall not
affect the legality, validity and enforceability of such provision as it may be
applied to any other person or in any other circumstance. All rights and
remedies provided in this Note, the Security Agreement, any Loan Document or any
law shall be available to Secured Party and shall be cumulative. THIS NOTE IS
BEING EXECUTED AND DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS NOTE
CONTAINS WAIVERS OF VARIOUS RIGHTS AND DEFENSES, INCLUDING (WITHOUT LIMITATION)
WAIVERS OF RIGHTS OF JURY TRIAL AND APPRAISAL AS SET FORTH IN PARAGRAPH 7
HEREOF.
[SIGNATURE PAGE FOLLOWS]
-7-
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered on the first date set forth above.
WITNESSED AND ATTESTED TO: MAJOR ACQUISITION CORP.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
WITNESSED AND ATTESTED TO: MAJOR CHRYSLER PLYMOUTH
JEEP EAGLE, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
WITNESSED AND ATTESTED TO: MAJOR CHEVROLET, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
WITNESSED AND ATTESTED TO: MAJOR DODGE, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
WITNESSED AND ATTESTED TO: MAJOR SUBARU, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
WITNESSED AND ATTESTED TO: MAJOR AUTOMOTIVE REALTY CORP.
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared _____________________________ and
acknowledged that the foregoing instrument executed by him/her as
___________________________ of Major Acquisition Corp., a New York corporation,
to be his/her free act and deed and the free act and deed of Major Acquisition
Corp.
Before me,
Notary Public
My Commission Expires:
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared _____________________________ and
acknowledged that the foregoing instrument executed by him/her as
____________________________ of Major Chrysler Plymouth Jeep Eagle, Inc., a New
York corporation, to be his/her free act and deed and the free act and deed of
Major Chrysler Plymouth Jeep Eagle, Inc.
Before me,
Notary Public
My Commission Expires:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared ___________________________ and
acknowledged that the foregoing instrument executed by him/her as
_____________________________ of Major Chevrolet, Inc., a New York corporation,
to be his/her free act and deed and the free act and deed of Major Chevrolet,
Inc.
Before me,
Notary Public
My Commission Expires:
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared ________________________________ and
acknowledged that the foregoing instrument executed by him/her as
___________________________ of Major Dodge, Inc., a New York corporation, to be
his/her free act and deed and the free act and deed of Major Dodge, Inc.
Before me,
Notary Public
My Commission Expires:
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared _________________________ and acknowledged
that the foregoing instrument executed by him/her as __________________________
of Major Subaru, Inc., a New York corporation, to be his/her free act and deed
and the free act and deed of Major Subaru, Inc.
Before me,
Notary Public
My Commission Expires:
STATE OF NEW YORK )
) ss.:
COUNTY OF )
Then personally appeared _____________________________ and
acknowledged that the foregoing instrument executed by him/her as
_____________________________ of Major Automotive Realty Corp., a New York
corporation, to be his/her free act and deed and the free act and deed of Major
Automotive Realty Corp.
Before me,
Notary Public
My Commission Expires:
