<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 333-3790
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6141 95-4574983
(STATE OR OTHER JURISDICTION (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION IDENTIFICATION NUMBER)
ORGANIZATION) CODE NUMBER)
</TABLE>
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(213) 720-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY M. CYPRES
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(213) 720-8600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
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MICHAEL M. UMANSKY, ESQ. WILLIAM T. QUICKSILVER, ESQ.
STROOCK & STROOCK & LAVAN MANATT, PHELPS & PHILLIPS, LLP
2029 CENTURY PARK EAST 11355 W. OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90067 LOS ANGELES, CALIFORNIA 90064
(310) 556-5800 (310) 312-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS REFERENCE SHEET
BETWEEN ITEMS OF FORM S-1 AND FORM OF PROSPECTUS
(PURSUANT TO THE SECURITIES ACT OF 1933)
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FORM S-1 ITEM PROSPECTUS HEADING
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1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page and Outside Back Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors; Use of
Proceeds
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution................................ Risk Factors; Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Outside and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered............................ Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Not Applicable
11. Information with Respect to the
Registrant............................ Outside Front Cover Page; Prospectus Summary;
The Company; Risk Factors; The Reorganization
and Certain Relationships and Agreements
Among the Company, Banner, Holdings and
Other Affiliates; Dividend Policy; Selected
Financial Data; Supplemental Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Principal
Shareholders; Description of Capital Stock;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... The Reorganization and Certain Relationships
and Agreements among the Company, Banner,
Holdings and Other Affiliates
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<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 4, 1996
1,850,000 SHARES
[LOGO]
FINANCIAL ACCEPTANCE CORPORATION
COMMON STOCK
All of the shares of Common Stock, $0.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Central Financial
Acceptance Corporation (the "Company"). Prior to this Offering, there has been
no public market for the Common Stock. The Company was formed in April 1996 to
consummate the Reorganization. See "The Reorganization and Certain Relationships
and Agreements among the Company, Banner, Holdings and Other Affiliates." It is
currently anticipated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"CFAC" subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON
STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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Per Share................... $ $ $
Total(3).................... $ $ $
================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
277,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , Underwriting Discount will total
$ and Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices of
Montgomery Securities on or about , 1996.
------------------------
MONTGOMERY SECURITIES
, 1996
<PAGE> 4
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The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements each fiscal year.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. For purposes of this Prospectus, unless otherwise
indicated or the context otherwise requires, (i) the "Company" refers to Central
Financial Acceptance Corporation, its predecessors and its wholly-owned
subsidiaries, and (ii) the information herein (a) assumes that the Company has
been in existence and the Reorganization (as defined below) was consummated
concurrently with the 1991 Acquisition (as defined below) and (b) assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing Hispanic segment of the population
that cannot secure credit through traditional lending sources. The Company's
customers are primarily low income Hispanics, a market the Company believes is
underserved. The Company (i) purchases and services consumer finance receivables
generated by the Company's customers for purchases of high quality brand name
consumer products, appliances and furniture sold by Banner's Central Electric,
Inc. ("Banner"), (ii) originates and services consumer finance receivables
generated by the Company's customers for purchases of used automobiles and
airline tickets sold by the Company, and (iii) provides other financial services
to its customers such as small loans. During its 40 years of operation, the
Company believes it has established customer loyalty by, among other things,
granting credit on terms comparable to those charged by the Company's
competitors. While the Company operates primarily in greater Los Angeles, the
Company's objective is to become the leading provider of consumer credit and
other financial services to the low income Hispanic population in urban areas in
California and throughout the United States. Because the Company's customers are
primarily low-income consumers, the Company is more susceptible to the risk that
its customers will not be able to satisfy their repayment obligations than are
less specialized consumer finance companies.
Since 1950 Hispanics have been the fastest growing minority group in the
United States, increasing from 4 million in 1950 to approximately 27 million in
1996, a compound annual growth rate of 4.3%, and, according to the 1996 U.S.
Bureau of the Census Current Population Report (the "1996 Report"), this trend
is expected to continue. The 1996 Report projects that the Hispanic population
will total 36 million by 2005 and will double its 1995 size to almost 53 million
by 2020. Based upon United States Census Bureau data, the Center for Continuing
Study of the California Economy states in its 1995 report (the "CCSCE Report")
that California is home to the largest Hispanic population in the United States
and that this population is estimated to grow from 9.4 million in 1995 to 13
million by 2005 and to 15 million by 2010, at which time it will comprise over
36% of California's total population.
Recognizing these demographic trends, in 1991 current management acquired
the operations of Banner (the "1991 Acquisition") through Banner Holdings, Inc.
("Holdings"), the sole shareholder of Banner. At the time of the 1991
Acquisition, Banner operated a retail business and a consumer credit business at
a single location in downtown Los Angeles. The retail business consisted of the
sale of consumer products, appliances and furniture, while the consumer credit
business offered Banner's customers financing and related credit insurance for
the merchandise it sold. Holdings' strategy since the 1991 Acquisition has been
to identify new financial products and services that Holdings believes could be
introduced successfully to the low income Hispanic population in urban areas in
California and throughout the United States. Since 1991, Holdings has grown
primarily as a result of the introduction of such financial products and
services and increased pricing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Segment Data -- Analysis of
Changes in Net Interest Income." Holdings' most significant growth has occurred
as a result of the introduction of unsecured small loans in the fourth quarter
of 1992, a product which the Company believes offers significant growth
potential. At March 31, 1996, Holdings had 59,000 small loan accounts
outstanding compared to 55,000, 26,000 and 11,000 at December 31, 1995, 1994 and
1993, respectively. In 1995, Holdings also began offering company-financed sales
of used automobiles and airline tickets. In addition, since 1991, Holdings has
expanded Banner's retail business to six retail stores in greater Los Angeles
and one store in San Francisco. At March 31, 1996, the net carrying value of the
Company's receivable portfolio was $89.9 million, consisting of $51.6 million in
the portfolio of consumer product contracts (the
3
<PAGE> 6
"Consumer Product Portfolio"), $30.0 million in the portfolio of loan contracts
(the "Small Loan Portfolio"), $5.3 million in the portfolio of automobile
finance contracts (the "Automobile Finance Portfolio") and $3.0 million in the
portfolio of travel finance contracts (the "Travel Finance Portfolio").
As a result of completing the initial steps of its business strategy, total
revenues and interest income from October 31, 1992 to December 31, 1995 have
grown at an annual rate of 87.4% and 73.7%, respectively, while net income has
grown at an annual rate of 149.4% during the same period.
Because each of Holdings' businesses have different performance
characteristics and future prospects, Holdings created the Company as a
subsidiary of Banner to enable the businesses to pursue independent growth
strategies (the "Reorganization"). Pursuant to a Reorganization Agreement,
Holdings contributed to Banner its investments in its subsidiaries that operate
the small loan, used automobile, travel, and related businesses (the "Holdings
Subsidiaries"), and Banner contributed to the Company its investments in the
Holdings Subsidiaries and in its subsidiary that holds the Consumer Product
Portfolio (collectively, the "Subsidiaries"). Banner retained the operations of
its retail business and certain other assets and liabilities. Pursuant to a
Financing Agreement, Banner granted the Company, at the Company's option, for a
period of 15 years from the Reorganization, the exclusive right to purchase
consumer finance receivables originated by Banner for merchandise sold at Banner
locations, or to directly originate such receivables. Pursuant to an Option
Agreement, Holdings granted the Company an option to purchase, payable in cash
or Common Stock, all of the outstanding capital stock of Banner for a period of
two years beginning one year from the Reorganization at a purchase price equal
to Banner's net book value. The Company, Banner and Holdings entered into an
Operating Agreement pursuant to which Holdings and its wholly-owned subsidiaries
agreed, until the earlier of December 31, 2002 or the date on which Holdings
ceases to own 25% of the outstanding voting stock of the Company, not to compete
with the Company in connection with the financing of consumer products, travel
products, small loans, automobiles or insurance. The Operating Agreement also
provides that Banner, Holdings or their affiliates will provide to the Company
certain services, including accounting, management information systems, employee
benefits, legal, insurance, purchasing and advertising. Except for management
information services, such services may be terminated upon one-year's prior
written notice by any party. See "The Reorganization and Certain Relationships
and Agreements among the Company, Banner, Holdings and Other Affiliates."
To continue its growth, the Company intends to (i) open additional finance
centers through which it can offer small loans, airline tickets and other
financial products and services the Company may introduce in the future, (ii)
open additional used automobiles locations, (iii) introduce an expanded range of
financial products and services available to all segments of the population but
which will be tailored to meet the needs of the low income Hispanic population,
(iv) expand the Company's unaffiliated retailer installment finance business,
and (v) selectively acquire existing businesses that the Company believes will
complement or expand its current offering of financial products and services.
See "-- Recent Developments."
RECENT DEVELOPMENTS
In May 1996, the Company acquired the business of and assumed the leasehold
interests to six travel locations in greater Los Angeles. In addition, in June
1996, the Company acquired the business of and assumed the leasehold interests
to 19 travel locations with 14 locations in greater Los Angeles, two locations
in Chicago and one location each in Dallas, Las Vegas and San Diego. Although
such transactions are not material from a financial point of view, the Company
believes each new location will provide the Company with an additional center
through which it can offer its financial products and services, including travel
finance, small loans, and the financing of automobile insurance premiums, which
the Company anticipates offering to its customers beginning in July 1996.
In April 1996, the Company opened its second automobile sales facility in
greater Los Angeles.
The Company's principal executive offices are located at 5480 Ferguson
Drive, Commerce, California, 90022, and its telephone number is (213) 720-8600.
4
<PAGE> 7
THE OFFERING
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Common Stock offered hereby.................. 1,850,000 shares
Common Stock to be outstanding
after the Offering......................... 7,000,000 shares
Use of Proceeds.............................. The net proceeds of the Offering will be used
for repayment of indebtedness, working
capital, general corporate purposes and the
expansion of the Company's business,
including possible future acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbol................ "CFAC"
</TABLE>
SUMMARY SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO
MONTHS THREE MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DEC. 31, DECEMBER 31, MARCH 31,
------------------------------------- -------- --------------------------- -----------------
1991(1) 1992 1993 1994 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- ------- ------- ------- -------
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STATEMENTS OF INCOME DATA:
Revenues:
Consumer Product Portfolio
interest income......... $4,482 $ 8,145 $ 9,010 $11,444 $2,057 $ 9,420 $11,787 $12,508 $ 2,955 $ 3,205
Small Loan Portfolio
interest income......... -- -- 134 672 439 188 1,057 5,095 1,009 2,093
Automobile sales.......... -- -- -- -- -- -- -- 4,417 -- 2,038
Transaction fees on
contracts purchased from
related party........... 392 747 830 844 150 829 857 916 229 227
Other income(2)........... 652 1,253 1,457 1,756 416 1,445 1,868 3,653 654 1,722
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Total Revenues...... 5,526 10,145 11,431 14,716 3,062 11,882 15,569 26,589 4,847 9,285
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Costs and Expenses:
Operating expenses........ 1,980 3,986 4,519 5,009 1,025 4,461 5,170 8,150 1,522 2,504
Cost of automobiles
sold.................... -- -- -- -- -- -- -- 3,071 -- 1,355
Provision for credit
losses.................. 878 2,654 3,264 3,002 1,617 3,447 3,923 5,859 1,106 2,347
Interest expense.......... 1,776 2,306 2,279 2,523 617 2,235 2,801 4,278 1,075 1,241
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Income before taxes......... 892 1,199 1,369 4,182 (197) 1,739 3,675 5,231 1,144 1,838
Income tax expense.......... 371 503 572 1,694 (74) 727 1,493 2,112 465 735
------ ------- ------- ------- ------ ------- ------- ------- ------- -------
Net income.................. $ 521 $ 696 $ 797 $ 2,488 $ (123) $ 1,012 $ 2,182 $ 3,119 $ 679 $ 1,103
====== ======= ======= ======= ====== ======= ======= ======= ======= =======
Pro forma net income per
share(3).................. $ 0.61 $ 0.21
======= =======
Supplementary net income per
share(4).................. $ 0.58 $ 0.19
======= =======
</TABLE>
5
<PAGE> 8
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AT MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(5)
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BALANCE SHEET DATA:
Cash.................................................................................... $ 133 $ 500
Installment Credit Portfolio............................................................ 59,896 59,896
Small Loan Portfolio.................................................................... 30,002 30,002
Total assets............................................................................ 97,331 97,698
Total debt.............................................................................. 61,329 41,483
Stockholder's equity.................................................................... 33,532 53,745
</TABLE>
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(1) Reflects operations for the seven months ended October 31, 1991, which was
the first fiscal period of the Company's operations subsequent to the 1991
Acquisition.
(2) Includes administrative fees charged on certain small loan contracts and,
beginning in 1995, interest earned on the Automobile Finance Portfolio and
Travel Finance Portfolio and net revenues from the sales of airline tickets.
The Consumer Product Portfolio, Automobile Finance Portfolio and Travel
Finance Portfolio are hereinafter collectively referred to as the
"Installment Credit Portfolio."
(3) Pro forma net income per share is based on 5,150,000 shares of Common Stock
issued by the Company pursuant to the Reorganization that are assumed to be
outstanding as of January 1, 1995.
(4) Supplementary net income per share is based on 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 1,850,000
shares of Common Stock to be sold by the Company pursuant to the Offering as
if all such shares were outstanding as of January 1, 1995, and also gives
effect to a reduction in interest expense resulting from the reduction of
indebtedness upon application of the estimated net proceeds of the Offering
as if it had occurred on January 1, 1995.
(5) Adjusted to reflect the sale of Common Stock offered hereby, an assumed
capital contribution by Banner of $367,000 pursuant to the Reorganization,
and the application of the estimated net proceeds therefrom as set forth
under "Use of Proceeds."
CONSUMER PRODUCT PORTFOLIO
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YEARS ENDED YEARS ENDED THREE MONTHS
OCTOBER 31, DECEMBER 31, ENDED MARCH 31,
----------------- --------------------------- -----------------
1992 1993 1993 1994 1995 1995 1996
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OPERATING DATA:
Gross receivable
(at end of period)............ $54,038 $57,250 $60,590 $67,514 $67,811 $63,466 $63,069
Deferred interest
(at end of period)............ 6,354 7,028 7,657 7,603 7,796 6,937 7,203
------- ------- ------- ------- ------- ------- -------
Net receivable (at end of
period)....................... $47,684 $50,222 $52,933 $59,911 $60,015 $56,529 $55,866
======= ======= ======= ======= ======= ======= =======
Average net receivable(1)....... $46,690 $51,907 $52,456 $53,656 $57,276 $58,214 $57,810
Provision for credit losses as a
percentage of average net
receivable.................... 5.7% 6.2% 6.4% 6.2% 6.7% 5.7% 8.2%
Net write-off's as a percentage
of average net receivable..... 3.6% 5.5% 5.5% 5.5% 5.8% 4.7% 6.4%
Net Interest Spread(2).......... 10.4% 11.1% 11.8% 15.1% 13.5% 12.1% 14.2%
</TABLE>
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SMALL LOAN PORTFOLIO
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<CAPTION>
YEAR YEARS ENDED THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
OCTOBER 31, -------------------------- -----------------
1993(3) 1993 1994 1995 1995 1996
----------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gross receivable (at end of period)..... $ 705 $4,314 $16,735 $37,868 $18,267 $35,678
Deferred interest (at end of period).... 26 241 1,809 4,187 1,772 3,491
----- ------ ------- ------- ------- -------
Net receivable (at end of period)....... $ 679 $4,073 $14,926 $33,681 $16,495 $32,187
===== ====== ======= ======= ======= =======
Average net receivable(1)............... $ 850 $1,131 $ 5,662 $20,219 $15,764 $33,335
Provision for credit losses as a
percentage of average net receivable.. 8.5% 9.5% 10.4% 7.7% 7.1% 10.8%
Net write-off's as a percentage of
average net receivable................ 0.0% 0.0% 2.7% 4.4% 2.2% 5.8%
Net Interest Spread(2).................. 15.8% 10.6% 11.7% 17.2% 16.8% 17.1%
</TABLE>
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(1) Average net receivable is based upon the net receivable outstanding on the
last day of each month for the respective period.
(2) Reflects the difference between the average interest rate on average net
receivable and the average interest rate on interest bearing liabilities
(the "Net Interest Spread").
(3) The Company commenced its small loan business in December 1992.
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering Company-financed sales of used automobiles in
mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Automobile Finance Portfolio was $5.5 million and $7.7
million, the net receivable of the portfolio was $4.2 million and $5.8 million,
and the allowance for credit losses as a percentage of the net receivable was
9.8% and 9.3%. No write-offs were charged against the allowance for credit
losses in the year ended December 31, 1995. Write-off's of $60,000 were charged
against the allowance for credit losses in the three months ended March 31,
1996. Due to the size and lack of seasoning of this portfolio, there can be no
assurance that the Company's experience to date with the Automobile Finance
Portfolio is indicative of future results of this portfolio.
TRAVEL FINANCE PORTFOLIO
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Travel Finance Portfolio was $3.0 million and $3.4 million,
the net receivable of the portfolio was $2.7 million and $3.1 million, and the
allowance for credit losses as a percentage of the net receivable was 1.8% and
2.3%. No write-offs were charged against the allowance for credit losses in the
year ended December 31, 1995. Write-off's of $43,000 were charged against the
allowance for credit losses in the three months ended March 31, 1996. The
Company expects that write-off's in the Travel Finance Portfolio will
approximate those experienced by the Company in the Consumer Product Portfolio.
Due to the size and lack of seasoning of this portfolio, there can be no
assurance that the Company's experience to date with its Travel Finance
Portfolio is indicative of future results of this portfolio.
7
<PAGE> 10
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective purchasers should carefully consider the following
risk factors, among others, in evaluating an investment in the Common Stock
offered hereby.
CREDIT RISK ASSOCIATED WITH CUSTOMERS; LACK OF COLLATERAL
Because the Company's customers typically are low-income consumers who have
little or no savings, the Company is subject to various risks associated with
these customers, including, but not limited to, the risk that the customers will
not be able to satisfy their repayment obligations. The Company's risk in this
regard may be greater than experienced by other consumer finance companies
generally, since many of the Company's customers have no prior credit history on
which the Company may rely. In addition, because the Company relies on the
creditworthiness of its customers for repayment and does not rely on collateral
securing the debt (other than in the Automobile Finance Portfolio), the Company
may experience actual rates of losses higher than lenders who have collateral
which they can repossess in the event of a borrower's default. For information
concerning the Company's credit quality experience, see "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Segment
Data -- Credit Quality."
CONCENTRATION OF CONSUMER PRODUCT PORTFOLIO WITH BANNER'S CUSTOMERS
Substantially all of the Consumer Product Portfolio consists of receivables
generated through the financing of products sold by Banner. At March 31, 1996,
the Consumer Product Portfolio accounted for 57.5% of the Company's gross
receivable portfolio. The performance of the Consumer Product Portfolio is
therefore dependent upon the success of Banner's installment credit stores.
Although the Company has commenced a program as part of its business strategy to
expand its installment credit business to other retailers, Banner's customers
will continue to account for a large majority of the Company's Consumer Product
Portfolio for the foreseeable future. There can be no assurance that the Company
will be able to successfully expand its installment credit finance business to
other retailers.
GENERAL ECONOMIC RISK
The risks associated with the Company's business become more significant in
an economic slowdown or recession. During periods of economic slowdown or
recession, the Company has experienced and may again experience a decreased
demand for its financial products and services and an increase in rates of
delinquencies and the frequency and severity of losses. The actual rates of
delinquencies and frequency and severity of losses experienced by the Company
have in the past and may in the future be higher under adverse economic
conditions than those experienced in the consumer finance industry generally.
Any sustained period of economic slowdown or recession could materially
adversely affect the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Segment Data -- Financial Trends," and "-- Credit Quality."
DEPENDENCE ON CALIFORNIA MARKET
Substantially all of the Company's facilities are located, and
substantially all of the Company's revenues are generated in California,
primarily in greater Los Angeles. The Company's performance is therefore
dependent upon economic conditions in California and may be further affected by
adverse social factors or natural disasters in California. California has
experienced adverse economic conditions over the last several years. A further
decline in the California economy could have a material adverse effect on the
Company's results of operations and financial condition.
NEED FOR ADDITIONAL FINANCING
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof.
Principally, the Company funds its lending activities and operations with
borrowings under a $60 million line of credit with Bank of America National
Trust and Savings Association (the "Bank of America Line of Credit") and a $30
million line of credit with Wells Fargo Bank, National Association (the "Wells
Fargo Line of Credit" and, together with the Bank of America Line of Credit, the
"Lines of Credit"). Borrowings under the Bank of America Line of Credit may be
used to finance only the Company's consumer product finance
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business. The amount of credit available at any one time under the Bank of
America Line of Credit is limited to 75% of eligible contracts in the Company's
Consumer Product Portfolio. As of March 31, 1996, the total amount available to
the Company under the Bank of America Line of Credit was $38.5 million, all of
which was outstanding. The Bank of America Line of Credit was amended and
restated as of April 29, 1996 and expires on August 30, 1996. Borrowings under
the Wells Fargo Line of Credit may be used to finance only the Company's travel
finance, auto finance and small loan businesses. The amount of credit available
at any one time under the Wells Fargo Line of Credit is limited to 70% of
eligible contracts in the Small Loan, Automobile Finance and Travel Finance
Portfolios. As of March 31, 1996, the total amount available to the Company
under the Wells Fargo Line of Credit was $27.9 million, of which $22.0 million
was outstanding. The Wells Fargo Line of Credit expires on July 1, 1996. The
Company is currently in discussions with Bank of America and Wells Fargo with
respect to the renewal of such Lines of Credit. The Company believes it will be
able to renew both of its Lines of Credit. However, there can be no assurance
that the Company will be able to renew such Lines of Credit, that the Company
will have access to additional financing sources necessary to sustain its
operations and its growth plans or that such financing will be available to the
Company on favorable terms. See "Use of Proceeds."
The Lines of Credit contain certain restrictive covenants that require,
among other things, the maintenance of certain financial ratios and amounts. The
Company is required to maintain specified levels of tangible net worth and cash
flow to interest coverage ratios, and cannot exceed specified ratios of debt to
tangible net worth, as such terms are defined in the Lines of Credit. Other
ratios must be maintained related to the performance of the Company's Combined
Receivable Portfolio. At March 31, 1996, the Company was in compliance with such
restrictive covenants in the Lines of Credit.
The Company may securitize all or portions of its Consumer Product
Portfolio, Small Loan Portfolio, Travel Finance Portfolio or Automobile Finance
Portfolio when it generates sufficient volume of such receivables.
Securitization would increase the Company's liquidity and reduce its reliance on
its Lines of Credit. However, the Company has never consummated a securitization
transaction, and the securitization markets for many of the Company's
receivables are limited. Accordingly, there can be no assurance that the Company
will successfully implement a securitization program.
The net proceeds of the Offering are expected to meet the Company's
liquidity requirements for more than 12 months if the Company were to maintain
its operations at current levels. However, the Company will need to arrange for
additional bank borrowings or additional debt or equity financing as it
continues to grow. There is no assurance that the Company will be able to obtain
additional financing on acceptable terms, and any such unavailability could have
a material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources."
INTEREST RATE RISK
The Company's profitability is determined, in part, by its Net Interest
Spread. Because the Company pays a floating rate of interest on borrowings under
its Lines of Credit and has elected not to hedge its interest rate risk,
increases in such interest rates have at times decreased, and in the future may
decrease, the Company's Net Interest Spread and have a material adverse effect
on the Company's results of operations and financial condition. The rate of
interest the Company is allowed to charge its customers on its small loans is
limited under California law, and the Company presently charges the maximum rate
permitted by law in California. There is no corresponding interest rate
limitation on installment credit sales. Increases in the rate of interest the
Company charges to its customers could reduce demand for Banner's products and
the Company's financial products and services which could decrease the Company's
net income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and "Business -- Regulation."
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ABILITY OF THE COMPANY TO EXECUTE ITS BUSINESS STRATEGY
The financial performance of the Company will depend, in part, on the
Company's ability to open and/or acquire additional locations on favorable
terms, to generate satisfactory performance or enhance performance at such
locations, to integrate new locations into the Company's operations, and to
enter into arrangements with additional third-party retailers. The Company may
compete for expansion and acquisition opportunities with companies that have
significantly greater financial and other resources than the Company. There can
be no assurance that the Company will be able to locate suitable new locations
or acquisition candidates, or that any operations that may be opened or acquired
will be effectively and profitably integrated into the Company's existing
operations. New location openings and acquisitions may negatively impact the
Company's operating results, particularly during the periods immediately
following an opening or acquisition. In addition, there can be no assurance that
the Company's business strategy will be implemented profitably in geographic
areas that the Company does not currently serve.
The Company's financial performance will also depend, in part, on the
Company's ability to manage its growing Small Loan Portfolio, Automobile Finance
Portfolio and Travel Finance Portfolio and the Company's ability to successfully
introduce additional financial products and services. There can be no assurance
that additional financial products and services will be introduced or, if
introduced, that such financial products and services will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
COMPETITION
The installment finance credit business is highly competitive. The Company,
through its relationship with Banner and other retailers, competes with
department stores, discount stores and other retail outlets which also provide
credit to low income consumers. The largest national and regional competitors
have significantly greater resources than the Company. Competition may arise
from new sources having the expertise and resources to enter the Company's
markets either through expansion of operations or acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry of any such
company within the Company's markets could have a material adverse effect on the
Company's business strategy and results of operations and financial condition.
IMPACT OF GOVERNMENT REGULATION
The operations of the Company are subject to regulation by federal, state
and local government authorities and are subject to various laws and judicial
and administrative decisions imposing various requirements and restrictions,
including, among other things, regulating credit granting activities,
establishing maximum interest rates, and charges, requiring disclosures to
customers, governing secured transactions and setting collection, repossession
and claims handling procedures and other trade practices. Although the Company
believes that it is in compliance in all material respects with applicable
local, state and federal laws, rules and regulations, there can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future which may make compliance more difficult or expensive, restrict the
Company's ability to purchase or finance installment sales or small loans,
further limit or restrict the amount of interest and other charges imposed in
installment sales or small loans originated by third-party retailers or the
Company, or otherwise materially adversely affect the business or prospects of
the Company. See "Business -- Government Regulation."
SEASONAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The highest demand for the Company's financial products and services occurs
from October through December and the lowest demand for the Company's financial
products and services occurs from January through March. Consequently, the
Company experiences significant seasonal fluctuations in its business and in
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<PAGE> 13
its operating results and cash needs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quarterly Information and
Seasonality."
CONCENTRATION OF VOTING CONTROL
After completion of the Offering, Banner will beneficially own or otherwise
control an aggregate of approximately 73.6% of the outstanding Common Stock of
the Company (approximately 70.8% if the Underwriters' over-allotment option is
exercised in full). As such, Banner will be able to elect the entire Board of
Directors, adopt amendments to the Company's Certificate of Incorporation or
effect a merger, sale of assets, or other fundamental corporate transaction
without the approval of the Company's other stockholders. Banner will be able to
control the direction and future operations of the Company, including decisions
regarding the issuance of additional shares of Common Stock and other
securities. As long as Banner is a majority stockholder of the Company, it will
be impossible for third parties to obtain control of the Company through
purchases of Common Stock not beneficially owned or otherwise controlled by
Banner. See "-- Relationships with Holdings, Banner and Affiliates; Potential
Conflicts of Interest," "The Reorganization and Certain Relationships and
Agreements among the Company, Banner, Holdings and Other Affiliates,"
"Management," "Description of Capital Stock," "Principal Shareholders" and
"Shares Eligible for Future Sale."
RELATIONSHIPS WITH HOLDINGS, BANNER AND AFFILIATES; POTENTIAL CONFLICTS OF
INTEREST
Gary M. Cypres, the Company's Chairman of the Board, Chief Executive
Officer and President, is the Chairman of the Board, Chief Executive Officer,
Chief Financial Officer and President of Holdings and Banner. Holdings is
controlled by West Coast Private Equity Partners, L.P. ("West Coast"), of which
Mr. Cypres is the managing general partner. Mr. Cypres, through West Coast,
Holdings and Banner controls the Company. West Coast and Mr. Cypres may have
conflicts of interest with respect to transactions concerning the Company and
its affiliates. West Coast, through Holdings, has controlling interests in two
companies other than the Company, Banner and Central Rents Holdings, Inc., which
may from time to time have divergent interests. Banner owns and operates six
installment credit stores in greater Los Angeles and one installment credit
store in San Francisco. Central Rents Holdings, Inc., and its wholly-owned
subsidiary, Central Rents, Inc. ("Central Rents"), owns and operates 167
rental-purchase stores in 20 states which rent a broad range of consumer
products, including electronics, appliances and furniture. Central Rents
operates 19 rental-purchase stores in Southern California and 27 rental-purchase
stores in Northern California.
Prior to the consummation of the Offering, the Company, Banner and Holdings
intend to enter into certain agreements to set forth the ongoing relationships
among them. None of these agreements will be entered into as a result of
arms-length negotiations. There can be no assurance that any of these agreements
will be effected on terms comparable to those that would have resulted from
negotiations among unaffiliated parties. Additional or modified agreements,
arrangements and transactions may be entered into by the Company, Banner and
Holdings and their respective subsidiaries after the consummation of the
Offering. Any such future agreements, arrangements or transactions will be
determined through negotiations between the Company, Banner and Holdings or
their respective subsidiaries, as the case may be. See "-- Concentration of
Voting Control."
Prior to the Offering, Mr. Cypres rendered services to the Company through
a consulting agreement between Holdings and G.M. Cypres & Co., Inc., a Delaware
corporation wholly-owned by Mr. Cypres ("G.M. Cypres & Co."). Concurrent with
the Offering, Mr. Cypres will enter into a five year employment agreement with
the Company pursuant to which Mr. Cypres will act as Chairman of the Board,
Chief Executive Officer and President of the Company. In such capacities, Mr.
Cypres will spend that portion of his business time as is required to oversee
the operations of the Company and to formulate and direct the implementation of
the Company's business strategies. Mr. Cypres will continue to spend a portion
of his business time as the managing general partner of West Coast, as Chairman
of the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings, as Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and President of Banner, and as Chairman of the Board and CEO of Central
Rents. See "-- Concentration of
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Voting Control," "The Reorganization and Certain Relationships and Agreements
among the Company, Banner, Holdings and Other Affiliates" and "Management."
DEPENDENCE UPON KEY PERSONNEL
The success of the Company will be highly dependent on certain members of
its senior management, particularly Mr. Cypres, the Company's Chairman of the
Board, Chief Executive Officer and President. Loss of the services of any such
individuals could have a material adverse effect on the Company's business and
financial condition. The Company does not maintain key man life insurance. See
"Management" and "The Reorganization and Certain Relationships and Agreements
among the Company, Banner, Holdings and Other Affiliates."
SHARES AVAILABLE FOR FUTURE SALE
The 1,850,000 shares of Common Stock sold in the Offering will be freely
tradeable by persons other than "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), without restriction under the Securities Act. Upon
consummation of the Offering, approximately 73.6% of the outstanding shares of
Common Stock will be beneficially owned or otherwise controlled by Banner, and
all of such shares are "restricted securities" within the meaning of Rules 144
and 144A under the Securities Act. Banner will own 5,150,000 shares of Common
Stock upon completion of the Offering. Banner has agreed not to sell any shares
owned by it for 180 days following completion of the Offering without the prior
written consent of the Underwriters. Upon the expiration of the aforementioned
180-day period, Banner may be able to sell all or a portion of its shares
without registration under the Securities Act pursuant to Rules 144 and 144A
promulgated thereunder. Sale of substantial numbers of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
IMMEDIATE DILUTION
Based upon an assumed initial public offering price of $12.00 per share,
purchasers of the Common Stock offered hereby will experience immediate dilution
in the net tangible book value of the Common Stock in the amount of $4.52 per
share. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained or that the Common Stock can be resold at or above the initial public
offering price. The initial public offering price of the Common Stock will be
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Stock after the Offering. The
market value of the Common Stock could be substantially affected by general
market conditions, including changes in interest rates. Moreover, numerous other
factors, such as government regulatory action, could have a significant impact
on the future market price of the Common Stock. See "Underwriting."
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<PAGE> 15
THE REORGANIZATION AND CERTAIN RELATIONSHIPS AND
AGREEMENTS AMONG THE COMPANY,
BANNER, HOLDINGS AND OTHER AFFILIATES
INTRODUCTION; REORGANIZATION
The Company was formed as a wholly-owned subsidiary of Banner on April 11,
1996. The Company, Banner and Holdings have entered into an agreement (the
"Reorganization Agreement") pursuant to which on June , 1996, Holdings
contributed to Banner its investments in its subsidiaries that operate the small
loan, automobile sales, travel, and related businesses (the "Holdings
Subsidiaries"), and Banner contributed to the Company its investments in the
Holdings Subsidiaries and in its subsidiary that holds the Consumer Product
Portfolio (collectively, the "Subsidiaries") and cash in such amount so as to
leave the Company with $500,000 on hand upon the Reorganization. Pursuant to the
Reorganization Agreement, the intercompany accounts between the Company, Banner
and Holdings have been forgiven, except with respect to income taxes. As a
result, the Company had $500,000 of cash on hand upon the Reorganization.
In connection with the Reorganization and pursuant to the Reorganization
Agreement, the Company, Banner and Holdings entered into various agreements for
the purpose of defining the ongoing relationships among them. Because Holdings
controls the Company and Banner (see "-- Certain Relationships"), these
agreements were not the result of arm's-length negotiations. The Company
believes, however, that these agreements are at least as favorable to the
Company as those that could have been obtained from unaffiliated third parties.
The following is a summary of the material terms of the agreements, and it and
the limited summary of the Reorganization Agreement set forth above are
qualified in their entirety by reference to the complete agreements which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. See Notes 1 and 11 to the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
FINANCING AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Financing Agreement") pursuant to which Banner granted the Company the
exclusive right, at the Company's option, (i) to purchase consumer finance
receivables originated by Banner for sales of merchandise at Banner stores in
operation on the date of the Financing Agreement and for all stores which Banner
may determine to open in the future during the term of the Financing Agreement
(and any extension thereof), or (ii) to provide financing directly to Banner's
customers at all of such locations. The Company is not obligated to provide
financing to any particular Banner customer, or to offer financing at any Banner
location or locations.
The Financing Agreement has a term of 15 years commencing on the date of
the Reorganization. The Company may terminate the Financing Agreement at any
time upon one year's prior written notice to Banner.
During the term of the Financing Agreement, as long as Banner originates
its consumer finance receivables, the Company will have the right to purchase
consumer finance receivables at face value less a 1.6% transaction fee, or, if
the Company originates such receivables, Banner will be obligated to pay the
Company a fee equal to 1.6% of the face value of each such receivable.
Recognizing the value to Banner of the Company continuing to provide certain
financial products and services, including check cashing, travel and small
loans, in Banner's retail locations, the space the Company occupies in Banner's
locations is provided by Banner at no cost or charge to the Company.
OPTION AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Option Agreement") pursuant to which Holdings granted the Company an option to
purchase all of the outstanding capital stock of Banner (the "Option") from
Holdings at any time during the period commencing on the first anniversary of
the date of the Reorganization and ending on the third anniversary thereof (the
"Option Termination Date"). The exercise price of the Option will be equal to
the net book value of Banner as reflected on Banner's balance sheet for the
month ended immediately preceding the exercise of the Option; such balance sheet
shall have been prepared in accordance with generally accepted accounting
principles on a basis consistent with prior
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<PAGE> 16
periods. If the Company exercises the Option, the exercise price is payable in
cash or in shares of Common Stock valued at the average last sale price of the
Company's Common Stock during the ten trading-day period preceding the date on
which the Company delivers to Holdings its written notice of exercise. Until the
Option Termination Date, Holdings may not, without the Company's prior written
consent, sell, offer or agree to sell, grant any option for the sale of, or
otherwise dispose of any of the capital stock of Banner (or any securities
convertible into, exercisable for or exchangeable for capital stock of Banner)
nor will Banner sell substantially all of its assets.
OPERATING AGREEMENT
The Company, Banner and Holdings have entered into an agreement (the
"Operating Agreement") setting forth certain rights and obligations of the
parties following the Reorganization. The Operating Agreement covers the
following matters:
Allocation of Business Opportunities. Due to the potential conflicts of
interest resulting from the relationships among the Company, Banner and Holdings
(see "-- Certain Relationships" below), the Operating Agreement provides that
Holdings and its subsidiaries (other than the Company and its subsidiaries) will
not, without the prior written consent of the Company, directly or indirectly
engage in or enter into any business competing with the Company and involving
the financing of consumer products, travel products, small loans, automobiles or
insurance (the "Restricted Businesses"). If Holdings shall acquire a company
engaged in a Restricted Business or shall otherwise directly or indirectly
engage in a Restricted Business, Holdings shall be obligated to sell, at the
election of the Company, such Restricted Business to the Company at a purchase
price equal to the fair market value of such Restricted Business, as determined
through an independent appraisal process. The foregoing restriction shall
terminate on December 31, 2002, or, if earlier, on the date on which Holdings
ceases to own, directly or indirectly, at least 25% of the outstanding voting
stock of the Company.
Management and Other Services. The Operating Agreement provides that
Banner, Holdings or their affiliates are obligated to provide to the Company,
and the Company is obligated to utilize, certain services, including accounting,
management information systems, employee benefits, legal, insurance, purchasing
and advertising. Except for management information systems, these arrangements
will continue until terminated by the Company, Banner, Holdings or such
affiliate upon one-year's prior written notice. Termination may be made on a
service-by-service basis or in its entirety. For the foregoing and other
services provided by Banner, Holdings or such affiliated company, and to the
extent that such services directly relate to the business of the Company, the
Company is obligated to pay Banner, Holdings or such affiliate its actual cost
of providing the same. If such services involve an allocation of expenses, such
allocation shall be determined on the basis of its percentage utilization of
such service or management's best estimate thereof. With respect to management
information systems operations and expenses, Banner and the Company agree to
allocate 50% of such expenses each to Banner and the Company for a period of
five years, subject to adjustment from time to time to reflect changing costs
and usage.
Employee Benefits. The Operating Agreement provides that the Company will
assume all liabilities of Banner, Holdings and the Subsidiaries under existing
employee welfare benefit and profit sharing plans with respect to the employees
of Banner, Holdings and the Subsidiaries who have become employees of the
Company. The Operating Agreement also provides that the employment by the
Company of individuals who were employees of Banner, Holdings and the
Subsidiaries prior to the Reorganization will not be deemed a severance of
employment from Banner, Holdings and the Subsidiaries for purposes of any
policy, plan, program or agreement that provides for the payment of severance,
salary continuation or similar benefits.
TAX SHARING AGREEMENT
The Company, Holdings and Banner have entered into an agreement (the "Tax
Sharing Agreement") providing for (i) the payment of federal, state and other
income tax remittances or refunds for periods during which the Company and
Holdings were included in the same consolidated group for federal income tax
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<PAGE> 17
purposes, (ii) the allocation of responsibility for the filing of such tax
returns, (iii) the conduct of tax audits and the handling of tax controversies
and (iv) various related matters. For periods during which the Company was
included in Holdings' consolidated federal income tax returns, the Company will
be required to pay Holdings its allocable portion of the consolidated federal,
state and other income tax liabilities and will be entitled to receive refunds
determined as if the Company and its subsidiaries had filed separate income tax
returns. With respect to Holdings' liability for payment of taxes for all
periods during which the Company was so included in Holdings' consolidated
federal income tax returns, the Company will indemnify Holdings for all federal,
state and other income tax liabilities for such periods. The date of the
consummation of the Offering will be the last day on which the Company is
required to be included in Holdings' consolidated federal income tax returns.
INDEMNIFICATION AGREEMENTS
The Company, Holdings and Banner have entered into an indemnification
agreement (the "Indemnification Agreement") under which the Company will
indemnify and hold harmless Holdings and Banner with respect to any and all
claims, losses, damages, liabilities, costs and expenses (except when arising
from Holdings' or Banner's intentional misconduct or gross negligence or to the
extent any liability arises from a breach by Banner of its fiduciary duty to
other stockholders of the Company) that arise from or are based on the
operations of the business of the Company and its subsidiaries after the date of
the Reorganization. The Company will also indemnify and hold harmless Holdings
and Banner with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on guarantees or undertakings
made by Holdings or Banner to third parties in respect of liabilities or
obligations of the Company, whether or not such obligations arose before or
after the Reorganization. Holdings and Banner will indemnify and hold harmless
the Company with respect to any and all claims, losses, damages, liabilities,
costs and expenses that arise from or are based on the operations of Holdings or
Banner, other than the business of the Company and its subsidiaries, before or
after the date of the Reorganization. The rights of any party under the
Indemnification Agreement are not assignable or transferable without the prior
written consent of the other parties.
The Company and Holdings have also entered into an indemnification
agreement pursuant to which the Company will indemnify and hold harmless
Holdings with respect to any and all claims, losses damages, liabilities, costs
and expenses, including liabilities arising under the Securities Act, that are
incurred by Holdings as a result of the operation of the indemnification or
contribution provisions contained in the underwriting agreement among the
Company, Holdings and the Underwriters. See "Underwriting." The Company has been
informed that, in the opinion of the Securities and Exchange Commission, the
indemnification of officers, directors or persons controlling the Company for
liabilities arising under the Securities Act is against public policy.
OTHER TRANSACTIONS WITH AFFILIATES
Additional or modified agreements, arrangements and transactions may be
entered into by the Company, Banner, Holdings or their respective subsidiaries
after the completion of the Offering. Any such future agreements, arrangements
and transactions will be determined through negotiations between the Company,
Banner, Holdings or their respective subsidiaries, as the case may be. Since the
Company will be controlled by Banner following the Offering, such negotiations
will not be at arm's-length.
CERTAIN RELATIONSHIPS
After completion of the Offering, Banner will beneficially own or otherwise
control an aggregate of approximately 73.6% of the outstanding Common Stock of
the Company (approximately 70.8% if the Underwriters' over-allotment option is
exercised in full). As such, Banner will be able to elect the entire Board of
Directors, adopt amendments to the Company's Certificate of Incorporation, or
effect a merger, sale of assets, or other fundamental corporate transaction
without the approval of the Company's other stockholders. Holdings will be able
to control the direction and future operations of the Company, including
decisions regarding the issuance of additional shares of Common Stock and other
securities. As long as Banner is a
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<PAGE> 18
majority stockholder of the Company, it will be impossible for third parties to
obtain control of the Company through purchases of Common Stock not beneficially
owned or otherwise controlled by Banner.
Mr. Cypres, the Company's Chairman of the Board, Chief Executive Officer
and President, is the Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and President of Holdings and Banner. Holdings is controlled
by West Coast, of which Mr. Cypres is the managing general partner. Mr. Cypres,
through West Coast, Holdings and Banner, controls the Company. West Coast and
Mr. Cypres may have conflicts of interest with respect to transactions
concerning the Company and its affiliates. West Coast, through Holdings, has
controlling interests in two companies other than the Company, Banner and
Central Rents, which may from time to time have divergent interests. Banner owns
and operates six installment credit stores in greater Los Angeles and one
installment credit store in San Francisco. Central Rents owns and operates 167
rental-purchase stores in 20 states which rent a broad range of consumer
products, including electronics, appliances and furniture. Central Rents
operates 19 rental-purchase stores in Southern California and 27 rental-purchase
stores in Northern California.
Prior to the Offering, Mr. Cypres rendered services to the Company through
an agreement between Holdings and G.M. Cypres & Co. Concurrent with the
Offering, Mr. Cypres will enter into a five year employment agreement with the
Company pursuant to which Mr. Cypres will act as Chairman of the Board, Chief
Executive Officer and President of the Company. In such capacities, Mr. Cypres
will spend that portion of his business time as is required to oversee the
operations of the Company and to formulate and direct the implementation of the
Company's business strategies. Mr. Cypres will continue to spend a portion of
his business time as the managing general partner of West Coast, as Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings, as Chairman of the Board, Chief Executive Officer, Chief Financial
Officer and President of Banner, and as Chairman of the Board and President of
Central Rents. See "Risk Factors -- Relationships with Holdings, Banner and
Affiliates; Potential Conflicts of Interest," "Management," "Description of
Capital Stock," "Principal Shareholders" and "Shares Eligible for Future Sale."
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RECENT DEVELOPMENTS
In May 1996, the Company acquired the business of and assumed the leasehold
interests to six travel locations in greater Los Angeles. In addition, in June
1996, the Company acquired the business of and assumed the leasehold interests
to 19 travel locations with 14 locations in greater Los Angeles, two locations
in Chicago and one location each in Dallas, Las Vegas and San Diego. Although
such transactions are not material from a financial point of view, the Company
believes each new location will provide the Company with an additional center
through which it can offer its financial products and services, including travel
finance, small loans and the financing of automobile insurance premiums, which
the Company anticipates offering to its customers beginning in July 1996.
In April 1996, the Company opened its second automobile sales facility in
greater Los Angeles.
USE OF PROCEEDS
Assuming an initial public offering price of $12.00 per share, the net
proceeds to be received by the Company from the issuance and sale of the Common
Stock offered hereby are estimated to be approximately $19,846,000
(approximately $22,937,000 if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and estimated
offering expenses. The net proceeds of the Offering will be used for working
capital and general corporate purposes, primarily to fund the expansion of the
Company's business, including possible future acquisitions. Pending such uses,
the net proceeds of the Offering will be used to pay down indebtedness, on a pro
rata basis, under the Lines of Credit. Outstanding indebtedness under the Bank
of America Line of Credit totalled $38.5 million at March 31, 1996 at a weighted
average interest rate of 7.89% per annum, approximately $36.0 million at May 31,
1996, and is estimated to be approximately $36.0 million at the completion of
the Offering. Outstanding indebtedness under the Wells Fargo Line of Credit
totalled $22.0 million at March 31, 1996 at a weighted average interest rate of
7.71% per annum, approximately $27.2 million at May 31, 1996, and is estimated
to be approximately $29.0 million at the completion of the Offering. See
"Capitalization," "Risk Factors -- Need for Additional Financing," "Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
While the Company regularly considers and evaluates possible acquisition
and other opportunities, it does not have any agreements or understandings with
respect to any such opportunities.
DIVIDEND POLICY
The Company has never paid, and has no present intention of paying, cash
dividends on its Common Stock. The Company anticipates that it will retain all
earnings for use in the Company's business, and the Company does not anticipate
paying cash dividends for the foreseeable future. Any determination in the
future to pay dividends will depend on the Company's financial condition,
capital requirements, results of operations, contractual limitations and any
other factors deemed relevant by the Board of Directors. Under the terms of the
Company's Lines of Credit, the Company is prohibited from paying cash dividends.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to an assumed capital contribution by
Banner of $367,000 pursuant to the Reorganization and the receipt by the Company
of the assumed net proceeds from the sale of the Common Stock offered hereby at
an assumed initial public offering price of $12.00 per share (which is the
midpoint of the filing range set forth on the cover page hereof) and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(1)
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT:
Bank of America Line of Credit(2).................................... $38,529 $25,886
Wells Fargo Line of Credit........................................... 21,950 14,747
Long-term debt....................................................... 850 850
------- -------
Total debt........................................................... 61,329 41,483
------- -------
STOCKHOLDER'S EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no
shares outstanding; no shares outstanding as adjusted............. -- --
Common Stock, $0.01 par value; 20,000,000 shares authorized;
5,150,000 shares outstanding; 7,000,000 shares outstanding as
adjusted.......................................................... 52 70
Additional paid-in capital........................................... 24,879 45,074
Retained earnings.................................................... 8,601 8,601
------- -------
Total stockholder's equity........................................... 33,532 53,745
------- -------
Total capitalization................................................. $94,861 $95,228
======= =======
</TABLE>
- ---------------
(1) Assumes that the estimated net proceeds of $19,846,000 are applied to pay
down, on a pro rata basis, the Lines of Credit.
(2) The Company expects that the outstanding balance under the Bank of America
Line of Credit will be approximately $36.0 million at the closing of the
Offering (approximately $36.0 million at May 31, 1996) and that the
outstanding balance under the Wells Fargo Line of Credit will be
approximately $29.0 million at the closing of the Offering (approximately
$27.2 million at May 31, 1996).
18
<PAGE> 21
DILUTION
The net tangible book value of the Common Stock as of March 31, 1996 was
$32.1 million, or $6.24 per share. Net tangible book value per share represents
the amount of the Company's stockholder's equity, less intangible assets,
divided by the pro forma number of shares of Common Stock outstanding. Dilution
per share represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After (i) giving effect to the sale of the 1,850,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, (ii) an assumed capital contribution by Banner of $367,000
pursuant to the Reorganization and (iii) deducting the underwriting discount and
estimated offering expenses payable by the Company, pro forma net tangible book
value of the Company as of March 31, 1996, would have been $52.4 million, or
$7.48 per share. This represents an immediate increase in pro forma net tangible
book value of $1.24 per share to Banner and an immediate dilution of $4.52 per
share to new investors purchasing Common Stock in the Offering, as illustrated
in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $12.00
Net tangible book value per share before the Offering............. $6.24
Increase in tangible book value per share attributable to New
Investors and capital contribution by Banner................... 1.24
Pro Forma Net tangible book value per share after the Offering...... 7.48
------
Dilution per share to New Investors................................. $ 4.52
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1996
the difference between the existing stockholder and the purchasers of shares in
the Offering with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share, assuming an
initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- ------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Existing stockholder............. 5,150,000 73.6% $25,298 53.3% $ 4.91
New Investors.................... 1,850,000 26.4 22,200 46.7 12.00
--------- ----- ------- -----
Total.................. 7,000,000 100.0% $47,498 100.0%
========= ===== ======= =====
</TABLE>
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1994 and 1995, and
its results of operations for the fiscal years ended October 31, 1993 and 1994,
the two months ended December 31, 1993 and 1994 and the years ended December 31,
1994 and 1995 has been derived from the audited consolidated financial
statements of the Company appearing elsewhere in this Prospectus. This
information should be read in conjunction with such consolidated financial
statements and the notes thereto. The selected financial data with respect to
the Company's consolidated financial position as of October 31, 1993 and 1994
has been derived from the audited consolidated financial statements of the
Company, which are not presented herein. The selected financial data with
respect to the Company's consolidated financial position as of October 31, 1991
and 1992 and March 31, 1996 and its results of operations for the seven months
ended October 31, 1991, the year ended October 31, 1992, the year ended December
31, 1993 and the three months ended March 31, 1995 and 1996 has been derived
from unaudited financial statements, which in the opinion of the Company's
management reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
the unaudited periods. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED TWO MONTHS YEARS ENDED ENDED
OCTOBER 31, ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------------- ------------------ --------------------------- ---------------
1991(1) 1992 1993 1994 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues:
Consumer Product
Portfolio interest
income................ $4,482 $ 8,145 $ 9,010 $11,444 $1,714 $2,057 $ 9,420 $11,787 $12,508 $2,955 $3,205
Small Loan Portfolio
interest income....... -- -- 134 672 54 439 188 1,057 5,095 1,009 2,093
Automobile sales........ -- -- -- -- -- -- -- -- 4,417 -- 2,038
Transaction fees on
contracts purchased
from related party.... 392 747 830 844 137 150 829 857 916 229 227
Other income(2)......... 652 1,253 1,457 1,756 304 416 1,445 1,868 3,653 654 1,722
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Total Revenues........ 5,526 10,145 11,431 14,716 2,209 3,062 11,882 15,569 26,589 4,847 9,285
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Costs and Expenses:
Operating expenses...... 1,980 3,986 4,519 5,009 864 1,025 4,461 5,170 8,150 1,522 2,504
Cost of automobiles
sold.................. -- -- -- -- -- -- -- -- 3,071 -- 1,355
Provision for credit
losses................ 878 2,654 3,264 3,002 696 1,617 3,447 3,923 5,859 1,106 2,347
Interest expense........ 1,776 2,306 2,279 2,523 339 617 2,235 2,801 4,278 1,075 1,241
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Income before taxes..... 892 1,199 1,369 4,182 310 (197) 1,739 3,675 5,231 1,144 1,838
Income tax expense...... 371 503 572 1,694 127 (74) 727 1,493 2,112 465 735
------ ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
Net income.............. $ 521 $ 696 $ 797 $ 2,488 $ 183 $ (123) $ 1,012 $ 2,182 $ 3,119 $ 679 $1,103
====== ======= ======= ======= ====== ====== ======= ======= ======= ====== ======
Pro forma net income
per share(3).......... $ 0.61 $ 0.21
======= ======
Supplementary net income
per share(4).......... $ 0.58 $ 0.19
======= ======
</TABLE>
- ---------------
(1) Reflects operations for the seven months ended October 31, 1991, which was
the first fiscal period of the Company's operations subsequent to the 1991
Acquisition.
20
<PAGE> 23
(2) Includes administrative fees charged on certain small loan contracts and,
beginning in 1995, interest earned on the Automobile Finance Portfolio and
Travel Finance Portfolio and net revenues from the sales of airline tickets.
(3) Pro forma net income per share is based on 5,150,000 shares of Common Stock
issued by the Company pursuant to the Reorganization that are assumed to be
outstanding as of January 1, 1995.
(4) Supplementary net income per share is based on 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 1,850,000
shares of Common Stock to be sold by the Company pursuant to the Offering as
if all such shares were outstanding as of January 1, 1995, and also gives
effect to a reduction in interest expense resulting from the reduction of
indebtedness upon application of the net proceeds of the Offering as if it
had occurred on January 1, 1995.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31, 1996
------------------------------------- ------------------ ------------------------
1991 1992 1993 1994 1994 1995 ACTUAL AS ADJUSTED(1)
------- ------- ------- ------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................... $ -- $ -- $ 931 $ 1,886 $ 215 $ 7 $ 133 $ 500
Installment Credit
Portfolio................ 40,541 45,094 47,026 50,626 56,337 62,353 59,896 59,896
Small Loan Portfolio....... 600 6,036 13,991 31,911 30,002 30,002
Total assets............... 43,198 48,158 51,567 61,597 73,942 101,440 97,331 97,698
Total debt................. 32,046 34,250 33,700 42,287 48,845 64,817 61,329 41,483
Stockholder's equity....... 10,852 13,399 17,146 18,560 23,951 33,632 33,532 53,745
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of Common Stock offered hereby, an assumed
capital contribution by Banner of $367,000 pursuant to the Reorganization
and the application of the estimated net proceeds therefrom as set forth
under "Use of Proceeds."
SUPPLEMENTAL FINANCIAL DATA
The following table sets forth certain unaudited consolidated operating
results for each of the periods presented. This information has been prepared on
the same basis as the audited consolidated financial statements and includes all
adjustments (which consist solely of normal recurring adjustments) necessary to
present fairly the financial information of such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
--------- -------- ------------- ------------ --------- --------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Product
Portfolio
interest
income......... $ 2,881 $2,772 $ 2,947 $3,187 $ 2,955 $ 3,118 $ 3,348 $ 3,087 $3,205
Small Loan
Portfolio
interest
income........ 141 164 201 551 1,009 1,126 1,327 1,633 2,093
Automobile
sales......... -- -- -- -- -- 385 2,528 1,504 2,038
Transaction fees
on contracts
purchased from
related
party......... 206 207 222 222 229 227 226 234 227
Other income.... 479 447 494 448 654 711 840 1,448 1,722
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
revenues...... 3,707 3,590 3,864 4,408 4,847 5,567 8,269 7,906 9,285
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
expenses...... 1,109 1,179 1,366 1,516 1,522 1,751 2,266 2,611 2,504
Cost of
automobiles
sold.......... -- -- -- -- -- 274 1,685 1,112 1,355
Provision for
credit
losses........ 627 640 695 1,961 1,106 1,309 1,545 1,899 2,347
Interest
expense....... 536 610 773 882 1,075 1,097 1,027 1,079 1,241
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
taxes......... 1,435 1,161 1,030 49 1,144 1,136 1,746 1,205 1,838
Income tax
expense....... 579 470 418 26 465 459 702 486 735
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income...... $ 856 $ 691 $ 612 $ 23 $ 679 $ 677 $ 1,044 $ 719 $1,103
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
under "Selected Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto and other financial data, included elsewhere in the
Prospectus.
OVERVIEW
In pursuit of the Company's business strategy, since 1992 the Company has
expanded its direct financing business by offering consumer financing through
additional installment credit stores opened by Banner, by increasing the number
and type of products and services financed, and by offering new financial
products and services. In 1992, the Company began offering unsecured small loans
generally ranging from $300 to $1,500 with average loan terms of 12 months, and
began offering installment credit finance to Banner's customers at three
additional installment credit stores in greater Los Angeles and one additional
installment credit store in San Francisco that were opened or acquired by Banner
in 1994. In 1995, the Company opened two finance centers offering small loans
and travel finance and one automobile sales location in greater Los Angeles, and
began offering consumer product finance to Banner's customers at one additional
installment credit store in greater Los Angeles that was opened by Banner in
1995. In 1995, the Company also began offering Company-financed sales of used
automobiles. As a result of this rapid growth, results of operations have been
impacted, are not readily comparable from year to year or from period to period,
and are not necessarily indicative of future operating results.
22
<PAGE> 25
SEGMENT DATA
Financial Trends
The following sets forth certain information relating to the Company's
financial trends for the periods indicated.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED TWO MONTHS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
----------------- ----------------- --------------------------- -----------------
1992 1993 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivable (at end
of period)............. $54,038 $57,250 $60,590 $67,514 $60,590 $67,514 $67,811 $63,466 $63,069
Deferred interest (at end
of period)............. 6,354 7,028 7,657 7,603 7,657 7,603 7,796 6,937 7,203
------- ------- ------- ------- ------- ------- ------- ------- -------
Net receivable (at end of
period)................ 47,684 50,222 52,933 59,911 52,933 59,911 60,015 56,529 55,866
Deferred insurance
revenues (at end of
period)................ 294 536 529 405 529 405 401 365 326
Allowance for credit
losses (at end of
period)................ 2,296 2,660 2,786 3,169 2,786 3,169 3,711 3,316 3,972
------- ------- ------- ------- ------- ------- ------- ------- -------
Net carrying value....... $45,094 $47,026 $49,618 $56,337 $49,618 $56,337 $55,903 $52,848 $51,568
======= ======= ======= ======= ======= ======= ======= ======= =======
Average net receivable... $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $58,214 $57,810
Number of contracts (at
end of period)......... N/A N/A 66,353 76,984 66,353 76,984 84,555 76,067 81,798
Average net contract
balance................ N/A N/A $798 $778 $798 $778 $710 $743 $683
Average interest bearing
liabilities(1)......... 32,736 36,404 34,275 38,573 36,163 37,549 39,284 40,717 38,792
Total interest
income(2).............. 8,145 9,010 1,714 2,057 9,420 11,787 12,508 2,955 3,205
Total interest
expense(1)............. 2,306 2,279 335 534 2,231 2,579 3,242 839 780
Net interest income
before provision for
credit
losses................. 5,839 6,731 1,379 1,523 7,189 9,208 9,266 2,116 2,425
Net provision for credit
losses................. 2,654 3,198 655 1,229 3,340 3,332 3,852 826 1,191
Net write-off's.......... 1,688 2,834 529 625 2,897 2,949 3,310 679 930
Average interest rate on
average net
receivable............. 17.4% 17.4% 20.0% 21.9% 18.0% 22.0% 21.8% 20.3% 22.2%
Average interest rate on
interest bearing
liabilities............ 7.0% 6.3% 5.9% 8.3% 6.2% 6.9% 8.3% 8.2% 8.0%
Net Interest Spread...... 10.4% 11.1% 14.1% 13.6% 11.8% 15.1% 13.5% 12.1% 14.2%
</TABLE>
23
<PAGE> 26
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED TWO MONTHS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
---------- ---------------- -------------------------- -----------------
1993(3) 1993 1994 1993 1994 1995 1995 1996
---------- ------ ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivable (at end of
period)........................ $ 705 $4,314 $16,735 $4,314 $16,735 $37,868 $18,267 $35,678
Deferred interest (at end of
period)........................ 26 241 1,809 241 1,809 4,187 1,772 3,491
------ ------ ------- ------ ------- ------- ------- -------
Net receivable (at end of
period)........................ 679 4,073 14,926 4,073 14,926 33,681 16,495 32,187
Deferred administrative fees and
insurance revenues (at end of
period)........................ 13 166 392 166 392 576 352 579
Allowance for credit losses (at
end of period)................. 66 107 543 107 543 1,194 737 1,606
------ ------ ------- ------ ------- ------- ------- -------
Net carrying value............... $ 600 $3,800 $13,991 $3,800 $13,991 $31,911 $15,406 $30,002
====== ====== ======= ====== ======= ======= ======= =======
Average net receivable........... $ 850 $2,009 $10,509 $1,131 $ 5,662 $20,219 $15,764 $33,335
Number of contracts (at end of
period)........................ 3,127 10,616 26,166 10,616 26,166 55,241 32,066 58,993
Average net contract balance..... $ 217 $ 384 $ 570 $ 384 $ 570 $ 610 $ 514 $ 546
Average interest bearing
liabilities(1)................. -- 400 5,887 67 3,165 12,902 10,688 23,064
Total administrative fee
income......................... 52 13 145 65 458 1,133 263 414
Total interest income(2)......... 134 54 439 188 1,057 5,095 1,009 2,093
Total interest expense(1)........ -- 4 83 4 222 1,036 236 461
Net interest income before
provision for credit losses.... 134 50 356 184 835 4,059 773 1,632
Net provision for credit
losses......................... 66 41 388 107 591 1,547 280 899
Net write-off's.................. -- -- 35 -- 155 896 86 487
Average interest rate on average
net receivable................. 15.8% 16.1% 25.1% 16.6% 18.7% 25.2% 25.6% 25.1%
Average interest rate on interest
bearing liabilities............ N/A 6.0% 8.5% 6.0% 7.0% 8.0% 8.8% 8.0%
Net Interest Spread.............. 15.8% 10.1% 16.6% 10.6% 11.7% 17.2% 16.8% 17.1%
</TABLE>
- ---------------
(1) Amounts represent borrowings and related interest expense on the Company's
Lines of Credit for the respective portfolios, excluding amounts related to
the Company's other borrowings.
(2) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere in
this Prospectus.
(3) The Company commenced its small loan business in December 1992.
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering Company-financed sales of used automobiles in
mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Automobile Finance Portfolio was $5.5 million and $7.7
million, the net receivable was $4.2 million and $5.8 million, and the carrying
value of the portfolio was $3.8 million and $5.3 million. In addition, the
number of contracts outstanding at December 31, 1995 and March 31, 1996,
respectively, was 624 and 877 with an average net contract balance at each date
of approximately $6,700. At December 31, 1995 and March 31, 1996, the average
interest rate on the average portfolio was approximately 21% and the Net
Interest Spread was approximately 13%. Due to the size and lack of seasoning of
this portfolio, there can be no assurance that the Company's experience to date
with the Automobile Finance Portfolio will be indicative of future results of
this portfolio.
24
<PAGE> 27
TRAVEL FINANCE PORTFOLIO
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and March 31, 1996, respectively, the gross
receivable of the Travel Finance Portfolio was $3.0 million and $3.4 million,
the net receivable was $2.7 million and $3.1 million and the carrying value of
the portfolio was $2.7 million and $3.0 million. In addition, the number of
contracts outstanding at December 31, 1995 and March 31, 1996, respectively, was
5,811 and 7,495 with an average net contract balance of approximately $460 and
$400. At December 31, 1995 and March 31, 1996, respectively, the average
interest rate on the average portfolio was approximately 26% and 25% and the Net
Interest Spread was approximately 18% and 17%. Due to the size and lack of
seasoning of this portfolio, there can be no assurance that the Company's
experience to date with its Travel Finance Portfolio will be indicative of
future results of this portfolio.
Analysis of Changes in Net Interest Income
The following table segregates the changes in net interest income between
changes in average balances ("Volume") and average rates ("Rate") for both
average net receivables and average interest bearing liabilities of the Consumer
Product Portfolio and the Small Loan Portfolio (dollars in thousands).
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED YEARS ENDED ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
VERSUS VERSUS VERSUS
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1995
------------------------ ------------------------ ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
income:
Consumer Product Portfolio... $215 $2,152 $2,367 $ 795 $ (74) $ 721 $ (21 ) $271 $ 250
Small Loan Portfolio......... 753 116 869 2,718 1,320 4,038 1,125 (41) 1,084
---- ------ ------ ------ ------ ------ ------ ---- ------
968 2,268 3,236 3,513 1,246 4,759 1,104 230 1,334
---- ------ ------ ------ ------ ------ ------ ---- ------
Increase (decrease) in interest
expense:
Bank of America Line of
Credit..................... 86 262 348 119 544 663 (40 ) (19) (59)
Wells Fargo Line of Credit... 185 33 218 683 131 814 273 (48) 225
---- ------ ------ ------ ------ ------ ------ ---- ------
271 295 566 802 675 1,477 233 (67) 166
---- ------ ------ ------ ------ ------ ------ ---- ------
Increase in net interest
income....................... $697 $1,973 $2,670 $2,711 $ 571 $3,282 $ 871 $297 $1,168
==== ====== ====== ====== ====== ====== ====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED
OCTOBER 31, 1993 DECEMBER 31, 1994
VERSUS VERSUS
OCTOBER 31, 1992 DECEMBER 31, 1993
-------------------------- -------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Consumer Product Portfolio.............. $910 $ (45) $ 865 $162 $181 $ 343
Small Loan Portfolio.................... * * * 228 157 385
---- ----- ----- ---- ---- -----
910 (45) 865 390 338 728
---- ----- ----- ---- ---- -----
Increase (decrease) in interest expense:
Bank of America Line of Credit.......... 258 (285) (27) 42 157 199
Wells Fargo Line of Credit.............. * * * 55 24 79
---- ----- ----- ---- ---- -----
258 (285) (27) 97 181 278
---- ----- ----- ---- ---- -----
Increase in net interest income........... $652 $ 240 $ 892 $293 $157 $ 450
==== ===== ===== ==== ==== =====
</TABLE>
- ---------------
* Information not meaningful
25
<PAGE> 28
Credit Quality
The Company maintains reserves for credit losses in each of its portfolios
at levels that management believes are adequate to absorb potential losses.
Under the Company's guidelines, an account is deemed uncollectible and generally
is charged off at the earliest to occur of the time the account is 91 days past
due or the account is otherwise deemed by the Company to be uncollectible. The
following sets forth the Company's charge-off experience and allowance for
credit losses.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED TWO MONTHS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------- ------------------- ------------------------------- -------------------
1992 1993 1993 1994 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average net
receivable............ $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $58,214 $57,810
Net provision for credit
losses................ 2,654 3,198 655 1,229 3,340 3,332 3,852 826 1,191
Net write-offs.......... 1,688 2,834 529 625 2,897 2,949 3,310 679 930
Provision for credit
losses as a percentage
of average net
receivable............ 5.7% 6.2% 7.6% 13.1% 6.4% 6.2% 6.7% 5.7% 8.2%
Net write-off's as a
percentage of average
net receivable........ 3.6% 5.5% 6.2% 6.7% 5.5% 5.5% 5.8% 4.7% 6.4%
END OF PERIOD
Net receivable.......... $47,684 $50,222 $52,933 $59,911 $52,933 $59,911 $60,015 $56,529 $55,866
Allowance for credit
losses................ 2,296 2,660 2,786 3,169 2,786 3,169 3,711 3,316 3,972
Allowance for credit
losses as a percentage
of net receivable..... 4.8% 5.3% 5.3% 5.3% 5.3% 5.3% 6.2% 5.9% 7.1%
</TABLE>
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED TWO MONTHS ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------ ------------------ ------------------------------ -------------------
1993(2) 1993 1994 1993 1994 1995 1995 1996
------------ ------ ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average net receivable......... $850 $2,009 $10,509 $1,131 $ 5,662 $20,219 $15,764 $33,335
Net provision for credit
losses....................... 66 41 388 107 591 1,547 280 899
Net write-offs(1).............. 0 0 35 0 155 896 86 487
Provision for credit losses as
a percentage of average net
receivable................... 8.5% 12.2% 22.2% 9.5% 10.4% 7.7% 7.1% 10.8%
Net write-offs as a percentage
of average net
receivable(1)................ 0.0% 0.0% 2.0% 0.0% 2.7% 4.4% 2.2% 5.8%
END OF PERIOD
Net receivable................. $679 $4,073 $14,926 $4,073 $14,926 $33,681 $16,495 $32,187
Allowance for credit losses.... 66 107 543 107 543 1,194 737 1,606
Allowance for credit losses as
a percentage of net
receivable................... 9.7% 2.6% 3.6% 2.6% 3.6% 3.5% 4.5% 5.0%
</TABLE>
- ---------------
(1) The Company believes that as the Small Loan Portfolio seasons the net
write-offs and net write-offs as a percentage of average net receivable will
approximate those experienced by the Company in the Consumer Product
Portfolio.
(2) The Company commenced its small loan business in December 1992.
26
<PAGE> 29
AUTOMOBILE AND TRAVEL FINANCE PORTFOLIOS
At December 31, 1995 and March 31, 1996, respectively, the allowance for
credit losses in the Automobile Finance Portfolio was $410,000 and $544,000,
representing 9.8% and 9.3% of the end of period net receivable. At December 31,
1995 and March 31, 1996, respectively, the allowance for credit losses in the
Travel Finance Portfolio was $50,000 and $70,000, representing 1.8% and 2.3% of
the end of period net receivable.
Delinquency Experience
Borrowers under the Company's contracts are required to make monthly
payments. The following sets forth the Company's delinquency experience for
accounts with payments 31 days or more past due.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31,
----------- ---------------------------- -----------------
1992 1993 1994 1995 1995 1996
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days................................ $ 1,485 $1,316 $2,264 $1,943 $1,520 $1,552
61 days or more........................... 1,412 1,576 2,610 2,465 2,334 2,269
Accounts with payments 31 days or more past
due as a percentage of end of period gross
receivable................................ 5.4% 4.8% 7.2% 6.5% 6.1% 6.1%
</TABLE>
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31, MARCH 31,
----------- ---------------------------- -----------------
1992 1993 1994 1995 1995 1996
----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days................................ N/A $ 9 $ 76 $ 500 $ 175 $ 572
61 days or more........................... N/A 36 105 649 188 799
Accounts with payments 31 days or more past
due as a percentage of end of period gross
receivable(1)............................. N/A 1.0% 1.1% 3.0% 2.0% 3.8%
</TABLE>
- ---------------
(1) The Company believes that as the Small Loan Portfolio seasons the number of
accounts with payments 31 days or more past due as a percentage of end of
period gross receivable will conform to the levels the Company has
experienced in the Consumer Product Portfolio.
AUTOMOBILE AND TRAVEL FINANCE PORTFOLIOS
At December 31, 1995 and March 31, 1996, respectively, the dollar amount of
accounts 31 days or more past due in the Automobile Finance Portfolio was
$117,000 and $199,000 or 2.1% and 2.6% as a percentage of the end of period
gross receivable. At December 31, 1995 and March 31, 1996, respectively, the
dollar amount of accounts 31 days or more past due in the Travel Finance
Portfolio was $87,000 and $101,000 or 2.9% and 3.0% as a percentage of the end
of period gross receivable. Due to the size of and lack of seasoning of these
portfolios, there can be no assurance that the performance of the Company's
experience to date will be indicative of future results.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Total revenues in the three months ended March 31, 1996 increased to $9.3
million from $4.8 million in the three months ended March 31, 1995, an increase
of $4.4 million or 91.6%.
27
<PAGE> 30
Consumer Product Portfolio interest income in the three months ended March
31, 1996 increased to $3.2 million from $3.0 million in the three months ended
March 31, 1995, an increase of $0.3 million or 8.5%. All of this increase was
attributable to a rise in the average interest rate the Company earned on this
portfolio to 22.2% in the three months ended March 31, 1996 from 20.3% in the
three months ended March 31, 1995. The Consumer Product Portfolio averaged $57.8
million or $683 per contract in the three months ended March 31, 1996 compared
to $58.2 million or $743 per contract in the three months ended March 31, 1995.
The Company believes that this reduction may be attributable to a number of
factors, including general economic conditions in California.
Small Loan Portfolio interest income in the three months ended March 31,
1996 increased to $2.1 million from $1.0 million in the three months ended March
31, 1996, an increase of $1.1 million or 107.4%. All of this gain was
attributable to an increase in the Small Loan Portfolio, which averaged $33.3
million in the three months ended March 31, 1996 compared to $15.8 million in
the three months ended March 31, 1995. The average interest rate the Company
charged on this portfolio decreased slightly for the three months ended March
31, 1996 to 25.1% compared to 25.6% for the three months ended March 31, 1995.
The Company believes that this reduction is attributable to an increase in the
size of the loans it made in the three months ended March 31, 1996, which
averaged $546 at March 31, 1996 compared to $514 at March 31, 1995. Under
California law the interest rate the Company is allowed to charge decreases as
the amount of the small loan increases. The Company currently charges the
maximum interest rate permitted under California law on its small loans.
For the three months ended March 31, 1996, revenues from the sale of
automobiles, which business commenced in June 1995, amounted to $2.0 million.
Other income for the three months ended March 31, 1996 increased to $1.7
million from $0.7 million in the three months ended March 31, 1995, an increase
of $1.1 million or 163.3%. Other income in the three months ended March 31, 1996
includes $0.2 million of net revenues earned from the sale of airline tickets,
which commenced in July 1995, and $0.4 million of interest income earned on the
Travel Finance Portfolio and Automobile Finance Portfolio. The remaining
increase in other income was primarily due to an increase of $0.2 million in
administrative fee income earned on the Small Loan Portfolio, and a $0.3 million
increase in late charges the Company earned on all of its receivable portfolios.
Operating expenses in the three months ended March 31, 1996 increased to
$2.5 million from $1.5 million in the three months ended March 31, 1995, an
increase of $1.0 million or 64.5%. Of this increase, $0.6 million is
attributable to operating costs and expenses incurred in connection with the
sale of automobiles and airline tickets which business commenced in July of
1995. The remaining increase of $0.4 million was primarily due to the expansion
of the small loan business, including an increase in the number of employees and
related payroll expenses.
The cost of automobiles sold for the three months ended March 31, 1996 was
$1.4 million.
The provision for credit losses in the three months ended March 31, 1996
increased to $2.3 million from $1.1 million in the three months ended March 31,
1995, an increase of $1.2 million or 112.2%. This increase was due to the growth
experienced by the Company in its Small Loan Portfolio, which generated a
provision of $0.9 million in the three months ended March 31, 1996 compared to
$0.3 million in the comparable period of 1995. The remaining increase of $0.6
million was primarily attributable to an increase of $0.4 million in the
provision for credit losses on the Company's Consumer Product Portfolio as a
result of increased write-offs in such portfolio, and $0.2 million provision for
credit losses provided on the Company's Automobile Finance Portfolio which its
operation commenced in June of 1995.
Interest expense in the three months ended March 31, 1996 increased to $1.2
million from $1.1 million in the three months ended March 31, 1995, an increase
of $0.2 million or 15.4%. This increase was primarily due to a higher level of
borrowings under the Lines of Credit used to support the growth in the Company's
Small Loan Portfolio, Travel Finance Portfolio and Automobile Finance Portfolio.
As a result of the foregoing factors, net income in the three months ended
March 31, 1996 increased to $1.1 million from $0.7 million in the three months
ended March 31, 1995, an increase of $0.4 million or 62.4%.
28
<PAGE> 31
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues in the year ended December 31, 1995 increased to $26.6
million from $15.6 million in the year ended December 31, 1994, an increase of
$11.0 million or 70.8%.
Consumer Product Portfolio interest income in the year ended December 31,
1995 increased to $12.5 million from $11.8 million in the year ended December
31, 1994, an increase of $0.7 million or 6.1%. Of this increase, $0.8 million
was attributable to an increase in the size of the Consumer Product Portfolio,
which averaged $57.3 million in the year ended December 31, 1995 compared to
$53.7 million in the year ended December 31, 1994. For the year ended December
31, 1995, the number of active contracts outstanding in the Consumer Product
Portfolio increased to 84,600, an increase of 9.8% over the comparable period in
1994. For the year ended December 31, 1995, the average balance in such
portfolio decreased to $710 from $778 in the year ended December 31, 1994, a
decrease of 8.7%. The Company believes that this reduction may be attributable
to a number of factors, including general economic conditions in California. The
average interest rate the Company earned on its Consumer Product Portfolio in
the year ended December 31, 1995 decreased to 21.8% from 22.0% in the year ended
December 31, 1994.
Small Loan Portfolio interest income in the year ended December 31, 1995
increased to $5.1 million from $1.1 million in the year ended December 31, 1994,
an increase of $4.0 million or 382.0%. Of this increase, $2.7 million was
attributable to an increase in loan demand and $1.3 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 25.2% for the year ended
December 31, 1995 from 18.7% for the year ended December 31, 1994. The Company
currently charges the maximum interest rate permitted under California law on
its small loans. The average size of the Small Loan Portfolio increased to $20.2
million in the year ended December 31, 1995 from $5.7 million in the year ended
December 31, 1994, an increase of $14.6 million.
In the year ended December 31, 1995, revenues include $4.4 million
generated from the sale of automobiles, which business commenced in June 1995.
Other income in the year ended December 31, 1995 increased to $3.7 million
from $1.9 million in the year ended December 31, 1994, an increase of $1.8
million or 95.6%. Other income includes $0.4 million of net revenues earned from
the sale of airline tickets, which business commenced in July of 1995, and $0.4
million interest income earned on the Travel Finance Portfolio and Automobile
Finance Portfolio. The remaining increase in other income was primarily due to
an increase of $0.7 million in administrative fee income earned on the Small
Loan Portfolio.
Operating expenses in the year ended December 31, 1995 increased to $8.2
million from $5.2 million in the year ended December 31, 1994, an increase of
$3.0 million or 57.6%. Of this increase, $1.2 million is attributable to
operating expenses and costs incurred in connection with the sale of airline
tickets and used automobiles which began in the year ended December 31, 1995.
The remaining increase of $1.8 million was primarily due to the expansion of the
small loan business, including an increase in the number of employees and
related payroll expenses of $0.9 million, and to an increase in advertising
expenses of $0.3 million.
The cost of automobiles sold in the year ended December 31, 1995 was $3.1
million.
The provision for credit losses in the year ended December 31, 1995
increased to $5.9 million from $3.9 million in the year ended December 31, 1994,
an increase of $1.9 million or 49.3%. This increase was primarily due to the
growth experienced by the Company in its Small Loan Portfolio, which generated a
provision of $1.5 million for the year ended December 31, 1995 compared to $0.6
million in the comparable period of 1994. The Automobile Finance Portfolio and
Travel Finance Portfolio accounted for $0.5 million of the provision for credit
losses during 1995. The remaining increase was attributable to growth in the
Company's Consumer Product Portfolio and a higher provision level on this
portfolio in 1995 as compared to 1994.
Interest expense in the year ended December 31, 1995 increased to $4.3
million from $2.8 million in the year ended December 31, 1994, an increase of
$1.5 million or 52.7%. This increase was primarily due to a higher level of
borrowings under the Lines of Credit used to support the growth in the Company's
Installment
29
<PAGE> 32
Credit Portfolio and Small Loan Portfolio, and to a higher level of interest
charged by the lenders under the respective Lines of Credit, as a result of
increases in their borrowing rates.
As a result of the foregoing factors, net income in the year ended December
31, 1995 increased to $3.1 million from $2.2 million for the year ended December
31, 1994, an increase of $0.9 million or 42.9%.
Year and Two Months Ended December 31, 1994 Compared to Year and
Two Months Ended December 31, 1993
Total revenues in the year ended December 31, 1994 increased to $15.6
million from $11.9 million in the year ended December 31, 1993, an increase of
$3.7 million or 31.0%. For the two months ended December 31, 1994, total
revenues increased to $3.1 million from $2.2 million for the two months ended
December 31, 1993, an increase of $0.9 million or 38.6%.
Consumer Product Portfolio interest income in the year ended December 31,
1994 increased to $11.8 million from $9.4 million in the year ended December 31,
1993, an increase of $2.4 million or 25.1%. Of this increase, $2.2 million was
attributable to an increase in the average interest rate the Company earned on
the Consumer Product Portfolio, which increased to 22.0% in the year ended
December 31, 1994 from 18.0% in the year ended December 31, 1993. The remaining
increase of $0.2 million was attributable to an increase in the size of the
Consumer Product Portfolio, which averaged $53.7 million in the year ended
December 31, 1994 compared to $52.5 million in the year ended December 31, 1993.
Consumer Product Portfolio interest income for the two months ended December 31,
1994 increased to $2.1 million from $1.7 million for the two months ended
December 31, 1993, an increase of $0.3 million or 20.0%. Of this increase, $0.2
million was due to an increase in the average size of the Consumer Product
Portfolio which averaged $56.3 million for the two months ended December 31,
1994 compared to $51.5 million for the two months ended December 31, 1993. The
remaining increase of $0.2 million was attributable to an increase in the
interest rate the Company earned on the Consumer Product Portfolio, which
increased to 21.9% for the two months ended December 31, 1994 from 20.0% for the
two months ended December 31, 1993.
Small Loan Portfolio interest income in the year ended December 31, 1994
increased to $1.1 million from $0.2 million in the year ended December 31, 1993,
an increase of $0.9 million or 462.2%. Of this increase, $0.8 million was
attributable to an increase in loan demand and $0.1 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 18.7% for the year ended
December 31, 1994 from 16.6% for the year ended December 31, 1993. The average
size of the Small Loan Portfolio increased to $5.7 million in the year ended
December 31, 1994 from $1.1 million in the year ended December 31, 1993, an
increase of $4.5 million. Small Loan Portfolio interest income for the two
months ended December 31, 1994 increased to $0.4 million from $0.1 million for
the two months ended December 31, 1993, an increase of $0.4 million or 713.0%.
Of this increase, $0.2 million was due to an increase in loan demand and $0.2
million was attributable to an increase in the average interest rate the Company
earned on the Small Loan Portfolio. The average size of the Small Loan Portfolio
increased to $10.5 million for the two months ended December 31, 1994 from $2.0
million for the two months ended December 31, 1993, an increase of $8.5 million.
The average interest rate the Company earned on the Small Loan Portfolio
increased to 25.1% for the two months ended December 31, 1994 from 16.1% for the
two months ended December 31, 1993.
Other income in the year ended December 31, 1994 increased to $1.9 million
from $1.4 million in the year ended December 31, 1993, an increase of $0.4
million or 29.3%. For the two months ended December 31, 1994, other income
increased to $0.4 million from $0.3 million for the two months ended December
31, 1993, an increase of $0.1 million or 36.8%. This increase was primarily due
to an increase in administrative fee income and to increased late fee income.
Operating expenses in the year ended December 31, 1994 increased to $5.2
million from $4.5 million in the year ended December 31, 1993, an increase of
$0.7 million or 15.9%. Operating expenses for the two months ended December 31,
1994 increased to $1.0 million from $0.9 million for the two months ended
December 31, 1993, an increase of $0.1 million or 18.6%. This increase was
primarily due to increased expenses in connection with the Company's development
of its small loan business, which include an increase
30
<PAGE> 33
in the number of employees and related payroll necessary to accommodate the
increased number of contracts associated with the expansion of this business.
The provision for credit losses in the year ended December 31, 1994
increased to $3.9 million from $3.4 million in the year ended December 31, 1993,
an increase of $0.5 million, or 13.8%. This increase was attributable to the
growth in the Company's Small Loan Portfolio. The Company's provision for credit
losses on its Consumer Product Portfolio was $3.3 million for both of the years
ended December 31, 1994 and 1993. The provision for credit losses as a
percentage of the average Consumer Product Portfolio was 6.2% in the year ended
December 31, 1994 compared to 6.4% in the year ended December 31, 1993. The
provision for credit losses for the two months ended December 31, 1994 increased
to $1.6 million from $0.7 million for the two months ended December 31, 1993, an
increase of $0.9 million or 132.3%. For the two month period ended December 31,
1994, the provision for credit losses as a percentage of average net receivable
in the Consumer Product Portfolio was 13.1% compared to 7.6% in the comparable
period of 1993, and the provision for credit losses as a percentage of average
net receivable in the Small Loan Portfolio was 22.2% compared to 12.2%,
respectively, for those same periods. These increases reflect the Company's
decision to provide additional provision for credit losses in light of the
significant increase in the Company's Combined Receivable Portfolio in the two
months ended December 31, 1994, and the Company's concern that the California
economy would continue to be depressed in 1995.
Interest expense in the year ended December 31, 1994 increased to $2.8
million from $2.2 million during the year ended December 31, 1993, an increase
of $0.6 million or 25.3%. Interest expense for the two months ended December 31,
1994 increased to $0.6 million from $0.3 million for the months ended December
31, 1993, an increase of $0.3 million or 82.0%. These increases were due to a
higher level of bank borrowings used to support the growth on the Company's
Combined Receivable Portfolio and to higher interest rates on the Company's
Lines of Credit.
As a result of the foregoing factors, net income in the year ended December
31, 1994 increased to $2.2 million compared to $1.0 million in the year ended
December 31, 1993, an increase of $1.2 million or 115.6%. The Company incurred a
net loss for the two months ended December 31, 1994 of $0.1 million compared to
net income of $0.2 million for the two months ended December 31, 1993.
Year Ended October 31, 1993 Compared to Year Ended October 31, 1992
Total revenues in the year ended October 31, 1993 increased to $11.4
million from $10.1 million in the year ended October 31, 1992, an increase of
$1.3 million or 12.7%.
Consumer Product Portfolio interest income in the year ended October 31,
1993 increased to $9.0 million from $8.1 million in the year ended October 31,
1992, an increase of $0.9 million or 10.6%. This increase was attributable to an
increase in the size of the Consumer Product Portfolio, which averaged $51.9
million in the year ended October 31, 1993 compared to $46.7 million in the year
ended October 31, 1992. The average interest rate the Company earned on the
Consumer Product Portfolio did not materially change during the year ended
October 31, 1993, averaging 17.4% during each of the years ended October 31,
1993 and October 31, 1992.
Other income in the year ended October 31, 1993 increased to $1.5 million
from $1.3 million in the year ended October 31, 1992, an increase of $0.2
million or 16.3%. This increase was attributable to an increase in late fees and
sales of insurance products.
Operating expenses in the year ended October 31, 1993 increased to $4.5
million from $4.0 million in the year ended October 31, 1992, an increase of
$0.5 million or 13.4%. This increase was primarily due to additional costs
incurred in managing a higher level of outstanding contracts and to certain
expenses incurred in connection with the introduction of the small loan
business.
The provision for credit losses in the year ended October 31, 1993
increased to $3.3 million compared to $2.7 million in the year ended October 31,
1992, an increase of $0.6 million or 23.0%. Although the Company's average
Consumer Product Portfolio in the year ended October 31, 1993 increased to $51.9
million compared to $46.7 million in the year ended October 31, 1992, the
increase in the provision was primarily due
31
<PAGE> 34
to the recession that the California economy entered into in the year ended
October 31, 1993. The effect of the unfavorable economy is reflected in the
provision for credit losses expressed as a percentage of the average net
receivable in the Consumer Product Portfolio, which rose to 6.2% in the year
ended October 31, 1993 compared to 5.7% in the year ended October 31, 1992.
Interest expense in the year ended October 31, 1993 was $2.3 million, which
was unchanged from the year ended October 31, 1992.
As a result of the foregoing factors, net income in the year ended October
31, 1993 increased to $0.8 million from $0.7 million, an increase of $0.1
million or 14.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the cash flow
generated from operations, borrowings under its Lines of Credit, and from
periodic contributions to capital made by Holdings and related entities. See
"The Reorganization and Certain Relationships and Agreements among the Company,
Banner, Holdings and Other Affiliates" and "Principal Shareholders."
For the three months ended March 31, 1996, net cash provided from
operations totalled $2.9 million, while investing activities provided an
additional $2.0 million of cash flow. During this period the Company repaid $3.5
million of notes payable and made a return of capital of $1.2 million to Banner.
Net cash provided from operations totaled $4.3 million, $6.7 million and
$9.2 million for the year ended October 31, 1993, and the years ended December
31, 1994 and 1995, respectively. During these periods, the primary source of net
cash provided from operations was net income before non-cash charges,
principally the provision for credit losses.
For the years ended October 31, 1993 and December 31, 1994 and 1995, net
cash flow generated from operations was insufficient to fund the Company's
outlays for capital expenditures and the significant growth it experienced in
its combined receivable portfolio, which required cash outflows of $5.8 million
in the year ended October 31, 1993, and of $20.8 million and $29.8 million in
the year ended December 31, 1994 and 1995, respectively. To fund its
expenditures and support the growth in its combined receivable portfolio, the
Company relied on capital contributions from Holdings and bank borrowings made
under its credit facilities. Capital contributions amounted to $3.0 million,
$1.6 million and $6.6 million in the year ended October 31, 1993 and the years
ended December 31, 1994 and 1995, respectively. Bank borrowings provided cash of
$12.2 million and $15.1 million in the years ended December 31, 1994 and 1995,
respectively.
Currently, the Company funds its lending activities and operations in part
with borrowings under the Bank of America Line of Credit and Wells Fargo Line of
Credit. Borrowings under the Bank of America Line of Credit may be used only to
finance the Company's consumer product finance business. The amount of credit
available at any one time under the Bank of America Line of Credit is limited to
75% of eligible contracts in the Company's Consumer Product Portfolio. As of
March 31, 1996, the total amount available to the Company under the Bank of
America Line of Credit was $38.5 million, all of which was outstanding. The Bank
of America Line of Credit was amended and restated as of April 29, 1996 and
expires on August 30, 1996. Borrowings under the Wells Fargo Line of Credit may
be used only to finance the Company's travel finance, auto finance and small
loan businesses. The amount of credit available at any one time under the Wells
Fargo Line of Credit is limited to 70% of eligible contracts in Small Loan,
Automobile Finance and Travel Finance Portfolios. As of March 31, 1996, the
total amount available to the Company under the Wells Fargo Line of Credit was
$27.9 million, of which $22.0 million was outstanding. The Wells Fargo Line of
Credit expires on July 1, 1996. The Company believes it will be able to renew
both of its Lines of Credit. However, there can be no assurance that the Company
will be able to renew such Lines of Credit. See "Risk Factors -- Need for
Additional Financing." The Company intends to use a portion of the net proceeds
of the Offering to reduce outstanding borrowings, on a pro rata basis, under the
Lines of Credit, thereby increasing the amount available to the Company under
such Lines of Credit.
The Lines of Credit contain certain restrictive covenants that require,
among other things, the maintenance of certain financial ratios and amounts. The
Company is required to maintain specified levels of tangible net worth and cash
flow to interest coverage ratios, and cannot exceed specified ratios of debt to
tangible net worth, as such terms are defined in the Lines of Credit. Other
ratios must be maintained related to
32
<PAGE> 35
the performance of the Company's gross receivable portfolio. At March 31, 1996,
the Company was in compliance with such restrictive covenants in the Lines of
Credit.
The Company may securitize all or portions of its gross receivable
portfolio when it generates sufficient volume of such receivables.
Securitization would increase the Company's liquidity and reduce its reliance on
its Lines of Credit. However, the Company has never consummated a securitization
transaction, and the securitization markets for many of the Company's
receivables are limited. Accordingly, there can be no assurance that the Company
will successfully implement a securitization program.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof. The
amount of debt the Company requires from time to time depends on the Company's
needs for cash, as determined by its operating performance and its ability to
borrow under the terms of its various loan agreements. The Company intends to
meet its short-term liquidity needs with cash flow from operations, a portion of
the proceeds from the Offering and borrowings under its Lines of Credit.
The estimated net proceeds of the Offering of approximately $19.8 million
are expected to be sufficient to fund the Company's liquidity requirements for
more than 12 months if the Company were to maintain its operations at current
levels. However, the Company may need to arrange for additional bank borrowings
or additional debt or equity financing as it continues to grow. The Company
believes that its Lines of Credit can be renewed, that the increase in equity
resulting from the Offering will facilitate the Company's ability to incur
increased indebtedness, and that it can obtain alternative financing sources
that, together with cash flow from operations and the net proceeds from the
Offering, would provide the Company sufficient resources to meet its capital
requirements. However, there can be no assurance that the Company will be able
to renew its Lines of Credit, that the Company will have access to additional
financing sources necessary to sustain its operations and its growth plans, or
that such financing will be available to the Company on favorable terms.
The Company is prohibited from paying cash dividends under its various debt
agreements.
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<PAGE> 36
BUSINESS
COMPANY OVERVIEW
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing Hispanic segment of the population
that cannot secure credit through traditional lending sources. The Company's
customers are primarily low income Hispanics, a market the Company believes is
underserved. The Company (i) purchases and services consumer finance receivables
generated by the Company's customers for purchases of high quality brand name
consumer products, appliances and furniture sold by Banner, (ii) originates and
services consumer finance receivables generated by the Company's customers for
purchases of used automobiles and airline tickets sold by the Company, and (iii)
provides other financial services to its customers such as small loans. During
its 40 years of operation, the Company believes it has established customer
loyalty by, among other things, granting credit on terms comparable to those
charged by the Company's competitors. While the Company operates primarily in
greater Los Angeles, the Company's objective is to become the leading provider
of consumer credit and other financial services to the low income Hispanic
population in urban areas in California and throughout the United States.
Because the Company's customers are primarily low-income consumers, the Company
is more susceptible to the risk that its customers will not be able to satisfy
their repayment obligations than are less specialized consumer finance
companies.
Demographic Trends and Market Opportunity
Since 1950, Hispanics have been the fastest growing minority group in the
United States, increasing from 4 million in 1950 to approximately 27 million in
1996, a compound annual growth rate of 4.3%, and, according to the 1996 Report,
this trend is expected to continue. The 1996 Report projects that the Hispanic
population will total 36 million by 2005 and will double its 1995 size to almost
53 million by 2020. The CCSCE Report states that California is home to the
largest Hispanic population in the United States and that this population will
grow from 9.4 million in 1995 to 13 million by 2005 and to 15 million by 2010,
at which time it will comprise over 36% of California's total population. The
Company believes that, despite the current size and projected population growth
of the Hispanic population in the United States, this segment of the population
will continue to have limited access to traditional sources of credit.
The Company has identified certain metropolitan markets in which the
Company believes it can successfully introduce its financial products and
services. Specifically, the Company has determined that there exist significant
opportunities in markets having large Hispanic populations but in which such
populations account for less than 30% of such area's total population. The
Company believes that Hispanic consumers in these markets are more likely to be
underserved than Hispanics in locations in which they comprise a greater
proportion of an area's total population. In its target markets, the Company
believes it could expand through selective acquisitions or by establishing its
own financial product and service centers. The Company believes that selective
acquisitions, rather than the introduction of its own financial product and
service centers would be the most efficient method to enter markets in which
Hispanics comprise more than 30% of a metropolitan area's total population.
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The United States Hispanic population is concentrated in the following nine
states:
<TABLE>
<CAPTION>
ESTIMATED HISPANIC
POPULATION 1996
------------------
(IN MILLIONS)
<S> <C>
California.................................. 9.8
Texas....................................... 5.6
New York.................................... 2.6
Florida..................................... 2.0
Illinois.................................... 1.1
New Jersey.................................. 0.9
Arizona..................................... 0.9
New Mexico.................................. 0.7
Colorado.................................... 0.5
</TABLE>
- ---------------
Source: 1996 U.S. Hispanic Market Study performed by the Strategy Research
Corporation.
BUSINESS SEGMENTS
Installment Credit Business
The Company provides credit to low-income consumers who desire to purchase
consumer products on credit. By granting credit, the Company provides low income
consumers with an increased number of purchasing options. The Company purchases
and services consumer finance receivables generated through purchases of brand
name consumer products sold by Banner, including special order items, and
originates and services consumer finance receivables generated through purchases
of used automobiles and airline tickets.
Consumer Product Finance. The Company purchases and services consumer
finance receivables generated through purchases of brand name consumer products
sold by Banner through six stores in greater Los Angeles and one store in San
Francisco. Consumer products financed by the Company include televisions,
stereos, refrigerators, washers and dryers, ovens, freezers, furniture,
household accessories and special order items. The average net contract balance
in the Company's Consumer Product Portfolio at March 31, 1996 was $683.
Automobile Finance. In mid-1995, the Company opened its first used
automobile facility and commenced its automobile finance business at one
location adjacent to Banner's flagship installment credit store in downtown Los
Angeles, and, in April 1996, opened a second used automobile facility in greater
Los Angeles. The Company offers used automobiles for sale at prices generally
ranging from $6,500-$7,500 with financing terms of up to 42 months. The number
of vehicles sold monthly by the Company has increased from 54 during June 1995
to 150 during March 1996. From commencement of this business through March 31,
1996, the Company sold 877 vehicles for an aggregate sales price of $6.5
million, of which $5.8 million was financed. The average net contract balance in
the Company's Automobile Finance Portfolio at March 31, 1996 was approximately
$6,700.
California is the largest vehicle market in the United States. The used
vehicle market that caters to the Hispanic customer operates on a highly
fragmented and localized basis with few dealers having more than one sales
location. As part of the Company's strategy to distinguish itself from its
competitors, the Company does not negotiate the sales prices of its vehicles and
includes a twelve-month warranty with all vehicles at no extra
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<PAGE> 38
charge. To cover potential warranty claims, the Company establishes a reserve
with respect to each used automobile it sells. Although the Company believes it
has adequately reserved for potential warranty claims, there can be no assurance
that such reserved amounts will be sufficient to cover the costs of the
Company's warranty claims.
Travel Finance. As a complimentary business line, the Company in mid-1995
commenced its travel finance business, offering Company-financed sales of
airline tickets, primarily for travel to Mexico and Central America. At March
31, 1996, the Company was conducting this business at five of Banner's
installment credit stores in greater Los Angeles and two finance centers
offering small loans and travel finance in greater Los Angeles that were opened
in December 1995. The Company believes that both its small loan and travel
product lines can be offered out of 1,000-1,500 square foot locations, and that
such locations can efficiently offer additional financial products and services
which the Company anticipates it will make available in the future. Since
commencing this business, the Company has sold and financed approximately $5.5
million of airline tickets. The average net contract balance in the Company's
Travel Finance Portfolio at March 31, 1996 was approximately $400. See "Recent
Developments."
Unaffiliated Retailer Installment Finance. Also in mid-1995, the Company
began a program of providing financing to consumers for the purchase of products
and services sold by unaffiliated retailers. At present, the Company has
unaffiliated retailer installment financing arrangements with approximately 25
retailers in greater Los Angeles, most with one or two locations, and one with
approximately 15 locations. The Company's unaffiliated retailer installment
finance business currently represents an immaterial portion of the Company's
gross receivable portfolio. However, the Company regularly considers and
evaluates additional unaffiliated retailer installment financing arrangements.
Small Loan Business
In December 1992, after a one-year period of systems and market testing,
the Company began offering, at Banner's flagship installment credit store,
closed-end, unsecured small loans generally ranging from $350 to $1,500 for
personal, family or household purposes. Prior to commencing this business, the
Company determined that there was a significant demand for small loans, and that
financial institutions in its geographic market were not making loans of less
than $1,500 and did not have adequate underwriting experience to serve the low
income Hispanic population. By December 31, 1995, the Company was originating
small loans through eight facilities in greater Los Angeles, four of which were
operated at Banner's installment credit stores and four of which were operated
as finance centers offering small loans and travel finance which opened in
December 1995. See "Recent Developments."
Since inception, the small loan business has experienced significant
growth. The Company had approximately 11,000 active small loan accounts at
December 31, 1993, approximately 26,000 accounts at December 31, 1994 and
approximately 59,000 accounts at March 31, 1996. At March 31, 1996, the Company
had an outstanding net portfolio balance of $32.2 million, the average net
contract balance in the Small Loan Portfolio was $546 and the average contract
term was approximately 12 months. The Company estimates that approximately 50%
of the small loan customers at March 31, 1996 were also current installment
credit customers. Management believes that the lack of greater overlap between
small loan customers and installment credit customers presents the Company with
significant cross-selling and marketing opportunities.
Other Business Activities
The Company acts as an intermediary for an unaffiliated insurance carrier
with respect to the sale of credit life and credit accident and health insurance
to its customers and, as such, sells policies within limitations established by
agency contracts with that insurer. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of death. Credit accident and health insurance provide for repayment of loan
installments to the lender that come due during the insured's period of
involuntary unemployment resulting from disability, illness or injury. Charges
for such credit insurance are made at maximum authorized rates and are stated
separately in the Company's disclosure to customers, as
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<PAGE> 39
required by the Truth-in-Lending Act and applicable state statutes. The Company
does not act as an intermediary with respect to the sale of credit insurance to
non-borrowers. The Company earns a commission on the sale of credit insurance
which is based in part on the claims experience of the insurance carrier on
policies sold by the insurance carrier through the Company. The Company recently
formed a wholly-owned subsidiary to provide similar insurance directly, which it
anticipates providing to its customers in the near future.
COMPANY OPERATIONS
Credit Procedures
The Company has developed uniform guidelines and procedures for evaluating
credit applications for installment credit sales and small loans. Currently, the
Company's five senior credit managers and five senior approvers have an average
of 19 years and 12 years of experience, respectively, with the Company.
Credit applications are taken at all of the Company's locations and at each
of Banner's stores and are transmitted electronically through the Company's
computer system to the Company's credit processing facility, where all credit
approval and verification is centralized. The Company believes that its
underwriting policies and procedures allow it to respond quickly to credit
requests. The Company typically responds to credit applicants within one hour.
Management believes that because of its prompt response, many customers prefer
to deal with the Company instead of its competitors.
The Company's credit managers and credit approvers make their decisions on
a case by case basis and are influenced by, among other things, whether an
applicant is a new or existing customer. New applicants complete standardized
credit applications which contain information concerning income level,
employment history, stability of residence, driver's license or state
identification card, social security number, capacity to pay and personal
references. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm various information. For an established
customer, the credit process includes a review of the customer's credit and
payment history with the Company. In instances where the applicant has no or
limited credit history, the Company may require a co-signer with appropriate
credit status to sign the contract and may, in the installment credit business,
also require a down payment. Depending on the size of the transaction and other
relevant factors, the applicant's employment and residence may be verified by
the Company's credit verifiers.
The Company maintains reserves for credit losses in each of its portfolios
at levels that management believes are adequate to absorb potential losses. The
Company regularly reviews its Installment Credit Portfolio and Small Loan
Portfolio to determine the adequacy of its allowances for credit losses. Major
considerations in determining the adequacy of the allowances for credit losses
include reviewing credit loss experience, the level of delinquencies, the impact
of general economic conditions and trends, and the size of the portfolios.
Payment and Collections
Industry studies estimate that more than 25% of the adult population in the
United States does not maintain a checking account with a depository
institution, a standard prerequisite to obtaining a consumer loan, credit card
or other form of credit from most consumer credit sources. The Company's
customers are required to make their monthly payments using a payment schedule
provided to them by the Company. The vast majority of the Company's customers
make their payments in cash at the Company's locations or at the Company's
payment facilities in Banner's stores. For the Company's customers who are paid
their wages by check but who do not maintain checking accounts, the Company
cashes such checks at no charge in order to facilitate account payments.
Payments are considered past due if a borrower fails to make any payment in
full on or before its due date, as specified in the installment credit or small
loan contract signed by the customer. The Company typically contacts borrowers
whose payments are not received by the due date within 10 days after such due
date. Such contacts are made by the Company both by letter and telephone.
Thereafter, if no payment is
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<PAGE> 40
remitted to the Company, additional contacts are made every 7 days, and, after a
loan becomes 31 days delinquent, the account is generally turned over to the
Company's credit collectors. Under the Company's guidelines, an account is
deemed uncollectible and generally is charged off at the earliest of the time
the account is generally 91 days past due or the account is otherwise deemed by
the Company to be uncollectible. In addition, upon reaching 91 days past due,
the account is generally turned over to either an attorney or collection agency
for further processing.
Finance Contracts
The Company utilizes different types of financing contracts, depending on
the dollar amount of the financing and the product financed. Each of the
contracts are in Spanish and English and require financing payments to be made
on a monthly basis. Many of the terms, conditions and disclosures in the finance
contracts are governed by state and federal regulations. See "-- Regulation."
When a qualifying customer with an open account balance increases the amount
outstanding with an additional purchase or loan, the customer executes a new
contract for the new aggregate balance and, with the proceeds, pays off the
original contract.
Insurance
The Company maintains various policies of insurance of kind and amount
usual for its business. It maintains coverage for business interruptions,
including interruptions as a result of computer failure. The Company believes
that its insurance coverage is adequate.
Management Information Systems
Pursuant to the Operating Agreement, the Company will utilize Banner's
management information systems and be granted a license respecting the use of
Banner's management information systems' software. Banner has invested
significant resources to develop a proprietary system that integrates all major
aspects of the businesses of the Company and Banner. The computer system
utilizes a mid-range IBM AS-400 as its central server, which provides on-line,
real-time information processing services to terminals located in each of
Banner's locations and in the Company's centralized credit processing facility.
The system allows for complete processing of the Company's consumer product
finance, automobile finance, travel finance and small loan businesses, including
application processing and credit-approving, referral of credit bureau reports,
payment history of all active accounts, preparation of contracts, payment
posting and all other collection monitoring activity. In addition, the system
provides customized reports to analyze each of the Company's portfolios on a
daily, weekly and monthly basis. The Company believes that the computer system
is sufficient to permit significant growth in each of the Company's business
lines and portfolios without the need for a material additional investment in
management information systems. Banner has adopted procedures designed to
minimize the effect of systems failures and other types of potential problems,
including routine backup and off-site storage of computer tapes and redundancy
and "mirroring" of certain computer processes.
COMPETITION
The installment credit business is highly competitive. The Company, through
its relationship with Banner and other retailers, competes with those department
stores, discount stores and other retail outlets which also provide credit to
low income consumers. The largest national and regional competitors have
significantly greater resources than the Company. Competition may arise from new
sources having the expertise and resources to enter the Company's markets either
through expansion of operations or acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry or expansion of
any such company within the Company's markets could have a material adverse
effect on the Company's business strategy and results of operations and
financial condition. The Company does not believe it competes with
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<PAGE> 41
commercial banks, savings and loans and most other consumer finance lenders,
because these institutions typically make loans greater than $1,500 with
maturities greater than one year.
REGULATION
General
As a consumer finance company, the Company is subject to extensive
regulation. Violation of statutes and regulations applicable to the Company may
result in actions for damages, claims for refunds of payments made, certain
fines and penalties, injunctions against certain practices and the potential
forfeiture of rights to repayment of loans. The Company may be affected by
changes in state and federal statutes and regulations. The Company, in
conjunction with industry associations, actively participates in lobbying
efforts in the states in which it operates. Although the Company is not aware of
any pending or proposed legislation that could have a material adverse effect on
the Company's business, there can be no assurance that future regulatory changes
will not adversely affect the Company's lending practices, operations,
profitability or prospects.
State Regulation
Consumer Product and Travel Finance. The Company's consumer product
finance business is regulated in California by the California Retail Installment
Sales Act (the "Unruh Act"). The Unruh Act requires the Company to provide
complete disclosure to its customers of the principal terms of each transaction,
such as the amount of the loan, the total finance charge, and the amount of any
product service contract. In addition, the Unruh Act provides consumer
protection against unfair or deceptive practices, including prohibiting
misleading advertising.
Automobile Finance. The Company's automobile finance business is regulated
in California by the Rees-Levering Motor Vehicle Sales and Financing Act (the
"Rees-Levering Act"). The Rees-Levering Act governs the installment sale of
motor vehicles sold for personal or family use. The Rees-Levering Act requires
the Company to provide complete disclosure to its customers of the principal
terms of each loan, such as the amount of the loan, the total finance charge,
the amount of the service contract and an itemization of license and
registration fees. In addition, the Rees-Levering Act provides consumer
protection against unfair or deceptive practices, including prohibiting
misleading advertising and regulating the procurement of insurance.
Small Loan Business. Small loan consumer finance companies are subject to
extensive regulation, supervision and licensing under various federal and state
statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees and other costs that may be charged. In addition, state laws regulate
collection procedures, the keeping of books and records and other aspects of the
operation of small-loan consumer finance companies. Generally, state regulations
also establish minimum capital requirements for each local office. State agency
approval generally is required to open new branch offices. Accordingly, the
ability of the Company to expand by acquiring existing offices and opening new
offices will depend in part on obtaining the necessary regulatory approvals.
Each facility that offers small loans must be separately licensed under the
laws of California. Licenses granted by the regulatory agencies are subject to
renewal every year and may be revoked for failure to comply with applicable
state and federal laws and regulations. In California, licenses may be revoked
only after an administrative hearing.
Insurance Businesses. The Company's insurance businesses are regulated in
California by the State of California Department of Insurance. In general, these
regulations require the Company to, among other things, maintain fiduciary fund
and trust accounts and follow specific market, general business and claims
practices.
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Federal Regulation
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the final
maturity, the total finance charge and the rate of interest charged on each
loan. The Equal Credit Opportunity Act prohibits creditors from discriminating
against loan applicants on the basis of race, color, sex, age or marital status.
Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act,
creditors are required to make certain disclosures regarding consumer rights and
advise consumers whose credit applications are not approved of the reasons for
the rejection. The Fair Credit Reporting Act requires the Company to provide
certain information to consumers whose credit applications are not approved on
the basis of a report obtained from a consumer reporting agency. The Credit
Practices Rule limits the types of property a creditor may accept as collateral
to secure a consumer loan.
ADVERTISING
Banner actively advertises primarily on Hispanic television and through
direct mail, targeting both its present and former customers and potential
customers who have used other sources of consumer credit. Banner advertises
extensively during the October through December holiday season and in connection
with new store openings. The Company also advertises its other financial
products and services in cooperation with Banner and the related costs are
allocated to each of the parties. The Company believes that Banner's advertising
and its own advertising contributes significantly to its ability to compete
effectively with other providers of consumer credit.
EMPLOYEES
At March 31, 1996, the Company had 217 hourly employees and 29 salaried
employees. The Company provides life, accidental death and dismemberment,
medical, vision and dental coverage to eligible employees. None of the Company's
employees is covered by a collective bargaining agreement. The Company considers
its relations with its employees to be good.
PROPERTIES
The Company's executive and administrative offices occupy approximately
17,000 square feet of a building owned by Holdings that is located at 5480 East
Ferguson Drive, Commerce, California 90022. The Company believes that its
executive and administrative offices are adequate for current needs and that
additional space in its headquarters is available for future expansion. All of
the Company's finance centers are leased pursuant to leases that generally have
five year terms with options to renew. The Company's payment centers located in
Banner's stores are adequate for the Company's present and anticipated needs.
The Company owns an 86,000 square foot property on which it operates its
automobile sales facility in Los Angeles and leases approximately a one acre
property in greater Los Angeles on which it opened a second automobile sales
facility in April 1996.
LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the normal
course of its business. Management believes the outcome of these matters will
not have a material adverse effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company, their ages (at April 1, 1996) and their
positions and offices with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Gary M. Cypres......................... 52 Chairman of the Board, President and Chief
Executive Officer
Ran Birkins............................ 49 Senior Vice President of Credit and Collections
Ed Valdez.............................. 43 Senior Vice President of Credit
Russell J. Grisanti.................... 49 Senior Vice President and Chief Financial Officer
Louis Caldera.......................... 40 Director
Jose de Jesus Legaspi.................. 43 Director
</TABLE>
Messrs. Caldera and Legaspi have each consented to be elected to the Board
of Directors upon consummation of the Offering. Pursuant to the terms of the
Company's Articles of Incorporation and Bylaws, the Board of Directors consists
of three persons. Members of the Board of Directors are elected for one-year
terms expiring at the next annual meeting of shareholders and hold office until
their successors are duly elected and qualified. All officers are appointed by
and serve at the discretion of the Board of Directors.
GARY M. CYPRES has been Chairman of the Board, Chief Executive Officer and
President of the Company since its formation. Mr. Cypres has been Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings and Banner since February 1991, Chairman of the Board and President of
Central Rents since June 1994 and managing general partner of West Coast since
March 1990. Prior to that, Mr. Cypres was a general partner of SC Partners, a
private investment banking and consulting firm. From 1983 to 1985, Mr. Cypres
was Chief Financial Officer of The Signal Companies. From 1973 to 1983 Mr.
Cypres was Senior Vice President of Finance at Wheelabrator-Frye Inc. Mr. Cypres
was a member of the Board of Trustees and a faculty member of The Amos Tuck
School of Business at Dartmouth College.
It is contemplated that after the Offering, Mr. Cypres will spend that
portion of his business time as may be required to oversee the operations of the
Company and to direct or implement the Company's business strategies. Mr. Cypres
will continue to spend a portion of his business time as the managing general
partner of West Coast, as Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and President of Holdings, as Chairman of the Board, Chief
Executive Officer, Chief Financial Officer and President of Banner, and as
Chairman of the Board and President of Central Rents. See "Risk
Factors-Concentration of Voting Control; Relationships with Holdings, Banner and
Affiliates; Conflicts of Interest."
RAN BIRKINS has been Senior Vice President of Credit and Collections of the
Company since its formation and Vice President of Credit of the Company's
consumer product finance business and small loan business since September 1994.
From November 1992 to September 1994, Mr. Birkins was Director of Credit of the
Company's small loan business. From December 1989 to September 1994, Mr. Birkins
was Director of Credit of the Company's consumer product finance business.
ED VALDEZ has been Senior Vice President of Credit of the Company since its
formation, Senior Credit Manager of the Company's consumer product finance
business since 1986 and Senior Credit Manager of the Company's small loan
business since November 1992. Mr. Valdez has been working for the Company for
over 28 years.
RUSSELL J. GRISANTI has been Senior Vice President and Chief Financial
Officer of the Company since its formation and President of the Company's
automobile business since September 1995. From September 1994 to September 1995,
Mr. Grisanti was an independent consultant to various businesses. From April
1991 to September 1994, Mr. Grisanti was President of Kars-Yes Finance Inc., a
used car finance company. From June 1983 to March 1991, Mr. Grisanti served as
President of Brookland Financial
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Corporation, Vice President of The Estes Co., Executive Vice President and Chief
Financial Officer of Home Federal Savings and Loan of Arizona and Chief
Financial Officer of Security Savings and Loan of Arizona.
LOUIS CALDERA has agreed to become a director of the Company upon
consummation of the Offering. Mr. Caldera has been an Assemblyman in the
California Legislature since November 1992, having been reelected in November
1994. Mr. Caldera is currently the Vice-Chair of the Assembly Banking and
Finance Committee and also serves on the Revenue and Taxation Committee, the
Environmental Safety and Toxic Materials Committee, the Higher Education
Committee, and the Select Committee on California's Health Care Safety Net. From
February 1991 to November 1992, Mr. Caldera was Deputy County Counsel for the
County of Los Angeles. Prior thereto, Mr. Caldera was an attorney in private
practice.
JOSE DE JESUS LEGASPI has agreed to become a director of the Company upon
consummation of the Offering. Since 1980, Mr. Legaspi has been a principal of
and broker at The Legaspi Company, a full service commercial real estate
brokerage firm. In addition, since 1992, Mr. Legaspi has been a principal of the
FINCA Property Management Company, a residential and commercial real estate
management company. Mr. Legaspi is also a Commissioner of the Los Angeles
Department of Water and Power.
OTHER SIGNIFICANT EMPLOYEES
ALAN E. SCHENEMAN, 44, has been Senior Vice President of the Company since
its formation. Mr. Scheneman joined the Company's consumer product finance
business in 1992 as Vice President of Management Information Services. From 1988
to 1992, Mr. Scheneman was the director of Product Development at JDA Software
Services where, in 1989, he managed the implementation of the Company's
management information system.
MARVIN A. TORRES, 33, has been President of the Company's travel finance
business since December 1995. From April 1995 to December 1995, Mr. Torres was
Vice President of Operations for the Company's travel finance business. From
1984 to 1995, Mr. Torres was Vice President of Operations and General Manager at
Solano Travel Service and Costa Rica Holiday Tours in Los Angeles, California.
ANGEL LOPEZ, 48, has been Vice President of the Company since May 1996.
From 1995 until joining the Company, Mr. Lopez was Vice President of Marketing
and Business Development at the Sacred Heart Hospital in Chicago, Illinois. From
1992 to 1995, Mr. Lopez was the Director of Ethnic Marketing for Sears
Merchandise Group in Hoffman Estates, Illinois. From 1990 to 1992, Mr. Lopez was
the General Manager for the Latin American Buying Office of Sears in Mexico
City, Mexico.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors will establish a
Compensation Committee and an Audit Committee. The Compensation Committee will
consist of at least two directors who are "disinterested persons" within the
meaning of Rule 16b-3, as amended from time to time, under the Exchange Act and
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, and will have the authority to determine compensation
for the Company's executive officers and to administer the Company's 1996 Plan
(defined below). The Audit Committee will consist of Mr. Caldera and Mr. Legaspi
and will have the authority to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.
COMPENSATION OF THE BOARD OF DIRECTORS
The Company intends to pay to its Board of Directors who are not also
employees of the Company (the "NonEmployee Directors") an annual fee of $15,000.
Members of the Board of Directors who are employees of the Company will not be
paid any Directors' fees. In addition, the Company may reimburse members of the
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<PAGE> 45
Board of Directors for expenses incurred in connection with their activities on
behalf of the Company. Non-Employee Directors will also each receive options to
purchase 7,000 shares of Common Stock at an exercise price of $12.00 per share,
the assumed initial public offering price of the Common Stock offered hereby,
under the 1996 Plan (defined below), effective upon the consummation of the
Offering. All options granted to the Non-Employee Directors vest in equal
installments over 5 year periods beginning on the date of grant, subject to
continued service on the Board of Directors; however, no option can be exercised
until at least six months after the date of grant. The Company has entered into
agreements with all directors pursuant to which the Company has agreed to
indemnify them against certain claims arising out of their services as
directors. Directors are also entitled to the protection of certain
indemnification provisions in the Company's Certificate of Incorporation and
Bylaws. See "Compensation Pursuant to Plans and Arrangements -- Stock Option
Plan" and "-- Indemnification Arrangements."
EXECUTIVE COMPENSATION
The following table summarizes the compensation for the year ended December
31, 1995 of the Company's Chief Executive Officer and each of the other
executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
-------------------- -------------------
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS
--------------------------- -------- ------- -------------------
<S> <C> <C> <C>
Gary M. Cypres(2)................................... $175,000 $ -- --
Chairman of the Board,
Chief Executive Officer and President
Ran Birkins(3)...................................... 97,262 12,000 --
Senior Vice President of Credit
and Collections
Ed Valdez(4)........................................ 84,615 10,000 --
Senior Vice President of Credit
Russell J. Grisanti(5).............................. 54,788 -- --
Senior Vice President and
Chief Financial Officer
</TABLE>
- ---------------
(1) Certain of the Company's executive officers receive benefits in addition to
salary and cash bonuses. The aggregate amount of such benefits, however, do
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such Named Executive Officer.
(2) Mr. Cypres' compensation was paid to G.M. Cypres & Co. by Holdings for
services rendered to it.
(3) Mr. Birkins became an executive officer of the Company upon its formation.
(4) Mr. Valdez became an executive officer of the Company upon its formation.
(5) Mr. Grisanti became an executive officer of the Company upon its formation.
Mr. Grisanti joined the Company in September 1995 at an annual salary of
$180,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company will establish a Compensation Committee upon consummation of
the Offering. The Compensation Committee will consist of Mr. Caldera and Mr.
Legaspi. Prior to the establishment of the Compensation Committee, decisions
concerning the compensation of executive officers were made by Mr. Cypres, the
Company's Chairman of the Board, Chief Executive Officer and President. None of
the executive officers of the Company currently serves as a director or member
of the Compensation Committee of another entity or of any other committee of the
board of directors of another entity performing similar functions. See "The
Reorganization and Certain Relationships and Agreements among the Company,
Banner, Holdings and Other Affiliates."
43
<PAGE> 46
COMPENSATION PURSUANT TO PLANS AND ARRANGEMENTS
Set forth below is information with respect to certain benefit plans and
employment arrangements of the Company pursuant to which cash and non-cash
compensation is proposed to be paid or distributed in the future to the
directors and executive officers of the Company. Base compensation does not
include compensation pursuant to any of the plans and arrangements described
herein.
Stock Option Plan
Concurrent with the Offering, the Company will adopt the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan has been approved by the stockholder of
the Company. The 1996 Plan will provide that it is to be administered by a
committee of the Board of Directors (the "Option Committee") consisting of at
least two directors. The Compensation Committee is expected to function as the
Option Committee. The Option Committee has the authority, within limitations as
set forth in the 1996 Plan, to establish rules and regulations concerning the
1996 Plan, to determine the persons to whom options may be granted, the number
of shares of Common Stock to be covered by each option, and the terms and
provisions of the option to be granted. The Option Committee has the right to
cancel any outstanding options and to issue new options on such terms and upon
such conditions as may be consented to by the optionee affected.
A total of 700,000 shares are reserved for issuance under the 1996 Plan. No
individual may be granted options under the 1996 Plan with respect to more than
350,000 shares during the duration of the 1996 Plan. It is expected that options
to purchase 290,000 shares of Common Stock will be granted to eligible
participants under the 1996 Plan effective upon the closing of the Offering with
an exercise price equal to the price to the public set forth on the cover page
of this Prospectus, including to certain executive officers as set forth below.
Upon the effectiveness of these grants, 410,000 shares of Common Stock will
remain available for future grants of options under the 1996 Plan.
The number of shares which may be granted under the 1996 Plan or under any
outstanding options will be proportionately adjusted in the event of any stock
dividend or if the Common Stock shall be split, converted, exchanged,
reclassified or in any way substituted. Notwithstanding any other provision of
the 1996 Plan, in the event of a recapitalization, merger, consolidation, rights
offering, separation, reorganization or liquidation, or any other change in the
Company's corporate structure or outstanding shares, the Option Committee may
make such equitable adjustments to the number and class of shares available
under the 1996 Plan or to any outstanding options as it shall deem appropriate
to prevent dilution or enlargement of rights. The maximum term of any option
granted pursuant to the 1996 Plan is ten years. In general, shares subject to
options granted under the 1996 Plan which expire, terminate or are canceled
without having been exercised in full become available again for option grants.
The class of eligible persons under the 1996 Plan will consist of directors
and employees of, and consultants to, the Company or a parent or subsidiary
thereof, as determined by the Option Committee, except that Non-Employee
Directors can only receive fixed grants of options under the terms set forth in
the 1996 Plan. See "Compensation of the Board of Directors." Options granted
under the 1996 Plan may be incentive stock options ("ISOs") or non-qualified
options, at the discretion of the Option Committee; however, ISOs can only be
granted to employees of the Company or a parent or subsidiary. The 1996 Plan
provides that the exercise price of an option (other than a Non-Employee
Director's option) will be fixed by the Option Committee on the date of grant;
however, the exercise price of an ISO must be not less than the fair market
value of the Common Stock on the date of the grant. The exercise price of an ISO
granted to any participant who owns stock possessing more than 10% of the total
combined voting power of all classes of outstanding stock of the Company must be
at least equal to 110% of the fair market value of the Common Stock on the date
of grant. Any ISOs granted to such participants also must expire within five
years from the date of grant. Additionally, options granted under the 1996 Plan
will not be ISOs to the extent that the aggregate fair market value of the
shares with respect to which ISOs under the 1996 Plan (or under any other plan
maintained by the Company or a parent or subsidiary thereof) first become
exercisable in any year exceeds $100,000. No options shall be granted under the
1996 Plan on or after the tenth anniversary of the adoption of the 1996 Plan.
44
<PAGE> 47
Options will be non-transferable and non-assignable; provided, however,
that the estate of a deceased holder can exercise options. Options (other than
Non-Employee Directors' options) are exercisable by the holder thereof subject
to terms fixed by the Option Committee. However, no option can be exercised
until at least six months after the date of grant.
Notwithstanding the above, an option will be exercisable immediately upon
the happening of any of the following (but in no event during the six-month
period following the date of grant or subsequent to the expiration of the term
of an option): (i) the holder's retirement on or after attainment of age 65;
(ii) the holder's disability or death; (iii) a "change of control" (as defined
in the 1996 Plan) of the Company while the holder is in the employ or service of
the Company; or (iv) the occurrence of such special circumstances or events as
the Option Committee determines merits special consideration, except with
respect to Non-Employee Directors' options. Under the 1996 Plan, an option
holder generally may pay the exercise price in cash, by check, by delivery to
the Company of shares of Common Stock already owned by the holder or, except
with respect to Non-Employee Directors' options, by such other method as the
Option Committee may permit from time to time.
If an option holder terminates employment with the Company or service as a
director of or consultant to the Company while holding an unexercised option,
the option will terminate 30 days after such termination of employment or
service unless the option holder exercises the option within such 30-day period.
However, all options held by an option holder will terminate immediately if the
termination is a result of a violation of such holder's duties. If cessation of
employment or service is due to retirement on or after attainment of age 65,
disability or death, the option holder or such holder's successor-in-interest,
as the case may be, is permitted to exercise any option within three months
after retirement or within one year after disability or death.
The 1996 Plan may be terminated and may be modified or amended by the
Option Committee or the Board of Directors at any time; provided, however, that
(i) no modification or amendment either increasing the aggregate number of
shares which may be issued under options or to any individual or modifying the
requirements as to eligibility to receive options will be effective without
stockholder approval within one year of the adoption of such amendment and (ii)
no such termination, modification or amendment of the 1996 Plan will alter or
affect the terms of any then outstanding options without the consent of the
holders thereof.
The table below sets forth certain information with respect to options to
be granted under the 1996 Plan upon the closing of the Offering to all current
executive officers and proposed directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDER OPTIONS
NAME TO BE GRANTED
---- ----------------
<S> <C>
Gary M. Cypres....................................................... 75,000
Ran Birkins.......................................................... 25,000
Ed Valdez............................................................ 30,000
Russell J. Grisanti.................................................. 20,000
Louis Caldera........................................................ 7,000
Jose de Jesus Legaspi................................................ 7,000
</TABLE>
Supplemental Executive Retirement Plan
Concurrent with the Offering, the Company will adopt a defined benefit
Supplemental Executive Retirement Plan (the "SERP Plan") which will provide a
supplemental retirement benefit to certain key management employees.
To vest in the SERP Plan, an employee must have at least 10 years of
service with the Company, including five years subsequent to the adoption of the
plan. Upon completion of the Offering, Mr. Cypres will be credited with ten
years of service with the Company and will fulfill his post-adoption service on
December 31, 1997 by acting as the Company's President and Chief Executive
Officer until such date. Participation in the SERP Plan will be determined by
the Board of Directors. The SERP Plan benefits are a function of length of
service with the Company and Final Average Compensation (average monthly
45
<PAGE> 48
compensation during the 36 consecutive months of the last 60 months of the
participant's employment that produces the highest average compensation,
including salary and bonus).
Benefits are equal to a targeted percentage of Final Average Compensation
as determined by the Board of Directors upon selection of the employee to
participate in the SERP Plan. In no case will the rate exceed fifty (50%)
percent of the Final Average Compensation as of the date of the participant's
retirement or termination of employment, multiplied by the ratio of the actual
years of service as of the applicable event to the participant's years of
service projected to the participant's Normal Retirement Date (the first day of
the month after the participant attains age 60). A vested participant who
terminates employment at or after his Normal Retirement Date will receive the
full targeted percentage of his Final Average Compensation. Mr. Cypres will
participate in the SERP Plan.
Executive Incentive Bonus Program
The Compensation Committee may grant contingent performance bonuses to
certain executive officers of the Company, including the Named Executive
Officers. The amounts of most incentive bonuses will be payable to the extent
that a recipient or the Company achieves performance goals established by the
Company's Board of Directors.
Executive Deferred Salary and Bonus Plan
Concurrent with the Offering, the Company will adopt the Executive Deferred
Salary and Bonus Plan ("EDP"), which will cover the Named Executive Officers and
certain other executives of the Company. Pursuant to the EDP, a participant may
elect to defer up to 35% of the participant's base salary and up to 100% of any
bonus awarded pursuant to the Company's Executive Incentive Bonus Program.
Elections under the EDP to defer base salary and bonus are made annually prior
to the commencement of each year. Any amounts deferred under the EDP earn
interest based upon the prime rate and are generally payable in the manner
selected by the participant. Following the completion of the Offering, the EDP
will be administrated by the Compensation Committee of the Board of Directors.
Employment Agreement
Concurrent with the Offering, the Company will enter into an employment
agreement with Mr. Cypres, and the present arrangement under which G.M. Cypres &
Co. is paid $250,000 per annum for Mr. Cypres' services will terminate. Under
the new employment agreement, Mr. Cypres will serve as the Company's Chairman of
the Board for a period of five years at a base salary of $175,000 per year and
will be eligible to participate in the Company's executive compensation plans.
Mr. Cypres will also agree to serve as the Company's President and Chief
Executive Officer until December 31, 1997. If the Company has not named a new
President and Chief Executive Officer by December 31, 1997, Mr. Cypres will
continue in this capacity for a period of up to three additional years and will
receive an adjustment of his compensation as determined by the Board of
Directors. The employment agreement also provides that Mr. Cypres will
participate in the Company's SERP Plan and be credited with five years of
service for his contribution since the 1991 Acquisition and an additional five
years of service for entering this contract. On December 31, 1997 Mr. Cypres
will satisfy his post-adoption vesting requirement under the SERP Plan.
If Mr. Cypres is terminated "for cause," which definition generally
includes termination by the Company due to the executive's willful failure to
perform his duties under the employment agreement, Mr. Cypres's personal
dishonesty or breach of his fiduciary duties or the employment agreement, then
the Company will be obligated to pay him only his base salary up to the date
upon which the Company notifies him of his termination "for cause." If Mr.
Cypres is terminated without "cause," becomes disabled or dies, then the Company
will be obligated to pay him or his estate, commencing immediately, a lump sum
payment equal to his base salary for the remaining term of the employment
agreement and to pay him under the SERP Plan as if he had worked to the Normal
Retirement Date.
Mr. Cypres will agree not to solicit employees of or compete with the
Company in any manner following his resignation or termination from the Company
for any period for which a lump sum has been paid by the
46
<PAGE> 49
Company in accordance with the employment agreement, which period shall be no
less than 12 months. The Company does not have employment agreements with any
other of its executive officers or other members of management.
Indemnification Arrangements
Concurrent with the Offering, the Company will enter into Indemnification
Agreements pursuant to which it will agree to indemnify certain of its directors
and officers against judgments, claims, damages, losses and expenses incurred as
a result of the fact that any director or officer, in his capacity as such, is
made or threatened to be made a party to any suit or proceeding. Such persons
will be indemnified to the fullest extent now or hereafter permitted by the
Delaware General Corporations Law (the "DGCL"). The Indemnification Agreements
will also provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding. The Company's
Certificate of Incorporation and Bylaws provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by the DGCL.
See "Description of Capital Stock -- Limitation of Liability."
47
<PAGE> 50
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of April 15, 1996, and as adjusted to reflect the
sale of the shares of Common Stock offered hereby, of (i) each person known by
the Company to own beneficially five percent or more of the outstanding Common
Stock immediately prior to the Offering; (ii) each member and proposed member of
the Board of Directors; (iii) each executive officer of the Company; and (iv)
all members and proposed members of the Board of Directors and the executive
officers of the Company as a group. The address of each person listed below is
5480 East Ferguson Drive, Commerce, California 90022 unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING OFFERING
------------------- -------------------
NAME OF BENEFICIAL OWNERS AMOUNT PERCENT AMOUNT PERCENT
- ------------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Banner's Central Electric, Inc.(1)..................... 5,150,000 100.0% 5,150,000 73.6%
Gary M. Cypres(2)...................................... 5,150,000 100.0% 5,150,000 73.6%
Ran Birkins............................................ -- N/A -- N/A
Ed Valdez.............................................. -- N/A -- N/A
Russell J. Grisanti.................................... -- N/A -- N/A
Louis Caldera.......................................... -- N/A -- N/A
Jose de Jesus Legaspi.................................. -- N/A -- N/A
All Directors and executive officers as a group (6
persons)............................................. 5,150,000 100.0% 5,150,000 73.6%
</TABLE>
- ---------------
(1) Banner is a wholly-owned subsidiary of Holdings. Holdings is controlled by
West Coast. All the outstanding non-voting common stock of Holdings is owned
by Wells Fargo & Company. Mr. Cypres is Chairman of the Board, Chief
Executive Officer, Chief Financial Officer and President of Holdings and
Banner and the managing general partner of West Coast. Mr. Cypres, through
West Coast, Holdings and Banner, controls the Company. See "Risk
Factors -- Concentration of Voting Control; Potential Conflicts of Interest"
and "The Reorganization and Certain Relationships and Agreements among the
Company, Banner, Holdings and Other Affiliates."
(2) Includes the 5,150,000 shares of Common Stock owned by Banner. Mr. Cypres
disclaims beneficial ownership of these shares. Mr. Cypres is Chairman of
the Board, Chief Executive Officer, Chief Financial Officer and President of
Holdings and Banner and the managing general partner of West Coast. West
Coast controls Holdings, the sole shareholder of Banner. Mr. Cypres, through
West Coast, Holdings and Banner, controls the Company. See "Risk
Factors -- Concentration of Voting Control; Potential Conflicts of Interest"
and "The Reorganization and Certain Relationships and Agreements among the
Company, Banner, Holdings and Other Affiliates."
48
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock").
COMMON STOCK
At the time the Company was formed, there were 5,150,000 shares of Common
Stock outstanding which were held of record by Banner. Holders of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor.
Each share of Common Stock entitles the holder thereof to one vote.
Cumulative voting for the election of directors is not permitted, which means
that the holders of the majority of shares voting for the election of directors
can elect all members of the Board of Directors. Except as otherwise required by
law, a majority vote is sufficient for any act of the stockholders. The holders
of Common Stock do not have any preemptive, subscription, redemption or
conversion rights.
Upon liquidation of the Company, subject to the rights of holders of any
Preferred Stock outstanding, the holders of Common Stock are entitled to receive
the Company's assets remaining after payment of liabilities proportionate to
their pro rata ownership of the outstanding shares of Common Stock. The holders
of Common Stock have no preemptive or conversion rights or other subscription
rights, and there are no redemption or sinking fund provisions applicable to the
Common Stock. All of the outstanding shares of Common Stock are fully paid and
nonassessable, and all of the Common Stock offered hereby, when issued, will be
fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action of the
stockholders of the Company, to issue, from time to time, shares of Preferred
Stock in one or more series and with such relative rights, powers, preferences,
limitations and as the Board of Directors may determine at the time of issuance.
Such shares may be converted into Common Stock and may be superior to the Common
Stock in the payment of dividends, liquidation, voting and other rights,
preferences and privileges.
There are 5,000,000 authorized and unissued shares of Preferred Stock. The
existence of authorized but unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a merger, tender offer, proxy consent or otherwise.
For example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock to
be issued without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent stockholder or stockholder group or create a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors. In this regard, the Certificate of
Incorporation grants the Board of Directors broad power to establish the rights
and preferences of authorized and unissued Preferred Stock. The issuance of
shares of Preferred Stock pursuant to the Board of Director's authority
described above could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the rights and
powers, including voting rights, of such holders and may have the effect of
delaying, deterring or preventing a change in control of the Company. The Board
of Directors does not currently intend to seek stockholder approval prior to any
issuance of Preferred Stock, unless otherwise required by law.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, subject to certain exceptions,
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless (i) prior to such date the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, or (ii) upon consummation of the
transaction which resulted
49
<PAGE> 52
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned by (x) persons
who are directors and also officers and (y) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plans will be tendered in a tender or exchange
offer), or (iii) on or subsequent to such date the business combination is
approved by the board of directors and authorized at any annual or special
meeting of stockholders, and not be written consent, by the affirmative vote of
at least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder. Section 203 defines a "business combination" to include
certain mergers, consolidations, asset sales and stock issuances and certain
other transactions resulting in a financial benefit to an "interested
stockholder." In addition, Section 203 defines an "interested stockholder" to
include any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated with such an
entity or person.
LIMITATION OF LIABILITY
The DGCL allows a Delaware corporation to limit a director's personal
liability for monetary damages for breaches of certain fiduciary duties owed to
the corporation and its stockholders. The Certificate of Incorporation contains
a provision that limits the liability of its directors for monetary damages for
any breach of fiduciary duty as a director to the maximum extent permitted by
the DGCL. This provision, however, does not eliminate a director's liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for a transaction
from which the director derived an improper personal benefit or (iv) in respect
of certain unlawful dividend payments or stock purchases or redemptions. The
inclusion of this provision in the Certificate of Incorporation may reduce the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though such an action, if successful,
might otherwise have benefitted the Company and its stockholders. This provision
does not prevent the Company or its stockholders from seeking injunctive relief
or other equitable remedies against its directors under applicable state law,
although there can be no assurance that such remedies, if sought, would be
obtained.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation.
50
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon completion of the Offering, the Company will have outstanding
7,000,000 shares of Common Stock (7,277,000 shares of Common Stock if the
Underwriters' over-allotment option is exercised in full). The 1,850,000 shares
of Common Stock to be sold in the Offering, and any of the 277,000 shares which
may be sold upon exercise of the Underwriters' over-allotment option, will be
freely tradeable by persons other than "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act, without restriction or
registration under the Securities Act. The remaining 5,150,000 shares (the
"Restricted Shares") will be held by Banner. The Restricted Shares may not be
sold unless they are registered under the Securities Act or sold pursuant to an
applicable exemption from registration, including an exemption pursuant to Rule
144 under the Securities Act.
As currently in effect, Rule 144 generally permits the public sale in
ordinary trading transactions of Restricted Securities and of securities owned
by "affiliates" beginning 90 days after the date of this Prospectus if the other
restrictions enumerated in Rule 144 are met. Restricted Securities are
securities acquired directly or indirectly from an issuer or an affiliate of the
issuer in action not involving a public offering. In general, under Rule 144, if
a period of at least two years has elapsed since the later of the date the
Restricted Securities were acquired from the Company or an affiliate, as
applicable, then the holder of such Restricted Securities (including an
affiliate) is entitled, subject to certain conditions, to sell within any
three-month period a number of shares which does not exceed the greater of: (i)
1% of the Company's then outstanding shares of Common Stock; or (ii) the share's
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner-of-sale provisions
and requirements as to notice and the availability of current public information
about the Company. Affiliates may sell shares not constituting Restricted
Securities in accordance with the foregoing limitations and requirements but
without regard to the two-year period. However, a person who is not and has not
been an affiliate of the Company at any time during the 90 days preceding the
sale of the shares, and who has beneficially owned Restricted Securities for at
least three years, is entitled to sell such shares under Rule 144 without regard
to the volume limitations, manner-of-sale provisions and notice and public
information requirements of Rule 144. The holder of the Restricted Shares has
agreed during the 180-day period immediately following the date of this
Prospectus not to sell or otherwise dispose of any securities of the Company
without the consent of the Representative of the Underwriters.
For information concerning shares that may be issued under the Company's
stock option plans and agreements, see "Management-Stock Option Plan."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that sales or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices.
51
<PAGE> 54
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities (the
"Representative"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names, at
the initial offering price, less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of such shares if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Montgomery Securities......................................
---------
Total............................................ 1,850,000
=========
</TABLE>
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow to selected dealers a
concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. The concession to selected dealers and the
reallowances to other dealers may be changed by the Representative and, after
the initial public offering, the offering price and other selling terms may be
changed by the Representative. The Common Stock is offered subject to receipt
and acceptance by the Underwriters and to certain other conditions, including
the right to reject an order in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of the Prospectus, to purchase up to a maximum
of 277,000 additional shares of Common Stock to cover over-allotments, if any,
at the offering price less the underwriting discount set forth on the cover page
of this Prospectus. To the extent that the Underwriters exercise this option,
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
table above. The Underwriters may purchase such shares only to cover
over-allotments made in connection with the Offering.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company and Holdings will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Company's executive officers, directors and shareholder have agreed
that they will not, without the prior written consent of the Representative,
directly or indirectly offer to sell, sell or otherwise dispose of any shares of
Common Stock of the Company owned by them for a period of 180 days after the
date of this Prospectus. In addition, the Company has agreed that for a period
of 180 days after the date of this Prospectus, it will not, without the prior
written consent of the Representative, directly or indirectly offer to sell,
sell, issue, distribute or otherwise dispose of any equity securities or
securities convertible into or exercisable for equity securities or any options,
rights or warrants with respect to any equity securities, except that the
Company may, without such consent, grant options and securities pursuant to
employee benefit plans described in this Prospectus.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial offering price will be determined by
negotiations between management and the Underwriters. Among the factors
considered in such negotiations are the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of management, the
Company's past and present operations, its past and
52
<PAGE> 55
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities market at the time of the Offering and the
market prices of publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stroock & Stroock & Lavan, 2029 Century Park East, Los Angeles,
California. Certain legal matters will be passed upon for the Underwriters by
Manatt, Phelps & Phillips, LLP, 11355 West Olympic Boulevard, Los Angeles,
California.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for the years ended October 31, 1993 and 1994, the two months ended December 31,
1993 and 1994, and the years ended December 31, 1994 and 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, including the rules and
regulations promulgated thereunder, with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. All of these documents
may be inspected without charge at the office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained therefrom at
prescribed rates.
53
<PAGE> 56
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31, 1996
(Unaudited)...................................................................... F-3
Consolidated Statements of Income for the Years Ended October 31, 1993 and 1994, the
Two Months Ended December 31, 1993 and 1994, the Years Ended December 31, 1994
and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited)......... F-4
Consolidated Statements of Stockholder's Equity for the Years Ended October 31, 1993
and 1994, the Two Months Ended December 31, 1994, the Year Ended December 31,
1995, and the Three Months Ended March 31, 1996 (Unaudited)...................... F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1993 and 1994,
the Two Months Ended December 31, 1993 and 1994, the Years Ended December 31,
1994 and 1995, and the Three Months Ended March 31, 1995 and 1996 (Unaudited).... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Central Financial Acceptance Corporation
Los Angeles, California:
Upon completion of the reorganization described in Notes 1 and 11 of the
accompanying consolidated financial statements, we will be in a position to
render the following opinion:
"We have audited the accompanying consolidated balance sheets of
Central Financial Acceptance Corporation and subsidiaries (the "Company",
see Note 1, Basis of Presentation) as of December 31, 1994 and 1995, and
the related consolidated statements of income, stockholder's equity, and
cash flows for the years ended October 31, 1993 and 1994, the two months
ended December 31, 1993 and 1994, and the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
"We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
"In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position of
Central Financial Acceptance Corporation and subsidiaries as of December
31, 1994 and 1995 and the results of their operations and their cash flows
for the years ended October 31, 1993 and 1994, the two months ended
December 31, 1993 and 1994, and the years ended December 31, 1994 and 1995
in conformity with generally accepted accounting principles.
"DELOITTE & TOUCHE LLP
Los Angeles, California
April 12, 1996"
DELOITTE & TOUCHE LLP
Los Angeles, California
April 12, 1996
F-2
<PAGE> 58
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash............................................. $ 215,000 $ 7,000 $ 133,000
Finance receivables.............................. 70,328,000 94,264,000 89,898,000
Prepaid expenses and other current assets........ 294,000 1,237,000 1,344,000
Deferred income taxes............................ 1,644,000 2,473,000 2,473,000
Property and equipment, net...................... 7,000 2,060,000 2,098,000
Intangible asset, net............................ 1,454,000 1,399,000 1,385,000
----------- ------------ -----------
TOTAL.............................................. $73,942,000 $101,440,000 $97,331,000
=========== ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable.................................... $48,845,000 $ 63,967,000 $60,479,000
Accrued expenses and other current liabilities... 836,000 1,415,000 1,330,000
Income taxes payable............................. 310,000 1,576,000 1,140,000
Long-term debt................................... 850,000 850,000
----------- ------------ -----------
Total liabilities........................ 49,991,000 67,808,000 63,799,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Preferred stock; $0.01 par value; 5,000,000
shares authorized; no shares outstanding......
Common stock; $0.01 par value; 20,000,000 shares
authorized; 5,150,000 shares issued and
outstanding................................... 52,000 52,000 52,000
Paid-in capital.................................. 19,520,000 26,082,000 24,879,000
Retained earnings................................ 4,379,000 7,498,000 8,601,000
----------- ------------ -----------
Total stockholder's equity............... 23,951,000 33,632,000 33,532,000
----------- ------------ -----------
TOTAL.............................................. $73,942,000 $101,440,000 $97,331,000
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 59
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Consumer Product
Portfolio interest
income............ $ 9,010,000 $11,444,000 $1,714,000 $2,057,000 $11,787,000 $12,508,000 $2,955,000 $3,205,000
Small Loan Portfolio
interest
income............ 134,000 672,000 54,000 439,000 1,057,000 5,095,000 1,009,000 2,093,000
Automobile sales.... 4,417,000 2,038,000
Transaction fees on
contracts
purchased from
related party..... 830,000 844,000 137,000 150,000 857,000 916,000 229,000 227,000
Other income........ 1,457,000 1,756,000 304,000 416,000 1,868,000 3,653,000 654,000 1,722,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Total revenues.. 11,431,000 14,716,000 2,209,000 3,062,000 15,569,000 26,589,000 4,847,000 9,285,00
COSTS AND EXPENSES:
Operating
expenses.......... 4,519,000 5,009,000 864,000 1,025,000 5,170,000 8,150,000 1,522,000 2,504,000
Cost of automobiles
sold.............. 3,071,000 1,355,000
Provision for credit
losses............ 3,264,000 3,002,000 696,000 1,617,000 3,923,000 5,859,000 1,106,000 2,347,000
Interest expense.... 2,279,000 2,523,000 339,000 617,000 2,801,000 4,278,000 1,075,000 1,241,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Total costs
and expenses.. 10,062,000 10,534,000 1,899,000 3,259,000 11,894,000 21,358,000 3,703,000 7,447,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT)
FOR INCOME TAXES.... 1,369,000 4,182,000 310,000 (197,000) 3,675,000 5,231,000 1,144,000 1,838,000
PROVISION (BENEFIT)
FOR INCOME TAXES.... 572,000 1,694,000 127,000 (74,000) 1,493,000 2,112,000 465,000 735,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)..... $ 797,000 $ 2,488,000 $ 183,000 $ (123,000) $ 2,182,000 $ 3,119,000 $ 679,000 $1,103,000
=========== =========== ========== ========== =========== =========== ========== ==========
UNAUDITED PRO FORMA
AND SUPPLEMENTARY
DATA (Note 1)
Pro forma net income
per share......... $ 0.61 $ 0.21
=========== ==========
Pro forma weighted
average number of
common shares
outstanding....... 5,150,000 5,150,000
=========== ==========
Supplementary net
income............ $ 4,043,000 $1,330,000
=========== ==========
Supplementary net
income per share.. $ 0.58 $ 0.19
=========== ==========
Supplementary
weighted average
number of common
shares
outstanding....... 7,000,000 7,000,000
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 60
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1992................. $52,000 $12,130,000 $1,217,000 $13,399,000
Net income.............................. 797,000 797,000
Capital contribution.................... 2,950,000 2,950,000
------- ----------- ---------- -----------
BALANCE, OCTOBER 31, 1993................. 52,000 15,080,000 2,014,000 17,146,000
Net income.............................. 2,488,000 2,488,000
Capital withdrawal...................... (1,074,000) (1,074,000)
------- ----------- ---------- -----------
BALANCE, OCTOBER 31, 1994................. 52,000 14,006,000 4,502,000 18,560,000
Net loss................................ (123,000) (123,000)
Capital contribution.................... 5,514,000 5,514,000
------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1994................ 52,000 19,520,000 4,379,000 23,951,000
Net income.............................. 3,119,000 3,119,000
Capital contribution.................... 6,562,000 6,562,000
------- ----------- ---------- -----------
BALANCE, DECEMBER 31, 1995................ 52,000 26,082,000 7,498,000 33,632,000
Net income.............................. 1,103,000 1,103,000
Capital withdrawal...................... (1,203,000) (1,203,000)
------- ----------- ---------- -----------
BALANCE, MARCH 31, 1996 (Unaudited)....... $52,000 $24,879,000 $8,601,000 $33,532,000
======= =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 61
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
-------------------------- -------------------------- --------------------------- -------------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS
FROM
OPERATING
ACTIVITIES:
Net income
(loss).... $797,000 $2,488,000 $ 183,000 $ (123,000) $ 2,182,000 $ 3,119,000 $ 679,000 $ 1,103,000
Adjustments
to
reconcile
net income
(loss) to
net cash
provided by
operating
activities:
Depreciation
and
amortization... 361,000 260,000 64,000 68,000 264,000 386,000 108,000 36,000
Provision
for
credit
losses... 3,264,000 3,002,000 696,000 1,617,000 3,923,000 5,859,000 1,106,000 2,347,000
Deferred
income
taxes... (276,000) 61,000 (47,000) (389,000) (281,000) (829,000)
Changes in
assets
and liabil-
ities:
Prepaid
expenses
and other
current
assets... (31,000) (358,000) (513,000) (24,000) 131,000 (1,203,000) (26,000) (109,000)
Accrued
expenses
and other
liabili-
ties... 212,000 29,000 (96,000) 396,000 521,000 1,845,000 65,000 (521,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
provided
by
operating
activities... 4,327,000 5,482,000 287,000 1,545,000 6,740,000 9,177,000 1,932,000 2,856,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH FLOWS
FROM
INVESTING
ACTIVITIES:
Installment
contracts
(originated
and
acquired)
collected,
net....... (5,796,000) (12,038,000) (6,488,000) (15,283,000) (20,833,000) (29,795,000) 965,000 2,019,000
Capital
expenditures... (2,000) (5,000) (7,000) (2,124,000) (10,000) (58,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
(used
in)
provided
by
investing
activities... (5,796,000) (12,040,000) (6,488,000) (15,288,000) (20,840,000) (31,919,000) 955,000 1,961,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH FLOWS
FROM
FINANCING
ACTIVITIES:
Capital
contribution
(withdrawal).. 2,950,000 (1,074,000) 2,836,000 5,514,000 1,604,000 6,562,000 (4,229,000) (1,203,000)
Proceeds
from
promissory
notes
payable... 850,000
Net
(repayments
of)
proceeds
from notes
payable... (550,000) 8,587,000 2,950,000 6,558,000 12,195,000 15,122,000 1,248,000 (3,488,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
Net
cash
provided
by
(used
in)
financing
activities... 2,400,000 7,513,000 5,786,000 12,072,000 13,799,000 22,534,000 (2,981,000) (4,691,000)
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
NET INCREASE
(DECREASE)
IN CASH..... 931,000 955,000 (415,000) (1,671,000) (301,000) (208,000) (94,000) 126,000
CASH,
BEGINNING OF
PERIOD...... 931,000 931,000 1,886,000 516,000 215,000 215,000 7,000
----------- ------------ ----------- ------------ ------------ ------------ ----------- -----------
CASH, END OF
PERIOD...... $ 931,000 $ 1,886,000 $ 516,000 $ 215,000 $ 215,000 $ 7,000 $ 121,000 $ 133,000
=========== ============ =========== ============ ============ ============ =========== ===========
SUPPLEMENTAL
DISCLOSURES
OF CASH FLOW
INFORMATION:
Interest
paid...... $ 2,162,000 $ 2,498,000 $ 437,000 $ 711,000 $ 2,772,000 $ 4,250,000 $ 1,140,000 $ 1,246,000
Income taxes
paid...... $ 848,000 $ 1,452,000 $ 89,000 $ 186,000 $ 1,549,000 $ 1,675,000 $ 218,000 $ 1,178,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 62
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation -- Central Financial Acceptance Corporation ("CFAC")
was formed in April 1996 and is a wholly owned subsidiary of Banner's Central
Electric, Inc. Banner's Central Electric, Inc. is wholly owned by Banner
Holdings, Inc. ("Holdings") and is a consumer products retailer that provides
its customers with financing for the merchandise it sells. CFAC, Banner's
Central Electric, Inc. and Holdings will enter into an agreement (the
"Reorganization Agreement") whereby, prior to the effectiveness of CFAC's
proposed initial public offering, Holdings will contribute to Banner its
investments in certain wholly owned subsidiaries, along with the subsidiaries'
operations, (the "Holdings Subsidiaries") and Banner's Central Electric, Inc.
will contribute to CFAC its investments in the Holdings Subsidiaries and the
finance portion of its consumer products business, and cash in such amount so as
to leave CFAC with $500,000 of cash on hand upon the Reorganization. Pursuant to
the Reorganization Agreement, the intercompany accounts between CFAC, Banner's
Central Electric, Inc. and Holdings that arise as a result of the Reorganization
Agreement and from other transactions, except with respect to income taxes, will
be forgiven and reclassified as stockholder's equity.
The Reorganization Agreement also provides that CFAC, Banner's Central
Electric, Inc. and Holdings will enter into certain agreements for the purpose
of defining the ongoing relationships among them (see Note 11). The transactions
and agreements to be entered into pursuant to the Reorganization Agreement are
referred to herein as the "Reorganization." Management of CFAC believes that
such agreements provide for reasonable allocations of costs between the parties.
The Reorganization was accounted for at historical cost in a manner similar
to a pooling of interests. The accompanying consolidated financial statements
reflect the combined historical operations of CFAC and its subsidiaries as if
the Reorganization had taken place at the beginning of the periods presented,
except for the contribution of cash in such amount so as to leave CFAC with
$500,000 upon the Reorganization. CFAC and its subsidiaries, as reorganized, are
referred to herein as "Central" or the "Company." Banner's Central Electric,
Inc., including the operations of Banner's Central Electric, Inc. that remain
after contributing the finance portion of its consumer products business to
CFAC, is referred to herein as "Banner."
Unaudited pro forma net income per share is based on the number of common
shares issued by the Company pursuant to the Reorganization that are assumed to
be outstanding as of January 1, 1995. Unaudited supplementary net income per
share is based on the number of common shares issued by the Company pursuant to
the Reorganization and the number of shares to be sold by the Company in the
proposed offering, as if all such shares were outstanding as of January 1, 1995,
and also gives effect to a reduction in interest expense, net of income tax
expense, resulting from the reduction of indebtedness upon application of the
net proceeds of the proposed offering as if it had occurred on January 1, 1995.
Nature of Operations -- The Company provides unsecured small loans and
financing for the purchase of consumer products for customers in greater Los
Angeles and San Francisco, and beginning in 1995, sells and finances the
purchases of used cars and travel tickets. Substantially all of the consumer
product purchases that are financed by the Company are made by customers of
affiliated companies.
On a historical basis for the periods presented, Central's major source of
revenues has been its portfolio of installment contracts acquired from Banner.
Lesser in terms of revenues, but of growing significance, is Central's small
loan business. Beginning in 1995, Central began its used car and travel agency
businesses. Central's finance receivables portfolio comprises a high volume of
low-principal loans to customers who cannot secure credit through traditional
lending sources.
F-7
<PAGE> 63
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Central Financial Acceptance Corporation and
its wholly owned subsidiaries, Central Finance Receivables Corporation, Central
Consumer Finance Company, Central Auto Sales, Inc. and Centravel, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Interim Financial Data -- The interim consolidated financial data as of
March 31, 1996 and for the three months ended March 31, 1995 and 1996 is
unaudited. The information reflects all adjustments, consisting only of normal
recurring entries that, in the opinion of management, are necessary to present
fairly the financial position and results of the Company's operations for the
periods indicated. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
Finance Receivables -- Central's finance receivables include installment
contracts that are purchased from Banner and unaffiliated third-party retailers
that sell the products or services (referred to herein as the "Consumer Product
Portfolio"), receivables that arise from unsecured, small loans (referred to
herein as the "Small Loan Portfolio") and installment contracts that are
originated when customers buy used cars and travel tickets (referred to herein
as the "Automobile Finance Portfolio" and the "Travel Finance Portfolio,"
respectively). Add-on interest of 11% to 13% per annum is included in the face
amount of the finance receivables together with administrative fees that are
charged on certain small loan contracts. The annual percentage rate varies
depending on the length of the contract and the amount of administrative fees.
The contracts provide for scheduled monthly payments and mature generally from 1
to 24 months in the Consumer Product Portfolio, from 1 to 12 months in the Small
Loan and Travel Finance Portfolios, and from 36 to 42 months in the Automobile
Finance Portfolio.
The Company provides an allowance for credit losses in the Consumer
Product, Automobile Finance and Travel Finance Portfolios at the time that the
contract is purchased or the retail sale is made. The allowance for credit
losses in the Small Loan Portfolio is provided for following the origination of
the loans over the period that the events giving rise to the credit losses are
estimated to occur. The Company's portfolios comprise smaller-balance,
homogeneous loans that are evaluated collectively to determine an appropriate
allowance for credit losses. The allowance for credit losses is maintained at a
level considered adequate to cover losses in the existing portfolios. Collection
of past due accounts is pursued by the Company, and when the characteristics of
an individual account indicate that collection is unlikely, the account is
charged off and turned over to a collection agency. Accounts are generally
charged off when they are 91 days past due.
Deferred insurance revenue arises from the deferral of the recognition of
revenue from certain credit insurance contracts. Insurance premium revenue is
recognized over the life of the related contract using a method that
approximates the interest method.
Property and Equipment -- Property and equipment are carried at cost.
Long-lived property is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such an asset may not be
recoverable. If the carrying amount of the asset exceeds the estimated
undiscounted future cash flows to be generated by the asset, an impairment loss
would be recorded to reduce the asset's carrying value to it's estimated fair
value. Depreciation and amortization are computed primarily using the
straight-line method over the estimated lives of the assets, as follows:
<TABLE>
<S> <C>
Furniture, equipment and software................. Five to ten years
Leasehold improvements............................ Life of lease
Building improvements............................. 7 to 39 years
</TABLE>
Intangible Asset -- The intangible asset arose in March 1991 when the
Company acquired all of the outstanding stock of its predecessor. The excess of
the purchase price over the fair value of net assets acquired is being amortized
using the straight-line method over 30 years. The recoverability of the
intangible asset is
F-8
<PAGE> 64
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
analyzed annually based on undiscounted future cash flows. If the carrying value
of the intangible asset exceeds the estimated undiscounted future cash flows, an
impairment loss would be recorded to reduce the asset's carrying value to it's
estimated fair value.
Revenues -- Interest income on the Consumer Product, Automobile Finance and
Travel Finance Portfolios is deferred and recognized over the lives of the
contracts using the "Rule of 78s," which approximates the interest method.
Interest income on the Small Loan Portfolio is deferred and recognized using the
interest method. Transaction fees on contracts purchased from a related party
are recognized using the interest method. Administrative fees are deferred and
recognized over the estimated average life of the Small Loan Portfolio using the
"Rule of 78s," which approximates the interest method. Administrative fees are
included in other income in the consolidated statements of income. Interest
income on the Automobile Finance and Travel Finance Portfolios, which began in
1995, is included in other income in the consolidated statements of income.
Travel Commissions -- Included in other income are revenues from the sale
of travel tickets. For the year ended December 31, 1995 and the three months
ended March 31, 1996 (unaudited), net travel ticket commissions totaled $371,000
and $221,000, respectively.
Income Taxes -- As of November 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109. The effect of adoption was not
material. For the year ended October 31, 1993, the Company computed income taxes
on the deferred method in accordance with Accounting Principles Board Opinion
No. 11. Under SFAS No. 109, income tax expense includes income taxes payable for
the current year and the change in deferred income tax assets and liabilities
for the future tax consequences of events that have been recognized in the
Company's financial statements or income tax returns. A valuation allowance is
recognized to reduce the carrying value of the deferred tax assets if it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Fair Value of Financial Instruments -- The carrying value of the Company's
finance receivables approximates their fair value due to their short term nature
and generally stable rates of interest currently being charged in comparison to
the rates reflected in the existing portfolios. The carrying value of the
Company's notes payable approximates their fair value, as these notes represent
a series of short-term notes at floating interest rates. The carrying value of
the Company's long-term debt approximates its fair value, as the promissory note
bears interest at a floating rate.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. ACQUISITION OF RECEIVABLES PORTFOLIO
During 1994, the Company acquired the receivables portfolio of a furniture
retailer in the San Francisco area that provided installment credit for its
customers. The receivables portfolio was acquired for approximately $6,125,000.
The performance of the receivables portfolio was guaranteed by the seller.
F-9
<PAGE> 65
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCE RECEIVABLES AND INTEREST INCOME
Finance receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Consumer Product Portfolio......................... $67,514,000 $67,811,000 $ 63,069,000
Small Loan Portfolio............................... 16,735,000 37,868,000 35,678,000
Automobile Finance Portfolio....................... 5,545,000 7,660,000
Travel Finance Portfolio........................... 2,969,000 3,367,000
----------- ----------- ------------
84,249,000 114,193,000 109,774,000
Less deferred interest............................. 9,412,000 13,587,000 12,779,000
Less allowance for credit losses................... 3,712,000 5,365,000 6,192,000
Less deferred administrative fees and insurance
revenues......................................... 797,000 977,000 905,000
----------- ----------- ------------
$70,328,000 $94,264,000 $ 89,898,000
=========== =========== ============
</TABLE>
Customers are required to make monthly payments on installment contracts.
The aggregate gross balance of accounts with payments 31 days or more past due
are:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer Product Portfolio:
Past due 31-60 days.................................. $2,264,000 $1,943,000 $ 1,552,000
Past due 61 days or more............................. 2,610,000 2,465,000 2,269,000
---------- ---------- ----------
$4,874,000 $4,408,000 $ 3,821,000
========== ========== ==========
Small Loan Portfolio:
Past due 31-60 days.................................. $ 76,000 $ 500,000 $ 572,000
Past due 61 days or more............................. 105,000 649,000 799,000
---------- ---------- ----------
$ 181,000 $1,149,000 $ 1,371,000
========== ========== ==========
Automobile Finance Portfolio:
Past due 31-60 days.................................. $ 87,000 $ 114,000
Past due 61 days or more............................. 30,000 85,000
---------- ----------
$ 117,000 $ 199,000
========== ==========
Travel Finance Portfolio:
Past due 31-60 days.................................. $ 39,000 $ 54,000
Past due 61 days or more............................. 48,000 47,000
---------- ----------
$ 87,000 $ 101,000
========== ==========
</TABLE>
F-10
<PAGE> 66
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest income for the combined portfolios is as follows:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Product
Portfolio........... $ 9,010,000 $11,444,000 $1,714,000 $2,057,000 $11,787,000 $12,508,000 $2,955,000 $3,205,000
Small Loan
Portfolio........... 134,000 672,000 54,000 439,000 1,057,000 5,095,000 1,009,000 2,093,000
Automobile Finance
Portfolio........... 240,000 261,000
Travel Finance
Portfolio........... 176,000 181,000
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
$ 9,144,000 $12,116,000 $1,768,000 $2,496,000 $12,844,000 $18,019,000 $3,964,000 $5,740,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Consumers Product Portfolio includes
the following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for credit
losses, Beginning of
period.............. $ 2,296,000 $ 2,660,000 $2,660,000 $2,565,000 $ 2,786,000 $ 3,169,000 $3,169,000 $3,711,000
Provision for credit
losses.............. 3,198,000 2,758,000 655,000 1,229,000 3,332,000 3,852,000 826,000 1,191,000
Write-offs, net of
recoveries.......... (2,834,000) (2,853,000) (529,000) (625,000) (2,949,000) (3,310,000) (679,000) (930,000)
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Allowance for credit
losses, End of
period.............. $ 2,660,000 $ 2,565,000 $2,786,000 $3,169,000 $ 3,169,000 $ 3,711,000 $3,316,000 $3,972,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Small Loan Portfolio includes the
following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------- ----------------------- ------------------------- -----------------------
1993 1994 1993 1994 1994 1995 1995 1996
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allowance for credit
losses, Beginning of
period.............. $ 66,000 $ 66,000 $ 190,000 $ 107,000 $ 543,000 $ 543,000 $1,194,000
Provision for credit
losses.............. $ 66,000 244,000 41,000 388,000 591,000 1,547,000 280,000 899,000
Write-offs, net of
recoveries.......... (120,000) (35,000) (155,000) (896,000) (86,000) (487,000)
----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
Allowance for credit
losses, End of
period.............. $ 66,000 $ 190,000 $ 107,000 $ 543,000 $ 543,000 $ 1,194,000 $ 737,000 $1,606,000
=========== =========== ========== ========== =========== =========== ========== ==========
</TABLE>
The allowance for credit losses in the Automobile Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED 1996
DECEMBER 31, ------------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Allowance for credit losses, beginning of period...... $ -- $410,000
Provision for credit losses........................... 410,000 194,000
Write-offs, net of recoveries......................... -- (60,000)
-------- --------
Allowance for credit losses, end of period............ $410,000 $544,000
======== ========
</TABLE>
F-11
<PAGE> 67
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The allowance for credit losses in the Travel Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED 1996
DECEMBER 31, ------------------
1995
------------ (UNAUDITED)
<S> <C> <C>
Allowance for credit losses, beginning of period.......... $ -- $ 50,000
Provision for credit losses............................... 50,000 63,000
Write-offs, net of recoveries............................. -- (43,000)
------- --------
Allowance for credit losses, end of period................ $ 50,000 $ 70,000
======= ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ -- $1,568,000 $ 1,568,000
Improvements...................................... 146,000 154,000
Furniture, equipment and software................. 8,000 417,000 467,000
------ ---------- ----------
8,000 2,131,000 2,189,000
Less accumulated depreciation and amortization.... 1,000 71,000 91,000
------ ---------- ----------
$7,000 $2,060,000 $ 2,098,000
====== ========== ==========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Excess of purchase price over the fair value
of net assets acquired.................... $ 1,662,000 $ 1,662,000 $ 1,662,000
Less accumulated amortization............... 208,000 263,000 277,000
----------- ----------- -----------
$ 1,454,000 $ 1,399,000 $ 1,385,000
=========== =========== ===========
</TABLE>
7. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank of America line of credit.............. $38,825,000 $40,317,000 $38,529,000
Wells Fargo line of credit.................. 10,020,000 23,650,000 21,950,000
----------- ----------- -----------
$48,845,000 $63,967,000 $60,479,000
=========== =========== ===========
</TABLE>
The Company has a line of credit agreement with Bank of America National
Trust and Savings Association (the "Bank of America Line of Credit") that, as
amended, provides for the issuance of notes up to $60,000,000, subject to an
allowable borrowing base. The amounts outstanding under these notes bear
interest
F-12
<PAGE> 68
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at rates that are determined by the type of borrowing. Borrowings under the
notes are collateralized by the Consumer Product Portfolio. The Bank of America
Line of Credit, as amended, matures on August 30, 1996 and contains certain
restrictive covenants that prohibit the Company from paying dividends and
require, among other things, the maintenance of certain financial ratios and
amounts. The Company is required to maintain specified levels of tangible net
worth and cash flow to interest coverage ratios, and cannot exceed a specified
ratio of debt to tangible net worth, as such terms are defined in the line of
credit agreement. Other ratios must be maintained related to the performance of
the Company's Consumer Product Portfolio. Borrowings under the facility bore
interest at weighted average rates of 8.21% and 7.89% per annum as of December
31, 1995 and March 31, 1996 (unaudited), respectively. The amount of unused
credit under the facility was limited by the allowable borrowing base and was
approximately $962,000 at December 31, 1995. The credit facility was fully
utilized at March 31, 1996.
The Company has a line of credit agreement with Wells Fargo Bank National
Association (the "Wells Fargo Line of Credit") that, as amended, provides for
the issuance of notes up to $30,000,000, subject to an allowable borrowing base.
The amounts outstanding under these notes bear interest at rates that are
determined by the type of borrowing. Borrowings under the notes are
collateralized by the Small Loan, Automobile Finance and Travel Finance
Portfolios. The Wells Fargo Line of Credit, as amended, expires on July 1, 1996.
The credit facility contains certain restrictive covenants that prohibit the
Company from paying dividends and require, among other things, the maintenance
of certain financial ratios and amounts. The Company is required to maintain
specified levels of tangible net worth, net income, and cash flow to interest
coverage ratios, and cannot exceed a specified ratio of debt to tangible net
worth, as such terms are defined in the line of credit agreement related to one
of the Company's subsidiaries. Other ratios must be maintained related to the
performance of the Company's Small Loan, Automobile Finance and Travel Finance
Portfolios. Borrowings under the facility bore interest at weighted average
rates of 8.11% and 7.71% per annum as of December 31, 1995 and March 31, 1996
(unaudited), respectively. The amount of unused credit under the facility was
limited by the allowable borrowing base and was approximately $4,134,000 and
$5,996,000 at December 31, 1995 and March 31, 1996 (unaudited), respectively.
The Company is required to pay a commitment fee of 0.375% per annum for
unused portions of its lines of credit. These fees totaled $118,000, $88,000,
$24,000, $14,000, $78,000, $179,000, $19,000 and $54,000 for the years ended
October 31, 1993 and 1994, the two months ended December 31, 1993 and 1994, the
years ended December 31, 1994 and 1995, and the three months ended March 31,
1995 and 1996 (unaudited), respectively, and are included with operating
expenses in the consolidated statements of income.
8. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate (8.25% at March 31, 1996 (unaudited)).
Interest is payable monthly and the principal is due July 1998. The note is
secured by a deed of trust.
9. INCOME TAXES
The Company pays federal and state income taxes as part of its parent
company's consolidated group. Income tax obligations are paid by an affiliated
company and allocated to the Company based upon separate computations of Central
and its subsidiaries' taxable income.
F-13
<PAGE> 69
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
---------------------- -------------------- -----------------------
1993 1994 1993 1994 1994 1995
--------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Currently payable:
Federal................... $ 653,000 $1,266,000 $136,000 $ 243,000 $1,373,000 $2,289,000
State..................... 195,000 367,000 38,000 72,000 401,000 652,000
--------- ---------- -------- --------- ---------- ----------
848,000 1,633,000 174,000 315,000 1,774,000 2,941,000
--------- ---------- -------- --------- ---------- ----------
Deferred:
Federal................... (213,000) 44,000 (37,000) (301,000) (220,000) (661,000)
State..................... (63,000) 17,000 (10,000) (88,000) (61,000) (168,000)
--------- ---------- -------- --------- ---------- ----------
(276,000) 61,000 (47,000) (389,000) (281,000) (829,000)
--------- ---------- -------- --------- ---------- ----------
Provision (benefit) for
income taxes.............. $ 572,000 $1,694,000 $127,000 $ (74,000) $1,493,000 $2,112,000
========= ========== ======== ========= ========== ==========
</TABLE>
A reconciliation of the provision for income taxes to the statutory rates
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
------------- -------------- ------------- -------------
1993 1994 1993 1994 1994 1995 1995 1996
---- ---- ---- ----- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal income taxes at statutory rates............. 34.0% 35.0% 35.0% (35.0)% 35.0% 35.0% 35.0% 35.0%
State franchise taxes, net of federal benefit....... 6.4 6.0 5.9 (5.1) 6.0 6.0 6.0 6.1
Amortization of the excess purchase price over the
fair value of assets required..................... 1.4 0.5 1.0 1.6 0.5 0.4 0.4 0.2
Other............................................... (1.0) (0.9) 0.9 (0.9) (1.0) (0.8) (1.3)
---- ---- ---- ----- ---- ---- ---- ----
41.8% 40.5% 41.0% (37.6)% 40.6% 40.4% 40.6% 40.0%
===== ===== ===== ===== ===== ===== ==== ====
</TABLE>
The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Allowance for credit losses............................... $1,607,000 $2,323,000
Deferred revenue.......................................... 145,000 162,000
Los Angeles Revitalization Zone credit carryforward....... 320,000 526,000
Other..................................................... (108,000) (12,000)
Valuation Allowance....................................... (320,000) (526,000)
---------- ----------
$1,644,000 $2,473,000
========== ==========
</TABLE>
The Company has available state income tax credit carryforwards that arise
from operating in the Los Angeles Revitalization Zone. A valuation allowance was
recorded to reduce the carrying value of these tax credit carryforwards to zero
because it is more likely than not that some portion of the carryforwards will
not be realized.
11. RELATED PARTY TRANSACTIONS
As discussed in Note 1, prior to the effectiveness of its proposed initial
public offering, the Company will enter into the Reorganization Agreement and
certain other agreements with Banner, the predominant source
F-14
<PAGE> 70
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's consumer product contracts, and Holdings (the "Financing
Agreement," the "Option Agreement," and the "Operating Agreement"). The
accompanying consolidated financial statements have been prepared as if such
agreements and the Reorganization Agreement were in place from 1991.
The Financing Agreement grants the Company the exclusive right to provide
financing to Banner's customers for a term of fifteen years from the date of the
Reorganization and provides that the Company will purchase the contracts from
Banner at face value less a 1.6% transaction fee, or, if the Company originates
such receivables, Banner will be obligated to pay the Company a fee of 1.6% on
each such receivable originated by the Company. The Company may terminate the
Financing Agreement at any time upon one year's prior written notice to Banner.
In the accompanying consolidated financial statements, the transaction fee was
computed based on 1.6% of the average net receivables in the Consumer Product
Portfolio, which approximates the transaction fee that would be computed based
on 1.6% of net contracts purchased from Banner recognized using the interest
method. The transaction fee totaled $830,000, $844,000 $137,000, $150,000,
$857,000, $916,000, $229,000 and $227,000 for the years ended October 31, 1993
and 1994, the two months ended December 31, 1993 and 1994, the years ended
December 31, 1994 and 1995, and the three months ended March 31, 1995 and 1996
(unaudited), respectively.
The Option Agreement provides that Holdings will grant the Company an
option, exercisable for a two-year period commencing one year from the date of
the Reorganization, to acquire all of the outstanding capital stock of Banner
(the "Option") at an exercise price equal to the book value of Banner for the
month ended immediately preceding the exercise. If the Company exercises the
Option, the exercise price is payable in cash or in shares of the Company's
common stock.
The Operating Agreement provides, among other things, that Banner, Holdings
or their affiliates will be obligated to provide to the Company, and the Company
will be obligated to utilize, certain services, including accounting, management
information systems and employee benefits. If such services involve an
allocation of expenses, such allocation shall be made on a reasonable basis. To
the extent that such services directly relate to the finance portion of the
consumer products business contributed by Banner to the Company, or to the
extent that other costs are incurred by Banner, Holdings or their affiliates
that directly relate to the Company, the Company is obligated to pay Banner's,
Holdings' or their affiliates' actual cost of providing such services or
incurring such costs. Employee benefit expenses will be allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses will be
allocated 50% to the Company. The operating costs of Banner's management
information systems function will be allocated initially 50% to the Company for
a period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice. Termination may be made
on a service-by-service basis or in total.
12. PROFIT-SHARING PLAN
The Company participates along with other affiliated companies, in a
profit-sharing plan that covers substantially all employees who meet certain age
and length-of-service requirements. Annual contributions are contingent upon
current and accumulated profits and are at the sole discretion of the Board of
Directors. Profit-sharing expense allocated to the Company for the years ended
October 31, 1993 and 1994, the two months ended December 31, 1993 and 1994, the
years ended December 31, 1994 and 1995, and the three months ended March 31,
1995 and 1996 (unaudited) was $62,000, $53,000, $16,000, $11,000, $48,000,
$55,000, $7,000 and $11,000, respectively.
F-15
<PAGE> 71
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is allocated 50% of the cost of various computer equipment
operating leases from Banner, an affiliated company (see Note 11). These leases
expire at various times from 1997 through 2000. The Company's stand-alone loan
and travel centers are leased under noncancelable operating leases that
generally have five-year terms with options to renew.
Aggregate minimum lease commitments under the location leases and one-half
of the computer equipment minimum lease commitments of Banner are as follows:
<TABLE>
<CAPTION>
MARCH 31,
YEAR ENDING DECEMBER 31, 1996
DECEMBER 31 1995 ----------
----------- ------------ (UNAUDITED)
<S> <C> <C>
1996........................ $ 520,000 $ 552,000
1997........................ 384,000 502,000
1998........................ 245,000 349,000
1999........................ 109,000 194,000
2000........................ 43,000 106,000
---------- ----------
$ 1,301,000 $1,703,000
=========== ==========
</TABLE>
Aggregate rental expense for the years ended October 31, 1993 and 1994, the
two months ended December 31, 1993 and 1994, the years ended December 31, 1994
and 1995, and the three months ended March 31, 1995 and 1996 (unaudited) was
$240,000, $320,000, $39,000, $67,000, $348,000, $458,000, $110,000 and $191,000,
respectively.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Management of the Company believes that
litigation currently pending will not have a material adverse effect on the
Company's financial position or results of operations.
* * * * * *
F-16
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any security
other than the shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Reorganization and Certain
Relationships and Agreements Among
the Company, Banner, Holdings and
Other Affiliates.................... 13
Recent Developments................... 17
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 34
Management............................ 41
Principal Shareholders................ 48
Description of Capital Stock.......... 49
Shares Eligible Available for Future
Sale................................ 51
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
----------------------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,850,000 SHARES
LOGO
FINANCIAL ACCEPTANCE
CORPORATION
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the Offering, all of which will
be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee......................................................... $ 9,576.72
NASD Fee................................................................. 3,277.25
NASDAQ National Market Fee............................................... 35,000.00
Transfer Agent and Registrar Fees........................................ *
Printing................................................................. 55,000.00
Legal Fees and Expenses.................................................. *
Accounting Fees.......................................................... *
Blue Sky Qualification Fees and Expenses................................. 15,000.00
Miscellaneous............................................................ *
----------
Total.......................................................... $ *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations such as the Registrant are entitled, under certain circumstances,
to be indemnified against all expenses and liabilities (including attorneys'
fees) incurred by them as a result of suits brought against them in their
capacity as a director or officer, if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjusted to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Article Eight of the
Registrant's Certificate of Incorporation and Article Six of the Registrant's
By-laws entitles officers, directors and controlling persons of the Registrant
to indemnification to the full extent permitted by Section 145 of the DGCL, as
the same may be supplemented or amended from time to time.
Article Seven of the Registrant's Certificate of Incorporation provides
that no director shall have any personal liability to the Registrant or its
stockholders for any monetary damages for breach of fiduciary duty as a
director, provided that such provision does not limit or eliminate the liability
of any director (i) for breach of such director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (involving certain unlawful dividends or stock
repurchases) or (iv) for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
II-1
<PAGE> 74
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 11, 1996, the Registrant issued 100 shares of Common Stock to
Banner's Central Electric, Inc. in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. All of such
shares were issued in connection with the formation of the Registrant.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1** Form of Underwriting Agreement.
2.1 Reorganization Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated , 1996.
3.1* Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant.
4.1** Specimen Common Stock Certificate of the Registrant.
5.1** Opinion of Stroock & Stroock & Lavan.
10.1 1996 Stock Option Plan dated as of June , 1996.
10.2 Indemnification Agreement between the Company and certain directors and officers of
the Company.
10.3** Employment Agreement between the Company and Gary M. Cypres dated , 1996.
10.4 Financing Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated , 1996.
10.5 Option Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated , 1996.
10.6 Operating Agreement between the Company, Banner's Central Electric, Inc. and Banner
Holdings, Inc. dated , 1996.
10.7 Tax Sharing Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated , 1996.
10.8 Indemnification Agreement between the Company, Banner's Central Electric, Inc. and
Banner Holdings, Inc. dated , 1996.
10.9 Indemnification Agreement dated June , 1996 between the Company and Banner
Holdings, Inc.
10.10 Credit Agreement dated as of December 14, 1993 among Banner's Central Electric
Consumer Finance Company and Wells Fargo Bank, N.A., as amended.
10.11 Credit Agreement amended and restated as of April 29, 1996 among and Bank
of America National Trust and Savings Association.
10.12** Central Financial Acceptance Corporation Supplemental Executive Retirement Plan
dated as of June , 1996.
10.13** Central Financial Acceptance Corporation Executive Deferred Salary and Bonus Plan
dated as of June , 1996.
21.1 Subsidiaries of the Registrant.
23.1** Consent of Stroock & Stroock & Lavan (to be included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Louis Caldera
23.4 Consent of Jose de Jesus Legaspi
24.1 Power of Attorney (included on the signature page).
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
II-2
<PAGE> 75
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering hereof.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Commerce, State of
California, on the 4th day of June 1996.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By: /s/ Gary M. Cypres
-------------------------------------------
Gary M. Cypres
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Gary M. Cypres and Russell J. Grisanti,
or either of them, each acting alone, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, in connection with the
Registrant's Registration Statement on Form S-1 under the Securities Act of 1993
including, without limiting the generality of the foregoing, to sign the
Registration Statement in the name and on behalf of the Registrant or on behalf
of the undersigned as a director or officer of the Registrant, and any and all
amendments or supplements to the Registration Statement, including any and all
stickers and post-effective amendments to the Registration Statement, and to
sign any and all additional registration statements relating to the same
offering of securities as the Registration Statement that are filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any applicable securities exchange or
securities self-regulatory body, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- -------------
<C> <S> <C>
/s/ GARY M. Chairman of the Board of Directors, June 4, 1996
CYPRES Chief Executive Officer and
- ------------------------------------------ President (Principal Executive
Gary M. Cypres Officer)
/s/ RUSSELL J. Senior Vice President and Chief June 4, 1996
GRISANTI Financial Officer (Principal
- ------------------------------------------ Financial and Accounting Officer)
Russell J. Grisanti
</TABLE>
II-4
<PAGE> 77
GRAPHIC ON INSIDE FRONT COVER PAGE:
Seven graphs covering the changing U.S. ethnic profile for the years
indicated. All figures are derived from the U.S. Bureau of Census Current
Population Report, and such source is indicated thereon. The first graph shows a
total U.S. population in the year 1995 of 263 million people, 73.7% of whom are
Whites and 26.3% of whom are Minorities, of which 10.2% are Hispanic, 12.0% are
Blacks and 4.1% are Asian and Other.
The second graph shows a total projected U.S. population in the year 2005
of 286 million people, 69.9% of whom are Whites and 30.1% of whom are
Minorities, of which 12.6% are Hispanic, 12.4% are Blacks and 5.1% are Asian and
Other.
The third graph shows a total projected U.S. population in the year 2020 of
323 million people, 64.3% of whom are Whites and 35.7% of whom are Minorities,
of which 16.2% are Hispanic, 12.9% are Blacks and 6.6% are Asian and Other.
The fourth graph shows a total U.S. population in the year 1995 of 263
million people, of which 193.8 million are Whites, 26.9 million are Hispanic,
31.6 million are Blacks and 10.7 million are Asian and Other.
The fifth graph shows a total projected U.S. population in the year 2005 of
286 million people, of which 200.1 million are Whites, 36.1 million are
Hispanic, 35.5 million are Blacks and 14.3 million are Asian and Other.
The sixth graph shows a total projected U.S. population in the year 2020 of
323 million people, of which 207.6 million are Whites, 52.7 million are
Hispanic, 41.5 million are Blacks and 21.2 million are Asian and Other.
The seventh graph shows a projected population change from the year 1995 to
the year 2020 of 60 million people, comprised of a projected increase in the
White population of 13.8 million, in the Hispanic population of 25.8 million, in
the Black population of 9.9 million and in the Asian and Other population of
10.5 million.
TEXT AT BOTTOM OF PAGE:
By the year 2020, minorities are projected to be 35% of the United States
population and will aggregate 115 million people.
For the period 1995 to 2020, minorities are projected to account for over
75% of the population growth.
Hispanics are projected to be the largest minority group with a total
population of over 50 million by the year 2020.
Source: U.S. Bureau of Census Current Population Report, p. 25-1130.
GRAPHIC ON INSIDE FACING PAGE:
The Registrants logo,"Central" and the names of each of its operating
subsidiaries, Central Installment Credit Corporation, Central Consumer Finance
Company, Central Auto Sales, Inc., Centravel, Inc., Central Financial
Acceptance/Insurance Agency, Inc., and Central Premium Finance Company.
GRAPHIC ON FOLD-OUT OF THE TOP HALF OF INSIDE FACING PAGE:
Five graphs covering the changing U.S. ethnic profile in California for the
years indicated. All figures are derived from the Center for Continuing Study of
the California Economy -- 1995 Report, and such source is indicated thereon. The
first graph shows a total California population in the year 1980 of 23.7 million
people, 66.6% or 15.8 million of whom are Whites and 33.4% of whom are
Minorities, of which 19.0% or 4.5 million are Hispanic, 7.6% or 1.8 million are
Blacks and 6.8% or 1.6 million are Asian and Other.
A second graph shows a total California population in 1995 of 32.7 million
people, 53.5% or 17.5 million of whom are Whites and 46.5% of whom are
Minorities, of which 28.8% or 9.4 million are Hispanic, 6.7% or 2.2 million are
Blacks and 11.0% or 3.6 million are Asian and Other.
<PAGE> 78
A third graph shows a total projected California population in 2005 of 38.3
million people, 46.7% or 17.9 million of whom are Whites and 53.3% of whom are
Minorities, of which 34.1% or 13 million are Hispanic, 6.2% or 2.4 million are
Blacks and 13.0% or 5.0 million are Asian and Other.
A fourth graph shows a total projected California population in 2010 of
40.9 million people, 43.8% or 17.9 million of whom are Whites and 56.2% of whom
are Minorities, of which 36.4% or 14.9 million are Hispanic, 6.1% or 2.4 million
are Blacks and 13.7% or 5.7 million are Asian and Other.
A fifth graph shows a projected population change from the year 1980 to the
year 2020 of 17.2 million people, comprised of a projected increase in the White
population of 2.1 million or 12.2%, in the Hispanic population of 10.4 million
or 60.4%, in the Black population of 0.7 million or 4.1%, and in the Asian and
Other population of 4.0 million or 23.3%.
TEXT BENEATH THE GRAPHS:
By the year 2010, minorities are projected to be 56.2% of the California
population.
For the period 1980 to 2010, it is estimated that minorities will account
for over 87% of the population growth in California.
Hispanics are projected to continue to be the fastest growing minority with
a total population of 14.9 million by the year 2010.
Source: Center for Continuing Study of the California Economy, 1995 Report.
GRAPHIC ON THE FOLD-OUT OF THE LEFT-HAND SIDE OF THE BOTTOM HALF OF THE INSIDE
FACING PAGE:
A drawing of the State of California next to a heading stating "Major
Hispanic Population Regions of California 1996." All figures are derived from
the Strategy Research Corporation 1996 U.S. Hispanic Market Study, and such
source is indicated thereon. The following areas and Hispanic populations are
indicated on the drawing: San Francisco Bay Area, 1,120,000; San Benito,
Monterey and San Luis Obispo, 223,000; Santa Barbara, 158,000; Ventura, 228,000;
Los Angeles, 4,185,000; Orange, 736,000; San Diego, 643,000; Imperial, 103,000;
Riverside, 305,000; San Bernardino, 504,000; Kern, 180,000; Fresno, 632,000;
Sacramento, 553,000.
GRAPHIC ON THE FOLD-OUT OF THE RIGHT-HAND SIDE OF THE BOTTOM HALF OF THE INSIDE
FACING PAGE:
A table entitled "Top Ten States with Largest Hispanic Population 1996".
All figures are derived from the Strategy Research Corporation 1996 U.S.
Hispanic Market Study, and such source is indicated thereon. The following
states and Hispanic populations are indicated: California, 9,800,000; Texas,
5,600,000; New York, 2,570,000; Florida, 2,040,000; Illinois, 1,110,000;
Arizona, 940,000; New Jersey, 900,000; New Mexico, 730,000; Colorado, 530,000;
Massachusetts, 350,000; total, 24,570,000; and percentage of U.S. Hispanic
population covered by such nine states equals 90%.
INSIDE FOLD-OUT BACK COVER PAGE:
A montage on the top half of the page of seven photographs of customers at
various of the Company's locations and six photographs of six of the Company's
storefronts. On the bottom half of the page, samples of four print
advertisements; one page from each of the consumer product finance, travel
finance, small loan and used automobiles businesses.
<PAGE> 79
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 ** Form of Underwriting Agreement........................................
2.1 Reorganization Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated , 1996.......
3.1 * Certificate of Incorporation of the Registrant........................
3.2 * By-laws of the Registrant.............................................
4.1 ** Specimen Common Stock Certificate of the Registrant...................
5.1 ** Opinion of Stroock & Stroock & Lavan..................................
10.1 1996 Stock Option Plan dated as of June , 1996......................
10.2 Indemnification Agreement between the Company and certain directors
and officers of the Company...........................................
10.3 ** Employment Agreement between the Company and Gary M. Cypres dated
, 1996.................................................
10.4 Financing Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated , 1996.................
10.5 Option Agreement between the Company, Banner's Central Electric, Inc.
and Banner Holdings, Inc. dated , 1996......................
10.6 Operating Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated , 1996.................
10.7 Tax Sharing Agreement between the Company, Banner's Central Electric,
Inc. and Banner Holdings, Inc. dated , 1996.................
10.8 Indemnification Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated , 1996.......
10.9 Indemnification Agreement dated June , 1996 between the Company and
Banner Holdings, Inc..................................................
10.10 Credit Agreement dated as of December 14, 1993 among Banner's Central
Electric Consumer Finance Company and Wells Fargo Bank, N.A., as
amended...............................................................
10.11 Credit Agreement amended and restated as of April 29, 1996 among
and Bank of America National Trust and Savings
Association. .........................................................
10.12 ** Central Financial Acceptance Corporation Supplemental Executive
Retirement Plan dated as of June , 1996.............................
10.13 ** Central Financial Acceptance Corporation Executive Deferred Salary and
Bonus Plan dated as of June , 1996..................................
21.1 Subsidiaries of the Registrant........................................
23.1 ** Consent of Stroock & Stroock & Lavan (to be included in Exhibit
5.1)..................................................................
23.2 Consent of Deloitte & Touche LLP......................................
23.3 Consent of Louis Caldera..............................................
23.4 Consent of Jose de Jesus Legaspi......................................
24.1 Power of Attorney (included on the signature page)....................
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
FORM OF
REORGANIZATION AGREEMENT
This REORGANIZATION AGREEMENT (the "Agreement") is dated as of June
__, 1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, Holdings owns (i) 100 shares of common stock, par value $1.00
per share, of Central Consumer Finance Company, a Delaware corporation; (ii)
100 shares of common stock, no par value per share, of Central Auto Sales,
Inc., a California corporation; (iii) 100 shares of common stock, no par value
per share, of Centravel, Inc., a California corporation; (iv) 1,000 shares of
common stock, no par value per share, of Central Financial Acceptance/Insurance
Agency, Inc., a California corporation; (v) 5,000 shares of common stock, no
par value per share, of Central Premium Finance Company, a California
corporation; (vi) 1,000 shares of common stock, no par value per share, of BCE
Properties, Inc., a California corporation; and (v) two ordinary shares, par
value $1.00 per share, of Central International, Ltd., a Turks and Caicos
corporation, which shares constitute all of the outstanding capital stock of
such subsidiaries (collectively, the "Holdings Subsidiaries," and, with respect
to the shares thereof, the "Holdings Shares");
WHEREAS, Banner owns 100 shares of common stock, no par value per
share, of Central Installment Credit Corporation, a California corporation,
which shares constitute all of the outstanding capital stock of such subsidiary
("CICC," and, with respect to the shares of CICC, the "CICC Shares," and,
collectively with the Holdings Shares, the "Shares";
WHEREAS, Holdings desires to contribute to Banner its investments in
the Holdings Subsidiaries;
WHEREAS, Banner desires to contribute to Central, in exchange for
5,149,900 shares of common stock, par value $0.01 per share (the "Central
Shares"), its investments in each of the Holdings Subsidiaries and CICC
(collectively, "the Subsidiaries"), and cash in such amount so as to leave
Central
<PAGE> 2
with cash on hand at the opening of business on the date hereof of $500,000,
(the "Reorganization");
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Contribution from Holdings to Banner. Holdings hereby contributes
to Banner, and Banner hereby accepts from Holdings, the Holdings Shares.
2. Contributions from Banner to Central.
(a) Contribution of Subsidiaries and Assets to Central. Banner
hereby contributes and transfers to Central, and Central hereby accepts from
Banner, Banner's investments in the Subsidiaries and cash in such amount so as
to leave Central with cash on hand in the amount of $500,000. In addition,
Banner and Central, on behalf of themselves and the Subsidiaries, hereby cancel
all intercompany accounts and related obligations, except those accounts and
obligations with respect to income taxes, which accounts and obligations shall
remain in full force and effect.
3. Representations and Warranties of Holdings. Holdings represents
and warrants to Banner as follows:
(a) Title to Holdings Shares. The Holdings Shares have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
of record, beneficially and directly by Holdings free and clear of any security
interests, liens, encumbrances, equities or claims. Upon delivery of the stock
certificates representing the Holdings Shares to Banner, valid and marketable
title to the Holdings Shares will pass free and clear of any security
interests, liens, encumbrances, equities or claims.
(b) Good Standing. Each of the Holdings Subsidiaries is a
corporation duly organized, validly existing and in good standing
-2-
<PAGE> 3
under its jurisdiction of incorporation, has full power and authority to own,
lease and operate its properties and assets and to conduct its business as now
being conducted, and is duly qualified or licensed to do business as a foreign
corporation, and is in good standing, in all jurisdictions where the character
of the properties it owns, leases or operates, or the conduct of its business,
requires such qualification or licensing.
(c) Permits. Holdings and each of the Holdings Subsidiaries holds
all permits, licenses and franchises necessary for or material to the current
use, occupancy or operation of their respective businesses; and no notice of
violation of any applicable permit, license or franchise or other similar law
binding on Holdings or any of the Holdings Subsidiaries with respect to their
respective businesses has been received.
(d) Governmental Authorizations. No governmental authorization,
approval, order, license, permit, franchise, or consent and no registration,
declaration or filing by Holdings or any of the Holdings Subsidiaries with any
governmental authority is required in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(e) Due Authorization. Holdings has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement, to
sell, assign, transfer and deliver the Holdings Shares in the manner provided
in this Agreement and to perform all of its obligations hereunder. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of Holdings enforceable in accordance with its terms.
4. Representations and Warranties of Banner. Banner represents and
warrants to Central as follows:
(a) Title to Shares. The Shares have been duly authorized and validly
issued, are fully paid and non-assessable and are owned of record, beneficially
and directly by Banner free and clear of any security interests, liens,
encumbrances, equities or claims. Upon delivery of the stock certificates
representing the Shares to Central, valid and marketable title to the Shares
will
-3-
<PAGE> 4
pass free and clear of any security interests, liens, encumbrances, equities or
claims.
(b) Good Standing. Each of the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has full power and authority to own, lease and
operate its properties and assets and to conduct its business as now being
conducted, and is duly qualified or licensed to do business as a foreign
corporation, and is in good standing, in all jurisdictions where the character
of the properties it owns, leases or operates, or the conduct of its business,
requires such qualification or licensing.
(c) Permits. Banner and each of the Subsidiaries holds all permits,
licenses and franchises necessary for or material to the current use, occupancy
or operation of their respective businesses; and no notice of violation of any
applicable permit, license or franchise or other similar law binding on Banner
or any of the Subsidiaries with respect to their respective businesses has been
received.
(d) Governmental Authorizations. No governmental authorization,
approval, order, license, permit, franchise, or consent and no registration,
declaration or filing by Banner or any of the Subsidiaries with any
governmental authority is required in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(e) Due Authorization. Banner has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement, to
sell, assign, transfer and deliver the Shares in the manner provided in this
Agreement and to perform all of its obligations hereunder. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of Banner enforceable in accordance with its terms.
5. Representations and Warranties of Central. Central represents and
warrants to each of Holdings and Banner as follows:
-4-
<PAGE> 5
(a) Issuance of Central Shares. The Central Shares, when issued and
delivered in accordance with this Agreement, will be duly and validly issued
and outstanding, fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive rights.
(b) Due Authorization. Central has full legal right, power and
authority, and all approvals required by law, to enter into this Agreement and
to perform all of its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action. This Agreement constitutes the legal, valid and binding obligation of
Central enforceable in accordance with its terms.
6. Deliveries of Holdings. Concurrently with the execution of this
Agreement, Holdings is delivering to Banner the stock certificates representing
the Holdings Shares, duly endorsed in blank or accompanied by proper
instruments of transfer duly signed by Holdings and accompanied by necessary
transfer tax stamps or funds therefor.
7. Deliveries of Banner. Concurrently with the execution of this
Agreement, Banner is delivering to Central (i) the stock certificates
representing the Shares, duly endorsed in blank or accompanied by proper
instruments of transfer duly signed by Banner and accompanied by necessary
transfer tax stamps or funds therefor and (ii) cash in such amount so as to
leave Central with cash on hand in the amount of $500,000 at the opening of
business on the date hereof.
8. Deliveries of Central. Concurrently with the execution of this
Agreement, Central is delivering to Banner the stock certificates representing
the Central Shares in full satisfaction of the purchase price for the Shares.
9. Further Assurances. Each of Holdings and Banner agrees at any
time and from time to time, upon the request of Central, to do, execute,
acknowledge and deliver, or to cause to be done, executed, acknowledged and
delivered, all such further acts, assignments, transfers, powers of attorney
and assurances as may be required for the better assigning, transferring,
conveying, and confirming to Central, or to its successors and assigns, of
-5-
<PAGE> 6
any or all of the Shares and to carry out the terms and conditions of this
Agreement.
10. Survival of Representations and Warranties. The representations
and warranties contained herein shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
remain in full force and effect, notwithstanding any investigation at any time
made by or on behalf of the parties.
11. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any
party without the consent of the other parties.
12. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed
in a registered or certified postpaid envelope, or sent by Federal Express or
other similar overnight courier service, addressed to 5480 East Ferguson Drive,
Commerce, California 90022 or to such changed address as such party may have
fixed by notice or, if given by telecopier, when such telecopy is transmitted
and the appropriate answerback is received.
13. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
14. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not
be amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against
which enforcement of such waiver is sought. A waiver by any party of any
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
-6-
<PAGE> 7
15. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
16. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
17. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
---------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By
---------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By
---------------------------
Gary M. Cypres
Chief Executive Officer and President
-7-
<PAGE> 1
EXHIBIT 10.1
DRAFT AS OF
5/25/96
1996 STOCK OPTION PLAN
OF
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
1. Purpose. The purpose of this Stock Option Plan is to advance the
interests of the Corporation by encouraging and enabling the acquisition of a
larger personal proprietary interest in the Corporation by key employees and
directors of, and consultants to, the Corporation, its Parent and its
Subsidiaries upon whose judgment and keen interest the Corporation is largely
dependent for the successful conduct of its operations and by providing such key
employees, directors and consultants with incentives to put forth maximum
efforts for the success of the Corporation's business. It is anticipated that
the acquisition of such proprietary interest in the Corporation and such
incentives will stimulate the efforts of such key employees, directors and
consultants on behalf of the Corporation, its Parent and its Subsidiaries and
strengthen their desire to remain with the Corporation and its Subsidiaries. It
is also expected that such incentives and the opportunity to acquire such a
proprietary
<PAGE> 2
interest will enable the Corporation, its Parent and its Subsidiaries to attract
desirable personnel.
2. Definitions. When used in this Plan, unless the context otherwise
requires:
(a) "Board of Directors" or "Board" shall mean the Board of
Directors of the Corporation, as constituted at any time.
(b) "Chairman of the Board" shall mean the person who at the
time shall be Chairman of the Board of Directors.
(c) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(d) "Committee" shall mean the Committee hereinafter
described in Section 3.
(e) "Consummation Date" shall mean the date of the
consummation of the Corporation's initial public offering.
(f) "Corporation" shall mean Central Financial
Acceptance Corporation, a Delaware corporation.
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(g) "Eligible Persons" shall mean those persons described in
Section 4 who are potential recipients of Options.
(h) "Fair Market Value" on a specified date shall mean the
average of the high and low sales prices at which a Share is traded on
the stock exchange, if any, on which Shares are primarily traded or, if
the Shares are not then traded on a stock exchange, the average of the
high and low sales prices of a Share as reported on the Nasdaq Stock
Market's National Market or, if the Shares are not then traded on the
Nasdaq Stock Market's National Market, the average of the high and low
sales prices at which a Share is traded on the over-the-counter market,
but if no Shares were traded on such date, then on the last previous
date on which a Share was so traded, or, if none of the above are
applicable, the value of a Share as established by the Committee for
such date using any reasonable method of valuation.
(i) "Initial Public Offering Price" shall mean the price per
Share at which Shares are offered to the public in the Corporation's
initial public offering as set forth on the cover page of the
prospectus relating thereto.
(j) "Options" shall mean the Stock Options granted
pursuant to this Plan.
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(k) "Parent" shall mean a corporation (other than the
Corporation) owning 50% or more of stock having general voting power of
the Corporation.
(l) "Plan" shall mean this 1996 Stock Option Plan of Central
Financial Acceptance Corporation, as adopted by the Board of Directors
on June __, 1996, and approved by stockholders on June __, 1996, as
such Plan from time to time may be amended.
(m) "President" shall mean the person who at the time
shall be the President of the Corporation.
(n) "Share" shall mean a share of common stock of the
Corporation.
(o) "Subsidiary" shall mean any corporation 50% or more of
whose stock having general voting power is owned by the Corporation, or
by another Subsidiary, as herein defined, of the Corporation.
3. Committee. The Plan shall be administered by the Board of
Directors or a Committee appointed by the Board of Directors; provided, however,
that from and after the effective date of the
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<PAGE> 5
registration of the Corporation's Shares pursuant to the Securities Exchange Act
of 1934, as amended from time to time (the "Exchange Act"), the Plan shall be
administered by a Committee which shall consist of two or more directors of the
Corporation, each of whom shall be a "disinterested person" within the meaning
of Rule 16b-3(c)(2) under the Exchange Act and an "outside director" within the
meaning of Section 162(m) of the Code and the regulations promulgated
thereunder. During such time as the Plan is administered by the Board of
Directors, all references herein to the Committee shall be deemed to refer to
the Board of Directors.
4. Participants. All key employees of, and consultants to, the
Corporation, the Parent or a Subsidiary, as determined by the Committee, shall
be eligible to receive Options under the Plan. The parties to whom Options are
granted under this Plan, and the number of Shares subject to each such Option,
shall be determined by the Committee in its sole discretion, subject, however,
to the terms and conditions of this Plan. Employees to whom Options may be
granted include key employees who are also directors of the Corporation, the
Parent or a Subsidiary. Each director of the Corporation who is not also an
employee of the Corporation, and/or its Parent and/or its Subsidiaries
(hereinafter referred to as a "Non-Employee Director") shall be eligible to
receive Options in accordance with the provisions of Section 14 hereof.
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5. Shares. Subject to the provisions of Section 15 hereof, the
Committee may grant Options with respect to an aggregate of up to 700,000
Shares, all of which Shares may be either Shares held in treasury or authorized
but unissued Shares. The maximum number of Shares which may be the subject of
Options granted to any individual during the duration of the Plan shall not
exceed 350,000 Shares. If the Shares that would be issued or transferred
pursuant to any Option are not issued or transferred and cease to be issuable or
transferable for any reason, the number of Shares subject to such Option will no
longer be charged against the limitation provided for herein and may again be
made subject to Options; provided, that the counting of Shares subject to
Options granted under the Plan against the number of Shares available for
further Options shall in all cases conform to the requirements of Rule 16b-3
under the Exchange Act; and provided, further, that with respect to any Option
granted to any Eligible Person who is a "covered employee" as defined in Section
162(m) of the Code and the regulations promulgated thereunder that is canceled
or repriced, the number of Shares subject to such Option shall continue to count
against the maximum number of Shares which may be the subject of Options granted
to such Eligible Person and such maximum number of Shares shall be determined in
accordance with Section 162(m) of the Code and the regulations promulgated.
6. Grant of Options. The number of any Options to be granted to any
Eligible Person shall be determined by the Committee
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in its sole discretion. At the time an Option is granted, the Committee may, in
its sole discretion, designate whether such Option (a) is to be considered as an
incentive stock option within the meaning of Section 422 of the Code, or (b) is
not to be treated as an incentive stock option for purposes of this Plan and the
Code. No Option which is intended to qualify as an incentive stock option shall
be granted under this Plan to any individual who, at the time of such grant, is
not an employee of the Corporation, the Parent, or a Subsidiary.
Notwithstanding any other provision of this Plan to the contrary, to
the extent that the aggregate Fair Market Value (determined as of the date an
Option is granted) of the Shares with respect to which Options which are
designated as (or deemed to be) incentive stock options granted to an employee
(and any incentive stock options granted to such employee under any other
incentive stock option plan maintained by the Corporation, the Parent or any
Subsidiary that meets the requirements of Section 422 of the Code) first become
exercisable in any calendar year exceeds $100,000, such Options shall be treated
as Options which are not incentive stock options. Options with respect to which
no designation is made by the Committee shall be deemed to be incentive stock
options to the extent that the $100,000 limitation described in the preceding
sentence is met. This paragraph shall be applied by taking Options into account
in the order in which they are granted.
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<PAGE> 8
Nothing herein contained shall be construed to prohibit the issuance of
Options at different times to the same person.
The form of an Option shall be determined from time to time by the
Committee. A certificate of Option signed by the Chairman of the Board or the
President or a Vice President of the Corporation, attested by the Treasurer or
an Assistant Treasurer, or Secretary or an Assistant Secretary of the
Corporation and bearing the seal of the Corporation affixed thereto, shall be
issued to each person to whom an Option is granted. The certificate of Option
for an Option shall be legended to indicate whether or not the Option is an
incentive stock option.
7. Purchase Price. The purchase price per Share for the Shares
purchased pursuant to the exercise of an Option shall be fixed by the Committee
at the time of grant of the Option; provided, however, that the purchase price
per Share for the Shares to be purchased pursuant to the exercise of an
incentive stock option shall not in any event be less than 100% of the Fair
Market Value of a Share on the date of grant of the Option.
8. Duration of Options. The duration of each Option shall be determined
by the Committee at the time of grant; provided, however, that the duration of
any Option shall not be more than ten years from the date upon which the Option
is granted.
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9. Ten Percent Stockholders. Notwithstanding any other provision of
this Plan to the contrary, no Option which is intended to qualify as an
incentive stock option may be granted under this Plan to any employee who, at
the time the Option is granted, owns Shares possessing more than 10 percent of
the total combined voting power or value of all classes of stock of the
Corporation, unless the exercise price under such Option is at least 110% of the
Fair Market Value of a Share on the date such Option is granted and the duration
of such Option is no more than five years.
10. Exercise of Options. Except as otherwise provided herein, Options,
after the grant thereof, shall be exercisable by the holder at such rate, times
and subject to such conditions as may be fixed by the Committee at the time of
grant. Notwithstanding the foregoing, all or any part of any remaining
unexercised Options granted to any person may be exercised in the following
circumstances (but in no event during the six-month period commencing on the
date granted): (a) subject to the provisions of Section 13 hereof, immediately
upon (but prior to the expiration of the term of the Option) the holder's
retirement from the Corporation, the Parent and all Subsidiaries on or after his
65th birthday, (b) subject to the provisions of Section 13 hereof, upon the
disability (to the extent and in a manner as shall be determined by the
Committee in its sole discretion) or death of the holder, (c) upon a Change of
Control (as hereinafter defined) while
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<PAGE> 10
the holder is in the employ or service of the Corporation, the Parent or
Subsidiary or (d) upon the occurrence of such special circumstance or event as
in the opinion of the Committee merits special consideration; provided, however,
that the estate of the deceased holder of an Option may exercise it prior to the
expiration of the six-month period described above.
For purposes of the Plan, a "Change of Control" shall be deemed to
occur if (x) both (i) any "person" or group of "persons" (as the term "person"
is used in Sections 13(d) and 14(d) of the Exchange Act) ("Person"), acquires
(or has acquired during the twelve-month period ending on the date of the most
recent acquisition by such Person) direct or indirect beneficial ownership of
securities of the Corporation representing 40% or more of the combined voting
power of the then outstanding securities of the Corporation and (ii) on the date
of the most recent acquisition by any Person referred to in the preceding clause
(i), the direct and indirect beneficial ownership by Banner Holdings, Inc. of
the securities of the Corporation represents in the aggregate less than 40% of
the combined voting power of the then outstanding securities of the Corporation
or (y) a Person acquires (or has acquired during the twelve-month period ending
on the date of the most recent acquisition by such Person) assets from the
Corporation that have a total fair market value equal to or more than one-third
of the total fair market value of all of the assets of the Corporation
immediately prior to such acquisition;
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<PAGE> 11
provided, however, that if any transaction or event or series of transactions or
events resulting in a Change in Control is approved by a majority of the members
of the Board of Directors holding office prior to the transaction or event or
series of transactions or events, then the transaction or event or series of
transactions or events shall not be deemed to be a Change in Control.
Notwithstanding the foregoing, for purposes of subsection (x), a Change in
Control will not be deemed to have occurred if the power to control (directly or
indirectly) the management and policies of the Corporation is not transferred
from a Person to another Person; and, for purposes of subsection (y), a Change
in Control will not be deemed to occur if the assets of the Corporation are
transferred: (i) to a shareholder in exchange for his stock, (ii) to an entity
in which the Corporation has (directly or indirectly) 50% Ownership, or (iii) to
a Person that has (directly or directly) at least 50% Ownership of the
Corporation with respect to its stock outstanding, or to any entity in which
such Person possesses (directly or indirectly) 50% Ownership.
An Option shall be exercised by the delivery of a written notice duly
signed by the holder thereof to such effect ("Exercise Notice"), together with
the Option certificate and the full purchase price of the Shares purchased
pursuant to the exercise of the Option, to the Chairman of the Board or an
officer of the Corporation appointed by the Chairman of the Board for the
purpose of receiving the same. Payment of the full purchase price shall be made
as follows: in cash
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<PAGE> 12
or by check payable to the order of the Corporation; by delivery to the
Corporation of Shares which shall be valued at their Fair Market Value on the
date of exercise of the Option (provided, that a holder may not use any Shares
acquired pursuant to this Plan or any other plan maintained by the Company or a
Subsidiary unless the holder has beneficially owned such Shares for at least six
months); by a combination of the methods of payment previously described; or by
such other method of payment as the Committee in its discretion may permit.
Within a reasonable time after the exercise of an Option, the
Corporation shall cause to be delivered to the person entitled thereto, a
certificate for the Shares purchased pursuant to the exercise of the Option. If
the Option shall have been exercised with respect to less than all of the Shares
subject to the Option, the Corporation shall also cause to be delivered to the
person entitled thereto a new Option certificate in replacement of the
certificate surrendered at the time of the exercise of the Option, indicating
the number of Shares with respect to which the Option remains available for
exercise, or the original Option certificate shall be endorsed to give effect to
the partial exercise thereof.
Notwithstanding any other provision of the Plan or of any Option, no
Option granted pursuant to the Plan may be exercised at
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<PAGE> 13
any time when the Option or the granting or exercise thereof violates any law or
governmental order or regulation.
11. Consideration for Options. The Corporation shall obtain such
consideration for the grant of an Option as the Committee in its discretion may
determine.
12. Non-transferability of Options. Options and all other rights
thereunder shall be non-transferable or non-assignable by the holder thereof
except to the extent that the estate of a deceased holder of an Option may be
permitted to exercise them. Options may be exercised or surrendered during the
holder's lifetime only by the holder thereof.
13. Termination of Employment or Service. All or any part of any
Option, to the extent unexercised, shall terminate immediately, upon the
cessation or termination for any reason of the holder's employment by, or
service with, the Corporation, the Parent or any Subsidiary, except that the
holder shall have until the end of the thirtieth day following the cessation of
his employment or service with the Corporation, the Parent or its Subsidiaries,
and no longer, to exercise any unexercised Option that he could have exercised
on the day on which such employment or service terminated; provided, that such
exercise must be accomplished prior to the expiration of the term of such
Option. Notwithstanding the foregoing, if the cessation of
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<PAGE> 14
employment or service is due to retirement on or after attaining the age of
sixty-five (65) years, or to disability (to an extent and in a manner as shall
be determined in each case by the Committee in its sole discretion) or to death,
the holder or the representative of the estate of a deceased holder shall have
the privilege of exercising the Options which are unexercised at the time of
such retirement, or of such disability or death; provided, however, that such
exercise must be accomplished prior to the expiration of the term of such Option
and (a) within three months of the holder's retirement or (b) within one year of
the holder's disability or death, as the case may be. If the employment or
service of any holder of an Option with the Corporation, the Parent or a
Subsidiary shall be terminated because of the holder's violation of the duties
of such employment or service with the Corporation, the Parent or a Subsidiary
as he may from time to time have, the existence of which violation shall be
determined by the Committee in its sole discretion (which determination by the
Committee shall be conclusive) all unexercised Options of such holder shall
terminate immediately upon such termination of the holder's employment or
service with the Corporation,the Parent and all Subsidiaries, and a holder of
Options whose employment or service with the Corporation, the Parent and any
Subsidiaries is so terminated, shall have no right after such termination to
exercise any unexercised Option he might have exercised prior to the termination
of his employment or service with the Corporation, the Parent and Subsidiaries.
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14. Grants of Options to Non-Employee Directors. Each Non-Employee
Director who is serving on the Board of Directors as of the Consummation Date
shall be granted an Option on the Consummation Date. Commencing on January 1,
1997, each Non- Employee Director who is serving on the Board of Directors as of
the first business day of the Corporation's fiscal year shall be granted an
Option under the Plan on the first business day of such fiscal year. Each Option
granted pursuant to this Section 14 shall entitle the Non-Employee Director to
purchase 7,000 Shares at a purchase price per share equal to the Fair Market
Value of a Share on the date of grant; provided, however, that with respect to
any Options granted to any Non-Employee Director as of the Consummation Date,
the exercise price under the Option granted to such Non-Employee Director on the
Consummation Date shall be the Initial Public Offering Price. Each Option
granted pursuant to this Section 14 shall have a duration of ten years from the
date of grant and shall become exercisable cumulatively as to 20% of the Shares
on the date of grant and on each of the first, second, third and fourth
anniversaries of the date of grant; provided, however, that no such Option may
be exercised during the six-month period commencing on the date of grant.
Notwithstanding the preceding, all or any part of any remaining unexercised
Options granted pursuant to this Section 14 may be exercised (but in no event
during the six-month period commencing on the date of grant) in the event of the
holder's cessation
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<PAGE> 16
of service as a member of the Board on or after his 65th birthday, the holder's
permanent disability (within the meaning of Section 22(e)(3) of the Code), or
the holder's death, during the period beginning on the date of such event and
ending three months after the holder's cessation at or after age 65, or one year
after the holder's disability or death, as the case may be, but in no event
after the expiration of the term of the Option. All or any part of any remaining
unexercised Options granted pursuant to this Section 14 also may be exercised
(but in no event during the six-month period commencing on the date of grant)
upon the occurrence of a Change of Control while the holder is serving as a
member of the Board. Any Option granted pursuant to this Section 14, to the
extent unexercised, shall terminate immediately upon the holder's ceasing to
serve as a member of the Board (for reasons other than deciding to no longer
serve as such at or after age 65, permanent disability (within the meaning of
Section 22(e)(3) of the Code) or death), except that the holder shall have until
the end of the thirtieth day following the cessation of such service to exercise
any unexercised Option that he could have exercised on the day on which such
service terminated; provided that such exercise must be accomplished prior to
the expiration of the term of such Option. Notwithstanding the preceding, if the
service of any holder of an Option granted pursuant to this Section 14 shall be
terminated because of the holder's (a) fraud or intentional misrepresentation,
or (b) embezzlement, misappropriation or conversion of assets or opportunities
of the
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<PAGE> 17
Corporation, the Parent or any Subsidiary, then all such unexercised Options of
the holder shall terminate immediately upon such termination of the holder's
service.
Upon the exercise of any Option granted pursuant to this Section 14,
payment of the full purchase price shall be made in cash, by check payable to
the order of the Corporation, or by delivery to the Corporation of Shares which
shall be valued at their Fair Market Value on the date of exercise of the
Option; provided, however, that the holder may not use any Shares acquired
pursuant to an Option granted under this Plan or any other stock option plan
maintained by the Corporation or any subsidiary, unless the holder has
beneficially owned such Shares for at least six months; or by a combination of
the methods of payment previously described.
No Option may be granted to a Non-Employee Director other than in
accordance with this Section 14. Notwithstanding any other provision of the Plan
to the contrary, the provisions of this Section 14 shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated thereunder.
15. Adjustment Provision. If prior to the complete exercise of any
Option there shall be declared and paid a stock dividend upon
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<PAGE> 18
the Shares or if the Shares shall be split up, converted, exchanged,
reclassified, or in any way substituted for, then the Option, to the extent that
it has not been exercised, shall entitle the holder thereof upon the future
exercise of the Option to such number and kind of securities or cash or other
property subject to the terms of the Option to which he would have been entitled
had he actually owned the Shares subject to the unexercised portion of the
Option at the time of the occurrence of such stock dividend, split-up,
conversion, exchange, reclassification or substitution, and the aggregate
purchase price upon the future exercise of the Option shall be the same as if
the originally optioned Shares were being purchased thereunder.
Any fractional shares or securities issuable upon the exercise of the
Option as a result of such adjustment shall be payable in cash based upon the
Fair Market Value of such shares or securities at the time of such exercise. If
any such event should occur, the number of Shares with respect to which Options
remain to be issued, or with respect to which Options may be reissued, shall be
adjusted in a similar manner.
Notwithstanding any other provision of the Plan, in the event of a
recapitalization, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure or
outstanding shares, the Committee may make such equitable adjustments to the
number of Shares and the class of shares
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<PAGE> 19
available hereunder or to any outstanding Options as it shall deem appropriate
to prevent dilution or enlargement of rights.
16. Issuance of Shares and Compliance with Securities Act. The
Corporation may postpone the issuance and delivery of Shares pursuant to the
grant or exercise of any Option until (a) the admission of such Shares to
listing on any stock exchange on which Shares of the Corporation of the same
class are then listed, and (b) the completion of such registration or other
qualification of such Shares under any State or Federal law, rule or regulation
as the Corporation shall determine to be necessary or advisable. Any holder of
an Option shall make such representations and furnish such information as may,
in the opinion of counsel for the Corporation, be appropriate to permit the
Corporation, in the light of the then existence or non-existence with respect to
such Shares of an effective Registration Statement under the Securities Act of
1933, as from time to time amended (the "Securities Act"), to issue the Shares
in compliance with the provisions of the Securities Act or any comparable act.
The Corporation shall have the right, in its sole discretion, to legend any
Shares which may be issued pursuant to the grant or exercise of any Option, or
may issue stop transfer orders in respect thereof.
17. Income Tax Withholding. If the Corporation, the Parent or a
Subsidiary shall be required to withhold any amounts by reason
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<PAGE> 20
of any Federal, State or local tax rules or regulations in respect of the
issuance of Shares pursuant to the exercise of any Option, the Corporation, the
Parent or the Subsidiary shall be entitled to deduct and withhold such amounts
from any cash payments to be made to the holder of such Option. In any event,
the holder shall make available to the Corporation, the Parent or Subsidiary,
promptly when requested by the Corporation, the Parent or such Subsidiary,
sufficient funds to meet the requirements of such withholding; and the
Corporation, the Parent or Subsidiary shall be entitled to take and authorize
such steps as it may deem advisable in order to have such funds made available
to the Corporation, the Parent or Subsidiary out of any funds or property due or
to become due to the holder of such Option.
18. Administration and Amendment of the Plan. Except as hereinafter
provided, the Board of Directors or the Committee may at any time withdraw or
from time to time amend the Plan as it relates to, and the terms and conditions
of, any Option not theretofore granted, and the Board of Directors or the
Committee, with the consent of the affected holder of an Option, may at any time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any outstanding Option. Notwithstanding the foregoing, any
amendment by the Board of Directors or the Committee which would increase the
number of Shares issuable under the Plan or to any individual or change the
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class of Eligible Persons shall be subject to the approval of the stockholders
of the Corporation within one year of such amendment.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall be
final. The Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and Options effective or provide for their
administration, and may take such other action with regard to the Plan and
Options as it shall deem desirable to effectuate their purpose.
The Plan is intended to comply with Rule l6b-3 under the Exchange Act.
Any provision inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
19. No Right of Employment or Service. Nothing contained herein or in
an Option shall be construed to confer on any employee, consultant or director
any right to be continued in the employ or service of the Corporation, the
Parent or any Subsidiary or derogate from any right of the Corporation, the
Parent and any Subsidiary to retire, request the resignation of or discharge or
otherwise cease its service arrangement with any employee, consultant or
director (without or with pay), at any time, with or without cause.
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20. Final Issuance Date. No Option shall be granted under
the Plan after June __, 2006.
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<PAGE> 1
EXHIBIT 10.2
FORM OF
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is dated as of June
__, 1996, by and between CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware
corporation (the "Company"), and the director and/or officer of the Company
whose name appears on the signature page of this Agreement ("Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors, officers, or in other capacities unless
they are provided with reasonable protection through insurance or
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the corporations;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Company should act to assure such persons that there will be
increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent, and necessary for the Company
contractually to oblige itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve and to take on additional
service for or on behalf of the Company on the condition that Indemnitee be so
indemnified.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the Proceeding in respect of which indemnification
is being sought by Indemnitee.
(b) "Expenses" shall include all reasonable attorneys' fees and
costs, retainers, court costs, transcripts, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
customarily incurred in connection with asserting or defending claims.
(c) "Independent Counsel" shall mean a law firm or lawyer that
neither is presently nor in the past five years has been retained to represent:
(i) the Company or Indemnitee in any matter material to either such party, or
(ii) any other party to the proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any firm or person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine
<PAGE> 2
Indemnitee's right to indemnification under this Agreement. All fees and
expenses of the Independent Counsel incurred in connection with acting pursuant
to this Agreement shall be borne by the Company.
(d) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, provided,
however, that the term "Proceeding" shall include any action instituted by an
indemnitee (other than an action to enforce indemnification rights under this
Agreement) only if such action is authorized by the Board of Directors.
2. Service by Indemnitee. Indemnitee agrees to begin or to continue
to serve the Company or other corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise affiliated with the Company (all of
which are collectively referred to as an "Affiliate") as a director or officer.
Notwithstanding anything contained herein, this Agreement shall not create a
contract of employment between the Company and Indemnitee and the termination of
Indemnitee's relationship with the Company or an Affiliate by either party
hereto shall not be restricted by this Agreement.
3. Indemnification. The Company shall indemnify indemnitee for, and
hold Indemnitee harmless from and against, any losses, liabilities, claims,
judgments, fines or expenses at any time incurred by or assessed against
Indemnitee arising out of or in connection with the service of Indemnitee as an
officer, director, advisory director, board committee member, or officer of the
Company or of an Affiliate (collectively referred to as an "Officer or
Director") to the fullest extent permitted by the laws of the State of Delaware
in effect on the date hereof or as such laws may from time to time hereafter be
amended to increase the scope of such permitted indemnification; provided,
however, the Company shall indemnify Indemnitee in connection with a proceeding
instituted by Indemnitee (other than an action to enforce indemnification rights
under this agreement), only if such proceeding is authorized by the Board of
Directors. Without diminishing the scope of the indemnification provided by this
Section 3, the rights of indemnification of Indemnitee provided hereunder shall
include but shall not be limited to those rights set forth hereinafter.
4. Action or Proceeding Other Than an Action by or in the Right of
the Company. Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to any pending, completed or threatened Proceeding, other than
an action by or in the right of the Company, by reason of (a) the fact that
Indemnitee is or was an Officer or Director of the Company or any other entity
which Indemnitee is or was serving at the request of the Company, or (b)
anything done or not done by Indemnitee in any such capacity. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses, losses, claims,
liabilities, judgments, fines and amounts paid in settlement incurred by
Indemnitee or on Indemnitee's behalf in connection with any Proceeding, if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the
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<PAGE> 3
Company, did not receive an improper personal benefit, and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful.
5. Actions by or in the Right of the Company. Indemnitee shall be
entitled to the indemnification rights provided herein if Indemnitee is a person
who was or is made a party or is threatened to be made a party to any pending,
completed or threatened Proceeding brought by or in the right of the Company to
procure a judgment in its favor by reason of (a) the fact that Indemnitee is or
was an Officer or Director or any other entity which Indemnitee is or was
serving at the request of the Company, or (b) anything done or not done by
Indemnitee in any such capacity. Pursuant to this section, Indemnitee shall be
indemnified against Expenses, losses, claims, liabilities, judgments, fines and
amounts paid in settlement incurred by Indemnitee or on Indemnitee's behalf in
connection with any Proceeding if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company. Notwithstanding the foregoing provisions of this section, no such
indemnification shall be made in respect of any claim, issue or matter as to
which Delaware law expressly prohibits such indemnification by reason of an
adjudication of liability of Indemnitee to the Company; provided, however, that
in such event such indemnification shall nevertheless be made by the Company to
the extent that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine equitable under the
circumstances.
6. Indemnification for Costs, Charges and Expenses of Party Who is
Wholly or Partly Successful. Notwithstanding any provision of this Agreement, to
the extent that Indemnitee has been wholly successful on the merits or otherwise
involved in any proceeding on any claim, issue or matter, Indemnitee shall be
indemnified against all Expenses incurred by Indemnitee or on Indemnitee's
behalf in connection therewith to the extent permitted by Delaware law. If
Indemnitee is not wholly successful in such proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such proceeding, the Company shall indemnify Indemnitee to the
maximum extent permitted by law, against all Expenses, judgments, penalties,
fines and amounts paid in settlement, incurred by Indemnitee with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any such claim, issue or matter by
dismissal with or without prejudice shall be deemed to be a successful result as
to such claim, issue or matter.
7. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is a witness in any
proceeding in which the Indemnitee is not a party by reason of the fact that
Indemnitee is or was an Officer or Director of the Company or any other entity
which Indemnitee is or was serving at the request of the Company, Indemnitee
shall be indemnified by the Company against all Expenses actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection therewith.
-3-
<PAGE> 4
8. Advancement of Expenses and Costs. All Expenses incurred by or on
behalf of Indemnitee (or reasonably expected by Indemnitee to be incurred by
Indemnitee within three months) shall be paid by the Company in advance of the
final disposition of such proceeding within twenty days after the receipt by the
Company of a statement or statements from Indemnitee requesting from time to
time such advance or advances. Indemnitee's entitlement to such advancement of
Expenses shall include those incurred in connection with any proceeding by
Indemnitee seeking an adjudication or award in arbitration pursuant to this
Agreement. Such statement or statements shall reasonably evidence such Expenses
incurred (or reasonably expected to be incurred) by Indemnitee in connection
therewith and shall include or be accompanied by a written undertaking by or on
behalf of Indemnitee to repay such amount if it shall ultimately be determined
that Indemnitee is not entitled to be indemnified therefor pursuant to the terms
of this Agreement.
9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement, Indemnitee
shall submit a written request for indemnification to the Company. Such request
shall include documentation or information which is reasonably necessary for the
Company to make a determination of Indemnitee's entitlement to indemnification
hereunder and which is reasonably available to Indemnitee. Determination of
Indemnitee's entitlement to indemnification shall be made not later than 30 days
after receipt by the Company of Indemnitee's written request for
indemnification. The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise the Board of Directors that
Indemnitee has made such request for indemnification.
(b) The entitlement of Indemnitee to indemnification under this
Agreement shall be determined in each specific case by the Board of Directors by
a majority vote of a quorum consisting of Disinterested Directors. If such a
quorum is not obtainable or if the Board of Directors by the majority vote of
Disinterested Directors so directs, the determination shall be made by
Independent Counsel.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board of Directors to
so select such Independent Counsel or upon failure of Indemnitee to so approve,
such Independent Counsel shall be selected by the Court of Chancery of the State
of Delaware or such other person as the Court of Chancery shall designate to
make such selection.
(d) If the Board or Independent Counsel shall have determined that
Indemnitee is not entitled to indemnification to the full extent of Indemnitee's
request, Indemnitee shall have the right to seek entitlement to indemnification
in accordance with the procedures set forth in Section 10 hereof.
10. Effect of Certain Proceedings.
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<PAGE> 5
(a) If the person or persons empowered to make a determination with
respect to entitlement to indemnification shall have failed to make the
requested determination within 30 days after receipt by the Company of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be absolutely entitled to such
indemnification, absent (i) misrepresentation by Indemnitee of a material fact
in the request for indemnification or (ii) a final judicial determination that
all or any part of such indemnification is expressly prohibited by law. The
termination of any Proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
adversely affect the rights of Indemnitee to indemnification hereunder except as
may be specifically provided herein, or create a presumption that Indemnitee did
not act in good faith, receive an improper personal benefit or act in a manner
which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or create a presumption that (with respect to any
criminal action or proceeding) Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
(b) For purposes of any determination of good faith hereunder,
Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is
based on the records or books of account of the Company or an Affiliate,
including financial statements, or on information supplied to Indemnitee by the
officers of the Company or an Affiliate in the course of their duties, or on the
advice of legal counsel for the Company or an Affiliate or on information or
records given or reports made to the Company or an Affiliate by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Company or an Affiliate. The provisions of this Section
10(b) shall not be deemed to be exclusive or to limit in any way the other
circumstances in which the Indemnitee may be deemed to have met the applicable
standard of conduct set forth in this Agreement.
(c) The knowledge and/or actions, or failure to act, of any director,
officer, agent or employee of the Company or an Affiliate shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement.
11. Remedies in Cases of Determination not to Indemnify or to Advance
Expenses.
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advances are not made pursuant
to Section 8 or (iii) payment has not been timely made following a determination
of entitlement to indemnification pursuant to Sections 9 and 10, Indemnitee
shall be entitled to seek a final adjudication in an appropriate court of the
State of Delaware or any other court of competent jurisdiction of Indemnitee's
entitlement to such indemnification in advance. Alternatively, Indemnitee at
Indemnitee's option may seek an award in arbitration to be conducted by a panel
of three arbitrators in Los Angeles County, California, pursuant to the rules of
the American Arbitration Association then prevailing, such award to be made
within sixty days following the filing of the demand for
-5-
<PAGE> 6
arbitration. The Company shall not oppose Indemnitee's right to seek arbitration
of any such claim.
(b) In the event a determination has been made, in whole or in part,
that Indemnitee is not entitled to indemnification, any such judicial proceeding
or arbitration shall be made de novo and Indemnitee shall not be prejudiced by
reason of any prior determination that Indemnitee is not entitled to
indemnification.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 10 or Section 11 hereof that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration in the absence of (i) a misrepresentation of
a material fact by Indemnitee or (ii) a final judicial determination that all or
any part of such indemnification is expressly prohibited by law.
(d) The Company and Indemnitee agree that they shall be precluded from
asserting that the procedures and presumptions of this Agreement are not valid,
binding and enforceable. The Company and Indemnitee further agree to stipulate
in any such court or before any such arbitrators that the Company and Indemnitee
are bound by all the provisions of this Agreement and are precluded from making
any assertion to the contrary.
(e) To the extent deemed appropriate by the arbitrators or the court,
interest shall be paid by the Company to Indemnitee at a reasonable interest
rate, for amounts which the Company indemnifies the Indemnitee.
12. Expenses Incurred by Indemnitee to Enforce this Agreement.
Reasonable expenses incurred by Indemnitee in connection with the preparation
and submission of Indemnitee's request for indemnification hereunder shall be
borne by the Company. In the event that Indemnitee is a party to or intervenes
in any proceeding in which the validity or enforceability of this Agreement is
at issue or seeks an adjudication or award in arbitration to enforce
Indemnitee's rights under, or to recover damages for breach of, this Agreement,
Indemnitee, if Indemnitee prevails in whole in such action, shall be entitled to
recover from the Company and shall be indemnified by the Company against, any
expenses incurred by Indemnitee. If it is determined that Indemnitee is entitled
to indemnification of part (but not all) of the indemnification so requested,
expenses incurred in seeking enforcement of such partial indemnification shall
be reasonably prorated among such claims, issues or matters.
13. Non-Exclusivity. The rights of indemnification and to receive
advances as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, certificate of incorporation, the Bylaws, any agreement, a vote of
stockholders or a resolution of Directors, or otherwise. No amendment,
alteration, rescission or replacement of this Agreement or any provision hereof
shall be effective as to Indemnitee with respect to any action taken or omitted
by such Indemnitee in Indemnitee's position with the Company or an Affiliate or
any other entity which Indemnitee is or was serving at the
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<PAGE> 7
request of the Company prior to such amendment, alteration, rescission or
replacement.
14. Duration of Agreement. This Agreement shall apply to any claim
asserted and any expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) 10 years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Sections 3, 4
or 5 of this Agreement; or (b) the final termination of all pending or
threatened proceedings of the kind described herein with respect to Indemnitee.
This Agreement shall be binding upon the Company and its successors and assigns
and shall inure to the benefit of Indemnitee and Indemnitee's spouse, assigns,
heirs, devisee, executors, administrators or other legal representatives.
15. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
16. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
17. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
18. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto, provided, however, that any such mutually agreed upon
supplement, amendment or modification shall not require stockholder approval if
such modification, amendment or supplement is made to conform to any amendment
or revision of the Delaware General Corporation Law which expands the
Indemnitee's right to indemnification thereunder or is otherwise beneficial to
Indemnitee or in the sole judgment of the Board of Directors of the Company,
does not materially and adversely affect the rights and protection of the
Company.
19. No Duplicative Payment. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
20. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal
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<PAGE> 8
Express or other similar overnight courier service, addressed to the address of
the parties stated below or to such changed address as such party may have fixed
by notice or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company to:
5480 East Ferguson Drive
Commerce, California 90022
Attention: Secretary
21. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
22. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. No waiver of any provision
or breach of this Agreement shall be effective unless such waiver is in writing
and signed by the party against which enforcement of such waiver is sought. A
waiver by any party of any breach or violation of this Agreement shall not be
deemed or construed as a waiver of any subsequent breach or violation thereof.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By:
-------------------------------------
Name:
Title:
INDEMNITEE
----------------------------------------
Signature
----------------------------------------
Print Name
----------------------------------------
Address and Telephone
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<PAGE> 1
EXHIBIT 10.4
FORM OF
FINANCING AGREEMENT
This FINANCING AGREEMENT (the "Agreement") is dated as of June __, 1996
among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings
have entered into a Reorganization Agreement dated as of the date hereof
pursuant to which Central will acquire the consumer finance business of Holdings
and Banner (the "Reorganization");
WHEREAS, Central has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by Central of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, as an integral part of the Reorganization, Banner desires to
grant Central the exclusive right to purchase consumer finance receivables
("Consumer Finance Receivables") generated by sales of merchandise at Banner
stores, whether now in existence or hereafter opened (the "Banner Stores").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Exclusive Right to Purchase Consumer Finance
Receivables.
(a) Exclusive Right. Banner hereby grants to Central the exclusive
right, at the Company's option, (i) to purchase Consumer Finance Receivables
originated by Banner for sales of merchandise at Banner Stores, or (ii) to
provide financing directly to Banner's customers for sales of merchandise at
Banner Stores. Banner agrees that, so long as Banner originates Consumer
Finance Receivables, it will not offer any consumer financing except on such
terms, conditions and according to such underwriting criteria as may be directed
by Central from time to time, and, if Central shall originate Consumer Finance
Receivables directly to Banner's customers, Banner agrees that it will not offer
any consumer financing without the prior written consent of Central.
(b) Transaction Fees. As long as Banner shall originate Consumer
Finance Receivables, Central shall have the right to purchase such receivables
at face value less a 1.6% transaction fee, or, if Central shall originate such
receivables, Banner shall pay Central a transaction fee equal to 1.6% of the
face value each such Consumer Finance Receivable.
(c) Floor Space. In consideration of Central's provision of products
and financial services, including check cashing, travel, insurance agency
services and small loans at certain Banner locations, Banner agrees to provide
Central at no charge, such amount of space at Banner Stores as Central may from
time to time reasonably request.
<PAGE> 2
2. Term. This Agreement shall be in effect for a period of 15 years
from the date hereof, subject to termination by Central upon one year's prior
written notice.
3. Independent Parties. The parties are independent parties engaged in
the operation of their respective businesses. No party has the authority to
enter into contracts or assume any obligations for any other party or is to be
considered as the agent or employee of any other party for any purpose
whatsoever. Nothing in this Agreement shall be construed to establish a
relationship of partners or joint venturers among the parties.
4. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
5. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
6. Governing Law. This Agreement shall be governed by the laws of the
State of California without giving effect to the principles of conflicts of law.
7. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
8. Severability. Should any part, term or condition hereof be declared
illegal or unenforceable or in conflict with any other law, the validity of the
remaining portions or provisions of this Agreement shall not be affected
thereby, and the illegal or unenforceable portions of the Agreement shall be and
hereby are redrafted to conform with applicable law, while leaving the remaining
portions of this Agreement intact.
9. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same document.
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<PAGE> 3
10. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-3-
<PAGE> 1
EXHIBIT 10.5
FORM OF
OPTION AGREEMENT
This OPTION AGREEMENT (the "Agreement") is dated as of June __, 1996
among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings
have entered into a Reorganization Agreement dated as of the date hereof
pursuant to which Central will acquire the consumer finance business of Holdings
and Banner (the "Reorganization");
WHEREAS, Central has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by Central of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, Holdings desires to grant to Central an option (the "Option")
to purchase all of the outstanding capital stock of Banner (the "Shares"), which
Shares are owned beneficially and of record by Holdings.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Option. Holdings hereby grants to Central the Option to purchase
the Shares at any time commencing with the first anniversary of the
Reorganization and terminating on the third anniversary of the Reorganization
(the "Option Termination Date"). Central may exercise the option by delivering
to Holdings a written notice of exercise.
2. Exercise Price. The exercise price for the Shares shall be equal to
the book value of Banner as reflected on Banner's balance sheet for the month
ended immediately preceding the exercise of the Option (the "Exercise Price").
The balance sheet shall be prepared in accordance with generally accepted
accounting principles on a basis consistent with prior periods.
3. Payment of Exercise Price. The Exercise Price is payable, at
Central's option, in cash or in shares of common stock, par value $0.01 per
share, of Central (the "Common Stock"). If Central chooses to pay the Exercise
Price in shares of Common Stock, the number of shares of Common Stock that
Central shall deliver shall be equal to the quotient of the Exercise Price
divided by the average last sales, close, or bid and asked price of the
Common Stock as reported
<PAGE> 2
by the Nasdaq National Market or such other market on which the Common Stock is
traded, listed or quoted during the ten trading days preceding the date on which
Central delivers its notice of exercise or, if the Common Stock is not so
traded, listed or quoted, as reasonably determined by the Board of Directors of
the Company.
4. Representations and Warranties of Banner and Holdings. All of the
Shares have been duly and validly authorized and issued and are fully paid and
nonassessable and were not issued and are not now in violation of or subject to
any preemptive rights. The Shares are owned of record and beneficially by
Holdings free and clear of any security interests, liens, encumbrances, equities
or claims.
5. Covenants of Banner and Holdings.
(a) From the date hereof up to and including the Option Termination
Date, Banner will not, without Central's prior written consent, (i) issue, sell,
offer or agree to sell, grant any option for the sale of or otherwise dispose of
any capital stock of Banner (or any securities convertible into, exercisable for
or exchangeable for capital stock of Banner), or (ii) sell all or substantially
all of its assets.
(b) From the date hereof up to and including the Option Termination
Date, Holdings will not, without Central's prior written consent, sell, offer or
agree to sell, grant any option for the sale of or otherwise dispose of any of
the Shares.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of the
State of California without giving effect to the principles of conflicts of law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any
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<PAGE> 3
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-3-
<PAGE> 1
EXHIBIT 10.6
FORM OF
OPERATING AGREEMENT
This OPERATING AGREEMENT (the "Agreement") is dated as of June __, 1996
among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into a Reorganization Agreement dated as of the date hereof pursuant to
which Central will acquire the consumer finance business of Holdings and Banner
(the "Reorganization");
WHEREAS, Central has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by Central of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, in order to avoid a possible conflict of interest in the
operation of the businesses of Central and its wholly-owned subsidiaries
(individually and collectively, the "Central Group") and Holdings and its
wholly-owned subsidiaries (individually and collectively, the "Holdings Group")
following the Reorganization, the parties desire that Holdings follow certain
procedures as set forth herein; and
WHEREAS, in order to provide cost savings and operating efficiencies
following the Reorganization, the parties desire that the Holdings Group perform
various administrative functions for the Central Group upon the terms and
conditions set forth herein following the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Allocation of Business Opportunities.
(a) Restricted Businesses. The Holdings Group will not, without the
prior written consent of Central, directly or indirectly engage in or enter into
any business competing with the Central Group that involves consumer finance
lending, including, but not limited to, the financing of consumer products,
travel products, small loans, automobiles or insurance (the "Restricted
Businesses"). If, notwithstanding the foregoing, any member of the Holdings
Group shall acquire a company engaged in a Restricted Business or shall
otherwise directly or indirectly engage in a Restricted Business, Holdings shall
be obligated to sell to Central, at Central's election, such Restricted Business
at a purchase price equal to the fair market value of such Restricted Business
as determined in accordance with Section 1(b). The foregoing restriction shall
terminate on the earlier of December 31, 2002 or
<PAGE> 2
the date on which Holdings ceases to own, directly or indirectly, at least 25%
of the outstanding voting stock of Central.
(b) Valuation. The fair market value of a Restricted Business shall
be determined by an independent qualified and recognized investment banking firm
agreed to by Central, on the one hand, and Banner and Holdings, on the other
hand. If the parties are unable to mutually agree on a single appraiser within a
seven day period, then Central, on the one hand, and Banner and Holdings, on the
other hand, shall each immediately appoint an independent qualified appraiser of
the type set forth above. Within seven days of such appointment, the two
appointed appraisers shall appoint a third independent qualified appraiser of
the type set forth above who shall determine the current value of the Restricted
Business within 30 days of appointment. The cost of this appointment process and
the appraisal fees shall be divided equally between Central, on the one hand,
and Banner and Holdings, on the other hand.
2. Services to be Performed by the Holdings Group and Allocation of
Costs and Benefits.
(a) Services. Each of the following services shall be performed by,
and the Central Group agrees to utilize the following services of, the Holdings
Group:
(1) Accounting. To the extent requested by the Central Group,
the Holdings Group shall provide accounting services to the Central
Group in connection with the preparation of quarterly, annual and other
financial statements.
(2) Management Information Systems. The Holdings Group shall
provide the Central Group with information processing, data retrieval
and other management information systems services. If the Central Group
elects to discontinue receiving such services from the Holdings Group,
the Holdings Group shall return all information pertaining to the
business and operations of the Central Group and shall use its best
efforts in the transition of all data processing functions in a manner
that does not unduly disrupt the business or operation of the Central
Group.
(3) Employee Benefit Plans. The Holdings Group shall
administer all health plans and any other benefits offered
for the benefit of the employees of the Central Group.
(4) Legal. The Holdings Group shall provide to the Central
Group all legal assistance provided in the ordinary course of business
to the Holdings Group.
(5) Insurance. The Holdings Group shall include every member
of the Central Group under any insurance policy maintained by the
Holdings Group. The Holdings Group shall cause each member of the
Central Group to be named as an additional insured under any such
policies. The Holdings Group shall agree to deliver to Central any
insurance proceeds received by it or one of the other members of the
Holdings Group if such
-2-
<PAGE> 3
proceeds relate to any claim relating to the business of the Central
Group. The Holdings Group shall make appropriate cost allocations to
the Central Group for any policy which provides joint coverage to the
Holdings Group, or any other member of the Holdings Group, and to the
Central Group.
(6) Purchasing. The Holdings Group shall provide purchasing
services, including warehousing, to the Central Group for all products
Central may request. Central shall either reimburse the Holdings Group
for, or pay directly, the actual cost of all products acquired for its
account (after giving effect to its ratable share of any discounts,
allowances, rebates or other similar benefits realized by the Holdings
Group).
(7) Advertising. The Holdings Group shall provide advertising
services to the Central Group. Such services shall include the
purchasing of broadcast, newspaper or other advertising in accordance
with the specifications and requirements provided by the Central Group.
Each party to this Agreement agrees not to utilize any form of
advertising that would be reasonably likely to be detrimental to the
business or prospects of the other party.
(8) Other Services. To the extent requested by Central and
approved by the members of its board of directors, the Holdings Group
may provide the Central Group with such other administrative services
as may be deemed necessary or appropriate.
(b) Payment of Costs. The Central Group shall be responsible for the
actual cost of any goods or services provided for their account by the Holdings
Group. Except as provided herein with respect to management information systems,
the allocable share of such costs for each member of the Central Group shall be
determined on the basis of its percentage utilization of the applicable service
or management's best estimate thereof. Fifty percent of the expenses of the
costs and expenses of operating the Holdings Group's management information
systems shall be allocated to each of Banner and Central for a period of five
years, subject to adjustment from time to time to reflect changing costs and
usage and prior termination pursuant to Section 4 below. The Central Group
shall either pay such costs directly or reimburse the Holdings Group for its
prior payment (after giving effect to its ratable share of any discounts,
allowances, rebates or other similar benefits realized by such member of the
Holdings Group). The Holdings Group shall maintain appropriate records to
substantiate the costs associated with the services provided to the Central
Group.
3. Employee Benefits. Central hereby agrees to assume all
liabilities of Banner, Holdings and the subsidiaries thereof that become
subsidiaries of Central pursuant to the Reorganization under existing employee
welfare benefit and profit sharing plans with respect to the employees of Banner
and Holdings who have become employees of the Central Group pursuant to the
Reorganization. The employment by the Central Group of individuals who were
employees of Banner, Holdings or the subsidiaries thereof that become
subsidiaries of Central pursuant to the Reorganization prior to the
Reorganization will not be deemed a severance of employment from Banner or
Holdings for purposes of any policy, plan, program or agreement of Banner or
Holdings that provides for the payment of severance, salary continuation or
similar benefits.
-3-
<PAGE> 4
4. Term. Except as provided in Section 1, this Agreement or any
service provided herein may be terminated by any party hereto upon one year's
prior written notice.
5. Independent Parties. The parties are independent parties engaged
in the operation of their respective businesses. No party has the authority to
enter into contracts or assume any obligations for any other party or is to be
considered as the agent or employee of any other party for any purpose
whatsoever. Nothing in this Agreement shall be construed to establish a
relationship of partners or joint venturers among the parties.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
-4-
<PAGE> 5
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
[Remainder of Page Intentionally Left Blank]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
---------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-6-
<PAGE> 1
EXHIBIT 10.7
FORM OF
TAX SHARING AGREEMENT
This TAX SHARING AGREEMENT (the "Agreement") is dated as of June __,
1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("Central"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Banner"), and BANNER HOLDINGS, INC., a Delaware corporation ("Holdings").
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into a Reorganization Agreement dated as of the date hereof pursuant to
which Central will acquire the consumer finance businesses of Holdings and
Banner (the "Reorganization");
WHEREAS, Central has filed a registration statement with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering the issuance and sale by Central of up to 2,127,000 shares of
its common stock, par value of $.01 per share (the "Offering");
WHEREAS, concurrently herewith, Central, Banner and Holdings have
entered into various additional agreements for the purpose of defining the
ongoing relationship among the parties following the Reorganization;
WHEREAS, the consumer finance businesses of Central will be included
in the consolidated federal, state and other income tax returns of Holdings
until the consummation of the Offering;
WHEREAS, effective upon the consummation of the Offering, Central and
its subsidiaries (collectively with Central and any predecessor of any
subsidiary, the "Subsidiaries," and individually, a "Subsidiary") will not be
included in Holdings' consolidated federal, state and other income tax returns.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Remittance to Holdings. For all periods during which the
Subsidiaries were included in the consolidated federal, state and other income
tax returns of Holdings, Central shall remit to
<PAGE> 2
Holdings in a timely manner all taxes that would have been due the respective
governmental entities from each of the Subsidiaries if such Subsidiary had
filed separate income tax returns for the applicable period. For purposes of
this Agreement, the tax which would have been payable by a Subsidiary if it had
filed separate returns shall be computed as if such Subsidiary had filed
separate returns for all years during which such Subsidiary is includible in
the consolidated income tax returns of Holdings.
2. Refunds. Holdings shall remit to each Subsidiary in a timely
manner all refunds, together with interest thereon, that would be due the
Subsidiary if the Subsidiary had filed separate income tax returns.
3. Indemnification; Audits. The Subsidiaries shall indemnify
Holdings for all income tax liabilities for periods during which the
Subsidiaries were included in Holdings' consolidated income tax returns. In
the event of any changes to such consolidated income tax returns upon audit by
the Internal Revenue Service, a recalculation of the tax liability of each
Subsidiary shall be made and appropriate payments (including any interest and
penalties) shall be made by the Subsidiary based on the result of such audit.
4. Filing of Consolidated Returns; Taxes Due. Holdings shall be
responsible for filing the consolidated federal, state and other income tax
returns, for making all elections with respect thereto and for the payment of
all taxes due in respect thereof for all periods during which the Subsidiaries
were members of the affiliated group of which Holdings is the common parent.
The parties agree to cooperate with each other in the preparation of all
required tax returns and in connection with the audit of such tax returns
including making available to each other all applicable records and other
documents pertinent thereto. Holdings shall not consent to any adjustments
which would increase the tax liability of a Subsidiary without the consent of
such Subsidiary, provided that Holdings may consent to such adjustments if it
has the right to and does file a refund claim which preserves the right of such
Subsidiary to contest the adjustment.
5. Use of Accountants. For the purposes of this Agreement, all
computations or recomputations of income tax
- 2 -
<PAGE> 3
liability, and all determinations of payments or repayments, or determinations
of any other nature required to be made by this Agreement, shall be based on
the conclusions of the independent public accountants for Holdings and Central.
6. Dispute Resolution. In an effort to resolve informally and
amicably any claim or controversy arising out of or related to the
interpretation or performance of this Agreement without resorting to
litigation, the parties shall first notify the other parties of any difference
or dispute hereunder that requires resolution. The disputing parties shall
each designate an employee to investigate, discuss and seek to settle the
matter between them. If such parties are unable to settle the matter within 30
days after such notification, the matter shall be submitted to an independent
director of each for consideration. If settlement cannot be reached through
their efforts within an additional 30 days, or such longer time period as they
shall agree upon, the parties shall consider arbitration or other alternative
means to resolve the dispute. If they are unable to agree on an alternative
dispute resolution mechanism, any party may initiate legal proceedings to
resolve such matter.
7. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any
party without the consent of the other parties.
8. Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing (including
telecopier or similar writing) and shall be deemed to have been given at the
time when mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, or sent by
Federal Express or other similar overnight courier service, addressed to the
appropriate party at 5480 East Ferguson Drive, Commerce, California, 90022,
attention: Secretary, or to such changed address as such party may have fixed
by notice or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
9. Governing Law. This Agreement shall be governed by the laws
of the State of California without giving effect to the principles of conflicts
of law.
- 3 -
<PAGE> 4
10. Entire Agreement. This Agreement sets forth the entire
agreement among the parties with respect to its subject matter. This Agreement
may not be amended or otherwise modified except in writing duly executed by all
of the parties. No waiver of any provision or breach of this Agreement shall
be effective unless such waiver is in writing and signed by the party against
which enforcement of such waiver is sought. A waiver by any party of any
breach or violation of this Agreement shall not be deemed or construed as a
waiver of any subsequent breach or violation thereof.
11. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
12. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
13. Headings. Section headings are for convenience only and do
not control or affect the meaning or interpretation of any terms or provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By ______________________________________
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By___________________________
- 4 -
<PAGE> 5
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By___________________________
Gary M. Cypres
Chief Executive Officer and President
- 5 -
<PAGE> 1
EXHIBIT 10.8
FORM OF
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is dated as of June
__, 1996 among CENTRAL FINANCIAL ACCEPTANCE CORPORATION, a Delaware corporation
("CFAC"), BANNER'S CENTRAL ELECTRIC, INC., a California corporation ("BCE"),
and BANNER HOLDINGS, INC., a Delaware corporation ("BHI").
WHEREAS, concurrently herewith, CFAC, BCE and BHI have entered into
a Reorganization Agreement dated as of the date hereof pursuant to which CFAC
will acquire the consumer finance business of BHI and BCE (the
"Reorganization");
WHEREAS, CFAC has filed a registration statement with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, covering
the issuance and sale by CFAC of up to 2,127,000 shares of its common stock,
par value of $.01 per share;
WHEREAS, concurrently herewith, CFAC, BCE and BHI have entered into
various additional agreements for the purpose of defining the ongoing
relationship among the parties following the Reorganization;
WHEREAS, CFAC, BCE and BHI desire to enter into this Agreement to
indemnify one another (and provide for contribution to one another)
against liabilities arising from the operation of the parties' respective
businesses after the Reorganization.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the parties agree as follows:
1. Indemnification.
(a) Central agrees to indemnify and hold harmless BCE and its
wholly-owned subsidiaries following the Reorganization (collectively and
individually, "Banner") and BHI and its wholly-owned subsidiaries following the
Reorganization (collectively and individually, "Holdings") against any and all
claims, losses, damages, liabilities, costs and expenses, joint or several
(including reasonable attorneys' fees and costs of investigation), to which
Banner or Holdings may become subject insofar as such claims, losses, damages,
liabilities, costs and expenses (or actions in respect thereof) arise from or
are based on the operations of the business of Central and its subsidiaries
after the Reorganization; provided, however, that neither Banner nor Holdings
shall be indemnified hereunder for liabilities arising from either party's
intentional misconduct or gross negligence or to the extent any liability arises
from a breach by Banner or Holdings of a fiduciary duty owed by Banner or
Holdings to other stockholders of Central.
(b) Banner and Holdings, jointly and severally, agrees to indemnify and
hold harmless Central against any and all claims, losses, damages, liabilities,
costs and expenses, joint or several (including reasonable attorneys' fees and
costs of investigation), to which Central may become
<PAGE> 2
subject insofar as such claims, losses, damages, liabilities, costs or expenses
(or actions in respect thereof) arise from or are based on the operations of the
businesses of Banner or Holdings, other than the business of Central and its
subsidiaries, before or after the Reorganization.
(c) Central agrees to indemnify and hold harmless each of Banner and
Holdings against any all claims, losses, damages, liabilities, costs and
expenses, joint or several (including reasonable attorneys' fees and costs of
investigation) to which Banner or Holdings may become subject insofar as such
claims, losses, damages, liabilities, costs or expenses (or actions in respect
thereof) arise from or are based on guarantees or undertakings made by Banner or
Holdings to third parties in respect of liabilities or obligations of Central or
its subsidiaries, whether such guarantees or undertakings are made by Banner or
Holdings before or after the Reorganization; provided, however, that neither
Banner nor Holdings shall be indemnified hereunder for liabilities arising from
either party's intentional misconduct or gross negligence or to the extent any
liability arises from a breach by Banner or Holdings of a fiduciary duty owed by
Banner or Holdings to other stockholders of Central; provided, further, however,
that if the events giving rise to a particular claim, loss, damage, liability,
cost or expense occurred prior to the Reorganization, neither Banner nor
Holdings shall be indemnified pursuant to this Section.
2. Substitution.
(a) With respect to any litigation, proceeding or investigation by or
before any court or governmental agency or body which may be commenced or
threatened against Banner or Holdings after the date hereof which arises out of
or is based upon the future business or operations of Central, at the option of
Banner or Holdings, as the case may be, Central and Banner or Holdings shall use
their best efforts to have Central substituted in the place of and for Banner or
Holdings and to have Banner or Holdings removed as a party as promptly as is
reasonably practicable. Pending such substitution, and in cases where such
substitution cannot be effected, Central shall promptly assume and direct the
defense, prosecution and/or settlement of the claims involved, employing for
this purpose counsel satisfactory to each of Banner and Holdings, and shall pay
all expenses related thereto. To the extent that any such expenses are paid by
Banner or Holdings, Central shall promptly reimburse such party therefor.
(b) With respect to any litigation, proceeding or investigation by or
before any court or governmental agency or body which may be commenced or
threatened against Central after the date hereof which arises out of or is based
upon the past, present or future business or operations of Banner or Holdings,
at Central's option, Central and Banner and Holdings shall use their best
efforts to have Banner or Holdings or both substituted in the place of and for
Central and to have Central removed as a party as promptly as is reasonably
practicable. Pending such substitution, and in cases where such substitution
cannot be effected, Banner or Holdings shall promptly assume and direct the
defense, prosecution and/or settlement of the claims involved, employing for
this purpose counsel satisfactory to Central, and shall pay all
-2-
<PAGE> 3
expenses related thereto. To the extent that any such expenses are paid by
Central, Banner or Holdings shall promptly reimburse Central therefor.
3. Notice and Payment of Claims. If any party entitled to
indemnification hereunder (an "Indemnified Party") is threatened in writing with
any claim, or any claim is presented in writing to, or any action or proceeding
formally commenced against, an Indemnified Party which may give rise to the
right of indemnification hereunder, the Indemnified Party will promptly give
written notice thereof to the other party (the "Indemnifying Party"), provided
that any delay by the Indemnified Party in so notifying the Indemnifying Party
shall not relieve the Indemnifying Party of any liability to the Indemnified
Party hereunder except to the extent the Indemnifying Party is materially and
adversely prejudiced by such delay. The Indemnifying Party, by delivery of
written notice to the Indemnified Party within 30 days of receipt of notice of
claim to indemnity from the Indemnified Party, may elect to contest such claim,
action or proceeding at the Indemnifying Party's expense and by counsel of its
own choosing. If the Indemnified Party requests in writing that such claim,
action or proceeding not be contested, then it shall not be contested but shall
not be covered by the indemnities provided herein. The Indemnifying Party may
settle an indemnifiable matter which it has duly elected to contest with the
consent of the Indemnified Party after delivering a written description of the
proposed settlement to, and receiving consent from, the Indemnified Party. In
the event that the Indemnified Party declines to consent to a bona fide
settlement acceptable to the claimant, then the Indemnified Party shall have no
right to indemnification beyond the amount of the proposed settlement.
4. Dispute Resolution. In an effort to resolve informally and
amicably any claim or controversy arising out of or related to the
interpretation or performance of this Agreement without resorting to litigation,
each party shall first notify the others of any difference or dispute hereunder
that requires resolution. Banner, Holdings and Central shall each designate an
employee to investigate, discuss and seek to settle the matter among them. If
they are unable to settle the matter within 30 days after such notification, the
matter shall be submitted to a director of each of Banner, Holdings and Central
for consideration. If settlement cannot be reached through their efforts within
an additional 30 days, or such longer time period as they shall agree upon,
Central, on the one hand, or Banner and Holdings, on the other hand, may
initiate legal proceedings to resolve such matter.
5. Cooperation. So long as any books, records and files retained by
either Banner or Holdings or their subsidiaries relating to the business
operations or assets of Central or its subsidiaries remain in existence and
available, Central shall have the right upon prior notice to inspect and copy
the same at any time during business hours for any proper purpose. Neither
Banner nor Holdings shall destroy or permit the destruction of (without first
having offered to deliver to the other) any such books, records and files for
the time period during which they would be required to retain such books,
records or files by applicable law. Banner, Holdings and Central shall cooperate
with one another in a timely manner in any administrative or judicial proceeding
involving any matter affecting the potential liability of any such party or with
respect to any governmental authority. Such
-3-
<PAGE> 4
cooperation shall include, without limitation, making available to each of the
other parties, during normal business hours, all books, records and information,
officers and employees (without substantial interruption of employment)
necessary or useful in connection with any inquiry, audit, investigation or
dispute, any litigation or any other matter requiring any such books, records,
information, officers or employees for any reasonable business purpose. The
party requesting or otherwise entitled to any books, records, information,
officers or employees pursuant to this Section shall bear all reasonable
out-of-pocket costs and expenses (except reimbursement of salaries, employee
benefits and general overhead) incurred in connection with providing such books,
records, information, officers or employees.
6. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other parties.
7. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the appropriate party at 5480
East Ferguson Drive, Commerce, California 90022, Attention: Secretary, or to
such changed address as such party may have fixed by notice or, if given by
telecopier, when such telecopy is transmitted and the appropriate answerback is
received.
8. Governing Law. This Agreement shall be governed by the laws of
the State of California without giving effect to the principles of conflicts of
law.
9. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
10. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
-4-
<PAGE> 5
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
BANNER HOLDINGS, INC.
By
----------------------------------------
Gary M. Cypres
Chief Executive Officer and President
-5-
<PAGE> 1
EXHIBIT 10.9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 East Ferguson Drive
Commerce, California 90022
(213) 720-8600
, 1996
Banner Holdings, Inc.
5480 East Ferguson Drive
Commerce, California 90022
Dear Sirs:
Central Financial Acceptance Corporation ("Central") has filed
a registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), covering the sale by Central of shares of its common stock, par
value of $.01 per share, pursuant to the Registration Statement (the
"Offering"). In connection with the Offering, Central desires to enter into an
underwriting agreement substantially in the form of Exhibit A attached hereto
(the "Underwriting Agreement"). At the request of the underwriters named in the
Underwriting Agreement (the "Underwriters"), you have agreed to become a party
to the Underwriting Agreement and, as such, to jointly and severally with
Central indemnify the Underwriters as provided in Section 10 of the Underwriting
Agreement. In addition, by becoming a party to the Underwriting Agreement at the
request of the Underwriters, you also will agree to the contribution provisions
set forth in Section 10 of the Underwriting Agreement. Notwithstanding that the
indemnification and contribution provisions set forth in Section 10 of the
Underwriting Agreement provide for the joint and several liability of you and
Central, Central hereby agrees that between you and Central it is intended that
Central will be the primary obligor under the Underwriting Agreement and that
your liability thereunder is intended to be that of a guarantor.
In consideration of your execution and delivery of the
Underwriting Agreement and other good and valuable consideration, Central hereby
agrees with you as follows:
1. Indemnification. Central agrees to indemnify and hold harmless you
and each person, if any, who controls you (a "Control Person") within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any and all losses, claims,
damages, liabilities and expenses (including but limited to reasonable
attorneys' fees and all costs whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), to which you or any such Control Person may become subject insofar
as such losses, claims, damages, liabilities and expenses (or actions in respect
thereof) arise from or are based on the indemnification and contribution
provisions set forth in Section 10 in the Underwriting Agreement.
<PAGE> 2
This indemnity agreement will be in addition to any liability which Central may
otherwise have, including under the Underwriting Agreement.
2. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
1 hereof is for any reason held to be unenforceable by you although applicable
in accordance with its terms, you and Central shall contribute to the aggregate
claims, losses, damages, liabilities, costs and expenses of the nature
contemplated by such indemnity incurred by you and Central in such proportion
that is appropriate to reflect the relative fault of Central and you in
connection with the matters which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
For purposes of this Section 2, each Control Person, if any, shall have the same
rights to contribution as you.
3. Notice and Payment of Claims. Central agrees that you shall not be
required to give Central any notice with respect to an event which may give rise
to the right of indemnification or contribution hereunder. Central agrees that
you shall have the right to settle any indemnifiable matter without Central's
prior consent.
4. Dispute Resolution. In order to resolve informally and amicably any
claim or controversy arising out of or related to the interpretation or
performance of this Agreement without resorting to litigation, each party shall
first notify the other of any difference or dispute hereunder that requires
resolution. You and Central shall each designate an employee to investigate,
discuss and seek to settle the matter between them. If the two are unable to
settle the matter within 30 days after such notification, the matter shall be
submitted to an independent director of each of you and Central for
consideration. If settlement cannot be reached through their efforts within an
additional 30 days, or such longer time period as they shall agree upon, either
party may initiate legal proceedings to resolve such matter.
5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement may not be assigned or delegated by any party
without the consent of the other party.
6. Notices. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time when mailed
in any general or branch office of the United States Postal Service, enclosed in
a registered or certified postpaid envelope, or sent by Federal Express or other
similar overnight courier service, addressed to the address of the parties set
forth above or to such changed address as such party may have fixed by notice
or, if given by telecopier, when such telecopy is transmitted and the
appropriate answerback is received.
7. Governing Law. This agreement shall be governed by the laws of the
State of California without giving effect to principles of conflicts of laws.
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8. Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to its subject matter. This Agreement may not be
amended or otherwise modified except in writing duly executed by all of the
parties. No waiver of any provision or breach of this Agreement shall be
effective unless such waiver is in writing and signed by the party against which
enforcement of such waiver is sought. A waiver by any party of any breach or
violation of this Agreement shall not be deemed or construed as a waiver of any
subsequent breach or violation thereof.
9. Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
10. Effectiveness. This Agreement shall become effective upon the
execution by you and Central of the Underwriting Agreement.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same document.
12. Headings. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 4
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to Central a counterpart hereof, whereupon
this instrument will become a binding agreement between you and Central in
accordance with its terms.
Very truly yours,
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By
--------------------------------------
Gary M. Cypres
Chief Executive Officer and President
Confirmed and accepted as of
the date first above written:
BANNER HOLDINGS, INC.
By
-----------------------------------
Gary M. Cypres
Chief Executive Officer and President
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<PAGE> 1
EXHIBIT 10.10
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 14, 1993, by and between
Banner's Central Electric Consumer Finance Company, a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described
below, and Bank has agreed to provide said credit accommodation to Borrower on
the terms and conditions contained herein.
NOW, THEREFORE, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including December 14, 1994, not to exceed at any time the aggregate
principal amount of FOUR MILLION DOLLARS ($4,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to fund consumer loan contracts. Borrower's
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obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit "A" attached hereto ("Line
of Credit Note"), all terms of which are incorporated herein by this reference.
Notwithstanding any other provision of this Agreement, the aggregate
amount of all outstanding borrowings under the Line of Credit shall not at any
time exceed a borrowing base ("Borrowing Base") which is a maximum of seventy
percent (70%) of the outstanding Balance (as defined below) of Borrower's
Eligible Contracts Receivables (as defined below), as determined by Bank upon
receipt and review of such collateral reports and other documents as Bank may
require.
As used herein, "Balance" shall mean outstanding principal, plus earned
and unpaid interest thereon, plus earned and unpaid fees related thereto.
As used herein, "Eligible Contracts Receivables" shall consist solely
of written consumer credit agreements (1) which evidence loans made by Borrower
to persons (collectively, "Debtors" and each a "Debtor"), in the ordinary course
of Borrower's business for personal, family or household purposes (such consumer
credit agreements may be referred to below collectively as "Contracts" and each
as a "Contract"), (2) which
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constitute legal, valid and binding agreements of the Debtors named therein,
enforceable in accordance with their terms, and upon which Borrower's right to
receive payment is absolute and not contingent upon the fulfillment of any
condition, (3) which are free of all liens, encumbrances, charges, rights and
interests of any kind, except for the security interests granted Bank therein,
(4) which are the subject of a first priority perfected security interest in
favor of Bank, and (5) which, in the opinion of Bank in its sole and absolute
discretion, meet acceptable Bank standards as to creditworthiness of Debtors and
adequacy of documentation and disclosures, but shall not include:
(i) any Contract under which any payment is more than sixty (60)
days past due;
(ii) any Contract for which there exists any right of setoff,
defense or discount or for which any defense or counterclaim has been asserted;
(iii) any Contract which represents an obligation of any state or
municipal government or of the United States government or any political
subdivision thereof;
(iv) any Contract which represents an obligation of a Debtor
located in a foreign country;
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(v) any Contract which represents an obligation of an affiliate,
partner, parent or subsidiary of Borrower;
(vi) that portion of any Contract which represents late charges;
(vii) that portion of any Contract from a Debtor which represents
the amount by which Borrower's total Contracts from said Debtor exceeds
$1,000.00;
(viii) any Contract with an original term or an original principal
amortization schedule in excess of two (2) years.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all the limitations, terms and conditions
contained herein or in the Line of Credit Note; provided however, that the total
outstanding borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder or the Borrowing Base, as set
forth above.
(c) Unused Commitment Fee. Borrower shall pay to Bank a quarterly fee
equal to .0009375 percent of the difference between the average daily
outstanding principal balance of the Line of Credit and the maximum amount of
the Line of Credit (without taking into account any limitation imposed by the
Borrowing
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Base), which fee shall be calculated by Bank on a quarterly basis and due and
payable not later than fifteen (15) days after each billing is sent by Bank to
Borrower.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit.
(b) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit.
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $15,000.00, which commitment fee
shall be due and payable in full on the date this Agreement is executed by
Borrower and delivered to Bank.
SECTION 1.3. PAYMENT OF INTEREST/FEES. Bank shall, and Borrower hereby
authorizes Bank to, debit any demand deposit account of Borrower with Bank for
all payments of interest and fees as they become due on the Line of Credit.
Should, for any reason whatsoever, the funds in any such demand deposit account
be insufficient to pay all interest and/or fees when due,
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Borrower shall immediately upon demand remit to Bank the full amount of any such
deficiency.
SECTION 1.4. COLLATERAL. As security for all indebtedness of Borrower
to Bank pursuant to this Agreement, Borrower grants to Bank security interests
of first priority in all Borrower's present and future accounts, general
intangibles, contract rights, rights to payment, instruments, documents and
chattel paper, including without limitation all Contracts and all guaranties
related thereto and all collateral therefor. All of the foregoing shall be
evidenced by and subject to the terms of such documents as Bank shall reasonably
require, all in form and substance satisfactory to Bank.
Borrower shall deliver to Bank the original of each promissory note
which evidences all or any portion of any Eligible Contract Receivables (if Bank
requests, indorsed to the order of Bank), together with such other documents as
Bank may require in order to obtain and maintain a perfected security interest
of first priority in all collateral required by Bank hereunder. In addition, if
Bank requests, Borrower shall cause the following legend to be prominently
displayed on the face page and each signature page of each Contract which is not
delivered to Bank:
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"THIS DOCUMENT HAS BEEN ASSIGNED AND SECURES
INDEBTEDNESS TO WELLS FARGO BANK, NATIONAL
ASSOCIATION."
Borrower shall reimburse Bank, immediately upon demand, for all costs
and expenses incurred by Bank in connection with any of the foregoing security,
including without limitation filing and recording fees and costs of audits.
Without limiting the foregoing, Borrower shall pay to Bank a $250.00
processing fee in connection with each mid-month Contracts aging submitted to
Bank in accordance with Section 4.3(c) herein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation duly organized and
existing and in good standing under the laws of the
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State of Delaware, and is qualified or licensed to do business, and is in good
standing as a foreign corporation, if applicable, in all jurisdictions in which
such qualification or licensing is required or in which the failure to so
qualify or to be so licensed could have a material adverse effect on Borrower.
As of the date of this Agreement, one hundred percent (100%) of the common stock
of Borrower is owned by Banner's Central Electric Holdings, Inc., a Delaware
corporation ("Holdings"). As of the date of this Agreement, at least seventy
percent (70%) of the common stock of Holdings is owned by West Coast Private
Equity Partners, L.P. ("WCP").
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required by or at
any time delivered to Bank in connection with this Agreement (with all of the
foregoing referred to herein collectively as the "Loan Documents") have been
duly authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
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<PAGE> 9
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of Borrower's articles of
incorporation or by-laws, or result in a breach of or constitute a default under
any contract, obligation, indenture or other instrument to which Borrower is a
party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings before any governmental authority, arbitrator, court or
administrative agency which may adversely affect the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated October 31, 1993, heretofore delivered by Borrower
to Bank is complete and correct and presents fairly the financial condition of
Borrower; discloses all material liabilities of Borrower, whether liquidated or
unliquidated, fixed or contingent; and has been prepared in accordance with
generally accepted accounting principles except for the omission of footnote
disclosures and
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except to the extent that non-material adjustments may be required by Borrower's
auditors. Since the date of such financial statement there has been no material
adverse change in the financial condition of Borrower, nor has Borrower
mortgaged, pledged or granted a security interest in or encumbered any of its
assets or properties except as disclosed by Borrower to Bank in writing prior to
the date hereof or as permitted by this Agreement.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, memberships, franchises, contracts and licenses
required and all trademark rights, trade names, trade name rights, patents,
patent rights and fictitious name rights necessary to enable it to conduct the
business in
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which it is now engaged without conflict with the rights of others.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended from time to time (ERISA); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable
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environmental, hazardous waste, health and safety statutes and regulations
governing its operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), the Superfund Amendments and Reauthorization Act of 1986 (SARA), the
Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic
Substances Control Act and the California Health and Safety Code. None of the
operations of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the
environment.
SECTION 2.12. LICENSES. Borrower has all domestic governmental
licenses, authorizations, consents and approvals necessary to own and operate
its assets and to carry on its business as now conducted and as proposed to be
conducted, other than licenses, authorizations, consents and approvals which are
not required or which the failure to obtain could not have a material adverse
effect on Borrower.
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SECTION 2.13. CONTRACT WARRANTIES. With respect to all Contracts
scheduled, listed or referred to on any balance sheet or books and records of
Borrower, or referred to in any report delivered by Borrower to Bank:
(a) the Contracts are genuine, are in all respects what they purport to
be, and are not evidenced by a judgment;
(b) the Contracts represent bona fide transactions completed in
accordance with the terms and provisions contained in the documents delivered to
Bank with respect thereto; and
(c) the rights and interests of Borrower in such Contracts and all
payments due thereunder are not subject to any lien except for the security
interests granted Bank in accordance herewith.
SECTION 2.14. COMPLIANCE WITH CONSUMER FINANCE LAWS. Borrower is in
compliance, in all material respects, with all laws, regulations, or directives
with respect to consumer finance, including the California Unruh Act, California
Civil Code Sections 1799.90 et seq., the Federal Truth in Lending Act and the
Federal Equal Credit Act, all as may be amended.
SECTION 2.15. NO PARTNERSHIPS. Borrower is not a partner in any
partnership or a joint venturer in any joint venture.
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SECTION 2.16. AFFILIATE LOAN. Borrower has made a $1,500,000.00 loan
("Affiliate Loan") to Borrower's affiliate, Banner's Central Electric, Inc.
("Banner's Central Electric"), which has an outstanding principal balance of
$1,500,000.00 as of the date of this Agreement.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to counsel of Bank.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Security Agreement covering all collateral required
hereunder.
(v) UCC-1 Financing Statement covering all collateral
required hereunder.
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(vi) Letter of understanding with WCP regarding WCP's
ability to inject equity into Borrower.
(vii) Such other documents, instruments and agreements as Bank
may require under any other section of this Agreement.
(c) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, covering risks, in amounts,
issued by companies and in form and substance satisfactory to Bank, and where
required by Bank, with loss payable endorsements in favor of Bank.
(d) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
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warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein and no condition, event or act which with the
giving of notice or the passage of time or both would constitute such an Event
of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension
of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant to the terms of this Agreement or any liabilities
(whether direct or contingent, liquidated or unliquidated) of Borrower to Bank
under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower shall:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay the interest and
principal on each of the Loan Documents requiring any such payments at the times
and place and in the manner specified therein, and any fees or other liabilities
due under any of the Loan Documents at the times and place and in the
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manner specified therein, and immediately upon demand by Bank, the amount by
which the outstanding principal balance of the Line of Credit is at any time in
excess of any limitation on borrowings hereunder.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement and
statement of cash flow;
(b) not later than 45 days after and as of the end of each quarter, a
financial statement of Borrower, prepared by Borrower, to include balance sheet
and income statement;
(c) not later than 15 days after and as of the 15th day and the end of
each month, an aged listing of Contracts and a borrowing base certificate
substantially in the form of Exhibit
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"B" attached hereto demonstrating Borrower's compliance with this Agreement as
of such calculation date, together with a delinquent balance report with regard
to outstanding Contracts as of such calculation date;
(d) contemporaneously with each annual and quarterly financial
statement of Borrower required hereby, a certificate of the president, chief
financial officer, controller or treasurer of Borrower that the financial
statements delivered pursuant thereto are accurate and that there exists no
Event of Default nor any condition, act or event which with the giving of notice
or the passage of time or both would constitute an Event of Default;
(e) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; conduct its business in an orderly and regular manner; and comply with
the provisions of all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the requirements of all
laws, rules, regulations and orders of any governmental authority applicable to
Borrower or its business.
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SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to
Borrower's, including but not limited to fire, extended coverage, public
liability, property damage and workers' compensation, carried with companies and
in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's
request schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all Borrower's properties useful or
necessary to Borrower's business in good repair and condition, and from time to
time make necessary repairs, renewals and replacements thereto so that
Borrower's properties shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal and including federal and state income taxes, except such as Borrower
may in good faith contest or as to which a bona fide dispute may arise, provided
provision is made to the satisfaction of Bank for eventual payment thereof in
the event that it is found that the same is an obligation of Borrower.
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SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower in excess of $100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices, except to the extent
modified by the following definitions (for the purposes of this Section 4.9, the
financial condition of Borrower shall not be consolidated with Holdings, WCP, or
any other owner or affiliate of Borrower):
(a) Tangible Net Worth (defined as the aggregate of total stockholders'
equity plus subordinated debt less the aggregate of any treasury stock, any
intangible assets and any obligations due from stockholders, employees and/or
affiliates) not less than $1,500,000.00 at any time prior to January 5, 1994,
and not less than $3,000,000.00 at any time thereafter.
(b) Ratio of Total Debt to Tangible Net Worth (defined as the aggregate
of current liabilities and non-current liabilities less subordinated debt
divided by Tangible Net Worth) not at any time greater than 3.0 to 1.0.
(c) Profitable operations on a quarterly basis, determined as of each
fiscal quarter end.
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(d) Ratio of Bad Debt Expense to Net Contracts (defined as Borrower's
bad debt expense for the fiscal year to date, divided by then outstanding Net
Contracts) not at any time greater than .05 to 1.0. As used in this paragraph,
the term "Net Contracts" shall mean the total amount owed to Borrower under all
Contracts which are part of the collateral hereunder (and in which Bank has a
perfected security interest of first priority), less the reserve for bad debt
expense maintained by Borrower in accordance with generally accepted accounting
principles consistently applied and used consistently with prior practices, and
less any unearned interest and fees owing to Borrower thereunder.
(e) Cash Flow to Interest Coverage Ratio (defined as the ratio of (i)
(A) net income after taxes, plus (B) depreciation and amortization expenses,
plus (C) total interest expenses, plus (D) other non-cash items reducing net
income (excluding extraordinary items), minus (E) cash capital expenditures; to
(ii) cash interest expense) not less than 2.00 to 1.00, calculated on a
quarterly basis, as of each fiscal quarter end.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition,
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event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's property in excess of an
aggregate of $50,000.00; or (e) any material change in Borrower's standard
credit documentation or Borrower's procedures for extending credit.
SECTION 4.11. CONSUMER FINANCE REGULATIONS. Comply, in all material
respects, with all laws, regulations, or directives with respect to consumer
finance, including the California Unruh Act, California Civil Code Sections
1799.90 et seq., the Federal Trust in Lending Act and the Federal Equal Credit
Act, all as may be amended.
SECTION 4.12. FURTHER ASSURANCES. From time to time upon the request of
Bank, promptly execute and deliver such further documents and do such other acts
and things as Bank may
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<PAGE> 23
reasonably request, including the indorsement and delivery to Bank of the
originals of all notes, instruments, consumer credit agreements and other
documents included in the collateral in order to evidence, perfect and continue
the security interests in the collateral granted to Bank under this Agreement or
any of the other Loan Documents.
SECTION 4.13. LOAN DOCUMENTATION. Permit any representative of Bank, at
any reasonable time, to inspect, audit and examine the loan documentation
between Borrower and any or all of its customers.
SECTION 4.14. PERFORMANCE OF OBLIGATIONS AND ADDITIONAL POWERS OF BANK.
Perform all obligations of Borrower under all loan agreements between Borrower
and its customers when such obligations are to be performed. Without limiting
the foregoing, Borrower shall make advances to its Debtors in accordance with
the commitments, if any, made by Borrower.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant to the terms of this Agreement or any
liabilities (whether direct or contingent,
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<PAGE> 24
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower will not without the prior written consent of Bank:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of the Line of
Credit except for the purposes stated in Article I.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an
aggregate of $100,000.00.
SECTION 5.3. LEASE EXPENDITURES. Incur new obligations for the lease or
hire of real or personal property requiring payments in any fiscal year in
excess of an aggregate of $200,000.00.
SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except for (a) the liabilities of Borrower to
Bank, (b) other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof, and (c) borrowings by Borrower from Holdings which
are subordinated to all indebtedness of Borrower to Bank pursuant to written
subordination agreements
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<PAGE> 25
satisfactory to Bank (which agreements shall, among other things, contain
prohibitions on repayment of such subordinated debt).
SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any corporation or other entity; make any substantial change in
the nature of Borrower's business; acquire all or substantially all of the
assets of any corporation or other entity; nor sell, lease, transfer or
otherwise dispose of all or a substantial or material part of its assets except
in the ordinary course of business.
SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity.
SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except for (a) loans by Borrower to
its customers in the ordinary course of business, and (b) the Affiliate Loan
which has heretofore been made to Banner's Central Electric.
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other
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<PAGE> 26
property on Borrower's stock now or hereafter outstanding; nor redeem, retire,
repurchase or otherwise acquire any shares of any class of Borrower's stock now
or hereafter outstanding.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, any of its assets of any kind, now
owned or hereafter acquired, except any of the foregoing in favor of Bank.
SECTION 5.10. PARTNERSHIPS. Become a partner in any partnership or a
venturer in any joint venture.
SECTION 5.11. MARGIN REGULATION. Use all or any proceeds of any
borrowings hereunder in any manner which might cause such borrowings, the
application of such proceeds or the transactions contemplated by this Agreement
to violate regulations G, T, U or X of the Federal Reserve Board of Governors of
the Federal Reserve System or any other regulation of such Board.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
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<PAGE> 27
(a) Borrower shall fail to pay within two (2) days of the date when due
any principal, interest, fees or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with this Agreement or any representation or warranty made by
Borrower hereunder or under any of the other Loan Documents shall prove to be
false, incorrect or incomplete in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein (other than those
referred to in subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank; provided, however,
that in the case of a default under the terms of indebtedness to a person or
entity other than Bank, any cure
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<PAGE> 28
period applicable to such indebtedness has expired and such indebtedness is in
excess of $100,000.00 in the aggregate.
(e) Any default in the payment or performance of any obligation, or any
defined event of default, under any of the Loan Documents other than this
Agreement (other than those covered by subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(f) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower; provided,
however, that such judgments, judgment liens, levies, writs, executions and
other process involve debts of or claims against Borrower in excess of
$100,000.00 in the aggregate, and within twenty (20) days after the creation
thereof or at least five (5) days prior to the date on which any assets could be
lawfully sold in satisfaction thereof, such debts and claims are
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<PAGE> 29
not satisfied, or stayed pending appeal and insured against in a manner
satisfactory to Bank.
(g) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to said Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered by any
court of competent jurisdiction under said Bankruptcy Code or any other
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<PAGE> 30
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
(h) There shall exist or occur any event or condition which Bank in
good faith determines has a material adverse effect on the business, operations
or condition (financial or otherwise) of Borrower, taken as a whole.
(i) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
(j) Holdings ceases to own at least 75% of the common stock of
Borrower.
(k) WCP ceases to own at least 51% of the common stock of Holdings.
(l) Between the date of this Agreement and January 5, 1994, the
Affiliate Loan has not been repaid in full and Holdings has not injected into
Borrower (as capital or as debt subordinated to indebtedness of Borrower to
Bank) an amount equal to the outstanding principal balance of the Affiliate
Loan.
SECTION 6.2. REMEDIES. If an Event of Default shall occur, (a) any
indebtedness of Borrower under any of the Loan Documents, any term thereof to
the contrary notwithstanding,
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<PAGE> 31
shall at Bank's option and without notice become immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to
permit further borrowings hereunder shall immediately cease and terminate; and
(c) Bank shall have all rights, powers and remedies available under each of the
Loan Documents, or accorded by law, including without limitation the right to
resort to any or all security for any credit accommodation from Bank subject
hereto and to exercise any or all of the rights of a beneficiary or secured
party pursuant to applicable law. All rights, powers and remedies of Bank in
connection with each of the Loan Documents may be exercised at any time by Bank
and from time to time after the occurrence of an Event of Default, are
cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a
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<PAGE> 32
waiver of such right, power or remedy; nor shall any single or partial exercise
of any such right, power or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permit, consent or approval of any kind by Bank of any breach of or
default under any of the Loan Documents must be in writing and shall be
effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: BANNER'S CENTRAL ELECTRIC CONSUMER
FINANCE COMPANY
1810 South Main Street
Los Angeles, California 90015
Attention: William King, Secretary
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Los Angeles Regional Commercial Banking Office
333 South Grand Avenue, 3rd Floor
Los Angeles, California 90071
Attention: Cindy Sullivan, Vice President
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the
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<PAGE> 33
earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), incurred by Bank in connection with
(a) the negotiation and preparation of this Agreement and each other of the Loan
Documents, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation any action for declaratory relief.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding on
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without the prior
written consent
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<PAGE> 34
of Bank. Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, any Guarantor or the business of any Guarantor, or any collateral
required hereunder.
SECTION 7.5. ENTIRE AGREEMENT, AMENDMENT. This Agreement and each other
of the Loan Documents constitute the entire agreement between Borrower and Bank
with respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only by a
written instrument executed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or
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<PAGE> 35
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. INDEMNITY. In addition to the payment of expenses pursuant
to Section 7.3 above, Borrower hereby agrees to indemnify and hold harmless Bank
and the officers, directors, employees and agents of and counsel to Bank
(collectively, "Indemnitees" and individually, an "Indemnitee") from and against
any liabilities, obligations, losses, damages, penalties, actions, causes of
action, judgments, suits, claims, costs and expenses, of any kind or nature
whatsoever, including the reasonable fees and expenses of counsel to Indemnitees
(including allocated fees and expenses of in-house counsel of Bank), in
connection with any investigative, administrative or judicial
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<PAGE> 36
proceeding, irrespective of whether such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against such
Indemnitee, in any manner relating to or arising out of this Agreement, any
borrowings hereunder, the use or intended use of the proceeds of any borrowings
hereunder or the consummation of the transactions contemplated hereby
(collectively, "Indemnified Liabilities"); provided, however, that Borrower's
obligations to Indemnitees under this paragraph shall not extend to any losses,
damages, liabilities, actions or claims against any Indemnitee arising as a
result of the gross negligence or willful misconduct of such Indemnitee.
Borrower shall make all payments required to be made under this Section 7.9
promptly upon demand by Bank. The obligations of Borrower under this Section 7.9
shall survive the termination of this Agreement and the discharge of Borrower's
other obligations hereunder.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent that Bank has greater rights or remedies under Federal law, whether as a
national bank or otherwise, in which case such choice of California law shall
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<PAGE> 37
not be deemed to deprive Bank of such rights and remedies as may be available
under Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
BANNER'S CENTRAL ELECTRIC WELLS FARGO BANK,
CONSUMER FINANCE COMPANY NATIONAL ASSOCIATION
By: By:
---------------------------------- ---------------------------------
Title: Title:
------------------------------- -------------------------------
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<PAGE> 38
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of April 15, 1994, by and between BANNER'S CENTRAL ELECTRIC CONSUMER
FINANCE COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
1. Section 1.1(c) shall be deleted in its entirety, and the following
substituted therefor:
"SECTION 1.1 (c) Unused Commitment Fee.
<PAGE> 39
Borrower shall pay to Bank an annual fee equal to three-eights of one
percent (3/8%) of the difference between the average daily outstanding
principal balance of the Line of Credit and the maximum amount of the
Line of Credit (without taking into account any limitation imposed by
the Borrowing Base) which fee shall be calculated on a quarterly
basis."
2. Section 4.3 (c) shall be deleted in its entirety, and the following
substituted therefor:
"SECTION 4.3(c) not later than 15 days after and as of
the 15th day and the end of each month a borrowing base
certificate substantially in the form of Exhibit "B"
attached hereto demonstrating Borrower's compliance with
this Agreement as of such calculation date, together with
a delinquent balance report with regard to outstanding
Contracts as of such calculation date; and not later than
15 days after each fiscal quarter an aged listing of
Contracts."
3. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
4. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as
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<PAGE> 40
of the date of this Amendment there exists no Event of Default as defined in the
Credit Agreement, nor any condition, act or event which with the giving of
notice or the passage of time or both would constitute any such Event of
Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
BANNER'S CENTRAL ELECTRIC
CONSUMER FINANCE COMPANY
By: By:
--------------------------------- -------------------------------
Jan Macy-Buescher
Title: Vice President
------------------------------
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<PAGE> 41
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of October 12, 1994, by and between BANNER'S CENTRAL ELECTRIC CONSUMER
FINANCE COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended by the First Amendment to Credit Agreement,
dated as of April 15, 1994, between Borrower and Bank, and by certain letters
heretofore addressed to Borrower from Bank and acknowledged by Borrower
(collectively, "Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
<PAGE> 42
1. Section 1.1(a) shall be amended (a) by deleting "December 14, 1994"
as the last day on which Bank will make advances under the Line of Credit, and
by substituting for said date "March 14, 1995," and (b) by deleting "FOUR
MILLION DOLLARS ($4,000,000.00)" as the maximum principal amount available under
the Line of Credit, and by substituting for said amount "TEN MILLION DOLLARS
($10,000,000.00)," with such changes to be effective upon the execution and
delivery to Bank of a promissory note substantially in the form of Exhibit A
attached hereto (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to the Credit Agreement) and all other
contracts, instruments and documents required by Bank in connection herewith.
2. Subdivision (5) in the fourth paragraph of Section 1.1(a) of the
Credit Agreement reads in part as follows:
"(5) which, in the opinion of Bank in its
sole and absolute discretion, meet acceptable
Bank standards as to creditworthiness of
Debtors and adequacy of documentation and
disclosures,".
The foregoing words of said subdivision (5) shall be deleted and the following
substituted therefor:
"(5) which meet standards acceptable to Bank
as to creditworthiness of Debtors and
adequacy of documentation and disclosures,".
<PAGE> 43
The remainder of said subdivision (5), following the word
"disclosures," shall remain in the Credit Agreement and is not modified hereby,
except that paragraph (vii) therein shall be amended as set forth below.
3. Section 1.1(a) (vii) shall be deleted in its entirety, and the
following substituted therefor:
"(vii) that portion of any Contract from a
Debtor which represents the amount by which
Borrower's total Contracts from said Debtor
exceed $2,000.00;"
4. Section 1.1(c), which was amended by the First Amendment to Credit
Agreement dated as of April 15, 1994, shall be further amended hereby by adding
the following sentence at the end thereof:
"Said fee shall be due and payable on the
fifteenth day after the end of such quarter,
and Bank may debit Borrower's account
therefor in accordance with Section 1.3
herein."
5. Section 5.7 shall be deleted in its entirety, and the following
substituted therefor:
"SECTION 5.7. LOANS, ADVANCES, INVESTMENTS.
Make any loans or advances to or investments
in any person or entity, except for (a) loans
by Borrower to its customers in the ordinary
course of business, (b) the Affiliate Loan
which has heretofore been made to Banner's
Central Electric, (c) the $2,000,000.00
interest-only loan to Holdings described in
the letter agreement between Bank and
<PAGE> 44
Borrower dated June 14, 1994, that had an
original maturity of September 30, 1994, and
that has an extended maturity that is not
later than November 30, 1994, and (d) the
$5,000,000 Other Affiliate Loan."
6. In the aforesaid letter agreement between Bank and Borrower dated
June 14, 1994, the parties hereto agreed, among other things, that the
$2,000,000 interest-only "Holdings Loan" would not be deducted from total
stockholders' equity for the purpose of calculating "Tangible Net Worth" under
Sections 4.9(a) and (b) of the Credit Agreement at any time on or before
September 30, 1994, and that after September 30, 1994, the "Holdings Loan" would
be deducted from total stockholders' equity for such purpose. Furthermore, said
letter agreement provides that an Event of Default will exist under the Credit
Agreement if the Holdings Loan is not repaid in full by September 30, 1994. The
parties hereto agree that said letter agreement shall be modified hereby to
provide that the aforesaid references to "September 30, 1994" shall be deleted
and replaced by references to "November 30, 1994." Accordingly, an Event of
Default shall exist under the Credit Agreement if the "Holdings Loan" is not
repaid in full by November 30, 1994, and after November 30, 1994, the "Holdings
Loan" shall, if it has not been repaid, be deducted from total stockholders'
equity for the purposes of calculating
<PAGE> 45
"Tangible Net Worth" under Sections 4.9(a) and (b) of the Credit Agreement.
7. The following Section 2.17 shall be added to the Credit Agreement
following Section 2.16:
"SECTION 2.17. OTHER AFFILIATE LOAN. On or
about June 3, 1994, Borrower made a
$5,000,000 loan ("Other Affiliate Loan") to
Borrower's affiliate, Central Rents Holding,
Inc."
8. It is a condition precedent to the accommodations granted Borrower
by Bank hereunder that all of the following conditions be satisfied on or before
October 12, 1994:
(a) This Amendment shall be executed by Borrower and delivered to Bank.
(b) The Line of Credit Note in the form of Exhibit "A" attached to this
Amendment shall be executed by Borrower and delivered to Bank.
(c) West Coast Private Equity Partners, L.P. shall execute and deliver
to Bank a new letter of understanding satisfactory to Bank regarding West Coast
Private Equity Partners, L.P.'s ability to inject equity into Borrower.
(d) Borrower shall furnish Bank with such new borrowing resolutions and
certificates of incumbency as Bank may require in
<PAGE> 46
connection with the renewal and increase of Borrower's Line of Credit hereunder.
(e) Borrower shall pay to Bank fees for the increase and renewal of the
Line of Credit in accordance with paragraphs 9 and 10 below.
9. In consideration of the renewal of the Line of Credit, Borrower
shall pay to Bank a non-refundable fee equal to $3,750.00, which fee shall be
due and payable on the date this Amendment is executed by Borrower and delivered
to Bank.
10. In consideration of the increase in the Line of Credit hereunder,
Borrower shall pay to Bank a non-refundable fee equal to $9,562.50, which fee
shall be due and payable on the date this Amendment is executed by Borrower and
delivered to Bank.
11. The parties hereto acknowledge that notwithstanding the fact that
Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
at any time hereafter, if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (and if Bank requests, indorsed to the
order of Bank), such promissory notes remain
<PAGE> 47
subject to Bank's security interest and Borrower is obligated to place a legend
thereon in accordance with the Credit Agreement.
12. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment, except as otherwise defined herein. This
Amendment and the Credit Agreement shall be read together, as one document.
13. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement as modified hereby, and reaffirms all
covenants set forth therein as modified hereby. Borrower further certifies that
as of the date of this Amendment there exists no Event of Default as defined in
the Credit Agreement, as modified hereby, nor any condition, act or event which
with the giving of notice or the passage of time or both would constitute any
such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
BANNER'S CENTRAL ELECTRIC WELLS FARGO BANK,
CONSUMER FINANCE COMPANY NATIONAL ASSOCIATION
<PAGE> 48
By: __________________________ By: __________________________
Jan Macy-Buescher
Title: _______________________ Vice President
<PAGE> 49
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of December 6, 1994, by and between BANNER'S CENTRAL ELECTRIC CONSUMER
FINANCE COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time, (collectively, "Credit
Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
1. Section 1.1(a) shall be amended by deleting "TEN MILLION
DOLLARS ($10,000,000.00)" as the maximum principal amount available under the
Line of Credit, and by substituting for said amount "FIFTEEN MILLION DOLLARS
($15,000,000.00)," with such changes to be effective upon the execution and
delivery to Bank of a promissory note substantially in the form of Exhibit A
attached hereto (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to
<PAGE> 50
the Credit Agreement) and all other contracts, instruments and documents
required by Bank in connection herewith.
2. It is a condition precedent to the accommodations granted
Borrower by Bank hereunder that all of the following conditions be satisfied on
or before December 16, 1994:
(a) This Amendment shall be executed by Borrower and delivered to
Bank.
(b) The Line of Credit Note in the form of Exhibit "A" attached to
this Amendment shall be executed by Borrower and delivered to Bank.
(c) Borrower shall furnish Bank with such new borrowing
resolutions as Bank may require in connection with the increase of Borrower's
Line of Credit hereunder.
(d) Borrower shall pay to Bank fees for the increase of the Line
of Credit in accordance with paragraph 3 below.
(e) West Coast Private Equity Partners, L.P. shall execute and
deliver to Bank a new letter of understanding satisfactory to Bank regarding
West Coast Private Equity Partners, L.P.'s ability to inject equity into
Borrower.
3. In consideration of the increase in the Line of Credit
hereunder, Borrower shall pay to Bank a non-refundable fee equal to $4,687.50,
which fee shall be due and payable on the date this Amendment is executed by
Borrower and delivered to Bank.
<PAGE> 51
4. The parties hereto acknowledge that notwithstanding the fact
that Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
at any time hereafter; if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (and if Bank requests, indorsed to the
order of Bank); and such promissory notes remain subject to Bank's security
interest and Borrower is obligated to place a legend thereon in accordance with
the Credit Agreement.
5. Except as specifically provided herein, all terms and
conditions of the Credit Agreement remain in full force and effect, without
waiver or modification. All terms defined in the Credit Agreement shall have
the same meaning when used in this Amendment, except as otherwise defined
herein. This Amendment and the Credit Agreement shall be read together, as one
document.
6. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement as modified hereby, and reaffirms all
covenants set forth therein as modified hereby. Borrower further certifies
that as of the date of this Amendment there exists no Event of Default as
defined in the Credit Agreement, as modified hereby, nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
BANNER'S CENTRAL ELECTRIC WELLS FARGO BANK,
CONSUMER FINANCE COMPANY NATIONAL ASSOCIATION
By: By: Kevin Baneth
--------------------------- ------------------------------
Kevin Baneth
Title: Vice President
------------------------
<PAGE> 53
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of January 18, 1995, by and between BANNER'S CENTRAL ELECTRIC CONSUMER
FINANCE COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time, (collectively, "Credit
Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
1. Section 1.1.(a) shall be amended by deleting "FIFTEEN MILLION
DOLLARS ($15,000,000.00)" as the maximum principal amount available under the
Line of Credit, and by substituting for said
<PAGE> 54
amount "NINETEEN MILLION DOLLARS ($19,000,000.00)," (b) by deleting "March 14,
1995" as the last day on which Bank will make advances under the Line of Credit,
and by substituting for said date "April 15, 1995," with such changes to be
effective upon the execution and delivery to Bank of a promissory note
substantially in the form of Exhibit A attached hereto (which promissory note
shall replace and be deemed the Line of Credit Note defined in and made pursuant
to the Credit Agreement) and all other contracts, instruments and documents
required by Bank in connection herewith.
2. It is a condition precedent to the accommodations granted Borrower
by Bank hereunder that all of the following conditions be satisfied on or before
_________________, 1995:
(a) This Amendment shall be executed by Borrower and delivered to Bank.
(b) The Line of Credit Note in the form of Exhibit "A" attached to this
Amendment shall be executed by Borrower and delivered to Bank.
(c) Borrower shall furnish Bank with such new borrowing resolutions as
Bank may require in connection with the increase of Borrower's Line of Credit
hereunder.
<PAGE> 55
(d) Borrower shall pay to Bank fees for the increase of the Line of
Credit in accordance with paragraph 3 below.
(e) West Coast Private Equity Partners, L.P. shall execute and deliver
to Bank a new letter of understanding satisfactory to Bank regarding West Coast
Private Equity Partners, L.P.'s ability to inject equity into Borrower.
3. In consideration of the increase in and renewal of the Line of
Credit hereunder, Borrower shall pay to Bank a non-refundable fee equal to
$8,500.00, which fee shall be due and payable on the date this Amendment is
executed by Borrower and delivered to Bank.
4. The parties hereto acknowledge that notwithstanding the fact that
Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
at any time hereafter; if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (and if Bank requests, indorsed to the
order of Bank); and such promissory notes remain subject to Bank's security
interest and Borrower is obligated to place a legend thereon in accordance with
the Credit Agreement.
<PAGE> 56
5. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment, except as otherwise defined herein. This
Amendment and the Credit Agreement shall be read together, as one document.
6. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement as modified hereby, and reaffirms all covenants set
forth therein as modified hereby. Borrower further certifies that as of the date
of this Amendment there exists no Event of Default as defined in the Credit
Agreement, as modified hereby, nor any condition, act or event which with the
giving of notice or the passage of time or both would constitute any such Event
of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
BANNER'S CENTRAL ELECTRIC WELLS FARGO BANK,
CONSUMER FINANCE COMPANY NATIONAL ASSOCIATION
<PAGE> 57
By: __________________________ By: __________________________
Kevin Baneth
Title: _______________________ Vice President
<PAGE> 58
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of August 1, 1995, by and between CENTRAL CONSUMER FINANCE COMPANY, a
Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time, (collectively, "Credit
Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
1. Section 1.1(a) shall be amended by deleting "NINETEEN MILLION
DOLLARS ($19,000,000.00)" as the maximum principal amount available under the
Line of Credit, and by substituting for said amount "TWENTY-FIVE MILLION
DOLLARS ($25,000,000.00)," with such changes to be effective upon the execution
and delivery to Bank of a promissory note substantially in the form of Exhibit
A attached hereto (which promissory note shall replace and be deemed the Line
of Credit Note defined in and made pursuant to
<PAGE> 59
the Credit Agreement) and all other contracts, instruments and documents
required by Bank in connection herewith.
2. Section 1.1(a) shall be amended by deleting the period at the
and of the first sentence thereof, and inserting thereat the following: "and to
finance Borrower's acquisition of consumer automobile sales contracts from
Borrower's affiliate, Central Auto Sales ("Central Auto"), and of consumer
ticket sales contracts from Borrower's affiliate, Centravel ("Centravel")."
3. That portion of Section 1.1(a) beginning with the second
paragraph thereof (which begins with the words "Notwithstanding any other
provision of this Agreement") and continuing through the last paragraph thereof
(which ends with the words "in excess of two (2) years") shall be deleted and
replaced by the following:
"Notwithstanding any other provision of this Agreement, the aggregate
amount of all outstanding borrowings under the Line of Credit shall not
at any time exceed a borrowing base ("Borrowing Base") which is a
maximum of (a) seventy percent (70%) of the outstanding Balance (as
defined below) of Borrower's Eligible Loan Contracts Receivables (as
defined below), (b) seventy percent (70%) of the outstanding Balance (as
defined below) of Borrower's Eligible Auto Contracts Receivables (as
defined below), plus (c) seventy percent (70%) of the outstanding
Balance (as defined below) of Borrower's Eligible Travel Contracts
Receivables (as defined below), in each case determined
2
<PAGE> 60
by Bank upon receipt and review of such collateral reports and other documents
as Bank may require. As used herein, "Balance" shall mean outstanding
principal, plus earned and unpaid interest thereon, plus earned and unpaid fees
related thereto. As used herein, "Eligible Loan Contracts Receivables" shall
consist solely of written consumer credit agreements (1) which evidence loans
made by Borrower to persons (collectively, "Debtors" and each a "Debtor"), in
the ordinary course of Borrower's business for personal, family or household
purposes (such consumer credit agreements may be referred to below collectively
as "Loan Contracts" and each as a "Loan Contract"), (2) which constitute legal,
valid and binding agreements of the Debtors named therein, enforceable in
accordance with their terms, and upon which Borrower's right to receive payment
is absolute and not contingent upon the fulfillment of any condition, (3) which
are owned by Borrower free of all liens, encumbrances, charges, rights and
interests of any kind, except for the security interests granted Bank therein,
(4) which are the subject of a first priority perfected security interest in
favor of Bank, and (5) which meet standards acceptable to Bank as to
creditworthiness of Debtors and adequacy of documentation and disclosures, but
shall not include:
3
<PAGE> 61
(i) any Loan Contract under which any payment is more than sixty
(60) days past due;
(ii) any Loan contract for which there exists any right of setoff,
defense or discount or for which any defense or counterclaim has been asserted;
(iii) any Loan Contract which represents an obligation of a Debtor
located in a foreign country;
(iv) any Loan Contract which represents an obligation of an
employee, officer, owner or affiliate of Borrower;
(v) that portion of any Loan Contract which represents late
charges;
(vi) that portion of any Loan Contract from a Debtor which
represents the amount by which Borrower's total Loan Contracts from said Debtor
exceeds $2,000.00;
(vii) any Loan Contract with an original term or an original
principal amortization schedule in excess of two (2) years.
As used herein, "Eligible Auto Contracts Receivables" shall consist
solely of written consumer automobile installment sales contracts (1) which
evidence installment sales of used automobiles by Central Auto to Debtors, in
the ordinary course of Central Auto's business for personal, family or
household purposes (such consumer installment sales contracts may be referred
to below collectively as
4
<PAGE> 62
"Auto Contracts" and each as an "Auto Contract"), secured by first priority
perfected security interests in such vehicles, and which have been purchased by
Borrower from Central Auto in the ordinary course of Borrower's business, (2)
which constitute legal, valid and binding agreements of the Debtors named
therein, enforceable in accordance with their terms, and upon which Borrower's
right to receive payment is absolute and not contingent upon the fulfillment of
any condition, (3) which are owned by Borrower free of all liens, encumbrances,
charges, rights and interests of any kind, except for the security interests
granted Bank therein, (4) which are the subject of a first priority perfected
security interest in favor of Bank, and (5) which meet standards acceptable to
Bank as to creditworthiness of Debtors and adequacy of collateral,
documentation and disclosures, but shall not include:
(i) any Auto Contract under which any payment is more than sixty
(60) days past due;
(ii) any Auto Contract for which there exists any right of setoff,
defense or discount or for which any defense or counterclaim has been asserted;
(iii) any Auto Contract which represents an obligation of a Debtor
located in a foreign country;
(iv) any Auto Contract which represents an, obligation of an
employee, officer, owner or affiliate of Borrower;
5
<PAGE> 63
(v) that portion of any Auto Contract which represents late
charges;
(vi) that portion of any Auto Contract from a Debtor which
represents the amount by which Borrower's total Auto contracts from said Debtor
exceeds $8,000.00;
(vii) any Auto Contract with an original term or an original
principal amortization schedule in excess of three (3) years.
As used herein, "Eligible Travel contracts Receivables" shall consist
solely of written consumer travel ticket installment sales contracts (1) which
evidence installment sales of travel tickets by Centravel to Debtors, in the
ordinary course of Centravel's business for personal, family or household
purposes (such consumer installment ticket sales contracts may be referred to
below collectively as "Travel Contracts" and each as a "Travel Contract"), and
which have been purchased by Borrower from Centravel in the ordinary course of
Borrower's business, (2) which constitute legal, valid and binding agreements
of the Debtors named therein, enforceable in accordance with their terms, and
upon which Borrower's right to receive payment is absolute and not contingent
upon the fulfillment of any condition, (3) which are owned by Borrower free of
all liens, encumbrances, charges, rights and interests of any kind, except for
6
<PAGE> 64
the security interests granted Bank therein, (4) which are the subject of a
first priority perfected security interest in favor of Bank, and (5) which meet
standards acceptable to Bank as to creditworthiness of Debtors and adequacy of
documentation and disclosures, but shall not include:
(i) any Travel Contract under which any payment is more than sixty
(60) days past due;
(ii) any Travel Contract for which there exists any right of
setoff, defense or discount or for which any defense or counterclaim has been
asserted;
(iii) any Travel Contract which represents an obligation of a Debtor
located in a foreign country;
(iv) any Travel Contract which represents an obligation of an
employee, officer, owner or affiliate of Borrower;
(v) that portion of any Travel Contract which represents late
charges;
(vi) that portion of any Travel Contract from a Debtor which
represents the amount by which Borrower's total Travel Contracts from said
Debtor exceeds $2,000.00;
(vii) any Travel Contract with an original term or an original
principal amortization schedule in excess of two (2) years.
7
<PAGE> 65
As use herein, Loan Contracts, Auto Contracts and Travel
Contracts may be referred to collectively as "Contracts" and each as a
"Contract."
As used herein, Borrower's Eligible Loan Contracts
Receivables, Borrower's Eligible Auto Contracts Receivables and
Borrower's Eligible Travel Contracts Receivables may be referred to
collectively as "Eligible Contracts Receivables" and each as an
"Eligible contracts Receivable."
4. The form of Borrowing Bass Certificate attached hereto as
Exhibit "B" shall replace and be deemed Exhibit "B" to the Credit Agreement.
5. It is a condition precedent to the accommodations granted
Borrower by Bank hereunder that all of the following conditions be satisfied on
or before August 31, 1995:
(a) This Amendment shall be executed by Borrower and delivered to
Bank.
(b) The Line of Credit Note in the form of Exhibit "A" attached to
this Amendment shall be executed by Borrower and delivered to Bank.
(c) Borrower shall furnish Bank with such new borrowing
resolutions as Bank may require in connection with the increase of Borrower's
Line of Credit hereunder.
(d) Borrower shall pay to Bank fees for the increase of the Line
of Credit in accordance with paragraph 6 below.
(e) West Coast Private Equity Partners, L.P. shall execute and
deliver to Bank a new letter of understanding satisfactory to
8
<PAGE> 66
Bank regarding West Coast Private Equity Partners, L.P.'s ability to inject
equity into Borrower.
6. The parties hereto acknowledge that notwithstanding the fact
that Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
at any time hereafter; if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (and if Bank requests, endorsed to the
order of Bank); and such promissory notes remain subject to Bank's security
interest and Borrower is obligated to place a legend thereon in accordance with
the Credit Agreement.
7. Except as specifically provided herein, all terms and
conditions of the Credit Agreement remain in full force and effect, without
waiver or modification. All terms defined in the Credit Agreement shall have
the same meaning when used in this Amendment, except as otherwise defined
herein, This Amendment and the Credit Agreement shall be read together, as one
document.
8. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement as modified hereby, and reaffirms all
covenants set forth therein as modified hereby. Borrower further certifies
that as of the date of this Amendment there exists no Event of Default as
defined in the Credit
9
<PAGE> 67
Agreement, as modified hereby, nor any condition, act or event which with the
giving of notice or the passage of time or both would constitute any such Event
of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first written above.
CENTRAL CONSUMER FINANCE WELLS FARGO BANK,
COMPANY NATIONAL ASSOCIATION
By: By:
_______________________ ______________________
Kevin Baneth
Title: S.V.P. Vice President
--------------------
10
<PAGE> 68
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of September 30, 1995, by and between CENTRAL CONSUMER FINANCE COMPANY,
a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time, (collectively, "Credit
Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, the Credit Agreement is hereby amended as follows:
1. Section 1.1(a) is hereby amended (a) by deleting "September 30,
1995" as the last day on which Bank will make advances under the Line of Credit,
and by substituting for said date "December 31, 1995," and (b) by deleting
"TWENTY-FIVE
<PAGE> 69
MILLION DOLLARS ($25,000,000.00)" as the maximum principal amount available
under the Line of Credit, and by substituting for said amount "THIRTY MILLION
DOLLARS ($30,000,000.00)," with such changes to be effective upon the execution
and delivery to Bank of a promissory note substantially in the form of Exhibit A
attached hereto (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to the Credit Agreement) and all other
contracts, instruments and documents required by Bank to evidence such change.
2. It is a condition precedent to the accommodations granted Borrower
by Bank hereunder that all of the following conditions be satisfied on or before
October 15, 1995:
(a) This Amendment shall be executed by Borrower and delivered to Bank.
(b) The Line of Credit Note in the form of Exhibit "A" attached to this
Amendment shall be executed by Borrower and delivered to Bank.
(c) Borrower shall furnish Bank with such new borrowing resolutions as
Bank may require in connection with the increase of Borrower's Line of Credit
hereunder.
(d) Borrower shall pay to Bank a fee for the increase of the Line of
Credit in accordance with paragraph 3 below.
2
<PAGE> 70
(e) West Coast Private Equity Partners, L.P. shall execute
and deliver to Bank a new letter of understanding satisfactory to Bank
regarding West Coast Private Equity Partners, L.P.'s ability
to inject equity into Borrower.
3. In consideration of the increase and extension of the Line of Credit
hereunder, Borrower shall pay to Bank a fee equal to $12,000.00, which fee shall
be due and payable on the date this Amendment is executed by Borrower and
delivered to Bank. Notwithstanding the foregoing regarding the payment of such
fee to the Bank, at this time, in the event the financing described in Bank's
commitment letter dated September 22, 1995, addressed to Gary Cypress at
Banner's Central Electric, Inc. ("Commitment Letter") closes between September
30, 1995 and December 31, 1995 ("Extension Period"), and Borrower's Line of
Credit from Bank which has been extended hereby is repaid in full as a result
thereof, the Bank shall remit to Borrower a pro rata portion of such fee based
upon the number of days that elapsed during the Extension Period up to the date
of such repayment over the total number of days in the Extension Period.
4. The parties hereto acknowledge that notwithstanding the fact that
Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory
3
<PAGE> 71
note which evidences all or any portion of any Eligible Contract Receivables,
Bank reserves its right to do so at any time hereafter; if Bank requests
hereafter, Borrower shall immediately deliver such promissory notes to Bank (and
if Bank requests, indorsed to the order of Bank); and such promissory notes
remain subject to Bank's security interest and Borrower is obligated to place a
legend thereon in accordance with the Credit Agreement.
5. It is hereby agreed that Borrower shall cooperate with Bank in
permitting an auditing firm selected by Bank to conduct an audit of Borrower and
its operations and procedures, as directed by Bank. It is further agreed that in
the event the results of such audit are not satisfactory to Bank, then Bank may
in its discretion terminate any commitment it may have to extend credit to
Borrower and upon five (5) days prior written notice to Borrower accelerate and
declare immediately due and payable all indebtedness of Borrower to Bank.
6. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment, except as otherwise defined herein. This
Amendment and the Credit Agreement shall be read together, as one document.
4
<PAGE> 72
7. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement as modified hereby, and reaffirms all covenants set
forth therein as modified hereby. Borrower further certifies that as of the date
of this Amendment there exists no Event of Default as defined in the Credit
Agreement, as modified hereby, nor any condition, act or event which with the
giving of notice or the passage of time or both would constitute any such Event
of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
CENTRAL CONSUMER FINANCE WELLS FARGO BANK,
COMPANY NATIONAL ASSOCIATION
By: By:
----------------------------------- -------------------------------
Kevin Baneth
Title: Vice President
--------------------------------
5
<PAGE> 73
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is
entered into as of February 1, 1996, by and between CENTRAL CONSUMER FINANCE
COMPANY, a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time ("Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Credit Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended by deleting "February 1,
1996" as the last day on which Bank will make advances under the Line of
Credit, and by substituting for said date "July 1, 1996," with such change to
be effective upon the
<PAGE> 74
execution and delivery to Bank of a promissory note substantially in the form
of Exhibit A attached hereto (which promissory note shall replace and be deemed
the Line of Credit Note defined in and made pursuant to the Credit Agreement)
and all other contracts, instruments and documents required by Bank in
connection herewith.
2. The definition of "Eligible Loan Contracts Receivables" in
Section 1.1(a) of the Credit Agreement is hereby amended so that the following
is added to the list of excluded Loan Contracts following the exclusion in
paragraph "(vii)" and the period at the end of said paragraph "(vii)" is hereby
deleted and replaced with a semicolon:
"(viii) any Loan Contract which is a Rewritten Loan
Contract. As used herein, a "Rewritten Loan Contract" shall
mean a Loan Contract which is amended in any material respect,
including without limitation any amendment which changes the
amount or due date of any payment thereunder or which extends
the maturity date thereof, or a Loan Contract which restates
or replaces a prior Loan Contract and the effect of such
restatement or replacement is to amend in any material respect
the terms or provisions of the prior Loan Contract, including
without limitation any restatement or replacement which
changes the amount or due date of any payment or which extends
the maturity date."
3. The definition of "Eligible Auto Contracts Receivables" in
Section 1.1(a) of the Credit Agreement is hereby amended so that the following
is added to the list of excluded Auto
2
<PAGE> 75
Contracts following the exclusion in paragraph "(vii)" and the period at the
end of said paragraph "(vii)" is hereby deleted and replaced with a semicolon:
"(viii) any Auto Contract which is a Rewritten Auto
Contract. As used herein, a "Rewritten Auto Contract" shall
mean an Auto Contract which is amended in any material
respect, including without limitation any amendment which
changes the amount or due date of any payment thereunder or
which extends the maturity date thereof, or an Auto Contract
which restates or replaces a prior Auto Contract and the
effect of such restatement or replacement is to amend in any
material respect the terms or provisions of the prior Auto
Contract, including without limitation any restatement or
replacement which changes the amount or due date of any
payment or which extends the maturity date."
4. The definition of "Eligible Travel Contracts Receivables" in
Section 1.1(a) of the Credit Agreement is hereby amended so that the following
is added to the list of excluded Travel Contracts following the exclusion in
paragraph "(vii)" and the period at the end of said paragraph "(vii)" is hereby
deleted and replaced with a semicolon:
"(viii) any Travel Contract which is a Rewritten
Travel Contract. As used herein, a "Rewritten Travel
Contract" shall mean a Travel Contract which is amended in any
material respect, including without limitation any amendment
which changes the amount or due date of any payment thereunder
or which extends the maturity date thereof, or a Travel
Contract which restates or replaces a prior Travel Contract
and the effect of such restatement or replacement is to amend
in any material respect the terms or
3
<PAGE> 76
provisions of the prior Travel Contract, including without
limitation any restatement or replacement which changes the
amount or due date of any payment or which extends the
maturity date."
5. Borrower shall pay to Bank a non-refundable commitment fee for
the renewal of the Line of Credit and the other accommodations granted Borrower
hereunder equal to $15,000.00, which commitment fee shall be due and payable on
the date this Amendment is executed by Borrower and delivered to Bank.
6. The following is hereby added to the Credit Agreement as
Section 1.1A.:
"SECTION 1.1A. LINE OF CREDIT NO. 2.
(a) Line of Credit No. 2. Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make
advances to Borrower from time to time up to and including
July 1, 1996, not to exceed at any time the aggregate
principal amount of TWO MILLION DOLLARS ($2,000,000.00) ("Line
of Credit No. 2"). Borrower has informed Bank that Borrower
intends to acquire the assets of a California state-wide
travel agency, with locations concentrated in predominantly
Latino communities. Such acquisition ("Travel Agency
Acquisition") shall be on terms and conditions acceptable to
Bank. The proceeds of the Line of Credit No. 2 shall be used
for Borrower's acquisition of computer equipment for use at,
and for improvements to, the new locations acquired in the
Travel Agency Acquisition. Borrower's obligation to repay
advances under the Line of Credit No. 2 shall be evidenced by
a promissory note substantially in the form of Exhibit C
attached hereto ("Line of Credit Note No. 2"), all terms of
which are incorporated herein by this reference.
4
<PAGE> 77
(b) Borrowing and Repayment. Borrower may from
time to time during the term of the Line of the Credit No. 2
borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note No.
2; provided however, that the total outstanding borrowings
under Line of Credit No. 2 shall not at any time exceed the
maximum principal amount available thereunder, as set forth
above. Notwithstanding anything herein or in the Line of
Credit Note No. 2 to the contrary, in the event an initial
public offering is made by Borrower or any parent company of
Borrower, then Bank's commitment to extend credit under the
Line of Credit No. 2, if any, shall terminate and the proceeds
of such offering shall be used to repay the outstanding
principal balance of the Line of Credit No. 2. Nothing in this
paragraph is intended to evidence Bank's consent to any such
initial public offering nor shall this paragraph alter any
other provision of this Agreement with respect to any such
initial public offering or any change in ownership of
Borrower."
7. The copy of the promissory note attached to this Amendment as
Exhibit "C" shall be deemed Exhibit "C" to the Credit Agreement.
8. Sections 1.2(a) and (b) are hereby deleted in their entirety,
and the following substituted therefor:
"(a) Interest. The outstanding principal balance
of the Line of Credit and the Line of Credit No. 2 shall bear
interest at the rate of interest set forth in the Line of
Credit Note and the Line of Credit Note No. 2.
(b) Computation and Payment. Interest shall be
computed on the basis of a 360-day
5
<PAGE> 78
year, actual days elapsed. Interest shall be payable at the
times and place set forth in the Line of Credit Note and the
Line of Credit Note No. 2 (collectively, the "Notes")."
9. Section 1.3. is hereby deleted in its entirety, and the
following substituted therefor:
"SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes
Bank to collect all interest and fees due under the Line of
Credit and the Line of Credit No. 2 (collectively, "Credits"
and each a "Credit") by charging Borrower's demand deposit
account number 4600183859 with Bank, or any other demand
deposit account maintained by Borrower with Bank, for the full
amount thereof. Should there be insufficient funds in any
such demand deposit account to pay all such sums when due, the
full amount of such deficiency shall be immediately due and
payable by Borrower."
10. Section 1.4 of the Credit Agreement is amended by deleting the
first sentence thereof (which begins with the words "As security for") and
replacing such sentence with the following:
"As security for all indebtedness of Borrower to Bank
pursuant to this Agreement, including without limitation the
Line of Credit and the Line of Credit No. 2, Borrower grants
to Bank security interests of first priority in all Borrower's
present and future accounts, general intangibles, contract
rights, rights to payment, instruments, documents, chattel
paper and equipment, including without limitation all
Contracts, all guaranties related to Contracts, all collateral
for each Contract and all equipment financed by Line of Credit
No. 2."
6
<PAGE> 79
11. The Credit Agreement shall be amended by inserting therein the
following Section 1.5:
"SECTION 1.5. SUBORDINATION OF DEBT. All obligations
of Borrower to Holdings (as defined below) shall be
subordinated in right of repayment to all obligations of
Borrower to Bank, as evidenced by and subject to the terms of
subordination agreements in form and substance satisfactory to
Bank."
12. The copy of the Borrowing Base Certificate attached to this
Amendment as Exhibit "B" shall be deemed Exhibit "B" to the Credit Agreement
(and shall replace the prior form of Borrowing Base Certificate required by
Bank).
13. Section 4.9(a) of the Credit Agreement is amended by deleting
the period at the end thereof, and inserting thereat the following:
"up to (but not including) December 31, 1995, and not
less than $7,000,000.00 at any time on or after December 31,
1995."
14. It is a condition precedent to the accommodations granted
Borrower by Bank hereunder that all of the following conditions be satisfied on
or before February 16, 1996:
(a) This Amendment shall be executed by Borrower and delivered to
Bank.
(b) The Line of Credit Note No. 2 in the form of Exhibit "C"
attached to this Amendment shall be executed by Borrower and delivered to Bank.
7
<PAGE> 80
(c) Borrower shall furnish Bank with such new borrowing
resolutions as Bank may require in connection with the increase in Borrower's
credit hereunder.
(d) Borrower shall pay to Bank the fee for the accommodations
granted hereunder in accordance with paragraph 5 above.
(e) West Coast Private Equity Partners, L.P. shall execute and
deliver to Bank a new letter of understanding satisfactory to Bank regarding
West Coast Private Equity Partners, L.P.'s ability to inject equity into
Borrower.
15. The parties hereto acknowledge that notwithstanding the fact
that Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
at any time hereafter; if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (if Bank requests, endorsed to the order
of Bank); and such promissory notes remain subject to Bank's security interest
and Borrower is obligated to place a legend thereon in accordance with the
Credit Agreement.
16. Except as specifically provided herein, all terms and
conditions of the Credit Agreement remain in full force and effect, without
waiver or modification. Except as specifically defined herein, all terms
defined in the Credit Agreement shall
8
<PAGE> 81
have the same meaning when used in this Amendment. This Amendment and the
Credit Agreement shall be read together, as one document.
17. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement and reaffirms all covenants set forth therein
as same may be modified hereby. Borrower further certifies that as of the date
of this Amendment there exists no Event of Default as defined in the Credit
Agreement, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first written above.
CENTRAL CONSUMER FINANCE WELLS FARGO BANK,
COMPANY NATIONAL ASSOCIATION
By: By:
--------------------- ----------------------
Kevin Baneth
Title: President & CEO Vice President
------------------
9
<PAGE> 1
EXHIBIT 10.11
================================================================================
SECOND AMENDED AND RESTATED LOAN AGREEMENT
Dated as of April 29, 1996
between
BANNER'S CENTRAL ELECTRIC, INC.,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent,
and
THE FINANCIAL INSTITUTIONS THAT ARE SIGNATORIES HERETO
$60,000,000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C>
DEFINITIONS AND CONSTRUCTION.................................................. 1
1.1 Definitions................................................................................... 1
1.2 Construction.................................................................................. 28
1.3 Accounting Terms.............................................................................. 28
1.4 Disclosure Statement.......................................................................... 29
ARTICLE II
AMOUNT AND TERMS OF LOANS..................................................... 29
2.1 Revolving Credit Facility..................................................................... 29
2.2 Letters of Credit............................................................................. 30
2.3 Authorization and Issuance of the Notes....................................................... 33
2.4 Rate Designation.............................................................................. 33
2.5 Interest Rates; Payment of Principal and Interest............................................. 33
2.6 Default Rate.................................................................................. 35
2.7 Computation of Interest and Fees.............................................................. 35
2.8 Request for Borrowing......................................................................... 35
2.9 Conversion or Continuation.................................................................... 37
2.10 Loans by Banks............................................................................... 39
2.11 Termination or Reduction of Commitment....................................................... 39
2.12 Voluntary Prepayments........................................................................ 40
2.13 Fees......................................................................................... 40
2.14 Replacement of Banks......................................................................... 41
2.15 Eurodollar Costs............................................................................. 41
2.16 Special Eurodollar Circumstances............................................................. 43
2.17 Taxes........................................................................................ 44
2.18 Increased Capital Cost....................................................................... 45
2.19 Funding Sources.............................................................................. 46
2.20 Holidays..................................................................................... 46
2.21 Place of Borrowings.......................................................................... 46
2.22 Time and Place of Payments................................................................... 46
2.23 Survivability................................................................................ 46
ARTICLE III
CONDITIONS TO LOANS........................................................... 47
3.1 Conditions Precedent to Initial Loans......................................................... 47
3.2 Conditions Precedent to All Loans............................................................. 49
3.3 Condition Subsequent to Initial Loans......................................................... 50
3.4 Determinations Under Section 3.1.............................................................. 50
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BORROWER.......................................................... 50
4.1 Due Organization; Subsidiaries................................................................ 51
4.2 Capital Stock or Interests of Borrower........................................................ 51
4.3 Requisite Power and Authorization............................................................. 51
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
4.4 Binding Agreements ............................... 52
4.5 Other Agreements ................................. 52
4.6 Litigation; Adverse Facts ........................ 52
4.7 Government Consents .............................. 53
4.8 Financial Condition .............................. 53
4.9 Title to Assets; Liens ........................... 54
4.10 Tax Examination .................................. 55
4.11 Payment of Taxes ................................. 55
4.12 Governmental Regulation .......................... 55
4.13 Securities Activities ............................ 56
4.14 Employee Benefit Plans ........................... 56
4.15 Disclosure ....................................... 57
4.16 Indebtedness ..................................... 57
4.17 Licenses, Patents, Trademarks, and Intellectual
Property ......................................... 57
4.18 Burdensome Agreements ............................ 58
4.19 Existing Defaults ................................ 58
4.20 Contract Warranties .............................. 58
4.21 Compliance with Consumer Finance Laws ............ 59
4.22 Leases ........................................... 59
4.23 Fire, Explosion, and Labor Disputes .............. 59
4.24 Location of Chief Executive Office ............... 59
4.25 No Partnerships .................................. 59
4.26 Employment Agreements and Relations .............. 59
4.27 Environmental Matters ............................ 60
4.28 Solvency ......................................... 60
4.29 No Default ....................................... 60
4.30 Representations and Warranties Relating to Central
Ram .............................................. 60
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER ....... 61
5.1 Accounting Records and Inspection ................ 62
5.2 Financial Statements and Other Information ....... 62
5.3 Corporate Existence .............................. 67
5.4 Payment of Taxes and Claims ...................... 68
5.5 Maintenance of Properties ........................ 68
5.6 Insurance ........................................ 68
5.7 Compliance with Laws ............................. 69
5.8 Compliance with ERISA ............................ 69
5.9 Consumer Finance Regulations ..................... 69
5.10 Further Assurances ............................... 69
5.11 Compliance by Central Ram ........................ 70
5.12 Intercompany Services ............................ 70
5.13 Collection and Disbursement Procedures ........... 71
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER .......... 71
6.1 Indebtedness ..................................... 71
6.2 Liens ............................................ 72
6.3 Investments ...................................... 72
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
6.4 Accommodation Obligations .......................... 73
6.5 Dividends .......................................... 73
6.6 Financial Covenants ................................ 74
6.7 Restriction on Fundamental Changes ................. 76
6.8 Sales and LeaseBacks ............................... 77
6.9 Sale of Assets ..................................... 77
6.10 Transactions with Shareholders and Affiliates ...... 78
6.11 Conduct of Business ................................ 80
6.12 Issuance of Preferred Stock ........................ 80
6.13 Prepayment of Indebtedness ......................... 80
6.14 Use of Proceeds .................................... 80
6.15 ERISA .............................................. 80
6.16 Misrepresentations ................................. 81
6.17 Change in Location of Chief Executive Office and
Assets ............................................. 81
6.18 Warehouse Receipts ................................. 81
6.19 Margin Regulation .................................. 81
6.20 Amendments or Waivers of Certain Documents ......... 81
6.21 Amendment of Rewrite Policy ........................ 82
6.22 Change of Fiscal Periods ........................... 82
6.23 Compliance by Central Ram .......................... 82
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES ................ 82
7.1 Events of Default .................................. 82
7.2 Remedies ........................................... 87
ARTICLE VIII
THE AGENT AND THE BANKS ....................... 88
8.1 Appointment and Powers of Agent .................... 88
8.2 Agent's Reliance ................................... 88
8.3 Defaults ........................................... 89
8.4 Rights as a Bank ................................... 89
8.5 Indemnification .................................... 90
8.6 NonReliance by Banks ............................... 90
8.7 Failure to Act ..................................... 91
8.8 Excess Payments .................................... 91
8.9 Obligations Several ................................ 91
8.10 Resignation by or Removal of Agent ................. 91
8.11 Intercreditor Agreements ........................... 92
ARTICLE IX
BANKS' REPRESENTATIONS ........................ 92
9.1 Investment Representation .......................... 92
9.2 Assignment of Interest in Notes; Compliance with Law 92
9.3 Confidentiality .................................... 93
ARTICLE X
EXPENSES AND INDEMNITIES ...................... 93
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C>
10.1 Expenses ............................................................................... 93
10.2 Indemnity .............................................................................. 94
ARTICLE XI
MISCELLANEOUS ..................................................................... 95
11.1 No Waivers; Remedies ................................................................... 95
11.2 Waivers and Amendments ................................................................. 95
11.3 Changes in Accounting Principles ....................................................... 96
11.4 Confirmation ........................................................................... 96
11.5 Notices ................................................................................ 97
11.6 Transfers of Notes ..................................................................... 97
11.7 Availability of Funds .................................................................. 97
11.8 Successors and Assigns ................................................................. 98
11.9 Headings............................................................................. 100
11.10 Execution in Counterparts; Effectiveness............................................. 100
11.11 GOVERNING LAW........................................................................ 101
11.12 Arbitration.......................................................................... 101
11.13 Severability of Provisions........................................................... 103
11.14 Survival of Agreements, Representations, and
Warranties........................................................................... 103
11.15 Setoff............................................................................... 103
11.16 Independence of Covenants............................................................ 104
11.17 Complete Agreement................................................................... 104
11.18 Relationship to Prior Loan Agreement................................................. 104
11.19 Increase in Commitment............................................................... 104
</TABLE>
- iv -
<PAGE> 6
EXHIBITS AND SCHEDULES TO LOAN AGREEMENT
Exhibits
A-1 Assignment and Acceptance
B-1 Borrowing Base Certificate
C-1 Pro Rata Share of the Commitment of Each Bank
N-1 Note
N-2 Notice of Borrowing
N-3 Notice of Conversion/Continuation
O-1 Officer's Compliance Certificate
S-1 Supplemental Signature Page
3.1(c) Opinion of Borrower's Counsel
3.1(w) Certificate Regarding California Commercial Code Section
9102(5)-(7)
11.5 Notice Information
Schedules
A-1 List of Ancillary Documents
D-1 Disclosure Statement
- v -
<PAGE> 7
SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT, dated as of April 29,
1996, is entered into between BANNER'S CENTRAL ELECTRIC, INC., a California
corporation ("Borrower"), on the one hand, and, on the other hand, the financial
institutions that either now or in the future are signatories hereto
(collectively referred to as "Banks" and individually as a "Bank"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent (hereinafter, in such
capacity, together with any successors thereto in such capacity, referred to as
"Agent") for Banks hereunder. This Agreement is made with reference to that
certain Loan Agreement dated as of the Signing Date, between Borrower and Agent
(herein the "Prior Loan Agreement"). Subject to and as provided in Section 11.18
hereof, this Agreement amends and restates in its entirety, and supersedes, the
Prior Loan Agreement.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. For purposes of this Agreement, the following
initially capitalized terms shall have the following meanings:
"Accommodation Obligation" shall mean, as applied to
any Person and without duplication of amounts, any obligation
of such Person guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with
recourse to such Person) any indebtedness, lease, dividend,
letter of credit, or other obligation ("primary obligation")
of any other Person ("primary obligor") in any manner, whether
directly or indirectly, including any obligation of such
Person (irrespective of whether contingent) (a) to purchase
any such primary obligation or any Asset constituting direct
or indirect security therefor, (b) to advance or supply funds
(whether in the form of a loan, advance, stock purchase,
capital contribution, or otherwise) (i) for the purchase,
repurchase, or payment of any such primary obligation or any
Asset constituting direct or indirect security therefor, or
(ii) to maintain working capital or equity capital of the
primary obligor, or to otherwise maintain the net worth,
solvency, or other financial condition of the primary obligor,
(c) to purchase or make payment for any Asset, security,
service, or lease if primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or
(d) to otherwise assure or hold harmless the owner of such
primary obligation against loss in respect thereof;
- 1 -
<PAGE> 8
provided, however, that the term "Accommodation Obligation"
shall not include (i) endorsements of instruments for deposit
or collection in the ordinary course of such Person's
business, or (ii) indemnities arising in the ordinary course
of business, including indemnities arising in connection with
the sale or other disposition of a Person's Assets or in
connection with the incurrence of Indebtedness. The amount of
any Accommodation Obligation shall be deemed to be an amount
equal to the maximum amount of a Person's liability with
respect to the stated or determinable amount of the primary
obligation for which such Accommodation Obligation is
incurred, or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming
such Person is required to perform thereunder) as determined
by Agent.
"Account Debtor" shall mean the Person or Persons
obligated on a Contract.
"Affiliate" shall mean, as applied to any Person, any
other Person directly or indirectly controlling, controlled
by, or under common control with, that Person. For purposes of
this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of that
Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" shall have the meaning ascribed to such term
in the introduction to this Agreement. Where appropriate
according to the context, Agent also refers to Agent acting as
Collateral Agent.
"Agreement" shall mean this Amended and Restated Loan
Agreement between Borrower, Agent, and Banks, together with
all exhibits and schedules hereto, as amended, restated,
supplemented, or otherwise modified from time to time.
"Ancillary Documents" shall mean: (a) the documents
listed on Schedule A-1 attached hereto; (b) any other
documents, agreements, or instruments, including any Hedge
Agreement but excluding this Agreement and the Notes, setting
forth contractual obligations of Borrower or any Affiliate of
Borrower in favor of Agent or any Bank, at any time executed
and delivered by Borrower or any Affiliate of Borrower in
connection with the transactions contemplated by this
Agreement; and (c) any amendments, restatements, supplements
or other modifications of any of the foregoing.
- 2 -
<PAGE> 9
"Anniversary Date" shall mean any date that is an
annual anniversary of the Signing Date, or, if such date is
not a Domestic Business Day, the next succeeding Domestic
Business Day.
"Applicable Basic Rate Margin" shall mean 0.875% per
annum.
"Applicable Eurodollar Rate Margin" shall mean 2.375%
per annum.
"Applicable Percentage" shall mean the percentage
applicable to the Net Unpaid Balances of Eligible Contracts
for purposes of determining a portion of the Borrowing Base as
determined by Agent based on its determination of the Dilution
Percentage after conducting a periodic audit. If Agent
determines that the Dilution Percentage is 12.5% or less, the
Applicable Percentage shall be 75%. For every percentage point
(or portion thereof) by which the Dilution Percentage exceeds
12.5%, the Applicable Percentage shall be reduced by a
percentage point. By way of illustration, set forth below are
six (6) levels of Applicable Percentages:
<TABLE>
<CAPTION>
Dilution Applicable
Percentage Percentage
---------- ----------
<S> <C>
12.5% or less 75%
Greater than 12.5%
to and including 13.5% 74%
Greater than 13.5%
to and including 14.5% 73%
Greater than 14.5%
to and including 15.5% 72%
Greater than 15.5%
to and including 16.5% 71%
Greater than 16.5%
to and including 17.5% 70%
</TABLE>
Each Applicable Percentage shall be effective from the date on
which Agent determines the Dilution Percentage until the date
on which the Agent determines that the Dilution Percentage has
changed. Agent's determination of the Applicable Percentage
shall be conclusive absent manifest error. If for any reason
the Agent is prohibited from conducting any audit or is
otherwise unable to compute the Dilution Percentage, the
Applicable Percentage shall automatically be a percentage
which is 2% below the Applicable Percentage
- 3 -
<PAGE> 10
then in effect until such time as Agent determines a
new Dilution Percentage.
"Asset" shall mean any interest of a Person in any
kind of property or asset, whether real, personal, or mixed
real and personal, or whether tangible or intangible.
"Assignment and Acceptance" means an assignment and
acceptance entered into by a Bank and an Eligible Assignee,
and accepted by Agent, in substantially the form of Exhibit
A-1 attached hereto.
"Audit Contracts Location Percentage" shall mean a
percentage equal to the difference between (i) that percentage
of Contracts, by volume, that were not located in a test
sampling during an audit and (ii) 10% for the first audit
undertaken after the date of this Agreement and 5% for each
audit thereafter. By way of illustration only, if at the first
audit undertaken after the date of this Agreement Agent could
not locate 12% of Contracts in a test sampling, the Audit
Contracts Location Percentage would be 2%. An Audit Contracts
Location Percentage shall be effective from the date it is
determined by Agent until such time as Agent determines a new
Audit Test Percentage.
"Audit Percentage" shall mean the Audit Contracts
Location Percentage plus the Audit Proof of Delivery
Percentage.
"Audit Proof of Delivery Percentage" shall mean a
percentage equal to the difference between (i) that percentage
of Contracts, by volume, for which proof of delivery location
was insufficient in a test sampling during an audit and (ii) a
percentage determined by Agent in its sole discretion to
reflect an acceptable percentage of such Contracts. By way of
illustration only, if at any audit Agent should find that
proof of delivery location was insufficient for 22% of
Contracts in a test sampling and has determined that an
acceptable percentage of Contracts for which proof of delivery
was insufficient was 20%, the Audit Proof of Delivery
Percentage would be 2%. An Audit Proof of Delivery Percentage
shall be effective from the date it is determined by Agent
until such time as Agent determines a new Audit Proof of
Delivery Percentage.
"Auditors" shall mean Deloitte & Touche or such other
nationally recognized independent certified public accountants
to Borrower acceptable to Agent and Required Banks.
"Bank" and "Banks" shall have the respective meanings
ascribed to such terms in the introduction to
- 4 -
<PAGE> 11
this Agreement, and shall include any additional Bank that
becomes a party hereto pursuant to Section 11.19, and any
Eligible Assignee that becomes a party hereto pursuant to
Section 11.8.
"Bankruptcy Code" shall mean The Bankruptcy Reform
Act of 1978 (Title 11), as amended or supplemented from time
to time, and any successor statute, and all of the rules and
regulations issued or promulgated in connection therewith.
"Base LIBOR" shall mean, for any Interest Period, the
rate per annum (rounded upward, to the nearest one-hundredth
(1/100) of one percent (1%)), as determined by Agent in
accordance with its usual procedures (which determination
shall be conclusive in the absence of manifest error), equal
to the arithmetic average of the rates per annum at which
deposits in Dollars are offered by each Reference Bank in
London, England to prime banks in the London interbank market
at 11:00 a.m. (London time) two Eurodollar Business Days
before the first day of such Interest Period in an amount
substantially equal to the proposed Eurodollar Rate Borrowing
and for a period equal to such Interest Period. If any
Reference Bank fails to provide its offered rate to Agent by
11:00 a.m. (London time) two Eurodollar Business Days before
the first day of such Interest Period, the Eurodollar Rate
shall be determined on the basis of the average of the offered
rate(s) furnished by the Reference Bank(s) which so notify
Agent at or prior to said 11:00 a.m. (London time).
"Base Rate" shall mean, at any time, a fluctuating
rate per annum equal to the higher of (a) the Reference Rate,
and (b) the Federal Funds Rate plus 0.5%.
"BASI" shall mean BA Securities, Inc., its successors
and assigns, its Affiliates, and the officers, directors,
employees, agents, and attorneys-in-fact of such Persons and
Affiliates.
"Basic Rate" shall mean a fluctuating rate, per
annum, equal to the Base Rate plus the Applicable Basic Rate
Margin.
"Basic Rate Loan" shall mean any Loan that bears
interest at the Basic Rate.
"Basic Rate Borrowing" shall mean any Borrowing
designated by Borrower as a Basic Rate Borrowing pursuant to
Sections 2.8 or 2.9 hereof, or any Borrowing which, pursuant
to Section 2.9 hereof, is deemed to be converted to a Basic
Rate Loan.
- 5 -
<PAGE> 12
"Basic Rate Loan" shall mean any Loan under the
Revolving Credit Facility that bears interest at the Basic
Rate.
"BofA" shall mean Bank of America National Trust and
Savings Association, and its successors.
"BofA Funding Amount" means that dollar amount equal
to (a) the total principal amount of all Loans outstanding to
Borrower on the Effective Date immediately prior to the
effectiveness hereof (including any Loans funded on such
date), divided by (b) 84.
"Borrower" shall have the meaning ascribed to such
term in the introduction to this Agreement.
"Borrowing" shall mean a borrowing consisting of
Loans made severally by each Bank to Borrower.
"Borrowing Base" shall mean, on the date any
determination thereof is to be made, an amount equal to the
sum of (a) (I) the Net Unpaid Balances of Eligible Contracts
less the Contracts Reserve; multiplied by (II) the Applicable
Percentage, plus (b) (I) Eligible Inventory; multiplied by
(II) fifty percent (50%); provided, however, that the amount
of the Borrowing Base attributable to Eligible Inventory shall
not exceed Four Million Dollars ($4,000,000); provided
further, however, that the Borrowing Base shall not include
amounts attributable to Eligible Inventory until such time as
Agent has (x) obtained a first priority, perfected security
interest in the Inventory, and (y) completed, at Borrower's
expense, a field audit of the Inventory to determine its
acceptability.
"Borrowing Base Certificate" shall mean that certain
certificate, from time to time to be delivered by Borrower to
Agent in accordance herewith, executed by the chief financial
officer or controller of Borrower, and substantially in the
form of Exhibit B-1 attached hereto.
"Capital Expenditures" shall mean, when used in
connection with any Person, any expenditure (whether paid in
cash or accrued as liabilities and including that portion of
Capitalized Leases which is properly capitalized on a balance
sheet) made by such Person for fixed or capital Assets which
should be capitalized in accordance with GAAP.
"Capitalized Lease" shall mean any lease of an Asset
by a Person as lessee which would, in conformity with GAAP, be
required to be accounted for as a capital lease on the balance
sheet of that Person.
- 6 -
<PAGE> 13
"Cash Collateral Account" shall mean a deposit
account of Borrower maintained with Agent deposits in which
shall bear interest at a rate per annum equal to the Federal
Funds Rate minus 0.125% per annum.
"Cash Equivalents" shall mean (i) marketable direct
obligations issued or unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed
by the full faith and credit of the United States, in each
case maturing within one year from the date of acquisition
thereof; (ii) marketable direct obligations issued by any
state of the United States of America or any political
subdivision of any such state or any public instrumentality
thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's"), (or,
if at any time neither such rating service shall be rating
such obligations, then from such other nationally recognized
rating services acceptable to Agent); (iii) commercial paper
maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's (or, if
at any time neither such rating service shall be rating such
obligations, then from such other nationally recognized rating
services acceptable to Agent); (iv) certificates of deposit
(domestic or eurodollar) or bankers' acceptances maturing
within one year from the date of acquisition thereof issued by
(A) any commercial bank organized under the laws of the United
States of America or any state thereof or the District of
Columbia, and whose long-term debt is rated "A" or better by
Moody's and S&P and with combined capital and surplus of not
less than $500,000,000, or (B) any Bank (collectively,
"Qualifying Banks"); and (v) investments in money market funds
that invest solely in Cash Equivalents described in clauses
(i) through (iv) above.
"Central Ram" shall mean Central Ram, Inc., a
Delaware corporation and a wholly-owned subsidiary of
Borrower.
"Change of Control Event" shall mean the occurrence
of an event which results in West Coast no longer owning or
controlling, directly or indirectly, at any time, (i) at least
fifty-one percent (51%) of the voting power of issued and
outstanding capital stock of BCE Holdings, or (ii) at least
fifty-one percent (51%) of the voting power of issued and
outstanding capital stock of Borrower. For purposes of this
definition, the term "control" shall have the
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<PAGE> 14
meaning ascribed to such term in the definition of
"Affiliate."
"Clarification Letter" shall mean a letter agreement
dated as of the Signing Date, entered into between West Coast
and Agent, in form and substance satisfactory to Agent,
clarifying that the Net Worth Maintenance Agreement continues
to apply for the benefit of Agent and Banks under this
Agreement and the Loan Documents, and clarifying the
understanding of the parties as to the meaning of certain of
the provisions of the Net Worth Maintenance Agreement. The
Clarification Letter is not intended by the parties to
constitute an amendment or modification of the Net Worth
Maintenance Agreement, but rather merely a clarification of
its meaning as intended by the parties thereto.
"Closing Date" shall mean the date as of which all of
the conditions precedent set forth in Section 3.1 are
satisfied, or waived or deferred in the sole discretion of
Agent.
"Closing Deadline" shall mean September 18, 1992, or
such later date as may be agreed upon by Borrower and Banks.
"Code" shall mean the Internal Revenue Code of 1986,
as amended or supplemented from time to time, or any successor
or superseding tax laws of the United States of America, and
all of the rules and regulations issued or promulgated in
connection therewith.
"Collateral" shall mean all Assets of Borrower
subject to a Lien in favor of Agent on behalf of the Banks
pursuant to any Loan Document.
"Collateral Agency Intercreditor Agreement" shall
mean that certain Amended and Restated Collateral Agency
Intercreditor Agreement dated of even date herewith, among
Collateral Agent and Banks.
"Collateral Agent" shall mean Agent, acting as
collateral agent for itself and Banks, pursuant to the terms
of the Collateral Agency Intercreditor Agreement.
"Commercial Letter of Credit" shall mean any letter
of credit issued hereunder (including any letter of credit
issued under the Prior Loan Agreement that is converted on the
Closing Date to a letter of credit issued hereunder and is
deemed to have been issued hereunder) for the purpose of
supporting Borrower's obligations incurred in the ordinary
course of business and which is conditioned upon the
presentation of
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<PAGE> 15
documents (as that term is defined in Section5103(b) of the
UCC).
"Commitment" shall mean, at the time any
determination thereof is to be made, Banks' aggregate
commitment to extend credit to Borrower under the Sections 2.1
and 2.1A; such commitment shall equal, subject to the effect
of Section 2.11 hereof, Sixty Million Dollars ($60,000,000)
and, upon the addition of one or more additional Banks
hereunder in accordance with Section 11.19, up to Seventy-Five
Million Dollars ($75,000,000). The amount of the Commitment at
any time shall be the sum of $60,000,000 and the amount set
forth on each Supplemental Signature Page executed by
Borrower, a New Bank, and Agent. The initial pro rata share of
the Commitment of each Bank is set forth on Exhibit C-1
attached hereto.
"Commitment Fee" shall have the meaning ascribed to
such term in Section 2.13 of this Agreement.
"Confidential Information" shall mean information
that Borrower or any agent of Borrower has delivered to Agent
or any Bank in connection with this Agreement, but does not
include any information that is or becomes generally available
to the public or that is or becomes available to Agent or such
Bank from a source other than Borrower or any agent of
Borrower that is not, to the best of Agent's or such Bank's
knowledge, acting in violation of an agreement with Borrower,
or in breach of a duty, regarding the confidential nature of
such information.
"Contracts" shall mean all present and future written
consumer credit agreements, consumer installment contracts,
chattel paper, and any other documents of a similar nature
which (i) evidence an obligation of an Account Debtor to pay
Borrower or Central Ram for purchased goods, (ii) create in
Borrower or Central Ram a first priority perfected security
interest in such goods, and (iii) have been or will be
assigned or pledged to Agent as security for the payment of
the Secured Indebtedness to Banks and Agent.
"Contracts Reserve" shall mean the balance due on all
Contracts times the Audit Percentage.
"Contractual Obligation" shall mean, as applied to
any Person, any provision of any security agreement entered
into by that Person or of any material indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other
instrument to which that Person is a party or by which it or
any of its
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<PAGE> 16
owned Assets is bound or to which it or any of its
owned Assets is subject.
"Default Rate" shall have the meaning ascribed
thereto in Section 2.6.
"Designated Event of Default" shall mean (a) any
Event of Default under Section 7.1(a) hereof, or (b) any other
Event of Default that is not fully cured or waived by the
tenth (10th) Domestic Business Day after notice of the
existence thereof is given by Agent to Borrower. Nothing in
this paragraph (w) shall require Agent to give any such notice
to Borrower, (x) shall require Agent or any Bank to waive any
Event of Default, (y) shall give Borrower any grace period or
cure right with respect to Events of Default not otherwise
provided for in the Loan Documents, or (z) shall affect any
right or remedy (other than the right to charge the Default
Rate) available to Agent or Banks by reason of any Event of
Default.
"Dilution Percentage" shall mean, expressed as a
percentage for any date of determination and calculated on a
rolling twelve-month basis, the sum of the total cost of
returned merchandise plus the total balance due on write-offs
plus the total amount of other credit adjustments (including
without limitation allowances, discounts, and other non-cash
reductions) divided by the average balance due on Contracts as
at the beginning of each month. Each component of the Dilution
Percentage shall be determined by Agent in its reasonable
discretion based on audits conducted semi-annually or more
frequently as permitted under this Agreement.
"Disclosure Statement" shall mean that certain
statement, executed and delivered by a Responsible Officer of
Borrower, which sets forth information regarding or exceptions
to the representations, warranties, and covenants made by
Borrower herein, as amended from time to time to the extent
permitted hereby, a true copy of which, as in effect on the
Signing Date, is attached hereto as Schedule D-1.
"Dollars" and "$" shall mean United States of America
dollars or such coin or currency of the United States of
America as at the time of payment shall be legal tender for
the payment of public and private debts in the United States
of America.
"Domestic Business Day" shall mean a day (other than
a Saturday or Sunday) on which major commercial banks are open
for business in California.
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<PAGE> 17
"Effective Date" means the first Domestic Business
Day as of which the conditions precedent to the effectiveness
hereof set forth in Section 3 hereof are satisfied, or waived
by the parties to whose benefit such conditions run. Upon
occurrence of the Effective Date, Agent will confirm same to
the other parties for purposes of future reference.
"Eligible Assignee" shall mean any of the following
Persons:
(a) A commercial bank organized under the
laws of the United States, or any State thereof;
(b) A commercial bank organized under the
laws of any other country, or a political subdivision
thereof, provided that (x) such foreign bank is
acting through a branch or agency located in the
United States, or (y) such Bank is organized under
the laws of a country that is a member of the
Organization for Economic Cooperation and Development
or a political subdivision of such country; and
(c) A Person that is:
(i) a Subsidiary of an Eligible
Assignee described in clause (a) or (b)
above; or
(ii) a Subsidiary of a "bank
holding company" (as defined in the federal
Bank Holding Company Act) of which an
Eligible Assignee described in clause (a) or
(b) above also is a Subsidiary;
provided that, in either case, for the purpose of
this clause (c), such Person is acting through an
office located in the United States and is a
corporation or other similar type of entity primarily
engaged in the business of asset-based commercial
lending to businesses.
"Eligible Contracts" shall mean any Contract which,
in the opinion of Agent in its sole and absolute discretion,
meets acceptable standards as to creditworthiness of Account
Debtors, adequacy of security interests, disclosures,
documentation, or any other matters. Agent shall provide oral
or written notice to Borrower of the rejection of any Contract
as an Eligible Contract and the reason for such rejection.
"Eligible Inventory" shall mean, on the date any
determination thereof is to be made, the value (determined at
the lower of cost (determined on either
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<PAGE> 18
a first-in, first-out basis or an average cost basis) or fair
market value in accordance with GAAP) of Inventory consisting
of finished goods owned by and in the control of Borrower or
Central Ram and located in the United States of America except
the following: (a) Inventory which Agent determines, in the
exercise of reasonable discretion, to be unacceptable for
borrowing purposes due to age, quality, type, category, or
quantity; (b) Inventory with respect to which Agent does not
have a valid, first priority and fully perfected security
interest; and (c) Inventory with respect to which there exists
any Lien in favor of any Person other than Agent. For purposes
of the foregoing clause (a), Agent shall under no
circumstances be deemed to have unreasonably exercised its
discretion if Agent acts in accordance with its customary
practices and procedures.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended or supplemented from time to
time, and any successor statute, and all of the rules and
regulations issued or promulgated in connection therewith.
"ERISA Affiliate" shall mean any trade or business
(irrespective of whether incorporated) which is a member of a
group of which Borrower is a member within the meaning of
Section414 of the Code.
"Eurodollar Base Rate" shall mean, for any Interest
Period, the rate per annum (rounded upwards to the nearest
whole one-hundredth (1/100) of one percent), determined by
Agent as the quotient of: (a) Base LIBOR; divided by (b) the
number equal to one hundred percent (100%) minus the LIBOR
Reserve Percentage. Each determination of a Eurodollar Rate by
Agent, including any determination as to the applicability or
allocability of reserves to eurocurrency liabilities or as to
the amount of such reserves, shall be conclusive in the
absence of manifest error. A change in the LIBOR Reserve
Percentage during any Interest Period shall not result in any
adjustment of the Eurodollar Base Rate for such period.
"Eurodollar Business Day" shall mean any Domestic
Business Day on which major commercial banks are open for
international business (including dealings in Dollar deposits)
in Los Angeles, California, New York, New York, and London,
England.
"Eurodollar Illegality" shall have the meaning
ascribed to such term in Section 2.16(a) of this Agreement.
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<PAGE> 19
"Eurodollar Rate" shall mean the rate, per annum,
equal to the Eurodollar Base Rate plus the Applicable
Eurodollar Rate Margin.
"Eurodollar Rate Borrowing" shall mean any Borrowing
designated by Borrower as a Eurodollar Rate Borrowing pursuant
to Sections 2.8 or 2.9 of this Agreement.
"Eurodollar Rate Loan" shall mean any Loan that bears
interest at a rate based upon the Eurodollar Rate.
"Event of Default" shall have the meaning ascribed to
such term in Article VII of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended or supplemented from time to time, and any
successor statute, and all of the rules and regulations issued
or promulgated in connection therewith.
"Federal Funds Rate" shall mean, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average (rounded upwards to the
nearest 1/100th of one percent) of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which
is a Business Day, the average (rounded upwards to the nearest
1/100th of one percent) of the quotations for such day on such
transactions received by Agent from three Federal funds
brokers of recognized standing selected by Agent.
"Federal Reserve Board" shall mean the Board of
Governors of the Federal Reserve System or any successor
thereto.
"Fee Letter" shall mean that certain letter, dated as
of the Signing Date, from BofA to Borrower, setting forth
certain fees payable in connection with this Agreement,
including a periodic administrative and collateral agent fee.
"Fees" shall mean, depending on the context, any or
all of the Commitment Fee, the Participation Fee, any fees
payable pursuant to Section 2.2(c) with respect to Letters of
Credit, or any fees set forth in the Fee Letter.
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<PAGE> 20
"Finance" shall mean Central Consumer Finance
Company, a Delaware corporation (formerly known as Banner's
Central Electric Consumer Finance Company).
"Floor Plan Lender" shall mean ITT Commercial Finance
Corp., a Nevada corporation, and any other or successor
inventory floor plan lender to Borrower and/or Central Ram (a)
that is a commercial finance company or bank regularly engaged
in California in the business of providing floor plan
inventory financing to retailers of consumer goods and that
has a stature and reputation in such capacity comparable with
that of leading floor plan lenders such as ITT Commercial
Finance Corp., or (b) that is otherwise acceptable to Agent
and Required Banks in their discretion.
"GAAP" shall mean Generally Accepted Accounting
Principles recognized as such in the opinions and
pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the
accounting profession, which are applicable to the
circumstances as of the date of determination.
"Hedge Agreements" shall mean any interest rate swap
agreement, interest rate collar agreement, or other similar
agreement or arrangement entered into by Borrower and BofA,
but expressly excluding cap agreements.
"Hedge Reserve" shall mean, as of any date of
determination thereof, the reserve, if any, from time to time
established by Required Banks based on a percentage of the
notional principal amounts of any outstanding Hedge
Agreements.
"Highest Lawful Rate" shall mean, with respect to any
Bank, the maximum non-usurious interest rate, as in effect
from time to time, which may be charged, contracted for,
reserved, received, or collected by such Bank in connection
with this Agreement or the Notes, or any other documents
executed in connection herewith or therewith.
"Holdings" shall mean Banner Holdings, Inc., a
Delaware corporation.
"Huntington Park Expansion" shall mean the
contemplated expansion of Borrower's business involving the
opening in 1992 of an additional retail store location in the
Pacific Randolph Shopping Center, 6051 Pacific Boulevard,
Huntington Park, California, in a
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<PAGE> 21
leased facility with approximately 26,912 square feet of
commercial space, including execution of the Huntington Park
Lease, and including related leasehold improvements and
installation of fixtures and equipment.
"Huntington Park Lease" shall mean a lease of
approximately 26,912 square feet of commercial space in the
Pacific Randolph Shopping Center, 6051 Pacific Boulevard,
Huntington Park, California, between Daisy Lady Victoria,
Ltd., a California limited partnership, as lessor, and
Borrower, as lessee, for an initial term of 10 years, with two
5-year renewal options, with an initial rental payment of
approximately $32,300 per month, with provisions for rental
adjustments in future years, which lease either has been
entered into as of the Signing Date, or is contemplated to be
entered into soon after the Signing Date.
"Indebtedness" shall mean, with respect to any
Person, the aggregate amount of, without duplication: (a) all
obligations of such Person for borrowed money; (b) all
obligations of such Person evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or
other obligations of such Person in respect of letters of
credit, bankers acceptances, interest rate swaps, controlled
disbursement accounts, or other financial products; (c) all
obligations of such Person to pay the deferred purchase price
of Assets or services, exclusive of trade payables which, by
their terms, are due and payable within ninety (90) calendar
days of the creation thereof; (d) all obligations under
Capitalized Leases of such Person; (e) all obligations or
liabilities of others secured by a Lien on any Asset owned by
such Person, irrespective of whether such obligation or
liability is assumed, to the extent of the lesser of such
obligation or liability or the fair market value of such
Asset; and (f) all Accommodation Obligations of such Person.
"Indemnified Liabilities" shall have the meaning
ascribed to such term in Section 10.2 of this Agreement.
"Indemnitee" shall have the meaning ascribed to such
term in Section 10.2 of this Agreement.
"Initial Basic Rate Loan Interest Payment Date" means
the day that is the first day of the first calendar month that
begins after the Closing Date.
"Intangible Property" shall mean trade secrets,
secret processes or other confidential information or
know-how, brand names, copyrights, patents, service marks,
trademarks, trade names, and all registrations
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<PAGE> 22
or applications for registration of any of the
foregoing.
"Interest Payment Date" shall mean, with respect to
any Eurodollar Rate Loan, the last day of each Interest Period
applicable to such Loan; provided, however, that in the case
of any Interest Period in excess of three (3) months,
"Interest Payment Date" shall also include the last day of
each three-month period following the commencement of that
Interest Period.
"Interest Period" shall mean, with respect to each
Eurodollar Rate Borrowing, the period commencing on the date
of such Eurodollar Rate Borrowing and ending one (1), two (2),
three (3), six (6), or, subject to the approval of all Banks,
twelve (12) months thereafter, as Borrower may elect pursuant
to the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that:
(i) any Interest Period which would
otherwise end on a day which is not a Eurodollar
Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar
Business Day falls in another calendar month, in
which case such Interest Period shall end on the next
preceding Eurodollar Business Day;
(ii) Any Interest Period which begins on the
last Eurodollar Business Day of the calendar month
(or on a day for which there is no numerically
corresponding day in the calendar month at the end of
such Interest Period) shall end on the last
Eurodollar Business Day of the calendar month at the
end of such Interest Period; and
(iii) Any Interest Period designated to
begin on a date that is less than 90 days after the
Closing Date shall not be more than one month unless
all Banks in their discretion agree otherwise.
"Inventory" shall mean all goods, now owned or
hereafter acquired by Borrower and wherever located, which are
held for sale or lease or are to be furnished under any
contract of service, including raw materials, work in process,
or materials used or consumed in the business of Borrower, and
including goods the sale or other disposition of which has
given rise to Contracts and which have been returned to or
repossessed or stopped in transit by Borrower, and all
proceeds thereof.
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<PAGE> 23
"Investment" shall mean, as applied to any Person,
any direct or indirect purchase or other acquisition by that
Person of, or beneficial interest in, stock, instruments,
bonds, debentures or other securities of any other Person, or
any direct or indirect loan, advance (other than advances to
employees for moving, travel, or payroll expenses, drawing
accounts, or similar expenditures in the ordinary course of
such Person's business), or capital contribution by such
Person to any other Person, including all indebtedness and
accounts receivable from that other Person which did not arise
from sales or the rendition of services to that other Person
in the ordinary and usual course of such Person's business,
and deposit accounts (including certificates of deposit). The
amount of any Investment shall be the original cost of such
Investment, plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or
write-ups, write-downs, or write-offs with respect to such
Investment.
"Issuing Bank" shall mean BofA or any other Bank
which, with the consent of Agent and Required Banks and on
behalf of all Banks, issues a Letter of Credit requested by
Borrower hereunder.
"Landlord Waivers" shall mean those certain Landlord
Waivers executed in September of 1991 by S.D.J. Enterprises
and the Perelmans, respectively, and Security Pacific National
Bank, as predecessor in interest of Collateral Agent. At such
time as the Huntington Park Lease is executed and delivered by
the lessor and lessee thereunder, "Landlord Waivers" also
shall include a Landlord Waiver to be entered into between the
lessor under the Huntington Park Lease and Collateral Agent,
in form and substance satisfactory to Collateral Agent and its
counsel (which Landlord Waiver shall be deemed satisfactory in
form and substance to Collateral Agent and its counsel if it
is in substantially the same form as the other Landlord
Waivers delivered in September of 1991).
"Letters of Credit" shall mean, depending on the
context, any or all of the Commercial Letters of Credit or
Standby Letters of Credit issued pursuant to the terms of
Sections 2.1(e) or 2.2 of this Agreement, including without
limitation the letters of credit issued and outstanding under
the Prior Loan Agreement on the Closing Date that are
converted to Letters of Credit outstanding hereunder.
"Letter of Credit Amount" shall mean an amount equal
to Three Million Dollars ($3,000,000).
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<PAGE> 24
"Letter of Credit Usage" shall mean, as of any date
of determination thereof, the sum of: (a) the Stated Amount of
each Letter of Credit then outstanding; and (b) the aggregate
amount of all Unpaid Drawings.
"LIBOR Reserve Percentage" shall mean, as of any date
of determination thereof, the maximum percentage (rounded
upward to the nearest whole one-hundredth (1/100) of one
percent (1%)), as determined by Agent in accordance with its
usual procedures (which determination shall be conclusive in
the absence of manifest error), which is in effect on such
date as prescribed by the Federal Reserve Board for
determining the reserve requirements (including supplemental,
marginal, and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "eurocurrency
liabilities") of a member bank in the Federal Reserve System.
"Lien" shall mean any lien, mortgage, pledge,
assignment (including any assignment of rights to receive
payments of money), security interest, charge, or encumbrance
of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Loan" and "Loans" shall mean the loans or extensions
of credit to be made severally (not jointly and not jointly
and severally) by Banks to Borrower pursuant to Article II of
this Agreement.
"Loan Documents" shall mean this Agreement, the Notes
and the Ancillary Documents, as any one or more of them from
time to time may be amended, restated, supplemented or
modified.
"Material Adverse Effect" shall mean a material and
adverse effect on the business, operations, Assets, or
condition (financial or otherwise) of a Person, taken as a
whole.
"Maturity Date" shall mean the earlier of (a) August
30, 1996, and (b) such earlier date of termination if the
entire Commitment is terminated pursuant to the terms of
Section 2.11 hereof.
"Merger Sub" shall mean BBS Merger Sub, Inc., a
California corporation, which corporation heretofore was
merged into Borrower.
"Multiemployer Plan" shall mean a "multiemployer
plan" as defined in Section4001(a)(3) of ERISA, Section 414
of the
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<PAGE> 25
Code, or Section 3(37) of ERISA which is maintained for
employees of Borrower or an ERISA Affiliate.
"Net Cash Proceeds" shall mean the excess, if any,
of: (a) the gross cash proceeds received by Borrower from sale
or disposition of any Asset of Borrower plus, as and when
received, all cash payments received subsequent to such sale
or disposition representing any deferred portion of the
purchase price therefor; less (b) the sum of: (i) a reasonable
reserve for Taxes payable incident to such sale or
disposition, the amount of which shall be adjusted to reflect
the actual Taxes paid in connection therewith; plus (ii) a
reasonable reserve for the after tax cost of indemnification
payments (fixed and contingent) attributable to seller's
indemnities to the purchaser undertaken by Borrower in
connection with such sale or disposition; plus (iii) the
direct costs and expenses incurred by Borrower in connection
with such sale or disposition (including underwriting fees and
commissions, brokers' fees, and attorneys' fees); all as
reflected in an officer's certificate delivered by a
Responsible Officer of Borrower to Agent.
"Net Contracts" shall mean the total amount owed to
Borrower and Central Ram under Contracts less all unearned
interest or finance charges thereon.
"Net Unpaid Balances" shall mean the total owing to
Borrower or Central Ram, as the case may be, on its Eligible
Contracts less: (i) all unearned interest or finance charge
thereon; (ii) all amounts owing thereon for commercial
services and warranty agreements; (iii) unearned insurance
premiums; and (iv) all amounts owing under each such agreement
with respect to which any payment is more than sixty (60) days
past due.
"Net Worth Maintenance Agreement" shall mean that
certain letter agreement, dated as of September 20, 1991,
executed by West Coast in favor of Security Pacific National
Bank, as the predecessor of Agent, which letter agreement
states in the introductory paragraph thereof that it may be
referred to as the "Net Worth Maintenance Agreement."
"New Bank" shall mean a financial institution
acceptable to BASI that would meet the requirements for
becoming an Eligible Assignee hereunder.
"New Mortgages" shall mean mortgages or deeds of
trust to be hereafter entered into by Borrower in favor of
financial institutions that provide New Mortgage Loans, which
shall pertain to the financing of new retail premises of
Borrower, which shall encumber such retail premises, and which
in each instance shall be
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<PAGE> 26
upon terms and conditions (including the scope of the Liens
provided for therein) acceptable to each Bank.
"New Mortgage Loan" shall mean any term loans
hereafter obtained by Borrower from financial institutions and
secured by New Mortgages, pertaining to the financing of new
retail premises of Borrower, in each instance in amounts and
upon terms and conditions acceptable to each Bank.
"Notes" shall mean any one or more of the promissory
notes issued by Borrower to the order of a Bank evidencing the
obligation of Borrower to repay the Loans made by such Bank.
"Notice of Borrowing" shall mean a notice (which,
except as set forth in Section 2.8(e) hereof, shall be
irrevocable) from Borrower to Agent of Borrower's intention to
borrow all or any portion of the Loans (or request the
issuance of all or any portion of the Letters of Credit
permitted hereunder) substantially in the form of Exhibit N-2
attached hereto, executed by a Responsible Officer of Borrower
and delivered to Agent pursuant to Section 2.8 hereof.
"Notice of Conversion/Continuation" shall mean an
irrevocable notice from Borrower to Agent of Borrower's
request to convert all or any portion of the Loans bearing
interest at one rate to Loans bearing interest at another rate
or continue the Loans for another designated Interest Period,
substantially in the form of Exhibit N-3 hereto, executed by a
Responsible Officer of Borrower and delivered to Agent
pursuant to Section 2.9 hereof.
"Officer's Compliance Certificate" shall mean a
certificate of the chief financial officer or controller of
Borrower, substantially in the form of Exhibit O-1 attached
hereto.
"Operating Lease" shall mean, as applied to any
Person, any lease of any Asset which is not a Capitalized
Lease, other than any such lease under which such Person is
the lessor.
"Participation Fee" shall have the meaning ascribed
to such term in Section 2.13.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation, as defined in Title IV of ERISA, or any successor
thereto.
"Pension Protection Act" shall mean Part II of
Subtitle D of Title IX of the Omnibus Budget Reconciliation
Act of 1987, as amended or supplemented
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<PAGE> 27
from time to time, and any successor statute, and all of the
rules and regulations issued or promulgated in connection
therewith.
"Perelman Subordinated Note" shall mean that certain
promissory note, in the original principal amount of
$2,000,000 and dated May 9, 1991, issued by Merger Sub to the
Perelmans, and subject to the terms of the Perelman
Subordination Agreement.
"Perelman Subordination Agreement" shall mean that
certain agreement, dated on or about September 20, 1991, by
the Perelmans for the benefit of the holders of certain
Indebtedness of Borrower, whereby the Indebtedness evidenced
by the Perelman Subordinated Note is subordinated to certain
Indebtedness (including the Secured Indebtedness).
"Perelmans" shall mean Mr. Myron Richard Perelman and
Mrs. Arleen Frances Perelman, individually and as trustees of
the Perelman Family Trust U/T/A dated June 19, 1980.
"Permanent Subordinated Debt" shall mean Subordinated
Debt incurred by Borrower to any one or more of its
Affiliates, provided that the subordination agreement executed
in connection with such Subordinated Debt shall provide, among
other things, that payments of interest (at a rate not
exceeding 10% per annum) may be made on the Permanent
Subordinated Debt, subject to the subordination provisions
thereof, but that no principal payments may be made.
"Permitted Expansions" shall mean one or more future
expansions of the business locations of Borrower to add
additional retail selling or warehouse facilities, in each
case subject to the prior approval by Required Banks of each
of the following: (a) the location and size of the proposed
expansion facility; (b) the terms of any real property leases
pertaining to the proposed expansion facility; (c) the
proposed capital expenditure budget pertaining to such
proposed expansion; and (d) a business plan and projections
pertaining to such proposed expansion. The foregoing
notwithstanding, the Huntington Park Expansion is a Permitted
Expansion and has been approved by Required Banks, subject to
approval by Agent of the form and substance of the Huntington
Park Lease and subject to the execution and delivery by the
lessor under such lease and Collateral Agent of a Landlord
Waiver with respect thereto.
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<PAGE> 28
"Permitted Liens" shall mean:
(i) Liens for Taxes, assessments, or governmental
charges or claims the payment of which is not at the
time required by Section 5.4;
(ii) Statutory Liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if
such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of
borrowed money);
(iv) Any attachment or judgment lien unless the
judgment it secures (A) shall, within forty-five (45) days
after the entry thereof, not have been discharged or execution
thereof stayed pending appeal, or (B) shall not have been
discharged within forty-five (45) days after the expiration of
any such stay, or (C) involves the payment of money in an
amount (individually or in the aggregate with all other
attachments and judgments) of Two Hundred Thousand Dollars
($200,000) or more in excess of any insurance coverage with
respect thereto (as to which the insurer has not disputed its
liability in respect of such coverage);
(v) Easements, rights-of-way, restrictions,
covenants, conditions, licenses, zoning requirements, minor
defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with
the ordinary conduct of the business of Borrower or materially
adversely affecting the value of the relevant Asset;
(vi) Liens in favor of Agent, for the benefit of
Banks, or any of its successors or assigns;
(vii) Liens in favor of Floor Plan Lenders
securing Indebtedness permitted under Section 6.1(h);
(viii) Purchase money security interests in favor of
vendors of Borrower in and to the inventory (and identifiable
cash proceeds thereof received on or
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<PAGE> 29
before delivery thereof by Borrower to a purchaser) sold by
such vendors to Borrower securing Indebtedness in an aggregate
amount not to exceed at any time Five Hundred Thousand Dollars
($500,000);
(ix) Liens arising from filing UCC financing
statements regarding Operating Leases;
(x) Liens (a) in favor of lessors under Capitalized
Leases or (b) taken by or granted to a Person who, by making
advances or incurring an obligation gives value to enable
Borrower to acquire rights in or the use of furniture,
fixtures, or equipment of Borrower encumbered by such Liens;
provided, however, that Liens under clauses (a) or (b) shall
qualify as Permitted Liens only to the extent that the
aggregate Indebtedness secured by all such Liens, together
with the aggregate Indebtedness owed to lessors under
Capitalized Leases which are not secured by Permitted Liens,
at any time outstanding during any fiscal year of Borrower,
does not exceed by more than Two Hundred Fifty Thousand
Dollars ($250,000) the amount equal to the maximum aggregate
Indebtedness of Borrower at any time outstanding during the
immediately preceding fiscal year of Borrower that was secured
by Liens described in clauses (a) or (b) of this paragraph or
that was owed to lessors under Capitalized Leases not secured
by Permitted Liens;
(xi) Liens set forth in the Disclosure Statement;
and
(xii) Liens provided for in the New Mortgages.
"Person" shall mean and include natural persons,
corporations, limited partnerships, general partnerships,
joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts,
business trusts, or other organizations, irrespective of
whether they are legal entities, and governments and agencies
and political subdivisions thereof.
"Plan" shall mean an "employee benefit plan" as
defined in Section (3) of ERISA in which any personnel of the
Borrower or an ERISA Affiliate participate or from which any
such personnel may derive a benefit, excluding any
Multiemployer Plan, but including any plan either established
or maintained by Borrower or any ERISA Affiliate and to which
such Person contributes under the laws of any foreign country.
"Preferred Stock" shall mean, for any corporation, any
class or series of equity securities of such corporation which
is entitled, upon any distribution of
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<PAGE> 30
such corporation's Assets, whether by dividend or by
liquidation, to a preference over another class or series of
equity securities of such corporation, and which by its terms
is either: (a) entitled to receive cash distributions (or
Asset distributions or distributions of securities other than
distributions in kind of preferred stock of the same class and
series) of such corporation's Assets, whether by dividend or
by liquidation; or (b) mandatorily redeemable or redeemable at
the option of the issuer or holder thereof for cash (or Assets
or securities other than distributions in kind of preferred
stock of the same class and series) by such corporation, or is
convertible or exchangeable, mandatorily or at the option of
the issuer or holder thereof, into Indebtedness of such
corporation.
"Prior Loan Agreement" shall have the meaning
ascribed to such term in the introduction to this Agreement.
"Reference Bank" shall mean BofA or, in the event no
rate quotations are available from BofA, such other comparable
bank as Agent may deem appropriate.
"Reference Rate" shall mean the rate of interest most
recently announced by BofA at its headquarters office in San
Francisco, California, as its "Reference Rate." The Reference
Rate is one of BofA's base rates and serves as the basis upon
which effective rates of interest are calculated for those
loans making reference thereto. The Reference Rate is
evidenced by the recording thereof after its announcement in
such internal publication or publications of BofA as Agent may
designate and may not be the lowest of BofA's base rates. Any
change in any of the interest rates chargeable hereunder
resulting from a change in the Reference Rate shall become
effective as of 12:01 a.m. on the Domestic Business Day on
which each change in the Reference Rate is announced by BofA.
"Reportable Event" shall mean any event described in
Section 4043 (excluding subsections (b)(7) and (b)(9)) of
ERISA.
"Required Banks" shall mean, as of any date of
determination thereof, Banks having at least sixty-six and
two-thirds percent (66-2/3%) of the aggregate unpaid principal
amount then outstanding of the Loans, or, if no Loans are
outstanding at the date of determination thereof, Banks having
at least sixty-six and two-thirds percent (66-2/3%) of the
Commitment; provided that, at any time that there are two or
more Banks, Required Banks shall include at least two Banks.
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<PAGE> 31
"Responsible Officer" shall mean the president, chief
executive officer, chief operating officer, chief financial
officer, executive vice president, vice president, or
controller of a Person, or such other officer of such Person
designated by a Responsible Officer in a writing delivered to
Agent.
"Revolving Credit Facility" shall mean the revolving
credit facility described in Section 2.1 hereof.
"Revolving Loan" shall mean a Loan made pursuant
to Section 2.1.
"Rewrite Policy" shall mean Borrower's policy with
regard to rewriting and/or extending Contracts with Account
Debtors, as such policy may be amended, supplemented, or
otherwise modified from time to time.
"Sanwa" shall mean Sanwa Bank California.
"Sanwa Funding Amount" shall mean that dollar amount
equal to (a) the total principal amount of all Loans
outstanding to Borrower on the Effective Date immediately
prior to the effectiveness hereof (including any Loans funded
on such date), divided by (b) 42.
"Sister Companies" shall mean, collectively, all
direct Subsidiaries of Holdings, excluding Borrower;
individually a "Sister Company."
"Sumitomo" shall mean Sumitomo Bank of California.
"SEC" shall mean the Securities and Exchange
Commission of the United States of America or any successor
thereto.
"Secured Indebtedness" shall mean all Indebtedness
and obligations of Borrower and/or Central Ram to Banks or
Agent, or any one or more of them, arising under or relating
to any Loan Documents.
"Signing Date" means September 10, 1992, or such
other date as is agreed to by Borrower, Agent and Banks.
"Solvent" shall mean, with respect to any Person on
the date any determination thereof is to be made, that on such
date: (a) the fair valuation of the Assets of such Person is
greater than the fair valuation of such Person's probable
liability in respect of existing debts; (b) such Person does
not intend to, and does not believe that it will, incur debts
beyond such Person's ability to pay as such debts
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<PAGE> 32
mature; (c) such Person is not engaged in business or a
transaction, and is not about to engage in business or a
transaction, which would leave such Person with Assets
remaining which would constitute unreasonably small capital
after giving effect to the nature of the particular business
or transaction; and (d) such Person is generally paying his or
her debts as they become due. For purposes of this definition:
(i) the "fair valuation" of any Assets means the amount
realizable within a reasonable time, either through collection
or sale of such Assets at their regular market value, which is
the amount obtainable by a capable and diligent businessman
from an interested buyer willing to purchase such Assets
within a reasonable time under ordinary circumstances; and
(ii) the term "debts" includes any legal liability, whether
matured or unmatured, liquidated or unliquidated, absolute,
fixed, or contingent.
"Standby Letter of Credit" shall mean any standby
letter of credit issued hereunder (including any letter of
credit issued under the Prior Loan Agreement that is converted
on the Closing Date to a letter of credit issued hereunder and
is deemed to have been issued hereunder) for the purpose of
supporting: (a) prior standby letters of credit to be replaced
or supported by letters of credit issued under this Agreement
by an Issuing Bank; (b) the obligations of third party
insurers of Borrower; (c) performance, payment, deposit, or
surety obligations of Borrower, if required by law or
governmental regulation or in accordance with custom and
practice in the industry; or (d) obligations to Floor Plan
Lenders in an aggregate amount not to exceed at any time Seven
Hundred Fifty Thousand Dollars ($750,000).
"Stated Amount" shall mean, at any time, the maximum
amount available to be drawn under each Letter of Credit,
without regard to whether any conditions to drawing could then
be met.
"Stock Purchase Agreement" shall mean that certain
Stock Purchase Agreement, dated as of May 1, 1991, among BCE
Holdings and the Perelmans.
"Subordinated Debt" shall mean (a) the Indebtedness
of Borrower evidenced by the Perelman Subordinated Note and
(b) other Indebtedness of Borrower which is subordinated in
right of repayment to the Secured Indebtedness pursuant to
subordination provisions in form and substance satisfactory to
Required Banks.
"Subsidiary" shall mean, with respect to any
Person: (a) any corporation in which such Person,
directly or indirectly through its Subsidiaries, owns
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<PAGE> 33
more than fifty percent (50%) of the stock of any class or
classes having by the terms thereof the ordinary voting power
to elect a majority of the directors of such corporation
(irrespective of whether at the time stock of any class or
classes of such corporation shall have or might have voting
power by reason of the happening of any contingency); and (b)
any partnership, association, joint venture, or other entity
in which such Person, directly or indirectly through its
Subsidiaries, has more than a fifty percent (50%) equity
interest at the time.
"Supplemental Signature Page" shall mean that certain
page to be executed by each of Borrower, Agent, and a New
Bank, at the time such New Bank becomes a Bank hereunder
pursuant to Section 11.19 of this Agreement, and substantially
in the form of Exhibit S-1 attached hereto. Each Supplemental
Signature Page shall be deemed to be an "Ancillary Document,"
as defined herein.
"Tangible Net Worth" shall mean (a) the aggregate of
total stockholders' equity less (b) the aggregate of any
treasury stock, any intangible assets, and any obligations due
from stockholders, employees, or affiliates plus (c) Permanent
Subordinated Debt.
"Taxes" shall mean any tax based upon or measured by
net or gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, withholding, payroll, employment, excise,
occupation, premium or property taxes, or conduct of business,
together with any interest and penalties, additions to tax and
additional amounts imposed by any federal, state, local, or
foreign taxing authority upon any Person.
"Termination Event" shall mean, with respect to
Borrower or an ERISA Affiliate: (a) a Reportable Event; (b)
the withdrawal of Borrower or an ERISA Affiliate from a Plan
during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA; (c) the filing of a
notice of intent to terminate a Plan or the treatment of a
Plan amendment as a termination under Section 4041 of ERISA;
(d) the institution of proceedings to terminate a Plan under
Title IV of ERISA; or (e) any other event or condition which
is reasonably likely to constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan.
"Total Debt" shall mean, with respect to any Person,
the aggregate of current liabilities and non-current
liabilities of such Person and, without duplication, Letter of
Credit Usage of such Person.
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<PAGE> 34
"UCC" shall mean the California Uniform Commercial
Code, as amended or supplemented from time to time, and any
successor statute.
"Unmatured Event of Default" shall mean an event,
act, or occurrence which, with the giving of notice or the
passage of time, would become an Event of Default.
"Unpaid Drawings" shall mean, at any time, all
drawings under any Letter of Credit paid by the Issuing Bank
with respect thereto, on behalf of Banks, for which such
Issuing Bank has not been reimbursed by Borrower or funded by
Loans pursuant to Sections 2.1 or 2.2 hereof.
"Usage" shall mean, on the date of any determination
thereof, the aggregate outstanding principal amount of the
Loans plus Letter of Credit Usage plus the Hedge Reserve.
"West Coast" shall mean West Coast Private Equity
Partners, L.P., a Delaware limited partnership.
1.2 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." References in this
Agreement to a "determination" by Agent or Required Banks, as applicable,
includes good faith estimates by Agent or Required Banks, as applicable, in the
case of quantitative determinations, and good faith beliefs by Agent or Required
Banks, as applicable, in the case of qualitative determinations. The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, section, subsection, clause, exhibit, and schedule
references are to this Agreement unless otherwise specified. Any reference in
this Agreement, the Notes, or any of the Ancillary Documents includes any and
all alterations, amendments, changes, extensions, modifications, renewals,
supplements, substitutions, or replacements thereto or thereof, as applicable.
Any terms used herein and not separately defined shall have the meanings
ascribed thereto in the UCC.
1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP as in effect from time
to time, including applicable statements, bulletins, and interpretations issued
by the Financial Accounting Standards Board and bulletins, opinions,
interpretations, and statements issued by the American Institute of Certified
Public Accountants or its committees. When used herein, the term "financial
statements" shall include the notes and schedules thereto. All financial
statements required
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<PAGE> 35
hereunder shall be prepared, and computations relating to all financial
covenants hereunder shall be made, for the Borrower and its Subsidiaries on a
consolidated and consolidating basis, unless otherwise indicated.
1.4 Disclosure Statement. The Disclosure Statement
delivered by Borrower pursuant hereto and all of the exhibits and
schedules attached to this Agreement shall be deemed incorporated
herein by reference.
ARTICLE II
AMOUNT AND TERMS OF LOANS
2.1 Revolving Credit Facility.
(a) Subject to the terms and conditions hereof:
(i) each Bank severally agrees to make Loans
to Borrower, pro rata in proportion of its share of the
Commitment, from the Closing Date to but not including the
Maturity Date, at such times and in such amounts as Borrower
may request in accordance with Section 2.8 hereof; and
(ii) Borrowings under the Revolving Credit
Facility may be borrowed, repaid and reborrowed.
(b) In no event and at no time shall:
(i) the aggregate principal amount at any
time outstanding of all Loans made by any Bank exceed such
Bank's pro rata share of an amount equal to: (A) the
Commitment then in effect; minus (B) the sum of (x) Letter of
Credit Usage plus (y) the Hedge Reserve;
(ii) the aggregate principal amount of any
Borrowing requested to be made exceed the positive difference
between: (A) the Borrowing Base then in effect; minus (B) the
Usage immediately prior to such Borrowing; and
(iii) the Usage exceed the Borrowing Base
then in effect.
(c) In the event that, at any time:
(i) the Usage exceeds the then existing
amount of the Borrowing Base, then, and in each such event,
Borrower shall repay within one (1) Business Day the amount of
such excess to Agent to be distributed to Banks based upon
their pro rata shares of the Basic Rate Loans then
outstanding, or, in the event that no Basic Rate Loans are
then outstanding, to be held as cash collateral in a Cash
Collateral Account for the
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<PAGE> 36
repayment at maturity of Eurodollar Rate Loans and
contingent reimbursement obligations of Borrower with
regard to Letters of Credit; or
(ii) the Usage exceeds an amount equal to
the then existing amount of the Commitment, Borrower shall
immediately repay the amount of such excess to Agent to be
distributed to Banks based upon their pro rata shares of the
Basic Rate Loans then outstanding, or, in the event that no
Basic Rate Loans are then outstanding, to be held as cash
collateral in a Cash Collateral Account for the repayment at
maturity of Eurodollar Rate Loans and contingent reimbursement
obligations of Borrower with regard to Letters of Credit.
(d) Subject to Section 2.1(b) hereof, (i) each
Borrowing of Basic Rate Loans shall be in the minimum principal amount of One
Hundred Thousand Dollars ($100,000) and in an integral multiple of Fifty
Thousand Dollars ($50,000), and (ii) each Borrowing of Eurodollar Rate Loans
shall be in the minimum principal amount of Five Million Dollars ($5,000,000)
and in an integral multiple of One Million Dollars ($1,000,000).
(e) As part of the Revolving Credit Facility and
subject to the terms and conditions hereof, Borrower may request, in accordance
with Section 2.2 hereof, that an Issuing Bank issue Letters of Credit for the
account of Borrower. Notwithstanding the foregoing, no Issuing Bank shall issue
any Letter of Credit if, after giving effect to such issuance, the Letter of
Credit Usage would exceed the Letter of Credit Amount.
2.2 Letters of Credit.
(a) Immediately upon the issuance of each Letter
of Credit hereunder, each Bank shall be deemed to and hereby agrees to have
irrevocably purchased from the Issuing Bank a participation in such Letter of
Credit and any drawing thereunder in an amount equal to such Bank's pro rata
share of the Commitment to the same extent and with the same effect as if such
Bank had issued such Letter of Credit. In the event of any drawing under any
Letter of Credit, Issuing Bank shall provide notice to Borrower of such drawing
and Borrower shall immediately pay Agent the amount of such drawing. In the
event Borrower fails so to pay Agent, each Bank shall, pursuant to the
provisions of Section 2.10(c) hereof, remit to Agent, in immediately available
funds, an amount which is in the same proportion to the amount drawn under the
Letter of Credit as such Bank's share of the Commitment, plus interest on such
amount, at the rate set forth in Section 2.10(c) hereof, payable from the date
of such drawing to the date such Bank initiates payment of such amount to Agent.
Borrower and Banks hereby agree that amounts paid by or on behalf of Banks under
and pursuant to each Letter of Credit shall constitute Basic Rate Loans made
under Section 2.1. Each Bank's obligation to make the Basic Rate Loans
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<PAGE> 37
referred to in this Section 2.2 shall continue despite the occurrence of any
Event of Default or Unmatured Event of Default or any inability of Borrower to
require that such Bank fund its pro rata share of the Commitment, including any
inability resulting from the operation of Section 365(c)(2) of the federal
Bankruptcy Code or otherwise.
(b) Each Letter of Credit is to be issued only
upon satisfaction of the following conditions:
(i) Borrower shall be entitled under Section
2.1 to a Borrowing in an amount equal to or greater than the
face amount of the Letter of Credit on the date of the
issuance thereof;
(ii) all conditions to Loans specified in
Sections 3.1 and 3.2 hereof, with respect to Letters of Credit
to be issued on the Closing Date, and in Section 3.3, and to
the extent applicable, Section 3.4 hereof, with respect to all
Letters of Credit, shall have been satisfied on the date of
the issuance of each Letter of Credit;
(iii) Borrower shall have submitted an
application and executed such other documents, instruments,
and agreements as may be required by the Issuing Bank, all in
form and substance reasonably satisfactory to such Issuing
Bank;
(iv) If the requested Letter of Credit is a
Standby Letter of Credit, the issuance of such Standby Letter
of Credit shall be in compliance with Section 6.14; and
(v) After giving effect to the issuance of
the requested Letter of Credit, Letter of Credit Usage shall
not exceed the Letter of Credit Amount.
(c) Borrower shall pay to Agent fees with regard
to Letters of Credit as follows: (i) for the account of the Banks, fees at the
Issuing Bank's then prevailing rate shall be payable quarterly in arrears in
connection with each Commercial Letter of Credit; provided, however, that in no
event shall such fee for the initial quarter be less than Two Hundred Fifty
Dollars ($250); (ii) for the account of the Banks, a non-refundable fee equal to
2.375 percent per annum of the Stated Amount of each Standby Letter of Credit,
pro rated over the tenor of such Standby Letter of Credit, shall be payable
quarterly in advance; provided, however, that in no event shall such fee for the
initial quarter be less than Five Hundred Dollars ($500); and (iii) for the
account of the Issuing Bank, such other fees of the types currently charged by
the Issuing Bank in connection with Letters of Credit, including amendment fees,
negotiation fees, and documentary and processing charges, in accordance with the
Issuing Bank's then prevailing rates for such fees. With respect
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<PAGE> 38
to any letter of credit fee paid by Borrower to BofA (or Security Pacific
National Bank as its predecessor) under the Prior Loan Agreement that related in
part to periods of time after the Closing Date, Borrower shall be entitled to
credit for the portion of such fee paid under the Prior Loan Agreement that is
allocable to such remaining period of time after the Closing Date with respect
to which such fee was paid, with such credit to pertain to such remaining period
of time after the Closing Date with respect to the corresponding Letter of
Credit deemed issued hereunder on the Closing Date, and BofA shall share such
credited portion of such fee with the other Banks in accordance with the
provisions of this Agreement as if such credited portion of such fee had been
paid by Borrower hereunder, provided that Borrower shall not be entitled to any
rebate (or to any credit with respect to any other Letter of Credit fee or any
other period of time) by reason of any differential in letter of credit pricing
between this Agreement and the Prior Loan Agreement.
(d) Each Letter of Credit shall be administered
by the Issuing Bank on behalf of all Banks. Except for fees paid pursuant to
Section 2.2(c)(iii), fees paid to Agent with regard to Letters of Credit shall
be allocated and paid by Agent to all Banks pro rata according to their share of
the Commitment.
(e) If, for any reason, a Bank fails to pay its
liability on a Letter of Credit in accordance with the provisions of this
Section 2.2, then the Issuing Bank shall be automatically subrogated to the
right of such defaulting Bank to repayment, in full, of the Basic Rate Loan
created by virtue of a drawing on a Letter of Credit prior to distribution of
any repayments to the defaulting Bank.
(f) Letters of Credit issued pursuant to this
Section 2.2 shall have an expiration date not later than (i) twelve (12) months
from the date of issuance and (ii) the Maturity Date. Letters of Credit issued
on or after the Closing Date shall not contain automatic renewal clauses, except
that one Standby Letter of Credit in a face amount of not more than $350,000
issued for the benefit of Borrower's insurer may contain an automatic renewal
clause, so long as the Issuing Bank has the right to give notice of non-renewal
no less frequently than once a year.
(g) In determining whether to pay under a Letter
of Credit, the Issuing Bank shall be responsible to determine only that the
documents and certificates required to be delivered under that Letter of Credit
have been delivered and that they comply on their face with the requirements of
the Letter of Credit.
(h) To the extent any application or
reimbursement agreement that is executed or entered into in connection with a
Letter of Credit contains terms that are inconsistent with the terms of this
Agreement, the terms of this Agreement shall control.
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<PAGE> 39
2.3 Authorization and Issuance of the Notes. Borrower
has authorized the issuance of Notes in the aggregate principal amount of Sixty
Million Dollars ($60,000,000). On the Signing Date, Borrower shall issue a
separate Note, payable to the order of each Bank, substantially in the form of
Exhibit N-1 attached hereto, with appropriate insertions. Each such Note shall
be in an amount equal to such Bank's pro rata share of the Commitment in effect
on the Signing Date. Borrower shall deliver each such Note to Agent for delivery
to the appropriate Bank. The Notes delivered to each Bank shall evidence the
outstanding principal balance of the Loans made, from time to time, by such Bank
to Borrower, together with interest thereon.
2.4 Rate Designation. Borrower shall designate each
Borrowing requested by it as a Basic Rate Borrowing or a Eurodollar Rate
Borrowing, in the Notice of Borrowing given to Agent in accordance with Section
2.8 hereof.
2.5 Interest Rates; Payment of Principal and Interest.
(a) (i) The obligation of Borrower to repay
all of the Loans shall be evidenced by the Notes.
(ii) All of the Notes shall be payable to
the order of each Bank at Agent's office in accordance with
Section 2.22(a). Payments made by Borrower to Agent for the
account of the Banks shall be deemed made to each Bank and
shall constitute satisfaction of Borrower's obligations to
each Bank with respect to the Loans so repaid upon receipt by
Agent of such payments as are made in compliance with the
terms of this Section 2.5(a) and with Section 2.22(a). Agent
shall, upon either the Domestic Business Day which is the day
upon which Agent receives a payment from Borrower if Agent
shall have received such payment from Borrower by 10:00 a.m.,
California time, on that day, or upon the next Domestic
Business Day following the Domestic Business Day upon which
Agent receives a payment from Borrower if such payment is
received after 10:00 a.m., California time, initiate payment
to each Bank of its pro rata share of the Loans repaid. If
Agent shall initiate such payment to a Bank later than the
date set forth in the immediately preceding sentence, then
Agent shall pay to such Bank, in addition to its pro rata
share of the Loans repaid, interest on such amount at the
Federal Funds Rate.
(b) Subject to Section 2.6 hereof, each Basic
Rate Loan shall bear interest, upon the unpaid principal balance thereof, from
and including the date advanced or converted to but excluding the date of
repayment or conversion thereof, at a fluctuating rate, per annum, equal to the
Basic Rate. Interest due on Basic Rate Loans shall be due and payable monthly,
in arrears, commencing on the Initial Basic Rate Loan Interest
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Payment Date, continuing on the first day of each calendar month thereafter, and
on the Maturity Date.
(c) Subject to Section 2.6 hereof, each
Eurodollar Rate Loan shall bear interest, upon the unpaid principal balance
thereof, from and including the date advanced, converted, or continued to but
excluding the date of repayment or conversion thereof, at a rate, per annum,
equal to the applicable Eurodollar Rate. Interest due on Eurodollar Rate Loans
shall be due and payable, in arrears, on each Interest Payment Date applicable
to that Eurodollar Rate Loan. In the event of a prepayment by Borrower of all or
part of any Eurodollar Rate Loan, accrued interest on the amount so prepaid
shall be due and payable on the date of such prepayment. Notwithstanding
anything to the contrary contained in this Agreement, Borrower shall not have
more than ten (10) Eurodollar Rate Borrowings outstanding at any one time.
(d) Notwithstanding anything to the contrary
contained in this Agreement, Borrower shall not be obligated to pay, and Banks
shall not be entitled to charge, collect, receive, reserve, or take interest
("interest" being defined as the aggregate of all charges which constitute
interest under applicable law that are contracted for, charged, reserved,
received, or paid) in excess of the maximum rate allowed by applicable law.
During any period of time in which the interest rate specified herein exceeds
such maximum rate, interest shall accrue and be payable at such maximum rate;
provided, however, that, if the interest rate declines below such maximum rate,
interest shall continue to accrue and be payable at such maximum rate (so long
as there remains any unpaid principal with respect to the Loans) until the
interest that has been paid hereunder and under the Notes equals the amount of
interest that would have been paid if interest had at all times accrued and been
payable at the interest rate specified in this Section 2.5 without being limited
to the maximum rate specified in this Section 2.5(e).
For purposes of this Section 2.5(e), the term "applicable law"
shall mean that law in effect from time to time and applicable to the loan
transaction between Borrower and Banks which lawfully permits the charging and
collection of the highest permissible, lawful non-usurious rate of interest on
such loan transaction and this Agreement, including laws of the State of
California and, to the extent controlling, laws of the United States of America.
(e) In the event that, as a result of the
operation of any provision of this Agreement, Borrower repays, in whole or in
part, a Eurodollar Rate Loan prior to the expiration of the Interest Period
applicable thereto, Borrower shall, concurrently with the repayment of any such
Loan, in whole or in part, pay any and all accrued and unpaid interest on the
amount repaid.
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2.6 Default Rate. Upon the occurrence and during the
continuance of a Designated Event of Default, at the option of Required Banks,
all Secured Indebtedness shall bear interest, without affecting any of the other
rights and remedies provided for herein or in the Notes, at a rate (the "Default
Rate") equal to the lesser of: (a) (i) for all amounts other than Eurodollar
Rate Loans, at the Basic Rate plus two and one-half (2-1/2) percentage points;
and (ii) as to all Eurodollar Rate Loans, at the Eurodollar Rate plus two and
one-half (2-1/2) percentage points; and (b) the Highest Lawful Rate. Agent will
endeavor promptly to notify Borrower of any election by Required Banks to invoke
the Default Rate, but any failure or delay of Agent to provide such notice shall
not impose liability on Agent and shall not affect the effectiveness of any such
election.
2.7 Computation of Interest and Fees.
(a) All computations of Fees and computations of
interest with respect to the Loans shall be calculated on the basis of a year of
three hundred sixty (360) days for the actual number of days elapsed in such
period. Interest shall accrue from the first day of the making of a Loan (or the
date on which interest or fees or other payments are due hereunder, if
applicable) to, but excluding, the date of repayment of such Loan (or the date
of the payment of interest or fees or other payments, if applicable) in
accordance with the provisions hereof; provided, however, that if a Loan is
repaid on the same day on which it is made, then one (1) day's interest shall be
paid on that Loan.
(b) Agent shall give prompt notice to Borrower
and Banks of each determination of the Basic Rate or the Eurodollar Rate, and of
each change in the Basic Rate applicable to any Loan outstanding hereunder. Each
such determination shall be conclusive in the absence of manifest error. The
failure of Agent to give any such notice specified in this subsection shall not
affect Borrower's obligation to pay such interest.
2.8 Request for Borrowing.
(a) Each Basic Rate Borrowing shall be made on a
Domestic Business Day and each Eurodollar Rate Borrowing shall be made on a
Eurodollar Business Day.
(b) Each Borrowing shall be made upon written
notice, by way of a Notice of Borrowing, in the form of Exhibit N-2, given by
telex, telefacsimile transmission, mail, or personal service, delivered to Agent
at Global Agency # 5596, Bank of America NT&SA, 1455 Market Street, 12th Floor,
San Francisco, California 94103, and confirmed by telephone, as follows:
(i) for a Basic Rate Borrowing, Agent shall
be given notice on or before the Domestic Business Day on
which such Borrowing is to be made, and such notice
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shall specify that a Basic Rate Borrowing is requested and
state the amount thereof (subject to the provisions of this
Article II); provided, however, if Borrower shall fail to
specify the type of Borrowing requested, Borrower shall be
deemed to have requested a Basic Rate Borrowing;
(ii) for a Eurodollar Rate Borrowing, Agent
shall be given notice at least three (3) Eurodollar Business
Days prior to the day on which such Borrowing is to be made,
and such notice shall specify that a Eurodollar Rate Borrowing
is requested and shall state the amount thereof and the
proposed Interest Period therefor (subject to the provisions
of this Article II); and
(iii) For the issuance of a Letter of
Credit, Agent and the Issuing Bank shall be given notice at
least two (2) Domestic Business Days prior to the date on
which such Letter of Credit is to be issued, or such shorter
period of time as is acceptable to the Issuing Bank; provided,
however, that any such notice period shall be sufficiently
long as is necessary to satisfy the conditions set forth in
Section 2.2, as applicable, with respect to such issuance.
Such notice shall specify that a Letter of Credit issuance is
requested and shall state the amount thereof (subject to the
provisions of this Article II).
(c) If the notice provided for in clause (b) is
received by Agent not later than 9:00 a.m., California time, on a Domestic
Business Day or Eurodollar Business Day, as applicable, such day shall be
treated as the first Domestic Business Day or Eurodollar Business Day, as
applicable, of the required notice period. In any other event, such notice will
be treated as having been received immediately before 9:00 a.m., California
time, of the next Domestic Business Day or Eurodollar Business Day, as
applicable.
(d) In lieu of delivering the above-described
Notice of Borrowing, Borrower, by one of its Responsible Officers or any other
individual authorized in writing to act on its behalf, may give Agent telephonic
notice requesting a Borrowing to be disbursed pursuant to the terms of Section
2.21 hereof by the required time of any proposed Borrowing under this Section
2.8; provided, however, that such notice shall be immediately confirmed in
writing by telefacsimile delivery of a Notice of Borrowing to Agent. Agent and
Banks shall incur no liability to Borrower and Agent shall incur no liability to
Banks in acting upon any telephonic notice referred to above which Agent
believes in good faith to have been given by a Responsible Officer or other
individual authorized to act on behalf of Borrower or for otherwise acting in
good faith under this Section 2.8 and in making any Loans in accordance with
this Agreement pursuant to any telephonic notice. Subject to Section 2.8(e), any
Notice of
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<PAGE> 43
Borrowing (or telephonic notice in lieu thereof) shall be irrevocable and
Borrower shall be bound to make a Borrowing in accordance therewith.
(e) In the event that Borrower determines that,
as a result of a Basic Rate Borrowing or a Eurodollar Rate Borrowing to be made
pursuant to a pending Notice of Borrowing or Notice of Conversion/Continuation,
or a Letter of Credit to be issued pursuant to a pending Notice of Borrowing,
(i) Borrower shall be required to pay or reimburse any amounts to any Bank
pursuant to Sections 2.15, 2.17, or 2.18 hereof, or (ii) any Bank shall not be
required to fund a requested Eurodollar Rate Loan pursuant to Section 2.16
hereof, then Borrower shall be entitled to withdraw such Notice of Borrowing or
Notice of Conversion/Continuation, as to such Bank or all Banks, without penalty
by giving notice thereof to Agent (and the Issuing Bank, if applicable);
provided, however, that such notice of withdrawal shall be given prior to the
issuance of any affected Letter of Credit, prior to the day on which any
affected Basic Rate Borrowing was intended to be made, and at least three (3)
Eurodollar Business Days prior to the day on which any affected Eurodollar Rate
Borrowing was intended to be made; provided further, however, that to the extent
that any affected Bank shall have transferred funds to Agent in connection with
such affected Borrowing prior to the provision of such notice of withdrawal by
Borrower, such Bank shall be entitled to the immediate return of such amount by
Agent and to recover on demand from Borrower interest on such amount until paid
at the customary rate set by such Bank for the correction of errors among banks
for the first three (3) Domestic Business Days and, thereafter, at the Basic
Rate. In the event any such notice of withdrawal affects less than all Banks,
the affected Notice of Borrowing or Notice of Conversion/Continuation shall be
deemed to be a request for a Basic Rate Loan from each affected Bank in the
amount of its pro rata share of such Borrowing.
2.9 Conversion or Continuation.
(a) Subject to the provisions of clause (d) of
this Section 2.9 and Section 2.16, Borrower shall have the option to: (i)
convert all or any part of its outstanding Loans equal to One Hundred Thousand
Dollars ($100,000), and in integral multiples of Fifty Thousand Dollars
($50,000) in excess of such amount, to a Basic Rate Loan;(ii) convert all or any
part of its outstanding Loans in an amount equal to Five Million Dollars
($5,000,000), and in integral multiples of One Million Dollars ($1,000,000) in
excess of such amount, to a Eurodollar Rate Loan; and (iii) upon the expiration
of any Interest Period applicable to a Eurodollar Rate Loan, continue all of
such Eurodollar Rate Loan as a Eurodollar Rate Loan, and the succeeding Interest
Period of such continued Loan shall commence on the expiration date of the
Interest Period previously applicable thereto; provided further, however, that a
Eurodollar Rate Loan may only be converted or continued, as the case may be, on
the expiration date of the Interest Period applicable thereto; provided further,
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<PAGE> 44
however, that no outstanding Loan may be continued as, or be converted into, a
Eurodollar Rate Loan when any Event of Default has occurred and is continuing;
provided further, however, that, if, before the expiration of an Interest Period
of a Eurodollar Rate Loan, Borrower fails to deliver the appropriate Notice of
Conversion/Continuation or telephonic notice in respect thereof, such Eurodollar
Rate Loan shall automatically be converted to a Basic Rate Loan.
(b) Notwithstanding any provisions of the
foregoing paragraph of this Section 2.9 to the contrary, Borrower may convert a
Eurodollar Rate Loan into a Basic Rate Loan prior to the expiration date of the
Interest Period applicable thereto upon payment to each Bank, pursuant to the
provisions of Section 2.15 hereof, of all costs, expenses and losses incurred by
such Bank as a result of the timing of such conversion.
(c) Borrower shall deliver a Notice of
Conversion/Continuation, in the form of Exhibit N-3, with respect to a
conversion or continuation of one of its Loans to Agent no later than 9:00 a.m.,
California time, on a Domestic Business Day (in the case of a conversion to a
Basic Rate Loan), and at least three (3) Eurodollar Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation
shall specify: (i) the proposed conversion/continuation date (which shall be a
Domestic Business Day or a Eurodollar Business Day, as applicable); (ii) the
amount of the Loan to be converted/continued; (iii) the nature of the proposed
conversion/continuation; and (iv) in the case of a conversion to, or
continuation of, a Eurodollar Rate Loan, the requested Interest Period.
(d) In lieu of delivering the above-described
Notice of Conversion/Continuation, Borrower, by any of its Responsible Officers
or any other individual authorized in writing to act on behalf of Borrower, may
give Agent telephonic notice by the required time of any proposed
conversion/continuation under this Section 2.9; provided, however, that such
notice shall be immediately confirmed in writing by telefacsimile delivery of a
Notice of Conversion/Continuation to Agent. Agent and Banks shall incur no
liability to Borrower in acting upon any such telephonic notice which Agent
believes in good faith to have been given by a Responsible Officer or other
individual authorized to act on behalf of Borrower, or for otherwise acting in
good faith under this Section 2.9 and in converting/continuing pursuant to any
telephonic notice. Subject to Section 2.8(e), any Notice of
Conversion/Continuation (or telephonic notice in lieu thereof) shall be
irrevocable and Borrower shall be obligated to convert or continue in accordance
therewith.
(e) No Borrowing (or portion thereof) may be
converted into, or continued as, a Eurodollar Rate Borrowing with an Interest
Period that ends after the Maturity Date.
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<PAGE> 45
2.10 Loans by Banks.
(a) Agent shall promptly notify each Bank of
that Bank's pro rata portion of a Borrowing requested pursuant to Section 2.8
hereof. Not later than 12:00 noon, California time, on the date specified in
such notice as the date on which the Borrowing so requested is to be made, each
Bank, subject to the terms and conditions hereof, shall initiate a transfer of
funds to make its pro rata portion of the Borrowing available in immediately
available funds, to Agent at its office located at Global Agency # 5596, Bank of
America NT&SA, 1455 Market Street, 12th Floor, San Francisco, California 94103.
(b) Each Bank's obligation to make any Loan
pursuant hereto is several, and not joint or joint and several, and is not
conditioned upon the performance by each, any, or all of the other Banks of
their obligations to make Loans. The failure by any Bank to perform its
obligation to make Loans will neither increase any other Bank's pro rata portion
of the Commitment nor relieve any other Bank of its obligation to make Loans
pursuant to its share of the Commitment. For purposes of the foregoing, each
Bank's obligations to make Loans shall be deemed to include such Bank's
obligations with regard to participation in Letters of Credit pursuant to
Section 2.2(a).
(c) An Issuing Bank shall promptly notify Agent
and each Bank of a drawing made under a Letter of Credit which has not been
repaid by Borrower pursuant to Section 2.2(a). Not later than 12:00 noon,
California time, on the date specified in such notice as the date on which such
drawing is to be paid, each Bank, subject to the terms and conditions hereof,
shall initiate a transfer of funds to make its pro rata portion of such drawing
available, in immediately available funds, to Agent. In the event that the
Issuing Bank is unable to notify Banks in time sufficient to permit Banks to
timely remit their portion of the drawing to the Issuing Bank, then each Bank
shall be required to initiate a transfer of funds to make payment to Agent of
its pro rata portion of the drawing under the Letter of Credit, together with
interest thereon accrued from the date of the drawing to the date on which such
Bank initiates payment to Agent at the rate set forth in the following sentence,
by no later than 12:00 noon, California time, on the Domestic Business Day
immediately following the date of receipt of the notice from the Issuing Bank.
In the event that any Bank fails to make any payment to Agent, as specified
above, the Issuing Bank shall be entitled to recover such amount on demand from
such Bank together with interest thereon until paid at the Federal Funds Rate.
2.11 Termination or Reduction of Commitment.
(a) The Commitment shall terminate on the
Maturity Date, and any Loans then outstanding, together with any and all
interest accrued and unpaid thereon, shall be immediately due and payable,
without demand, on such date.
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<PAGE> 46
(b) Borrower shall have the right, at any time
and from time to time, to reduce permanently, in whole or in part, the unused
portion of the Commitment. Borrower shall give Agent not less than three (3)
Domestic Business Days prior written notice designating the date (which shall be
a Domestic Business Day) of such reduction and the amount of such reduction.
Such reduction shall be effective on the date specified in Borrower's notice
given in compliance herewith. Any reduction shall be in a minimum amount of Five
Hundred Thousand Dollars ($500,000), and an integral multiple of Five Hundred
Thousand Dollars ($500,000). Any reduction of the Commitment pursuant to this
Section 2.11 shall reduce each Bank's pro rata share of the Commitment.
2.12 Voluntary Prepayments. Borrower may prepay Loans at any
time, in whole or in part, without penalty or premium, subject to Section 2.15;
provided, however, that (a) with regard to the prepayment of any Basic Rate
Loan, Borrower shall provide prior written notice to Agent not later than 9:00
a.m., California time, on the intended date of prepayment, which date of
prepayment shall be a Domestic Business Day; and (b) with regard to the
prepayment of any Eurodollar Rate Loan, Borrower shall provide prior written
notice to Agent not later than 9:00 a.m., California time, three (3) Eurodollar
Business Days prior to the intended date of prepayment, which date of prepayment
shall be a Eurodollar Business Day. Each prepayment of Basic Rate Loans shall be
in the minimum principal amount of One Hundred Thousand Dollars ($100,000) and,
thereafter, in integral multiples of Fifty Thousand Dollars ($50,000), provided,
however that, if the outstanding principal balance of such Loans is less than
such amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. Each prepayment of Eurodollar Rate Loans shall be in
the minimum principal amount of Five Million Dollars ($5,000,000) and in an
integral multiple of One Million Dollars ($1,000,000), provided, however that,
if the outstanding principal balance of such Loans is less than such amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof.
2.13 Fees.
(a) Borrower shall pay a fee (the "Commitment
Fee") to Agent, to be distributed by Agent to each Bank based upon such Bank's
pro rata share of the Commitment. The Commitment Fee shall be payable quarterly
in arrears for each calendar quarter, commencing on October 1, 1992 and
continuing on the first day of each April, July, October, and January thereafter
so long as the Commitment or any part thereof is outstanding. The Commitment Fee
payable with respect to any calendar quarter shall be a dollar amount equal to
(i) 0.00375, times (ii) the number of days in such calendar quarter, times (iii)
the average daily amount during such calendar quarter of the difference between
the Commitment and Usage, (iv) divided by 360.
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<PAGE> 47
(b) On the Signing Date, Borrower shall pay to
Agent a fee (the "Participation Fee") in the amount of $187,500.00, to be
distributed by Agent to each Bank based upon such Bank's pro rata share of the
Commitment.
(c) On the dates provided for in the Fee Letter,
Borrower shall pay to Agent each of the fees set forth in the Fee Letter in
accordance with the terms set forth therein.
2.14 Replacement of Banks. In the event that (a) Borrower
shall be required to pay or reimburse any amounts to any Bank pursuant to
Sections 2.15, 2.17, or 2.18 hereof, or (b) any Bank shall not be required to
fund Eurodollar Rate Loans pursuant to Section 2.16 hereof, then Borrower shall
have the right, subject to the prior consent of Agent (which consent shall not
be unreasonably withheld) and Required Banks (which consent shall not be
unreasonably withheld), to replace such Bank (the "Replaced Bank") with another
solvent and reputable financial institution which (i) is willing to assume all
rights and obligations of the Replaced Bank under and pursuant to this
Agreement, (ii) will be required to be paid or reimbursed for amounts pursuant
to Sections 2.15, 2.17, and 2.18 hereof which are less than those of the
Replaced Bank, and (iii) will not be relieved of its obligations to fund
Eurodollar Rate Loans pursuant to Section 2.16. Any such replacement of a Bank
shall be made pursuant to the terms of Section 11.8(b) hereof, including the
payment of the assignment fee set forth therein.
2.15 Eurodollar Costs. Borrower shall reimburse each Bank (by
payment to Agent for the account of such Bank) for any increase in its costs
which shall include Taxes (other than Taxes imposed on, or measured by, or with
respect to overall net income or gross receipts of such Bank (including any
applicable withholding Taxes) and any Taxes imposed by means of withholding at
the source), fees, or charges (other than any increased costs which are already
included in the LIBOR Reserve Percentage), or any loss or expense (including,
with respect to any event contemplated by clauses (d) and (e) below, any loss or
expense incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by such Bank to fund or maintain the outstanding principal
amount of its Eurodollar Rate Loans) incurred by it or any reduction in any
amount receivable by such Bank hereunder, which costs, losses, expenses, or any
reduction directly or indirectly results from the making of, the continuation
of, the conversion into, or the funding for any Eurodollar Rate Loan, or the
making available of its share of the Commitment due to:
(a) any change occurring or implemented
after the date of this Agreement, in any law, regulation, or treaty or the
interpretation thereof by any governmental or monetary authority (irrespective
of whether having the force of law) including any of the foregoing which imposes
or modifies any reserve, special deposit, minimum capital, capital ratio, or
similar requirements (other than those provided for in
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<PAGE> 48
Section 2.18 hereof and other than those included in the calculations of Base
LIBOR) relating to any extensions of credit, or any deposits with, or other
liabilities of, such Bank relating to loans based upon Base LIBOR;
(b) any change occurring or implemented
after the date of this Agreement, in the application of any law, regulation, or
treaty or the interpretation thereof by any governmental or monetary authority
(irrespective of whether having the force of law) including any of the foregoing
which imposes or modifies any reserve, special deposit, minimum capital, capital
ratio, or similar requirements (other than those provided for in Section 2.18
hereof and other than those included in the calculations of Base LIBOR) relating
to any extensions of credit, or any deposits with, or other liabilities of, such
Bank relating to loans based upon Base LIBOR;
(c) compliance by such Bank with any
request or directive occurring or implemented after the date of this Agreement
(irrespective or whether having the force of law) of any monetary or fiscal
agency or authority including any of the foregoing which imposes or modifies any
reserve, special deposit, minimum capital, capital ratio, or similar
requirements (other than those provided for in Section 2.18 hereof and other
than those included in the calculations of Base LIBOR) relating to any
extensions of credit, or deposits with, or other liabilities of, such Bank
relating to loans based upon Base LIBOR;
(d) except as otherwise expressly
provided for herein, any payment or conversion of a Eurodollar Rate Loan at any
time prior to the end of the applicable Interest Period, whether as a result of
an optional prepayment, a mandatory prepayment, a payment as a result of
acceleration, or otherwise; or
(e) except as otherwise expressly
provided for herein, any failure by Borrower to make or continue a Eurodollar
Rate Borrowing, or to convert a Borrowing into a Eurodollar Rate Borrowing,
after giving Agent a Notice of Borrowing or a Notice of Conversion/Continuation
(or telephonic notice in respect thereof), as applicable (including the failure
to satisfy the conditions precedent specified in Article III of this Agreement).
For the purposes of this Section 2.15, in attributing such
Bank's general costs or reduction in amounts available relating to its
eurocurrency operations to any transaction under this Agreement, or averaging
any costs over a period of time, such Bank may use any reasonable attribution or
averaging methods which it deems appropriate and practical. Without limiting the
generality of the foregoing, any attribution or determination made by any Bank
pursuant to this Section 2.15 may be made on the assumption and as if such Bank
had funded its Eurodollar Rate Loans by accepting matching deposits in the
London interbank market, without requiring any Bank to
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<PAGE> 49
demonstrate whether it in fact accepted such deposits. Such Bank shall notify
Borrower of the amount due such Bank pursuant to this Section 2.15 in respect of
any Eurodollar Rate Loan as soon as practicable but in any event within
forty-five (45) days after the last day of the applicable Interest Period and
Borrower shall pay to such Bank the amount due within fifteen (15) days of its
receipt of such notice. If requested by Borrower, a certificate specifying the
basis for claiming amounts payable under this Section and showing the
computation thereof in reasonable detail shall be submitted by such Bank to
Borrower prior to the date on which Borrower is to make any payment due pursuant
to this Section, and such certificate shall be conclusive in the absence of
manifest error.
2.16 Special Eurodollar Circumstances.
(a) In the event that any change occurring or
implemented after the date of this Agreement in any law, regulation, treaty, or
directive, or in the interpretation or application of any currently existing
law, regulation, treaty, or directive, shall at any time in the reasonable
opinion of any Bank make it unlawful or impractical (a "Eurodollar Illegality")
for such Bank to fund or maintain a Eurodollar Rate Loan in the eurodollar
market or to continue such funding or maintaining, or to determine or charge
interest rates based upon the Eurodollar Rate, such Bank shall as soon as
practicable give notice of such circumstances to Borrower, Agent, and each other
Bank and: (i) in the case of any Eurodollar Rate Loan which is outstanding,
Borrower shall, if requested by such Bank, prepay (without penalty or premium)
such Bank's Eurodollar Rate Loan on or before the date specified in such
request, together with interest accrued and unpaid thereon, and the date so
specified shall be deemed to be the last day of the term of that Eurodollar Rate
Loan and, concurrently with any such prepayment, such Bank shall make a Basic
Rate Loan to Borrower in a principal amount equal to the principal amount of the
Eurodollar Rate Loan so prepaid; and (ii) such Bank shall not be obligated to
make any further Eurodollar Rate Loans to Borrower until such Bank shall
determine that it would no longer be unlawful or impractical to do so. In the
event that any Bank determines at any time following the giving of notice
pursuant to this clause that such Bank may lawfully make Eurodollar Rate Loans,
such Bank shall promptly give written notice to Borrower and Agent (which notice
Agent shall promptly transmit to each Bank) of that determination, whereupon
Borrower's right to request, and such Bank's obligation to make, Eurodollar Rate
Loans shall be restored.
(b) If a Eurodollar Illegality occurs with
respect to a Bank, the affected Bank shall, prior to giving the notice pursuant
to clause (a) above, make all reasonable efforts (which shall not require such
Bank to incur a loss or take any action which would be materially
disadvantageous to it as determined in its sole discretion) to make an
assignment of its rights and delegation and transfer of its obligations
hereunder to another of its offices, branches, or Affiliates for the
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<PAGE> 50
purpose of causing such Eurodollar Illegality to cease to exist so long as: (i)
such assignment and delegation will not create another Eurodollar Illegality;
and (ii) such Bank shall be permitted under applicable law to continue to hold
Eurodollar Rate Loans pending such assignment and delegation.
(c) If Agent determines (which determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining the
rate of interest for fixing the Eurodollar Rate, then Agent shall give Borrower
and Banks prompt notice thereof, and, so long as such condition remains in
effect, Banks shall not be obligated to make any further or continue any
Eurodollar Rate Loans, or to convert any outstanding Loan into a Eurodollar Rate
Loan and, Borrower shall, at its option, either prepay (without penalty or
premium) the affected Eurodollar Rate Loans or convert (without penalty or
premium) such Eurodollar Rate Loans into Basic Rate Loans.
(d) During any period in which a Bank (an
"Affected Bank") shall not be obligated to make Eurodollar Rate Loans pursuant
to clauses (a) or (c) above, such Affected Bank shall instead make Basic Rate
Loans and any Notice of Borrowing requesting a Eurodollar Rate Loan shall be
deemed to be a request for a Basic Rate Loan from such Affected Bank in the
amount of its pro rata share of such Borrowing and a request for Eurodollar Rate
Loans from the non-Affected Banks for the balance of the Borrowing.
2.17 Taxes. All payments made by Borrower in connection with
this Agreement shall be made free and clear of, and without reduction for or on
account of, any present or future income, stamp, or other Taxes, levies,
imposts, duties, charges, fees, deductions, or withholdings, now or hereafter
imposed, levied, collected, withheld, or assessed by any country (or by any
political subdivision or taxing authority thereof or therein) other than
Excluded Taxes (as defined below) (hereinafter referred to as "Non-Excluded
Taxes"). For purposes of this Section 2.17, "Excluded Taxes" shall mean Taxes or
such other amounts payable on, or measured by or with respect to, overall net
income, franchise, or gross receipts of any Bank (including any applicable
withholding taxes) and any Taxes or such other amounts imposed by means of
withholding at the source imposed by: (a) the United States of America or any
political subdivision or taxing authority thereof or therein; or (b) any country
in which any Bank's lending or principal executive offices are located, or in
which any Bank is organized or has a permanent establishment or trade or
business or any political subdivision or taxing authority thereof or therein
where such Taxes arise out of such Bank's organization, presence, or trade or
business in that country and not because of any activity, transaction, or
relationship that such Bank has with Borrower, directly or indirectly. If any
Non-Excluded Taxes are required to be deducted or withheld from any such
payments to any Bank (a "Tax
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Event"), the amounts of such payments shall be increased to the extent necessary
in order that the amount of such payment to any such Bank (after payment of all
Taxes) shall equal the amount which would have been received by such Bank in the
absence of any Non-Excluded Taxes. Whenever any Non-Excluded Taxes are payable
by Borrower, as promptly as possible thereafter, Borrower shall send to Agent,
for the account of such Bank, a certified copy of the original official receipt,
if any, received by Borrower showing payment thereof. If Borrower fails to pay
any Non- Excluded Taxes when due to the appropriate taxing authority or fails to
remit to Agent, for the account of such Bank, the required receipts or other
required documentary evidence, Borrower shall indemnify such Bank for any
incremental Non-Excluded Taxes that may become payable by such Bank and all
reasonable costs and expenses related thereto (including reasonable attorneys'
fees) as a result of any such failure. If Borrower pays any Non-Excluded Taxes
to the appropriate taxing authority for the account of such Bank or pays any
amount to such Bank pursuant to the indemnification described in the preceding
sentence, and such Bank receives a refund of or credit for all or a portion of
the Non-Excluded Taxes with respect to which such payment was made, such Bank
shall pay to Borrower the amount of such refund or credit as soon as practicable
following the receipt thereof, unless an Event of Default shall have occurred
and be continuing, in which case such amount shall be applied in accordance with
the provisions of Section 7.2 hereof.
If a Tax Event occurs with respect to a Bank, the
affected Bank shall make all reasonable efforts (which shall not require such
Bank to incur a loss or otherwise suffer any disadvantage) to make, within
thirty (30) days and subject to the consent of Borrower, an assignment of its
rights and delegation and transfer of its obligations hereunder to another of
its offices, branches, or Affiliates for the purpose of avoiding the occurrence
of future Tax Events.
2.18 Increased Capital Cost. If any Bank determines that the
cost to such Bank of maintaining its share of the Loans or the Commitment is
increased because of any law or regulation or any interpretation, directive, or
request (irrespective of whether having the force of law), of any foreign or
domestic court or governmental or monetary authority (which cost is incurred due
to the introduction, enactment, implementation, or enforcement after the date
hereof of any such law, regulation, directive, or request or any change therein
or in the interpretation thereof after the date of this Agreement), such Bank
may, by written notice given to Borrower as promptly as practicable but in any
event within forty-five (45) days after such Bank's learning of such increased
costs, require Borrower to pay, on demand, an amount equal to such Bank's
additional cost (as determined by such Bank) incurred with respect to the Loans
or the Commitment during the fiscal quarter such notice is given and incurred
during each fiscal quarter thereafter. Each such Bank shall state in reasonable
detail in the notice required by this Section 2.18 the cause and amount of such
additional cost.
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2.19 Funding Sources. Nothing herein shall be deemed to
obligate any Bank to obtain the funds to make any Loan in any particular place
or manner and nothing herein shall be deemed to constitute a representation by
any Bank that it has obtained or will obtain such funds in any particular place
or manner.
2.20 Holidays. Any payments which would otherwise become due
on a day other than a Domestic Business Day shall instead become due on the next
succeeding Domestic Business Day and such extension shall be reflected in the
computation of any payments due hereunder on such adjusted date; provided,
however, if any such extension shall cause a Eurodollar Rate Loan to be due in
the next calendar month, then such amount shall be due on the next preceding
Eurodollar Business Day.
2.21 Place of Borrowings. All Borrowings made hereunder shall
be disbursed by credit to Borrower's deposit account maintained with Agent at
Agent's office located at Agency Management Services # 5596, Bank of America
NT&SA, 1455 Market Street, 12th Floor, San Francisco, California 94103, or as
may otherwise be agreed to between Borrower and Agent.
2.22 Time and Place of Payments.
(a) Borrower shall make each payment hereunder
or on the Notes by making, or causing to be made, the amount thereof available
to Agent in Dollars in immediately available funds at Agent's office located at
Agency Management Services # 5596, Bank of America NT&SA, 1455 Market Street,
12th Floor, San Francisco, California 94103, not later than 10:00 a.m.,
California time, on the day of payment (except in the case of (i) costs
reimbursed pursuant to Section 2.15 hereof, and (ii) interest paid in respect of
a Eurodollar Rate Borrowing as to which any Bank shall have requested and
received prepayment of a Eurodollar Rate Loan and made a Basic Rate Loan in a
principal amount equal to the principal amount thereof pursuant to clause (a) of
Section 2.16 hereof, respectively, which shall be paid when due directly to the
Bank entitled thereto).
(b) Without limitation of any Bank's rights of
setoff provided for and contemplated by Section 11.15 hereof or by law, Agent
shall have the right to charge (i.e., debit) any account of Borrower maintained
with Agent for the amount of any payment due hereunder or on the Notes by
Borrower. Except upon the occurrence and during the continuance of an Event of
Default, Agent shall provide notice to Borrower one (1) Business Day prior to
the day of any such charge.
2.23 Survivability. Borrower's obligations under Sections 2.5,
2.6, 2.15, 2.17, and 2.18 hereof shall survive repayment of the Loans and
termination of the Commitment hereunder.
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ARTICLE III
CONDITIONS TO LOANS
3.1 Conditions Precedent to Initial Loans. The obligation of
each Bank to make its initial Loans hereunder (including Loans made in
accordance with Section 11.18 hereof) is, in addition to the conditions set
forth in Sections 3.2 and 3.3 hereof, subject to the fulfillment, to the
satisfaction of Agent on behalf of the Banks, of each of the following
conditions on or before the Closing Date:
(a) The Closing Date shall occur on or before
the Closing Deadline;
(b) Borrower shall have completed, executed, and
delivered the Notes to Agent;
(c) Agent shall have received the written
opinions, dated the Closing Date, of counsel to Borrower, to the effect set
forth in Exhibit 3.1(c) attached hereto, or otherwise in form and substance
satisfactory to Agent and its counsel;
(d) Agent shall have received a certificate of
corporate status with respect to Borrower, dated as of a recent date prior to
the Closing Date, or confirmed by telex, if telex confirmation is available, by
the Secretary of State of California, such certificate to be issued by the
Secretary of State of California, which certificate shall indicate that Borrower
is in good standing in such state;
(e) Agent shall have received a copy of
Borrower's articles of incorporation certified by its Secretary or Assistant
Secretary;
(f) Agent shall have received a copy of the by-
laws of Borrower certified by its Secretary or Assistant Secretary;
(g) Agent shall have received signature and
incumbency certificates respecting the officers executing this Agreement, the
Notes, and the Ancillary Documents;
(h) Agent shall have received an Officer's
Compliance Certificate from Borrower, dated as of the Closing Date, duly
executed by the chief financial officer or controller of Borrower, substantially
in the form of Exhibit O-1 attached hereto, certifying that no Event of Default
or Unmatured Event of Default has occurred and is continuing and detailing the
calculations by which Borrower has determined it is in compliance with the
financial covenants contained herein;
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(i) Agent shall have received duly executed
originals of the Ancillary Documents listed on Schedule A-1 and each of such
Ancillary Documents shall be in full force and effect;
(j) Agent shall have received a certificate from
Borrower's Secretary or Assistant Secretary attesting to the resolutions of
Borrower's board of directors authorizing the execution and delivery of this
Agreement, the Notes, and the Ancillary Documents to be executed and delivered
by Borrower, and authorizing specific officers to execute same;
(k) Agent shall have received full payment of
all Fees due on or before the Closing Date;
(l) Agent shall have received a certificate from
Borrower's chief financial officer or controller setting forth Borrower's
Rewrite Policy as in effect on the Closing Date;
(m) The representations and warranties of
Borrower set forth in Article IV of this Agreement and in the Ancillary
Documents shall be true and correct in all material respects as of the Closing
Date;
(n) Agent shall have received originals or
copies of each of the documents referred to in clauses (c), (d), (e), (f), (g),
(h), (i), (j), and (l) hereof in sufficient numbers so as to enable Agent to
provide a copy thereof to each Bank;
(o) The incurrence of the initial Loans and the
application of the proceeds thereof shall not constitute a default under or
breach of any term or condition of any material agreement of Borrower;
(p) No Material Adverse Effect shall have
occurred, since June 30, 1992, with respect to Borrower;
(q) No injunction, writ, restraining order, or
other order of any nature materially adverse to the making of the initial Loans
hereunder shall have been issued and remain in force by any governmental
authority;
(r) Agent shall have completed and received all
audits, inspections, and examinations as deemed necessary in Agent's opinion
with respect to the Collateral, the books and records of Borrower, the financial
and business condition and operations of Borrower, and the transactions
contemplated hereby;
(s) Agent and each Floor Plan Lender providing
financing to Borrower as of the Closing Date shall have executed and delivered
an intercreditor agreement in form and substance satisfactory to Agent and its
counsel;
(t) Agent shall have received such documentation
as it reasonably may require to verify the termination of the
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Related Funding Agreement (as such term is defined in the Prior Loan Agreement),
to verify the repayment of all Related Funding Agreement Loans (as such term is
defined in the Prior Loan Agreement) and all other amounts, if any, due the
Related Lender (as such term is defined in the Prior Loan Agreement), and to
verify that the Related Lender (as such term is defined in the Prior Loan
Agreement) no longer claims any interest in any of the Collateral;
(u) Agent shall have received copies of
insurance binders or insurance certificates evidencing that Borrower has
obtained property, casualty, and liability insurance in amounts, with
endorsements, and with insurers reasonably satisfactory to Agent, and such
insurance binders or insurance certificates shall evidence that Agent has been
named as a loss payee of all of Borrower's property and casualty insurance
policies, with a waiver of warranties on a form 438-BFU or similar endorsement;
(v) Not later than two (2) Domestic Business
Days prior to the Closing Date, Agent shall have received a Borrowing Base
Certificate, dated as of a date on or after July 31, 1992;
(w) Agent shall have received a Certificate
Regarding California Commercial Code Section 9102(5)-(7), duly executed by the
chief financial officer or controller of Borrower, substantially in the form of
Exhibit 3.1(w) attached hereto; and
(y) All other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed, recorded, or filed and shall be in form and substance
reasonably satisfactory to Agent and its counsel.
3.2 Conditions Precedent to All Loans. The obligation of each
Bank to make each Loan hereunder is subject to the fulfillment, to the
satisfaction of Agent, at or prior to the time of the making of such Loan, of
each of the following further conditions:
(a) the representations and warranties of
Borrower contained in this Agreement and the Ancillary Documents, to the extent
that Borrower is a party thereto, and the representations and warranties of
Central Ram contained in the Ancillary Documents to which it is a party shall be
true and correct in all material respects at and as of the date of such Loan, as
though made on and as of such date (except to the extent that such
representations and warranties expressly relate solely to an earlier date);
(b) both before and after giving effect to such
Loan, Borrower shall be in compliance in all material respects with all of the
requirements of each of the covenants contained in this Agreement;
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(c) no Event of Default or Unmatured Event of
Default shall have occurred and be continuing on the date of such Loan, nor
shall an Event of Default or Unmatured Event of Default result from the making
of such Loan.
(d) Borrower shall have delivered to Agent a
Notice of Borrowing pursuant to the terms of Section 2.8 hereof; and
(e) No injunction, writ, restraining order, or
other order of any nature preventing any Bank from funding any portion of such
Loan shall have been issued or remain in force by any governmental authority.
3.3 Condition Subsequent to Initial Loans. The obligation of
each Bank to make any Loan hereunder after the Closing Date is, in addition to
the conditions set forth in Section 3.2 hereof, subject to the fulfillment of
the following conditions subsequent:
(a) Within fifteen (15) days after demand
therefor, Agent shall have received full payment of all of Agent's costs and
expenses (including the fees and expenses of Agent's counsel, including
allocated amounts for Agent's in-house counsel) incurred in connection with the
preparation, negotiation, execution, and delivery of this Agreement, the Notes,
the Ancillary Documents, and the other documents related hereto and thereto.
3.4 Determinations Under Section 3.1. For purposes of
determining compliance with the conditions specified in Section 3.1 each Bank
shall be deemed to have consented to, approved, accepted, or be satisfied with
each document or other matter required thereunder to be consented to, or
approved of, or acceptable, or satisfactory to such Bank unless the Agent shall
have received notice from such Bank prior to the Closing Date specifying its
objection thereto and such Bank shall not have made available to Agent such
Bank's ratable portion of the initial Loans.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BORROWER
In order to induce Agent and each Bank to enter into this
Agreement, Borrower makes the following representations and warranties which,
except as set forth in the Disclosure Statement with a specific reference to the
Section of this Article IV affected thereby, shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and at and as of the date of
each Loan made thereafter, as though made on and as of the date of the making of
such Loan (except to the extent that such representations and warranties relate
solely to an earlier
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date) and such representations and warranties shall survive the execution and
delivery of this Agreement and the Notes and the making of the Loans.
4.1 Due Organization; Subsidiaries. Borrower is a duly
organized and validly existing corporation in good standing under the laws of
the State of California and is duly qualified to conduct business as a foreign
corporation in all jurisdictions where it owns or leases real property or where
its failure to do so could reasonably be expected to have a Material Adverse
Effect on Borrower. Except as set forth in the Disclosure Statement, Borrower
has no Subsidiaries.
4.2 Capital Stock or Interests of Borrower.
(a) Set forth in the Disclosure Statement is the
following information regarding Borrower: (i) the number of authorized shares of
each class of Borrower's common and preferred stock; and (ii) the number of
shares outstanding of each such class of shares. All of the shares of capital
stock of Borrower are owned by the persons identified in the Disclosure
Statement. All of the outstanding capital stock of Borrower has been validly
issued and is fully paid and non-assessable.
(b) Except as set forth in the Disclosure
Statement, no capital stock (or any securities, instruments, warrants, option or
purchase rights, conversion or exchange rights, calls, commitments, or claims of
any character convertible into or exercisable for capital stock) of Borrower is
subject to issuance under any security, instrument, warrant, option or purchase
rights, conversion or exchange rights, call, commitment, or claim of any right,
title, or interest therein or thereto.
(c) Borrower may amend the Disclosure Statement
with respect to this Section 4.2 to reflect changes that would not, individually
or in the aggregate, have a Material Adverse Effect on Borrower, violate any of
the provisions of this Agreement, or materially adversely affect Borrower's
ability to repay any or all of the Loans.
4.3 Requisite Power and Authorization. Borrower has all
requisite corporate power to execute and deliver this Agreement, the Notes, the
Ancillary Documents to which it is a party, and to borrow the sums provided for
in this Agreement. Borrower has all domestic governmental licenses,
authorizations, consents, and approvals necessary to own and operate its Assets
and to carry on its business as now conducted and as proposed to be conducted,
other than licenses, authorizations, consents, and approvals which are not
currently required or the failure to obtain which could not reasonably be
expected to have a Material Adverse Effect on Borrower. The execution, delivery,
and performance of this Agreement, the Notes, and the Ancillary Documents to
which it is a party have been duly authorized by Borrower's board of directors
and all necessary corporate action
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in respect thereof has been taken, and the execution, delivery, and performance
thereof do not require any consent or approval of the stockholders of Borrower
which has not been obtained.
4.4 Binding Agreements. This Agreement has been duly executed
and delivered by Borrower and constitutes, and the Notes and the Ancillary
Documents to which it is a party, when executed and delivered by Borrower, will
constitute, the legal, valid, and binding obligations of Borrower, enforceable
against Borrower in accordance with their terms, except as the enforceability
hereof or thereof may be affected by: (a) bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the enforcement of
creditors' rights generally; (b) the limitation of certain remedies by certain
equitable principles of general applicability; and (c) the fact that the rights
to indemnification thereunder or hereunder may be limited by federal or state
securities laws.
4.5 Other Agreements. The execution, delivery, and performance
by Borrower of this Agreement, the Notes, and the Ancillary Documents to which
it is a party do not and will not: (i) violate (A) any provision of any material
federal (including the Exchange Act), state, or local law, rule, or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) binding on
Borrower, or (B) any order of any domestic governmental authority, court,
arbitration board, or tribunal binding on Borrower, or (C) the articles of
incorporation or bylaws of Borrower; or (ii) contravene any provisions of,
result in a breach of, constitute (with the giving of notice or the lapse of
time) a material default under, or result in the creation of any Lien (other
than a Permitted Lien) upon any of the Assets of Borrower pursuant to, any
Contractual Obligation of Borrower; or (iii) except as provided for in Section
3.1(t) hereof, require termination of any Contractual Obligation of Borrower.
4.6 Litigation; Adverse Facts.
(a) There is no action, suit, proceeding, or
arbitration at law or in equity, or before or by any federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, pending or, to the knowledge of Borrower,
threatened against or affecting Borrower which could reasonably be expected to
have a Material Adverse Effect on Borrower, or on its ability to perform its
obligations hereunder, under the Notes, or under the Ancillary Documents to
which it is a party;
(b) Borrower is not: (i) in violation of any
applicable law, ordinance, rule, or regulation in a manner which could
reasonably be expected to have a Material Adverse Effect on Borrower; or (ii)
subject to or in default with respect to any final judgment, writ, injunction,
decree, rule, or regulation of any court or of any federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
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instrumentality, domestic or foreign, in a manner which could reasonably be
expected to have a Material Adverse Effect on Borrower; and
(c) (i) as of the date hereof or the Closing
Date, there is no action, suit, proceeding or, to the best of Borrower's
knowledge or belief, investigation pending or, to the best of Borrower's
knowledge or belief, threatened against or affecting Borrower which questions
the validity or the enforceability of this Agreement, the Notes, or the
Ancillary Documents to which Borrower is a party; and (ii) after the Closing
Date, there is no action, suit, or proceeding pending or, to the best of
Borrower's knowledge or belief, threatened against or affecting Borrower
pursuant to which, on the date of the making of any Loan hereunder, there is in
effect a binding injunction which could materially and adversely affect the
validity or enforceability of this Agreement, the Notes, or the Ancillary
Documents to which Borrower is a party.
4.7 Government Consents. Other than such as may have
previously been obtained, filed, or given, as applicable, no consent, license,
permit, approval, or authorization of, exemption by, notice to, report to or
registration, filing, or declaration with, any governmental authority or agency
is required in connection with the execution, delivery, and performance by
Borrower of this Agreement, the Notes, or the Ancillary Documents to which
Borrower is a party.
4.8 Financial Condition.
(a) Borrower has delivered to Agent and Banks
balance sheets for Borrower at October 31, 1991, 1990, and 1989, and the related
statements of earnings and retained earnings and cash flow for the periods then
ended. All such financial statements have been examined by the Auditors whose
reports thereon are included with such financial statements. All such financial
statements have been prepared in conformity with GAAP applied on a consistent
basis (except for changes, if any, disclosed therein). Except for the effect, if
any, on the results of operations and cash flows of Borrower for the year ended
October 31, 1989, such statements of earnings and retained earnings and cash
flow present fairly the results of operations and cash flows of Borrower for the
respective periods covered, and the balance sheets present fairly the financial
condition of Borrower as of their respective dates. Since October 31, 1990,
there has been no change in any of the significant accounting policies,
practices, or procedures of Borrower.
(b) Borrower has delivered to Agent and Banks a
balance sheet for Borrower at June 30, 1992, and the related statement of
earnings and the monthly delinquency report for the period then ended. Such
interim financial statements have been certified by the chief financial officer
or controller of Borrower. All such interim financial statements have been
prepared in accordance with GAAP consistently applied during the
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periods covered (except as disclosed therein), the statements of earnings
present fairly the results of operations of Borrower for the respective periods
covered, and the balance sheets present fairly the financial condition of
Borrower as of their respective dates, except that such financial statements may
omit footnote disclosures required by GAAP to the extent the content thereof
would not materially differ in nature or amount from those disclosures reported
in the most recent audited period and year-end adjustments to the extent not
material. All such interim financial statements reflect all adjustments (which
consist only of normal recurring adjustments not material in amount) necessary
for a fair presentation.
(c) Since June 30, 1992, there has not been,
occurred, or arisen:
(i) any change in or event affecting
Borrower or its business that has had or may reasonably
be expected to have a Material Adverse Effect on
Borrower,
(ii) any strike or other labor dispute, or
(iii) any casualty, loss, damage, or
destruction (whether or not covered by insurance) of any
material property of Borrower.
(d) To the best of Borrower's knowledge,
Borrower does not have any liabilities of any nature, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, probable of
assertion or not, that, in accordance with GAAP applied on a consistent basis,
should have been but were not reflected or disclosed in the most recent of the
financial statements (including the notes thereto) referred to in subsections
(a) and (b) above, except liabilities which were incurred after October 31, 1990
in the ordinary course of business. As of the date hereof and as of the Closing
Date, Borrower has no material Accommodation Obligation which is not: (i)
reflected in the most recent of the foregoing statements or in the notes
thereto; or (ii) specifically set forth in the Disclosure Statement.
4.9 Title to Assets; Liens. Except for Permitted Liens, all of
the Assets of Borrower are free from all Liens of any nature whatsoever. Except
for Permitted Liens, Borrower has good and valid title to all of its real
property and good and marketable title to all of its other Assets reflected in
its books and records as being owned by it. Substantially all of the Assets
owned by, leased to, or used by Borrower are in adequate operating condition and
repair, ordinary wear and tear excepted, are free and clear of any known defects
except such defects as do not substantially interfere with the continued use
thereof in the conduct of normal operations, and are able to serve the function
for which they are currently being used, except in each case where the failure
of such Asset to meet such requirements could
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not reasonably be expected to have a Material Adverse Effect on Borrower.
Neither this Agreement, nor any of the Ancillary Documents to which Borrower is
a party, nor any transaction contemplated under any such agreement will affect
any right, title, or interest of Borrower in and to any of the Assets of
Borrower in a manner that could reasonably be expected to have a Material
Adverse Effect on Borrower.
4.10 Tax Examination. Except as set forth in the Disclosure
Statement, no federal income tax returns of Borrower have been examined by the
Internal Revenue Service for all tax periods prior to and including the taxable
year ending October 31, 1990 and there are no tax examinations in progress.
Borrower has no knowledge of any material federal income tax liability with
respect to open taxable years in excess of amounts accrued on Borrower's audited
financial statements for its fiscal year ended October 31, 1990 that would be
required to be so accrued in accordance with GAAP.
4.11 Payment of Taxes. All tax returns and reports of Borrower
required to be filed by it have been timely filed (inclusive of any permitted
extensions), and all Taxes, assessments, fees, amounts required to be withheld
and paid by it to a governmental agency or regulatory authority, and other
governmental charges upon Borrower, and upon its Assets, income, and franchises,
which are due and payable by it have been paid, except to the extent that: (a)
the failure to file such returns or reports, or pay such Taxes, assessments,
fees, and other governmental charges, as applicable, could not reasonably be
expected to have a Material Adverse Effect on Borrower; or (b) other than with
respect to Taxes, assessments, charges or claims which have become a federal tax
Lien upon any of Borrower's Assets, such Tax, assessment, charge, or claim is
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted, and an adequate reserve or other appropriate
provision, if any, shall have been made as required in order to be in conformity
with GAAP. Borrower does not know of any proposed, asserted, or assessed tax
deficiency against it that, if such deficiency existed and had to be rectified,
could reasonably be expected to have a Material Adverse Effect on Borrower.
4.12 Governmental Regulation.
(a) Borrower is not, and immediately after the
application by Borrower of the proceeds of the Loans, will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(b) Borrower is not: (i) a holding company or a
Subsidiary or Affiliate of a holding company, or a public utility, within the
meaning of the Public Utility Holding Company Act of 1935, as amended; or (ii)
subject to any state law or regulation regulating public utilities or similar
entities.
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<PAGE> 62
(c) Borrower is not limited in its ability to
incur debt under: the Federal Power Act, the Interstate Commerce Act, or any
federal, state, or local law, rule, or regulation.
4.13 Securities Activities. Borrower is not engaged
principally, or as one of its principal activities, in the business of
extending, or arranging for the extension of, credit for the purpose of
"purchasing" or "carrying" any margin stock or securities (within the meaning of
Regulations G, T, U, or X of the Federal Reserve Board). No part of any
Borrowing will be used by Borrower for any purpose other than those set forth in
Section 6.14 hereof.
4.14 Employee Benefit Plans.
(a) Borrower and each ERISA Affiliate is in
compliance in all material respects with ERISA with respect to all Plans and
Multiemployer Plans, the failure to comply with which could reasonably be
expected to have a Material Adverse Effect on Borrower, including: (i) having
fulfilled the minimum funding standards of ERISA; (ii) not having incurred
liability to the PBGC; and (iii) being able to pay benefits under each Plan and
Multiemployer Plan when due.
(b) Borrower and its ERISA Affiliates have not
incurred nor reasonably expect to incur any of the following which in the
aggregate could reasonably be expected to have a Material Adverse Effect on
Borrower:
(i) a Termination Event;
(ii) withdrawal liability under ERISA to a
Multiemployer Plan;
(iii) unpaid and overdue insurance premiums
to a Plan (which is a "welfare plan" under Section3(l) of
ERISA which is funded with insurance); or
(iv) unpaid contributions to a Plan (which
is a "welfare plan" under Section3(l) of ERISA, which is not
funded with insurance).
(c) Liabilities on a termination basis (irre-
spective of whether vested) of Borrower and its ERISA Affiliates under all Plans
(excluding unfunded deferred compensation agreements or other arrangements of
similar nature whether subject to ERISA and welfare plans not subject to the
funding requirements of ERISA) that have Assets (including accrued contributions
for the current plan year on a daily weighted average, provided that such
accrued contributions do not materially vary from the amount of the
contributions actually received by the plan for the prior plan year, on a daily
weighted average) less than liabilities (irrespective of whether vested) do not
exceed the Assets thereunder.
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4.15 Disclosure. As of the date hereof and as of the Closing
Date, no representation or warranty of Borrower contained in this Agreement or
any other document, certificate, or written statement furnished to Agent or any
Bank, by or on behalf of Borrower with respect to the businesses, operations,
Assets, prospects, or condition (financial or otherwise) of Borrower for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to Borrower (other than matters of a general economic nature) which Borrower
reasonably believes could reasonably be expected to have a Material Adverse
Effect on Borrower, which has not been disclosed herein or in such other
documents, certificates, and statements furnished to Agent and Banks for use in
connection with the transactions contemplated hereby. Borrower has furnished, or
shall furnish, to Agent and Banks certain financial information concerning
Borrower, including estimates and projections of Borrower's results of
operations and financial position for and as at the end of certain future
periods. There are no statements or conclusions therein which, when taken as a
whole, in light of the circumstances under which they are or were made, to the
knowledge and belief of Borrower at the time provided, are based upon or include
materially misleading information or fail to take into account material
information regarding the matters covered therein. Borrower has no reason to
believe that any of the statements or conclusions included therein are not true
and correct in all material respects at the time provided. It is understood that
no representation or warranty is made by Borrower concerning any predictions,
forecasts, estimates, or any other analyses prepared by it or on its behalf,
which are dependent on future events, except that such predictions, forecasts,
estimates, and analyses were prepared with reasonable care.
4.16 Indebtedness. Borrower does not have any Indebtedness
outstanding on the date of this Agreement other than the Indebtedness reflected
in the financial statements referred to in Section 4.8 hereof or in the
Disclosure Statement or which is otherwise permitted under Section 6.1 hereof.
After the Closing Date, Borrower will not have any Indebtedness outstanding
other than the Indebtedness permitted by Section 6.1 hereof.
4.17 Licenses, Patents, Trademarks, and Intellectual
Property.
(a) Borrower owns, is licensed or otherwise has
the lawful right to use, or has all copyrights, franchises, governmental
approvals, licenses, patents, patent rights, permits, service marks, trademarks,
trademark rights, trade names, and trade name rights used in or necessary in
order for it to conduct its business and to operate its Assets substantially as
now or as proposed to be conducted or operated, as the case may be, without
known conflict with or infringement upon the
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rights of third Persons (except for conflicts or infringements which could not
be reasonably expected to have a Material Adverse Effect on Borrower), and all
of same are valid and subsisting, except where such lack of validity or
subsistence could not reasonably be expected to have a Material Adverse Effect
on Borrower. The consummation of the transactions contemplated by this Agreement
will not alter or impair any of such rights of Borrower.
(b) The Disclosure Statement contains a listing
of all of Borrower's copyrights, franchises, patents, patent rights, service
marks, trademarks, trademark rights, and trade names, and, if applicable, the
date and place of registration thereof.
(c) Borrower has not been charged or, to the
best of Borrower's knowledge, is not threatened to be charged with any
infringement of, nor has it infringed on any unexpired copyright, copyright
registration, patent, patent registration, trademark, trademark registration,
trade name, or other proprietary right of any Person, which charge or threat
could reasonably be expected to have a Material Adverse Effect on Borrower.
Except as disclosed in the Disclosure Statement, Borrower is not aware of any
infringement or, to the best of Borrower's knowledge, threatened infringement by
any other Person of any copyright, copyright registration, patent, patent
registration, service mark, trademark, trademark registration, trade name, or
any other proprietary right of Borrower which could reasonably be expected to
have a Material Adverse Effect on Borrower.
4.18 Burdensome Agreements. Borrower is not a party to
any unusual or unduly burdensome agreement or undertaking, or is subject to any
unusual or unduly burdensome court order, writ, injunction, or decree of any
court or governmental instrumentality, domestic or foreign, which could
reasonably be expected to have a Material Adverse Effect on Borrower.
4.19 Existing Defaults. Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to it, and no
condition exists which, with the giving of notice or the lapse of time, would
constitute a default under such Contractual Obligation, except, in any such
case, where the consequences, direct or indirect, of such default or defaults,
if any, would not have or could not reasonably be expected to have a Material
Adverse Effect on Borrower.
4.20 Contract Warranties. With respect to all
Contracts (to which Borrower is a party) scheduled, listed, or referred to on
any balance sheet or books and records of Borrower, or referred to in any other
report delivered by Borrower to Agent:
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(a) the Contracts are genuine, are in all
respects what they purport to be, and are not evidenced by a judgment;
(b) the Contracts represent bona fide transac-
tions completed in accordance with the terms and provisions contained in the
documents delivered to Agent with respect thereto; and
(c) the services furnished or goods sold giving
rise to the Contracts when delivered to the customer (or carrier or
intermediary, as the case may be) were not subject to any lien except for
Permitted Liens or Liens in favor of Borrower.
4.21 Compliance with Consumer Finance Laws. Borrower is in
compliance, in all material respects, with all laws, regulations, or directives
with respect to consumer finance, including the California Unruh Act, California
Civil Code Sections 1799.90 et seq., the Federal Truth in Lending Act and the
Federal Equal Credit Act, all as may be amended, noncompliance with which could
reasonably be expected to have a Material Adverse Effect on Borrower or its
ability to repay timely the Loans.
4.22 Leases. Borrower enjoys peaceful and undisturbed
possession under all of the leases to which it is a party or under which it is
operating and which are material to the business of Borrower, and all such
leases are valid and subsisting and no material default by Borrower exists under
any of them.
4.23 Fire, Explosion, and Labor Disputes. Neither the
business nor the Assets or operations of Borrower are presently affected by any
fire, explosion, accident, strike, lockout, or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy, or other
casualty (irrespective of whether covered by insurance), which could reasonably
be expected to have a Material Adverse Effect on Borrower.
4.24 Location of Chief Executive Office. Except as provided by
Section 6.17 hereof, the chief executive office of Borrower is located at the
address indicated in the Disclosure Statement. The tangible Assets of Borrower
are located at the locations identified on the Disclosure Statement and, upon
compliance with the terms of Section 6.17 hereof, Borrower may amend the
Disclosure Statement to add additional locations where such Assets may,
thereafter, be located.
4.25 No Partnerships. Borrower is not a partner in any
partnership or a joint venturer in any joint venture.
4.26 Employment Agreements and Relations. Borrower is
not a party to any employment agreement or collective bargaining
agreement. Borrower has not made, obligated itself to make,
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renewed, extended, or otherwise modified or amended any previous agreement to
make, any excess parachute payment as defined in Section 280G of the Code.
During the three (3) years preceding the Closing Date there was (or were) no:
(a) strikes or shutdowns resulting from labor activity; or (b) concerted work
stoppages or concerted slowdown of any nature or length of time, at any retail
outlet, warehouse, or other facility owned or operated by Borrower.
4.27 Environmental Matters. Borrower is in compliance,
in all material respects, with all applicable environmental, hazardous waste,
health and safety statutes and regulations governing its operations or
properties, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986,
the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic
Substances Control Act, and the California Health and Safety Code. None of the
operations of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the
environment.
4.28 Solvency. Borrower is Solvent after giving effect
to this Agreement, the Notes, and the Ancillary Documents to which Borrower is a
party.
4.29 No Default. No Event of Default or Unmatured Event
of Default has occurred and is continuing.
4.30 Representations and Warranties Relating to Central
Ram.
(a) Central Ram is a duly organized and validly
existing corporation in good standing under the laws of the State of Delaware
and is duly qualified to conduct business as a foreign corporation in all
jurisdictions where it owns or leases real property or where its failure to do
so could reasonably be expected to have a Material Adverse Effect on Central
Ram.
(b) Central Ram has all requisite corporate
power to execute and deliver the Ancillary Documents to which it is party.
Central Ram has all domestic governmental licenses, authorizations, consents,
and approvals necessary to own and operate its Assets and to carry on its
business as now conducted and as proposed to be conducted, other than licenses,
authorizations, consents, and approvals which are not currently required or the
failure to obtain which cold not reasonably be expected to have a Material
Adverse Effect on Central Ram. The execution, delivery, and performance of the
Ancillary Documents to which it is a party have been duly authorized by Central
Ram's board of directors and all necessary corporate action in respect thereof
has been taken, and the execution, delivery, and
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performance thereof do not require any consent or approval of the stockholders
of Central Ram which has not been obtained.
(c) The Ancillary Documents executed and
delivered by Central Ram constitute the legal, valid, and binding obligations of
Central Ram, enforceable against Central Ram in accordance with their terms,
except as the enforceability hereof or thereof may be affected by: (i)
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally; (ii) the limitation of
certain remedies by certain equitable principles of general applicability; and
(iii) the fact that the rights to indemnification thereunder or hereunder may be
limited by federal or state securities laws.
(d) The execution, delivery, and performance by
Central Ram of the Ancillary Documents to which it is a party do not and will
not: (i) violate (A) any provision of any material federal (including the
Exchange Act), state, or local law, rule, or regulation (including Regulations
G, T, U, and X of the Federal Reserve Board) binding on Central Ram, or (B) any
other of any domestic governmental authority, court arbitration board, or
tribunal binding on Central Ram, or (C) the articles of incorporation or bylaws
of Central Ram; or (ii) contravene any provisions of, result in a breach of,
constitute (with the giving of notice or lapse of time) a material default
under, or result in the creation of any Lien (other than a Permitted Lien) upon
any of the Assets of Central Ram pursuant to, any Contractual Obligation of
Central Ram; or (iii) require termination of any Contractual Obligation of
Central Ram.
(e) Each of the representations and warranties
relating to Borrower set forth in Sections 4.6 and 4.7 and Sections 4.9 through
4.28 are also true, correct and complete in all respects with respect to Central
Ram as of June 14, 1994, and at and as of the date of each Loan made thereafter,
as though made on and as of the date of making such Loan; provided, that each
reference to Borrower shall for purposes of this Section 4.30(e) be deemed to be
a reference to Central Ram and each reference to Borrower's execution, delivery
or performance of, or the validity of, any Loan Document shall for purposes of
this Section 4.30(e) be deemed to refer to Central Ram's execution, delivery or
performance of, or the validity of, each Loan Document to which Central Ram is a
party.
(f) Central Ram is Solvent after giving effect
to each Ancillary Document to which it is a party.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that, so long as any portion of
the Commitment under this Agreement shall be in effect and until payment, in
full, of the Loans, with interest accrued
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and unpaid thereon, and any other amounts due hereunder, and except as set forth
in the Disclosure Statement with specific reference to the Section of this
Article V affected thereby concerning matters which do not conform to the
covenants of this Article V, Borrower shall perform each and all of the
following covenants:
5.1 Accounting Records and Inspection. Borrower shall maintain
financial and accounting books and records in accordance with sound business
practices and GAAP consistently applied, and permit any representative of a
Bank, upon reasonable notice to Borrower, at any time during usual business
hours, to inspect, audit, and examine such books and records and to make copies
and take extracts therefrom, and to discuss its affairs, financing, and accounts
with its officers and independent public accountants. Borrower shall furnish
each Bank with any information reasonably requested by any Bank regarding
Borrower's business or finances promptly upon such Bank's request. Borrower
shall permit those Persons designated by any Bank to visit and inspect any of
the Assets of Borrower upon reasonable notice and as often as may be reasonably
requested. Without limiting the generality of the foregoing, Borrower will
permit and fully cooperate with Agent and Collateral Agent in the performance of
a complete field audit to be performed at least twice during each fiscal year of
Borrower at Borrower's expense.
5.2 Financial Statements and Other Information. Borrower shall
furnish Agent:
(a) as soon as practicable and, in any event,
within forty-five (45) calendar days after the close of each of the first three
fiscal quarters of each fiscal year of Borrower, and within one hundred (100)
days after the close of the fourth fiscal quarter of each fiscal year of
Borrower, on a store-by- store basis, a statement of profit and loss for such
fiscal quarter of Borrower for each retail store location of Borrower, and, if
so requested by Agent, a summary of the inventory of Borrower on a
location-by-location basis (including warehouses) at the end of such fiscal
quarter of Borrower for each location of Borrower, each setting forth in
comparative form, if applicable and to the extent available, the corresponding
figures for the corresponding period of the previous fiscal year of Borrower,
all in reasonable detail, prepared without footnotes and subject to year-end
audit adjustments, and certified by the chief financial officer or controller of
Borrower to have been prepared in accordance with GAAP consistently applied;
provided, however, that if such information is otherwise prepared with any
footnotes, such footnotes shall be furnished to Agent and each Bank;
(b) as soon as practicable and, in any event,
within forty-five (45) calendar days after the close of each and every fiscal
quarter of Borrower, and within thirty (30) calendar days after the close of
each fiscal month of Borrower other than any month that marks the end of any
fiscal quarter of Borrower:
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(i) a statement of stockholders' equity and a cash flow statement of Borrower
for such period; (ii) an income statement of Borrower for such period; and (iii)
a balance sheet of Borrower as of the end of such period, each setting forth in
comparative form, if applicable, the corresponding figures for the corresponding
period of the previous fiscal year, all in reasonable detail, prepared without
footnotes and subject to year-end audit adjustments and certified by the chief
financial officer or controller of Borrower to have been prepared in accordance
with GAAP consistently applied; provided, however, that if such information is
otherwise prepared with any footnotes, such footnotes shall be furnished to
Agent and each Bank;
(c) as soon as practicable and, in any event,
within one hundred eight (108) calendar days after the close of each fiscal year
of Borrower ending 1995 and within one hundred (100) calendar days after the
close of each fiscal year of Borrower thereafter, a copy of the annual audited
report for such year for Borrower, including therein: (i) a statement of
stockholders' equity and a cash flow statement of Borrower for such fiscal year;
(ii) an income statement of Borrower for such fiscal year; (iii) a balance sheet
of Borrower as of the end of such fiscal year, each setting forth corresponding
figures for the previous year, all in reasonable detail; and (iv) any management
letter or other report of substance submitted to Borrower by Borrower's Auditors
in connection with any audit of the books of Borrower; the statements and
balance sheet shall be audited by Borrower's Auditors, shall contain an
unqualified opinion of Borrower's Auditors as to the fairness thereof, and shall
be certified by such Auditors to have been prepared in accordance with GAAP,
consistently applied;
(d) within thirty (30) calendar days after the
close of each fiscal month and contemporaneously with each quarterly and
year-end financial report required by clauses (b) and (c) of this Section 5.2,
an Officer's Compliance Certificate duly executed by the chief financial officer
or controller of Borrower stating that he or she has individually reviewed the
provisions of this Agreement, the Ancillary Documents, and the Notes (such
certificate shall contain the calculations and other details necessary to
demonstrate Borrower's compliance with Section 6.6 hereof), that a review of the
activities of Borrower during such year, monthly period, or quarterly period, as
the case may be, has been made by or under such individual's supervision, with a
view to determining whether Borrower has fulfilled all of its obligations under
this Agreement, the Ancillary Documents, and the Notes, that Borrower has
observed and performed each undertaking contained in this Agreement, the
Ancillary Documents, and the Notes, and that Borrower is not in default in the
observance or performance of any of the provisions hereof or
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thereof, or if Borrower shall be so in default, specifying all such defaults and
events of which such individual may have knowledge or belief;
(e) as soon as practicable and, in any event,
within one hundred twenty (120) calendar days after the close of each fiscal
year of each Sister Company: (i) a statement of stockholders' equity and a cash
flow statement of such Sister Company for such fiscal year; (ii) an income
statement of such Sister Company for such fiscal year; and (iii) a balance sheet
of such Sister Company as of the end of such fiscal year, each setting forth
corresponding figures for the previous year, all in reasonable detail; the
statements and balance sheet of Finance shall be audited by Finance's Auditors,
shall contain an unqualified opinion of Finance's Auditors as to the fairness
thereof, shall be certified by such Auditors to have been prepared in accordance
with GAAP, consistently applied, and shall be accompanied by any management
letter or other report of substance submitted to Finance by Finance's Auditors
in connection with any audit of the books of Finance; the statements and balance
sheet of each other Sister Company may be company-prepared; the requirements of
this subsection (e) may be satisfied by the delivery to Agent and each Bank, in
lieu of the statements and balance sheets described above, of consolidating
schedules to the audited financial statements of Holdings containing the same
detailed financial information;
(f) as soon as practicable and, in any event,
within sixty (60) calendar days after the close of each and every fiscal quarter
other than the fourth fiscal quarter of each Sister Company: (i) a statement of
stockholders' equity and a cash flow statement of such Sister Company for such
period; (ii) an income statement of such Sister Company for such period; and
(iii) a balance sheet of such Sister Company as of the end of such period, each
setting forth in comparative form, if applicable, the corresponding figures for
the corresponding period of the previous fiscal year, all in reasonable detail,
prepared without footnotes and subject, in the case of Finance, to year-end
audit adjustments and certified by the chief financial officer or controller of
such Sister Company to have been prepared in accordance with GAAP consistently
applied; provided, however, that if such information is otherwise prepared with
any footnotes, such footnotes shall be furnished to Agent and each Bank; the
requirements of this subsection (f) may be satisfied by the delivery to Agent
and each Bank, in lieu of the statements and balance sheets described above, of
consolidating schedules to the company-prepared financial statements of Holdings
containing the same detailed financial information;
(g) within fifteen (15) days after the close of
each fiscal month of Borrower, a Borrowing Base Certificate demonstrating
Borrower's compliance with Section 2.1(b)(iii) hereof as of the end of such
month, together with (i) a summary delinquency aging report with regard to
outstanding Contracts as
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of the end of such month; (ii) a month-end management report for such month
summarizing delinquencies, charge-offs, recoveries and number of Contracts
outstanding; and (iii) a summary aging of its accounts payable and accounts
receivable as of the end of such month;
(h) within thirty (30) calendar days after the
close of each fiscal month and contemporaneously with each quarterly and
year-end financial report required by clauses (b) and (c) of this Section 5.2,
Borrower's analysis of financial results, as customarily prepared by management
of Borrower for internal use;
(i) Prompt notice of the particulars of any
change known to any Responsible Officer of Borrower pertaining to Borrower's
location within an "enterprise zone" that could affect the taxability of any
interest or fees payable by Borrower to any Bank under any Loan Document;
(j) contemporaneously with each quarterly and
year-end financial report required by clauses (b) and (c) of this Section 5.2, a
certificate of the chief financial officer or controller of Borrower separately
identifying and describing all Accommodation Obligations of Borrower; provided,
however, that such certificate shall not be required with regard to any period
during which the aggregate Indebtedness of Borrower with regard to Accommodation
Obligations does not exceed Fifty Thousand Dollars ($50,000);
(k) promptly upon the request of Agent, an
inventory listing detailing Borrower's inventory by supplier and by category as
of the end of the most recently ended fiscal quarter of Borrower;
(l) notice, as soon as possible and, in any
event, within five (5) calendar days after Borrower has knowledge, of: (i) the
occurrence of any Event of Default or any Unmatured Event of Default; or (ii)
any default or event of default (and passage of any applicable cure period) as
defined in any evidence of Indebtedness of Borrower or under any agreement,
indenture, or other instrument under which such Indebtedness has been issued,
irrespective of whether such Indebtedness is accelerated or such default waived.
In any such event, Borrower shall also supply Agent and each Bank with a
statement from Borrower's chief financial officer or controller setting forth
the details thereof and the action which Borrower proposes to take with respect
thereto;
(m) as soon as practicable, any written report
pertaining to material items in respect of Borrower's internal control matters
submitted to Borrower by its Auditors in connection with each annual or interim
special audit of the financial condition of Borrower;
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(n) as soon as practicable, written notice of
any condition or event (other than general economic or market trends) which has
resulted or may reasonably be expected to result in: (i) a Material Adverse
Effect on Borrower; (ii) a breach of, or noncompliance with, any term,
condition, or covenant contained in this Agreement, the Ancillary Documents, or
the Notes; or (iii) a material breach of, or noncompliance with, any material
term, condition, or covenant of any Contractual Obligation of Borrower;
(o) as soon as practicable, written notice of
any claims, proceedings, or disputes against, or to the knowledge or belief of
Borrower, threatened or affecting, Borrower which, if adversely determined,
would have a Material Adverse Effect on Borrower (without in any way limiting
the foregoing, claims, proceedings, or disputes involving monetary amounts in
excess of Two Hundred Thousand Dollars ($200,000) in excess of any insurance
coverage therefor shall be deemed to be material for purposes of this subsection
(o)), or any material labor controversy resulting in or threatening to result in
a strike against Borrower, or any proposal by any public authority of which
Borrower has knowledge to acquire any of the material Assets of Borrower;
(p) promptly, upon becoming aware of the occur-
rence of any of the following events, a written notice specifying the nature
thereof and, when known, any action taken or threatened by the Internal Revenue
Service, PBGC, Department of Labor, or other party with respect thereto: (i) a
Reportable Event; (ii) a "prohibited transaction," as such term is defined in
Section 4975 of the Code (which prohibited transaction could subject Borrower or
an ERISA Affiliate to a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code); (iii) a failure to pay
timely the required annual payment or the full amount of a required installment
for any Plan in any plan year by the due date as required by Section 412 of the
Code; (iv) any additional premium that must be paid to PBGC under
Section 4006(a)(3)(E) of ERISA; or (v) any Lien on the Assets of Borrower or an
ERISA Affiliate under Section 412 of the Code or Section 302 of ERISA;
(q) promptly, copies prepared or received by
Borrower or an ERISA Affiliate of: (i) all notices of intent to terminate or to
have a trustee appointed to administer any Plan; (ii) all written demands by the
PBGC under Subtitle D of Title IV of ERISA; (iii) at the request of Agent, each
annual report (Internal Revenue Form 5500 series or similar series under the
applicable laws of any foreign country) and all accompanying schedules, the most
recent actuarial reports, the most recent financial information concerning the
financial status of each Plan or Multiemployer Plan, and schedules showing the
amounts contributed to each Plan or Multiemployer Plan by or on behalf of
Borrower or any ERISA Affiliates; (iv) all written notices received concerning
the imposition or amount of withdrawal liability pursuant to Section 4202 of
ERISA; (v) all notices required to
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be sent to employees or to the PBGC under Section 302 of ERISA or Section 412 of
the Code;
(r) promptly and in any event not later than two
(2) months after the end of each fiscal year of Borrower, Borrower's cash flow,
income statement, and balance sheet projections for Borrower for the one (1)
year period immediately following such fiscal year, set forth on a quarterly
basis and otherwise in form and substance reasonably acceptable to Agent,
together with any other forecasts and similar reports, if any, customarily
prepared by the management of Borrower for internal use or pursuant to any
provisions of any instrument or document relating to any Indebtedness of
Borrower;
(s) promptly upon becoming aware of any Person's
seeking to obtain or threatening to seek to obtain a decree or order for relief
with respect to Borrower in an involuntary case under any applicable bankruptcy,
insolvency, or other similar law now or hereafter in effect, a written notice
thereof specifying what action Borrower is taking or proposes to take with
respect thereto;
(t) prompt notice of all legal or arbitral
proceedings, and all proceedings by or before any governmental or regulatory
authority or agency to which Borrower is a party or, to the best of Borrower's
knowledge or belief, affecting Borrower which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on Borrower, or on the
timely payment of the principal of or interest on the Loans, or the
enforceability of this Agreement, the Ancillary Documents, or the Notes, or the
rights and remedies of Agent or any Bank hereunder or thereunder, as applicable;
(u) promptly, copies of all amendments to the
articles or certificate of incorporation or bylaws of Borrower;
(v) as soon as practicable and, in any event,
within thirty (30) calendar days after the close of each fiscal month of
Borrower, a month-end dilution report for such month, summarizing returns,
rebates, discounts, credits, and allowances.
(w) promptly, such other information and data
with respect to Borrower as from time to time may be reasonably requested by
Agent; and
(x) at the times specified with respect to
Borrower in this Section 5.2, comparable information required with respect to
Borrower for Central Ram; provided that the consolidating financial statements
of Borrower shall not be required to be audited.
5.3 Corporate Existence. Except as provided by Section 6.7
hereof, Borrower shall preserve and keep in full force and effect, at all times,
its corporate existence.
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5.4 Payment of Taxes and Claims. Borrower shall pay all Taxes,
assessments, and other governmental charges imposed upon it or any of its Assets
or in respect of any of its business, income, or Assets before any penalty or
interest accrues thereon, and all claims (including claims for labor, services,
materials, and supplies) for sums which have become due and payable and which by
law have or may become a Lien upon any of its Assets, prior to the time when any
penalty or fine shall be incurred with respect thereto; provided, however, that,
unless such Taxes, assessments, charges, or claims have become a federal tax
Lien on any of Borrower's Assets, no such Tax, assessment, charge, or claim need
be paid if the same is being contested, in good faith, by appropriate
proceedings promptly instituted and diligently conducted and if an adequate
reserve or other appropriate provision, if any, shall have been made therefor as
required in order to be in conformity with GAAP.
5.5 Maintenance of Properties. Borrower shall maintain or
cause to be maintained in good repair, working order, and condition all of those
Assets useful or necessary to its business or which are used in connection
therewith or related thereto, except for Assets which in the aggregate are not
material to the business or operations of Borrower. From time to time, Borrower
shall make or cause to be made all appropriate repairs, renewals, and
replacements thereto and thereof. Notwithstanding the foregoing, Borrower shall
not be required to comply with the requirements of this Section 5.5 to the
extent that compliance therewith would not be economical and the failure so to
comply would not have a Material Adverse Effect on Borrower.
5.6 Insurance. Borrower shall maintain or cause to be
maintained, with financially sound and reputable insurers, (rated "A" or better
by "Best's Insurance Reports") insurance with respect to its Assets and business
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations. Agent shall be named as
the sole loss payee (or, together with any Floor Plan Lender(s), the sole loss
payees), under a 438-BFU endorsement or other similar endorsement, under
Borrower's insurance policies; provided, however, that: (i) so long as no Event
of Default or Unmatured Event of Default has occurred and is continuing; and
(ii) so long as no Event of Default or Unmatured Event of Default shall arise
from the payment by Borrower of the costs or expenses of repair or replacement
of such insured Assets, then Borrower shall be entitled to use such proceeds of
insurance in an aggregate amount not to exceed One Hundred Thousand Dollars
($100,000) in any fiscal year of Borrower (or such greater amount thereof as
Borrower can demonstrate is necessary) solely to repair or replace such Assets.
Borrower shall, concurrently with the financial information required to be
delivered by Borrower at the end of each fiscal year of Borrower pursuant to
Section 5.2(c)
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hereof, deliver to Agent copies of certificates describing Borrower's workmen's
compensation insurance, property insurance, casualty insurance, business
interruption insurance, and liability insurance then in effect, and confirming
the ratings of the insurers providing such insurance, and Borrower shall deliver
to Agent such other information, certificates and data regarding insurance as
from time to time may be reasonably requested by Agent. Notwithstanding the
foregoing, in the event that Borrower has obtained any insurance in accordance
with this Section 5.6 and, after the effective date of such insurance, the
insurer providing such insurance shall be rated less than "A" by "Best's
Insurance Reports," Borrower shall retain or replace such insurance as follows:
(x) if the new rating of such insurer is "B" or better, Borrower may retain such
insurance until the next renewal date thereof (but, in any event, not more than
twelve (12) months after such insurer has been rated less than "A") at which
time such insurance shall be replaced with an insurer satisfying the
requirements set forth in this Section 5.6; and (y) if the new rating of such
insurer is less than "B," Borrower shall immediately replace such insurance with
an insurer satisfying the requirements set forth in this Section 5.6.
5.7 Compliance with Laws. Borrower shall exercise all due
diligence in order to comply in all material respects with the requirements of
all applicable laws, rules, regulations, and orders of any governmental
authority, noncompliance with which could reasonably be expected to have a
Material Adverse Effect on Borrower; provided, however, that no such law, rule,
regulation, or order of any governmental authority need be complied with if the
same is being contested, in good faith, by appropriate proceedings promptly
instituted and diligently conducted.
5.8 Compliance with ERISA. Borrower shall and shall take all
necessary actions to ensure that each ERISA Affiliate shall take no action which
would render the representations and warranties set forth in Section 4.13 hereof
inaccurate in any material respect.
5.9 Consumer Finance Regulations. Borrower shall comply, in
all material respects, with all laws, regulations, or directives with respect to
consumer finance, including the California Unruh Act, California Civil Code
Sections 1799.90 et seq., the Federal Truth in Lending Act and the Federal Equal
Credit Act, all as may be amended, noncompliance with which could reasonably be
expected to have a Material Adverse Effect on Borrower or its ability to repay
timely the Loans; provided, however, that this Section 5.9 shall not prevent
Borrower from, in good faith and with reasonable diligence, contesting the
validity or application of any such laws or regulations by appropriate legal
proceedings.
5.10 Further Assurances. At any time or from time to time upon
the request of Agent, Borrower shall execute and deliver such further documents
and do such other acts and things as Agent may reasonably request, including the
endorsement and
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delivery to Agent of the originals of all notes, instruments, consumer credit
agreements, chattel paper, and any other documents included in the Collateral,
in order to evidence, perfect, or continue perfected the security interests in
the Collateral granted to Agent under this Agreement or the Ancillary Documents.
It is the intention of the parties that Agent shall have a Lien upon all of
Borrower's present and future Assets other than premises of Borrower encumbered
by New Mortgages; as such, at any time and from time to time upon the request of
Agent, Borrower shall execute and deliver documents, agreements and instruments
and do such other acts and things as Agent may reasonably request to grant,
evidence, perfect or continue perfected Liens in favor of Agent with regard to
any of Borrower's Assets, present or future, which are not encumbered pursuant
to the Ancillary Documents as of the Closing Date. Borrower shall cause the
following legend (or a legend similar in substance) to be prominently displayed
on the face page and each signature page of each Contract, security agreement
owned by Borrower, and other note, chattel paper, or instrument:
"THIS DOCUMENT HAS BEEN ASSIGNED
AND SECURES INDEBTEDNESS TO BANK OF
AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, AS AGENT, AND ITS
SUCCESSORS."
The foregoing notwithstanding, with respect to such documents entered into prior
to the Signing Date, or after the Signing Date but utilizing pre-printed forms
printed prior to the Signing Date, such legend may refer to Security Pacific
National Bank and its successors rather than to BofA. Borrower shall cause each
secured promissory note in favor of Borrower which is not included in the body
of a security agreement to be stapled to the applicable security agreement and
shall cause the following legend to be prominently displayed on the face of each
such note:
"THIS OBLIGATION IS SECURED BY AN
INTEREST IN COLLATERAL AS SHOWN BY
THE SECURITY AGREEMENT ATTACHED
HERETO."
5.11 Compliance by Central Ram. Borrower shall cause Central
Ram to perform each and every covenant contained in Sections 5.3 through 5.10;
provided, that for purposes of this Section 5.11, each reference to Borrower
contained in Sections 5.3 through 5.10 shall be deemed to be a reference to
Central Ram.
5.12 Intercompany Services. Borrower shall cause all services
performed by Borrower or any Affiliate of Borrower for any other Affiliate of
Borrower or Borrower, as applicable, to be subject to an Intercompany Billing
Agreement in form and substance satisfactory to Agent and Banks.
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5.13 Collection and Disbursement Procedures. Borrower shall
comply with the procedures for collections and disbursements of funds between
Affiliates of Borrower provided in the attachment to that certain memorandum
dated October 4, 1995 from Stephen D. Olson to Don Farris.
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that, so long as any portion of
the Commitment under this Agreement shall be in effect and until payment, in
full, of the Loans, with interest accrued and unpaid thereon, and any other
amounts due hereunder, and except as set forth in the Disclosure Statement with
specific reference to the Section of this Article VI affected thereby concerning
matters which do not conform to the covenants of this Article VI, Borrower shall
perform each and all of the following covenants:
6.1 Indebtedness. Borrower shall not create, incur, assume,
permit, guarantee, or otherwise become or remain, directly or indirectly, liable
with respect to any Indebtedness, except:
(a) Borrower may become and remain liable with
respect to the Indebtedness evidenced by the Notes, this Agreement, and the
Ancillary Documents;
(b) Borrower may become and remain liable with
respect to the Indebtedness resulting from Capitalized Leases permitted by
Section 6.6(e) hereof (other than such Indebtedness secured by Permitted Liens);
(c) Borrower may become and remain liable with
respect to the Accommodation Obligations permitted by Section 6.4 hereof;
(d) Borrower may remain liable with respect to
the Indebtedness set forth in the Disclosure Statement;
(e) Borrower may become and remain liable with
respect to Indebtedness secured by Liens set forth in clauses (viii), (x), and
(xi) of the definition of "Permitted Liens";
(f) Borrower may remain liable with respect to
the Indebtedness evidenced by the Perelman Subordinated Note;
(g) Borrower may become and remain liable with
respect to Indebtedness incurred pursuant to any Hedge Agreement;
(h) Borrower may become and remain liable with
respect to Indebtedness advanced by Floor Plan Lenders for the purpose of
acquiring inventory and equipment in an aggregate amount not to exceed at any
time $18,000,000; provided, however,
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that each such Floor Plan Lender shall have entered into an intercreditor
agreement with Agent in form and substance satisfactory to Agent and its
counsel;
(i) Borrower may become and remain liable with
respect to Indebtedness consisting of New Mortgage Loans; and
(j) Borrower may become and remain liable with
respect to refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b), (c), (d), (e), (f), (g), (h), and (i) of this Section 6.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions are
substantially similar to the then current terms and conditions of such
Indebtedness; (ii) to the extent that such Indebtedness constitutes subordinated
debt, such refinancing, renewing, refunding, or extending Indebtedness contains
subordination provisions substantially similar to the then current subordination
provisions of such Indebtedness; (iii) the net cash proceeds of such
refinancings, renewals, or extensions do not result in an increase in the
aggregate principal amount of the Indebtedness so refinanced, renewed, or
extended; and (iv) such refinancings, renewals, refundings, or extensions do not
result in a shortening of the average weighted maturity (at the time of such
refinancing, renewal, or extension) of the Indebtedness so refinanced, renewed,
or extended.
(k) Borrower may become and remain liable with
respect to any existing or future revolving Subordinated Debt owed to any of its
Affiliates, which is incurred to finance Borrower's working capital needs,
provided that the subordination agreement executed in connection with such
Subordinated Debt shall provide, among other things, that payments of principal
and interest on such Debt (at a rate not exceeding the rate or rates payable by
Borrower to the Banks hereunder) may be made on such Debt, subject to the
subordination provisions thereof.
(l) Borrower may become and remain liable with
respect to Permanent Subordinated Debt.
6.2 Liens. Borrower shall not:
(a) create, incur, assume, or permit to exist,
directly or indirectly, any Lien of any kind on or with respect to any of its
Assets, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens; or
(b) enter into, assume, or permit to exist any
agreement to refrain from granting Liens to Agent for the benefit of Banks, on
or with respect to any of its Assets, whether now owned or hereafter acquired.
6.3 Investments. Borrower shall not make or own,
directly or indirectly, any Investment in any Person, except:
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(a) Borrower may make loans or advances to its
employees; provided, however, that (i) aggregate loans and advances to any one
employee shall not exceed Two Thousand Dollars ($2,000) and (ii) aggregate loans
and advances to all employees shall not exceed Fifty Thousand Dollars ($50,000);
(b) Borrower may maintain any Investment extant
on the date hereof, which Investments are set forth in the Disclosure Statement;
and
(c) Borrower may make and maintain Investments
in Cash Equivalents.
6.4 Accommodation Obligations. Borrower shall not create
or become or be liable, directly or indirectly, with respect to any
Accommodation Obligation, except:
(a) Accommodation Obligations resulting from the
endorsement of instruments for collection in the ordinary course of business;
(b) Accommodation Obligations disclosed in the
financial statements and related notes referred to in Section 5.2 hereof or
reflected in the Disclosure Statement and any refinancings, renewals, or
extensions of such Accommodation Obligations on terms substantially similar to
the original terms thereof;
(c) Accommodation Obligations not in excess of
Fifty Thousand Dollars ($50,000) with regard to Indebtedness of Borrower's
employees; and
(d) Accommodation Obligations relating to
Letters of Credit.
6.5 Dividends. Borrower shall not make or declare, directly or
indirectly, any dividend (in cash, return of capital, or any other form of
Assets) on, or make any other payment or distribution on account of, or set
aside Assets for a sinking or other similar fund for the purchase, redemption,
or retirement of, or redeem, purchase, retire, or otherwise acquire any shares
or interest of, any class of Borrower's capital stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or Assets or in obligations; provided, however,
that if no Event of Default or Unmatured Event of Default has occurred and is
continuing or would result therefrom, the provisions of this Section 6.5 shall
not be violated by reason of (a) the payment of any dividends by Borrower to BCE
Holdings to enable BCE Holdings to make payment of its Federal and state income
and franchise tax obligations appropriately allocable to the operations of
Borrower (using an allocation methodology reasonably acceptable to Required
Banks); and (b) the payment of any dividends in cash by Borrower to BCE Holdings
in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars
($250,000) and the payment of
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dividends by Borrower to BCE Holdings in the form of promissory notes issued by
employees of Borrower to BCE Holdings to purchase shares of BCE Holdings common
stock, which promissory notes were subsequently contributed to the common equity
of Borrower, provided, however, that within five (5) days of the receipt thereof
such distributions of cash and notes are applied by BCE Holdings to the
repurchase from employees of Borrower of shares of BCE Holdings common stock,
provided, further, that if after the Closing Date shares of BCE Holdings common
stock are issued and sold by BCE Holdings to employees of Borrower and the net
cash proceeds of such sales or promissory notes of such employees related
thereto are contributed to the common equity of Borrower by BCE Holdings, then
the aggregate amount of such dividends made pursuant to this clause (b) shall be
deemed not to include an amount equal to the sum of (x) the amount of such net
cash proceeds received in respect of such contribution and (y) the amount of any
cash payment(s) to Borrower in respect of any such contributed promissory note;
provided, further, that if no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, Borrower may,
notwithstanding this Section, pay dividends or distributions to West Coast or
BCE Holdings strictly in accordance with the terms of the Net Worth Maintenance
Agreement.
6.6 Financial Covenants.
(a) Ratio of Total Debt to Tangible Net Worth.
Borrower shall not permit, as of the last day of any of its fiscal quarters, the
ratio of: (i) Total Debt (not including Permanent Subordinated Debt), to (ii)
Tangible Net Worth, to be greater than 3.50:1.0.
(b) Past Due Receivables Ratio. Borrower shall
not permit, as of the last day of any of its fiscal months, the ratio of (i) the
total amount owing to Borrower under each Eligible Contract in which any payment
is more than sixty (60) days past due, to (ii) the total amount owing to
Borrower under all Eligible Contracts, to be greater than 0.0400:1.00 for any
fiscal month; provided, however, that for purposes of calculating this ratio
during the period from and including November 30, 1995 to and including March
31, 1996 only, those Eligible Contracts that were purchased under that certain
Asset Purchase Agreement dated as of May 26, 1994, among Central Ram, Golden
Gate Furniture, Inc., Ramco Finance Company, and Steven R. Ram shall be excluded
from clause (i) and (ii);
(c) Cash Advances and Loans. Borrower shall not
permit (i) the total amount of cash advances and loans made to Sister Companies,
excluding BCE Playground, Inc., to exceed Five Hundred Thousand Dollars
($500,000) outstanding at any time or (ii) the total amount of cash advances and
loans made to BCE Playground, Inc. to exceed Two Hundred Seventy Five Thousand
Dollars ($275,000) at any one time.
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(d) Capital Expenditures. Borrower shall not
make any Capital Expenditure during any fiscal year of Borrower if, after giving
effect thereto, the aggregate amount of all Capital Expenditures (other than
Capital Expenditures made with the proceeds of insurance solely to repair or
replace Assets in accordance with the provisions of Section 5.6 hereof) incurred
by Borrower during such fiscal year would exceed Seven Hundred Fifty Thousand
Dollars ($750,000) with respect to any fiscal year.
(e) Operating Leases. Borrower shall not create,
incur or assume obligations payable during any fiscal year with respect to
Operating Leases which in the aggregate exceed the aggregate obligations with
respect to Operating Leases paid or payable by Borrower during the immediately
preceding fiscal year plus: Seven Hundred Fifty Thousand Dollars ($750,000) with
respect to each fiscal year (in each case versus the prior fiscal year).
Notwithstanding the provisions of clauses (d) and (e) of this Section 6.6, the
maximum amounts set forth therein shall be automatically increased or decreased,
as follows:
(1) the maximum amount permitted for Capital
Expenditures or Operating Leases for any fiscal year
may be increased by an equivalent amount of Permanent
Subordinated Debt, not to exceed an aggregate of
$2,000,000, incurred during such year;
(2) the maximum amount permitted under
clause (e) for Operating Leases expenditures shall be
decreased in each fiscal year that follows a fiscal
year in which an increase in permitted Operating
Leases expenditures under clause (1) has occurred, by
the amount of such increase;
(3) the maximum amount permitted for either
Capital Expenditures or Operating Leases in any
fiscal year shall be increased by an amount equal to
the difference between the maximum permitted amount
in the prior fiscal year, and Borrower's actual
Capital Expenditures or obligations incurred under
Operating Leases, as the case may be, during such
prior fiscal year.
(f) Cash Flow to Interest Coverage Ratio.
Borrower shall not permit, as of the last day of any of its fiscal quarters, its
Cash Flow to Interest Coverage Ratio (defined as the ratio of (i) (A) net income
(or loss) after taxes, plus (B) depreciation and amortization expenses, plus (C)
total interest expense, plus (D) other non-cash items reducing net income
(excluding extraordinary items), minus (E) cash capital expenditures to the
extent not funded by new cash equity contributions to Borrower, Permanent
Subordinated Debt, or the proceeds of Permitted Indebtedness incurred from
sources other
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than Loans by the Banks; to (ii) cash interest expense), to be less than
2.50:1.00, calculated as of the last day of each fiscal quarter for such quarter
and the immediately preceding fiscal quarter.
(g) Doubtful Accounts Ratio. Borrower shall not
permit its Doubtful Accounts Ratio (defined as the ratio of (i) the reserve for
bad debt expense maintained by Borrower in accordance with GAAP to (ii) Net
Contracts) to be less than .03:1.0 at any time.
(h) Tangible Net Worth. Borrower shall not
permit its Tangible Net Worth to be less than $15,500,000 as of October 31,
1993, plus, as of the end of each succeeding fiscal quarter, 50% of the amount,
as of the end of such quarter, of Borrower's net income for such quarter. The
minimum Tangible Net Worth required under this Section shall not be reduced by
any losses incurred by Borrower.
(i) Net Chargeoffs to Net Contracts Ratio.
Borrower shall not permit, as of the last day of each of its fiscal months, its
Net Chargeoffs to Net Contracts Ratio (defined as the ratio of (i) (A)
chargeoffs minus (B) cash recoveries, minus (C) all unearned interest or finance
charges thereon, all calculated for the twelve (12) month period then ending, to
(ii) the average of Net Contracts for such period) to be greater than
.0750:1.0."
6.7 Restriction on Fundamental Changes. Borrower shall not
acquire, form, or make any Investment in any new Subsidiary of Borrower, change
its corporate or fictitious business names, change the nature of its business,
open any additional retail or warehouse locations, enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business or Assets, whether now owned or hereafter acquired, or acquire by
purchase or otherwise, all or substantially all the business or Assets of, or
stock or other evidence of beneficial ownership of, any Person, except:
(a) Borrower may sell, assign, transfer, convey,
or otherwise dispose of any of its Assets in accordance with the provisions of
Section 6.9 hereof;
(b) upon thirty (30) calendar days prior written
notice to Agent, Borrower may change its corporate name;
(c) Borrower may engage in Permitted Expansions;
(d) Borrower may enter into new real property
leases for, or may otherwise acquire, additional retail space not exceeding
15,000 square feet per location, and not exceeding
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three locations in any one fiscal year of Borrower, even if such
transactions do not qualify as Permitted Expansions;
(e) Borrower may form a wholly-owned Subsidiary
of Borrower, to be named "Discount Central Stores" or a substantially similar
name; provided, however, that Borrower may not make Investments in, or sell
assets to, or otherwise conduct business with such Subsidiary, without having
first obtained any waiver or consent otherwise required under this Agreement
from the Required Banks or the Banks, as the case may be.
6.8 Sales and Lease-Backs. Borrower shall not become liable,
directly or indirectly, as lessee or as guarantor or other surety with respect
to any lease, whether an Operating Lease or a Capitalized Lease, of any Assets,
whether now owned or hereafter acquired:
(a) which Borrower has sold or transferred or is
to sell or transfer to any other Person; or
(b) which Borrower intends to use for
substantially the same purpose as any other Asset which has been or is to be
sold or transferred by Borrower to any Person in connection with such lease,
unless such sale or transfer is permitted pursuant to Section 6.9 hereof,
without aggregation.
6.9 Sale of Assets. Borrower shall not sell, assign, transfer,
convey, or otherwise dispose of any of its Assets, whether now owned or
hereafter acquired, except for:
(a) the sale or other disposition by Borrower of
Assets in the ordinary and usual course of business, in accordance with past
practices;
(b) with the prior written consent of Required
Banks, the sale or other disposition of any of the business or Assets of
Borrower outside of the ordinary and usual course of business for not less than
the fair value thereof; for purposes of this Section 6.9(b), the fair value of
any Asset of Borrower shall be determined by Borrower's board of directors, and
any such determination evidenced by a resolution of such board of directors
shall be conclusive in the absence of manifest error;
(c) involuntary sales or other dispositions of
any of the business or Assets of Borrower; provided, however, that, except to
the extent otherwise provided herein (including Section 5.6 hereof), Borrower
shall pay to Agent one hundred percent (100%) of the Net Cash Proceeds arising
from any such involuntary sale or other disposition, which amount shall be paid
to Agent to reduce the Loans in accordance with Section 2.12 of this Agreement;
and
(d) in addition to the other sales or other
dispositions permitted under this Section 6.9, the sale or other disposition by
Borrower of any business or Assets of de minimis
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value; for the purposes of this Section 6.9(d), the term de minimis value shall
mean: (i) with respect to any transaction, Assets with respect to which the
aggregate of Borrower's share of the fair value thereof does not exceed Fifty
Thousand Dollars ($50,000); and (ii) for any consecutive twelve (12) month
period during the term of this Agreement, Assets with respect to which the
aggregate of Borrower's share of the fair value thereof does not exceed Two
Hundred Thousand Dollars ($200,000), without any right to carry forward; for
purposes of this Section 6.9(d), the fair value of any Asset of Borrower shall
be determined by Borrower's board of directors, and any such determination
evidenced by a resolution of such board of directors shall be conclusive in the
absence of manifest error.
At the time of any sale or other disposition under
clause (c) of this Section 6.9, Borrower shall deliver to Agent a certificate,
duly executed by a Responsible Officer of Borrower, setting forth in detail the
determination of the Net Cash Proceeds of such sale or other disposition and
such other information as is necessary to demonstrate compliance with clause
(c).
Upon satisfactory arrangements to be mutually
agreed upon by Borrower and Agent in connection with any sale or other
distribution permitted by this Section 6.9, Agent shall, at Borrower's expense,
execute and deliver all agreements and documents as may reasonably be requested
to effect a release of the Liens held by Agent on the Assets which are the
subject of any such sale or other disposition.
6.10 Transactions with Shareholders and Affiliates. Except for
any transaction expressly permitted by any other section of this Agreement, and
except as otherwise disclosed in the Disclosure Statement with respect to
management fees, Borrower shall not enter into or permit to exist, directly or
indirectly, any transaction (including the purchase, sale, lease, or exchange of
any Asset or the rendering of any service) with any holder of five percent (5%)
or more of any class of equity securities of Borrower or any of its Affiliates,
or with any Affiliate of Borrower or of any such holder, on terms that are less
favorable to Borrower than those terms which might be obtained at the time from
Persons who are not such a holder or Affiliate, or if such transaction is not
one in which terms could be obtained from such other Person on terms that are
not negotiated in good faith on an arm's length basis. Prior to Borrower
engaging in any such transaction with a Person described in this Section 6.10,
the board of directors of Borrower shall determine that such transaction has
been negotiated in good faith and on an arm's length basis; such determination
shall be conclusive and be evidenced by a resolution of the board of directors
of Borrower; provided, however, that no member of such board of directors
affiliated (except by virtue of being members of the board of directors or by
being employed by Borrower) with any such Affiliate shall participate in such
determination with
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respect to transactions in which such holder or Affiliate is a participant.
The foregoing provisions of this Section 6.10
notwithstanding: (a) At no time shall Borrower sell, assign, discount, transfer,
factor or otherwise dispose of any of its Contracts, accounts, chattel paper, or
other rights to payment to Finance, or to any other Affiliate of Borrower at any
time engaged in the business of providing financing to consumers (collectively
hereinafter "Consumer Finance Affiliates"), without first obtaining the prior
written consent of Required Banks; (b) Unless Borrower first shall have obtained
the written consent of Required Banks, at no time shall Borrower or any Consumer
Finance Affiliate market or promote the products or services of any Consumer
Finance Affiliate to customers or prospective customers of Borrower for the
purposes of seeking to cause such customers or prospective customers to finance
their purchases from Borrower by means of loans or advances from a Consumer
Finance Affiliate rather than by means of entering into Contracts, chattel paper
or other financing arrangements directly with Borrower, provided that nothing in
this clause (b) shall restrict the ability of any Consumer Finance Affiliate to
offer financing to, or to make loans or advances to, customers or prospective
customers of Borrower for any lawful purpose, (i) so long as such financing,
loan, or advance is not in fact restricted to being used solely for the purpose
of paying for or financing purchases from Borrower, (ii) so long as any
reference in the advertising, promotional materials, disclosures or
documentation utilized in connection with such offer, loan, or advance to the
ability, or legal or contractual right, to use such financing, loan, or advance
to pay for or finance purchases from Borrower, or any reference in the
advertising, promotional materials, disclosures or documentation utilized in
connection with such offer, loan, or advance to any absence of restrictions upon
the use of such financing, loan, or advance, does not by its terms affirmatively
promote the use of such financing, loan, or advance for the purpose of financing
or paying for purchases from Borrower in preference to other permissible uses of
such financing, loan, or advance, and (iii) without regard to whether in fact
such customers or prospective customers ultimately do use all or part of the
proceeds of such loans or advances to pay for or finance purchases form
Borrower; (c) Any usage by any Consumer Finance Affiliate of the premises,
personnel, facilities, or equipment of Borrower, or any sharing of any same with
Borrower, shall occur only pursuant to and in accordance with a written expense
allocation plan pertaining to same, which plan shall have previously been
submitted to Agent and approved by Required Banks; and (d) Notwithstanding
clause (c) immediately above, Borrower may grant any Consumer Finance Affiliate
access to, and permit any Consumer Finance Affiliate to utilize, computer data
pertaining to customers of Borrower and their credit and payment histories,
including customer lists and mailing lists, without requiring compensation or
payment from such Consumer Finance Affiliate, so long as such Consumer Finance
Affiliate provides Borrower with free access to its corresponding data and
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information, and so long as such Consumer Finance Affiliate maintains the
confidence of, and does not further divulge, any data and information obtained
from Borrower.
6.11 Conduct of Business. Subject to Section 6.7 hereof,
Borrower shall not engage in any business other than the business in which it is
engaged as of the Signing Date or any business or activities (including the
provision of consumer financing to customers of its retail store) substantially
similar or related thereto.
6.12 Issuance of Preferred Stock. Without the prior
written consent of Required Banks, Borrower shall not create or
issue any class or series of Preferred Stock.
6.13 Prepayment of Indebtedness. Except in connection with any
refinancing permitted pursuant to Section 6.1(j) hereof, Borrower shall not
prepay, redeem, or purchase any of its Indebtedness evidenced by the Perelman
Subordinated Note, except that Borrower shall be entitled to the benefit of its
rights and shall be entitled to perform its obligations provided for in this
Agreement, the Notes, and the Ancillary Documents.
6.14 Use of Proceeds. Borrower shall use the proceeds of the
Loans made hereunder solely to refinance loans outstanding under the Prior Loan
Agreement and for working capital purposes. Commercial Letters of Credit shall
be used solely to facilitate the importation of goods by Borrower. Standby
Letters of Credit shall be used solely for purposes acceptable to all Banks
(provided that any Standby Letter of Credit issued for a purpose specifically
provided for in the definition of "Standby Letter of Credit" shall be deemed to
be used for a purpose acceptable to all Banks), and shall not be used to support
obligations relating to workers' compensation.
6.15 ERISA. Borrower shall not:
(a) do any of the following which in the
aggregate would reasonably be expected to have a Material Adverse Effect on
Borrower:
(i) engage in any transaction which it knows
or has reason to know could result in a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code;
(ii) fail to make any payments to any
Multiemployer Plan that Borrower or an ERISA Affiliate may be
required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto;
(iii) voluntarily terminate any Plan if such
termination could result in the imposition of a Lien on the
Assets of Borrower or an ERISA Affiliate under Section 4068 of
ERISA;
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(iv) fail to make any required contribution
to any Plan subject to Section 412(n) of the Code that with
the passage of time would likely result in a Lien upon the
Assets of Borrower or an ERISA Affiliate;
(v) adopt any amendment to a Plan the effect
of which is to create or increase the "unfunded current
liability" under the Plan as defined in Section 302(d)(8)(A)
of ERISA or which amendment will adversely affect Borrower's
cash flow; or
(b) permit the present value of all benefits on
a termination basis (irrespective of whether vested) under all Plans (excluding
unfunded deferred compensation agreements or other arrangements of a similar
nature whether or not subject to ERISA and welfare plans not subject to the
funding requirements of ERISA) that have assets (including accrued contributions
for the current plan year on a daily weighted average, provided that such
accrued contributions do not materially vary from the amount of the
contributions actually received by the plan for the prior plan year, on a daily
weighted average) less than benefits (irrespective of whether vested), to exceed
the "current value" as defined in Section 3(26) of ERISA of the Assets of such
Plans.
6.16 Misrepresentations. Borrower shall not furnish Agent or
any Bank any certificate or other document that: (a) contains any untrue
statement of material fact; or (b) omits to state a fact necessary to make it
not materially misleading in light of the circumstances under which it was
furnished.
6.17 Change in Location of Chief Executive Office and Assets.
Borrower shall not, without first giving Agent thirty (30) calendar days prior
written notice of any proposed relocation, relocate its chief executive office
or move any of its tangible Assets to a location other than those locations
identified in the Disclosure Statement. To the extent Borrower timely gives
Agent such notice, such notice shall be deemed automatically to amend the
Disclosure Statement.
6.18 Warehouse Receipts. Borrower shall not store its
inventory with a bailee, warehouseman, or similar Person where such storage is
evidenced by negotiable warehouse receipts.
6.19 Margin Regulation. Borrower shall not use any portion of
the proceeds of any of the Loans in any manner which might cause the Borrowings,
the application of such proceeds, or the transactions contemplated by this
Agreement to violate Regulations G, T, U, or X of the Federal Reserve Board or
any other regulation of such board or to violate the Exchange Act.
6.20 Amendments or Waivers of Certain Documents. Borrower
shall not agree to any termination or waiver of, or any amendment, modification,
or supplement to, any term or provision of the Stock Purchase Agreement or the
Perelman Subordinated Note, which (a) could reasonably be expected to have a
material
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adverse effect on any right or interest of Agent or any Bank or (b) relates to a
term or provision regarding the time of any payment or any rate of interest.
6.21 Amendment of Rewrite Policy. Borrower shall not amend,
supplement or otherwise modify any material term or provision of its Rewrite
Policy. On each Anniversary Date, Borrower shall deliver to Agent a certificate
from Borrower's chief financial officer or controller setting forth Borrower's
Rewrite Policy as then in effect.
6.22 Change of Fiscal Periods. Borrower shall not change its
fiscal year or any other fiscal period with respect to which it reports
financial results.
6.23 Compliance by Central Ram. Borrower shall cause Central
Ram to perform each and every covenant contained in Article VI; provided, that
for purposes of this Section 6.23, each reference to Borrower contained in
Article VI shall be deemed to be a reference to Central Ram; provided, further,
that all calculations shall be made only on a consolidated basis; and provided,
further, that as long as Central Ram is a wholly-owned subsidiary of Borrower,
Central Ram may pay dividends or distributions to Borrower to the extent lawful.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. The occurrence of any one or more of
the following events, acts, or occurrences shall constitute an event of default
("Event of Default") hereunder:
(a) Failure to Make Payments when Due.
(i) Borrower shall fail to pay any amount
owing hereunder or under the Notes with respect to the
principal of any of the Loans when such amount is due, whether
at stated maturity, as a result of a mandatory repayment
requirement, by acceleration, by notice of prepayment, or
otherwise; or
(ii) Borrower shall fail to pay, within five
(5) calendar days of the date when due, any amount owing
hereunder or under the Notes with respect to interest on any
of the Loans, with respect to the fees, or with respect to any
other amounts (including fees, costs, or expenses), or any
other Secured Indebtedness, other than principal payable in
connection herewith; or
(b) Breach of Certain Covenants.
(i) Borrower shall fail to perform or comply
fully with any covenant, term, or condition contained
in Article VI; or
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(ii) Borrower shall default in the
performance of or compliance with any term contained in this
Agreement, other than: (1) those referred to in Sections
7.1(a), 7.1(b)(i), and 7.1(d); or (2) those set forth in the
last sentence of Section 5.1, and such default shall not have
been remedied or waived within thirty (30) calendar days after
receipt of notice from Agent of such default; or
(iii) Borrower shall default in the
performance of or compliance with any term contained in the
last sentence of Section 5.1 and such default shall not have
been remedied or waived within ten (10) calendar days after
receipt of notice from Agent of such default; or
(c) Default in Other Agreements.
(i) Borrower shall default (as principal,
guarantor, or other surety) in the payment when due (subject
to any applicable notice or grace period), whether at stated
maturity or otherwise, of any monetary obligation with respect
to (howsoever designated) any Indebtedness, whether such
Indebtedness now exists or shall hereafter be created and such
default gives rise to a right of acceleration; provided,
however, that no Event of Default under this clause (i) shall
occur or result from a default in the payment of any monetary
obligation with respect to any Indebtedness of, or
Indebtedness guaranteed by, Borrower, which default is
inadvertent or the result of an oversight or which obligation
is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and the amount of
which, when added to the amount of all other such Indebtedness
in default either through inadvertence or oversight or that is
being contested in compliance herewith, does not exceed Two
Hundred Thousand Dollars ($200,000); or
(ii) Any non-monetary event of default as
defined in any mortgage, indenture, interest rate swap
agreement, or instrument under which there may be issued, or
by which there may be secured or evidenced, any Indebtedness
of, or Indebtedness guaranteed by, Borrower, whether such
Indebtedness now exists or shall hereafter be created, shall
occur and be continuing and such event of default gives rise
to a right of acceleration; provided, however, that no Event
of Default under this clause (ii) shall occur or result from
an event of default in any Indebtedness of, or Indebtedness
guaranteed by, Borrower, which is the result of inadvertence
or oversight or which is being contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted and the amount of which, when added to the amount of
all other
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such Indebtedness in default either through inadvertence or
oversight or that is being contested in compliance herewith,
does not exceed Two Hundred Thousand Dollars ($200,000); or
(d) Breach of Representation or Warranty. Any
financial statement, representation, warranty, or certification made or
furnished by Borrower under this Agreement or in any statement, document,
letter, or other writing or instrument furnished or delivered by or on behalf of
Borrower to Agent or any Bank pursuant to or in connection with this Agreement
or as an inducement to Agent or any Bank to enter into this Agreement shall, at
any time, prove to have been materially false, incorrect, or incomplete when
made, effective, or reaffirmed, as the case may be; or
(e) Involuntary Bankruptcy.
(i) If an involuntary case seeking the
liquidation or reorganization of Borrower under Chapter 7 or
Chapter 11, respectively, of the Bankruptcy Code or any
similar proceeding shall be commenced against Borrower under
any other applicable law and any of the following events
occur: (1) Borrower consents to the institution of the
involuntary case or similar proceeding; (2) the petition
commencing the involuntary case or similar proceeding is not
timely controverted; (3) the petition commencing the
involuntary case or similar proceeding is not dismissed within
sixty (60) calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period,
Banks shall be relieved of their obligations to make
additional Loans; (4) an interim trustee is appointed to take
possession of all or a substantial portion of the Assets of,
or to operate all or any substantial portion of the business
of, Borrower; or (5) an order for relief shall have been
issued or entered therein; or
(ii) A decree or order of a court having
jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, custodian, trustee, or
other officer having similar powers over Borrower to take
possession of all or a substantial portion of the Assets of,
or to operate all or a substantial portion of the business of,
Borrower shall have been entered and, within thirty (30)
calendar days from the date of entry, is not vacated,
discharged, or bonded against, or any similar relief shall be
granted against Borrower under any applicable federal or state
law and, within thirty (30) calendar days from the date of
entry, is not vacated, discharged, or bonded against;
provided, however, that, during the pendency of such period,
Banks shall be relieved of their obligations to make
additional Loans; or
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(f) Voluntary Bankruptcy. Borrower shall
institute a voluntary case seeking liquidation or reorganization under Chapter 7
or Chapter 11, respectively, of the Bankruptcy Code; or Borrower shall file a
petition, answer, or complaint or shall otherwise institute any similar
proceeding under any other applicable law, or shall consent thereto; or Borrower
shall consent to the conversion of an involuntary case to a voluntary case; or
Borrower shall consent or acquiesce to the appointment of a receiver,
liquidator, sequestrator, custodian, trustee, or other officer with similar
powers to take possession of all or a substantial portion of its Assets or to
operate all or a substantial portion of the business of Borrower; or Borrower
shall generally fail to pay debts as such debts become due or shall admit in
writing its inability to pay its debts generally; or Borrower shall make a
general assignment for the benefit of creditors; or the board of directors of
Borrower (or any committee thereof) adopts any resolution or otherwise
authorizes, in writing, action to approve any of the foregoing; or
(g) Judgments and Attachments.
(i) Borrower shall suffer any money
judgment(s), writ(s), or warrant(s) of attachment, or similar
process(es) involving payment of money in an amount of Two
Hundred Thousand Dollars ($200,000) or more, individually or
in the aggregate, in excess of any insurance coverage with
respect thereto (as to which the insurer has not disputed its
liability in respect of such coverage), and such judgment,
writ, warrant, or similar process shall remain undischarged in
accordance with its terms and the enforcement thereof shall be
unstayed and either: (A) a proposed sale under an enforcement
proceeding commenced by any creditor thereupon shall have been
noticed, or is scheduled, to take place within five (5)
calendar days; or (B) there shall have been a period of
forty-five (45) calendar days during which stays of such
judgment, writ, warrant, or similar process, by reason of
pending appeals or otherwise, were not in effect; or
(ii) A judgment creditor shall obtain
possession of any of the Assets of Borrower, which Assets
constitute a material portion of the Assets of Borrower, by
any means, including levy, distraint, replevin, or self-help;
or
(h) Dissolution. Any order, judgment, or decree
shall be entered decreeing the dissolution of Borrower, and such order shall
remain undischarged or unstayed for a period in excess of twenty (20) calendar
days; or
(i) ERISA Liabilities.
(i) Any Termination Event occurs which can
reasonably be expected to result in a liability by
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Borrower or an ERISA Affiliate which would have a
Material Adverse Effect on Borrower; or
(ii) Failure to make full payment when due
of all amounts which, under the provisions of any Plan or
applicable law, Borrower or an ERISA Affiliate is required to
pay as a contribution thereto, which would reasonably be
expected to have a Material Adverse Effect on Borrower; or
(iii) Borrower or any ERISA Affiliate
creates an accumulated funding deficiency within the meaning
of Section 302 of ERISA or Section 412 of the Code,
irrespective of whether waived, with respect to any Plan
which would reasonably be expected to have a Material
Adverse Effect on Borrower; or
(iv) Borrower or an ERISA Affiliate shall
have incurred or received notice of withdrawal liability from
a Multiemployer Plan which would reasonably be expected to
have a Material Adverse Effect on Borrower; or
(v) Any Lien shall attach to any of the
Assets of Borrower or an ERISA Affiliate under the Pension
Protection Act; or
(j) Termination of Ancillary Documents. Any of
the Ancillary Documents shall cease to be in full force and effect for any
reason other than: (i) any act or omission of Agent or Banks necessary for the
perfection of Liens in favor of Agent or any Bank; or (ii) a release or
termination thereof upon the full payment and satisfaction of the Indebtedness
due hereunder and under the Notes; or (iii) upon the written consent of Required
Banks; or (iv) a termination of any Ancillary Document in accordance with its
terms; or
(k) Change of Control. At any time from and
after the Signing Date, a Change of Control Event occurs; or
(l) Change of Senior Management. At any time
from and after the Signing Date, Borrower shall not have in office both (i) a
president or chief operating officer, and (ii) a chief financial officer; or
(m) Conditions Subsequent. Borrower shall fail
to observe or perform any or all of the conditions subsequent set forth in
Section 3.4 hereof and such failure shall not have been remedied or waived
within ten (10) calendar days after receipt of notice from Agent of such
failure; or
(n) Material Adverse Effect. After the Signing
Date, there shall occur an event or condition that shall have a Material Adverse
Effect on Borrower; or
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(o) Defaults Relating to Central Ram. Any event
specified in Section 7.1(c), (d), (e), (f), (g), (h), (i) or (n) occurs with
respect to Central Ram and, for purposes of this Section 7.1(o), each reference
to Borrower contained in each such subsection shall be deemed to be a reference
to Central Ram; or any default by Central Ram under any Ancillary Document to
which it is a party, or any such Ancillary Document is revoked, terminated or
becomes unenforceable or becomes ineffective or is otherwise unenforceable
against Central Ram for any reason other than: (i) any act or omission of Agent
or Banks necessary for the perfection of Liens in favor of Agent or any Bank; or
(ii) a release or termination thereof upon the full payment and satisfaction of
the Indebtedness due hereunder and under the Notes; or (iii) upon the written
consent of Required Banks; or (iv) a termination of any Ancillary Document in
accordance with its terms.
7.2 Remedies. Upon the occurrence of an Event of Default:
(a) If such Event of Default arises under
subsections (e) or (f) of Section 7.1 hereof, or a comparable Event of Default
arises with respect to Central Ram, then the Commitment hereunder shall
immediately terminate and the unpaid principal amount of and any accrued and
unpaid interest on the Loans and any other amounts owing hereunder, under the
Notes, or under the Ancillary Documents shall automatically become immediately
due and payable, without presentment, demand, protest, notice, or other
requirements of any kind, all of which are hereby expressly waived by Borrower;
and
(b) In the case of any other Event of Default
and during its continuance, Required Banks may request Agent to and Agent shall
thereupon, by written notice to Borrower, declare the Commitment hereunder
terminated and the unpaid principal amount of and any accrued and unpaid
interest on the Loans and any other amounts owing hereunder, under the Notes, or
under the Ancillary Documents to be, and the same shall immediately become due
and payable, without presentment, demand, protest, further notice, or other
requirements of any kind, all of which are hereby expressly waived by Borrower.
Upon acceleration as provided in subsections (a)
and (b) hereof, Agent, upon the request of Required Banks, without notice to or
demand upon Borrower, which are expressly waived by Borrower to the fullest
extent permitted by law, shall be entitled to proceed to protect, exercise, and
enforce its rights and remedies hereunder, under the Ancillary Documents, or the
Notes, or any other rights and remedies as are provided by law or equity.
Required Banks may determine, in their sole discretion, the order and manner in
which Banks' rights and remedies are to be exercised. All payments received by
Agent or Banks, or any one or more of them, shall be applied as follows
(regardless of how each Bank may treat the payments for the purpose of its own
accounting): first, to all out-of-pocket
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costs and expenses (including reasonable attorneys' fees) incurred by Agent, or
Banks, or any of them, in enforcing any Secured Indebtedness, or in collecting
any payments due hereunder or under the Notes; second, to all fees due and owing
to Agent; third, to all fees due and owing to Banks, pro rata, to each Bank,
based upon each Bank's share of the Commitment; fourth, to accrued and unpaid
interest on the Loans; fifth, to principal amounts of the Loans outstanding;
sixth, pro rata to any other Indebtedness of Borrower owing to Agent or Banks,
or any of them; and seventh, to Borrower subject to any rights owing to third
Persons. For purposes of the foregoing, regular periodic payments under Hedge
Agreements shall be deemed interest on the Loans, and termination payments under
Hedge Agreements shall be deemed principal of the Loans.
ARTICLE VIII
THE AGENT AND THE BANKS
8.1 Appointment and Powers of Agent. Each Bank hereby appoints
and authorizes Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement and the Ancillary Documents as
are delegated to Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. Without limiting the foregoing,
each Bank hereby expressly authorizes Agent to execute, deliver, and perform its
obligations under this Agreement and each of the Ancillary Documents to which
Agent is a party, and to exercise all rights, powers, and remedies that Agent
may have hereunder or thereunder. As to any matters not expressly provided for
by this Agreement or the Ancillary Documents (including enforcement or
collection of the Notes), Agent (which term as used in this sentence, in Section
8.2 hereof, in Section 8.5 hereof, in the first sentence of Section 8.6 hereof,
in Section 10.1 hereof, and in Section 10.2 hereof shall include reference to
its Affiliates, including, without limitation, BASI, and to its own and its
Affiliates' officers, directors, employees, and agents) shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of Required Banks, and such instructions
shall be binding upon all Banks and all holders of the Notes; provided, however,
that Agent shall not be required to take any action which exposes Agent to
personal liability or which is contrary to this Agreement, the Ancillary
Documents, the Notes, or applicable law. Agent agrees to give to each Bank
prompt notice of each notice given to it by Borrower pursuant to the terms of
this Agreement or the Ancillary Documents.
8.2 Agent's Reliance. Agent shall not be liable for any action
taken or omitted to be taken by it under or in connection with this Agreement,
the Notes, or any Ancillary Document, except for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing, Agent: (a)
may treat the payee of any Note as the holder thereof
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until Agent receives and accepts an assignment and acceptance entered into by
the Bank which is the payee of such Note, as assignor, and an assignee as
provided in Section 11.8 hereof; (b) may consult with legal counsel, independent
public accountants, and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants, or experts; (c) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties, or representations made in or in connection with this
Agreement, the Notes, or any Ancillary Document; (d) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants, or conditions of this Agreement, the Notes, or any of the Ancillary
Documents on the part of any Person party thereto or to inspect any Asset
(including the books and records) of Borrower; (e) shall not be responsible to
any Bank for the due execution, legality, validity, enforceability, genuineness,
sufficiency, or value of this Agreement, the Notes, or any Ancillary Document,
or any other instrument or document furnished pursuant hereto or thereto; and
(f) shall incur no liability under or in respect of this Agreement, the Notes,
or any Ancillary Document by acting upon any notice, consent, certificate, or
other instrument or writing (which may be sent by telegram, cable,
telefacsimile, or telex) believed by it to be genuine and signed or sent by the
proper Person or Persons.
8.3 Defaults. Agent shall not be deemed to have knowledge of
the occurrence of an Event of Default or Unmatured Event of Default (other than
the non-payment of principal of or interest on Loans or of Fees) unless Agent
has received notice from a Bank or Borrower specifying the occurrence of such
Event of Default or Unmatured Event of Default and stating that such notice is a
"Notice of Default." In the event that Agent receives such a notice of the
occurrence of an Event of Default or Unmatured Event of Default, Agent shall
give prompt notice thereof to Banks (and shall give each Bank prompt notice of
each such non-payment). Agent shall (subject to Sections 8.1, 8.5, and 8.7
hereof) take such action with respect to such Event of Default or Unmatured
Event of Default as shall be directed by Required Banks; provided, however,
that, unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Event of Default or Unmatured Event of Default as it shall
in its sole and absolute discretion deem advisable in the best interest of
Banks.
8.4 Rights as a Bank. With respect to its Commitment and the
Loans made by it, BofA (and any successor acting as Agent), in its capacity as a
Bank hereunder, shall have the same rights and powers hereunder as any other
Bank and may exercise the same as though it were not Agent, and the term "Bank"
or "Banks" shall, unless otherwise expressly indicated, include BofA (and any
successor acting as Agent) in its individual capacity. BofA (and any successor
acting as Agent), as if it were not
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Agent, and its Affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of banking, trust, or other business with Borrower
or any of its Affiliates and may accept fees and other consideration from
Borrower or any of its Affiliates, for services rendered in connection with this
Agreement or otherwise without having to account for the same to Banks.
8.5 Indemnification. Each Bank hereby agrees to indemnify and
hold Agent harmless (to the extent not reimbursed on demand by Borrower),
ratably according to the respective principal amount of the Notes held by each
of them (or, if no principal is outstanding under the Notes at that time,
according to their share of the Commitment) from and against any and all losses,
liabilities (including liabilities for penalties), actions, suits, judgments,
demands, damages, costs, disbursements, or expenses (including attorneys' fees
and expenses) of any kind or nature whatsoever which are imposed on, incurred
by, or asserted against Agent in any way relating to or arising out of this
Agreement, the Notes, or the Ancillary Documents, or as a result of any action
taken or omitted to be taken by Agent; provided, however, that no Bank shall be
liable for any portion of any such losses, liabilities (including liabilities
for penalties), actions, suits, judgments, demands, damages, costs,
disbursements, or expenses resulting from the gross negligence or willful
misconduct of Agent. Without limiting the generality of the foregoing, each Bank
hereby agrees, in the ratio aforesaid, to reimburse Agent promptly following its
demand for any out-of-pocket expenses (including attorneys' fees and expenses)
incurred by Agent in connection with the preparation, execution, delivery,
administration, modification, amendment, or enforcement (whether through
negotiations, legal proceedings, or otherwise) of, or legal advice in respect
of, its rights or responsibilities under this Agreement, the Notes, or the
Ancillary Documents, or any of them or any other documents contemplated by this
Agreement, to the extent that Agent is not reimbursed, on demand, for such
amounts by Borrower. Each Bank's obligations under this paragraph shall survive
the termination of this Agreement and the discharge of Borrower's obligations
hereunder.
8.6 Non-Reliance by Banks. Each Bank hereby acknowledges that
it has, independently of and without reliance upon Agent or any other Bank, and
based upon the financial statements referred to in Section 4.8 hereof and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently of and without reliance upon Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own independent credit decisions
in taking or omitting to take action under or in connection with this Agreement.
Agent shall not be required to keep itself informed as to the performance or
observance by Borrower or any
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other Person of this Agreement, the Notes, or the Ancillary Documents, or to
inspect the Assets or books and records of Borrower or any of its Affiliates, or
any other Person. Except for notices, reports, and other documents and
information expressly required to be furnished to Banks by Agent hereunder,
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition, or
business of Borrower or its Affiliates which may come into the possession of
Agent or any of its Affiliates. Agent shall not have any fiduciary or
quasifiduciary duty to Banks and shall not be liable to any Bank except for
gross negligence in, or willful breach of, its undertakings hereunder.
8.7 Failure to Act. Except for action expressly required of
Agent hereunder, Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall be indemnified to its satisfaction by
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
8.8 Excess Payments. If any Bank or other holder of a Note
shall obtain any payment or other recovery (whether voluntary, involuntary, by
application of offset, or otherwise) on account of principal of or interest on
any Note in excess of its pro rata share of payments and other recoveries
obtained by all Banks or holders of Notes, such Bank or other holder shall
purchase from the other Banks or holders such participation in the Notes held by
them as shall be necessary to cause such purchasing Bank or holder to share the
excess payment or other recovery ratably with each of the other Banks or
holders; provided, however, that, if all or any portion of the excess payment or
other recovery is thereafter recovered from such purchasing Bank or holder, the
purchase shall be rescinded and the purchase price restored to such Bank or
other holder to the extent of such recovery, but without interest.
8.9 Obligations Several. The obligations of each Bank
hereunder are several, and neither any Bank nor Agent shall be responsible for
the obligation of any other Person hereunder, nor will the failure by Agent or
any Bank to perform any of its obligations hereunder relieve Agent or any other
Bank from the performance of its respective obligation hereunder. Nothing
contained in this Agreement, and no action taken by any Bank or Agent pursuant
hereto or in connection herewith or pursuant to or in connection with the Notes,
or the Ancillary Documents shall be deemed to constitute Banks, together or with
or without Agent, a partnership, association, joint venture, or other entity.
8.10 Resignation by or Removal of Agent. Agent may resign at
any time as Agent under this Agreement and the Ancillary Documents by giving
written notice thereof to Banks and Borrower and may be removed at any time with
or without cause by Required Banks; provided, however, that no such resignation
or removal shall be effective until a successor Agent shall have
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been appointed and accepted such appointment. Upon any such resignation or
removal, Required Banks shall have the right to appoint a successor Agent with
the approval of Borrower, which approval shall not be unreasonably withheld or
delayed. If no successor Agent shall have been so appointed by Required Banks,
or a successor Agent appointed by Required Banks shall not have accepted such
appointment, within thirty (30) days after the retiring Agent's giving of notice
of resignation or Required Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of Banks, appoint a successor Agent with the
approval of Borrower, which approval shall not be unreasonably withheld or
delayed, which successor Agent shall be a commercial bank organized under the
laws of the United States of America or of any state thereof having a combined
capital and surplus of at least Three Hundred Million Dollars ($300,000,000).
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all of
the obligations, rights, powers, privileges, and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement, and the Ancillary Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
8.11 Intercreditor Agreements. Banks hereby authorize and
direct Agent on their behalf to negotiate, execute and deliver any intercreditor
agreements with Floor Plan Lenders required pursuant to Section 6.1(h).
ARTICLE IX
BANKS' REPRESENTATIONS
9.1 Investment Representation. Each Bank hereby represents to
Borrower and to each other Bank that it will make its Loans for its own account
in the ordinary course of its commercial lending business and not with a view to
the public distribution or sale of any Note held by such Bank.
9.2 Assignment of Interest in Notes; Compliance with Law.
Notwithstanding the provisions of Section 9.1 hereof, each Bank shall have the
right at any time and from time to time to do either or both of the following
without notice to any Person: (a) furnish one or more purchasers or potential
purchasers of all or any portion of the Loans or the Notes or an assignment
interest therein, with any and all information concerning Borrower which has
been supplied by Borrower to Agent or any Bank or obtained by other means by
Agent or any Bank; or (b) to sell, assign, pledge, hypothecate, syndicate,
transfer, or negotiate all or any portion of such Bank's interests in the Loans
or the Notes in accordance with the terms and conditions of Section 11.8 hereof.
To the extent that after the Closing Date other
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financial institutions, acceptable to Borrower and Agent, express an interest in
being a "Bank" hereunder, Borrower and Agent agree to execute such amendments or
new documentation (including new Notes) as may be necessary to reflect and join
such financial institutions as parties hereto and to reflect properly their pro
rata benefits and obligations hereunder.
9.3 Confidentiality. Each Bank agrees that Confidential
Information regarding Borrower and its operations, assets, and existing and
contemplated business plans shall be treated by such Bank in a confidential
manner, and shall not be disclosed by it to entities or Persons who are not
parties to this Agreement, except: (a) to counsel for and other advisors,
accountants, and auditors to such Bank; (b) as may be required by statute,
decision, or judicial or administrative order, rule, or regulation; (c) as may
be agreed to in advance by Borrower; and (d) in connection with any assignment,
prospective assignment, sale, prospective sale, or pledge or prospective pledge
of a Bank's interests hereunder provided that any such assignee, prospective
assignee, purchaser, prospective purchaser, pledgee, or prospective pledgee
shall have agreed in writing to take its interest hereunder subject to the terms
hereof, including those of this Section 9.3, or shall have entered into a
confidentiality agreement with Borrower or for the benefit of Borrower
substantially upon the terms of this Section 9.3.
ARTICLE X
EXPENSES AND INDEMNITIES
10.1 Expenses. Irrespective of whether the transactions
contemplated hereby shall be consummated, Borrower hereby agrees to pay on
demand: (a) the reasonable out-of-pocket costs and expenses of Agent incurred in
connection with the negotiation, preparation, execution, and administration of
this Agreement, the Notes, the Ancillary Documents, and all other agreements,
instruments, and documents contemplated hereby and thereby, and any amendments,
modifications, restatements, or waivers hereto and thereto; (b) the cost of
delivering the Notes to Banks pursuant to the provisions of this Agreement; (c)
the reasonable fees, expenses, and disbursements of counsel (including allocated
fees, expenses, and disbursements of in-house counsel of Agent) to Agent in
connection with the negotiation, preparation, reproduction, execution, delivery,
syndication, and administration (including semi-annual audits of the Collateral
and Borrower's books and records by Agent or Agent's representatives) of this
Agreement, the Notes, the Ancillary Documents, and all other agreements,
instruments, and documents contemplated hereby and thereby, and any amendments,
modifications, restatements, or waivers hereto or thereto; (d) filing,
recording, publication, appraisal, audit, and search fees paid or incurred by or
on behalf of Agent in connection with the transactions contemplated by, and the
administration of, this Agreement, the Notes, and the Ancillary Documents; (e)
the reasonable out-of-pocket costs and expenses (including
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reasonable attorneys' fees and expenses, including allocated fees and expenses
of in-house counsel of Agent) incurred by Agent to correct any default or to
enforce any provision of this Agreement, any of the Notes, any of the Ancillary
Documents, or any other document or instrument contemplated hereby or thereby
against Borrower; and (f) the reasonable out-of-pocket costs and expenses
(including reasonable attorneys' fees and expenses, including allocated fees and
expenses of in-house counsel of Agent) incurred by Agent in connection with any
bankruptcy or other insolvency proceeding, reorganization, workout, composition,
or other creditor arrangement of Borrower.
10.2 Indemnity. In addition to the payment of expenses
pursuant to Section 10.1 hereof, and irrespective of whether the transactions
contemplated hereby shall be consummated, Borrower hereby agrees to indemnify,
exonerate, pay, and hold harmless Banks, Agent, and any holder of any interest
in the Notes, and the officers, directors, employees, and agents of and counsel
to Banks, Agent, and such holders (collectively, the "Indemnities" and
individually, an "Indemnitee") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, causes of action, judgments,
suits, claims, costs, expenses, of any kind or nature whatsoever, including the
reasonable fees and expenses of counsel to Indemnities (including allocated fees
and expenses of in-house counsel of Agent), in connection with any
investigative, administrative, or judicial proceeding, irrespective of whether
such Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by, or asserted against such Indemnitee, in any manner relating to or
arising out of this Agreement, any Loans hereunder, the use or intended use of
the proceeds of the Loans or the consummation of the transactions contemplated
by this Agreement (the "Indemnified Liabilities"); provided, however, that
Borrower's obligations to indemnify shall not extend to any losses, damages,
liabilities, actions, or claims against any Indemnitee arising as a result of
the gross negligence or willful misconduct of such Indemnitee. Each Indemnitee
shall promptly notify Borrower of each event of which it has knowledge which may
give rise to a claim under the indemnification provisions of this Section 10.2.
If any investigative, judicial, or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, Borrower, to the extent and in
the manner directed by such Indemnitee after consultation with Borrower, will
resist and defend such action, suit, or proceeding or cause the same to be
resisted and defended by counsel designated by Borrower (which counsel shall be
reasonably satisfactory to such Indemnitee); provided, however, that Borrower's
obligation to so resist or defend any such action, suit, or proceeding shall
exist if and only if Borrower is directed to do so by the Indemnitee. Such
Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit, or proceeding. To the extent that the undertaking to indemnify,
exonerate, pay, and hold harmless set forth in this Section 10.2 may be
unenforceable because it is violative of any law or public policy as determined
by a final judgment of a court of competent jurisdiction, Borrower shall
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make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The
obligations of Borrower under this Section 10.2 shall survive the termination of
this Agreement and the discharge of Borrower's other obligations hereunder.
ARTICLE XI
MISCELLANEOUS
11.1 No Waivers; Remedies. No failure or delay on the part of
Agent, any Bank, or any holder of any Note in exercising any right, power,
privilege, or remedy under this Agreement, the Notes, or any of the Ancillary
Documents shall impair or operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power, privilege, or remedy preclude any
other or further exercise thereof or the exercise of any other right, power,
privilege, or remedy. The waiver of any such right, power, privilege, or remedy
with respect to particular facts and circumstances shall not be deemed to be a
waiver with respect to other facts and circumstances. The remedies provided for
under this Agreement, the Notes, or the Ancillary Documents are cumulative and
are not exclusive of any remedies that may be available to Agent or any Bank, at
law, in equity, or otherwise.
11.2 Waivers and Amendments. No amendment, modification,
restatement, supplement, termination, or waiver of or to, or consent to any
departure from, any provision of this Agreement, the Notes, or the Ancillary
Documents, shall be effective unless the same shall be in writing and signed by
Borrower, Agent, and by or on behalf of Required Banks; provided, however, that
no such amendment, modification, supplement, termination, waiver, or consent, as
the case may be, which has the effect of: (a) reducing the amount of any sum
payable by Borrower to any Bank hereunder or under any Note or reducing the rate
of interest payable thereon or extending the Maturity Date or extending the time
of payment of interest or fees hereunder; (b) increasing the amount, or
extending the stated expiration or termination date of any Bank's portion of the
Commitment hereunder; (c) changing this Section 11.2 or Article VII or Sections
10.2 or 11.8 of this Agreement, (d) releasing any material portion of the
Collateral except to the extent expressly provided herein (including releases of
Collateral in connection with any Asset sale permitted by Required Banks) or in
any of the Ancillary Documents; (e) increasing the rates of advance on contracts
or inventory, or changing the cap on advances against inventory, relating to
computation of the Borrowing Base; or (f) releasing Borrower from the Ancillary
Documents to which it is a party except as expressly provided in such Ancillary
Documents; shall be effective unless the same shall be signed by or on behalf of
all Banks and Agent; provided further, however, that no such amendment,
modification, restatement, supplement, termination, waiver, or consent, as the
case may be, which has the effect of changing any definition or provision of
this Agreement requiring the consent of Agent or Required Banks, or
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some other specified amount of Banks shall be effective unless the same shall be
signed by or on behalf of Agent, Required Banks, or such other specified amount
of Banks, as applicable; provided further, however, that no such amendment,
modification, restatement, supplement, termination, waiver, or consent, as the
case may be, which has the effect of: (i) increasing the duties or obligations
of Agent hereunder; (ii) increasing the standard of care or performance required
on the part of Agent hereunder; or (iii) reducing or eliminating the indemnities
or immunities to which Agent is entitled hereunder (including any amendment or
modification of the provisions of these clauses (i), (ii), and (iii) of this
Section 11.2) shall be effective unless the same shall also be signed by or on
behalf of Agent.
Any waiver of any provision of this Agreement, the
Notes, or the Ancillary Documents and any consent to any departure of Borrower
from the terms of any provisions of this Agreement, the Notes, or the Ancillary
Documents shall be effective only in the specific instance and for the specific
purpose for which given. In any event, no notice to, or demand on, Borrower
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances.
11.3 Changes in Accounting Principles. (a) If any changes in
accounting principles from those used in the preparation of the financial
statements referred to in this Agreement are hereafter occasioned by the
promulgation of rules, regulations, pronouncements, or opinions of, or required
by, the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with similar
functions), or there shall occur any change in Borrower's fiscal or tax years
and, as a result of any such changes, there shall result a change in the method
of calculating any of the financial covenants, negative covenants, standards, or
other terms or conditions found in this Agreement, or (b) if Borrower, for
prudent and reasonable business purposes, shall desire to change such accounting
principles or the application thereof (which change shall be consistent with
accounting principles then in effect pursuant to rules, regulations,
pronouncements, or opinions of the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants) and such desired change
would result in a change in the method of calculating any of the financial
covenants, negative covenants, or other terms and conditions found in this
Agreement, then the parties hereto agree to enter into negotiations in order to
amend such provisions and the definition of "GAAP" set forth in Section 1.1
hereof so as to reflect equitably such changes with the desired result that the
criteria for evaluating the financial condition and performance of Borrower
shall be the same after such changes as if such changes had not been made.
11.4 Confirmation. Borrower and each Bank hereby agree that,
upon written request received from time to time by one from another, each will
confirm to the other, in writing, the aggregate unpaid principal amount of the
Loans then outstanding
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under any Note. Each Bank hereby agrees, upon written request received by it
from time to time from Borrower to make any Note held by it available for
reasonable inspection by Borrower at the office of such Bank during such Bank's
regular business hours.
11.5 Notices. Except as provided in Sections 2.8 and 2.9
hereof, all notices, demands, instructions, requests, and other communications
required or permitted to be given to, or made upon, any party hereto shall be in
writing and (except for financial statements and other related informational
documents to be furnished pursuant hereto which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by registered or
certified mail, postage prepaid, return receipt requested, or by prepaid telex,
TWX, telefacsimile, or telegraph (with messenger service specified) and shall be
deemed to be given for purposes of this Agreement on the day that such writing
is received by the Person to whom it is to be sent pursuant to the provisions of
this Agreement. Unless otherwise specified in a notice sent or delivered in
accordance with the foregoing provisions of this Section 11.5, notices, demands,
requests, instructions, and other communications in writing shall be given to or
made upon the respective parties hereto at their respective addresses (or to
their respective telex, TWX, or telefacsimile numbers) indicated on Exhibit 11.5
attached hereto.
11.6 Transfers of Notes. In the event that any Bank wishes to
transfer any Note or any interest therein pursuant to Section 11.8, it shall
promptly advise Agent and Borrower of such intended transfer. Agent and Borrower
shall be entitled to assume conclusively that no transfer of any Note has been
made by any holder unless and until Agent and Borrower shall have each received
written notice to the contrary. Each transferee of any Note shall take such Note
subject to the provisions of this Agreement and the Disclosure Statement, and to
any request made, waiver or consent given, or other action taken under or with
respect to this Agreement, the Ancillary Documents, and the Disclosure Statement
prior to the receipt by Agent and Borrower of written notice of such transfer
and, except as otherwise expressly provided in such notice, Agent and Borrower
shall be entitled to assume conclusively that the transferee named in such
notice shall thereafter be vested with all of the rights and powers of the payee
of such Note arising under this Agreement, such Note, the Ancillary Documents,
and any other agreements referred to herein. The foregoing is not meant to
abrogate or modify, and is subject to, the provisions of Section 11.8 of this
Agreement.
11.7 Availability of Funds. Unless Agent shall have been
notified by a Bank prior to the date upon which any Loan is to be made that such
Bank does not intend to make available to Agent such Bank's portion of such
Loan, Agent may assume that such Bank has made or will make such proceeds
available to Agent on such date and Agent may, in reliance upon such assumption
(but shall not be required to), make available to Borrower a corresponding
amount. If such corresponding amount is not in
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fact made available to Agent by such Bank, Agent shall be entitled to recover
such amount on demand from such Bank (or, if such Bank fails to pay such amount
forthwith upon such demand, from Borrower) together with interest thereon, in
respect to each day during the period commencing on the date such amount was
made available to Borrower and ending on the date Agent recovers such amount, at
a rate, per annum equal to the customary rate set by Agent for correction of
errors among banks for the first three (3) days and, thereafter, the applicable
interest rate in respect of such Loan. The provisions of this Section 11.7 are
solely for the benefit of Agent and Banks and their successors and assigns and
are not intended to benefit Borrower, its successors and assigns, or any other
Person.
11.8 Successors and Assigns.
(a) This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns; provided, however, that Borrower may not assign or transfer any
interest or rights hereunder without the prior written consent of all Banks and
any such prohibited assignment shall be absolutely void; provided, further,
that, no Bank may assign, transfer, sell, pledge or grant participations in its
rights or obligations under the Loan Documents, except in accordance with
subsection (b) of this section, without the prior written consent of Borrower,
Agent, and each other Bank, which Borrower, Agent, and the other Banks may grant
or withhold in their discretion.
(b) Any transfer, sale or assignment by a Bank
shall be by way of "assignment" and not by way of "participation." Assignments
may be made only to Eligible Assignees that have been approved by Borrower and
Agent, both of whom agree not unreasonably to withhold or delay their consent.
Assignments will not be made of Loans or portions of the Commitment in aggregate
amounts of less than $7,500,000. Each such assignment by a Bank shall be of a
constant and not a varying percentage of all of the assigning Bank's rights and
obligations under this Agreement with respect to the Loans, the Letters of
Credit, and the Commitment. If an assignment by a Bank hereunder would result in
such Bank's share of the Commitment (after giving effect to such assignment)
being reduced to an amount less than $7,500,000, then, unless Agent agrees
otherwise, such Bank may not assign less than all of its share of the
Commitment, and such assignment must otherwise be in compliance with this
subsection (b). An assignment fee of $4,000 for each assignment will be payable
to Agent by the Bank making such assignment or the commercial banking
institution to which such assignment is made, as a condition of the
effectiveness thereof. Notwithstanding the foregoing, BofA will not reduce its
pro rata share of the Commitment below $15,000,000 without the prior written
consent of Borrower (which Borrower hereby agrees not unreasonably to withhold
or delay), and no other Bank will reduce its pro rata share of the Commitment
below $7,500,000 without the prior written consent of Borrower (which Borrower
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hereby agrees not unreasonably to withhold or delay). Any assignment effected in
accordance with this section shall be documented by (i) the execution and
delivery of an Assignment and Acceptance; and (ii) the giving of notification to
Borrower and the other Banks by Agent of the identity of the assignor and
assignee, the amount of the Loans or Commitment assigned, and the effective date
of the assignment, whereupon, from and after the effective date of such
assignment, the assigning Bank shall be released and discharged from, and such
assignee shall assume, all rights, duties and obligations with respect to the
interest so assigned, and shall become a "Bank" for all purposes of the Loan
Documents. Any such assignment shall be made pro rata according to all of the
assigning Bank's Loans or Commitment. At such time, this Agreement shall be
modified to reflect the pro rata share of the Commitment of such new "Bank" and
of the assigning Bank, and if any such institution becomes a "Bank" while Loans
are outstanding hereunder, new Notes will be issued to such new "Bank" and to
the assigning Bank to the extent needed to reflect their revised pro rata share
of the Commitment. The foregoing notwithstanding, any Bank may at any time
pledge all or any portion of its rights relating to the Loans made under this
Agreement to a Federal Reserve Bank or an Affiliate of the pledging Bank;
provided that no such pledge shall release any Bank from its obligations
hereunder.
(c) By executing and delivering an Assignment and Acceptance,
the assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank assigns without recourse
and makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or any other Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of Borrower or the performance or observance by Borrower of any of its
obligations under this Agreement or any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in subsections 4.8(a) and (b) hereof such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon Agent, such
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes
Agent to take such action as Agent on its behalf and to exercise such powers
under this Agreement as are delegated to Agent by the
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terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Bank.
(d) Agent shall maintain in its records a copy of each
Assignment and Acceptance delivered to and accepted by it and a register (the
"Register") for the recordation of the names and addresses of Banks, their
respective shares of the Commitment, the Loans made by each Bank and each
repayment in respect of the principal amount of such Loans of each Bank from
time to time. The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and Borrower, Agent and Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. Failure to make recordation in the Register, or any
error on such recordation, shall not affect Borrower's obligations in respect of
such Loans. The Register shall be available for inspection by Borrower, Agent or
any Bank at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee representing that it is an Eligible
Assignee, Agent shall, if such Assignment and Acceptance has been completed and
is in substantially the form of Exhibit A-1 annexed hereto, and subject to
receipt of the written consent of the Borrower or Agent, if required hereby, (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to Borrower.
(f) Any Bank may, in connection with any assignment or
proposed assignment pursuant to this Section 11.8, disclose to the assignee or
proposed assignee any information relating to Borrower furnished to such Bank by
or on behalf of Borrower; provided that, prior to any such disclosure, the
assignee or proposed assignee shall agree to preserve the confidentiality of any
confidential information relating to Borrower received by it from such Bank.
11.9 Headings. Article and section headings used in this Agreement and
the table of contents preceding this Agreement are for convenience of reference
only and shall neither constitute a part of this Agreement for any other purpose
nor affect the construction of this Agreement.
11.10 Execution in Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original. All of such counterparts, taken together, shall
constitute but one and the same Agreement. This Agreement shall
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become effective upon the execution of a counterpart of this Agreement by each
of the parties hereto.
11.11 GOVERNING LAW. EXCEPT AS SPECIFICALLY SET FORTH IN ANY
ANCILLARY DOCUMENT: (A) THIS AGREEMENT, THE NOTES, AND THE ANCILLARY DOCUMENTS
SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF CALIFORNIA; AND (B) THE
VALIDITY OF THIS AGREEMENT, THE NOTES, AND THE ANCILLARY DOCUMENTS, AND THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
11.12 Arbitration.
(a) This arbitration provision relates to and governs
the resolution of any controversies or claims between and among Borrower, Agent,
Collateral Agent and Banks (hereinafter in this provision collectively referred
to as the "Parties"), or any subset of them, that in any way relate or pertain
to the Loan Documents or the transactions or dealings among the Parties with
respect thereto, including but not limited to any controversies or claims that
arise from:
(i) This Agreement (including any renewals,
restatements, amendments, supplements, extensions or
modifications of this Agreement) or any other Loan
Document;
(ii) Any document, agreement or procedure
related to or delivered in connection with this
Agreement or any other Loan Document;
(iii) Any breach or violation by any Party
of this Agreement or any other Loan Document; or
(iv) Any claim for damages (whether in tort
or contract) resulting from any business conducted
between the Parties or any subset of them that in any
way pertains to the Loan Documents or the
transactions contemplated thereby.
(b) At the request of any Party, any such
controversies or claims will be settled by arbitration in accordance with the
United States Arbitration Act. The United States Arbitration Act will apply even
though this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by
the American Arbitration Association and will be subject to its commercial rules
of arbitration. The arbitration will be conducted within Los Angeles County,
California.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to
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this paragraph is the equivalent of the filing of a lawsuit, and any claim or
controversy which may be arbitrated under this paragraph is subject to any
applicable statute of limitations. The arbitrators will have the authority to
decide whether any such claim or controversy is barred by the statute of
limitations and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration
proceeding may be submitted to any authorized court of law to be confirmed and
enforced.
(g) The procedure described above in this Section
11.12 will not apply if the controversy or claim, at the time of the proposed
submission to arbitration, arises from or relates to an obligation owed to
Collateral Agent, Agent, or any Bank that is secured by real property located in
California. In this case, all affected Parties must consent to submission of the
claim or controversy to arbitration. If such affected Parties do not consent to
arbitration, the controversy or claim will be settled as follows:
(i) The affected Parties will designate a
referee (or a panel of referees) selected under the
auspices of the American Arbitration Association in
the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in
California Code of Civil Procedure Section 638 and
the following related sections;
(iii) The referee (or the presiding referee
of the panel) will be an active attorney or a retired
judge; and
(iv) The award that results from the
decision of the referee (or the panel) will be
entered as a judgment in the court that appointed the
referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and
645.
(h) This provision does not limit the right of the
Parties to:
(i) exercise self-help remedies such as
setoff;
(ii) foreclose against or sell any real or
personal property collateral; or
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(iii) act in a court of law, before, during
or after the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary
remedies.
(i) The pursuit of or a successful action for
interim, additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Parties, including the suing
party, to submit the controversy or claim to arbitration if the other party
contests the lawsuit. However, if the controversy or claim arises from or
relates to an obligation to Collateral Agent, Agent, or any Bank which is
secured by real property located in California at the time of the proposed
submission to arbitration, this right is limited according to the provision
above requiring the consent of all affected Parties to seek resolution through
arbitration.
(j) If the Collateral Agent, Agent or any Bank
forecloses against any real property securing any obligation contained in any
Loan Document, such foreclosing Party has the option to exercise the power of
sale under the deed of trust or mortgage, or to proceed by judicial foreclosure.
11.13 Severability of Provisions. Any provision of this
Agreement, the Notes, or the Ancillary Documents which is illegal, invalid,
prohibited, or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such illegality, invalidity, prohibition, or
unenforceability without invalidating or impairing the remaining provisions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
11.14 Survival of Agreements, Representations, and Warranties.
All agreements, representations, and warranties made herein shall survive the
execution and delivery of this Agreement, the Ancillary Documents, the Notes,
and the making of the Loans hereunder.
11.15 Setoff. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
each Bank and each holder or transferee of any Note or any Person with any
interest in any Note is hereby authorized by Borrower at any time or from time
to time, upon the occurrence and during the continuance of any Event of Default,
without notice to Borrower or to any other Person, any such notice being hereby
expressly waived to the extent it may lawfully be so waived, to set off or to
apply, any and all deposits (general or special, time or demand, provisional or
final, including indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
indebtedness at any time owing by that Bank or that subsequent holder to or for
the credit or the
- 103 -
<PAGE> 110
account of Borrower, against and on account of the Secured Indebtedness,
including all claims of any nature or description arising out of or connected
with this Agreement, the Notes, or the Ancillary Documents, irrespective of
whether that Bank or that subsequent holder shall have made any demand under
this Agreement; provided, however, that Banks and the holders or transferee of
any Note and any Person with any interest in any Note shall refrain from
exercising such rights unless authorized to do so by Required Banks. After the
exercise by any Bank or any such subsequent holder of any right of setoff
against deposit accounts of Borrower maintained with that Bank or that
subsequent holder, that Bank or that subsequent holder shall give Borrower
written notice thereof, but without liability for the failure to do so, and no
such failure of notice shall affect the validity of such setoff.
11.16 Independence of Covenants. All covenants under this
Agreement shall be given independent effect so that if a particular action or
condition is not permitted by any one covenant, the fact that it would be
permitted by another covenant, by an exception thereto, or would otherwise be
within the limitations thereof, shall not avoid the occurrence of an Event of
Default or Unmatured Event of Default if such action is taken or condition
exists.
11.17 Complete Agreement. This Agreement, together with the
exhibits and schedules hereto, the Disclosure Statement, the Notes, and the
Ancillary Documents is intended by the parties hereto as a final expression of
their agreement and is intended as a complete statement of the terms and
conditions of their agreement with respect to the subject matter of this
Agreement.
11.18 Relationship to Prior Loan Agreement. On and after the
date on which each party hereto shall have signed and delivered to the Agent six
original counterpart signatures (which may be provided by facsimile followed
promptly by the executed original) to this Agreement, this Agreement shall be
effective among the parties hereto and shall supersede the Prior Loan Agreement.
11.19 Increase in Commitment.
(a) At any time prior to the Maturity Date, BASI may,
at Borrower's request, invite a New Bank to become a Bank under this Agreement
and to provide a commitment to lend hereunder in an amount not less than
$7,500,000 (and to accordingly increase the Commitment by such amount);
provided, however, that in no event shall such actions cause the Commitment to
increase above $75,000,000.
(b) Borrower, Agent and the New Bank shall execute
and deliver to Agent (for the account of Agent, Borrower, and the New Bank) a
Supplemental Signature Page. Upon the execution and delivery of each such
Supplemental Signature Page, and despite any contrary provision of this
Agreement (i) the New
- 104 -
<PAGE> 111
Bank shall become a Bank hereunder, (ii) Borrower shall deliver a Note to the
New Bank, in the principal amount of such New Bank's commitment to lend
hereunder, substantially in the form of Exhibit N-1 hereto with appropriate
insertions therein, (iii) the New Bank shall simultaneously make Basic Rate
Loans to Borrower in an amount equal to its pro rata share of the then
outstanding Loans, if any, the proceeds of which shall be simultaneously paid to
the Agent for distribution to the Banks to the extent that any Bank's pro rata
share of the then outstanding Loans is decreased as a result of the new
commitment of the New Bank to make Loans, (iv) each Bank shall remit to the New
Bank, as appropriate, the portion of any unearned portion of any letter of
credit fee previously paid by Borrower to such Bank, if any, that is
prospectively allocable to the portion of the risk undertaken by the New Bank
with respect to the relevant letter of credit (prorated over the remaining
period to which such fee relates), (v) Borrower shall pay to BASI any fee that
it has agreed to pay in connection with BASI's arrangement of the incremental
increase in the Commitment provided by the New Bank, (vi) Borrower shall pay to
the Agent for distribution to the New Bank, a participation fee equal to one
quarter of one percent of the amount of such New Bank's commitment, and (vii)
the New Bank shall thereafter be obligated to make Loans to Borrower up to an
including the amount of such Bank's pro rata share of the increased Commitment
on the terms and conditions contained herein.
(c) Upon any increase in the Commitment pursuant to
this Section 11.19, the Agent shall amend Exhibit C-1 hereto to reflect the
revised pro rata shares of the Commitment held by the Banks, and shall deliver a
copy of such amended Exhibit C-1 to the Borrower and each Bank. Such amended
Exhibit C-1 shall supersede the previous Exhibit C-1 and shall be conclusive and
binding absent manifest error.
(d) Upon the execution and delivery of each
Supplemental Signature Page by Agent, Borrower, and the New Bank that is a party
thereto, the amount set forth in the first sentence of Section 2.3 of the
Agreement amended, automatically and without further action of the parties, to
reflect the amount of the Commitment set forth on the Supplemental Signature
Page and on the amended Exhibit C-1 delivered to the Banks pursuant to Section
11.19(c).
(e) Despite any other provision of this Section 11.19
to the contrary, no increase in the Commitment will be permitted pursuant to the
foregoing unless all Loans then outstanding constitute Basic Rate Loans or, with
respect to any Loan that is not a Basic Rate Loan, the Interest Period for such
Loan will commence concurrently with the effective date of the increase in the
Commitment.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first set forth above.
- 105 -
<PAGE> 112
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:
----------------------------
Title: President
-------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Daniel G. Farthing
----------------------------
Daniel G. Farthing
Title: Vice President
-------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in
its individual capacity as a Bank
By: /s/ Paul F. Sutherlan
----------------------------
Title: Vice President
-------------------------
SUMITOMO BANK OF CALIFORNIA,
as a Bank
By:
----------------------------
Title: Vice President
-------------------------
SANWA BANK CALIFORNIA,,
as a Bank
By: /s/ Joseph C. Arco
----------------------------
Joseph C. Arco
Title: Vice President
-------------------------
- 106 -
<PAGE> 113
ASSIGNMENT AND ACCEPTANCE AGREEMENT
Date , 199
Reference is made to that certain Amended and Restated Loan Agreement
dated as of September 10, 1992 (as it may be amended, supplemented, restated or
otherwise modified from time to time, the "Loan Agreement"; capitalized terms
defined therein and not otherwise defined herein being used herein as therein
defined) by and among BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Borrower"), the Banks party thereto and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION ("BofA") as agent for Banks ("Agent"), pursuant to which
("Assignor") has committed to make loans (the "Loans") to Borrower and
to participate in letters of credit issued for the account of Borrower.
Assignor and ("Assignee") agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, that interest in and to [all/a portion] of
Assignor's rights and obligations under the Loan Agreement as of the date
hereof which represents the percentage interest specified in Section 1
of Schedule 1 hereto of all outstanding rights and obligations under the Loan
Agreement (the "Assigned Interest"), including, without limitation, the
percentage interest specified in Section 1 of Schedule 1 hereto of Assignor's
share of the Commitment and the Loans owing to Assignor. After giving effect to
such sale and assignment, Assignee's share of the Commitment, the amount of the
Loans owning to Assignee, and Assignee's participation interest in any letters
of credit will be as set forth in Section 2 of Schedule 1 hereto.
2. The sale and assignment contemplated hereby shall become effective as
of the date (the "Effective Date") upon which (i) this Assignment and
Acceptance Agreement has been executed by Assignor and Assignee, (ii) Assignee
has paid to Assignor, in same day funds, at such address and account as
Assignor shall advise Assignee, $ , and (iii) the applicable conditions
contained in Section 11.8 of the Loan Agreement have been satisfied. The
Effective Date is set forth in Section 3 of Schedule 1 hereto. From and after
the Effective Date, Assignor agrees that Assignee shall be entitled to all
rights, powers and privileges of Assignor under the Loan Documents (subject to
any limitations therein contained) to the extent of the Assigned Interest,
including without limitation (a) the right to receive all payments in respect
of the Assigned Interest for the period from and after the Effective Date,
whether on account of principal, interest, fees, indemnities in respect of
claims arising after the Effective Date, increased costs, additional amounts or
otherwise; (b) the right to vote and to instruct Agent
-1-
EXHIBIT A-1
<PAGE> 114
under the Loan Agreement according to its pro rata share based on the Assigned
Interest; (c) the right to set-off and to appropriate and apply deposits of
Borrower as set forth in the Loan Agreement (subject to any limitations therein
set forth); and (d) the right to receive notices, requests, demands and other
communications. Assignor agrees that it will promptly remit to Assignee any
amount received by it in respect of the Assigned Interest (whether from
Borrower, Agent or otherwise) in the same funds in which such amount is
received by Assignor.
3. Assignor (1) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) other than as provided
herein, makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Agreement or any
other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower or the performance or observance by Borrower of
any of its obligations under the Loan Agreement or any other instrument or
document furnished pursuant thereto. Except as specified in this Section 3, the
assignment of the Assigned Interest contemplated hereby shall be without
recourse to Assignor.
4. Assignee (i) confirms that it has received a copy of the Loan
Agreement, together with copies of the financial statements referred to in the
subsections 4.8(a) and (b) thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance and purchase the Assigned Interest; (ii)
agrees that it will, independently and without reliance upon Assignor, Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents; (iii) represents and warrants that
it is an Eligible Assignee as required by Section 11.8(b) of the Loan
Agreement; (iv) appoints and authorizes Agent to take such action as Agent on
its behalf and to exercise such powers under the Loan Agreement as are
delegated to Agent by the terms thereof, and (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Bank.
5. This Assignment may be executed in any number of counterparts and
by different parties in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
-2-
EXHIBIT A-1
<PAGE> 115
6. THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written, such execution being made on Schedule 1 hereto.
-3-
EXHIBIT A-1
<PAGE> 116
SCHEDULE 1
to
Assignment and Acceptance Agreement
Dated , 19
Section 1.
Percentage Interest of Assignee
in all outstanding rights and
obligations under the Loan
Agreement -------------------%
Percentage Interest of
Assignor's share of the
Commitment and Loans owing to
Assignor under the Loan
Agreement being assigned to
Assignee hereby: -------------------%
Section 2.
Assignee's Share of the Commitment: $-------------------
Aggregate Outstanding
Principal Amount of Loans
owing to Assignee: $-------------------
Aggregate Participation in $-------------------
Outstanding Letters of Credit of
Assignee:
Section 3.
Effective Date: ----------, 19--
[NAME OF ASSIGNOR]
By: -------------
Title:
[NAME OF ASSIGNOR]
By: -------------
Title:
Schedule 1-1
<PAGE> 117
CONSENTED TO AND ACKNOWLEDGED THIS
- --------------- DAY OF -----------, 19--
BANNER'S CENTRAL ELECTRIC, INC.
By: --------------------------
Title:
CONSENTED TO AND ACKNOWLEDGE THIS
- --------------- DAY OF -----------, 19--
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Agent under the Loan
Agreement
By: --------------------------
Title:
Schedule 1-2
<PAGE> 118
PRO RATA SHARE OF COMMITMENT OF EACH BANK
<TABLE>
<CAPTION>
BANK DOLLAR SHARE OF PERCENTAGE SHARE
COMMITMENT OF COMMITMENT
<S> <C> <C>
Bank of America National $35,000,000 58.333333333%
Trust and Savings
Association
Sumitomo Bank of California $15,000,000 25.000000000%
Sanwa Bank California $10,000,000 16.666666667%
Total $60,000,000 100%
</TABLE>
Exhibit C-1
(as amended as of November 15, 1993)
- 17 -
<PAGE> 119
PROMISSORY NOTE
ORIGINAL FACE AMOUNT: $___________________
MAKER: BANNER'S CENTRAL ELECTRIC, INC., a
California corporation.
DATED AS OF: November 15, 1993
1. PROMISE TO REPAY. FOR VALUE RECEIVED, BANNER'S CENTRAL ELECTRIC,
INC., a California corporation ("Maker"), promises to pay to
______________________________ ("Lender"), or order, the principal sum of
_______________ Dollars ($__________) or such lesser amount as shall equal the
outstanding amount of the Loans made by Lender to Maker pursuant to Section 2.1
of that certain Amended and Restated Loan Agreement, dated as of September 10,
1992, as amended by Amendment Number One thereto, dated as of December 2, 1992,
by Amendment Number Two thereto, dated as of November 15, 1993, and as further
amended from time to time (as so amended, the "Loan Agreement"), entered into
between Maker, each of the financial institutions which are now or hereafter
parties thereto ("Banks"), and Bank of America National Trust and Savings
Association, as agent ("Agent") for Banks thereunder.
2. DEFINED TERMS. Any and all initially capitalized terms used herein
shall have the meaning ascribed thereto in the Loan Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or". This Promissory Note (this "Note") is one of the promissory notes
defined in the Loan Agreement as the "Notes" and is subject to, and entitled to
the benefits of, the terms and provisions of the Loan Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Maker hereby promises to make payments of principal and
interest, with respect to the Loans evidenced hereby at the rates and times, and
in the amounts, and in all other respects in the manner as provided in the Loan
Agreement.
(b) As more fully set forth in the loan Agreement, Maker shall
not be obligated to pay, and the holder of this Note shall not be obligated to
charge, collect, receive, reserve, or take interest (it being understood that
interest shall be calculated as the aggregate of all charges which
Exhibit N-1
- 18 -
<PAGE> 120
constitute interest under applicable law that are contracted for, charged,
reserved, received, or paid) in excess of the maximum non-usurious interest
rate, as in effect from time to time, which may be charged, contracted for,
reserved, received, or collected by Lender in connection with the Loan
Agreement, this Note, the Ancillary Documents, or any other documents executed
in connection herewith or therewith.
4. PREPAYMENT. Maker may prepay the principal balance due
under this Note, in whole or in part, only in accordance with the provisions of
the Loan Agreement.
5. APPLICATION OF PAYMENTS. All payments (including
prepayments) made hereunder shall be applied as set forth in the Loan Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and interest due
hereunder is payable in immediately available Dollars at Agent's San Francisco
office located at Global Agency No. 5596, 315 Montgomery Street, San Francisco,
California 94104, (or at such other office as may be designated from time to
time by Agent), not later than 10:00 a.m., California time, on the day of
payment.
7. WAIVERS. Maker, for itself and its legal representatives,
successors, and assigns, expressly waives presentment, demand, protest, notice
(except as required by the Loan Agreement), and all other requirements of any
kind, in connection with the enforcement or collection of this Note.
8. ACCELERATION AND WAIVER. IT IS EXPRESSLY AGREED THAT, UPON
THE OCCURRENCE OF AN EVENT OF DEFAULT, THE UNPAID PRINCIPAL BALANCE OF AND ANY
ACCRUED AND UNPAID INTEREST UNDER THIS NOTE MAY BE DECLARED TO BE, OR SHALL
IMMEDIATELY BECOME, DUE AND PAYABLE PURSUANT TO THE TERMS OF THE LOAN AGREEMENT,
WITHOUT PRESENTMENT, DEMAND, PROTEST, NOTICE (EXCEPT AS REQUIRED BY THE LOAN
AGREEMENT), OR OTHER REQUIREMENTS OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY
WAIVED BY MAKER.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE
LIENS GRANTED TO COLLATERAL AGENT FOR THE BENEFIT OF BANKS PURSUANT TO THE TERMS
AND CONDITIONS OF THE ANCILLARY DOCUMENTS EXECUTED BY MAKER.
10. ATTORNEYS' FEES. In the event it should become necessary
to employ counsel to collect or enforce this Note, Maker agrees to pay the
reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Loan Agreement.
- 19 -
<PAGE> 121
11. AMENDMENTS. This Note may not be changed, modified,
amended, or terminated except by a writing duly executed by Maker and the holder
hereof.
12. HEADINGS. Section headings used in this Note are solely
for convenience of reference, shall not constitute a part of this Note for any
other purpose, and shall not affect the construction of this Note.
13. GOVERNING LAW. EXCEPT AS OTHERWISE PROVIDED IN THE LOAN
AGREEMENT: (A) THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF
CALIFORNIA; AND (B) THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
14. ARBITRATION. All controversies or claims arising in
connection with this Note shall be resolved by arbitration in accordance with
the terms set forth in the Loan Agreement.
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:_____________________________
Title:__________________________
- 20 -
<PAGE> 122
NOTICE OF BORROWING
TO: Bank of America, NT & SA
Global Agency # 5596
315 Montgomery Street, 15th Floor
San Francisco, California 94104
Pursuant to that certain Amended and Restated Loan Agreement, dated as
of September 10, 1992 (the "Loan Agreement"), entered into between BANNER'S
CENTRAL ELECTRIC, INC., a California corporation ("Borrower"), the financial
institutions which are now or hereafter parties thereto ("Banks"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for Banks
thereunder, this Notice of Borrowing, delivered in accordance with Section 2.8
of the Loan Agreement, represents Borrower's request for an extension of credit
pursuant to the Loan Agreement as follows:
$______ A Basic Rate Borrowing under the Revolving Credit Facility;
$______ A Eurodollar Rate Borrowing under the Revolving Credit Facility
with an Interest Period of _____________ month(s) and expiring
on ________________, ___________;
$______ The issuance of a Letter of Credit on the terms and conditions
set forth on Schedule 1 attached hereto, pursuant to Sections
2.1(e) and 2.2 of the Loan Agreement.
$______ Total
The undersigned Responsible Officer of Borrower certifies that:
(a) the representations and warranties of Borrower contained in the
Loan Agreement and the Ancillary Documents, to the extent that Borrower is a
party thereto, are true and correct in all material respects at and as of the
date hereof, as though made on the date hereof (except to the extent such
representations and warranties expressly relate solely to an earlier date);
(b) both before and after giving effect to the proposed Loan, Borrower
is in compliance, in all material respects, with all of the requirements of
each of the covenants contained in the Loan Agreement; and
(c) no Event of Default or Unmatured Event of Default has occurred and
is continuing on the date of the proposed Loan
Exhibit N-2
-1-
<PAGE> 123
nor shall an Event of Default or Unmatured Event of Default result from the
making of the proposed Loan.
Any and all initially capitalized terms used herein shall have the
meaning ascribed thereto in the Loan Agreement, unless specifically defined
herein.
Dated: , 19
------------------------ --
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By
------------------------------
Title:
---------------------------
Exhibit N-2
-2-
<PAGE> 124
SCHEDULE 1
TERMS AND CONDITIONS OF LETTERS OF CREDIT
Stated Amount:
Account party:
Beneficiary:
Expiry Date:
Conditions for Drawing:
<PAGE> 125
EXHIBIT O-1
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
Certificate for the Period Ending
___________________, 199__
Bank of America NT&SA
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Re: Officer's Compliance Certificate
Gentlemen:
This Certificate is given in accordance with subsection 5.2(d) of that
certain Amended and Restated Loan Agreement, dated as of September 10, 1992 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), entered into between BANNER'S CENTRAL ELECTRIC, INC., a
California corporation ("Borrower"), the financial institutions which are
signatories thereto (collectively, "Banks"), and Bank of America National Trust
and Savings Association, as agent ("Agent") for Banks thereunder. Any and all
initially capitalized terms used herein shall have the meanings ascribed thereto
in the Loan Agreement, unless specifically defined herein. I hereby certify
that:
1. I am the (chief financial officer/controller) of
Borrower;
2. The enclosed consolidated and consolidating financial
statements, balance sheets, profit and loss statements and
cash flow statements of Borrower fairly present the financial
condition of Borrower and its subsidiaries as of the dates
indicated, and I have reviewed such statements in preparing
this certificate;
3. I have reviewed the terms of the Loan Agreement and the
Notes and the transactions and the consolidated
financial condition of Borrower during the accounting
period covered by the enclosed financial statements;
4. To the best of my knowledge and belief no event or condition
exists which constitutes an Unmatured Event of Default or an
Event of Default as of the date of this Officer's Compliance
Certificate (this "Certificate") except as set forth below,
and Borrower is in compliance with all of the terms and
provisions of the Loan Agreement except as set forth below.
- 1 -
<PAGE> 126
Described below (or in a separate attachment hereto) are the
exceptions, if any, to paragraph (4), listing, in detail, the
nature of the condition or event, the period during which it
has existed and the action which Borrower has taken, is taking
or proposes to take with respect to each such condition or
event:
______________________________________________________________
______________________________________________________________
______________________________________________________________
5. As of the date of this Certificate, Borrower is not in
default under any negative covenant set forth in
ARTICLE VI of the Loan Agreement.
IF OTHER THAN FISCAL QUARTER, COMPLETE ONLY PARAGRAPHS 7, 9,
10, AND 11 BELOW; FOR THE END OF EACH FISCAL QUARTER,
COMPLETE ALL PARAGRAPHS BELOW.
6. The ratio of Total Debt to Tangible Net Worth and the minimum
Tangible Net Worth for the period covered by this Certificate
complies with the requirements of Section 6.6(a) and Section
6.6(h) of the Loan Agreement and may be calculated as follows:
(a) Total Debt:
_________
(b) Tangible Net Worth:
_________
(i) the aggregate of total
stockholder's equity:
_________
(ii) the aggregate of any treasury
stock, any intangible assets,
and any obligations due
from stockholders, employees, or
affiliates:
_________
(iii) Permanent Subordinated Debt:
_________
Total (item (b) (i) minus item (b) (2)
plus item (b) (iii)):
_________
Total (item (a) divided by item (b)):
____:1.00
The maximum ratio of Total Debt to
Tangible Net Worth permitted to be
maintained by Borrower pursuant to
Section 6.6(a) of the Loan Agreement, for
the period covered by this certificate is: 3.50:1.00
- 2 -
<PAGE> 127
The minimum Tangible Net Worth permitted
to be maintained by Borrower pursuant to
Section 6.6(h) of the Loan Agreement, for
the period covered by this certificate is:
(a) Tangible Net Worth Threshold
Amount $15,000,000
(b) 50% of net income for fiscal
quarter ended:
December 31, 1993
-----------
March 31, 1994
-----------
June 30, 1994
-----------
September 30, 1994
-----------
December 31, 1994
-----------
March 31, 1995
-----------
June 30, 1995
-----------
------------------ -----------
------------------ -----------
------------------ -----------
------------------ -----------
(c) Total of (a) and (b) $
-----------
7. The Past Due Receivable Ratio for the period covered by this
Certificate complies with the requirements of Section 6.6(b)
of the Loan Agreement and may be calculated as follows:
(a) the total amount owing to Borrower and its
subsidiaries under each Eligible Contract in which
any payment is more than sixty (60) days past due:
Borrower $
-----------
Central Ram $
-----------
Total $
-----------
(b) the total amount owing to Borrower and its
subsidiaries under all Eligible Contracts:
Borrower $
-----------
Central Ram $
-----------
Total $
-----------
Total (item (a) divided by item (b)): :1.00
------
The maximum Past Due Receivable Ratio permitted to be
maintained by Borrower and its subsidiaries pursuant to
Section 6.6(b) of the Loan Agreement, for the period covered
by this Certificate is:
0.0400:1.00
- 3 -
<PAGE> 128
8. The aggregate amount of loans and cash advances made by
Borrower and its subsidiaries to Sister Companies, excluding
BCE Playground, Inc., and outstanding on the date of this
Certificate is in compliance with the limitations set forth in
Section 6.6(d) of the Loan Agreement and is:
$
------------
The maximum aggregate amount of loans and cash advances made
by Borrower and its subsidiaries to its Sister Companies,
excluding BCE Playground, Inc., permitted to be outstanding at
any one time is:
$ 500,000
The aggregate amount of loans and cash advances made by
Borrower and its subsidiaries to BCE Playground, Inc. and
outstanding on the date of this Certificate is in compliance
with the limitations set forth in Section 6.6(d) of the Loan
Agreement and is:
$
------------
The maximum aggregate amount of loans and cash advances made
by Borrower and its subsidiaries to BCE Playground, Inc. and
permitted to be outstanding at any one time is:
$ 275,000
9. The aggregate amount of Capital Expenditures expended by
Borrower and its subsidiaries during the period covered by
this Certificate is in compliance with the limitations set
forth in Section 6.6(d) of the Loan Agreement and to the date
hereof is:
$
------------
The maximum permitted Capital Expenditures for Borrower and
its subsidiaries pursuant to Section 6.6(d) of the Loan
Agreement, for the period covered by this Certificate is:
$ 750,000
10. The aggregate amount of obligations incurred or assumed by
Borrower and its subsidiaries with respect to the Operating
Leases during the period covered by this Certificate is in
compliance with the limitations set forth in Section 6.6(e) of
the Loan Agreement and to the date hereof is
$
------------
- 4 -
<PAGE> 129
The maximum aggregate amount of obligations which Borrower and
its subsidiaries are permitted to incur or assume with respect
to Operating Leases pursuant to Section 6.6(e) of the Loan
Agreement, for the period covered by this Certificate is:
$
------------
11. The Cash Flow to Interest Coverage Ratio for the two
consecutive fiscal quarters ending as of the date of this
Certificate complies with the requirements of Section 6.6(f)
of the Loan Agreement and may be calculated as follows:
(a) Cash Flow:
(i) net income (or loss) after
taxes:
$
------------
(ii) depreciation and
amortization expenses:
$
------------
(iii) total interest expense:
$
------------
(iv) other non-cash items
reducing net income
(excluding extraordinary
items):
$
------------
(v) cash capital expenditures
to the extent not funded by
new cash equity
contributions to Borrower,
Permanent Subordinated Debt,
or the proceeds of
Permitted Indebtedness
incurred from sources other
than Loans by the Banks:
$
------------
Total (item (a) (i) plus
item (a) (ii) plus item
(a) (iii) plus item (a) (iv)
minus item (a) (v):
$
------------
(b) cash interest expense:
$
------------
Total (item 11(a) divided by item
11(b)):
:1.00
------------
The minimum Cash Flow to Interest Coverage Ratio required to
be maintained by Borrower and its subsidiaries pursuant to
Section 6.6(f) of the Loan Agreement, for the two consecutive
fiscal
- 5 -
<PAGE> 130
quarters ending as of the date of
this Certificate is:
2.50:1.00
------------
12. The Doubtful Accounts Ratio for the period covered by this
Certificate complies with the requirements of Section 6.6(g)
of the Loan Agreement as follows:
(a) The reserve for bad debt expense
maintained by Borrower and its
subsidiaries in accordance with
GAAP as of the date hereof is:
$
------------
(b) Net Contracts then outstanding
(i) total amount owed under
Contracts then outstanding:
to Borrower
$
------------
to Central Ram
$
------------
Total
$
------------
(ii) all unearned interest or
finance charges thereon:
to Borrower
$
------------
to Central Ram
$
------------
Total
$
------------
Total (item (b) (i) minus item
(b) (ii))
------------
Total (item (a) divided by
item (b))
------------
The maximum Doubtful Accounts Ratio permitted to be
maintained by Borrower and its subsidiaries pursuant
to Section 6.6(g) of the Loan Agreement, for the
period covered by this
Certificate is:
.03:1.00
13. The Net Charge Offs to Net Contracts Ratio for the period
covered by this Certificate complies with the requirements of
Section 6.6(i) of the Loan Agreement and may be calculated as
follows:
(a)
(i) gross charge offs for the
twelve (12) month period
ending as of the date hereof:
- 6 -
<PAGE> 131
Borrower
$
------------
Central Ram
$
------------
Total
$
------------
(ii) deferred finance charges on gross charge
offs for the twelve month period ending as
of the date hereof:
Borrower
$
------------
Central Ram
$
------------
Total
$
------------
(iii) cash recoveries for the
twelve month period ending
on the date hereof:
Borrower
$
------------
Central Ram
$
------------
Total
$
------------
Total (item (a) (i) minus item (a) (ii) minus item (a) (iii)):
Borrower
$
------------
Central Ram
$
------------
Total
$
------------
(b) Average of Net Contracts for the
twelve month period ending on
the date hereof:
Borrower
$
------------
Central Ram
$
------------
Total
$
------------
Total (item (a) divided by item (b)):
Borrower
:1.00
------------
Central Ram
:1.00
------------
Total
:1.00
------------
The maximum Net Charge Offs to Net Contracts Ratio permitted
to be maintained by Borrower and its subsidiaries pursuant to
Section 6.6(i) of the Loan Agreement, for the period covered
by this Certificate is:
0.0750:1.00
- 7 -
<PAGE> 132
The foregoing certifications are made and delivered this _____ day of ,
199___ .
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:
-----------------------
Title:
--------------------
- 8 -
<PAGE> 133
SUPPLEMENTAL SIGNATURE PAGE
Re: Amended and Restated Loan Agreement (the "Loan Agreement")
dated as of September 10, 1992, by and between Banner's
Central Electric, Inc., the Banks named therein and Bank of
America National Trust and Savings Association, as Agent.
Capitalized terms used below and not otherwise defined shall
have the meanings given such terms in the Loan Agreement.
The undersigned agrees to become a Bank under the Loan Agreement as if
originally named therein, with a percentage of the Commitment equal to % of
the aggregate Commitment, which represents $ of the Commitment, effective as of
_____________ , 19 ("Effective Date"). The total amount of the Commitment is
______________ Dollars ($___________). The undersigned further agrees to be
bound by the terms and conditions of the Agreement.
The undersigned (i) confirms that it has received a copy of the Loan
Agreement, together with copies of such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to become a
Bank under the Loan Agreement; (ii) agrees that it will, independently and
without reliance upon Agent, BASI, or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents; (iii) represents and warrants that it meets all of the requirements
set forth in the definition of an "Eligible Assignee" under Section 11.8(b) of
the Loan Agreement; (iv) appoints and authorizes Agent to take action as Agent
on its behalf and to exercise such powers under the Loan Agreement as are
delegated to Agent by the terms thereof; and (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Bank. Finally, the
undersigned agrees that, as of the Effective Date, Exhibit C-1 to the Agreement
is amended in its entirety to read as set forth on the attached Exhibit C-1,
which is incorporated by this reference.
-----------------------------
[Name of New Bank]
By:
--------------------------
Title
------------------------
EXHIBIT S-1
- 21 -
<PAGE> 134
ACKNOWLEDGED AND APPROVED:
We hereby consent to and approve the foregoing and acknowledge and
agree that Exhibit C-1 to the Agreement is, as of the Effective Date, amended in
its entirety to read as set forth on the attached Exhibit C-1, which is
incorporated by this reference. We further agree that the foregoing, and the
amendments effected thereby, shall not alter, diminish or otherwise affect our
obligations under any Loan Documents, except as expressly set forth above.
BANNER'S CENTRAL ELECTRIC, INC. BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: By:
------------------------- -------------------------
Title Title
----------------------- -------------------------
Date Date
----------------------- -------------------------
- 22 -
<PAGE> 135
NOTICE OF CONVERSION/CONTINUATION
TO: Bank of America, NT & SA
Global Agency #5596
315 Montgomery Street, 15th Floor
San Francisco, California 94104
Pursuant to that certain Amended and Restated Loan Agreement, dated as
of September 10, 1992 (the "Loan Agreement"), between BANNER'S CENTRAL
ELECTRIC, INC., a California corporation ("Borrower"), each of the financial
institutions ("Banks") which are now or hereafter parties thereto, and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for Banks
thereunder, this Notice of Conversion/Continuation represents Borrower's
request to:
(a) Convert $________________ in principal amount of Basic Rate
Borrowings on ______________, 19__, to a Eurodollar Rate Borrowing, with an
Interest Period of ___ months and expiring on _____________, 19__;
(b) Convert $________________ in principal amount of Eurodollar
Rate Borrowings on ________________, 19__, to Basic Rate Borrowings;
(c) Continue as Eurodollar Rate Borrowings $_____________________
in principal amount of presently outstanding Eurodollar Rate Borrowings,
commencing on _________________, 19__, with a new Interest Period of ___ months
and expiring on _________________, 19__.
The undersigned Responsible Officer of Borrower certifies that:
(a) the representations and warranties of Borrower contained in the
Loan Agreement and the Ancillary Documents, to the extent that Borrower is a
party thereto, are true and correct in all material respects at and as of the
date hereof, as though made on the date hereof (except to the extent such
representations and warranties expressly relate solely to an earlier date);
(b) both before and after giving effect to the proposed Loan,
Borrower is in compliance, in all material respects, with all of the
requirements of each of the covenants contained in the Loan Agreement; and
(c) no Event of Default or Unmatured Event of Default has occurred
and is continuing on the date of the proposed loan nor shall an Event of
Default or Unmatured Event of Default result from the making of the proposed
Loan.
-1-
Exhibit N-3
<PAGE> 136
Any and all initially capitalized terms used herein shall have the
meaning ascribed thereto in the Loan Agreement, unless specifically defined
herein.
Dated: __________________, 19__ BANNER'S CENTRAL ELECTRIC, INC., a
California corporation
By
------------------------------------
Title:
--------------------------------
-2-
Exhibit N-3
<PAGE> 137
[O'Melveny & Myers Letterhead]
September 18th, 1992
Bank of America NT&SA
555 South Flower Street
Los Angeles, CA 90071
Sumitomo Bank of California
611 West Sixth Street, Suite 3900
Los Angeles, CA 90017
Re: Amended and Restated Loan Agreement dated as of September 10, 1992
among Banner's Central Electric, Inc., the Financial Institutions
signatory thereto and Bank of America NT&SA, as Agent
Ladies and Gentlemen:
We have acted as special counsel to Banner's Central Electric, Inc., a
California corporation ("Borrower"), in connection with the Amended and
Restated Loan Agreement dated as of September 10, 1992 (the "Loan Agreement")
among Borrower, the Financial Institutions signatory thereto (the "Banks") and
Bank of America NT&SA, as agent ("Agent"). This opinion is being rendered to
you pursuant to subsection 3.1(c) of the Loan Agreement. Except as otherwise
referenced herein, capitalized terms used herein without definition have the
meanings assigned to them in the Loan Agreement.
In our capacity as such counsel, we have examined, among other things,
originals, or copies identified to our satisfaction as being true copies, of
such records, documents and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinions expressed below. These
records, documents and instruments included the following:
(a) The Loan Agreement;
Exhibit 3.1(c)
<PAGE> 138
Bank of America NT&SA and
Sumitomo Bank of California - 9/18/92 - Page 2
(b) The Promissory Notes executed and delivered by the
Borrower (the "Notes");
(c) The Amended and Restated Security Agreement executed and
delivered by the Borrower (the "Security Agreement") in favor of Bank of
America NT&SA, as Collateral Agent (the "Collateral Agent");
(d) The Fee Letter; and
(e) Financing Statement No. 91-208508 on Form UCC-1 relating to
the Collateral (as such term is defined in the Security Agreement), as
filed with the California Secretary of State (the "UCC Financing
Statement").
The documents referenced in items (a) through (d) above are
hereinafter sometimes referred to as the "Loan Documents".
We have been furnished with, and with your consent have relied
upon, a certificate of an officer of the Borrower with respect to certain
factual matters, a copy of which has been furnished to the Agent. In addition,
we have obtained and relied upon such certificates and assurances from public
officials as we have deemed necessary or appropriate. We have assumed the
genuineness of all signatures by all parties other than Borrower and the
authenticity of all documents submitted to us as originals and the conformity
with originals of all documents submitted to us as copies. As to matters of
fact, we have also relied upon the representations made by Borrower in the Loan
Documents.
Whenever a statement herein is qualified by "known to us," "to
our current actual knowledge," or similar phrase, it is intended to indicate
that those attorneys in this firm who have rendered legal services in
connection with the representations described in the introductory paragraphs of
this opinion letter do not have current actual knowledge of the inaccuracy of
such statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of such
statement, and any limited inquiry undertaken by us during the preparation of
this opinion should not be regarded as such an investigation. No inference as
to our knowledge of any matters bearing on the accuracy of any such statement
should be drawn from the fact of our representation of the Borrower.
<PAGE> 139
Bank of America NT&SA and
Sumitomo Bank of California - 9/18/92 - Page 3
Our opinions herein set forth are limited to the laws of the State of
California and United States Federal law. We express no opinion as to the laws
of any other jurisdiction.
On the basis of such examinations and our consideration of such questions
of law as we have deemed relevant in the circumstances, and subject to the
assumptions, limitations, qualifications and exceptions set forth herein, we
are of the opinion that:
1. The Borrower is a corporation duly incorporated, validity existing and
in good standing under the laws of the State of California. The Borrower has the
corporate power and corporate authority to own and operate its properties and
to carry on its business as presently conducted. The Borrower has the corporate
power and corporate authority to execute and deliver the Loan Documents to
which Borrower is a party and to consummate the transactions contemplated
thereby.
2. The execution, delivery and performance of the Loan Documents and the
payment of the Notes by Borrower have been duly authorized by all necessary
corporate action on the part of Borrower.
3. The Loan Documents to which Borrower is a party have been duly
executed and delivered by Borrower and constitute the legally valid and
binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms.
4. Neither the execution and delivery of the Loan Documents to which it
is a party by the Borrower, nor the performance thereof by the Borrower on or
prior to the date hereof nor the payment of the Notes (w) violates the Articles
of Incorporation by Bylaws of Borrower, (x) conflicts with or results in a
material default under any agreement or instrument identified to us by
Borrower as material, or any order, writ, judgment or decree known to us to
which Borrower is a party or which its assets are bound, (y) violates any
present Federal or California statute, rule or regulation binding on Borrower
or any of its assets or (z) results in the creation of any Lien under any
present Federal or California statute, rule or regulation binding upon any of
the assets of Borrower under any agreement, instrument, order, writ,
<PAGE> 140
Bank of America NT & SA and
Sumitomo Bank of California - 9/18/92 - Page 4
judgment or decree referred to in clause (x) above (other than Liens created
pursuant to such Loan Documents).
5. The making of the Loans and the application of the proceeds
thereof as provided in the Loan Agreement do not violate Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System.
6. No consents or approvals of, authorizations by, or
registrations, declarations or filings with any Federal or California
governmental authority are required on the part of Borrower in connection with
(i) the extensions of credit under the Loan Agreement, (ii) the execution and
delivery and performance on or prior to the date hereof by Borrower of the Loan
Documents to which it is a party, (iii) the grant of a security interest by
Borrower in the Collateral under the Security Agreement, and (iv) the payment
by Borrower of the Notes, except as required to perfect Liens in any of such
Collateral.
7. To the best of our knowledge based solely upon a certificate of
an officer of Borrower, there are no material actions, suits, or proceedings
pending or threatened against Borrower or any of its assets.
8. It is not necessary in connection with the execution and
delivery of the Notes under the circumstances contemplated by the Loan
Documents to register the Notes under the Securities Act of 1933, as amended,
or to qualify an indenture in respect thereof under the Trust Indenture Act of
1939, as amended. For purposes of this opinion, we have assumed that each Bank
is making the loans for its own account, in the ordinary course of its
commercial lending business and not with a view to sale or any other
distribution thereof.
9. The provisions of the Security Agreement are sufficient to
create in favor of the Collateral Agent a valid security interest in personal
property comprising the Collateral to the extent that a security interest can
be created therein under the California Uniform Commercial Code ("UCC"). Upon
taking possession of the Collateral, the Collateral Agent will have perfected
its security interest in the Collateral to the extent it is collateral of the
type described in Sections 9304 or 9305 of the UCC. The Collateral Agent has
perfected its security interests in Collateral of the type described in the UCC
Financing Statement, to the
<PAGE> 141
Bank of America NT & SA and
Sumitomo Bank of California - 9/18/92 - Page 5
extent that such security interests can be perfected by the filing of a
financing statement in the State of California.
10. The Borrower is not an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended, or a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or an "affiliate" of a "subsidiary company" of a "holding company"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Our opinions in paragraphs 3 and 9 above as to the validity, binding
effect or enforceability of the agreements referred to therein are subject to
(a) bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally, (b)
general principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing (regardless of whether
such validity, binding effect or enforceability is considered in a proceeding
in equity or at law), (c) public policy considerations or court decisions which
may limit the rights of the Banks, the Agent or the Collateral Agent to obtain
indemnification, (d) the unenforceability under certain circumstances of
provisions to the effect that rights or remedies are not exclusive, that rights
or remedies may be exercised without notice, that each right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy, that election of a particular remedy or remedies does not preclude
recourse to one or more other remedies, or that failure to exercise or delay in
exercising rights or remedies will not operate as a waiver of any such right or
remedy, (e) the unenforceability under certain circumstances of provisions
expressly or by implication waiving broadly or vaguely stated rights, unknown
future rights, defenses to obligations, rights granted by law or objections to
the bringing of an action or proceeding in a particular jurisdiction, where
such waivers are against public policy or prohibited by law, and (f) the
unenforceability under certain circumstances of any provisions which impose
penalties or forfeitures. Certain of the remedies in the agreements referred to
in paragraphs 3 and 9 above may be further limited or rendered unenforceable
by other applicable laws, but such other laws do not, in our opinion, make the
remedies or procedures afforded by such agreements inadequate
<PAGE> 142
Bank of America NT&SA and
Sumitomo Bank of California - 9/18/92 - Page 6
for the practical realization of the benefits intended to be provided hereby.
In giving the opinions expressed in paragraphs 4 and 7 above,
we have relied, with your approval, for purposes of identification of material
agreements and instruments or orders, writs, judgments or decrees or material
actions, suits or proceedings, solely on a certificate of an officer of
Borrower listing all material agreements and instruments or orders, writs,
judgments or decrees or material actions, suits or proceedings, to which
Borrower is a party or by which Borrower or any of its respective properties
may be bound or which may be threatened against Borrower or any of its assets.
In giving the opinions expressed in paragraph 9 above, we have relied, with
your approval, on a certificate of the California Secretary of State as to
filing of the UCC Financing Statement with such Secretary of State.
Our opinions rendered in paragraphs 4 and 6 above are based
upon our review only of those statutes, rules and regulations which, in our
experience, are normally applicable to transactions of the type contemplated by
the Loan Documents.
In rendering our opinions in paragraphs 6 and 8 above, we have
assumed further that each Bank is a sophisticated financial institution capable
of evaluating the merits and risks relating to the Notes, and that each Bank
has been provided access to such information relating to Borrower as such Bank
has requested.
In rendering our opinion in paragraph 9 above, we have assumed
(a) that the Borrower has rights in the Collateral within the meaning of
Section 9203(1)(c) of the UCC at all times relevant to this opinion, (b) that
none of the Collateral arises out of any transaction described in Section 9104
of the UCC, (c) that the Collateral does not include consumer goods or crops,
timber, minerals or the like (including oil and gas) or accounts resulting from
the sale of an interest in minerals or the like (including oil and gas), (d)
the sufficiency for purposes of the UCC of the description of the Collateral in
the Security Agreement and the UCC Financing Statement and (e) that no
agreements or understandings exist between the Agent, the Collateral Agent or
any Bank or other creditor secured thereby and other parties that would modify,
release or terminate the liens or security interests granted to the Collateral
Agent pursuant to
<PAGE> 143
Bank of America NT&SA and
Sumitomo Bank of California - 9/18/92 - Page 7
the Security Agreement in whole or in part, and the opinions expressed above
are limited to the extent that neither the Collateral Agent, the Agent nor any
Bank or other creditor secured thereby has taken any action to release,
terminate or waive the security interest granted by the Security Agreement in
all or part of the Collateral. We also call your attention to the fact that the
perfection of a security interest in "proceeds" (as defined in the UCC) of
collateral is governed and restricted by Section 9306 of the UCC and that the
validity of security interests in the inventory of a "retail merchant" (as
defined in Section 9102(7) of the UCC) is governed and restricted by Section
9102(4) - (7) of the UCC. We further advise you that we have not made or
undertaken to make any investigation of the state of title to, rights in, or
nature of the Collateral. We express no opinion with respect to the existence,
condition, location or ownership thereof or the priority of any liens thereon
or security interests therein. We advise you that with respect to Collateral
constituting fixtures that the priority of that security interest in
relationship to persons claiming rights to such fixtures under real estate law
will not be determined solely by the time of perfection, but may be based on a
fixture filing in the real estate records in the county in which the real
estate is located.
Except for the filing of periodic continuation statements every five
years within six months prior to each five year anniversary of the date of
filing of the UCC Financing Statement, it is not necessary under the UCC to
rerecord, reregister or refile the UCC Financing Statement, or to record,
register or file any other or additional documents, instruments or statements
in order to maintain perfection of the security interest in any Collateral as
to which a security interest has been perfected by the filing of the UCC
Financing Statement; provided, however, that additional financing statements
may be required to be filed if the Borrower changes its name, identity,
corporate structure, location of its chief executive office, or chief place of
business or the state in which any of the Collateral is located.
Insofar as the Security Agreement purports to create liens in
after-acquired property, such liens will be subject to Sections 547 and 552 of
the Bankruptcy Code.
We have, with your permission, expressed no opinion herein as to the
applicability of the Fair Labor Standards Act, 29 U.S.C. Section 201 et seq.
("Act") to the transactions
<PAGE> 144
Bank of America NT&SA and
Sumitomo Bank of California--9/18/92--Page 8
discussed herein. In certain instances, the Act, where applicable, may preclude
the sale or shipment in interstate commerce of certain items of Collateral
unless and until all relevant payroll obligations are met.
To the extent that the obligations of Borrower may be dependent upon
such matters, we assume for purposes of this opinion that each other person who
is a party to any of the Loan Documents (other than Borrower) is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization; that each of such agreements has been duly
authorized, executed and delivered by each such other person party thereto and
constitutes or will constitute the legal, valid and binding obligations of each
such other person, enforceable in accordance with their respective terms
against each such other person; and that each such other person has the
requisite corporate or other organizational power and authority to perform its
obligations under such agreements.
Except as expressly set forth in paragraph 5 above, we are not
expressing any opinion as to the effect of the Agent's or Collateral Agent's or
any Bank's compliance with any state or Federal laws or regulations applicable
to the transactions contemplated by the Loan Documents because of the nature of
the Agent's or Collateral Agent's or any Bank's business.
This opinion is rendered only to you and is solely for your benefit in
connection with the above transactions. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm or
corporation for any purpose, without our prior written consent. Copies of this
opinion may not be furnished to any other person, firm or corporation without
our prior written consent, except that each Bank may furnish copies hereof to:
(a) its independent auditors and attorneys; (b) any state or federal regulatory
authority with jurisdiction over such Bank; (c) pursuant to order or legal
process of any court or governmental agency; or (d) to any proposed participant
or assignee of all or a portion of such Bank's rights under the Loan Documents.
Respectfully submitted,
/s/ O'Melveny & Myers
------------------------------
<PAGE> 145
CERTIFICATE REGARDING CALIFORNIA
COMMERCIAL CODE SECTION 9102(5)-(7)
The undersigned delivers this certificate to BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as agent ("Agent") for the financial
institutions which are signatories ("Banks") to that certain Amended and
Restated Loan Agreement ("Loan Agreement"), dated as of September 10, 1992,
entered into between BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("Borrower"), Banks and Agent.
Reference is made to the credit transactions contemplated by the Loan
Agreement, the related Notes, and the Ancillary Documents (as defined in the
Loan Agreement). The undersigned has reviewed all of the provisions of the
foregoing documents insofar as they may impose any restrictions upon Borrower
with respect to the use of loan funds advanced thereunder. The undersigned
hereby certifies to Agent and Banks, and agrees that, in connection with the
indebtedness to be incurred pursuant to the Loan Agreement, the Notes, and the
Ancillary Documents referred to above, Agent and Banks have not made any
restrictions as to use of funds thereunder that are commercially unreasonable.
The undersigned further agrees that any restrictions as to use of funds
thereunder were made by Agent and Banks in good faith.
The undersigned stipulates that this certificate is an "Ancillary
Document" within the meaning of the Loan Agreement.
Dated as of September 10, 1992
BANKER'S CENTRAL ELECTRIC, INC., a
California corporation
By
--------------------------------
Its:
----------------------------
Exhibit 3.1(w)
<PAGE> 146
NOTICES
PARTIES NOTICE INFORMATION
Borrower: BANNER'S CENTRAL ELECTRIC, INC.
1810 South Main
Los Angeles, California 90015
Attention: Gregory J. Andrews
Telephone: (213) 748-9901
Telefacsimile: (213) 747-5927
with a copy to the attention of William King (at with
same address as above, and with the same telephone
and telefacsimile numbers as above)
And with a WEST COAST PRIVATE EQUITY PARTNERS, L.P.
copy of 400 South Hope Street, Suite 2000
notices to Los Angeles, California 90071
Borrower Attention: Scott R. Dunfrund
to: Telephone: (213) 253-3804
Telefacsimile: (213) 624-5689
Agent: BANK OF AMERICA, NT&SA
Global Agency No. 5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Attn: Mr. Jouni Korhonen
Telephone: (415) 622-4828
Telefacsimile: (415) 622-4894
Banks: BANK OF AMERICA, NT&SA
Los Angeles Commercial Banking No. 1459
525 South Flower Street, Mezzanine
Los Angeles, California 90071
Attention: Mark Perry
Telephone: (213) 228-4404
Telefacsimile: (213) 228-2051 or 2734
SUMITOMO BANK OF CALIFORNIA
611 West Sixth Street, Suite 3900
Los Angeles, California 90017
Attn: William G. Nelle, Jr. or
Laura French, Note Department
Telephone: (213) 362-5715 (Nelle) or
(213) 362-5714 (French)
Telefacsimile: (213) 622-1385 (Both)
SANWA BANK CALIFORNIA
601 South Figueroa, W10-5
Los Angeles, California 90017
Attention: Mr. Gilbert Dalmau, Vice President
Telephone: (213) 896-7985
Telefacsimile:(213) 896-7090
EXHIBIT 11.5
<PAGE> 147
SCHEDULE A-1
LIST OF ANCILLARY DOCUMENTS
1. Amended and Restated Security Agreement between Borrower and BofA as
Collateral Agent.
2. Amended and Restated Collateral Agency Intercreditor Agreement between
Collateral Agent, Agent and Banks.
3. California Uniform Commercial Code Form UCC-1 Financing Statement dated
September 24, 1991, filed with the California Secretary of State September 26,
1991, as Instrument No. 91-208508 (referred to below as "Item 3").
4. California Uniform Commercial Code Form UCC-2 Assignment, assigning Item 3
from Security Pacific National Bank, as Collateral Agent, to BofA, as
Collateral Agent.
5. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated September 24, 1991, pertaining to the Broadway Street, Los
Angeles facility of Borrower, recorded with the Los Angeles County, California
Recorder (referred to below as "Item 5").
6. California Uniform Commercial Code Form UCC-2 Assignment, assigning Item 5
from Security Pacific National Bank, as Collateral Agent, to BofA, as
Collateral Agent.
7. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated September 24, 1991, pertaining to the City of Vernon facility
of Borrower, recorded with the Los Angeles County, California Recorder
(referred to below as "Item 7").
8. California Uniform Commercial Code Form UCC-2 Assignment, assigning Item 7
from Security Pacific National Bank, as Collateral Agent, to BofA, as
Collateral Agent.
9. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated September 10, 1992, pertaining to the Huntington Park Facility
of Borrower, recorded with the Los Angeles County, California Recorder.
10. Landlord Waivers.
11. Perelman Subordination Agreement.
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12. Letter Agreement dated as of the Signing Date between Borrower, Agent and
Banks that refers to itself as the Syndication Agreement.
13. Certificate Regarding California Commercial Code Section 9102(5)-(7).
14. Security Agreement: Secured Party In Possession between Borrower and BofA
as Collateral Agent.
15. Continuing Guaranty between Central Ram, Inc. and BofA, as Agent.
16. Security Agreement between Central Ram, Inc. and BofA, as Collateral Agent.
17. California Uniform Commercial Code Form UCC-1 Financing Statement dated
June 14, 1994, executed by Central Ram, Inc., as Debtor, to be filed with the
California Secretary of State.
18. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the South San Francisco Warehouse of Central Ram, to be recorded
as a fixture filing.
19. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the Richmond facility of Central Ram, to be recorded as a fixture
filing.
20. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the Valencia facility of Central Ram, to be recorded as a fixture
filing.
21. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the Mission facility of Central Ram, to be recorded as a fixture
filing.
22. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the French Gallery facility of Central Ram, to be recorded as a
fixture filing.
23. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central Ram, Inc., as Debtor,
pertaining to the San Jose
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facility of Central Ram, to be recorded as a fixture filing.
24. California Uniform Commercial Code Form UCC-1 Fixture Filing Financing
Statement dated June 14, 1994, executed by Central ram, Inc., as Debtor,
pertaining to the Oakland facility of Central Ram, to be recorded as a fixture
filing.
25. Borrowing Base Maintenance Agreement made by West Coast Private Equity
Partners, L.P. in favor of BofA, as Agent.
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SCHEDULE D-1
DISCLOSURE STATEMENT
Sections 4.1 and 4.2 Due Organization; Subsidiaries; Capital Stock or
Interests of Borrower.
1. Borrower owns 100% of the issued and outstanding capital stock
of Central Ram, Inc., a Delaware corporation.
2. Borrower's issued and outstanding shares of capital stock are
as follows:
<TABLE>
<CAPTION>
Authorized
Class of Stock Number of Shares Outstanding Shares
- -------------- ---------------- ------------------
<S> <C> <C>
Common, $.01
par value 10,000 100
</TABLE>
All of the issued and outstanding shares of common stock of Borrower are owned
by Banner's Central Electric Holdings, Inc.
Section 4.17 Licenses, Patents, Trademarks and Intellectual Property.
1. Borrower has learned of businesses operating under the name
"Central Electric Co." at 10792 Vernon Avenue, Ontario, California, 91761, and
in Watsonville, California; of a business conducted under the name "Central
Electric Co." in Castro Valley, California; and of a business operating under
the name of "Central Electric" in Los Angeles, California.
2. Borrower has filed fictitious business name statements for the
names "Central Electric", "Central Furniture, TV, Appliances", "Central
Electric Company", "Central Electric Co.", "Discount Central", "Discount
Central Stores", "Central Baby and Youth Store", "Baby Central" and "Central
Baby". In addition, Borrower has registered the service mark "Central" with the
California Secretary of State on April 10, 1985 (Service Mark Registration No.
22789). Except for the preceding marks, Borrower has not registered any marks
with any governmental agency.
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Section 4.24. Location of Chief Executive Office.
The location of the chief executive office of Borrower is at 1810 South
Main, Los Angeles, California, and its principal business locations are 1810
South Broadway, Los Angeles, California, and the Pacific Randolph Shopping
Center, 6051 Pacific Boulevard, Huntington Park, California. Borrower will
commence operations at 5480 Ferguson Drive, Commerce, California, on or about
November 26, 1993, and will move its corporate office to the Commerce location
on or about January 15, 1994. Borrower leases space in a warehouse located at
2263 East Vernon Avenue, Vernon, California, and in a warehouse located at 2657
East Vernon Avenue, Vernon, California. Borrower also stores certain inventory
offsite at a Unocal gas station located at 1900 South Broadway, Los Angeles,
California. Borrower has entered into leases for a 7800 square foot store
location at 14103 Ramona Boulevard #B, Baldwin Park, California 91706 and a
31,000 square foot store location at 2120 South Bristol Street, Santa Ana,
California. Borrower expects to commence operations at the Baldwin Park
location on or about November 26, 1993, and at the Santa Ana location on or
about March 1, 1994.
Section 4.30. Central Ram.
(a) Licenses, Patents, Trademarks and Intellectual Property. Central
Ram has the following trade names:
Ramco
Ramco Furniture
Golden Gate
Golden Gate Furniture
(b) Chief Executive Office. The chief executive office of Central Ram,
Inc. is located at 5480 Ferguson Drive, Commerce, California 90022.
(c) Location of Assets. Central Ram, Inc. also has assets at the
following locations:
2293 Mission Street
San Francisco, California 94110
2301 Mission Street
San Francisco, California 94110
2345 MacDonald Avenue
Richmond, California 94804
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1019 Clay Street
Oakland, California 94607
995 East Santa Clara Street
San Jose, California 95116
352 Shaw Road
San Francisco, California 94080
560 Valencia Street
San Francisco, California 94110
Section 6.1. Indebtedness.
1. Borrower has entered into equipment leases with Amplicon Financial,
Inc., Wells Fargo Leasing Company and XL/Datacomp, Inc. The latter two leases
have been assigned to LB Credit Corp. or Sanwa Business Credit Corp.
2. Central Ram has entered into the following equipment leases: (a)
Computer Lease ($97,233.00); (b) AVCO ($14,894.00); (c) NDMC Truck TMCC
($4,447.00 evidenced by a note); and (d) Lanier Copier ($4,041.00 evidenced by
a note).
Section 6.2. Liens.
1. Financing statements have been filed naming Borrower as debtor with
respect to the Wells Fargo Leasing Company and XL/Datacomp, Inc. leases
described under item 1 of Section 6.1 above (Financing Statement ("F/S") Nos.
88-311551, 89-270172, 90-267934, 91-002709, 91-028985, 91-210212, 91-076313,
92-008359, 92-150113 and 92-150114). It is expected that a financing statement
will be filed with respect to the Amplicon Financial, Inc. lease described
under item 1 of Section 6.1 above.
2. Ford Motor Credit has a lien against certain assets of Borrower to
secure indebtedness to purchase two vans in the approximate original principal
amount of $27,700.
3. Ladco Leasing F/S No. 91-121314 filed June 3, 1991, naming Borrower
as debtor assigned to City National Bank, with respect to an equipment lease
for two water coolers.
4. ITT Commercial Finance Corp. has filed financing statements (F/S
Nos. 91-141577, 91-208507) against substantially all of Borrower's assets to
secure indebtedness which, together with all other indebtedness
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advanced by any Floor Plan Lender, does not exceed $18,000,000.
5. Form UCC-1 Financing Statement filed with the Secretary of
State of California on February 7, 1991 (No. 91-025976) by Mission National
Bank, as Secured Party, naming Golden Gate Furniture, Inc., as Debtor, which
was assumed by Central Ram, Inc.
6. Form UCC-1 Financing Statement filed with the Secretary of
State of California on September 2, 1993 (No. 93-179781) by AVCO Leasing
Services, Inc., as Secured Party, naming Ramm's Furniture, as Debtor, which was
assumed by Central Ram, Inc.
Section 6.3. Investments.
Borrower has invested in Central Ram, Inc. pursuant to the
terms and conditions of that certain Asset Purchase Agreement dated as of
May 26, 1994.
Section 6.10. Transactions with Shareholders and Affiliates.
Borrower pays management fees to its parent, Banner's Central
Electric Holdings, Inc., and to West Coast Private Equity Partners, L.P., the
majority owner of Banner's Central Electric Holdings, Inc., for services
rendered by such companies. Borrower believes that such management fees
represent fair and reasonable compensation for the services rendered.
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Central Consumer Finance Company, a Delaware corporation.
2. Central Auto Sales, Inc., a California corporation.
3. Centravel, Inc., a California corporation.
4. Central Financial Acceptance/Insurance Agency, Inc., a California
corporation.
5. Central Premium Finance Company, a California corporation.
6. BCE Properties, Inc., a California corporation.
7. Central International, Ltd., a Turks and Caicos corporation.
8. Central Installment Credit Corporation, a California corporation.
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-3790 of Central Financial Acceptance Corporation of our report dated April
12, 1996, appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 31, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF LOUIS CALDERA
The undersigned hereby consents to being named in, and to the manner in
which such name, biography, and other information with respect to the
undersigned, appears in the Registration Statement on Form S-1 (Registration
No. 333-3790) as filed with the Securities and Exchange Commission, and any
amendments or supplements thereto.
/s/ LOUIS CALDERA
-------------------------------
Louis Caldera
Dated: May 28, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF JOSE DE JESUS LEGASPI
The undersigned hereby consents to being named in, and to the manner in
which such name, biography, and other information with respect to the
undersigned, appears in the Registration Statement on Form S-1 (Registration
No. 333-3790) as filed with the Securities and Exchange Commission, and any
amendments or supplements thereto.
/s/ JOSE DE JESUS LEGASPI
-------------------------------
Jose de Jesus Legaspi
Dated: May 28, 1996
