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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 19, 1997
Ugly Duckling Corporation
(Exact name of registrant as specified in its charter)
Delaware 20841 86-0721358
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification Number)
2525 East Camelback Road, Suite 1150, Phoenix, AZ 85016
(Address of principal executive offices)
Registrant's telephone number, including area code: (602) 852-6600
NONE
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On September 19, 1997, Ugly Duckling Corporation through its subsidiaries
(collectively, the "Company"), acquired substantially all of the operations and
related assets of KARS-YES Holdings Inc., a Texas corporation ("Parent"),
KARS-YES Financial Inc., a Delaware corporation and wholly-owned subsidiary of
Parent ("Finance"), and KARS-YES Inc., a Delaware corporation and majority-owned
subsidiary of Parent ("Retail" and together with Parent and Finance, "Sellers"),
in the states of California, Georgia, Texas, and Florida. Some of the basic
terms of the acquisition and of certain servicing arrangements in connection
therewith are summarized below. The Agreement for Purchase and Sale of Certain
Assets dated as of September 15, 1997 pursuant to which the acquisition was
effected (the "Purchase Agreement") is attached hereto as Exhibit 2.1, and this
summary is qualified in its entirety by reference to the full Purchase
Agreement. The Portfolio Servicing Agreement and the Subservicing Agreement,
each dated as of September 15, 1997, are attached hereto as Exhibit 10.1 and
Exhibit 10.2, respectively, and the description herein of the servicing and
subservicing arrangements effected in connection with the acquisition are
qualified in their entirety by reference to the full appropriate agreement.
Prior to the acquisition, Sellers were engaged in the business of selling
and financing used motor vehicles. Pursuant to the acquisition, the Company
acquired the Sellers' headquarters facilities and twelve dealerships, six of
which are located in California, two in Georgia, two in Florida, and two in
Texas, in each case by lease or sublease, along with the related operations and
the furniture, leasehold improvements, fixtures, equipment, supplies and
intellectual property relating to the business purchased. The Company also
acquired substantially all of the automobile inventory held by Sellers, subject
to the right of the Company to cause Sellers to repurchase any inventory found
to be unacceptable due to mechanical defect or failure during the fourteen day
period following the closing. The Company assumed selected liabilities of
Sellers consisting primarily of facilities leases and subleases, equipment
leases and software license agreements, and certain obligations to employees of
Sellers hired by the Company for accrued vacation and sick pay. The Company
obtained the money to make the acquisition from borrowings under its credit
facility with General Electric Capital Corporation. The Company intends to
continue the business acquired using its own business practices.
The Company did not acquire the portfolio of installment sales contracts
held by Sellers, but did enter into a portfolio servicing agreement with Sellers
pursuant to which a subsidiary of the Company agreed to administer and service
the existing loan portfolio of Sellers for a fee. The Company and such
subsidiary further entered into a subservicing agreement with respect to certain
obligations of Finance to service receivables that had been previously
securitized by a subsidiary of Finance for a fee.
The purchase price of the assets acquired was approximately $5.8 million
in cash, subject to the right to require Sellers to repurchase certain inventory
as described above. In connection with the acquisition, the consent of the
senior and subordinated lenders of Sellers was obtained and the Sellers
represented and warranted that the trade creditors would be paid out of the
purchase price.
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Item 5. Other Events
On September 29, 1997, Champion Receivables Corp. II ("Receivables II"),
the Company's newly-formed, wholly-owned, bankruptcy remote subsidiary,
completed a securitization of approximately $104 million of automobile
receivables obtained from the sale of automobiles at dealerships operated by
subsidiaries of the Company, the purchase of receivables from independent third
party dealers and bulk purchases from finance companies and sold approximately
$85 million of Class A Certificates (with a coupon rate of 6.27%) pursuant to
the securitization in a private placement. The receivables securitized include
contracts purchased from Seminole Finance Corporation and E-Z Plan, Inc. or
their affiliates in acquisitions effected by the Company in January and April of
1997, respectively. The assets of Receivables II include residuals in finance
receivables and investments held in trust and are included in the Company's
consolidated financial statements notwithstanding that the assets of Receivables
II would not be available to satisfy claims of creditors of the Company on a
consolidated basis.
Failure to continue to identify new securitization participants and to
periodically engage in securitization transactions would adversely affect the
Company's cash flows and net earnings. The Company's ability to successfully
complete securitizations in the future may also be affected by several factors,
including the condition of securities markets generally, conditions in the
asset-backed securities markets specifically, and the credit quality of the
Company's portfolio.
Item 7. Financial Statement, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
It is impractical to provide the required financial
information at the time of filing this report. The required financial
information will be filed by amendment to this Form 8-K no later than December
3, 1997.
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this report. The required pro forma financial
information will be filed by amendment to this Form 8-K no later than December
3, 1997.
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(c) Exhibits
Exhibit Number Description
-------------- -----------
2.1 Agreement for Purchase and Sale of Certain Assets
dated as of September 15, 1997. (1)
10.1 Portfolio Servicing Agreement dated as of
September 15, 1997.
10.2 Subservicing Agreement dated as of September 15,
1997.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- --------
(1) The Company will furnish supplementally a copy of any omitted
schedule to the Agreement of Purchase and Sale of Assets to the Commission upon
request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UGLY DUCKLING CORPORATION
(Registrant)
Dated: October 2, 1997 By: /s/ Steven P. Johnson
----------------------------------------
Steven P. Johnson, Senior Vice President
and General Counsel
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Exhibit Index
Exhibit Number Description
-------------- -----------
2.1 Agreement for Purchase and Sale of Certain Assets
dated as of September 15, 1997. (1)
10.1 Portfolio Servicing Agreement dated as of
September 15, 1997.
10.2 Subservicing Agreement dated as of September 15,
1997.
- --------
(1) The Company will furnish supplementally a copy of any omitted
schedule to the Agreement of Purchase and Sale of Assets to the Commission upon
request.
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EXHIBIT 2.1
AGREEMENT FOR PURCHASE AND
SALE OF CERTAIN ASSETS OF
KARS-YES HOLDINGS INC.,
KARS-YES FINANCIAL INC., AND
KARS-YES INC., AS
SELLERS,
AND
UGLY DUCKLING CORPORATION,
AS BUYER,
DATED AS OF
SEPTEMBER 15, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - PURCHASE AND SALE OF ASSETS.................................... 2
1.1 Assets Purchased............................................ 2
1.2 Excluded Assets............................................. 3
1.3 Assumed Liabilities......................................... 4
1.4 Excluded Liabilities........................................ 5
1.5 Future Sales Arrangement.................................... 6
1.6 Lease Agreements............................................ 6
1.7 Financial Information Required.............................. 7
ARTICLE II - PURCHASE PRICE AND CLOSING.................................... 8
2.1 Purchase Price.............................................. 8
2.2 Payment of Purchase Price at Closing........................ 9
2.3 Closing..................................................... 9
2.4 Allocation of Purchase Price; Accounting Treatment.......... 9
ARTICLE III - PORTFOLIO SERVICING AGREEMENT................................ 10
3.1 Administration of Sellers' Existing Loan Portfolio.......... 10
3.2 Sellers' Continuing Responsibilities........................ 10
ARTICLE IV - MANAGEMENT SERVICES AGREEMENT................................. 10
4.1 Sellers to Enter into Services Agreement.................... 10
4.2 Responsibilities of Buyer................................... 10
ARTICLE V - AGREEMENTS REGARDING AUTOMOBILE INVENTORY...................... 11
5.1 Purchase of Automobile Inventory............................ 11
5.2 Automobile Inventory Holdback............................... 11
ARTICLE VI - FACILITIES CONSIDERATIONS..................................... 11
6.1 Relocation of Appliance Company Employees................... 11
6.2 Cooperation with Option Space Lease......................... 11
6.3 Redbird Sales and Reconditioning Facility................... 12
6.4 Appliance Company's Option with Respect to the Plano Road
Facility.................................................... 12
ARTICLE VII - SOFTWARE AND INTELLECTUAL PROPERTY ARRANGEMENTS.............. 12
7.1 Proprietary Software........................................ 12
7.2 Licensed Software........................................... 13
7.3 Agreements Relating to the Appliance Company Agreement...... 13
7.4 Use of Computer System by Appliance Company Personnel....... 13
7.5 Other Events................................................ 14
7.6 Cooperation................................................. 14
</TABLE>
(i)
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<TABLE>
<S> <C>
ARTICLE VIII - NON-SOLICITATION OF EMPLOYEES............................... 15
ARTICLE IX - CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES........ 15
9.1 Conditions Precedent to Obligations of Buyer and Sellers.... 15
9.2 Conditions to Obligations of Sellers to Close............... 16
9.3 Conditions Precedent to the Obligations of Buyer............ 16
ARTICLE X - COVENANTS OF THE PARTIES....................................... 18
10.1 Conduct of Acquired Business................................ 18
10.2 Access to Information....................................... 19
10.3 Efforts to Consummate Transaction........................... 20
10.4 Press Release............................................... 20
10.5 Books and Records........................................... 20
10.6 Employment.................................................. 21
10.7 Expenses.................................................... 21
10.8 Cobra Coverage.............................................. 21
10.9 Post Closing Responsibility................................. 22
10.10 Environmental Covenants..................................... 22
ARTICLE XI - REPRESENTATIONS AND WARRANTIES OF SELLERS..................... 23
11.1 Due Organization and Qualification.......................... 23
11.2 Corporate Power and Authority............................... 23
11.3 No Violations............................................... 24
11.4 Completeness of Acquired Assets............................. 24
11.5 Consents.................................................... 24
11.6 Governmental Approval....................................... 25
11.7 Litigation.................................................. 25
11.8 Environmental Laws and Regulations.......................... 25
11.9 Employee Benefit Plans...................................... 29
11.10 Financial Information....................................... 30
11.11 Subsidiaries................................................ 30
11.12 Absence of Undisclosed Liabilities.......................... 30
11.13 Absence of Certain Developments............................. 30
11.14 Real Estate................................................. 32
11.15 Tax Matters................................................. 33
11.16 Contracts and Commitments................................... 35
11.17 Intellectual Property....................................... 36
11.18 Employment Matters.......................................... 38
11.19 No Liens.................................................... 38
11.20 Affiliate Transactions...................................... 38
11.21 Compliance with Laws; Permits............................... 38
11.22 Reasonably Equivalent Value................................. 39
11.23 Disclosure.................................................. 39
</TABLE>
(ii)
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<TABLE>
<S> <C>
ARTICLE XII - REPRESENTATIONS AND WARRANTIES OF BUYER............................ 39
12.1 Due Organization and Qualification................................ 39
12.2 Corporate Power and Authority..................................... 39
12.3 No Violations..................................................... 40
12.4 Consents.......................................................... 40
12.5 Conformity with Law and Litigation................................ 40
12.6 Reasonably Equivalent Value....................................... 40
ARTICLE XIII - INDEMNIFICATION................................................... 41
13.1 Definitions....................................................... 41
13.2 Indemnification by Sellers........................................ 41
13.3 Indemnification by Buyer.......................................... 42
13.4 Procedure for Indemnification Claims.............................. 42
ARTICLE XIV - GENERAL PROVISIONS................................................. 43
14.1 Cooperation....................................................... 43
14.2 Survival of Covenants, Agreements, Representations and Warranties. 43
14.3 Successors and Assigns............................................ 44
14.4 Entire Agreement.................................................. 44
14.5 Counterparts...................................................... 44
14.6 Brokers and Agents................................................ 44
14.7 Expenses.......................................................... 44
14.8 Notices........................................................... 44
14.9 Governing Law..................................................... 45
14.10 Exercise of Rights and Remedies................................... 45
14.11 Reformation and Severability...................................... 46
14.12 Remedies Cumulative............................................... 46
14.13 Captions.......................................................... 46
14.14 Use of Certain Terms.............................................. 46
14.15 Attorneys' Fees................................................... 46
14.16 Waiver of Jury Trial.............................................. 46
</TABLE>
(iii)
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LIST OF SCHEDULES
Included in Disclosure Schedule
<TABLE>
<S> <C>
1.1(d) List of Furniture, Improvements, fixtures, equipment, supplies, tools and
other goods
1.1(e) Assignable Permits
1.1(g) Assumed Agreements
1.1(h) Intellectual Property
1.1(j) Acquired Automobile Inventory
1.6(a) Leases with Non-Affiliates
1.6(b) Copy of the Appliance Company Agreement
1.6(c) Rental Rates for Plano Road
2.2 Trade Creditors and Trade Claims
3.1(a) Portfolio Servicing Agreement
3.1(b) Subservicing Agreement
4.1 Management Services Agreement
7.1 Proprietary Software
7.1(a) Exceptions to Software Representations
7.2 Licensed Software
9.1(d) Master Bill of Sale, Assignment and Assumption Agreement
10.6(a) Employees Not to Be Offered Employment
10.6(b) Employees who are precluded from Offers of Employment (Appliance
Company)
11.1 State Qualifications to Transact Business
11.5 Required Consents
11.8 Environmental Exceptions
11.9 Employee Benefit Plans
11.10 June 30, 1997 Balance Sheet
11.11 List of Subsidiaries
11.13 Post-June 30, 1997 Matters
</TABLE>
(iv)
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<TABLE>
<S> <C>
11.14(b) Real Estate Leases and Improvements
11.15 Tax Exceptions
11.16 Contract Disclosure
11.17 Intellectual Property
11.18 Employment Matters
11.19 Liens
11.20 Affiliate Transactions
11.21 Permits
</TABLE>
(v)
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AGREEMENT FOR PURCHASE AND SALE OF CERTAIN ASSETS
This Agreement for Purchase and Sale of Certain Assets ("the Agreement")
is entered into as of the 15th day of September, 1997, by and between KARS-YES
Holdings Inc., a Texas corporation ("Parent"), KARS-YES Financial Inc., a
Delaware corporation ("Finance"), and KARS-YES Inc., a Delaware corporation
("Retail"), as Sellers (Parent, Finance, and Retail collectively are referred to
hereinafter as "the Sellers"), and Ugly Duckling Corporation, a Delaware
corporation ("Buyer"), as Buyer, and joined in for certain limited purposes as
set forth herein by The YES Group Inc., a Texas Corporation (the "Appliance
Company").
WITNESSETH
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the
operations of Finance, the headquarters operations of Parent and all Sellers,
and the retail operations of Retail in certain states, including all equipment
owned by Sellers for such operations;
WHEREAS, Buyer will enter into or assume certain real estate leases or
subleases and equipment leases of the operations acquired by Buyer;
WHEREAS, the purchase price for the assets to be acquired, other than
automobile inventory, is $3 million dollars plus the direct payment of all
payroll expenses for the employees of Sellers hired by Buyer from and after
12:01 A.M. on Saturday, September 6, 1997 (the "Effective Time"), to the
Closing, as hereinafter defined;
WHEREAS, Buyer also will purchase designated automobile inventory for a
designated price with respect to which Buyer will hold back ten percent (10%) of
the designated price for the automobile inventory purchased for a period of
fourteen (14) days after the Closing, with payment pursuant to the holdback to
be made by the fifteenth (15th) day after the Closing, or if such day is not a
business day, the next following business day (the "Settlement Date"), as
protection for unacceptable automobile inventory returned to Sellers within such
period;
WHEREAS, Buyer expressly would not assume any of the loans or receivables
of Sellers or assume any obligations relating to operations not being acquired
by Buyer except with respect to a portfolio servicing agreement to be entered
into between Buyer and Sellers pursuant to which Buyer would administer and
service the existing loan portfolio of Sellers for a fee and pursuant to
arrangements set forth therein and except that Buyer will enter into a
subservicing agreement with respect to the obligations of Finance as Collection
Agent under that certain Originator Sale Agreement, dated as of October 1, 1995,
by and among Finance, as Seller and Collection Agent, and YES Receivables Inc.,
as Purchaser (the "Originator Sale Agreement");
WHEREAS, until such time as Buyer can procure applicable and appropriate
licenses, to the fullest extent permitted by applicable law, Sellers would enter
into a management services agreement
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with Buyer in order to permit continued operations of the businesses and
operations transferred after the effective time of the sale;
WHEREAS, Buyer will acquire all rights to the trade name "KARS-YES",
subject to Sellers' continued use thereof for their corporate names and in
connection with the Excluded Assets, and certain other trade names and other
intellectual property of the Sellers, with the express understanding that,
except as otherwise provided herein, Buyer will have no rights to the trade
names and intellectual property of the Appliance Company formerly affiliated
with Sellers, as governed by an agreement between the Parent and the Appliance
Company (the "Appliance Company Agreement");
WHEREAS, the Buyer and Sellers desire to make certain arrangements
regarding various facilities and with respect to arrangements for Sellers'
proprietary and licensed software, including the sharing of any transfer costs
or licensing fees; and
WHEREAS, each of Buyer, Sellers and the Appliance Company, which joins in
this Agreement for certain limited purposes, desires to agree not to solicit
employees of one another for the period specified herein except as otherwise
provided with respect to employees of Sellers to be offered employment or hired
by Buyer pursuant to this Agreement;
NOW, THEREFORE, for and in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Assets Purchased. At the Closing, as hereinafter defined, the Buyer
will purchase (directly or through an affiliated company or companies) and the
Sellers will sell all of Sellers' assets, whether real, personal or mixed,
tangible or intangible, including the following, but not including Excluded
Assets (defined below) (hereinafter referred to as the "Acquired Assets"):
(a) the operations and related assets of Finance;
(b) the headquarters' operations and related assets of Sellers;
(c) the operations and related assets of Retail in the states of
California, Georgia, Texas and Florida (with (a), (b) and (c) of this
Section being hereinafter referred to as the "Acquired Business");
(d) All furniture, leasehold improvements, fixtures, equipment,
supplies, tools for maintenance and repair, other goods, and all other
appurtenances in and to the premises
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utilized by Sellers in the operation of the Acquired Business, as
specified on SCHEDULE 1.1(d) hereto except for fixtures and appurtenances
of the real property owned by Retail located at Plano Road in Dallas,
Texas;
(e) Any assignable title, claims, and rights under Permits (as
defined in Section 11.21), but excluding any permits relating solely to
Excluded Assets ("Acquired Permits"), as specified on SCHEDULE 1.1(e)
hereto;
(f) Subject to paragraph (g) below relating to Agreements (as
defined in Section 11.16), and paragraph (h) below relating to
Intellectual Property (as defined below), any additional items of tangible
or intangible property used or owned by Sellers related to the Acquired
Business, the Acquired Assets or the Acquired Facilities (defined below),
which are not included above, including, without limitation, prepaid
expenses and deposits, and goodwill;
(g) All Agreements relating to the Acquired Business, the Acquired
Assets, or the Acquired Facilities (including but not limited to equipment
leases) that Buyer agrees to assume and that are listed in SCHEDULE 1.1(g)
hereto ("Assumed Agreements");
(h) Subject to Article VII hereof, all of Sellers' right, title and
interest in and to the intellectual property assets, rights, and
properties of Sellers of every kind, character, and description and
wherever located, relating to or used directly or indirectly in the
operation of the Acquired Business, including, without limitation, all
copyrights, service marks, trademarks, trade names, trade secrets,
patents, patent applications, toll free telephone numbers, query libraries
and other licenses and permits issued to or owned by Sellers and the
property and rights to be transferred to Buyer pursuant to Article VII
hereof as described in SCHEDULE 1.1(h) (collectively, the "Intellectual
Property");
(i) All books of account, records, files, invoices, customer lists
and information, supplier lists and information, employee files, operating
manuals, catalogs, technical information sheets, pricing sheets,
advertising and display materials, and brochures and other materials and
data associated with, used, or employed by Sellers in the operation of the
Acquired Business and ownership of the Acquired Assets;
(j) The automobile inventory (the "Acquired Automobile Inventory")
as described in SCHEDULE 1.1(j);
(k) Petty cash located at the retail locations of Retail being
acquired by Buyer; and
(l) Installment sales agreements originated after the Effective Time
for automobiles listed on the Acquired Automobile Inventory and sold after
the Effective Time, together with related files and the dollar amount of
down payments received after the Effective Time for such automobiles sold
after the Effective Time.
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1.2 Excluded Assets. Anything contained in Section 1.1 or elsewhere herein
to the contrary notwithstanding, there are expressly excluded from the assets,
properties, interests in properties and rights of the Sellers to be sold,
transferred, assigned, and delivered to Buyer the following (the "Excluded
Assets"):
(a) Receivable Files (as such term is defined in the Portfolio
Servicing Agreement), installment sales agreements and accounts receivable
of Sellers, except for installment sales agreements and related files
covered by Section 1.1(l);
(b) Any automobile inventory of Retail not included in the Acquired
Automobile Inventory;
(c) The stock of any subsidiary of any Seller, including, but not
limited to the stock of YES Receivables Inc. held by Finance and other
subsidiaries listed on SCHEDULE 11.11 hereto;
(d) All of Sellers' right, title and interest under or related to
this Agreement, including, without limitation, the consideration delivered
to Sellers pursuant to this Agreement;
(e) The minute books, stock transfer books, seals, blank share
certificates, and other documents and things relating to organizational
matters and the existence of each of the Sellers as a corporation and the
corporate tax returns (including all tax refunds) and financial statements
of Sellers, provided, however, that Buyer shall have the right to request
and promptly receive copies of corporate tax returns and financial
statements of Sellers for periods or portions thereof prior to the Closing
(as defined below);
(f) Cash (other than petty cash located at the retail locations of
Retail being acquired by Buyer), real estate loans, stockholder or
affiliate loans and advances, and any other loans or advances not
specifically purchased hereunder;
(g) any and all benefit plans of Sellers or for the benefit of any
employees, officers or directors of Sellers;
(h) the real property owned by Retail located at Plano Road in
Dallas, Texas; and
(i) Sellers' right, title, and interest relating to any assets,
rights, and properties of Sellers, wherever located, whether tangible or
intangible, unrelated to the Acquired Business or the Acquired Assets.
1.3 Assumed Liabilities. The Buyer will assume (i) the contractual
obligations of the Sellers with respect to all Assumed Agreements, the Future
Sales Arrangement (defined below), and the Acquired Third Party Leases (defined
below), as well as the obligations specified in the Portfolio Servicing
Agreement (defined below) and the Subservicing Agreement (defined below), in
each case
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arising from and after the Closing, and (ii) obligations of the Sellers to
employees of the Sellers who are offered employment and hired by Buyer pursuant
to Section 10.6 hereof for accrued vacation and sick pay as of the Closing, and
(iii) all obligations for the operations of the Acquired Business and the
Acquired Assets arising from and after the Closing, subject in all cases to
Sellers' obligations of indemnity and other obligations hereunder (collectively,
the "Assumed Liabilities"). It is expressly understood and agreed that Buyer
shall not be liable for any of the obligations or liabilities of Sellers of any
kind or nature other than those specifically assumed by Buyer under this Section
1.3, and the Acquired Assets will be conveyed to Buyer at the Closing free and
clear of all liens, claims, and other liabilities other than the Assumed
Liabilities.
1.4 Excluded Liabilities. Notwithstanding anything to the contrary herein,
Buyer expressly will not assume, and Sellers will continue to have
responsibility for (i) all obligations and liabilities arising from Sellers'
existing customer loans (other than Buyer's servicing obligations pursuant to
the terms of the Portfolio Servicing Agreement and the Subservicing Agreement),
(ii) any and all liabilities and obligations arising prior to the Closing, (iii)
any and all liabilities with respect to the operations and assets of Sellers not
being acquired by Buyer, (iv) all transfer taxes, costs or fees imposed on
Sellers arising out of this Agreement, except as provided in Section 7.2, (v)
all liabilities and obligations of Sellers under this Agreement or with respect
to or arising out of the consummation of the transactions contemplated by this
Agreement, (vi) except as described in clause (ii) of the first sentence of
Section 1.3, hereof, any liabilities to officers or employees of any of Sellers
for any period prior to the Closing, including without limitation, accrued
severance pay, and similar matters, or arising out of the consummation of the
transactions contemplated hereby, including without limitation, the termination
of employment of any of such officers or employees as contemplated herein prior
to any of such persons being hired by Buyer or any subsidiary of Buyer pursuant
to Section 10.6 hereof, (vii) all liabilities and obligations of Sellers for
fees and expenses incurred in connection with, relating to, or arising out of
the consummation of the transactions contemplated by this Agreement, (viii) all
liabilities and obligations of any Seller secured by any Acquired Assets, which
shall be satisfied and any related liens or security interests released prior to
the Closing, (ix) all liabilities for "Taxes" (as defined in Section 11.15) of
the Sellers (regardless of when incurred), including, without limitation, Taxes
of the Seller relating to any period prior or subsequent to the Closing or
arising as a result of the conveyance of the Acquired Assets to Buyer or the
assumption by Buyer of the Assumed Liabilities, or of any other person
(regardless of when incurred) under Treas. Reg. 1502-6 (or any similar provision
of state, local, or foreign law) as a transferee or successor, by contract or
otherwise, (x) any liability under or attributable to any benefit plan of
Sellers or for the benefit of any employees, officers or directors of Sellers,
(xi) any liability or obligation arising from the ownership or operation of the
Acquired Business or the Acquired Assets or the ownership or operation of the
Acquired Facilities prior to the Closing, including but not limited to any
scheduled contingency or item pertaining to any Seller, the Acquired Business,
the Acquired Assets, or the Acquired Facilities, any environmental claim or
matter, including any such matter identified on any Phase I or Phase II reports
on the Acquired Facilities obtained by Buyer in connection with the transactions
contemplated herein, any taxes due or claimed to be due, and any litigation
relating to or in respect of the Acquired Assets, the Acquired Business, or the
Acquired Facilities, and (xii) all other liabilities that are not specifically
assumed by Buyer under Section 1.3 hereof, including but not limited to any
liabilities that are reflected on any balance sheet
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of any Seller provided to Buyer pursuant to this Agreement or that should be so
reflected or disclosed as a contingent liability under generally accepted
accounting principles ("GAAP") (collectively, the "Excluded Liabilities").
Sellers shall discharge the Excluded Liabilities and, without limitation of the
foregoing, if Sellers shall at any time dissolve or make any distribution for
the benefit of equity holders following the Closing, Sellers shall pay, post
security for or otherwise make full and adequate provision for all Excluded
Liabilities. Except as otherwise contemplated herein, Buyer and Sellers shall
allocate as of Closing all expenses for utilities, property, sales and use
taxes, Acquired Lease rentals, costs and other expenses, and other similar
expenses relating to the Acquired Business and the Acquired Assets.
Notwithstanding the preceding, Sellers shall pay or be responsible to pay all
leasehold rentals, including all amounts payable for related taxes, insurance
and maintenance of the Acquired Business that become due and payable prior to
Closing, without pro ration, and Buyer shall pay or be responsible to pay all
leasehold rentals, including all amounts payable for related taxes, insurance
and maintenance of the Acquired Business that become due and payable after the
Closing, without pro ration.
1.5 Future Sales Arrangement. Buyer will assume the Sellers' position in
Sellers' upgrade guaranty program pursuant to which a customer within six months
of paying off his or her loan is eligible for an upgrade which entitles the
customer to fast credit approval, a lower down payment and a lower APR (the
"Future Sales Arrangement").
1.6 Lease Agreements. Buyers and Sellers agree that, as of the Closing,
Buyer or one or more subsidiaries or affiliates of Buyer shall:
(a) assume the existing leases (the "Assumed Leases") entered into
by Sellers for facilities located in the states of Texas, Georgia and
California used in the Acquired Business and owned by non-affiliates of
Sellers as described on SCHEDULE 1.6(a) and enter into subleases with the
applicable Seller (the "Subleases") under existing leases (the "Sublease
Leases" and together with the Assumed Leases, the "Acquired Third-Party
Leases") for the three facilities located in the state of Florida and
described on SCHEDULE 1.6(a) (collectively, the "Independent Facilities"),
the assumption of the Assumed Leases to be for the remaining term of such
leases and under their existing terms and provisions and such Subleases to
be for a term and with such provisions as are described on SCHEDULE 1.6(a)
hereof, including put back rights, rental subsidies, etc., provided,
however, that if the Buyer and Sellers determine that a sublease of the
Assumed Leases is beneficial, the Buyer may sublease the applicable
facilities from the applicable Sellers on terms and conditions as are
mutually agreed; and
(b) enter into a new lease with Retail for the real property and
facilities of Retail located at Plano Road in Dallas, Texas (the "Related
Facilities" and, together with the Independent Facilities, the "Acquired
Facilities"), subject to the contractual right of the Appliance Company to
purchase the Plano Road facility, as expressly set forth in the Appliance
Company agreement, which accompanies this Agreement as SCHEDULE 1.6(b)
(the "Appliance Company Agreement"), at the rental rates stated in
SCHEDULE 1.6(c) for a period of twelve (12) months and up to an additional
six (6) months in the sole discretion of Retail,
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in the event of extraordinary circumstances or undue hardship to Buyer,
including without limitation if replacement space has not been completed
being built and is not ready for Buyer to occupy, and upon terms and
subject to conditions mutually acceptable to the parties, such lease to be
terminable at any time by Buyer upon 30 days notice (the "Acquired Related
Party Lease" and together with the Acquired Third-Party Leases, the
"Acquired Leases"). Notwithstanding the contractual right of the Appliance
Company to purchase the Plano Road facility, the Appliance Company agrees
that no such purchase by the Appliance Company shall affect the Acquired
Related Party Lease for the first twelve (12) months thereof and, in the
event of such purchase, the Appliance Company agrees hereby to assume such
Acquired Related Party Lease and to be bound thereby for the first twelve
(12) months thereof, provided that the Appliance Company may in its sole
discretion permit the Acquired Related Party Lease to remain in effect for
up to an additional six (6) months in the event of extraordinary
circumstances of undue hardship to Buyer, including without limitation if
replacement space has not been completed being built and is not ready for
Buyer to occupy. Signage will be split equally, subject to the reasonable
discretion of Retail or Appliance Company, as applicable, with signage
changes to be paid by Buyer except for relocation of Appliance Company
signs or for new Appliance Company signs.
1.7 Financial Information Required. Sellers will provide to Buyer the
following financial information:
A. No later than 45 days after the Closing, audited consolidated
financial statements of Sellers for the fiscal year ended June 30, 1997
with related consolidating schedules opined on by the auditors performing
the audit (the "1997 Audited Financials"). The 1997 Audited Financial
shall contain sufficient information on a quarterly basis to allow Buyer
to recast such financials to full calendar year financials;
B. No later than 45 days after the Closing and updated as of the
Closing, unaudited consolidated financial statements of Sellers from July
1, 1997 through the Closing with related consolidating schedules (the
"Current Financials");
C. No later than 45 days after the Closing, Sellers will cooperate
with Buyer in preparing a list of all pro forma adjustments which in
Buyer's reasonable judgment would be necessary or appropriate to allow
Buyer to incorporate the Audited Financials and the Current Financials
into its own financial statements or as may be required in connection with
filings required to be made by Buyer under the Securities Exchange Act of
1934, as amended (the "Pro Forma List"); and
D. No later than the Closing, (i) audited consolidated financial
statements of Sellers for the fiscal years ended June 30, 1996 and 1995
(the "Prior Year Audited Financials"), (ii) unaudited consolidated
financial statements of Sellers for the fiscal year ended June 30, 1997
(the "Unaudited Year-End Financials"), and (iii) a complete copy of
Sellers' "query library" contained in or relating to their computer
databases, with an index and description of each query therein (the "Query
Information" and together with the 1997
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Audited Financials, the Current Financials, the Pro Forma List, the Prior
Year Audited Financials, and the Unaudited Year-End Financials, the
"Financial Information").
Without limiting the above, the 1997 Audited Financials and the Unaudited
Year-End Financials will consist of at least balance sheets and related
statements of income, cash flow and stockholders' equity prepared in accordance
with GAAP plus, in the case of the 1997 Audited Financials, consolidating
schedules for each thereof, and the Current Financials will consist of at least
balance sheets and the related statements of income and cash flows prepared in
accordance with GAAP plus consolidating schedules for each thereof.
ARTICLE II
PURCHASE PRICE AND CLOSING
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Acquired Assets will consist of the following and will be payable as set forth
below:
(a) Payable in cash by wire transfer to Sellers' designated account
at Closing:
(i) Three million dollars ($3,000,000.00); and
(ii) The Automobile Inventory Price as set forth in Article V
(less the Automobile Inventory Holdback as set forth in Article V).
(b) Payable in accordance with Buyer's payroll practices directly to
the employees of Sellers hired by Buyer:
All payroll expenses from and after the Effective Time to the
Closing for the Employees of Sellers hired by Buyer.
(c) On the Settlement Date, the amounts payable by Buyer to Sellers
and by Sellers to Buyer as the case may be, as follows:
(i) The amounts required by Section 5.2 regarding the
Unacceptable Automobile Inventory and Automobile
Inventory Holdback;
(ii) Cash down payments received from the sale of Acquired
Automobile Inventory after the Effective Time to the
extent not previously paid by offset of amounts payable
by Buyer to Sellers on the Closing Date;
(iii) Proration as of the Effective Time of all expenses
relating to the operation of the Acquired Facility at
600 N. Pearl St., Suite 2000,
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Dallas, Texas 75201, but not any leasehold rentals, and
related taxes, insurance and maintenance; and
(iv) Proration as of 11:59 p.m. September 18, 1997 of all
expenses relating to the operation of all other Acquired
Facilities, but not any leasehold rentals and related
taxes, insurance and maintenance.
The amounts payable by Buyer to Sellers and by Sellers to
Buyer pursuant to this Section 2.1(c) may be made by netting
and offsets so that there is a net, single amount payable by
Buyer to Sellers or by Sellers to Buyer as the case may be,
which net single amount shall be paid on the Settlement Date
by wire transfer. The Sellers will prepare a statement of the
net amount payable for review by Buyer not later than the
twelfth (12th) day after the Closing, and Buyer and Sellers
will work together in good faith to determine the appropriate
amount of the net amount payable prior to the Settlement Date.
2.2 Payment of Purchase Price at Closing. Sellers authorize and instruct
Buyer to wire transfer to the two bank accounts as set forth below the funds
being paid by Buyer to Sellers pursuant to Section 2.1(a) herein, a total of
$5,492,131 (the "Closing Date Payment"). Sellers are authorizing and instructing
Buyer, and Buyer is following Sellers' authorization and instruction, in order
to satisfy certain conditions to the consent of the secured lenders to the
transaction on or before Closing and as contemplated by this Agreement. Sellers
assure Buyer that the Reserve Account (as described below) shall be used to
satisfy in full all of Sellers' unsecured trade creditors (the "Trade
Creditors"). Attached hereto as Schedule 2.2 is an accurate and complete
schedule of Sellers' Trade Creditors and the amounts payable to the Trade
Creditors (the "Trade Claims") prepared to the best knowledge and belief of
Sellers as of September 18, 1997. Any difference between the total amount of the
Trade Claims pursuant to Schedule 2.2 and the amount wired to the Reserve
Account by Buyer shall be promptly deposited by Sellers into the Reserve Account
or promptly paid by Sellers to the appropriate Trade Creditors. Sellers agree
that they shall pay the Trade Claims in full without regard to the adequacy of
funds within the Reserve Account. Sellers will provide Buyer reasonable and
periodic evidence that Trade Claims have been paid promptly after Closing.
(i) $2,323,316 wired to the "Reserve Account," Account name:
KARS-YES Financial Inc., Account No. 4073-9272;
(ii) $3,168,815 wired to the "Collection Account," Account name:
CUSA FBO YES Financial Inc., Account No. 4073-9299.
2.3 Closing. The closing of the transactions contemplated herein (the
"Closing") will take place at 10:00 a.m., Dallas, Texas time, on September 15,
1997, at the offices of Locke Purnell Rain Harrell (A Professional Corporation),
2200 Ross Avenue, Suite 2200, Dallas, Texas, or at such other time and place as
the parties hereto may agree. If the Closing has not occurred by September 20,
1997, either party has the right to terminate this Agreement.
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2.4 Allocation of Purchase Price; Accounting Treatment. Within 45 days
following the Closing, Buyer will prepare in its reasonable discretion an
Internal Revenue Service Form 8594, Asset Acquisition Statement, which will set
forth the allocation of the Purchase Price among the Acquired Assets (the "Form
8594"). Sellers and Buyer hereby agree to report this transaction for federal
tax purposes in accordance with the Form 8594, which will be filed with Buyer's
and Sellers' Federal Income Tax Returns for the tax year that includes the
Closing. To the extent not specified above, the parties further agree to
coordinate their accounting for the transaction.
ARTICLE III
PORTFOLIO SERVICING AGREEMENT
3.1 Administration of Sellers' Existing Loan Portfolio. In connection with
Buyer's acquisition of the headquarters' operations of Sellers, Buyer will,
after Closing, administer and service the existing loan portfolio of the Sellers
for a fee and pursuant to the terms of the portfolio servicing agreement which
accompanies this Agreement as SCHEDULE 3.1(a) (THE "PORTFOLIO SERVICING
AGREEMENT"). Buyer will also enter into a subservicing agreement (the
"Subservicing Agreement") in substantially the form of SCHEDULE 3.1(b) with
respect to the obligations of Sellers under the Originator Sale Agreement.
3.2 Sellers' Continuing Responsibilities. Sellers will continue to be
responsible for all obligations and liabilities arising from Sellers' existing
customer loans other than with respect to Buyer's servicing obligations pursuant
to the Portfolio Servicing Agreement and the Subservicing Agreement.
ARTICLE IV
MANAGEMENT SERVICES AGREEMENT
4.1 Sellers to Enter into Services Agreement. Upon the request of Buyer,
to the fullest extent permitted by applicable law, Sellers will enter into a
management services agreement with Buyer or any one or more subsidiaries or
affiliates of Buyer at no additional cost to Buyer or any such subsidiary or
affiliate in order to permit continued operations of the Acquired Business after
the Closing until such time as the Buyer or any such subsidiary or affiliate can
procure applicable and appropriate licenses and permits, with the agreement to
be in the form accompanying this Agreement as SCHEDULE 4.1 (THE "MANAGEMENT
SERVICES AGREEMENT").
4.2 Responsibilities of Buyer. In the event that Sellers should enter into
the Management Services Agreement, Buyer or its designated subsidiary or
affiliate will retain responsibility for all Assumed Liabilities only arising
out of the operation of the Acquired Business from and after the Closing,
including expressly any such Assumed Liability incurred by Sellers which might
arise during the operation of such Management Services Agreement, other than
liabilities arising out of
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Sellers' willful misconduct or bad faith, and Buyer or its designated subsidiary
or affiliate will indemnify and hold harmless Sellers for any such liabilities
or obligations. Nothing in this Section 4.2 will impose any responsibility or
liability on Buyer or any subsidiary or affiliate of Buyer for any Excluded
Liabilities.
ARTICLE V
AGREEMENTS REGARDING AUTOMOBILE INVENTORY
5.1 Purchase of Automobile Inventory. Buyer will purchase the Acquired
Automobile Inventory in consideration for sixty-three percent (63%) of the book
value of the Acquired Automobile Inventory as of the Effective Time as set forth
at SCHEDULE 1.1(j) with such book value for each automobile included in the
Acquired Automobile Inventory as set forth at SCHEDULE 1.1(j) (the "Automobile
Inventory Price").
5.2 Automobile Inventory Holdback. Buyer will retain for a period of up to
fourteen (14) days after the Closing ten percent (10%) of the Automobile
Inventory Price (the "Automobile Inventory Holdback") for use as an offset for
any Acquired Automobile Inventory found to be unacceptable ("Unacceptable
Automobile Inventory") due to mechanical defect or failure in the reasonable
judgment of Buyer during the period of up to fourteen (14) days after the
Closing. Any Unacceptable Automobile Inventory will be reconveyed by Buyer to
Retail no later than fourteen (14) days after the Closing, and Buyer will retain
out of the Automobile Inventory Holdback the dollar amount of the individual
Automobile Inventory Price for each automobile reconveyed to Retail as
Unacceptable Automobile Inventory and will transmit by wire transfer to the
Sellers no later than the Settlement Date the balance of the Automobile
Inventory Holdback. In the event the total dollar amount of the Unacceptable
Automobile Inventory exceeds the Automobile Inventory Holdback, Sellers shall
pay the excess to Buyer by wire transfer on the Settlement Date.
ARTICLE VI
FACILITIES CONSIDERATIONS
6.1 Relocation of Appliance Company Employees. Within six months after the
Closing, the employees of the Appliance Company who currently office in the 20th
floor headquarters facilities of Sellers will relocate to that certain option
space on the eighth floor of the building in which the headquarters of Sellers
are located. Buyer may agree in its sole discretion to extend the occupancy
period for up to an additional two months in the event that extraordinary
circumstances shall have prevented completion of the relocations of such
employees within the six-month period contemplated above. Until relocation, the
Appliance Company will pay costs attributable to its reasonable third party
costs other than leasehold rent (such as telephone costs and supplies).
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6.2 Cooperation with Option Space Lease. In connection with the relocation
of the Appliance Company offices to the option space on the eighth floor of the
building in which the headquarters of Sellers are located, the Buyer will work
with the Sellers to exercise such option and lease of the option space for the
benefit of the Appliance Company, provided that the Appliance Company will pay
all fees, rental and other costs attributable thereto and will indemnify and
hold harmless Buyer with respect to any undertaking or obligation of Buyer in
connection therewith.
6.3 Redbird Sales and Reconditioning Facility. While the Appliance Company
has a facility located at the Redbird Sales and Reconditioning Facility of
Sellers, Buyer will control the Redbird Sales and Reconditioning Facility, with
Appliance Company's rights to be established, subject to any required landlord
approvals, by a sublease of its portion of such facility for a term of one year,
such sublease to be negotiated and executed by Closing with Buyer.
6.4 Appliance Company's Option with Respect to the Plano Road Facility.
Subject to Section 1.6(b) hereof, Buyer acknowledges that the Appliance Company
has a contractual right to purchase the Plano Road facility, as set forth in the
Appliance Company Agreement as modified to provide for a purchase price equal to
the greater of appraised value or original cost. The Appliance Company will
control such facility, with Buyer's rights to be established by a lease of its
portion of such facility for a term of twelve months, such lease to be
negotiated and executed by Closing.
ARTICLE VII
SOFTWARE AND INTELLECTUAL PROPERTY ARRANGEMENTS
7.1 Proprietary Software. Sellers hereby transfer to Buyer and the
Appliance Company all right, title and interest in and to the Sellers'
proprietary software described in SCHEDULE 7.1, in both object code and source
code form, and all documentation and other information and processes related
thereto (the "Shared Software"), and any other software related to the Acquired
Business. Without limiting the above, the Shared Software will include all
documentation, processes, parameters, and all other information, whether
internally developed or otherwise, associated with the Shared Software,
including without limitation the credit scoring card system. Buyer and Appliance
Company shall have joint ownership of all rights in such Shared Software,
including the rights to copy, modify, revise, and license to others the Shared
Software. Notwithstanding the above, Appliance Company shall not license the
Shared Software to any competitor of Buyer for a period of 5 years following the
Closing, and Buyer shall not license the Shared Software to any competitor of
Appliance Company for a period of 5 years following the Closing. Sellers, Buyer
and Appliance Company agree that Sellers will provide both Buyer and the
Appliance Company with all copies of the Shared Software. Buyer and the
Appliance Company shall solely own all modifications and revisions made by or on
behalf of Buyer and the Appliance Company, respectively. Except as set forth in
SCHEDULE 7.1(a), Sellers represent and warrant that (i) the Shared Software
shall operate in accordance with the description set forth in SCHEDULE 7.1, (ii)
the Shared Software shall include design, function, and performance capabilities
such that the Shared Software shall not abnormally end or have invalid or
incorrect results from and/or performance or functional
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degradation because of the then current date, (iii) the design and function of
the Shared Software ensure year 2000 functionality and include, without
limitation, date data century recognition, calculations that accommodate same
century and multicentury formulae and date values, and date data interface
values that reflect the then current century, and (iv) the Shared Software is
otherwise year 2000 date compliant with present capability to implement year
2000 century date conversion without material additional cost or devotion of
management, employee or other resources, and will suffer no material adverse
disruption resulting from such date conversion. Notwithstanding any exceptions
listed in SCHEDULE 7.1, Sellers represent and warrant that (i) no exceptions
therein listed or described will impair the functionality or operation of the
Shared Software for any purpose until January 1, 2000 and (ii) the Shared
Software and the other components of the servicing and collection system are
fully operational and capable, without any material modification thereto, of
allowing Buyer or any subsidiary or affiliate of Buyer to perform its
obligations under the Portfolio Servicing Agreement and the Subservicing
Agreement. Sellers further warrant and represent that the Shared Software shall
be free of material defects in material and workmanship.
7.2 Licensed Software. SCHEDULE 7.2 includes a complete list of all
software or other intellectual property licensed to any of Sellers or their
affiliates (including without limitation the CACS program) and used in
conjunction with Sellers' proprietary software or otherwise in connection with
the Acquired Business (the "Licensed Software"), with a description of the term
and the fees therefor. Sellers represent and warrant that they have provided to
Buyer complete copies of the licensing agreements for all such Licensed
Software. Sellers, Buyer and Appliance Company agree to work together in good
faith to accomplish necessary transfers of Licensed Software from the Sellers to
Buyer and the Appliance Company, acknowledging that there will be transfer costs
or licensing fees with respect thereto, which fees and expenses Sellers, Buyer
and the Appliance Company will share in a manner so that the Buyer will pay the
reasonable costs and expenses of transferring or licensing such Licensed
Software for the benefit of Buyer, and the Appliance Company will pay the
reasonable fees and expenses of transferring or licensing such Licensed Software
for the benefit of the Appliance Company. To the extent that any such Licensed
Software is transferred or licensed jointly to Buyer and the Appliance Company,
Buyer and the Appliance Company will each pay one-half of the reasonable costs
and expenses of such transfer or license. Prior to Closing, Buyer and the
Appliance Company will make arrangements satisfactory to both for the sharing of
any such Licensed Software.
7.3 Agreements Relating to the Appliance Company Agreement. Buyer
acknowledges that certain rights to tradenames and intellectual property were
granted to the Appliance Company pursuant to Sections 2 and 3 of the Appliance
Company Agreement. Notwithstanding said Section 2, the parties will cooperate in
resolving any signage issues. In addition, the Appliance Company acknowledges
that any finance company affiliate of Buyer engaged in financing the purchase of
automobiles or in purchasing, selling or securitizing automobile receivables is
a car related business as such term is used in the Appliance Company Agreement.
In all other respects, the provisions of this Agreement and all other agreements
contemplated hereby, including but not limited to the Acquired Leases, shall
govern the rights of the parties hereto and shall supersede any provisions of
the Appliance Company Agreement with respect to the Acquired Assets, the
Acquired Business, and the Acquired Facilities, whether or not such provisions
of the Appliance Company Agreement are
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contrary or inconsistent with the provisions of this Agreement or any such other
agreement. In the event of any conflict or discrepancy between this Agreement
and the Appliance Company Agreement, the terms and provisions of this Agreement
will control.
7.4 Use of Computer System by Appliance Company Personnel. During the
period that Appliance Company personnel shall occupy a portion of the 20th floor
headquarters facility as contemplated in Section 6.1 of this Agreement (the
"Occupancy Period"), Buyer shall provide access to computer hardware and
software transferred from Sellers to Buyer in accordance with this Agreement for
no more than 120 remote terminals to be operated by Appliance Company personnel.
Buyer shall further provide, during the Occupancy Period and at the 20th floor
headquarters facility, office space and the appropriate equipment for not more
than 38 Appliance Company personnel to allow access to such computer hardware
and software. All identifiable costs incurred by Appliance Company personnel
during the Occupancy Period, including telephone tolls and credit reporting
fees, shall be paid by the Appliance Company. All other costs associated with
the operation of the computer hardware and software transferred from Sellers to
Buyer in accordance with this Agreement during the Occupancy Period shall be
shared by Buyer and the Appliance Company according to the extent of each
party's use of the computer hardware and software. During the Occupancy Period,
the Appliance Company shall identify and copy only information from the database
relating to the business of the Appliance Company. The Appliance Company shall
not copy, delete, or otherwise tamper with any data associated with the Buyer or
any portion of the Acquired Business. Appliance Company's access to Buyer's
facilities and resources shall be restricted to functions associated with the
normal operation of Appliance Company's business, and shall not be provided to
the existing computer network of Buyer. Any information acquired by Appliance
Company personnel during such six month period relating to any aspect of Buyer's
business shall be regarded as proprietary information of Buyer, except to the
extent that such information (a) is publicly and openly known and in the public
domain, (b) becomes publicly and openly known and in the public domain through
no fault of the Appliance Company, or (c) is in Appliance Company's possession
and documented prior to this Agreement, lawfully obtained by Appliance Company
from a source other than from Buyer, and not subject to any obligation of
confidentiality or restrictions on use. Similarly, information acquired by Buyer
personnel during such six month period relating to any aspect of Appliance
Company's business shall be regarded as proprietary information of Appliance
Company, except to the extent that such information (a) is publicly and openly
known and in the public domain, (b) becomes publicly and openly known and in the
public domain through no fault of the Buyer, or (c) is in Buyer's possession and
documented prior to this Agreement, lawfully obtained by Buyer from a source
other than from Appliance Company, and not subject to any obligation of
confidentiality or restrictions on use.
7.5 Other Events. In the event that the Portfolio Servicing Agreement or
the Subservicing Agreement is terminated for any reason during the term thereof,
or in the event that for any other reason Buyer is released from all of its
duties and obligations under either such agreement, and the servicing
obligations thereunder revert to Sellers, Buyer agrees to provide access to the
computer hardware and software transferred from Sellers to Buyer in accordance
with this Agreement to the extent necessary for Sellers to retrieve information
necessary for Sellers to perform such servicing obligations subject to agreement
at such time between Sellers and Buyer as to the reasonable and
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appropriate fees and costs to be paid by Sellers to Buyer therefor and subject
further to Sellers obtaining any third party licenses required at their own cost
and expense. Buyer further agrees to provide access to the computer hardware and
software to the extent necessary for Sellers to retrieve information necessary
for Sellers to lawfully fulfill any state or federal tax obligations arising for
periods prior to the Closing.
7.6 Cooperation. Buyer will grant Sellers and the Appliance Company
reasonable access to the computer system as may be reasonably necessary for the
preparation of any tax returns or for responding to any taxing authority. Each
party will at all times act with care so as not to damage the information of
another party and to preserve the confidentiality of each other party's
information. Furthermore, Buyer will grant reasonable access to the books,
records and assets of the Appliance Company (whether in electronic, paper or
other form) to any lender of the Appliance Company during the period of
facilities sharing with the Appliance Company.
ARTICLE VIII
NON-SOLICITATION OF EMPLOYEES
Except as provided in Section 10.6, each of the Sellers, the Buyer and
Appliance Company agree not to solicit (other than through a general
solicitation) employees of one another without the express written consent of
the company affected, for a period of two years after the Closing. The
restrictions in this Article VIII will not apply to employees who have left the
employment of any of Sellers, Buyer or Appliance Company after termination of
such employment as long as the employee's decision to terminate his or her
employment was not as a result of a violation of this provision.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
9.1 Conditions Precedent to Obligations of Buyer and Sellers. It will be
conditions precedent to the obligations of each of the Buyer and the Sellers to
close the transactions contemplated hereby that:
(a) Approval of Sellers' Lenders. Sellers shall have procured the
consent to the transactions contemplated hereby of the Sellers' lenders,
including the consent of the senior bank lenders pursuant to Sellers'
revolving credit facility, the subordinated lenders of Sellers, any
required consents pursuant to the securitization facility of Sellers, and
any other consents to this Agreement and the transactions contemplated
hereby as shall be deemed necessary by either Buyer or Sellers.
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(b) Consent of Shareholders of Sellers. The Sellers shall have
procured the consent of the shareholders of Parent, Retail and Finance, if
required, for the sale of assets as contemplated hereby.
(c) Consents Pursuant to Contracts to be Assigned. Required
third-party consents to the assignment of the Assumed Agreements shall
have been procured, unless procurement of any such consents shall have
been waived in writing by Sellers and Buyer.
(d) Master Bill of Sale, Assignment and Assumption Agreement.
Sellers and Buyer shall have executed and delivered to one another the
Master Bill of Sale, Assignment and Assumption Agreement in substantially
the form as set forth at SCHEDULE 9.1(d) hereto.
(e) There shall not be threatened, instituted, or pending any action
or proceeding, before any court or governmental authority or agency,
domestic or foreign: (i) challenging or seeking to make illegal, or to
delay or otherwise directly or indirectly to restrain or prohibit, the
consummation of the transactions contemplated hereby, or seeking to obtain
damages in connection therewith; (ii) seeking to prohibit direct or
indirect ownership or operation by Buyer or any of its subsidiaries or
affiliates of all or any material portion of the Acquired Business or the
Acquired Assets, or to compel Buyer or any of its subsidiaries or
affiliates to divest of or to hold separately all or any material portion
of the Acquired Business or the Acquired Assets as a result of the
transactions contemplated hereby; (iii) seeking to impose or confirm
limitations on the ability of Buyer effectively to exercise directly or
indirectly full rights of ownership of any of the Acquired Business or the
Acquired Assets; (iv) seeking or causing any material diminution in the
direct or indirect benefits expected to be derived by Buyer or Sellers as
a result of the transactions contemplated by this Agreement; (v)
invalidating or rendering unenforceable any material provision of this
Agreement (including without limitation any of the documents or agreements
to be delivered hereunder); or (vi) which otherwise might materially
adversely affect Buyer or any of its subsidiaries or affiliates, Sellers,
or the Acquired Assets or Acquired Business.
(f) There shall not be any action taken, or any statutes, rule,
regulation, judgment, order, or injunction proposed, enacted, entered,
enforced, promulgated, issued, or deemed applicable to the transactions
contemplated hereby by any federal, state, or foreign court, government,
or governmental authority or agency, which may, directly or indirectly,
result in any of the consequences referred to in (e) above or otherwise
prohibit consummation of the transactions contemplated hereby.
9.2 Conditions to Obligations of Sellers to Close. It will be conditions
precedent to the obligations of Sellers to close the transactions contemplated
hereby that:
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(a) Portfolio Servicing Agreement. Buyer and Sellers shall have
entered into the Portfolio Servicing Agreement in substantially the form
set forth in SCHEDULE 3.1(a) hereto and the Subservicing Agreement in
substantially the form set forth in SCHEDULE 3.1(b) hereto.
(b) Representations and Warranties of Buyer. The representations and
warranties of Buyer shall be true and correct in all material respects as
of Closing.
(c) Covenants of Buyer. Buyer shall be in compliance in all material
respects with the covenants of Buyer pursuant hereto as of the Closing.
9.3 Conditions Precedent to the Obligations of Buyer. It shall be
conditions precedent to the obligations of Buyer to consummate the transactions
contemplated hereby that:
(a) Buyer and Sellers shall have entered into a Management Services
Agreement in substantially the form set forth at SCHEDULE 4.1 hereto if
requested by Buyer, and Buyer and Sellers, the Appliance Company or third
parties shall have entered into such other agreements as are expressly
contemplated herein.
(b) The representations and warranties of Sellers and Appliance
Company in this Agreement and in any certificate or other instrument or
agreement delivered pursuant to the provisions hereof or in connection
with the transactions contemplated hereby shall be true and correct as of
the Closing as if made at and as of the Closing, and each Seller, and, to
the extent of its obligations hereunder, the Appliance Company shall in
all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it
hereunder at or prior to the Closing;
(c) Sellers and Appliance Company shall have furnished to Buyer a
certificate or certificates in which they shall certify that the
conditions set forth in Section 9.3(b) have been fulfilled;
(d) Sellers and Appliance Company shall have furnished to Buyer: (i)
copies of the texts of the resolutions by which the corporate action on
the part of each Seller and its shareholders and Appliance Company
necessary to approve this agreement and the transactions contemplated
hereby were taken; and (ii) certificates of Sellers and Appliance Company
certifying to Buyer that such copies are true, correct and complete copies
of such resolutions and that such resolutions were duly adopted and have
not been amended or rescinded;
(e) Buyer shall have received an opinion letter addressed to Buyer
from Locke Purnell Rain Harrell (A Professional Corporation), counsel for
Sellers based on customary reliance and subject to customary
qualifications in a form mutually agreed upon;
(f) This Agreement and the transactions contemplated hereby shall
have been approved by Buyer's Board of Directors;
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(g) Except as is otherwise adequately covered in the Management
Services Agreement to the satisfaction of Buyer, Buyer shall have obtained
or assumed all permits or licenses necessary to ownership of the Acquired
Assets and operation of the Acquired Business and the Acquired Facilities,
including, without limitation, the following: (i) the approval of the
transaction by all governmental authorities exercising jurisdiction over
the ownership of the Acquired Assets or the operation of the Acquired
Business or the Acquired Facilities; (ii) the approval by all governmental
authorities with respect to the issuance to, or assumption by, Buyer of
all Acquired Permits; and (iii) each other consent and approval necessary
in order that the transactions contemplated herein not constitute a breach
or violation of, or result in a right of termination or acceleration with
respect to, any agreement, arrangement, or understanding or any license,
franchise, or Permit, or result in any encumbrance on any Seller's assets,
including the Acquired Assets;
(h) Buyer shall have accepted, in its sole discretion, the results
of its inspections, investigations, studies, assessments and evaluations
of the Acquired Assets, the Acquired Business, the Assumed Liabilities,
the Assumed Agreements, the Acquired Facilities and all matters relating
thereto;
(i) There shall have been no damage, destruction, or loss of or to
any property or properties owned or used by any Seller, whether or not
covered by insurance, which in the aggregate may have a material adverse
effect on the Acquired Assets or the Acquired Business;
(j) All Insider (as defined in Section 11.20 below) agreements shall
have been terminated except as specifically contemplated herein;
(k) Sellers shall have furnished to Buyer good standing
certificates, and certificates from state taxing authorities and any
related certificates that Buyer may reasonably require as evidence that
Sellers are in good standing in the states of their respective
organizations and in which they do business and that all sales and use tax
liabilities of Sellers accruing before the Closing or payable on the
Closing as a result of the conveyance of the Acquired Assets or the
Acquired Business have been fully satisfied or provided for, to the extent
such certificates are prepared by the applicable state taxing authorities
and Appliance Company shall have furnished to Buyer a good standing
certificate in the states of its organization and in which it does
business;
(l) Buyer shall have received such non-disturbance, subordination
and other agreements from Sellers' lenders and third party lessors as
Buyer shall reasonably request; and
(m) The form and substance of all schedules, certificates,
instruments, opinions, and other documents delivered to Buyer under this
Agreement shall be satisfactory in all respects to Buyer and its counsel.
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ARTICLE X
COVENANTS OF THE PARTIES
10.1 Conduct of Acquired Business. From the date hereof to the Closing,
except as expressly contemplated by this Agreement or otherwise consented to by
Buyer in writing, Sellers shall:
(a) perform in all material respects all obligations under leases,
agreements, contracts and instruments relating to or affecting the
operations and assets to be acquired by Buyer;
(b) maintain the books of account and records of their businesses in
the usual, regular and ordinary manner;
(c) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to the conduct of the
businesses of the Sellers;
(d) not enter into or modify any employment, severance, or other
agreement or commitment to employees of the Acquired Business to be
acquired by Buyer or affect any increase in the compensation or other
benefits payable or to become payable to any employee of the Acquired
Business other than increases and compensation effected in the ordinary
course of business or adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment, or other benefit plan, trust, fund, or group arrangement for
the benefit or welfare of any officers, directors or employees;
(e) not cancel or terminate or permit to be canceled or terminated
its current insurance (or reinsurance) policies or permit any of the
coverage thereunder to lapse, unless simultaneous with such termination,
cancellation, or lapse, replacement policies providing coverage equal to
or greater than the coverage under the canceled, terminated, or lapsed
policies for substantially similar premiums are in full force and effect;
(f) maintain and repair its assets and properties in accordance with
good standards of maintenance and as required in any leases or other
agreements pertaining thereto; and
(g) Subject to the Sellers' current financial constraints, use
reasonable commercial efforts to operate the Acquired Business in
accordance with normal operating procedures and in the ordinary course of
business, preserve intact Sellers' business organization and goodwill,
keep available the services of their officers and employees as a group,
and maintain satisfactory relationships with suppliers, distributors,
customers, and others having business relationships with them.
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10.2 Access to Information.
(a) Buyer's Access. Between the date of this Agreement and the
Closing, Sellers will (i) give Buyer and its authorized representatives
(including lenders, legal counsel and accountants) reasonable access to
all employees, offices, warehouses, and other facilities and property of
the Acquired Business to be acquired and to relevant books and records,
and will permit Buyer and its authorized representatives to make such
inspections thereof as Buyer may reasonably require, and (ii) furnish
Buyer and its representatives and advisors with such financial and
operating data and other information with respect to the Acquired Business
as Buyer may from time to time reasonably request; provided, however, that
any such investigation shall be conducted in such a manner as not to
interfere unreasonably with the operation of the businesses of Sellers.
(b) Confidentiality. If the transactions contemplated by this
Agreement are not consummated (and in any event prior to the Closing),
Buyer will maintain the confidentiality of all confidential information
and materials obtained from Sellers and will not use or permit others to
use such information for any other purpose, except to the extent
disclosure of any such information is authorized by Sellers or required by
law, and upon termination of this Agreement, Buyer and its representatives
will use reasonable efforts to return to Sellers all confidential
materials obtained from Sellers in connection with the transactions
contemplated by this Agreement and all copies thereof. The provisions of
this Section will not apply to any information, documents or material
which are in the public domain or have been obtained by Buyer otherwise
than pursuant to this Agreement and other than by reason of a breach of
this Section. Sellers and the Appliance Company will maintain and will
cause their agents and affiliates to maintain the confidentiality of all
confidential information obtained from Buyer and will not use or permit
others to use such information for any other purpose, in each case to a
like extent as stated herein with respect to confidential information of
Sellers.
(c) Notice regarding Ongoing Status. Sellers shall (i) confer on a
regular basis with representatives of Buyer and report operational matters
and the general status of ongoing operations; (ii) notify Buyer of any
material adverse change in the normal course of its business or in the
operation of its properties and of any governmental or third party
complaints, investigations, or hearings (or communications indicating that
the same may be contemplated); (iii) not take any action which would
render, or which reasonably may be expected to render, any representation
or warranty made by them in this Agreement untrue at, or at any time prior
to, the Closing; and (v) promptly notify Buyer if any of them shall
discover that any representation or warranty made by it in this Agreement
was when made, or has subsequently become, untrue.
10.3 Efforts to Consummate Transaction. The parties hereto shall use their
reasonable best efforts to take or cause to be taken all such actions required
to consummate the transactions contemplated hereby including, without
limitation, such actions as may be necessary to obtain, prior to the Closing,
all necessary governmental or other third-party approvals and consents required
to
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be obtained by Sellers or Buyer in connection with the consummation of the
transactions contemplated by this Agreement.
10.4 Press Release. Buyer and Sellers will work together on a mutually
acceptable press release to announce this Agreement at a mutually acceptable
time. Buyer may make any disclosure or announcement that, in the opinion of its
counsel, it is obligated to make pursuant to applicable law or regulation of the
Nasdaq Stock Market, Inc. or any national securities exchange, as applicable, in
which case Buyer shall reasonably consult with Sellers prior to making such
disclosure or announcement, and upon execution of this Agreement, Buyer may make
a public announcement of such occurrence in a press release reviewed and
reasonably approved by Sellers prior to publication.
10.5 Books and Records. To the extent that any such books and records are
not Acquired Assets, Sellers will make available to Buyer, at Buyer's request
and expense, from time to time, all books and records of Sellers relating,
directly or indirectly, to the Acquired Business or the Acquired Assets which
are reasonably necessary with respect to Buyer's ongoing operations, for
inspection or copying by Buyer at any reasonable time for a period of six (6)
years following the Closing, and will offer the same to Buyer, from time to
time, at Buyer's expense, prior to the destruction of all or any part thereof
including at any time during such six-year period. Buyer shall provide Sellers
and their accountants with access to Sellers' former employees and to the books
and records transferred to Buyer to aid Sellers in the closing of Sellers' books
for the current tax year and to assemble information required to prepare current
tax year tax returns. In addition, the parties shall make reasonably available
to one another any records or documents that they maintain with respect to the
Acquired Assets or the Acquired Business for purposes of compliance with
applicable laws or in defending any third party litigation, audits,
investigations, etc. arising after Closing.
10.6 Employment. On the Closing, Buyer or one or more subsidiaries or
affiliates of Buyer that will hold the Acquired Assets (the "KARS-YES Division")
will offer employment to all employees of Sellers then employed in the Acquired
Business except as listed on SCHEDULE 10.6(a) hereto, on an "at will" or other
basis as determined by Buyer, and at such wages and with such benefits as Buyer
shall determine, and Sellers will cooperate with Buyer to that end.
Notwithstanding the above, SCHEDULE 10.6(b) contains a list prepared by Sellers
of such of its employees as Buyer shall not offer employment pursuant to this
Section 10.6. All employees of Sellers to be offered employment by Buyer or the
KARS-YES Division will be terminated by Sellers on or before the Closing.
Sellers shall be responsible for any severance and/or other payments, and other
compensation, benefits, and perquisites, incurred in connection therewith and
during the period prior to the Closing, provided that Buyer shall be responsible
for all accrued vacation and sick pay for those employees who are offered
employment and who are hired by Buyer and remain employed by Buyer as of the
Closing pursuant to this provision. In the event that the WARN Act is triggered
with respect to employees terminated by Sellers in connection with the
transaction contemplated herein and not hired by Buyer, Sellers may elect to
terminate this Agreement without further right or obligation of either party
except under the confidentiality provisions in Section 10.2(b) hereof. For the
period from the Effective Time through October 1, 1997, Sellers shall cause all
employees of Sellers hired by Buyer pursuant to this provision to be covered
under Sellers' existing health care plan, and Buyer will forward to the insurer
the premiums for such coverage, prorated on a daily
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basis, for the period from the Closing through September 30. Effective October
1, 1997, Buyer will provide coverage to employees of Sellers hired by Buyer
pursuant to this provision under Buyer's group health plan, and such coverage
will contain no exclusion for pre-existing conditions.
10.7 Expenses. Sellers shall pay the costs and expenses of Sellers and
Buyer shall pay the costs and expenses of Buyer, incurred in connection with
this Agreement and the transactions contemplated hereby. Notwithstanding the
foregoing, in the event any party breaches the terms of this Agreement prior to
the Closing, and the transactions contemplated hereby are not consummated, the
breaching party agrees to pay the non-breaching party an amount equal to all of
the expenses incurred by the non-breaching party in connection with this
Agreement, and otherwise related to the transactions contemplated hereby,
including, but not limited to, all fees and expenses incurred by the
non-breaching party to accountants, attorneys, and finders, brokers or
consultants. Nothing herein shall be deemed to limit the right or remedy of a
party in the event of a breach of this Agreement by the other party.
10.8 Cobra Coverage. COBRA continuation coverage obligations under Code
Section 4980B with respect to the current and former employees of Sellers and
their covered spouses and dependents shall be divided as follows: (i) subject to
Code Section 4980B(f)(2)(B)(ii), Sellers' health care plans shall provide such
coverage for qualifying events occurring prior to October 1, 1997, and (ii)
Buyer's health care plans shall provide such coverage for qualifying events
occurring on or after October 1, 1997 with respect to Sellers' employees who
become employees of Buyer or the KARS-YES Division.
10.9 Post Closing Responsibility. In the event that all consents required
from any third parties to the execution and delivery of this Agreement and the
other agreements and instruments contemplated hereby and the consummation of the
transactions contemplated hereby, including, without limitation, any (i)
consents required from the landlords of any facilities to be leased or subleased
as contemplated herein, and (ii) consents and approvals required to transfer or
assign any of the Assumed Agreements and/or for Buyer to license the Licensed
Software, are not obtained prior to the Closing, Sellers shall have primary
responsibility and agree to use their continuing good faith reasonable best
efforts following the Closing to obtain all such consents on behalf of Buyer in
form and substance satisfactory to Buyer.
10.10 Environmental Covenants.
(a) Investigation. Within thirty (30) days after Closing, subject to
the conditions set forth in Section 10.10(c), Sellers will perform the
following investigation at its sole cost and expense and report the
results of the investigation to Buyer: (i) at the facilities located at
13650 Harbor Blvd., Garden Grove, California ("Garden Grove") 10325
Central Avenue, Montclair, California ("Montclair"), and 4201 W. Camp
Wisdom Rd., Dallas, Texas ("Redbird"), Sellers will engage a qualified
hydraulic system service company to perform appropriate pressure testing
of the hydraulic system to determine whether the systems pass; (ii) at
Montclair, Sellers will cause a qualified environmental consulting firm to
perform the appropriate testing of the wastewater discharges from the
wastewater interceptor to
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determine whether these discharges are in compliance with Environmental
Laws; (iii) at the facility at Redbird, Sellers will cause a qualified
environmental consulting firm to determine whether or not an oil/water
separator discharges wastewater into the sanitary sewer system or
stormwater system or otherwise into the environment or whether the
separator is self-contained and does not discharge wastewater; (iv) if the
separator at Redbird does not discharge wastewater, then the Sellers will
provide reasonable evidence from a qualified environmental consulting firm
or transport company that the wastewater from the separator is being
properly disposed of; (v) if the Redbird separator is discharging, Buyer
will cause a qualified environmental consulting firm to perform the
appropriate testing of the wastewater discharges from the separator to
determine whether these discharges are in compliance with Environmental
Laws.
(b) Corrective Action. (i) If any of the hydraulic systems tested
pursuant to Section 10.10(a)(i) do not pass a pressure test, then Sellers,
at their sole cost and expense, will, within a reasonable time after
Closing, (A) repair the system, providing Buyer with reasonable evidence
that the system has been repaired, and providing Buyer with a new pressure
test demonstrating that the system passes the appropriate pressure test,
or if the repairs required are substantial and provided Buyer and the
owner of the facility agree, remove the system; and (B) demonstrate by
appropriate subsurface testing and sampling or by appropriate field
observations or field instruments performed by a qualified consulting firm
that either no releases have occurred or that releases from the hydraulic
system have not been significant enough to impact the environment in a
manner that is required to be reported, investigated or remediated under
applicable Environment Laws. (ii) If the Sellers perform the investigation
under Section 10.10(a)(i) above and it is determined that soil or
groundwater have been impacted in a manner that is required to be
reported, investigated or remediated under applicable Environmental Laws,
the presence of the impacted soil and groundwater will be subject to the
provisions of Sections 1.4 and 13.2. (iii) If any of the investigations
conducted pursuant to Section 10.10(a)(ii)-(v) result in a conclusion that
any disposal or discharges from the separator or the interceptor are not
in compliance with applicable Environmental Laws, the Sellers, at its sole
cost and expense, will, within a reasonable time after Closing implement
the corrective steps necessary to correct the practice that is not in
compliance and the presence of the impacted media will be subject to the
provisions of Sections 1.4 and 13.2.
(c) Access and Landlord Consent. As a condition to the performance
of the work described in Sections 10.10(a) and (b) above, Buyer shall
provide Sellers with access to the facilities described in Section
10.10(a), and to the extent required by the Leases for such facilities,
Buyer shall use its reasonable best efforts to provide the Sellers with
the written consent of the landlord under the Lease for such facility for
the performance of this work.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF SELLERS
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Sellers (as to themselves only and not as to the Appliance Company) and,
to the limited extent specified herein, the Appliance Company (as to itself
only), hereby represent and warrant that all of the following representations
and warranties in this Article XI are true and correct at the time of execution
and delivery of this Agreement and at the time of the Closing.
11.1 DUE ORGANIZATION AND QUALIFICATION. Each of the Sellers and the
Appliance Company is a corporation duly organized, validly existing and in good
standing under the laws of its State of incorporation, and has all requisite
corporate power and authority to own or lease its properties and to carry on its
business as it is presently being operated and in the place where such
properties are owned or leased and such business is conducted. Each Seller is
duly qualified to do business and is in good standing in each jurisdiction
listed in SCHEDULE 11.1 hereto, the only jurisdictions where the nature of its
business and activities in such jurisdictions require it to be so qualified.
11.2 CORPORATE POWER AND AUTHORITY. The execution, delivery and
performance of this Agreement by Sellers and the Appliance Company, and all
other agreements by and among the parties or any of them, and the consummation
by them of the transactions contemplated hereby and thereby, have been or will
be duly authorized by all requisite corporate actions of such Sellers and the
Appliance Company and their shareholders, as required, and no further actions or
approvals are required in order to permit Sellers and the Appliance Company to
consummate the transactions contemplated hereby and thereby. This Agreement
constitutes, and all other agreements by and among the parties or any of them,
when executed and delivered in accordance with the terms thereof, will
constitute the legal, valid and binding obligations of Sellers and the Appliance
Company, enforceable against Sellers and the Appliance Company in accordance
with their terms (subject, as to the enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights from time to time in effect (the "Equitable Exceptions"). Each
of the Sellers and the Appliance Company has full power, authority and legal
right to enter into this Agreement, and all other agreements by and among the
parties or any of them, and to consummate the transactions contemplated hereby
and thereby. Each of the Sellers and the Appliance Company have duly executed
and delivered this Agreement and each other agreement by and among the parties
or any of them to which it is a party.
11.3 NO VIOLATIONS. The making and performance of this Agreement, and all
other agreements by and among the parties or any of them, and the consummation
of the transactions contemplated hereby and thereby in accordance with the terms
hereof and thereof will not (i) conflict with the Articles of Incorporation, or
the Certificate of Incorporation or the Bylaws of Sellers or the Appliance
Company, (ii) result in any breach or termination of, or constitute a default
under, or constitute an event which with notice or lapse of time, or both, would
become a default under, or result in the creation of any encumbrance upon any of
the Acquired Assets under, or create any rights of termination, cancellation or
acceleration in any person under, any contract, lease, arrangement or
commitment, or violate any judgment, order, writ, injunction or decree, to which
any of the Sellers or the Appliance Company is a party, by which any of the
Acquired Assets, businesses or operations of Sellers or the Appliance Company
may be bound or affected or under which any of the Acquired Assets, businesses
or operations of Sellers or the Appliance Company receive benefits, (iii) result
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in the loss or adverse modification of any material license, franchise, permit
or other authorization granted to or otherwise held by Sellers or the Appliance
Company and related to their businesses or operations, (iv) result in the
violation of any provisions of law or regulation applicable to Sellers or the
Appliance Company, the violation of which could have an adverse effect upon the
Acquired Assets, businesses or operations of Sellers or the Appliance Company or
(v) be deemed to be a fraudulent conveyance.
11.4 COMPLETENESS OF ACQUIRED ASSETS. The Acquired Assets constitute all
assets necessary for the operation of the Acquired Business as conducted by the
Sellers with the exception of the Excluded Assets. Buyer will acquire interests
in the leased properties as described in the instruments of lease referred to in
SCHEDULES 1.6(a) AND (b) and good title to all of the other Acquired Assets,
whether real, personal or mixed, free and clear of any and all liens and
encumbrances. Sellers will obtain, as of the day of Closing, the release of all
liens on the Acquired Assets. The Acquired Assets that are tangible assets are
in good condition and repair, ordinary wear and tear excepted, and are usable in
the ordinary course of business.
11.5 CONSENTS. Set forth on SCHEDULE 11.5 is a complete and accurate list
of all agreements, leases, instruments, arrangements and commitments which will
require any consent, approval, authorization or order of any court or other
person or entity in order to permit the Sellers to consummate the transactions
contemplated by this Agreement. All Acquired Assets constituting Licensed
Software will require the consent of the licensor; such Licensed Software is
accordingly identified on SCHEDULE 11.5.
11.6 GOVERNMENTAL APPROVAL. Subject to the procurement by the Buyer of any
necessary permits or licenses, no consent, approval or other authorization of
any governmental authority is required as a result of or in connection with the
execution or delivery of this Agreement and the other agreements and documents
to be executed by the Sellers or the Appliance Company or the consummation by
the Sellers and the Appliance Company of the transactions contemplated hereby.
11.7 LITIGATION. There are no actions, suits, proceedings, investigations
or grievances entered against or pending against the Sellers or the Appliance
Company, or to the best knowledge of the Sellers and the Appliance Company,
threatened against the Sellers or the Appliance Company, or the businesses or
any properties or rights of the Sellers or the Appliance Company, at law or in
equity, which may result in any judgment, order, award, decree, liability, or
other determination which will or could reasonably be expected to have any
material adverse effect upon the Acquired Assets, the Acquired Leases, the
Acquired Business or the ability of Sellers or the Appliance Company to
consummate the transactions contemplated by this Agreement or to perform their
obligations under the transaction contemplated herein. There is no continuing
court, arbitration or administrative order, writ, injunction, or decree
applicable to the Acquired Business, the Acquired Assets or the employees of
Seller.
11.8 ENVIRONMENTAL LAWS AND REGULATIONS.
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(a) Except as set forth on SCHEDULE 11.8(a) AND (b), each of the
Sellers has at all times been in full compliance with all Environmental
Laws (as defined below in clause (h)) governing its business, operations,
properties, and assets, including, without limitation: (i) all
requirements relating to the Discharge (as defined in clause (h) below)
and Handling (as defined in clause (h) below) of Hazardous Substances (as
defined in clause (h) below) or other Wastes (as defined in clause (h)
below); (ii) all requirements relating to notice, record keeping, and
reporting; (iii) all requirements relating to obtaining and maintaining
Permits for the ownership of its properties and assets and the operation
of the Acquired Business, including Permits relating to the Handling and
Discharge of Hazardous Substances and other Wastes; or (iv) all applicable
writs, orders, judgments, injunctions, governmental communications,
decrees, informational requests, or demands issued pursuant to, or arising
under, any Environmental Laws.
(b) Except as set forth on SCHEDULE 11.8(a) AND (b), there are no
(and, to the knowledge of the Sellers, there is no basis for any)
non-compliance orders, warning letters, notices of violation (collectively
"Notices"), claims, suits, actions, judgments, penalties, fines, or
administrative or judicial investigations or proceedings (collectively
"Proceedings") pending or threatened against or involving any Seller, the
Acquired Business, the Acquired Assets, the Related Facilities or, the
Independent Facilities, issued by any Governmental Authority or third
party with respect to any Environmental Laws or Permits issued to any
Seller thereunder in connection with, related to, or arising out of the
ownership by any Seller of its properties or assets or the operation of
the Acquired Business or related to the Acquired Facilities which have not
been resolved to the satisfaction of the issuing Governmental Authority or
third party in a manner that would not impose any obligation, burden, or
continuing liability on Buyer in the event that the transactions
contemplated by this Agreement are consummated, or which could have a
material adverse affect on Sellers' or the Acquired Business financial
condition, or results of operations including, without limitation: (i)
Notices or Proceedings related to any Seller being a potentially
responsible party for a federal or state environmental cleanup site or for
corrective action under any applicable Environmental Laws; (ii) Notices or
Proceedings in connection with any federal or state environmental cleanup
site, or in connection with any of the real property or premises where any
Seller has transported, transferred, or disposed of other Wastes; (iii)
Notices or Proceedings relating to any Seller being responsible to
undertake any response or remedial actions or clean-up actions of any
kind; or (iv) Notices or Proceedings related to any Seller being liable
under any Environmental Laws for personal injury, property damage, natural
resource damage, or clean up obligations.
(c) Except as set forth on SCHEDULE 11.8(c), no Seller has
Discharged, nor allowed or arranged for any third party to Discharge,
Hazardous Substances or other Waste to, at, or upon: (i) any location
other than a site lawfully permitted to receive such Hazardous Substances
or other Waste; (ii) any of the Acquired Facilities; or (iii) any site (x)
which, pursuant to CERCLA (as defined in clause (h) below) or any similar
state law has been placed on the National Priorities List or its state
equivalent; or (y) with respect to which the Environmental Protection
Agency or the relevant state agency or other Governmental
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Authority has notified any Seller that such Governmental Authority has
proposed or is proposing to place on the National Priorities List or its
state equivalent. To the knowledge of the Sellers, there has not occurred
during the ownership or operation of Sellers, nor is there presently
occurring, a Discharge, or threatened Discharge, of any Hazardous
Substance on, into, or beneath the surface of, or adjacent to, any of the
Related Facilities or, to the best knowledge of Sellers, the Independent
Facilities, in an amount or otherwise requiring a notice or report to be
made to a Governmental Authority or in violation of any applicable
Environmental Laws. To the extent any Seller has Handled Hazardous
Substances, they have done so in compliance with all Environmental Laws.
(d) SCHEDULE 11.8(d)(i) identifies the operations and activities,
and locations thereof, which have been conducted or are being conducted by
any Seller on any of the Acquired Facilities which have involved the
Discharge of Hazardous Substances. SCHEDULE 11.8(d)(ii) identifies the
operations and activities and locations thereof, which have been conducted
or are being conducted by any Seller on any of the Acquired Facilities
which have involved the Handling of Hazardous Substances in any manner
other than for routine cleaning, maintenance, and repair.
(e) SCHEDULE 11.8(e) identifies the locations to which any Seller
has transferred, transported, hauled, moved, or disposed of Waste over the
past five (5) years and the types and volumes of Waste transferred,
transported, hauled, moved, or disposed of to each such location.
(f) Except as set forth on SCHEDULE 11.8(f), no Seller uses, and no
Seller has ever used, any Aboveground Storage Tanks (as defined in clause
(h) below) or Underground Storage Tanks (as defined in clause (h) below),
and to the best knowledge of the Sellers there are not now nor, have there
ever been any Underground Storage Tanks beneath any of the Related
Facilities or, to the best knowledge of Sellers, the Independent
Facilities, that are required to be registered under applicable
Environmental Laws.
(g) SCHEDULE 11.8(g) identifies (i) all environmental audits,
assessments, or occupational health studies undertaken since January 1,
1994 by any Seller or any of its agents or undertaken by any Governmental
Authority or any third party, relating to or affecting any Seller or any
of the Related Facilities or, to the best knowledge of Sellers, the
Independent Facilities; (ii) the results of any ground, water, soil, air,
or asbestos monitoring, undertaken by any Seller or any of its agents or
undertaken by any Governmental Authority or any third party, relating to
or affecting any Seller or any of the Related Facilities or, to the best
knowledge of Sellers, the Independent Facilities, which indicate the
presence of Hazardous Substances at levels requiring a notice or report to
be made to a Governmental Authority or in violation of any applicable
Environmental Laws; (iii) all material written communications between any
Seller and any Governmental Authority arising under or related to
Environmental Laws; and (iv) all outstanding citations issued to any of
the Sellers, or to the best knowledge of Sellers, any other person, under
OSHA, or similar state or local statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, relating to or
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affecting any Seller or any of the Related Facilities or, to the best
knowledge of Sellers, the Independent Facilities.
(h) For purposes of this Section 11.8, the following terms shall
have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Aboveground Storage Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, or emitting, as any of such terms may further be
defined in any Environmental Law, into any medium including, without
limitation, ground water, surface water, soil, or air.
"Environmental Laws" means all federal, state, regional, or local
statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings, and changes or ordinances or judicial or administrative
interpretations thereof, or similar laws of foreign jurisdictions where
Seller conducts business, currently in existence, any of which govern (or
purport to govern) or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, hazardous or
toxic substances, solid or hazardous Waste, or occupational health and
safety, as any of these terms are or may be defined in such statutes,
laws, rules, regulations, codes, orders, plans, injunctions, decrees,
rulings, and changes or ordinances, or judicial or administrative
interpretations thereof, including, without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C.
Section 9601, et seq. (collectively "CERCLA"); the Solid Waste Disposal
Act, as amended by the Resource Conversation and Recovery Act of 1976 and
subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section
6901 et seq. (collectively "RCRA"); the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as
amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended,
42 U.S.C. Section 7401-7642; the Toxic Substances Control Act, as amended,
15 U.S.C. Section 2601 et seq.; the Federal Insecticide, Fungicide, and
Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the
Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42
U.S.C. Section 11001, et seq. (Title III of SARA) ("EPCRA"); and the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C, Section
651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing, or using, as any of such terms may further be defined in
any Environmental Law, of any Hazardous Substances or Waste.
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"Hazardous Substances" shall be construed broadly to include any
toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant, or constituent thereof, whether liquid, solid,
semi-solid, sludge, and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated biphenyls,
the presence of which requires investigation or remediation under any
Environmental Laws or which are regulated, listed, or controlled by,
under, or pursuant to any Environmental Laws, including, without
limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act, the
Toxic Substances Control Act, the Clean Air Act, the Clean Water Act,
FIFRA, EPCRA, and OSHA, or any similar state statute, or regulations
implementing such statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, or which has been determined or interpreted
by any Governmental Authority to be a hazardous or toxic substance
regulated under any other statute, law, regulation, order, code, rule,
order, or decree.
"Underground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order, ruling,
or decree governing Underground Storage Tanks.
"Waste" shall be construed broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special wastes,
used oils, white goods, and yard trash as those terms are defined under
any applicable Environmental Laws.
11.9 EMPLOYEE BENEFIT PLANS. Each employee benefit plan within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), maintained or contributed to by any of the Sellers or any of
its Group Members (as defined below) (collectively, the "Plans") is listed on
SCHEDULE 11.9, is in compliance with applicable law and has been administered
and operated in all material respects in accordance with its terms. Each Plan
that is intended to be "qualified" within the meaning of Section 401(a) of the
Internal Revenue Code of 1986, as amended as of the date hereof (the "Code"),
has received a favorable determination letter from the Internal Revenue Service
(the "IRS") and no event has occurred and no condition exists that could be
expected to result in the revocation of any such determination. No event that
constitutes a "reportable event" (within the meaning of Section 4043(b) of
ERISA) for which the 30-day notice requirement has not been waived by the
Pension Benefit Guaranty Corporation (the "PBGC") has occurred with respect to
any Plan. No Plan is subject to Title IV of ERISA, and none of the Sellers nor
any Group Member has made any contributions to or participated in any "multiple
employer plan" (within the meaning of the Code or ERISA) or "multi-employer
plan" (as defined in Section 4001(a)(3) of ERISA). Full payment has been made of
all amounts that Sellers were required under the terms of the Plans to have paid
as contributions to such Plans on or prior to the date hereof (excluding any
amounts not yet due) and all amounts properly accrued to date as liabilities of
the Sellers that have not been paid have been properly recorded on the Sellers'
financial statements, and
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no Plan that is subject to Part 3 of Subtitle B of Title 1 of ERISA has incurred
any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA
or Section 412 of the Code), whether or not waived. To the knowledge of the
Sellers, no other "disqualified person" or "party in interest" (within the
meaning of Section 4975(e)(2) of the Code and Section 3(14) of ERISA,
respectively) has engaged in any transactions in connection with any Plan that
could be expected to result in the imposition of a material penalty pursuant to
Section 502(i) of ERISA, damages pursuant to Section 409 of ERISA or a tax
pursuant to Section 4975(a) of the Code. No material claim, action, proceeding,
or litigation has been made, commenced or, to the knowledge of the Sellers,
threatened with respect to any Plan (other than for benefits payable in the
ordinary course and PBGC insurance premiums). No Plan or related trust owns any
securities in violation of Section 407 of ERISA. Neither the Sellers nor any
Group Member has incurred any liability or taken any action, or has any
knowledge of any action or event, that could cause it to incur any liability (i)
under Section 412 of the Code or Title IV of ERISA with respect to any "single
employer plan" (within the meaning of Section 4001(a)(15) of ERISA), (ii) on
account of a partial or complete withdrawal (within the meaning of Section 4205
and 4203 of ERISA, respectively) with respect to any "multi-employer plan"
(within the meaning of Section 3(37) of ERISA), (iii) on account of unpaid
contributions to any such multi-employer plan, or (iv) to provide health
benefits or other non-pension benefits to retired or former employees, except as
specifically required by Section 4980B(f) of the Code. Except as set forth on
SCHEDULE 11.9, neither the execution and delivery of this Agreement by the
Sellers nor the consummation of the transactions contemplated hereby will (i)
entitle any current or former employee of the Sellers to severance pay,
unemployment compensation or any similar payment, (ii) accelerate the time of
payment or vesting, or increase the amount of, any compensation due to any such
employee or former employee, or (iii) directly or indirectly result in any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" (within the meaning of Section 280G of the Code). For
purposes of this Agreement, "Group Member" shall mean any member of any
"affiliated service group" as defined in Section 414(m) of the Code that
includes the Sellers, any member of any "controlled group of corporations" as
defined in Section 1563 of the Code that includes the Sellers or any member of
any group of "trades or businesses under common control" as defined by Section
414(c) of the Code that includes the Sellers.
11.10 FINANCIAL INFORMATION. Within 45 days after the Closing, (i) the
1997 Audited Financial and the Current Financials will be prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved and will
fairly present the financial position of Sellers as of the dates thereof and the
results of their operations and cash flows for the periods then ended, (ii) the
Pro Forma List will be prepared in good faith by Sellers in consultation with
their auditors and Buyer, and Sellers will have used their best efforts in the
preparation thereof. The Unaudited Year-End Financials and Prior Year Audited
Financials have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved and fairly present the financial position
of Sellers as of the dates thereof and the results of their operations and cash
flows for the periods then ended and are complete and accurate in all material
respects. The Query Information is complete and accurate in all material
respects. The Unaudited Year-End Financials and the Query Information index are
set forth at SCHEDULE 11.10.
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11.11 SUBSIDIARIES. Except for YES Receivables Inc., a Delaware
corporation, which is a wholly-owned subsidiary of Finance, and certain name
holding companies and inactive leasing and insurance agent subsidiaries listed
as SCHEDULE 11.11 hereto, Sellers do not have, nor have they ever had, any
Subsidiaries and Sellers do not own, and, except for small interests in publicly
traded stock and securities, have never otherwise owned, any stock, partnership
interest, joint venture interest, or any other security issued by or equity
interest in any other corporation, organization, association, or entity. For
purposes of this Agreement, the term "Subsidiary" means any corporation or other
entity of which securities having a majority of the ordinary voting power in
electing directors or other managers are owned by any Seller directly or through
another Subsidiary.
11.12 Absence of Undisclosed Liabilities. No Seller has any material
obligations or liabilities (whether accrued, absolute, contingent, liquidated,
unliquidated, or otherwise, whether due or to become due and regardless of when
asserted), except (a) liabilities reflected in the Unaudited Year-End
Financials, and (b) liabilities specifically disclosed in any Schedule to this
Agreement.
11.13 Absence of Certain Developments. Except as set forth in the
Unaudited Year-End Financials or SCHEDULE 11.13 hereto, since June 30, 1997, no
Seller has:
(a) Changed its accounting methods or practices (including any
change in loan reserve or write off policies) or revalued any of its
assets;
(b) Borrowed any amount under existing lines of credit, or otherwise
incurred or become subject to any indebtedness, except as is reasonably
necessary for the ordinary operation of its business and in a manner and
in amounts that are in keeping with its historical practice;
(c) Except in the ordinary course of business pursuant to its lines
of credit, loan agreements and related documents with lenders, mortgaged,
pledged, or subjected to any lien, charge, or other encumbrance, any of
its assets with an aggregate fair market value in excess of $5,000, except
liens for current property taxes not yet due and payable;
(d) Sold, assigned, or transferred (including, without limitation,
transfers to any Insiders as defined in Section 11.20) any assets, except
in the ordinary course of business;
(e) Disclosed any proprietary or confidential information to any
person other than Buyer, lenders, shareholders and prospective purchasers;
(f) Modified, waived, canceled or written off any receivable, note,
right or claim, other than in the ordinary course of business and
consistent with past practice;
(g) Suffered any extraordinary financial or other loss or suffered
any material theft, damage, destruction, or loss of or to any property or
properties owned or used by it, whether or not covered by insurance;
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(h) Increased the annualized level of compensation of or granted any
extraordinary bonuses, benefits, or other forms of direct or indirect
compensation to any employee, officer, director, or consultant, or
increased, terminated, or amended or otherwise modified any agreement or
plan for the benefit of officers or employees, except in the ordinary
course of business and consistent with historical adjustments to such
compensation and benefits;
(i) Except for the computer purchase described in SCHEDULE 11.13,
made any capital expenditures or commitments therefor that aggregate in
excess of $50,000;
(j) Taken any other action or entered into any other action other
than in the ordinary course of business and in accordance with past custom
and practice, or entered into or modified any transaction with any Insider
or any contract, written or oral, that involves consideration or
performance by it of a value exceeding $5,000 or a term exceeding six
months;
(k) Made any loans or advances to, or guarantees for the benefit of
any persons;
(l) Acquired (by merger, exchange, consolidation, acquisition of
stock or assets, or otherwise) any corporation, partnership, joint
venture, or other business organization or division or material assets
thereof;
(m) Redeemed or purchased, directly or indirectly, any shares of its
capital stock, or declared or paid any dividends or distributions with
respect to any shares of its capital stock;
(n) Issued or sold any equity securities, securities convertible
into or exchangeable for equity securities, warrants, options, or other
rights to acquire equity securities, or bonds or other debt securities;
(o) Discharged or satisfied any lien or encumbrance or paid any
liability, other than current liabilities (or current installments due on
intermediate or long-term liabilities) paid in the ordinary course of
business; or
(p) Sold, assigned, or transferred (including, without limitation,
transfers to any employees, shareholders, or affiliates) any patents,
trademarks, trade names, copyrights, trade secrets, or other intangible
assets, except in the ordinary course of business.
11.14 Real Estate.
(a) Except for the Related Facilities, Sellers do not own any real
estate.
(b) SCHEDULE 11.14(b) sets forth a list of all leases of real
property and improvements relating to the Acquired Business ("Leases").
True and correct copies of the
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Leases, as amended, have been delivered to Buyer and have not been amended
since the delivery of such copies. The Leases, as amended, are in full
force and effect, the applicable Seller has a valid and existing leasehold
interest under each such Lease for the term set forth therein, and,
neither any Seller, nor to the best of any Seller's knowledge, any other
party, thereto is in default or breach under any such Lease. No event has
occurred which, with the passage of time or the giving of notice or both,
would cause a breach of or default under any of such Leases by any
Sellers, or, to the best of any Seller's knowledge, any other party.
(c) The properties set forth on SCHEDULES 1.6(a) AND (b) AND
11.14(b) constitute all of the real estate used or occupied by Sellers in
connection with the Acquired Business, and, to the best of Sellers'
knowledge, each such property has access, sufficient for the conduct of
the business conducted thereon, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural
gas and other utilities, used in the operations of the Acquired Business.
(d) No Seller is in violation of any applicable zoning ordinance or
other law, regulation, or requirement relating to the operation of any of
the properties used in the Acquired Business, including, without
limitation, applicable environmental protection and occupational health
and safety laws and regulations, and no Seller has received any notice of
any such violation, or of the existence of any condemnation proceeding
with respect to any such properties owned or leased by it.
(e) At the Closing, all Acquired Facilities shall be surrendered to
Buyer in clean, good operating condition (reasonable wear and tear
excepted). Prior to the Closing, Sellers shall lawfully remove and dispose
of all waste, refuse and rubbish from the Acquired Facilities. At the
Closing, the condition of the Acquired Facilities and the activities
conducted by Sellers thereat shall comply fully with all applicable
environmental, occupational zoning, fire, health and safety laws, rules
and regulations.
11.15 Tax Matters.
(a) For purposes of this Agreement:
(i) The term "Taxes" means any and all federal, state, local,
or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs
duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, payroll, employment, recapture,
disability, real property, personal property, sales, use, transfer,
registration, value-added, alternative or add-on minimum, estimated,
or any other taxes, assessment, or government charges of any kind
whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
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(ii) The term "Tax Returns" means any return, declaration,
report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(iii) The term "Code" means the Internal Revenue Code of 1986,
as amended. All references to sections of the Code shall include any
amendments or any successor provisions thereof.
(b) Each of the Sellers has filed all Tax Returns, or filed a timely
extension for all such Tax Returns, that each was required to file prior
to the date hereof. All such Tax Returns were correct and complete in all
respects. All Taxes owed by each of the Sellers (whether or not shown on
any Tax Return) with respect to Tax Returns the due date of which preceded
the date hereof have been paid. All other Taxes due and payable by each of
the Sellers with respect to periods ending on or as of the date of the
Closing or in respect of transactions entered into or any state of facts
existing as of the date of Closing (whether or not a Tax Return is due on
such date) have been paid or are accrued on the applicable financial
statements or will be accrued on the books and records of the Sellers as
of the Closing and made available to the Buyer. For purposes of the
preceding sentence, in determining the amount of taxes due and payable by
the Sellers with respect to periods ending on or as of the date of the
Closing or with respect to transactions entered into or any state of facts
existing as of the date of the Closing, the date of the Closing shall be
deemed to be the last day of any applicable tax period. It is expressly
provided that for purposes of this Section 11.15(b), the term Taxes
includes all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor or
shareholder of Sellers, or to any other third party.
(c) Except as set forth on SCHEDULE 11.15, with respect to each
taxable period for each of the Sellers prior to the date hereof or prior
to the date of the Closing, (i) either such taxable period has been
audited by the relevant taxing authority or the time for assessing or
collecting Taxes with respect to each such taxable period has closed and
each taxable period is not subject to review by a relevant taxing
authority; (ii) no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Taxes has been asserted or
assessed by any taxing authority against any of the Sellers; (iii) none of
the Sellers has consented to extend the time in which any Taxes may be
assessed or collected by any taxing authority; (iv) none of the Sellers
has requested or been granted an extension of the time for filing any Tax
Return to a date later than the Closing; (v) there is no action, suit,
taxing authority proceeding, or audit or claim for refund now in progress,
pending or threatened against or with respect to any of the Sellers
regarding Taxes; (vi) none of the Sellers has made an election or filed a
consent under Section 341(f) of the Code (or any corresponding provision
of state, local or foreign law); (vii) there are no liens on the assets of
any of the Sellers relating or attributable to Taxes (other than liens for
sales and payroll Taxes not yet due and payable) and none of the Sellers
has any knowledge of any reasonable basis for the assertion of any claim
relating or attributable to Taxes which, if adversely determined, would
result in any lien on the assets of the Sellers; (viii) none of the
Sellers will
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be required (A) as a result of a change in method of accounting for a
taxable period ending on or prior to the date of the Closing, to include
any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any
taxable period (or portion thereof) beginning after the date of the
Closing or (B) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local
or foreign law), to include any item of income or exclude any item of
deduction from any taxable period (or portion thereof) beginning after the
date of the Closing; (ix) none of the Sellers has been a member of an
affiliated group (as defined in Section 1504 of the Code) or filed, or
been included in a combined, consolidated or unitary income Tax Return;
(x) none of the Sellers is a party to or bound by any Tax allocation or
tax sharing agreement and has no current or potential contractual or other
obligation to indemnify any other person with respect to Taxes; (xi) no
taxing authority will claim or assess any additional Taxes against any of
the Sellers for any period for which Tax Returns have been filed; (xii) no
claim has ever been made by a taxing authority in a jurisdiction where any
of the Sellers does not file Tax Returns that any of the Sellers is or may
be subject to Taxes assessed by such jurisdiction; (xiii) none of the
Sellers has any permanent establishment in any foreign country, as defined
in the relevant tax treaty between the United States of America and such
foreign county; (xiv) true, correct and complete copies of all income and
sales Tax Returns filed by or with respect to each of the Sellers for the
past three (3) years have been furnished or made available to the Buyer;
(xv) each of the Sellers has disclosed on each Tax Return filed by each
all positions taken thereon that could give rise to a substantial
understatement of penalty of federal income Taxes within the meaning of
Code Section 6662; (xvi) none of the Sellers was acquired in a qualified
stock purchase under Code Section 338(d)(3) and no elections under Code
Section 338(g), protective carryover basis elections, or offset
prohibition elections are applicable to any of the Sellers; (xvii) none of
the assets of Sellers (a) is property required to be treated as being
owned by any other person under the "safe harbor lease provisions" of
former section 168(f)(8) of the Internal Revenue Code of 1954, as amended,
or (b) has been financed with or directly or indirectly secures any bond
or debt the interest on which is tax-exempt under Section 103(a) of the
Code; and (xviii) no sales or use tax will be payable by any of the
Sellers as a result of this transaction, and there will be no nonrecurring
intangible tax, documentary stamp tax or other excise tax (or comparable
tax imposed by a governmental entity) as a result of this transaction.
(d) Any reference to the term "Sellers" in this Section 11.15 shall
refer to each of the Sellers, any predecessor entities, and any subsidiary
of any of the Sellers.
11.16 Contracts and Commitments.
(a) Except as set forth in SCHEDULE 11.16 hereto or any other
Schedule hereto, no Seller is a party to any written or oral: (i)
collective bargaining agreement or contract with any labor union; (ii)
bonus, pension, profit sharing, retirement, or other form of deferred
compensation plan; (iii) hospitalization insurance, or similar plan or
practice, whether formal or informal; (iv) contract for the employment or
compensation of any officer, individual
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employee, or other person on a full-time, part-time or consulting basis or
relative to severance pay or change-in-control benefits for any such
person; (v) agreement or indenture relating to the borrowing of money in
excess of $5,000 relating to the Acquired Business or Acquired Assets or
to mortgaging, pledging, or otherwise placing a lien on any of the
Acquired Assets; (vi) guaranty of any obligation for borrowed money or
otherwise, other than endorsements made for collection; (vii) lease or
agreement under which it is lessor or lessee of, or permits any third
party to hold or operate, any Acquired Assets or any facilities relating
to the Acquired Business; (viii) other agreement material to the Acquired
Business or (ix) agreement not entered into in the ordinary course of
business relating to the Acquired Assets, the Acquired Business or the
Acquired Facilities (collectively, the "Agreements"). True and correct
copies of the Agreements, as amended, have been delivered to Buyer and
have not been amended since the delivery of such copies. Buyer is not
assuming any obligations of Sellers under the Agreements unless the
Agreement is an Assumed Agreement or a liability thereunder is an Assumed
Liability.
(b) Sellers have furnished Buyer with a true and correct copy of
each written Agreement, and a written description of each oral Agreement,
referred to in SCHEDULE 11.16, together with all amendments, waivers, or
other changes thereto.
(c) Except as specifically disclosed in SCHEDULE 11.16 hereto: (i)
no customer or supplier has indicated that it will stop or decrease the
rate of business done with any Seller, except for changes in the ordinary
course of the Acquired Business; and (ii) no breach or default by Sellers
or claim of any such breach or default by Sellers or to their best
knowledge, by any other party, exists under any Assumed Agreement and no
event has occurred with respect thereto that with the lapse of time or
action or inaction by any Seller or, to their best knowledge, any other
party thereto, would result in a breach thereof or a default thereunder.
(d) Each Assumed Agreement is in full force and effect and is the
legal, valid and binding obligation of each Seller party thereto,
enforceable in accordance with its terms against each Seller party thereto
and each other party thereto, subject to the Equitable Exceptions. Except
as set forth on SCHEDULE 11.16, no Seller has, and, to the best of
Sellers' knowledge, no other party thereto has, assigned any of its rights
or delegated any of its duties under any Assumed Agreement.
(e) Upon the assignment of each Assumed Agreement to the Buyer
pursuant hereto, all rights of the Sellers with respect to the Assumed
Agreements will inure to the Buyer and the Assumed Agreements will be
enforceable by the Buyer in accordance with their terms, subject to the
Equitable Exceptions.
(f) As of the Closing, no Seller will owe any amount (whether
absolute, contingent, or otherwise) for any period prior to Closing with
respect to any Assumed Agreement, other than amounts incurred in the
ordinary course of business consistent with
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past practices and this Agreement, with any exceptions thereto to be
properly reflected on SCHEDULE 11.16 hereof.
(g) Sellers have paid all rental and other payments due under each
lease (including each Lease) under which a Seller is the lessee, in
accordance with its terms. With respect to each such lease, the applicable
Seller has been in peaceable possession of the buildings, equipment,
machinery, real property, vehicles, or other tangible property covered
thereby since the commencement of the original term of such lease.
Moreover, no indulgence, postponement, or waiver of any Seller's
obligations under any such lease has been granted by the lessor. Sellers
possess full right and power to occupy as a tenant or possess as a lessee,
as the case may be, all of the buildings, equipment, machinery, real
property, vehicles, and other tangible property covered by such leases.
11.17 Intellectual Property.
(a) Sellers warrant and represent that Sellers own, or are licensed
or otherwise possess legally enforceable and, except as otherwise
disclosed in SCHEDULE 11.17, transferrable rights to use all of the
Intellectual Property, the Shared Software, and the Licensed Software,
including all patents, trademarks, trade names, service marks, copyrights,
and all applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both
source code and object code form), trade secrets and tangible or
intangible proprietary information or material that are used in the
Acquired Business (the "Intellectual Property Rights").
(b) Sellers warrant and represent that SCHEDULE 11.17 comprises (i)
a complete list of all patents, registered and unregistered trademarks and
service marks, registered copyrights, maskworks, trade names, and any
applications relating to the foregoing, included in the Intellectual
Property Rights, and specifies, where applicable, the jurisdiction in
which each such Intellectual Property Right has been issued or registered
or in which an application for such issuance and registration has been
filed, including the respective registration or application numbers and
the names of all registered owners; (ii) a complete list of all material
licenses, sublicenses and other agreements as to which any of Sellers are
a party and pursuant to which any of Sellers are authorized to use the
intellectual property rights of any third parties; and (iii) a complete
list of all material licenses, sublicenses and other agreements as to
which any of Sellers are parties and pursuant to which any third party is
authorized to use Intellectual Property Rights, and includes the identity
of all parties thereto, a description of the nature and subject matter
thereof, the applicable royalty or other fees and the term thereof. None
of Sellers is in violation of any such licenses, sublicenses or agreements
nor, to Sellers' knowledge, is any other party thereto. All proprietary
software and enhancements, modifications and customizations thereto that
were developed by Sellers were developed by employees of Sellers who were
hired for such purposes, and except as disclosed on SCHEDULE 11.17 no
consultants or independent contractors or other third parties were
utilized by Sellers in the development of such software or enhancements,
modifications or customizations. Sellers have provided to Buyer complete
and true copies of all
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agreements with those consultants, independent contracts or other third
parties listed on SCHEDULE 11.17 pursuant to which such development
activities occurred.
(c) Sellers warrant and represent that the execution and delivery of
this Agreement by Sellers, and the consummation of the transactions
contemplated hereby, will neither cause any of Sellers to be in violation
or default under any license, sublicense or agreement, nor entitle any
other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement. Sellers are the sole and
exclusive owners or licensees of, with all right, title and interest in
and to (free and clear of any liens or encumbrances), the Intellectual
Property Rights, and have sole and exclusive rights (and are not
contractually obligated to pay any compensation to any third party in
respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the
Intellectual Property Rights are being used.
(d) No claims with respect to the Intellectual Property Rights have
been asserted or are threatened by any person nor are there any valid
grounds for any bona fide claims (i) to the effect that the manufacture,
sale, licensing or use of any product or service of the Acquired Business
infringes on any copyright, patent, trademark, service mark, trade secret
or other proprietary right of any third party, (ii) against the use by
Sellers of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Acquired Business as currently
conducted, or (iii) challenging the ownership by Sellers or the validity
or effectiveness of any of the Intellectual Property Rights. All licenses
to Intellectual Property patents, and registered trademarks, service marks
and copyrights held by Sellers are valid and subsisting. There is no
material unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including any employee or
former employee or present or former consultants, independent contractors
or other agents of Sellers. No Intellectual Property Right or product or
service of Sellers is subject to any outstanding decree, order, judgment,
or stipulation restricting in any manner the transfer or licensing thereof
by Sellers.
11.18 Employment Matters. Attached hereto as SCHEDULE 11.18 is a list of
names, job title, name of employer, city and state of employment, current annual
rates of salary, bonus, commission, employee benefits, accrued vacation and sick
time, sick pay, and other compensation, benefits, and perquisites, including the
provision of company-owned automobiles, of all the employees of Sellers and its
independent contractors whose work relates, directly or indirectly, to the
operation of the Acquired Business and all benefit plans (with a brief
description of each thereof) and employment agreements (written or oral) in
favor of or applicable to any such employees or independent contractors. To the
best of Sellers' knowledge, except as disclosed in SCHEDULE 11.18, no key
employee of any Seller, and no group of any Seller's other employees, has any
plans to terminate his, her, or its employment. No Seller is a party to any
collective bargaining agreement, there are no discussions, negotiations,
demands, or proposals that are pending or that have been conducted or made with
or by any labor union or association, and there are no pending or threatened
labor disputes, strikes, or work stoppages with respect to the business
operations of Sellers and Sellers'
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labor relations are satisfactory in all material respects. Each Seller has
complied with all laws relating to the employment of labor, terms and conditions
of employment, and wages and hours, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining, and the payment of
social security and other taxes, and is not engaged in any unfair labor
practices. Except as disclosed in SCHEDULE 11.18, each Seller may terminate any
employee, with or without cause, without liability or obligation other than for
salary, vacation pay and other employee benefits accrued through the date of any
such termination.
11.19 No Liens. Sellers' title to the Acquired Assets is free and clear of
all liens, other than the liens listed on SCHEDULE 11.19 hereto all of which
will be released as of the Closing.
11.20 Affiliate Transactions. Except as set forth on SCHEDULE 11.20, no
officer, director or shareholder of any Seller or any member of the immediate
family of any such officer, director, or shareholder, or any entity in which any
of such persons owns any beneficial interest (other than a publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than 1% of the stock of which is beneficially
owned by any of such persons) (collectively "Insiders"), has any agreement with
any Seller or any interest in any property (real, personal, or mixed, tangible
or intangible) used in or pertaining to the Acquired Business. For purposes of
the preceding sentence, the members of the immediate family of an officer,
director, or, shareholder shall consist of the spouse, parents, children, and
sons- and daughters-in-law, of such officer, director, or shareholder and, in
addition to the above, with respect to any material agreement or interest,
siblings, mothers- and fathers-in-law and brothers-and sisters-in-law.
11.21 Compliance with Laws; Permits. Each Seller and its officers,
directors, and employees and, to the best of such Seller's knowledge, its
agents, have complied with all applicable laws and regulations of foreign,
federal, state, and local governments and all agencies thereof which affect the
Acquired Business or any of the Acquired Assets or the Acquired Facilities and
no claims have been filed or threatened against any Seller alleging a violation
of any such law or regulation, except as set forth in SCHEDULE 11.21 hereto.
Each Seller possesses all approvals, authorizations, certificates, consents,
registrations, franchises, licenses, permits, rights, variances, and waivers
necessary for the lawful conduct of the Acquired Business and the ownership or
operation of the Acquired Assets and the Acquired Facilities (collectively, the
"Permits"). All Permits are in full force and effect, no violations have
occurred with respect thereto, and no basis exists for any limitation,
revocation, or withdrawal thereof or any denial of any extension or renewal with
respect thereto. A list of all Permits (including the expiration dates thereof)
is set forth in SCHEDULE 11.21 hereto. Except as indicated on SCHEDULE 11.21, no
Permit is transferable to the Buyer. Sellers have made available to Buyer each
Permit for Buyer's review.
11.22 Reasonably Equivalent Value. Sellers acknowledge and warrant that
the value received by the Sellers pursuant to this Agreement is reasonably
equivalent to the value of the Acquired Business, Acquired Assets and Acquired
Facilities. Sellers further warrant that the transfer of the Acquired Business,
Acquired Assets and Acquired Facilities to Buyer is not being made by the
Sellers with the intent to hinder, delay or defraud any creditor of the Sellers;
that Buyer is not an insider (as that term is defined in 11 U.S.C. Section
101(31) and/or Tex. Bus. & Com. Code Section 24.002(7))
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of the Sellers; that the Sellers shall not retain possession or control of any
such assets following the transfer; and that the transfer shall not be concealed
from any of the Sellers' creditors.
11.23 Disclosure. Neither this Agreement nor any of the Schedules hereto
or documents or agreements to be delivered hereunder contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading, and there is no fact which has not been
disclosed to Buyer which material adversely affects or could reasonably be
anticipated to materially adversely affect the Acquired Assets, Acquired
Business, or Acquired Facilities or the customer, employee or supplier relations
relating thereto.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants that all of the following
representations and warranties in this Article XII are true and correct at the
time of execution and delivery of this Agreement and at the time of the Closing.
12.1 Due Organization and Qualification. Buyer is duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
duly authorized and qualified under all applicable laws, regulations, and
ordinances of public authorities to carry on its businesses in the places and in
the manner as now conducted except for where the failure to be so authorized or
qualified would not have a material adverse effect on its business, operations,
affairs, properties, assets or condition (financial or otherwise).
12.2 Corporate Power and Authority. The execution, delivery and
performance of this Agreement by Buyer, and all other agreements by and among
the parties, and the consummation by it of the transactions contemplated hereby
and thereby, have been or will at the time of the Closing be duly authorized by
all requisite corporate action and no further action or approval is required or
will at the time of Closing be required in order to permit Buyer to consummate
the transactions contemplated hereby and thereby. This Agreement constitutes,
and all other agreements by and among the parties, when executed and delivered
in accordance with the terms thereof, will constitute the legal, valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
terms (subject to the Equitable Exceptions). Buyer has full corporate power,
authority and legal right to enter into this Agreement and all other agreements
by and among the parties and to consummate the transactions contemplated hereby
and thereby.
12.3 No Violations. The execution, delivery and performance of this
Agreement, and all other agreements by and among the parties, and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms hereof and thereof will not (i) conflict with or result in a
breach or violation of the Certificate of Incorporation or the Bylaws of Buyer,
(ii) result in any breach or termination of, or constitute a default under, or
constitute an event which with notice or
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lapse of time, or both, would become a default under, or result in the creation
of any encumbrance upon any asset of Buyer under, or create any rights of
termination, cancellation or acceleration in any person under, any contract,
lease, arrangement, commitment, or any other instrument or violate any judgment
order, writ, injunction or decree, to which Buyer is a party or by which Buyer
or any of its assets, business or operations may be bound or affected or under
which Buyer or its assets, business or operations receive benefits, (iii) result
in the loss or adverse modification of any material license, franchise, permit
or other authorization granted to or otherwise held by Buyer which is material
to the business or financial condition of Buyer or (iv) result in the violation
of any provisions of law applicable to Buyer, the violation of which could have
a material adverse effect upon the business, operations or assets of Buyer.
12.4 Consents. Except with respect to licenses and permits necessary or
appropriate to the operation of the Acquired Business as contemplated in Section
4.1 hereof, no consent, approval, authorization or order of any court, agency or
any other person or authority is required in order to permit Buyer to consummate
the transactions contemplated by this Agreement.
12.5 Conformity with Law and Litigation. Except with respect to licenses
and permits necessary or appropriate to the operation of the Acquired Business
as contemplated in Section 4.1 hereof, Buyer is not in violation of any law or
regulation or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it that would have a material adverse effect on the
ability of the Buyer to consummate the transactions contemplated by this
Agreement. There are no pending or threatened claims, actions, suits,
proceedings or litigation in any court or any proceeding before any agency (i)
in which it is sought to restrain, prohibit, invalidate or obtain damages in
respect of the consummation of the purchase and sale of the Acquired Assets or
the other transactions contemplated hereby or (ii) which could, if adversely
determined, result in the inability of the Buyer to consummate the transactions
contemplated by this Agreement.
12.6 Reasonably Equivalent Value. In the good faith judgment of Buyer, the
assets being purchased pursuant to this Agreement are being purchased for value
reasonably equivalent to the value of the Acquired Business, Acquired Assets and
Acquired Facilities.
ARTICLE XIII
INDEMNIFICATION
13.1 Definitions. For purposes of this Article, the following terms shall
have the respective meanings set forth below:
"Indemnified Party" means a party entitled to indemnification
pursuant to this Article.
"Indemnifying Party" means a party liable for indemnification
pursuant to this Article.
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"Losses" means any and all out-of-pocket damages, costs,
liabilities, losses (including consequential losses), judgments, penalties,
fines, expenses or other costs, including reasonable attorney's fees, incurred
by an Indemnified Party.
"Third Party Claim" means a claim or demand made by any person or
corporation (other than an Indemnified Party) or any governmental authority or
other third party against an Indemnified Party.
13.2 Indemnification by Sellers. Sellers shall indemnify and hold harmless
Buyer and its directors, officers, employees, affiliates and agents, at all
times from and after Closing, against any Losses arising from or relating to:
(i) any breach of the representations or warranties made by Sellers in this
Agreement or in any certificate or other document or agreement delivered by
Sellers or any of them pursuant to this Agreement; (ii) any breach of the
covenants and agreements made by Sellers in this Agreement or in any certificate
or other document or agreement delivered by Sellers or any of them pursuant to
this Agreement; (iii) the Excluded Assets; (iv) the Excluded Liabilities; and
(v) any Losses arising from the failure to obtain on or prior to the Closing any
required consent of any landlord of the Independent Facilities or to have
executed and delivered on or prior to the Closing any assumptions of the
Independent Third-Party Leases as contemplated in Section 1.6(a) of this
Agreement, including but not limited to any Losses resulting from any changes
demanded by a landlord in rental rates or other terms and conditions in any
Independent Third-Party Lease or from any relocation to different facilities
required as a result of consent not having been obtained, and any Losses arising
from the failure of Sellers to obtain on or prior to the Closing on their own
behalf or on behalf of Buyer any required Sellers' lenders consents, shareholder
approvals or consents of other third parties, including but not limited to the
consent of the mortgage lender of the Plano Road facility and any consents
required to transfer or assign the Assumed Agreements and/or to license the
licensed Software if not obtained by the Closing, to the execution and delivery
of this Agreement and the other agreements and instruments contemplated hereby
and the consummation of the transactions contemplated hereby. If Sellers shall
at any time dissolve or make any distribution to equity holders following the
Closing after satisfaction of all debts to creditors, Sellers shall post
security for or otherwise make full and adequate provisions for all identifiable
obligations of indemnity under this Section 13.2. The Appliance Company shall
indemnify and hold harmless Buyer and its directors, officers, employees,
affiliates and agents, at all times from and after the Closing arising from or
relating to any breach of any covenant, agreement, representation or warranty
made in this Agreement by the Appliance Company.
13.3 Indemnification by Buyer. Buyer shall indemnify and hold harmless
Sellers, and as applicable the Appliance Company, and their respective
directors, officers, employees, affiliates and agents, at all times from and
after the Closing, against any Losses arising from or relating to: (i) any
breach of the representations or warranties made by Buyer in this Agreement;
(ii) any breach of the covenants and agreements made by Buyer in this Agreement;
(iii) the Assumed Liabilities; (iv) any Assumed Liabilities arising in
connection with the Acquired Business or the Acquired Assets following the
Closing during or in connection with the operation of the Management Services
Agreement except as otherwise provided in Section 4.2 hereof; (v) any breach of
Buyer's obligations
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pursuant to the Portfolio Servicing Agreement or the Subservicing Agreement; and
(vi) the ownership or operation of the Acquired Business or the Acquired Assets
after the Closing.
13.4 Procedure for Indemnification Claims.
(a) Any Indemnified Party asserting a right of indemnification
provided for under this Agreement in respect of a Third Party Claim shall notify
the Indemnifying Party in writing of the Third Party Claim within ten business
days after receipt by such Indemnified Party of written notice of the Third
Party Claim. As part of such notice, the Indemnified Party shall furnish the
Indemnifying Party with copies of any pleadings, correspondence or other
documents relating thereto that are in the Indemnified Party's possession. The
Indemnified Party's failure to notify the Indemnifying Party of any such matter
within the time frame specified above shall not release the Indemnifying Party,
in whole or in part, from its obligations under this Article except to the
extent that the Indemnifying Party's ability to defend against such claim is
actually prejudiced thereby. The Indemnifying Party agrees (and, at such time as
the Indemnifying Party acknowledges its liability under this Article with
respect to such Third Party Claim, the Indemnifying Party shall have the sole
and exclusive right) to defend against, settle or compromise such Third Party
Claim at the expense of such Indemnifying Party. The Indemnified Party shall
have the right (but not the obligation) to participate in the defense of such
claim through counsel selected by it, which counsel shall be at the Indemnified
Party's expense to the extent that the Indemnifying Party has assumed the
defense of such claim unless counsel for the Indemnifying Party could not
adequately represent the interests of the Indemnified Party due to an actual or
potential conflict of interest, in which case such counsel shall be at the
Indemnifying Party's expense. The Indemnified Party shall cooperate with the
Indemnifying Party and provide such assistance at the Indemnifying Party's
expense as the Indemnifying Party may reasonably request in connection with the
defense of such claim, including but not limited to providing the Indemnifying
Party access to and use of all relevant corporate records and making available
its officers and employees for depositions, other pre-trial discovery and as
witnesses at trial, if required. If the Indemnifying Party has not yet
acknowledged its liability under this Article with respect to such Third Party
Claim, then the Indemnifying Party and the Indemnified Party shall cooperate in
defending against such Third Party Claim at the Indemnifying Party's expense,
and neither party shall have the right, without the other's consent, to settle
or compromise any such Third Party Claim.
(b) In the event of any claim for indemnification hereunder that is
not a Third Party Claim, the Indemnified Party shall give reasonable notice
thereof to the Indemnifying Party and shall afford the Indemnifying Party access
to all relevant corporate records and other information in its possession
relating thereto.
(c) If any party becomes obligated to indemnify another party with
respect to any claim for indemnification hereunder and the amount of liability
with respect thereto shall have been finally determined, the Indemnifying Party
shall pay such amount to the Indemnified Party plus the reasonable fees and
expenses of the Indemnified Party and of its counsel and other agents in
connection with such claim for indemnification and the enforcement thereof, in
immediately available funds within ten days following written demand by the
Indemnified Party. Sellers
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acknowledge that pursuant to Section 3.1(b) of the Portfolio Servicing
Agreement, Collections (as defined in the Portfolio Servicing Agreement) may be
remitted to Buyer by the Servicer (as defined in the Portfolio Servicing
Agreement) in order to satisfy the indemnity obligations of Sellers hereunder
provided that such remittance is in accordance with Section 3.1(b) of the
Portfolio Servicing Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 COOPERATION. Buyer and Sellers shall each deliver or cause to be
delivered to the other on the day of the Closing, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
14.2 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
(a) Covenants and Agreements. All covenants and agreements made
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Closing and shall continue in full force and effect
thereafter according to their terms without limit as to duration except as
otherwise expressly stated herein, not withstanding any investigation by any
parties hereto.
(b) Representations and Warranties. All representations and
warranties contained herein shall survive the Closing and shall continue in full
force and effect thereafter for a period of one (1) year following the Closing,
except that (a) the representations and warranties contained in Section 11.8
(Environmental) hereof shall survive for a period of five (5) years following
the Closing, (b) the representations and warranties contained in Section 11.9
(Employee Benefit Plans) and Section 11.15 (Tax Matters) hereof shall survive
until the expiration of the applicable period of the statutes of limitation
applicable to ERISA matters and tax matters, respectively, and (c) the
representations and warranties contained in Article VII and Sections 11.1 to
11.4 and Sections 11.17 and 11.19 (Organization, Authorization, Ownership of
Assets, Intellectual Property, No Liens) hereof shall survive indefinitely.
Notwithstanding anything to the contrary in this Section 14.2(b), Sellers
obligations of indemnity pursuant to Section 13 hereof shall not be impaired
after the expiration of any period stated in this Section 14.2(b) with respect
to any Excluded Liabilities, which obligations of indemnity shall survive
indefinitely.
(c) Claims Made Prior to Expiration. Notwithstanding the foregoing
survival periods set forth in this Section 14.2, the termination of a survival
period shall not affect the rights of an Indemnified Party in respect of any
claim or potential claim made by any party with reasonable specificity, in good
faith and in writing to the Indemnifying Party in accordance with Article XIII
hereof prior to the expiration of the applicable survival period.
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14.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned except by operation of law and except that Buyer
may assign all or any portion of its rights and obligations hereunder to any one
or more subsidiaries or affiliates and shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, no assignment by Buyer will relieve Buyer of its
obligations to the parties hereto, including expressly its indemnification
obligations.
14.4 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Sellers and Buyer
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement of the parties hereto enforceable in accordance with its
terms subject to Equitable Exceptions and this Agreement and the schedules,
exhibits and annexes hereto may be modified or amended only by a written
instrument executed by the Sellers and Buyer acting through their respective
officers, duly authorized by their respective Boards of Directors.
14.5 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument. One or more
counterparts of this Agreement may be delivered via telecopier with the
intention that they shall have the same effect as an original executed
counterpart hereof.
14.6 BROKERS AND AGENTS. Each party will be responsible for the fees and
expenses of its own broker or agent, if any, in connection with this transaction
and agrees to indemnify the other against all loss, cost, damages or expense
arising out of claims for fees or commissions of brokers employed or alleged to
have been employed by such indemnifying party.
14.7 EXPENSES. Except as otherwise expressly provided herein, Sellers and
Buyer shall each pay their own expenses in connection with the preparation of
this Agreement and the consummation of the transactions contemplated hereby
including, without limitation, fees of its own counsel, auditors and other
experts, whether or not such transactions be consummated.
14.8 NOTICES. All notices or communication required or permitted hereunder
shall be in writing and may be given by (a) depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or with a national overnight delivery
service if delivery thereof is confirmed by the sender, (b) delivering the same
in person to an officer or agent of such party, or (c) telecopying the same with
electronic confirmation of receipt.
(i) If to Sellers, addressed to Sellers at:
KARS-YES Holdings Inc.
c/o 2200 Ross Avenue, Suite 3200
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Dallas, Texas 75201
Telecopy No.: (214) 220-3623
Attn: Mr. J. Oliver McGonigle, Chairman
with copies to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Telecopy No.: (214) 740-8800
Attn: Don M. Glendenning, Esq.
(ii) If to Buyer, addressed to Buyer at:
Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Phone: (602) 852-6600
FAX: (602) 852-6656
Attn.: Steven P. Johnson, Esq.
with copies to:
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
FAX: (602) 382-6070
Attn.: Steven D. Pidgeon, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section from time to time.
14.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
14.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
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14.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
14.12 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
14.13 CAPTIONS. The headings of this Agreement are inserted for
convenience only and shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
14.14 USE OF CERTAIN TERMS. As used in this Agreement, the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular paragraph, subparagraph or other
subdivision.
14.15 ATTORNEYS' FEES. In the event of a dispute arising out of this
Agreement, the prevailing party, whether by way of prosecution or defense, shall
be entitled to all of its costs and expenses including, but not limited to,
attorneys' or counsels' (including paralegals' and similar persons') fees and
expenses, and accountants' fees and expenses, whether in a judicial, bankruptcy,
reorganization, administrative, arbitration or other proceeding, including
appellate proceedings, and any proceedings instituted to collect or enforce any
judgment or other relief granted or awarded whether such fees or expenses arise
before proceedings are commenced or after entry of a final judgment.
14.16 WAIVER OF JURY TRIAL. All parties waive trial by jury in all actions
relating to this Agreement and the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Sellers:
KARS-YES Holdings Inc.
By: /s/ J. OLIVER McGONIGLE
--------------------------------------
Name: J. Oliver McGonigle
Title: Chairman
KARS-YES Financial Inc.
By: /s/ J. OLIVER McGONIGLE
--------------------------------------
Name: J. Oliver McGonigle
Title: Chairman
KARS-YES Inc.
By: /s/ J. OLIVER McGONIGLE
--------------------------------------
Name: J. Oliver McGonigle
Title: Chairman
Buyer:
Ugly Duckling Corporation
By: /s/ GREGORY B. SULLIVAN
--------------------------------------
Name: Gregory B. Sullivan
Title: President
And joined in for certain limited
purposes as set forth above:
The YES Group Inc.
By: /s/ J. OLIVER McGONIGLE
------------------------------
Name: J. Oliver McGonigle
Title: Chairman
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Exhibit 10.1
SERVICING AGREEMENT
This SERVICING AGREEMENT (the "Agreement") is entered into as of
September 15, 1997, but deemed to be effective, solely for purposes of the
calculation of the Servicing Fee pursuant to Section 2.4(a) hereof, as of the
Effective Time as defined in the Purchase Agreement as hereinafter defined, by
and among KARS-YES FINANCIAL, INC., a Delaware corporation, as owner ("Owner"),
CITICORP USA, INC., as agent (or any successor agent) under the Amended and
Restated Financing dated as of April 29, 1996, as amended from time to time,
("Agent"), CHAMPION ACCEPTANCE CORPORATION, an Arizona corporation, as servicer
("Servicer") and, for the limited purpose of Section 7.15, UGLY DUCKLING
CORPORATION ("UDC") and, for the limited purposes of (i) certain notice,
information and inspection rights provided below and (ii) Section 7.16, THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES AND EQUITABLE CAPITAL
PRIVATE INCOME AND EQUITY PARTNERSHIP II, L.P. (collectively, the
"Noteholders").
RECITALS
WHEREAS, pursuant to that certain Agreement for Purchase and sale of
Certain Assets by and between Kars-Yes Holdings, Inc., a Texas corporation
("Parent"), Owner, and Kars-Yes, Inc., a Delaware corporation ("Retail") as
sellers (collectively, the "Sellers"), and Ugly Duckling Corporation, a Delaware
corporation, as buyer ("Buyer"), dated of even date herewith (the "Purchase
Agreement"), Buyer has agreed to purchase the operations of Owner, the
headquarters operations of Parent and Sellers, and the retail operations of
Retail in certain states, including all equipment owned by Sellers for such
operations (the "Assets");
WHEREAS, Owner has entered into an Amended and Restated Financing dated
as of April 29, 1996, as amended from time to time, pursuant to which the
lenders thereunder made certain loans and other financial accommodations to the
Owner. To secure the obligations of the Owner thereunder, the Owner granted to
the Agent a security interest in substantially all of its assets.
WHEREAS, Owner is entering into an Agreement and Consent and related
documents and agreements with and for the benefit of the Noteholders in
connection with the orderly liquidation of Owner's assets;
WHEREAS, in connection with the sale of Assets to Buyer, Servicer, a
subsidiary of Buyer, has agreed to service certain Receivables currently owned
by Owner; and
WHEREAS, for the purpose of effectuating the intent of the parties
hereto, Servicer and Owner have agreed to enter into this Agreement.
<PAGE> 2
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. Whenever used in this Agreement, the following
words and phrases shall have the following meanings:
"Account Debtor" shall mean, with respect to a Receivable, the
purchaser or copurchaser of the related Financed Vehicle or any other Person who
owes or may be liable for payments under such Receivable.
"Agent's Notice" shall mean the written notice by Agent to the
Servicer and the Noteholders pursuant to Section 7.16.
"Amended and Restated Financing" shall mean the Amended and
Restated Financing dated as of April 29, 1996, as amended from time to time.
"Backup Servicer" shall mean any backup servicer appointed
pursuant to Section 2.1(c).
"Business Day" shall mean any day other than a Saturday,
Sunday, or a Federal Reserve Bank holiday.
"Charged-Off Loss Ratio" means, for each Collection Period,
the quotient of (i) the net Principal Balance of all Receivables which become
Charged-Off Receivables during such Collection Period in accordance with the
Collection Policy divided by (ii) the aggregate of the Principal Balance of all
Receivables as of the beginning of such Collection Period, which quotient shall
be expressed as a percentage. Calculations under this definition shall be made
with respect to Receivables covered by this Agreement and the Sub-servicing
Agreement.
"Charged-Off Receivable" shall mean a Receivable that is
charged-off pursuant to the Collection Policy.
"Collection Account" shall mean Account No. 4073-9299 in the
name of the Agent at Citibank, N.A., 399 Park Avenue, New York, New York, 10022.
"Collection Period" shall mean each calendar month during the
term of this Agreement. Any amount stated "as of the close of business on the
last day of a Collection Period"
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shall give effect to the following calculations as determined as of the end of
the day on such last day: (1) all collections, (2) all applications of
collections and (3) all distributions.
"Collection Policy" shall mean that certain Collection and
Account Liquidations Policy and Procedures Manual, a copy of which is attached
hereto as Exhibit A.
"Contract" shall mean a retail installment sale contract, with
any amendments thereto, relating to a Receivable, pursuant to which an Account
Debtor has purchased a Financed Vehicle.
"Debtor Relief Laws" shall mean the Bankruptcy Code (Title 11
of the United States Code) of the United States of America and all other
applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, readjustment
of debt, marshaling of assets or similar debtor relief laws of the United States
or any state of the United States from time to time in effect affecting the
rights of creditors generally.
"Delinquency Measurement" means, as of the end of the
Collection Period, the quotient of (i) the aggregate of the Principal Balance of
all Receivables which have Scheduled Payments for which all or any part in
excess of 10% of such Scheduled Payment is due and unpaid more than thirty (30)
days from the due date of such Scheduled Payments, divided by (ii) the aggregate
of the Principal Balance of all Receivables as of the end of the Collection
Period which is two months prior to such Collection Period, which quotient is
expressed as a percentage. Calculations under this definition shall be made with
respect to Receivables covered by this Agreement and the Subservicing Agreement.
"Designated Deposit Accounts" means the depository bank
accounts and the consolidating depository bank accounts, established and
maintained by the Servicer and set forth on Exhibit I attached hereto, which (i)
are not operating accounts of Servicer, (ii) are not subject to any Lien in
favor of any Person, and (iii) are deposit only accounts and withdrawals from
such depository bank accounts may only be made either (a) for sweeping into
consolidating Designated Deposit Accounts or (b) at the same time withdrawals
from consolidating Designated Deposit Accounts are made for remittances by
Servicer in accordance with Section 2.2(b) of this Agreement.
"Financed Vehicle" shall mean any automobile, van, sport
utility vehicle, or light truck securing an Account Debtor's indebtedness under
a Receivable.
"Indebtedness" means, as applied to any Person at any time,
(a) all indebtedness, monetary obligations or other monetary liabilities of such
Person (i) for borrowed money or evidenced by debt securities, debentures,
acceptances, notes or other similar instruments, and any accrued interest, fees
and charges relating thereto, (ii) with respect to letters of credit issued for
such Person's account, (iii) to pay the deferred purchase price of property or
services, except accounts payable and accrued expenses arising in the ordinary
course of business, (iv) in respect of capital
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leases or (v) in respect of guaranties in connection with any of the foregoing;
(b) all indebtedness, monetary obligations or other monetary liabilities of such
Person secured by a lien on any property of such Person whether or not such
indebtedness, monetary obligations or monetary liabilities are assumed by such
Person; (c) all preferred stock subject to mandatory redemptions; (d) all
indebtedness, monetary obligations or other monetary liabilities of such Person
under, in connection with or relating to a securitization facility; and (e) all
contingent contractual monetary obligations with respect to any of the
foregoing.
"Insurance Policies" shall have the meaning set forth in
Section 2.11(a).
"Insurance Proceeds" shall mean all amounts paid by an
insurance company for claims on any Financed Vehicle.
"Lien" shall mean a security interest, lien, charge, pledge or
encumbrance of any kind.
"Loan Documents" shall mean all of the documents, instruments
and other agreements evidencing, arising from, or pertaining to the Receivables,
including, but not limited to, all documents that comprise the Servicer Files,
as defined in Section 2.12 below.
"Monthly Servicer Reports" shall mean reports in the form of
Exhibit B attached hereto as required by Section 2.2(c).
"Officer's Certificate" shall mean a certificate signed by the
chairman of the board, the president, any vice chairman of the board, any vice
president, the treasurer, the controller or any assistant treasurer or any
assistant controller of Servicer.
"Person" shall mean any individual, corporation, partnership,
joint venture, trust, proprietorship, or other entity.
"Principal Balance" shall mean, (i) with respect to any
Receivable as of any date, the principal balance of the Receivable, and (ii)
with respect to any pre-computed loan, the gross amount of the loan less any
unearned interest, calculated in accordance with the simple interest method of
accounting for principal and interest.
"Receivable" shall mean each Contract for a Financed Vehicle
owned by Owner which shall appear on Schedule A to this Agreement.
"Receivable Files" shall have the meaning set forth in Section
2.13.
"Rolling Average Charged-Off Loss Ratio" means the monthly
average of the Charged-Off Loss Ratio for any 3 consecutive months; provided
that, until the first 3 months from
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the date hereof have expired, the Rolling Average Charged-Off Loss Ratio shall
be the monthly average of the Charged-Off Loss Ratio for the prior months,
including the Rolling Average Charged-Off Loss Ratio of the Owner hereunder and
of the "Collection Agent" under the Subservicing Agreement. Calculations under
this definition shall be made with respect to Receivables covered by this
Agreement and the Subservicing Agreement.
"Rolling Average Delinquency" means the average of the
Delinquency Measurements for any three consecutive months; provided that, until
the first three months after the date hereof have expired, the Rolling Average
Delinquency shall be the average of the Delinquency Measurements for the prior
months, including the Rolling Average Delinquency of the Owner hereunder and of
the "Collection Agent" under the Subservicing Agreement. Calculations under this
definition shall be made with respect to Receivables covered by this Agreement
and the Subservicing Agreement.
"Scheduled Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Account Debtor in such Collection Period (without giving effect to any
rescheduling of payments in any insolvency or similar proceedings).
"Senior Debt" shall have the meaning set forth in Section
7.16.
"Servicer Files" shall have the meaning set forth in Section
2.12.
"Servicing Period" shall mean the period of time from the date
of this Agreement to December 31, 2002.
"Subservicing Agreement" shall mean that certain Subservicing
Agreement entered into as of even date herewith, by and among Owner, Servicer,
and MBIA Insurance Corporation, pursuant to which Owner has agreed to
subcontract with Servicer for the servicing, administering and collecting of the
Loans, as defined therein.
"Termination Notice" shall have the meaning set forth in
Section 5.2(a).
"Total Collections" shall mean, for any Collection Period, the
total of all cash collections during such Collection Period pursuant to this
Agreement and pursuant to the Subservicing Agreement of interest, principal and
net proceeds from the sale or disposition of any Financed Vehicle prior to the
payment of any expenses, costs or other deductions, but excluding the proceeds
from any Charged-Off Receivable after the Receivable has become a Charged-Off
Receivable.
"Total Cumulative Collections" shall mean the aggregate of all
cash collections pursuant to this Agreement and pursuant to the Subservicing
Agreement of interest, principal and
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net proceeds from the sale or disposition of any Financed Vehicle prior to the
payment of any expenses, costs or other deductions, but excluding the proceeds
from any Charged-Off Receivable after the Receivable has become a Charged-Off
Receivable.
"UCC" shall mean the Uniform Commercial Code as in effect in
the respective jurisdiction.
1.2. Usage of Terms. With respect to all terms in this Agreement, the
singular includes the plural and the plural the singular; words importing any
gender include the other genders; references to "writing" include printing,
typing, lithography, and other means of reproducing words in a visible form;
references to agreements and other contractual instruments include all
subsequent amendments thereto or changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the term "including"
means "including without limitation."
1.3. Section References. All section references shall be to Sections in
this Agreement.
ARTICLE II
ADMINISTRATION AND SERVICING OF RECEIVABLES
2.1. Appointment.
(a) Owner and Agent hereby appoint Champion Acceptance
Corporation, an Arizona corporation, as Servicer. Servicer shall perform, during
the Servicing Period, the services required pursuant to the terms of this
Agreement. In performing its duties, Servicer shall have full power and
authority to do or cause to be done any and all things in connection with such
servicing and administration which it may deem necessary or desirable, within
the terms of this Agreement and the Collection Policy, and consistent with the
standard of care required by Section 2.16 hereof.
(b) Servicer may resign as Servicer under this Agreement upon
ninety (90) days' prior written notice to Owner, Agent and Noteholders. Servicer
shall cooperate with the transfer of the servicing to a successor servicer
appointed by Agent. The effective date of the resignation of Champion Acceptance
Corporation as Servicer under this Agreement shall be established by Agent and
shall be no less than thirty (30) or more than one hundred eighty (180) days
after the date of delivery to Owner, Agent and the Noteholders of Servicer's
notice of resignation.
(c) Agent reserve(s) the right to appoint, at the expense of
Owner, a backup servicer for the Receivables (the "Backup Servicer"). Upon
notice to Servicer of such appointment, Servicer shall deliver to the Backup
Servicer copies of all notices, reports and computer diskettes required to be
delivered by Servicer to Owner or Agent under this Agreement.
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2.2. Collection of Receivables; Defaulted Receivables; Reporting
Obligations.
(a) Servicer shall be responsible for collection of payments
called for under the terms and provisions of the Receivables, as and when the
same shall become due, and shall act in accordance with Section 3.1(a) and the
standard of care set forth in Section 2.16.
(b) If the full amount of a scheduled payment due under a
Receivable is not received on its due date, Servicer shall use reasonable
efforts consistent with the standard of care set forth in Section 2.16 hereof,
to obtain payment from such Account Debtor in accordance with the Collection
Policy until (i) the payment is received, (ii) the Financed Vehicle with respect
to such Receivable has been repossessed and sold, (iii) Servicer has determined
that all amounts collectable on the Receivable have been collected or (iv) the
Receivable has become a Charged-Off Receivable. Servicer shall use reasonable
efforts, consistent with the standard of care set forth in Section 2.16 hereof,
to collect funds on a Receivable. Servicer shall prepare and make available for
inspection by Owner, Backup Servicer, Agent and the Noteholders daily collection
and reconciliation reports which account for all remittances to the Collection
Account. Such collections shall be deposited into the Collection Account within
two (2) Business Days of the day of receipt net of any amounts that represent
collections with respect to the Receivables previously deposited in the
Collection Account but as to which the check or other form of non-cash payment
by the Account Debtor has been returned as noncollectible and as to which no
subsequent collection of such amount from the Account Debtor or recovery
pursuant to this provision has previously been made.
(c) Servicer shall provide to Owner, Backup Servicer, Agent
and the Noteholders, Monthly Servicer Reports substantially in the form attached
hereto as Exhibit B, as it may be amended from time to time. Each Monthly
Servicer Report shall be accompanied by an Officer's Certificate substantially
in the form attached hereto as Exhibit C. Each Monthly Servicer Report and
Officer' Certificate relating to such reports shall be delivered within ten (10)
calendar days following the end of each Collection Period. Servicer shall also
provide to Owner, Backup Servicer, Agent and the Noteholders Weekly Delinquency
Reports substantially in the form attached hereto as Exhibit D. Such reports
shall be delivered within two Business Days following the end of each weekly
period.
(d) Within ten (10) calendar days following the last day of
each Collection Period, Servicer shall forward to Owner until appointment of a
Backup Servicer and thereafter to Backup Servicer, via reputable overnight
courier or electronic transmission, (i) a computer diskette, in a format
mutually acceptable to (i) Servicer and (ii) to Agent and Owner, or to Backup
Servicer after its appointment hereunder, of its computerized records reflecting
(A) all collections received during such Collection Period with respect to the
Receivables, (B) the Principal Balance of the Receivables as of the last day of
the Collection Period, and (C) information as of the last day of such Collection
Period regarding the number of Receivables for which an Account Debtor has
failed to make any required payments on the dates such payments were to have
been made and such failure has continued for ninety (90) days, and (ii) a
manually prepared report as of the last day of such
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Collection Period regarding the number of repossessed Financed Vehicles and the
number of sales of repossessed Financed Vehicles as of the last day of such
Collection Period.
2.3. Realization Upon Receivables.
(a) In the event an Account Debtor has failed to make any
portion of a payment on a Receivable on the dates such payments were to have
been made and such failure continues, Servicer shall use reasonable efforts,
consistent with the standard of care set forth in Section 2.16, to repossess or
otherwise convert the ownership of the Financed Vehicle securing such
Receivable.
(b) In the event of a repossession, Servicer shall follow
customary and usual practices and procedures consistent with the standard of
care set forth in Section 2.16 in disposing of the repossessed vehicle, which
may include selling such Financed Vehicle at a public or private sale. The
foregoing shall be subject to the provision that, in any case in which the
Financed Vehicle shall have suffered damage, Servicer shall not expend funds for
the repair or repossession of such Financed Vehicle unless Servicer shall
determine in its discretion that such repair or repossession should increase the
proceeds to be received upon sale by an amount greater than the amount of such
expenses.
2.4. Servicing Fee, Expenses, and Fees. In consideration of the
servicing obligations to be undertaken by Servicer pursuant to this Agreement,
Owner shall, in accordance with Article III of this Agreement, (a) commencing
with the Effective Time, pay to Servicer a monthly fee in an amount equal to the
greater of (i) 3 1/4% per annum computed on a monthly basis of the aggregate
outstanding Principal Balance of all of the Receivables, other than Charged-Off
Receivables, as of the first day of the immediately preceding month, or (ii)
$15.00 per month, per Receivable, other than Charged-Off Receivables, that were
serviced by Servicer as of the first day of the immediately preceding month; (b)
reimburse Servicer for all expenses incurred by Servicer as set forth on Exhibit
E attached hereto; (c) permit Servicer to collect and retain modification and
extension fees actually paid by Account Debtors but only after all Scheduled
Payments which are due from such Account Debtor have been collected in full, the
Account Debtor is current under the Account Debtor's Loan Documents and subject
to the limitation that without the prior written consent of Agent, no more than
three percent (3%) of all of the Receivables serviced hereunder may be the
subject of such fees in any single Collection Period; and (d) pay to Servicer
bonuses to the extent that Total Cumulative Collections exceed $160,000,000,
with each such bonus to be paid monthly as a percentage of Collections which are
in excess of the base Total Cumulative Collections set forth below:
[See Table on the following page]
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<TABLE>
<CAPTION>
Total Cumulative Collections Above Percentage Bonus
---------------------------------- ----------------
<S> <C> <C>
$160,000,000 5%
161,000,000 7%
162,000,000 9%
163,000,000 11%
164,000,000 13%
165,000,000 15%
166,000,000 17%
167,000,000 19%
168,000,000 21%
169,000,000 23%
170,000,000 25%
171,000,000 27%
172,000,000 29%
173,000,000 31%
174,000,000 33%
175,000,000 35%
176,000,000 37%
177,000,000 39%
178,000,000 41%
179,000,000 43%
</TABLE>
2.5. Maintenance of Security Interests in Financed Vehicles. Servicer
will use reasonable efforts consistent with the standard of care set forth in
Section 2.16 hereof, to maintain the priority and perfection of the security
interest created by each Receivable in the related Financed Vehicle including,
but not limited to, obtaining the execution by the Account Debtor and the
recording, registering, filing, re-recording, re-registering and refiling of all
security agreements, financing statements, continuation statements and
registrations or instruments as are necessary to maintain the security interest
granted by the Account Debtor under the respective Receivable and to maintain
the perfection of the security interest of Owner and Agent in such Financed
Vehicles which now exist or may hereafter arise or be created. Owner and Agent
hereby authorize Servicer to take such steps as are necessary to re-perfect or
continue the perfection and priority of such security interests on behalf of
Owner and Agent in the event of the relocation of a Financed Vehicle or for any
other reason.
2.6. Covenants of Servicer; Notices. Except as otherwise provided in
the Collection Policy:
(a) Servicer shall (i) not release any Financed Vehicle
securing any Receivable from the security interest granted therein by such
Receivable in whole or in part except in the event of payment in full by the
Account Debtor thereunder, or upon transfer of the Financed Vehicle to
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a successor purchaser following repossession by Servicer, (ii) not impair the
rights of Owner or Agent in the Receivables, (iii) not sell, pledge, assign, or
transfer to any other Person, or grant, create, incur or assume any Lien on any
Receivable or any interest therein or permit any creditor of Servicer to have
any Lien on any Receivable or any interest therein, (iv) immediately notify
Owner, Agent and the Noteholders of the existence of any Lien on any Receivable
(other than the Lien of Agent) if Servicer has actual knowledge thereof other
than normal mechanics liens and impound notices which Servicer will treat in a
customary manner, (v) defend the right, title, and interest of Owner and Agent
in, to and under the Receivables against all claims of third parties claiming
through or under Servicer, (vi) deposit into the Designated Deposit Accounts and
to the Collection Account all payments received by Servicer with respect to the
Receivables in accordance with this Agreement, (vii) promptly notify Owner,
Agent and the Noteholders of the occurrence of any Event of Servicing
Termination and any breach by Servicer of any of its covenants or
representations and warranties contained herein, and (viii) upon the discovery
of the relocation out of state of a Financed Vehicle, promptly notify Owner and
Agent of the occurrence of any event which, to the knowledge of the Servicer,
would require that Owner or Agent make or cause to be made any filings, reports,
notices, or applications or seek any consents or authorizations from any and all
government agencies, tribunals, or authorities in accordance with the UCC and
any state vehicle license or registration authority as may be necessary or
advisable to create, maintain, and protect a first-priority security interest of
Agent in, to and on the Financed Vehicles and a first-priority security interest
of Agent in, to, and on the Receivables. Any out-of-pocket expenses and costs
incurred by Servicer in complying with Subsection 2.6(a)(viii) shall be
reimbursed to Servicer pursuant to Exhibit E.
(b) Servicer shall, within four (4) Business Days after its
receipt thereof, respond to all reasonable written directions or written
requests for information or data extract disks that Owner, Agent, the
Noteholders or Backup Servicer might have with respect to the administration of
the Receivables; provided, however, that in the event that any request received,
requests information not otherwise required to be set forth in the Monthly
Servicer Report and not reasonably available from the electronic files and the
computer system, Servicer shall have a reasonable period of time to meet such
request and shall be reimbursed for the cost of providing such information
pursuant to Exhibit E.
(c) Servicer will promptly advise Owner and Agent of any
inquiry received from an Account Debtor which contemplates the consent of Owner
and Agent. Inquiries contemplating the consent of Owner and Agent shall include,
but shall not be limited to, inquires about settlement of any unasserted claim
or defense, or compromise of any amount an Account Debtor owes or any other
matters Servicer should reasonably understand are not within Servicer's
authority under this Agreement, provided however, that, in accordance with the
Collection Policy, Servicer shall have the ability to settle any account that
does not result in a charge-off of greater than $500. Any amount over such limit
will require that Servicer notify Owner and Agent of such request, and that
Owner and Agent respond to Servicer within five (5) Business Days as to whether
or not Owner and Agent shall accept such proposal. If Owner or Agent does not
respond to Servicer within such time period the proposal shall be deemed
approved by Owner and Agent.
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2.7. Annual Statement as to Compliance. Servicer shall deliver to
Owner, Agent and the Noteholders on or before January 31st of each year, an
Officer's Certificate, dated effective as of December 31 of the preceding year,
stating that (i) a review of the activities of Servicer during the preceding
twelve (12) month period (or such shorter period, as is applicable) and of its
performance under this Agreement during such period has been made under such
officer's supervision and (ii) based on such review, Servicer has materially
fulfilled all its obligations under this Agreement throughout such period, or if
there has been a material default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and the remedies thereof being pursued.
2.8. Adequacy of Computer System. Subject to the terms of this Section
2.8, Servicer, in its sole discretion, may modify the computer hardware and
software transferred from Sellers to Buyer pursuant to the Purchase Agreement in
such manner so that any problem associated with the "year 2000" is resolved and
handled appropriately by such computer system. Owner and Servicer agree to share
the costs which may be incurred by Servicer for any such modifications up to a
maximum amount of $250,000, as follows, Owner shall reimburse Servicer for
twenty-five percent (25%) of the actual costs incurred by Servicer for any of
such modifications up to a maximum amount of $62,500 and Servicer agrees to pay
for seventy-five percent (75%) of the actual costs incurred by Servicer for any
such modifications up to a maximum payment by Servicer of $187,500. In the event
the Servicer determines, on or before October 1, 1998, without regard to the
expenditure of any funds, or after October 1, 1998 and after the expenditure of
$250,000 as contemplated by this Section 2.8, that the system modifications are
not complete and/or that the system will not appropriately account for the
Receivables, Servicer shall notify Owner, Agent and the Noteholders in writing
of such determination. Servicer may proceed with any modifications on any
schedule deemed appropriate by Servicer, provided that Servicer shall be
obligated to expend up to $187,500 of its funds and to undertake the
modifications contemplated by this Section 2.8 if Servicer has not notified
Owner, Agent and the Noteholders on or before October 1, 1998 as described in
the preceding sentence. Following receipt of notice of Servicer's determination
of the inability to resolve the "year 2000" problem, Owner and Agent may, in
their sole discretion, terminate this Agreement as provided in Section 5.2
without payment of any penalty or termination fee to Servicer. In the event this
Agreement is not terminated as to Servicer pursuant to the preceding sentence,
Servicer shall not be responsible for information provided by it in accordance
with this Agreement which is affected by the problem intended to be corrected by
this Section 2.8. Servicer agrees that the modifications which may be made
pursuant to this Section 2.8 will be made to the greatest extent possible by
Servicer's in-house MIS personnel and that all costs will be based upon actual
and reasonable charges for such in-house personnel.
2.9. Inspection.
(a) At all times during the term hereof, Servicer shall afford
Owner, Agent and the Noteholders, and their respective authorized agents, upon
one (1) Business Day's prior written
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notice, reasonable access, during normal business hours, to Servicer's
collection centers, payment centers and records relating to the Receivables,
without charge, and will cause its personnel to provide reasonable assistance in
any such examination. The examination referred to in this Section 2.9 will be
conducted in a manner which does not unreasonably interfere with Servicer's
normal operations or customer or employee relations. Without otherwise limiting
the scope of the examination, Owner, Agent or Noteholders may, using generally
accepted auditing principles, conduct a quarterly cash audit, including but not
limited to a review of the daily collection reports prepared pursuant to Section
2.2(b) and the deposits relating thereto, verify the status of each Receivable
and review Receivable Files, Servicer Files, and records relating thereto for
conformity to Monthly Servicer Reports prepared pursuant to Section 2.2(c) and
compliance with the standards represented to exist as to each Receivable subject
to this Agreement. Nothing herein shall require Owner, Agent or Noteholders to
conduct any inspection pursuant to this Section, and any expense incurred by the
inspecting party incident to the exercise by Owner, Agent or Noteholders of any
right under this Section 2.9 shall be borne by the inspecting party. In
addition, nothing in this Section shall affect the obligation of Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Account Debtors, and the failure of Servicer to provide access to prohibited
information as a result of such obligation shall not constitute a breach of this
Section 2.9.
(b) At all times during the term hereof, Servicer shall keep
available a copy of the Servicer Files and Receivable Files at its office
located at 600 North Pearl Street, Dallas, Texas, or at such other location as
to which it shall give written notice to Owner, Agent and the Noteholders for
inspection by any of them.
2.10. Costs and Expenses. Except as set forth on Exhibit E and as
otherwise specifically provided in this Agreement, all costs and expenses
incurred by Servicer in carrying out its duties hereunder, and all other
customary fees and expenses shall be paid or caused to be paid by Servicer out
of the compensation to be paid to Servicer pursuant to Section 2.4.
2.11. Responsibility for Insurance Policies; Processing of Claims Under
Insurance Policies; Daily Records and Reports.
(a) Servicer, on behalf of Owner, will administer and enforce
consistent with the standard of care set forth in Section 2.16 hereof, all
rights of Owner provided for in the insurance policies relating to the Financed
Vehicles (the "Insurance Policies").
(b) Servicer will administer consistent with the standard of
care set forth in Section 2.16 hereof, the filings of claims under any Insurance
Policies covering the Receivables by filing the appropriate notices related to
claims, including initial notices of loss, as well as claims with the respective
carriers or their authorized agents all in accordance with the terms of the
respective policies. Servicer shall use its best efforts to file such claims on
a timely basis after obtaining knowledge of the events giving rise to such
claims, subject to the servicing standard set forth in Section 2.16 hereof.
Servicer will utilize such notices, claim forms and claim procedures as are
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required by the respective insurance carriers. Servicer shall not be required to
pay any premiums or, other than administering the filing of claims and
performing reporting requirements specified in the insurance policies in
connection with filing such claims, perform any obligations of the named insured
under the insurance policies, and shall not be required to institute any
litigation or proceeding or otherwise enforce the obligations of any insured
thereunder. Servicer shall not be responsible to Owner with respect to any
Insurance Policies for any act or omission to act done in order to comply with
the requirements or satisfy any provisions of the insurance policies.
Notwithstanding anything else in this Section 2.11, Servicer shall have no
responsibility to monitor, report or track whether Insurance Policies are in
effect covering each Receivable.
2.12. Delivery of Copies of Documents to Servicer.
Servicer shall maintain legible copies (in electronic or
hard-copy form, in Servicer's discretion) of the following documents in its
files with respect to each Receivable and the Financed Vehicle related thereto
(all such documents are referred to as "Servicer Files"):
(i) application of the Account Debtor;
(ii) the original Receivable and any amendments
thereto;
(iii) (A) a certificate of title with a Lien notation
or an application therefor or (B) if the appropriate state
title registration agency issues a letter or other form of
evidence of Lien in lieu of a certificate of title, the Lien
entry letter or form or copies of correspondence to such state
title registration agency, and all enclosures thereto, for
issuance of the original Lien entry letter or form;
(iv) a certificate of insurance or application
therefor with respect to the Financed Vehicle securing the
Receivable;
(v) the proof of income and references and credit
report;
(vi) the service contract, if any, on the Financed
Vehicle;
(vii) the credit life insurance policy, if any, and
the credit disability insurance policy, if any, on the Account
Debtor relating to the Financed Vehicle; and
(viii) such other documents as the Servicer may
reasonably request in order to accomplish its duties under
this Agreement.
Servicer shall keep books and records pertaining to each Receivable. Such
records may not be destroyed or otherwise disposed of except as provided herein
and as allowed by applicable laws, regulations or decrees. All documents,
whether developed or originated by Servicer or not,
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reasonably required to document or to properly administer any Receivable shall
remain at all times the property of Owner and shall be held in trust by
Servicer. Servicer shall not acquire any property rights with respect to such
records, and shall not have the right to possession of them, except as subject
to the conditions stated in this Agreement. Servicer shall bear the entire cost
of restoration in the event any Servicer Files shall become damaged, lost or
destroyed while in Servicer's possession or control. Notwithstanding the
foregoing, any and all electronic files maintained by Servicer shall remain at
all times of the property of Servicer.
2.13. Possession of Receivable Files. Unless otherwise specified
herein, Servicer shall maintain physical possession of the instruments and
documents listed in Section 2.12; such other instruments or documents that
modify or supplement the terms or conditions of any of the foregoing; and all
other instruments, documents, correspondence and memoranda generated by or
coming into the possession of Servicer (including, but not limited to, insurance
premium receipts, ledger sheets, payment records, insurance claim files,
correspondence and current and historical computerized data files) that are
required to document or service any Receivable. Collectively, all of the
documents described in this Section 2.13 with respect to a Receivable are
referred to as "Receivable Files." Servicer hereby agrees that the computer
files and other physical records of the Receivables maintained by Servicer will
bear an indication reflecting that the Receivables are owned by Owner subject to
the Lien of the Agent and that all Receivable Files shall remain the property of
Owner subject to the Lien of the Agent and shall be held in trust by Servicer
for the Agent. Servicer shall respond to third party inquiries concerning
ownership of the Receivable by indicating that the Receivables are owned by
Owner subject to the Lien of Agent.
2.14. Processing of Information. Information with respect to each
Receivable shall be recorded into Servicer's receivable management and
accounting system.
2.15. Warranties and Representations with Respect to Compliance with
Law and Enforcement. Servicer warrants, represents and covenants that, in the
event that Servicer realizes upon any Receivable, which realization may occur,
without limitation, by collection, repossession, sale or lawsuit, the methods
utilized by Servicer to realize upon such Receivable or to otherwise enforce any
provisions of the Receivable will be conducted in accordance with the provisions
of this Agreement and the standard of care set forth in Section 2.16.
2.16. Standard of Care.
(a) In performing its duties and obligations hereunder and in
administering, realizing upon and enforcing the Receivables and the Insurance
Policies relating to the Receivables pursuant to this Agreement, Servicer will
comply in all material respects with all applicable state and federal laws and
will service and administer the Receivables by employing such procedures
(including collection procedures) and degree of care, in each case consistent
with prudent industry standards, as are customarily employed by Servicer in
servicing and administering motor vehicle retail installment sales contracts and
notes owned or serviced by Servicer comparable to the
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Receivables and pursuant to the Collection Policy. In performing such duties,
(i) Servicer shall comply with the Collection Policy, and (ii) Servicer shall
not (A) with respect to the Collection Policy, make any amendment thereto
relating to its pursuit of collections regarding the Receivables or extend the
time period during which Servicer will take collection actions with respect
thereto, except as provided pursuant to the last sentence of this subsection (a)
or Section 2.6(c), or (B) except as provided in the last sentence of this
subsection (a), make any other amendments to the Collection Policy without
Owner's and Agent's prior consent. In addition, in performing its duties and
obligations hereunder, Servicer shall comply in all material respects with all
applicable federal and state laws and regulations and shall maintain all state
and federal licenses and franchises necessary for it to perform its servicing
responsibilities hereunder. For purposes of this Section 2.16, the word
"material" shall include any action or inaction on the part of Servicer which
would have an adverse impact on the collectability or enforcement of a
Receivable or adversely affect the security interest of Agent in a Receivable or
a Financed Vehicle, or on the title of Owner in or to a Receivable. Servicer may
modify the Collection Policy with the consent of Owner and Agent, which consent
shall not be unreasonably withheld, by giving Owner and Agent a thirty (30) day
prior written notice of such modification, provided that, if neither Owner nor
Agent objects to such modification within such thirty (30) day period, such
modification shall be deemed consented to by Owner and Agent.
(b) In performing its duties and obligations hereunder,
Servicer shall not make any modification or amendment with respect to a
Receivable, except as provided pursuant to Section 2.6(c) or the Collection
Policy.
2.17. Records. Servicer shall maintain or cause to be maintained such
books of account and other records as will enable Owner and Agent to determine
the status of each Receivable.
2.18. Enforcement.
(a) Servicer shall, to the extent consistent with the
servicing standards required by Section 2.16 hereof, act with respect to the
Receivables and the Insurance Policies in such manner as will, in the reasonable
judgment of Servicer, maximize the amount to be received by Owner with respect
thereto.
(b) Servicer shall, consistent with the standard of care set
forth in Section 2.16, sue to enforce or collect upon the Receivables and the
Insurance Policies (including unpaid claims), in its own name, if possible, or
as agent for Owner. If Servicer commences a legal proceeding to enforce a
Receivable or an Insurance Policy, the act of commencement shall be deemed to be
an automatic assignment of the Receivable and the related rights under the
Insurance Policies by Owner to Servicer for purposes of collection only. If,
however, in any enforcement suit or legal proceeding it is held that Servicer
may not enforce a Receivable or an Insurance Policy on the grounds that it is
not a real party in interest or a holder entitled to enforce the Receivable or
the Insurance Policy, Owner shall, at Servicer's request, assign the Receivable
or the Insurance Policy to Servicer for the limited extent necessary to enforce
the Receivable or the Insurance Policy, or take such steps as
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Owner deems necessary to enforce the Receivable or the Insurance Policy,
including bringing suit in its name. Servicer shall be entitled to reimbursement
for expenses incurred in connection with exercising such recourse rights with
respect to the Receivables pursuant to this Section 2.18.
(c) Servicer shall exercise any rights of recourse against
third persons that exist with respect to any Receivable in accordance with
Servicer's usual practice and the standard of care required by Section 2.16
hereof. In exercising such recourse rights, Servicer is hereby authorized on
Owner's behalf to reassign the Receivable and to deliver the certificate of
title to the Financed Vehicle to the person against whom recourse exists at the
price set forth in the document creating the recourse. Servicer shall be
entitled to reimbursement for expenses incurred in connection with exercising
such recourse rights with respect to the Receivables pursuant to this Section
2.18.
(d) Servicer may return any overpayment of any Receivable to
the appropriate party and if such overpayment has been remitted to the
Collection Account, Servicer may deduct the amount of such overpayment from
amounts otherwise payable by Servicer into the Collection Account. Servicer may
not permit any rescission or cancellation of any Receivable nor may it take any
action with respect to any Receivable or Insurance Policy which would materially
impair the rights of Owner therein or in the proceeds thereof.
(e) Except as provided in the Collection Policy, Servicer may
not increase or reduce the amount of any scheduled payments or extend or modify
any term of any Receivable.
2.19. Crime Insurance. Servicer shall maintain, at its own expense, a
crime insurance policy, with broad coverage with responsible companies on all
officers, employees or other Persons acting on behalf of Servicer in any
capacity with regard to the Receivables to handle funds, money, documents and
papers relating to the Receivables. Any such insurance shall protect and insure
Servicer against losses for dishonest acts of such Persons and shall be
maintained in a form that would meet the requirements of prudent institutional
auto loan servicers and in an amount of not less than $10,000 per occurrence.
Agent shall be named as loss payee and as an additional named insured on such
policy.
2.20. Responsibilities of Servicer. Servicer shall have no duties,
obligations or responsibilities other than those specifically expressed and set
forth herein, and no implied obligations of Servicer shall be read into this
Agreement.
2.21. Notice of Store Closings. Servicer shall provide at least sixty
(60) days advance written notice to Owner, Agent and the Noteholders of any
closing of stores acquired from the Sellers and shall include with such notice a
description of the Servicer's alternate arrangements for collecting Receivables
associated with such stores. Servicer agrees, in the absence of any other
arrangement acceptable to Servicer, Owner, Agent and the Noteholders, to provide
coupon payment books to the Account Debtors who are affected by such store
closing.
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ARTICLE III
COLLECTIONS
3.1. Collections.
(a) Subject to Section 3.1(b) below, Servicer shall deposit
into the Designated Deposit Accounts on each Business Day and shall remit to the
Collection Account, and to no other account, on or before the second (2nd)
Business Day after receipt thereof, all payments made by or on behalf of each
Account Debtor, including all actual payments, insurance proceeds, recoveries,
collections and all proceeds relating to the repossession or disposition of the
Financed Vehicles, and all payments or other amounts, if any, made by or on
behalf of each Account Debtor or received by Servicer with respect to any
Receivable (the "Collections").
(b) Owner shall pay to Servicer on or before the twelfth
(12th) day of each month (but in no event earlier than two (2) days after
delivery of the Monthly Servicer Reports), all of the servicing fee and expenses
due to Servicer pursuant to Section 2.4, and if applicable, Section 5.7, of this
Agreement. Notwithstanding Section 3.1(a) above, if, in any calendar month,
Owner (i) does not timely pay to Servicer all amounts required to be paid to
Servicer pursuant to Section 2.4(a) or (d), Servicer may, commencing on the
second Business Day after notice to Owner and Agent of such nonpayment, retain
from the Collections to be remitted to the Collection Account thereafter, an
amount equal to such unpaid amounts in payment thereof, (ii) does not timely pay
to Servicer all amounts required to be paid to Servicer pursuant to Section
2.4(b) and such amounts are set forth in the Monthly Servicer Report and are not
the subject of a bona fide dispute by Owner pursuant to written notice given to
Servicer of such dispute, Servicer may, commencing on the second Business Day
after notice to Owner and Agent of such nonpayment, retain from the Collections
to be remitted to the Collection Account thereafter, an amount equal to such
unpaid amounts in payment thereof, and (iii) does not timely pay any unsatisfied
and undisputed indemnity obligations to Buyer pursuant to the Purchase
Agreement, Servicer may, commencing on the second Business Day after the later
of (x) the date that notice of such nonpayment is received by Owner and Agent
and (y) the date that Agent's Notice is received by Servicer, an amount equal to
the lesser of one million five hundred thousand dollars ($1,500,000) or such
unpaid amounts, in payment thereof; provided, however that after both the debt
owing to the Noteholders and the Senior Debt has been paid in full, there shall
be no limitation on the ability of Servicer to retain undisputed indemnity
obligations.
(c) Any expense reimbursement shall be for amounts which are
consistent with the provisions of this Agreement and shall be substantiated to
the reasonable satisfaction of Owner and Agent. Owner and Agent shall have the
right to review all of the expenses for which Servicer seeks or is paid
reimbursement. Any payment to Servicer of expenses pursuant to Section 3.1(b)
shall not limit the right of Owner or Agent to review any such expense or to
dispute any such expense. Any indemnity obligation of Owner shall be documented
with specific reference to the provisions of the Purchase Agreement which give
rise to such claim on the part of the Servicer. In
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the event any expense or indemnity obligation for which Servicer seeks
reimbursement is disputed by Owner or Agent, Servicer, Owner and Agent shall
each use their best efforts to reconcile such dispute. If Owner, Agent and
Servicer cannot agree on a disputed expense or indemnity obligation, such
expense or indemnity obligation shall not be the subject of reimbursement to
Servicer until such disputed expense or indemnity obligation has been reviewed
pursuant to the Payment Reimbursement Dispute Resolution Policy, a copy of which
is attached to this Agreement as Exhibit F. Any expense which is paid to
Servicer or which is retained by Servicer pursuant to Section 3.1(b) and which
is subsequently disputed by Owner or Agent, may be deducted from any subsequent
reimbursable expenses or any fees to be paid to Servicer pursuant to Section 2.4
or Section 5.7. Upon resolution of any disputed amounts, any amounts owing to
the Servicer shall be paid to or retained by the Servicer pursuant to Section
3.1(b).
ARTICLE IV
REPRESENTATIONS AND COVENANTS
4.1. Representations of Servicer. Servicer hereby represents to Owner,
Agent and the Noteholders that as of the date of this Agreement and, for so long
as Servicer shall continue to act as Servicer hereunder:
(a) Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona and is qualified to
do business in each other state where the failure to be so qualified would have
a materially adverse effect on its business or properties.
(b) All necessary corporate, regulatory or other similar
action has been taken to authorize and empower Servicer and the officers or
representatives acting on Servicer's behalf, and Servicer has full power and
authority to execute, deliver and perform this Agreement.
(c) This Agreement has been duly authorized, executed and
delivered by Servicer and the performance and compliance with the terms of this
Agreement will not violate Servicer's articles of incorporation or bylaws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach of, any material
contract or agreement to which Servicer is a party or which may be applicable to
Servicer or any of its assets, or create any adverse claim upon its assets.
(d) Servicer is duly licensed and qualified to perform the
functions specified herein, and this Agreement constitutes a valid, legal and
binding obligation of Servicer, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium and other laws affecting the enforcement of creditor's'
rights generally and to general principles of equity.
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(e) Servicer is not in violation of, and the execution,
delivery and performance of this Agreement by Servicer will not constitute a
violation with respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or governmental agency,
which violation might have consequences that would materially and adversely
affect the condition (financial or other) or operations of Servicer or its
properties or might have consequences that would affect the performance of its
duties hereunder.
(f) No proceeding of any kind, including but not limited to
litigation, arbitration, judicial or administrative, is pending or threatened
against or contemplated by Servicer which would under any circumstance have an
adverse effect on the execution, delivery, performance or enforceability of this
Agreement. There is no injunction, writ, restraining order or other order of any
nature to which Servicer is subject that would adversely affect Servicer's
operations, including the performance of its agreements and the transactions
contemplated hereby.
(g) No information, Officer's Certificate or statement
furnished in writing or report delivered to Owner by Servicer required under
this Agreement contains any untrue statement of a material fact or omits a
material fact necessary to make the information, certificate, statement or
report not misleading; provided, that Servicer makes no representation or
warranty with respect to any information incorporated into or forming the basis
for any Officer's Certificate, information, statement or report provided by
Servicer that is provided to Servicer by any other Person except any other
Person which is an affiliate of Servicer.
(h) Servicer has the knowledge, the experience and the
systems, financial and operational capacity available to timely perform each of
its obligations hereunder.
(i) Servicer has made or obtained all consents, filings or
governmental approvals required for the due execution, delivery and performance
of agreements and the servicing of the Receivables.
(j) No event has occurred which would adversely affect
Servicer's ability to perform the agreements and transactions contemplated
hereby.
(k) Servicer's principal place of business and chief executive
office are at the address specified in Section 7.3 and there have been no other
such locations during the four (4) month period preceding the date hereof.
4.2. Covenants of Servicer. Servicer hereby covenants to Owner, Agent
and the Noteholders for so long as Servicer shall continue to act as Servicer
hereunder:
(a) All payments received by Servicer with respect to the
Receivables will be received in trust by Servicer for the benefit of Owner and
Agent and will be deposited into the Designated Deposit Accounts which are not
subject to any Lien in favor of any other Person.
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(b) Servicer will not close or relocate its Dallas, Texas
collection center for a period of two years from the date of this Agreement
without the prior consent of Owner and Agent, which consent shall not be
unreasonably withheld.
(c) The Servicer acknowledges that: (i) the Agent has a first
priority security interest in the Receivable Files and the proceeds therefrom
(the "Collateral") and (ii) Servicer has no interest, except as provided in
section 3.1(b), in the Collateral or the proceeds of Collateral deposited in the
Designated Deposit Accounts. Except as otherwise provided in this Agreement, the
Servicer agrees to hold the Collateral in its possession as agent for the Agent
for the purpose of perfecting the security interest granted by the Owner to the
Agent in the Collateral.
(d) The Servicer agrees to give written notice to Agent within
two (2) Business Days of the occurrence of any Event of Servicing Termination of
which it has knowledge or should have had knowledge based upon the exercise of
the standard of care set forth in Section 2.16 hereof.
4.3. Representations of Owner. Owner hereby represents to Servicer,
Owner, Agent and the Noteholders that as of the date of this Agreement:
(a) With respect to each Receivable, Owner has delivered
custody to Servicer, of all documents listed in Section 2.12(a) that comprise
the Servicer File.
(b) At the time of delivery of custody of each Servicer File
to Servicer pursuant to Section 2.12(a), all information contained in such
Servicer File with respect to the Receivables has been so delivered.
(c) Subject to Section 2.8 of this Agreement, the equipment
and computer system purchased by Buyer pursuant to the Purchase Agreement is
fully operational and capable, without any material modification, of being
utilized by Servicer to service the Receivables pursuant to this Agreement.
4.4. Covenants of Owner. Owner hereby covenants to Servicer, Owner,
Agent and the Noteholders:
(a) Owner hereby agrees to notify Servicer of any Lien or
storage notices, within twenty-four (24) hours of receipt thereof.
4.5. Survival of Representations. The representations set forth in this
Article IV are continuous and shall survive the date of this Agreement. Upon
discovery by Owner, Agent or Servicer of a breach of any of the foregoing
representations and covenants, Owner, Agent or Servicer shall give prompt
written notice to the breaching party.
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ARTICLE V
TERMINATION AND REMEDIES
5.1. Events of Servicing Termination. Any of the following acts or
occurrences shall constitute an "Event of Servicing Termination" under this
Agreement:
(a) any failure by Servicer to make any payment, transfer or
deposit to Owner on the date such payment, transfer or deposit is required to be
made;
(b) any failure by Servicer to provide the Monthly Servicer
Report, the Officer's Certificate, the Weekly Delinquency Report or the annual
compliance statement to be provided pursuant to Section 2.7, as and when due,
and such failure has not been cured within five (5) Business Days after the date
of such failure, provided such time period may be extended in writing by Agent,
to the extent Servicer is diligently pursuing a cure of such failure;
(c) the Rolling Average Delinquency exceeds fifteen percent
(15%);
(d) the Rolling Average Charged-Off Losses attributable to
Charged-Off Receivables exceeds three and fifteen hundredths percent (3.15%) for
any month;
(e) the Total Collections for the period indicated do not
equal or exceed the amount in the total cash column for the same period and the
Total Cumulative Collections for the period indicated do not equal or exceed the
amount in the cumulative cash column for the same period set forth on Exhibit H
attached to this Agreement;
(f) except with the consent of Owner and Agent, which shall
not be unreasonably withheld, there shall occur a "Change of Control of
Servicer" or a "Change of Control of UDC". For purposes of the preceding
sentence, a "Change of Control of Servicer" shall mean the occurrence of any
event following which at least fifty-one percent (51%) of the outstanding voting
securities of Servicer shall not at such time be beneficially owned by UDC or a
direct or indirect subsidiary of UDC. A "Change of Control of UDC" shall mean
any one or more of the following events:
(1) A change of control of UDC of a nature that would be
required to be reported in response to Item 6(e) of Schedule
14A of the Securities Exchange Act of 1934, as amended ("1934
Act");
(2) A change of control of UDC through a transaction or series
of transactions, such that any person (as that term is used in
Section 13 and 14(d)(2) of the 1934 Act), excluding affiliates
of UDC as of the date hereof, is or becomes the beneficial
owner (as that term is used in Section 13(d) of the 1934 Act),
directly or indirectly, of
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securities of UDC representing eighty percent (80%) or more of
the combined voting power of UDC's then outstanding
securities;
(3) Any consolidation or merger of UDC in which UDC is not the
continuing or surviving company or pursuant to which stock
would be converted into cash, securities or other property,
other than a merger of UDC in which the holders of the shares
of stock immediately before the merger have at least fifty-one
percent (51%) of the ownership of common stock of the
surviving company immediately after the merger;
(4) The shareholders of UDC approve any plan or proposal for
the liquidation or dissolution of UDC; or
(5) Substantially all of the assets or UDC are sold or
otherwise transferred to parties that are not within a
"controlled group of corporations" (as defined in Section 1563
of the Internal Revenue Code of 1986, as amended) in which UDC
is a member.
Notwithstanding anything to the contrary above, this provision shall not apply
to any "Change of Control of Servicer" or "Change of Control of UDC" if the
person obtaining such control has a net worth equal to or greater that the net
worth of UDC as of the date of such Change of Control.
(g) any failure, other than as set forth in paragraphs (a) -
(e) above, on the part of Servicer to either duly observe or perform in any
material respect any other covenants or agreements of Servicer set forth in this
Agreement and such failure continues unremedied after the date which is the
earlier of ten (10) days from (i) the date of knowledge of such failure by
Servicer or (ii) the date of receipt by Servicer of written notice of such
failure by Agent, provided such time period may be extended in writing by Agent,
to the extent Servicer is diligently pursuing a cure of such failure;
(h) any representation made by Servicer in Section 4.1(a) of
this Agreement, or in any certificate delivered pursuant to this Agreement,
shall prove to have been incorrect when made in any material respect;
(i) UDC or the Servicer shall fail to make any payment when
due with respect to any Indebtedness of UDC or the Servicer (other than an
obligation payable hereunder), or any breach, default or event of default shall
occur, or any other condition shall exist under any instrument, agreement or
indenture pertaining to any such Indebtedness, if the effect thereof is to
permit the holder or holders of such Indebtedness to accelerate the maturity of
any such Indebtedness or require a redemption or other repurchase of such
Indebtedness and such failure relates to the acceleration of an amount in excess
of $10,000,000, in the case of UDC and $2,000,000, in the case of the Servicer,
and such failure shall continue for a period of sixty (60) days following the
occurrence of such failure;
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(j) An involuntary case shall be commenced against UDC or
Servicer and the petition shall not be dismissed, stayed, bonded or discharged
within sixty (60) days after commencement of the case; or a court having
jurisdiction in the premises shall enter a decree or order for relief in respect
of UDC or the Servicer in an involuntary case, under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect; or any other similar
relief shall be granted under any applicable federal, state, local or foreign
law; or the board of directors of UDC or the Servicer adopts any resolution or
otherwise authorizes any action to approve any of the foregoing. A decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over UDC or the Servicer or over all or a substantial part of the
assets of UDC or the Servicer shall be entered; or an interim receiver, trustee
or other custodian of UDC or the Servicer or of all or a substantial part of the
assets of UDC or the Servicer shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the assets of UDC
or the Servicer shall be issued and any such event shall not be stayed,
dismissed, bonded or discharged within sixty (60) days after entry, appointment
or issuance; or the board of directors of UDC or the Servicer adopts any
resolution or otherwise authorizes any action to approve any of the foregoing;
(k) UDC or the Servicer shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
assets; or UDC or the Servicer shall make any assignment for the benefit of
creditors or shall be unable or fail, or admit in writing its inability, to pay
its debts as such debts become due, or the board of directors of UDC or the
Servicer adopts any resolution or otherwise authorizes any action to approve any
of the foregoing;
(l) At any time, for any reason, any Designated Deposit
Account is subject to a Lien;
(m) Dennis Adams ceases to hold a senior position with the
Servicer having primary responsibility for collections of the Receivables during
the period from the date of this Agreement to the first annual anniversary of
this Agreement, except in connection with his termination for cause. For
purposes of the preceding sentence, "cause" shall mean (i) Adams fails to
perform his duties with Servicer, or engages in gross misconduct, gross
negligence or acts in bad faith in the performance of such duties; (ii) Adams
refuses or fails to follow any lawful direction of any of the officers or
directors of Servicer or any of his supervisors within the management of
Servicer, or violates any lawful rule or regulation established by Servicer from
time to time regarding the conduct of its business; (iii) Adams knowingly
violates any law, rule or regulation applicable to the business of Servicer; or
(iv) Adams is convicted of committing a felony or crime involving moral
turpitude or engages in conduct that is detrimental to Servicer or that could
reasonably be expected to have an adverse impact on the standing or reputation
of Adams or Servicer;
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(n) There shall have occurred any event which materially
adversely affects the ability of the Servicer to perform its obligations
hereunder; or
(o) There is a material adverse change in the financial
condition or operations of the Servicer or UDC.
5.2. Remedies.
(a) If an Event of Servicing Termination shall occur and be
continuing, unless such Event of Servicing Termination shall have been waived in
writing by Agent pursuant to Section 5.4, or if Owner elects to terminate this
Agreement pursuant to Section 2.8, then, by written notice to Servicer (a
"Termination Notice"), all of the rights of Servicer under this Agreement shall
be terminated in accordance with the provisions of such notice.
(b) After receipt by Servicer of a Termination Notice pursuant
to this Section 5.2, all authority and power of Servicer under this Agreement
shall terminate in accordance with the provisions of such notice. Servicer
hereby agrees to cooperate with Owner and Agent in effecting the termination of
the responsibilities and rights of Servicer to conduct servicing under this
Agreement.
(c) On and after the receipt by Servicer of a Termination
Notice pursuant to this Section 5.2, Servicer shall continue to perform all
servicing functions under this Agreement until the date specified in the
Termination Notice or otherwise specified by Agent in writing. During such
period, Servicer shall continue to receive the Servicing Fee and reimbursement
pursuant to the terms of this Agreement.
5.3. Accountability and Liability. Servicer shall be strictly
accountable and liable for all payments actually received by Servicer on the
Receivables. Servicer shall be liable under this Agreement only for (i) a breach
in the performance of any of its obligations under this Agreement, (ii) for
Servicer's willful misconduct and (iii) for Servicer's gross negligence.
Servicer shall not be liable to Owner or to any Person for any action taken or
for refraining from the taking of any action in accordance with this Agreement,
or for errors in judgment other than gross negligence or willful misconduct or
for the occurrence of an Event of Servicing Termination described in Section
5.1(c), (d), (e), (f), (i), (j), (k), (m), (n) or (o). In no event shall
Servicer be liable to Owner for any consequential or punitive damages.
5.4. Waiver of Events of Servicing Termination. Agent may waive in
writing any Event of Servicing Termination by Servicer in the performance of its
obligations hereunder and its consequences. Upon any such waiver of an Event of
Servicing Termination, such termination event shall cease to exist, and any
terminating event arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or
24
<PAGE> 25
other Event of Servicing Termination or impair any right consequent thereon
except to the extent expressly so waived.
5.5. Survival. The agreements in this Article V shall survive the
termination of the Purchase Agreement and payment in full of the Receivables.
5.6. Force Majeure. Notwithstanding anything herein to the contrary,
Servicer shall not be considered in default hereunder or have any liability to
any party for any failure to perform if such failure arises solely out of the
following causes beyond the control of Servicer, as the case may be: acts of God
or a public enemy, fire, flood or war.
5.7. Termination Other than an Event of Servicing Termination. If Owner
and Agent or their respective successors or assigns or any future owner of the
Receivables terminates this Agreement or any of the rights of Servicer other
than pursuant to Section 5.2 or Section 2.8 above, Owner acknowledges that
Servicer will suffer economic loss that is difficult to calculate at this time
and, as such, Owner agrees that the Servicer shall be paid, as liquidated
damages, an amount equal to the termination penalty set forth on Exhibit G
hereto. Notwithstanding any other provision of this Agreement, the effective
date of the termination of Servicer pursuant to this Section 5.7, shall not be
prior to the date on which Servicer has received payment of the entire amount of
the termination penalty due to Servicer by direct payment or by retention of
Collections to the extent provided in Section 3.1(b).
ARTICLE VI
TERMINATION OF AGREEMENT
6.1. Effect of Termination. Upon termination of this Agreement,
Servicer shall, at the direction of Owner and Agent, promptly deliver all
Receivable Files, electronic files, Servicer Files and any related files and
correspondence in its possession as are related to the management of the
Receivables and the services provided hereunder to the Person designated by the
Agent. All reasonable expenses related to the foregoing shall be borne by
Servicer, except in connection with a termination under Section 2.8 or 5.7, in
which case Owner shall pay such reasonable expenses.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1. Amendments. This Agreement may only be amended by mutual written
consent of Servicer, Agent and Owner.
7.2. Waivers. The provisions of this Agreement may only be waived by
written consent of the parties hereto. The failure of any party at any time to
require performance by the other of any
25
<PAGE> 26
provision of this Agreement shall in no way affect that party's right to enforce
such provision, nor shall the waiver by any party of any breach of any provision
of this Agreement be deemed or held to be a waiver of any further breach of the
same provision or any other provision.
7.3. Notices.
(a) All notices, requests and other communications provided
for hereunder shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided, that, any matter
transmitted by facsimile (i) shall be immediately confirmed by a telephone call
to the recipient, and (ii) shall be followed promptly by a hard copy original
thereof) and mailed, faxed, telecopied or delivered, to the address or facsimile
number set forth below; or, as to Servicer or Owner, to such other address as
shall be designated by such party in a written notice to the other parties, and
as directed to each other party, at such other address as shall be designated by
such party in a written notice to Servicer and Owner.
If to Servicer: CHAMPION ACCEPTANCE CORPORATION
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Attn: Steven Johnson
Facsimile No: (602) 852-6696
And copy to: Snell & Wilmer L.L.P.
One Arizona Center
400 East Van Buren, 10th Floor
Phoenix, Arizona 85004-0001
Attn: Steve Pidgeon
Facsimile No.: (602) 382-6070
If to Owner: KARS-YES RECEIVABLES INC.
P.O. Box 2923
Dallas, Texas 7522-1923
Attn: Harish Naran
Facsimile No: (214) 777-4750
If to Agent: Citicorp USA, Inc.
599 Lexington Ave.
21st Floor, Zone 10
New York, New York 10043
Attn: Bradley Dietz
Facsimile No: (212) 751-1343
26
<PAGE> 27
And copy to: Sidley & Austin
875 Third Ave.
New York, New York 10022
Attn: Barbara Vrancik
Facsimile No: (212) 906-2021
If to Noteholders: The Equitable Life Assurance Society of the United States
and Equitable Capital Private Income and Equity
Partnership II, L.P.
c/o Alliance Corporate Finance Group, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attn: William Gobbo, Jr.
Facsimile: (212) 969-1529
And copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Alan W. Kornberg
Facsimile: (212) 757-3990
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery or faxed, be effective when delivered for
overnight (next day) delivery, transmitted by facsimile machine, respectively,
or if delivered, upon delivery.
7.4. Severability of Provisions. If one or more of the provisions of
this Agreement shall be held invalid for any reason, such provisions shall be
deemed severable from the remaining provisions of this Agreement and shall in no
way affect the validity or enforceability of such remaining provisions. To the
extent permitted by law, the parties hereto waive any law which renders any
provision of this Agreement prohibited or unenforceable.
7.5. Rights Cumulative. All rights and remedies under this Agreement
are cumulative, and none is intended to be exclusive of another. No delay or
omission in insisting upon the strict observance or performance of any provision
of this Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as often
as deemed expedient.
7.6. No Offset. Prior to the termination of this Agreement, the
obligations of Owner under this Agreement shall not be subject to any defense,
counterclaim or right of offset which Owner may have against Servicer whether in
respect of this Agreement, any Receivable or otherwise.
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<PAGE> 28
7.7. Powers of Attorney. Owner shall, from time to time, provide to the
employees of Servicer limited, revocable powers of attorney or other such
written authorizations as may be reasonably appropriate to enable Servicer to
perform its respective obligations under this Agreement; provided, however, that
Owner shall not be required to provide such powers with respect to any matter
for which Owner does not have authority to perform itself.
7.8. Assignment and Binding Effect. This Agreement may be assigned by
the Owner, Agent or the Noteholders upon ten days written notice to but without
the consent of the Servicer. This Agreement may be assigned by the Servicer only
with the prior written consent of the Agent and Owner. In the event of an
assignment, all provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto.
Notwithstanding the forgoing, Servicer may assign, without notice or consent,
its rights and delegate its obligations under this Agreement to any affiliate or
subsidiary of Servicer provided that Servicer shall remain responsible for the
performance of all obligations of the Servicer under this Agreement. Any
assignee of Owner, Agent or the Noteholders, by acceptance of any assignment,
shall assume all liability and obligations, if any, of the assignor hereunder.
7.9. Captions. The article, paragraph and other headings contained in
this Agreement are for reference purposes only, and shall not limit or otherwise
affect the meaning hereof.
7.10. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which counterparts shall be deemed to be an
original and such counterparts shall constitute but one and the same instrument.
One or more counterparts of this Agreement may be delivered via telecopier with
the intention that they shall have the same effect as an original executed
counterpart hereof, with the understanding that originals of such facsimile
signatures will follow.
7.11. Governing Law. This Agreement shall be deemed entered into with
and shall be governed by and interpreted in accordance with the internal laws of
the State of Arizona, except to the extent that it is mandatory that the laws of
some other jurisdiction apply.
7.12. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon the parties hereto, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision contained herein.
7.13. Relationship of the Parties. The relationship of the parties to
this Agreement is that of independent contractors. Neither this Agreement nor
any of the activities contemplated hereby shall be deemed to create any
partnership, joint venture, agency or employer/employee relationship between
Servicer and Owner.
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<PAGE> 29
7.14. Incorporation by Reference. Each of the Exhibits to this
Agreement, including but not limited to the Collection Policy, are incorporated
by reference into this Agreement and shall be binding on the parties hereto to
the same extent as if said Exhibits were set forth in their entirety in this
Agreement. Notwithstanding anything else in this Agreement, to the extent there
is a conflict between this Agreement and the Collection Policy, this Agreement
shall control.
7.15. Servicer Obligations. In order to more fully assure the monetary
obligations of Servicer to Owner, Agent and the Noteholders, including but not
limited to any liability of Servicer as described in Section 5.3, UDC is
executing this Agreement for the limited purpose of this Section 7.15. In the
event any monetary obligation of Champion Acceptance Corporation is undisputed
and is due and owing by Champion Acceptance Corporation to Owner, Agent or
Noteholders, UDC will, upon written notice of same, make payment of such amount
to Owner, Agent or Noteholders, as directed in the notice, within thirty (30)
days of receipt of the notice. Any disputed amounts owing by Champion Acceptance
Corporation shall be resolved in accordance with Exhibit F hereto.
7.16. Noteholders. Within five (5) Business Days of the date that all
obligations under the Amended and Restated Financing Agreement and the
securitization documents pertaining to the Subservicing Agreement (the "Senior
Debt") have been paid in full, the Agent agrees to give the Agent's Notice to
Servicer and to the Noteholders. Notwithstanding the foregoing, it is understood
that the Agent shall incur no liability pursuant to the terms hereof on account
of its failure to give the Agent's Notice to Servicer and to the Noteholders
within such five (5) Business Days. On and after the date of delivery of the
Agent's Notice to Servicer and the Noteholders, (i) every reference to the Agent
in this Agreement shall automatically, and without further action on the part of
Owner, Agent, Servicer or the Noteholders, be deemed to be a reference to the
Noteholders for all purposes of this Agreement, and (ii) the Agent shall no
longer be deemed a party to this Agreement and shall have no rights or
obligations hereunder.
7.17. Undertaking by Servicer. Servicer agrees to obtain the
acknowledgement of each of General Electric Credit Corporation, SunAmerica Life
Insurance Company and Harris Trust and Savings Bank, in its capacity as Trustee,
that such parties do not have a Lien on the Designated Deposit Accounts.
29
<PAGE> 30
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed as of the date first written above.
CHAMPION ACCEPTANCE CORPORATION, an
Arizona corporation
By: /s/ RUSSELL GRISANTI
---------------------------------
Name: Russell Grisanti
-------------------------------
Title: President
------------------------------
"Servicer"
KARS-YES FINANCIAL, INC., a Delaware
corporation
By: /s/ HARISH NARAN
---------------------------------
Name: Harish Naran
-------------------------------
Title: President
------------------------------
"Owner"
CITICORP USA, INC.,
a New York banking corporation
By: /s/ BRADLEY I. DIETZ
---------------------------------
Name: Bradley I. Dietz
-------------------------------
Title: VP
------------------------------
"Agent"
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<PAGE> 31
UDC executes this Agreement for the purposes set forth in Section 7.15
hereof.
UGLY DUCKLING CORPORATION
a Delaware corporation
By: /s/ Gregory B. Sullivan
--------------------------
Name: Gregory B. Sullivan
------------------------
Title: President
-----------------------
The Noteholders execute this Agreement for the purposes of (i) certain
notice, information and inspection rights provided above and (ii) Section 7.16
hereof.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ William Gobbo, Jr.
--------------------------
Name: William Gobbo, Jr.
------------------------
Title: Investment Officer
-----------------------
EQUITABLE CAPITAL PRIVATE INCOME
AND EQUITY PARTNERSHIP II, L.P.
By: /s/ William Gobbo, Jr.
--------------------------
Name: William Gobbo, Jr.
------------------------
Title: Investment Officer
-----------------------
"Noteholders"
31
<PAGE> 32
EXHIBITS
Exhibit A Collection Policy
Exhibit B Form of Monthly Servicer Report
Exhibit C Form of Officer's Certificate
Exhibit D Form of Weekly Delinquency Report
Exhibit E Reimbursable Expenses
Exhibit F Payment Reimbursement Resolution Policy
Exhibit G Termination Penalty
Exhibit H Cash Collection Schedule
Exhibit I List of Designated Deposit Accounts
Schedule A List of Receivables
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<PAGE> 1
EXHIBIT 10.2
SUBSERVICING AGREEMENT
This SUBSERVICING AGREEMENT (the "Agreement") is entered into as of
September 15, 1997, but deemed to be effective, solely for purposes of the
calculation of the Servicing Fee pursuant to Section 2.4(a) hereof, from and
after 12:01 A.M., September 6, 1997 (the "Effective Time") by and between
KARS-YES FINANCIAL INC., a Delaware corporation, (fka Yes Financial Inc.), as
collection agent ("Collection Agent"); CHAMPION ACCEPTANCE CORPORATION, an
Arizona corporation, as servicer ("Servicer"), MBIA Insurance Corporation, a New
York stock insurance company ("MBIA") and, for the limited purpose of Section
5.16, UGLY DUCKLING CORPORATION ("UDC").
RECITALS
WHEREAS, pursuant to that certain Originator Sale Agreement by and between
Kars-Yes Financial Inc., a Delaware corporation, (fka Yes Financial Inc.) as
both seller ("Seller") and Collection Agent, and Yes Receivables Inc., a
Delaware corporation, as purchaser ("Purchaser"), dated as of October 1, 1995
(the "Sale Agreement"), Seller sold to Purchaser, and Purchaser purchased from
Seller, certain retail installment sales contracts each secured by a Financed
Vehicle (the "Loans");
WHEREAS, pursuant to Section 6.01(a) of the Sale Agreement, the servicing,
administering and collection of the Loans is conducted by Collection Agent for
the benefit of Purchaser, MBIA Insurance Corporation ("MBIA"), and Citicorp
North America, Inc., as Agent (the "Agent");
WHEREAS, pursuant to Section 6.01(d) of the Sale Agreement, Collection
Agent may subcontract with any other Person for the servicing, administering or
collecting of the Loans, with the prior consent of Purchaser, MBIA and the
Agent;
WHEREAS, pursuant to that certain Agreement for Purchase and Sale of
Certain Assets by and between Kars-Yes Holdings, Inc., a Texas corporation,
Collection Agent, and Kars-Yes, Inc., a Delaware corporation, as sellers (the
"Asset Sellers"), and Ugly Duckling Corporation, a Delaware corporation, as
buyer ("UDC"), dated as of September 15, 1997 (the "Purchase Agreement"), UDC
has agreed to purchase the operations of Collection Agent, including all
equipment owned by Collection Agent for such operations (the "Assets");
WHEREAS, in connection with the sale of Assets to UDC, Collection Agent
has agreed to subcontract with Servicer, a subsidiary of UDC, for the servicing,
administering and collecting of the Loans as subservicer of Collection Agent;
and
WHEREAS, for the purpose of effectuating the intent of the parties hereto,
Collection Agent and Servicer have agreed to enter into this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1. Defined Terms. Whenever used in this Agreement, the following words
and phrases shall have the following meanings:
"Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by or is under common control
with such Person or is a director or officer of such person.
"Agent" shall have the meaning set forth in the Recitals hereto.
"Back-up Servicer" shall mean Norwest Bank Minnesota, National
Association, or such other Person who may be appointed by MBIA and be acting as
back-up servicer and custodian under the Back-up Servicing and Custodial
Agreement.
"Back-up Servicing and Custodial Agreement" shall mean the Back-up
Servicing and Custodial Agreement dated as of the date of the Master Transfer
Agreement, among Transferor, Collection Agent, Back-up Servicer, Agent and MBIA.
"Business Day" shall mean any day on which banks are not authorized or
required to close in New York City or in Texas.
"Charged-off Loan" shall mean a Loan that is charged-off pursuant to the
Collection Policy.
"Charged-Off Loss Ratio" means, for each Collection Period, the quotient
of (i) the net Principal Balance of all Loans which become Charged-Off Loans
during such Collection Period in accordance with the Collection Policy divided
by (ii) the aggregate of the Principal Balance of all Loans as of the beginning
of such Collection Period, which quotient shall be expressed as a percentage.
Calculations under this definition shall be made with respect to Loans covered
by this Agreement and the Receivables covered by the Other Servicing Agreement.
"Citibank" shall mean Citibank, N.A., a national banking association.
"Collection Account" shall mean the segregated account (account number
40678561) in the name of Agent maintained at the office of Citibank at 399 Park
Avenue, New York, New York. Agent and MBIA have exclusive control over the
Collection Account.
"Collection Period" means a calendar month.
"Collection Policy" shall mean that certain Collection and Account
Liquidations Policy and Procedures Manual, a copy of which is attached hereto as
Exhibit A as amended and modified in accordance herewith.
"Collections" shall mean, with respect to any Loan, all cash collections
and other cash proceeds of such Loan, including, without limitation, all cash
proceeds of Related Security with respect to such Loan, and any Collection of
such Loans deemed to have been received and paid pursuant to Section 2.04 of the
Sale Agreement plus all payments by the Rate Cap Provider under the Rate Cap
Agreement.
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<PAGE> 3
"Custodian" shall mean Norwest Bank Minnesota, National Association, or
such other Person who may be acting as custodian under the Back-up Servicing and
Custodial Agreement.
"Dealer" shall mean Kars-Yes, Inc., a Delaware corporation, and any
subsidiary thereof.
"Defaulted Loan" shall mean a Loan:
(i) as to which any payment, or part thereof, remains unpaid for
ninety-one (91) days or more from the original due date for such payment;
(ii) as to which the Obligor thereof or any other Person obligated
thereon or owning any Related Security in respect thereof has taken any
action, or suffered any event to occur, of the type described in paragraph
(f) of Exhibit V to the Master Transfer Agreement; or
(iii) which is a Charged-off Loan.
"Delinquency Measurement" means, as of the end of the Collection Period,
the quotient of (i) the aggregate of the Principal Balance of all Loans which
have Scheduled Payments for which all or any part in excess of 10% of such
Scheduled Payment is due and unpaid more than thirty (30) days from the due date
of such Scheduled Payments, divided by (ii) the aggregate of the Principal
Balance of all Loans as of the end of the Collection Period which is two months
prior to such Collection Period, which quotient is expressed as a percentage.
Calculations under this definition shall be made with respect to Loans covered
by this Agreement and Receivables covered by the Other Servicing Agreement.
"Designated Deposit Accounts" means the depository bank accounts and the
consolidating depository bank accounts, established and maintained by the
Servicer and set forth on Exhibit B attached hereto, which (i) are not operating
accounts of Servicer, (ii) are not subject to any Lien in favor of any Person
and (iii) are deposit only accounts and withdrawals from such depository bank
accounts may only be made either (a) for sweeping into consolidating Designated
Deposit Accounts or (b) at the same time withdrawals from consolidating
Designated Deposit Accounts are made for remittances by Servicer in accordance
with the provisions of this Agreement.
"Event of Termination" has the meaning specified in Exhibit V to the
Master Transfer Agreement.
"Excepted Loan Files" has the meaning set forth in Section 2.3 below.
"Facility Termination Date" has the meaning set forth in the Master
Transfer Agreement.
"Financed Vehicle" shall mean any automobile, van, sport utility vehicle,
or light truck securing an Obligor's indebtedness under a Loan.
"Indebtedness" means, as applied to any Person at any time, (a) all
indebtedness, monetary obligations or other monetary liabilities of such Person
(i) for borrowed money or evidenced by debt securities, debentures, acceptances,
notes or other similar instruments, and any accrued interest, fees and charges
relating thereto, (ii) with respect to letters of credit issued for such
Person's account, (iii) to pay the deferred purchase price of property or
services, except accounts payable and accrued expenses arising in the ordinary
course of business, (iv) in respect of capital leases or (v) in respect of
guaranties in connection with any of the foregoing; (b) all indebtedness,
monetary
3
<PAGE> 4
obligations or other monetary liabilities of such Person secured by a lien on
any property of such Person whether or not such indebtedness, monetary
obligations or monetary liabilities are assumed by such Person; (c) all
preferred stock subject to mandatory redemptions; (d) all indebtedness, monetary
obligations or other monetary liabilities of such Person under, in connection
with or relating to a securitization facility; and (e) all contingent
contractual monetary obligations with respect to any of the foregoing.
"Insurance Agreement" shall have the meaning set forth in the Master
Transfer Agreement.
"Insurance Policy" shall mean, with respect to a Loan, the insurance
policy covering physical damage, collision, credit life, credit disability,
theft, mechanical breakdown or similar events relating to such Loan or the
related Financed Vehicle or Obligor.
"Insurance Proceeds" shall mean all amounts paid by an insurance company
for claims on any Financed Vehicle.
"Lien" shall mean a security interest, lien, charge, pledge, equity or
encumbrance of any kind.
"Loans" shall mean retail installment sales contracts (and all rights with
respect thereto) secured by a Financed Vehicle originated by a Dealer and
identified on Exhibit C hereto, including all Charged-Off Loans.
"Loan Documents" shall mean all of the documents, instruments and other
agreements evidencing, arising from, or pertaining to the Receivables, including
but not limited to, all documents that comprise the Loan Files.
"Loan File" shall mean, as to each Loan, and to the extent received by
Servicer from Collection Agent, (a) the executed original of the Loan, (b) the
original credit application, fully executed by each related Obligor, (c) the
original certificate of title (or application therefor) or such documents that
Servicer shall keep on file, in accordance with its customary procedures, and
with the procedures set forth in the Collection Policy, evidencing the security
interest in the related Financed Vehicle, (d) documents evidencing or relating
to any Insurance Policy, and (e) any and all other documents that Servicer shall
keep on file, in accordance with its customary procedures and with the
procedures set forth in the Collection Policy, relating to such Loan or the
related Obligor or Financed Vehicle. All or any part of a Loan File may be
maintained on Servicer's electronic data base or in the form of microfiche,
except for the certificate of title (or application therefor) and the original
of each Loan for which the originals must be maintained in hard copy form.
"Master Transfer Agreement" shall mean the Master Transfer Agreement,
dated as of October 1, 1995 among Transferor, Agent and CXC Incorporated, as
transferee, as the same may be amended or modified from time to time in
accordance with the terms thereof.
"Monthly Servicer Report" shall mean reports, in the form of Exhibit D
attached hereto as required by Section 2.2(d) hereof.
"Obligor" shall mean a Person obligated to make payments pursuant to a
Loan.
"Other Servicing Agreement" means that certain Servicing Agreement between
Collection Agent, as owner, Citicorp USA, Inc., as Agent, and Servicer, as
servicer, dated of even date herewith, pursuant to which Servicer has agreed to
service certain Receivables, as defined therein, and which appear on Schedule A
attached thereto.
4
<PAGE> 5
"Person" shall mean an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"Principal Balance" shall mean, (i) with respect to any Loan as of any
date, the principal balance of the Loan, and (ii) with respect to any
pre-computed loan, the gross amount of the loan less any unearned interest,
calculated in accordance with the simple interest method of accounting for
principal and interest.
"Purchase Date" has the meaning set forth in Section 2.02(a) of the Sale
Agreement.
"Purchaser" shall have the meaning set forth in the Recitals hereto.
"Rate Cap Agreement" shall have the meaning set forth in the Master
Transfer Agreement.
"Rate Cap Provider" shall have the meaning set forth in the Master
Transfer Agreement.
"Really Defaulted Loans" shall mean Loans as to which any payment, or part
thereof, remains unpaid for eighteen (18) months or more from the original due
date for such payment.
"Recoveries" shall mean all amounts recovered on Charged-off Loans whether
from realization on the Related Security or otherwise, less Recovery Costs.
"Recovery Costs" shall mean all reasonable costs of collection incurred in
compliance with the Collection Policy realizing on a Charged-off Loan or the
Related Security including, but not limited to, costs of repossession,
refurbishing and remarketing of the underlying Financed Vehicle.
"Related Security" shall mean, with respect to any Loan, and to the extent
Servicer obtains possession thereof:
(i) all of Seller's right, title and interest in the Financed
Vehicle securing such Loan;
(ii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such Loan,
whether pursuant to such Loan or otherwise;
(iii) all guarantees, indemnities, warranties, representations,
insurance and other agreements or arrangements of whatever character from
time to time supporting or securing payment of such Loan whether pursuant
to such Loan or otherwise and all rights with respect to any agreements or
arrangements with the vendors, dealers or manufacturers of the Finance
Vehicle securing such Loan;
(iv) all of Seller's books and records, including data processing
records relating to all of the foregoing;
(v) all payments received on or with respect to the Loans, including
without limitation, all periodic payments due from the Obligors
thereunder, all amounts paid by guarantors under the Loans, all amounts
received pursuant to any Insurance Policy, all payments received from
liquidation of the Financed Vehicles securing the Loans or otherwise
received in respect of Defaulted Loans and all late payments charges paid
by
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<PAGE> 6
Obligors and any other incidental charges or fees received from an
Obligor, including without limitation, late fees, collection fees and
bounced check charges.
(vi) the Loan Files, the original Loan contracts, original
certificates of title and applications for certificates of title relating
to the Loans; and
(vii) all income and proceeds of all of the foregoing or relating
thereto.
"Re-liening Trigger Event" shall have the meaning set forth in the Master
Transfer Agreement.
"Responsible Officer" shall mean those officers of Servicer involved in,
or responsible for, the administration and servicing and collection of the
Loans, as identified in a list of such officers furnished by Servicer to
Purchaser, MBIA and Agent from time to time.
"Rolling Average Charged-Off Loss Ratio" means the monthly average of the
Charged-Off Loss Ratio for any three (3) consecutive months; provided that,
until the first three (3) months from the date hereof have expired, the Rolling
Average Charged-Off Loss Ratio shall be the monthly average of the Charged-Off
Loss Ratio for the prior months, including the Rolling Average Charged-Off Loss
Ratio of the Collection Agent and the "Owner" under the Other Servicing
Agreement. Calculations under this definition shall be made with respect to
Loans covered by this Agreement and the Receivables covered by the Other
Servicing Agreement.
"Rolling Average Delinquency" means the average of the Delinquency
Measurements for any three consecutive months; provided that, until the first
six months after the date hereof have expired, the Rolling Average Delinquency
shall be the average of the Delinquency Measurements for the prior months,
including the Rolling Average Delinquency of the Collection Agent and the
"Owner" under the Other Servicing Agreement. Calculations under this definition
shall be made with respect to Loans covered by this Agreement and the
Receivables covered by the Other Servicing Agreement.
"Scheduled Payment" means, for any Collection Period for any Loan, the
amount indicated in such Loan as required to be paid by the Obligor in such
Collection Period (without giving effect to any rescheduling of payments in any
insolvency or similar proceedings).
"Servicing Period" shall mean the period of time from the date of this
Agreement to December 31, 2001, unless this Agreement is terminated prior to
such date as provided herein.
"Settlement Date" shall mean the date which is the twentieth (20th) day of
each calendar month or if such twentieth (20th) day is not a Business Day, the
next succeeding Business Day.
"Successor Notice" shall have the meaning set forth in Section 6.01(b) of
the Sale Agreement.
"Surety Bond" shall have the meaning set forth in the Master Transfer
Agreement.
"Termination Penalty" shall mean the termination penalty identified in
Section 4.7 and in the amount set forth on Exhibit L.
"Total Collections" shall mean, for any Collection Period, the total of
all collections during such Collection Period pursuant to this Agreement and
pursuant to the Other Servicing Agreement
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of interest, principal and net proceeds from the sale or disposition of any
Financed Vehicle prior to the payment of any expenses, costs or other
deductions, but excluding the proceeds from any Charged-Off Receivable, as
defined in the Other Servicing Agreement, after the Receivable has become a
Charged-Off Receivable under the Other Servicing Agreement.
"Total Cumulative Collections" shall mean the aggregate of all collections
pursuant to this Agreement and pursuant to the Other Servicing Agreement of
interest, principal and net proceeds from the sale or disposition of any
Financed Vehicle prior to the payment of any expenses, costs or other deductions
[but excluding the proceeds from any Charged-Off Receivable after the Receivable
has become a Charged-Off Receivable.
"Transaction Documents" shall mean this Agreement, and all other documents
defined as such in the Master Transfer Agreement.
"Transferor" shall mean Yes Receivables Inc., a Delaware corporation.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
New York.
1.2. Other Terms. All capitalized terms used herein, and not otherwise
specifically defined, shall have the meaning ascribed thereto in the Sale
Agreement.
1.3. Usage of Terms. With respect to all terms in this Agreement, the
singular includes the plural and the plural the singular; words importing any
gender include the other genders; references to "writing" include printing,
typing, lithography, and other means of reproducing words in a visible form;
references to agreements and other contractual instruments include all
subsequent amendments thereto or changes therein entered into in accordance with
their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the term "including"
means "including without limitation."
1.4. Section References. All section references shall be to Sections in
this Agreement.
ARTICLE II
ADMINISTRATION AND SERVICING OF RECEIVABLES
2.1. Appointment.
(a) Pursuant to Section 6.01(d) of the Sale Agreement, Collection
Agent hereby subcontracts with, and Collection Agent, Purchaser, MBIA and Agent
hereby appoint Champion Acceptance Corporation, an Arizona corporation, as
Servicer for the benefit of Collection Agent, Purchaser, MBIA and Agent.
Servicer shall perform, during the Servicing Period, the services required
pursuant to the terms of this Agreement. In performing its duties, Servicer
shall have full power and authority to do or cause to be done any and all things
in connection with such servicing and administration which it may deem necessary
or desirable, within the terms of this Agreement and the Collection Policy, and
in accordance with Servicer's usual practice and the standard of care required
pursuant to Section 2.7 hereof. Notwithstanding the foregoing, Collection Agent
shall, at all times during the Servicing Period, remain liable for the
performance of the duties and obligations of Collection Agent pursuant to the
Sale Agreement and the Servicer shall, pursuant to the terms and limitations of
this Agreement, be liable to MBIA, the Collection Agent and the Agent for the
performance of its obligations under this Agreement.
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(b) The Collection Agent and the Servicer hereby agree that MBIA
shall have the right to direct the actions of the Servicer without obtaining the
prior consent of the Collection Agent and a directive of MBIA to the Servicer
shall have the same force and effect as a directive of the Collection Agent.
Servicer may rely and act on all directions of MBIA without liability to
Collection Agent, Agent or any other Person. The Collection Agent shall not
direct the Servicer without obtaining the prior consent of the MBIA.
(c) Servicer may resign as Servicer under this Agreement upon ninety
(90) days' prior written notice to Collection Agent, MBIA and Agent. Any
Successor Servicer under this Agreement shall be subject to the written approval
of MBIA. Servicer shall comply with the provisions of this Agreement until the
earlier of (i) the Back-up Servicer or a successor servicer acceptable to MBIA
is in place and such Back-up Servicer or successor servicer has been operating
parallel to the Servicer for a period of one month, or (ii) one hundred eighty
(180) days after such written notice of resignation.
2.2. Collection of Loans and Reporting Obligations.
(a) Servicer shall be responsible for collection of payments called
for under the terms and provisions of each Loan, as and when the same shall
become due, all in accordance with the standard of care set forth in Section
2.7, provided, however, that the Collection Agent shall not have any rights to
withdraw any amounts in the Collection Account.
(b) Any Collections of Loans received by Servicer shall be wired or
deposited directly to the Collection Account for same day wire funds within two
(2) Business Days of Servicer's receipt thereof, net of any amounts that
represent Collections previously deposited in the Collection Account but as to
which the check or other form of non-cash payment by the Obligor has been
returned as noncollectible and as to which no subsequent collection of such
amount from the Obligor or recovery pursuant to this provision has previously
been made. Servicer shall not deposit or cause to be deposited into the
Collection Account funds other than Collections. Upon proof submitted to Agent's
reasonable satisfaction that funds have been deposited in the Collection Account
in error, such funds shall be withdrawn therefrom and remitted to the Servicer
for the account of the applicable party. Servicer shall prepare and make
available for inspection by MBIA and Agent daily collection and reconciliation
reports which account for all remittances to the Collection Account.
(c) Notwithstanding the provisions set forth in Section 2.2(b), if
Collection Agent does not timely and fully pay and reimburse to Servicer all
amounts required to be paid or reimbursed to Servicer pursuant to Sections
2.9(a), (b) or (c) of this Agreement, and, with respect to Section 2.9(b), as
such amounts are set forth in the Monthly Servicer Report and are not the
subject of a bona fide dispute by MBIA pursuant to written notice given to
Servicer of such dispute, commencing on the second Business Day after notice to
MBIA of such nonpayment, Servicer may retain from the Collections an amount
equal to all such due and unpaid or unreimbursed amounts in payment thereof.
Any expense reimbursement shall be for amounts which are consistent with
the provisions of this Agreement and shall be substantiated to the reasonable
satisfaction of MBIA. The Servicer shall provide to MBIA on a monthly basis, in
a form acceptable to MBIA, along with the Monthly Servicer's Report required
pursuant to Section 2.2(d) hereof, a report describing such expenses for which
the Servicer seeks or is paid reimbursement pursuant to Exhibit I hereto, broken
down into
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the categories provided in Exhibit I hereto. The Servicer shall provide such
other information respecting such expenses as MBIA may from time to time request
in order to review such expenses. MBIA shall have the right to review all of the
expenses for which the Servicer seeks or is paid reimbursement. Any payment to
Servicer of expenses pursuant to Section 2.9(b) shall not limit the right of
MBIA to review any such expense or to dispute any such expense. In the event any
expense obligation for which the Servicer seeks reimbursement is disputed by
MBIA, Servicer and MBIA shall each use their best efforts to reconcile such
dispute. If MBIA and the Servicer cannot agree on a disputed expense obligation,
such expense obligation shall not be the subject of reimbursement to Servicer
until such disputed expense obligation has been reviewed pursuant to the Payment
Reimbursement Dispute Resolution Policy, a copy of which is attached to this
Agreement as Exhibit M. Any expense which is paid to Servicer or which is
retained by Servicer pursuant to this Section 2.2(c) and which is subsequently
disputed by MBIA may be deducted from any subsequent reimbursable expenses or
any fees to be paid to Servicer pursuant to Section 2.9 or Section 4.7. Upon
resolution of any disputed amounts, any amounts owing to Servicer shall be paid
to or retained by Servicer pursuant to this Section 2.2(c).
(d) Servicer shall provide to Agent and MBIA Monthly Servicer
Reports substantially in the form attached hereto as Exhibit D, as it may be
amended from time to time in accordance with the terms hereof. Each Monthly
Servicer Report shall be accompanied by the Officer's Certificate substantially
in the form attached hereto as Exhibit E. Each Monthly Servicer Report and
Officer's Certificate relating to such reports shall be delivered within ten
(10) calendar days following the end of each Collection Period. Servicer shall
also provide to Agent and MBIA Weekly Delinquency Reports substantially in the
form attached hereto as Exhibit F. Such report shall be delivered within two (2)
Business Days following the end of each weekly period.
(e) Within ten (10) calendar days following the last day of each
Collection Period, Servicer shall forward to MBIA, via reputable overnight
courier or electronic transmission, (i) a computer diskette, in a format
mutually acceptable to Servicer and MBIA of its computerized records reflecting
(A) all collections received during such Collection Period with respect to the
Loan, (B) the Principal Balance of the Loans as of the last day of the
Collection Period, and (C) information as of the last day of such Collection
Period regarding the number of Loans for which an Obligor has failed to make any
required payments on the dates such payments were to have been made and such
failure has continued for ninety (90) days, and (ii) a manually prepared report
as of the last day of such Collection Period regarding the number of repossessed
Financed Vehicles and the number of sales of repossessed Financed Vehicles as of
the last day of such Collection Period.
2.3. Conveyance of Loan Files to Servicer. Upon execution of this
Agreement, Collection Agent shall deliver to Servicer the Loan Files (as defined
in the Master Transfer Agreement), and Servicer shall hold in trust for the
benefit of MBIA and the Agent and in accordance with the standard of care set
forth in Section 2.7 the Loan Files with respect to the Loans, other than those
Loan Files identified on Exhibit G which are in the possession of the Custodian
(the "Excepted Loan Files") and subject to any instruction consistent with
Section 2.02(i) or (i)(3) of Exhibit IV of the Master Transfer Agreement to
deliver the Loan Files to the Custodian. Possession of the Loan File by the
Servicer is for the sole purpose of servicing the related Loan. Upon the
Servicer's receipt of a joint written notice from Collection Agent, Agent and
MBIA of the release of the lien of the Master Transfer Agreement with respect to
any Loan, Servicer shall deliver the Loan File relating to such Loan to
Collection Agent. The original executed counterparts of the Loans and
certificates of title or such documents as shall evidence the security interest
in the related Financed Vehicles shall be stored in fireproof file cabinets or
safes. Servicer shall keep books and records pertaining to each Loan. Such
records may not be destroyed or otherwise disposed of except as provided herein,
the Collection Policy, or as allowed by applicable laws, regulations or decrees.
All documents, whether developed or originated by Servicer or not, reasonably
required to document or to properly
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administer any Loan shall at all times be held in trust by Servicer for the
benefit of MBIA. Servicer shall not acquire any property rights with respect to
such records, and shall not have the right to possession of them, except as
subject to the conditions stated in this Agreement. Servicer shall bear the
entire cost of restoration in the event any Loan Files shall become damaged,
lost or destroyed while in Servicer's possession or control.
2.4. Realization Upon Loans. On behalf of the Purchaser, MBIA and the
Agent, consistent with the Collection Policy, Servicer shall use its reasonable
best efforts, consistent with the standard of care described in Section 2.7, to
repossess or to otherwise convert the ownership of the Financed Vehicle securing
any Purchased Loan as to which Servicer shall have determined eventual payment
in full is unlikely, which may include selling the Financed Vehicle at a public
or private sale; provided, however, that in any case in which the Financed
Vehicle shall have suffered damage, Servicer shall not expend funds in
connection with the repair or the repossession of such Financed Vehicle unless
it shall determine in its discretion that such repair and/or repossession will
increase the proceeds to be received upon sale by an amount greater than the
amount of such expenses. All Recoveries in respect of such Loan and related
Financed Vehicle received by the Servicer shall be remitted for deposit in the
Collection Account within two (2) Business Days of receipt. Servicer shall not
release the Financed Vehicle securing any Purchased Loan from the security
interest granted by such Purchased Loan in whole or in part except in the event
of payment in full by Obligor thereunder or the discounted settlement of the
obligations of the Obligor thereunder in connection with a workout of such
Purchased Loan and consistent with the Collection Policy.
2.5. Maintenance of Security Interests in Financed Vehicles.
(a) Servicer shall use reasonable best efforts, consistent with the
standard of care described in Section 2.7, to make all UCC and Department of
Motor Vehicle filings and recordings as may be required pursuant to the terms of
this Agreement and the Collection Policy and shall use reasonable best efforts
to take such steps as are necessary to maintain first priority perfection of the
security interest created by each Loan in the related Financed Vehicle. Servicer
shall use reasonable best efforts, consistent with the standard of care
described in Section 2.7, to take such steps are necessary to perfect such
security interest on behalf of Purchaser in the event of the relocation of a
Financed Vehicle or for any other reason. The Purchaser hereby authorizes the
Servicer to re-perfect or cause the re-perfection of such security interest on
its behalf as Purchaser, as necessary.
(b) Upon the joint written notice from Agent and MBIA of the
occurrence of a Re-liening Trigger Event, Servicer shall, at Collection Agent's
sole cost and expense, file applications with the appropriate state agencies for
new or amended certificates of title each noting Agent or Transferor, as
directed by MBIA, as lienholder for all of the Financed Vehicles securing the
Transferred Loans. No failure or delay by the MBIA and the Agent to provide such
notice described in the preceding sentence shall constitute a waiver of its
rights in connection with such Reliening Trigger Event. Servicer shall use its
reasonable best efforts to file applications of new or amended certificates of
title, as is appropriate, noting Agent or Transferor, as directed by MBIA, as
lienholder for all of the Financed Vehicles securing the Transferred Loans,
within ninety (90) days of such joint written notice of the occurrence of a
Re-liening Trigger Event. Servicer shall inform Agent and MBIA no less than
weekly concerning the extent to which the filing of such applications have not
yet been made with respect to all Transferred Loans and the extent to which all
of the related certificates of title do not yet reflect the Agent or the
Transferor, as directed by MBIA, as lienholder, and provide such evidence of the
re-liening of such Financed Vehicles as MBIA and Agent may request.
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After the occurrence of a Re-liening Expense Account Trigger, the
Servicer shall cooperate with the Agent, MBIA and the Backup Servicer to
complete the filing of such applications for all Financed Vehicles as soon as
practicable.
2.6. Enforcement of Loans.
(a) Servicer may sue to enforce or collect upon Loans, as agent for
Purchaser. If Servicer elects to commence a legal proceeding to enforce a Loan,
the act of commencement shall be deemed to be an automatic assignment of the
Loan to Servicer for purposes of collection only, and if the Loan File is an
Excepted Loan File, a Responsible Officer shall deliver by facsimile a Request
for Release of Documents, substantially in the form of Exhibit H hereto to the
Custodian requesting delivery to Servicer of the Loan and/or the related
certificate of title or application for certificate of title, as applicable.
Upon release of such items, Servicer is authorized to execute an instrument in
satisfaction of such Loan and to do such other acts and execute such other
documents as it deems necessary to discharge the Obligor thereunder and release
any security interest in the Financed Vehicle related thereto. Servicer shall
determine in accordance with the standard of care described in Section 2.7, when
a Loan has been paid in full. If in any enforcement suit or legal proceeding it
is held that Servicer may not enforce a Loan on the ground that it is not a real
party in interest or a holder entitled to enforce the Loan, Purchaser shall, at
Servicer's request, but at Collection Agent's sole cost and expense, take such
steps as Servicer deems necessary including bringing suit in its name or the
name of Purchaser, as beneficial owner of the Loan, or the name of MBIA, as
third party beneficiary thereunder.
(b) Servicer shall exercise any rights of recourse against third
parties that exist with respect to any Loan in accordance with Servicer's usual
practice and in any event, consistent with the standard of care described in
Section 2.7. In exercising recourse rights, Servicer is authorized, on
Purchaser's behalf, to reassign the Loan to the Person against whom recourse
exists to the extent necessary, and at the price set forth in the document
creating the recourse. Servicer will not reduce or diminish such recourse
rights, except to the extent that it exercised such right or acted consistent
with the Collection Policy.
(c) Servicer may waive, modify or vary any terms of any Loan or
consent to the postponement of strict compliance with any such term if in
Servicer's reasonable and prudent determination such waiver, modification or
postponement is not materially adverse to Purchaser, MBIA and Agent; provided,
however, that (A) Servicer shall not forgive any scheduled payment and (B) shall
not, except as permitted by the Collection Policy, (1) permit any modification
with respect to any Loan that would decrease the scheduled payment or the annual
percentage rate, (2) defer the payment of any principal or interest of any
scheduled payment, or (3) reduce the Loan balance (except in connection with
actual payments attributable to such Loan balance) provided that, in accordance
with the Collection Policy, Servicer shall have the ability to settle any Loan
that does not result in a charge-off of greater than $500. The Servicer shall
provide the Back-up Servicer, MBIA and the Purchaser with an amended Servicer's
Monthly Report reflecting any modification of any scheduled payment.
(d) Servicer shall not consent to the termination of any Loan in
connection with loss or damage to the related Financed Vehicle unless the
Obligor has paid an amount not less than an amount equal to the Loan balance of
such Loan plus any accrued interest thereon, or if less, the maximum amount
legally collectible under the related Loan unless Seller has repurchased such
Loan by deposit of the Loan balance thereof plus any accrued interest in the
Collection Account.
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(e) In the event that Servicer, in the enforcement of any Loan,
claims possession of a Financed Vehicle from an Obligor, Servicer shall use its
best efforts to sell such Financed Vehicle promptly and consistent with the
standard of care set forth in Section 2.7 hereof. Any Recoveries related thereto
shall be deposited into the Collection Account within two (2) Business Days of
receipt.
(f) Notwithstanding any provision to the contrary contained in this
Agreement, Servicer shall use its best efforts to exercise any right under a
Loan to accelerate the unpaid scheduled payments, due or to become due
thereunder in such a manner as to maximize the net proceeds available to
Purchaser consistent with the Collection Policy; provided, however, that
Servicer will not accelerate any scheduled payment unless permitted to do so by
the terms of the Loan or under applicable law.
2.7. Standard of Care. In managing, administering, servicing, enforcing
and making collections on the Loans and the Financed Vehicles pursuant to this
Agreement, Servicer will exercise that degree of skill and care consistent with
industry standards for servicing of motor vehicle loan portfolios, and that
which Servicer customarily exercises with respect to similar motor vehicle loan
contracts and interests in motor vehicle loans owned or originated by it, and in
any event, in a prudent and commercially reasonable manner and in accordance
with the Collection Policy including, without limitation, the taking of
appropriate actions to foreclose or otherwise liquidate any such defaulted Loan,
together with the related Financed Vehicle, to collect any guaranty amount and
to enforce the Purchaser's, the Agent's and MBIA's rights under this Agreement.
Servicer shall punctually perform all of its obligations and agreements under
this Agreement, shall comply with all applicable federal and state laws and
regulations, shall maintain all state and federal licenses and franchises
necessary for it to perform its servicing responsibilities hereunder and shall
not materially impair the rights of the Purchaser, MBIA and the Agent in a Loan
or payments thereunder.
2.8. Insurance Proceeds. Unless used to repair an insured vehicle, any
Insurance Proceeds received by Servicer under any Insurance Policy shall be
remitted to the Collection Account within two (2) Business Days of receipt by
Servicer.
2.9. Servicing Fee, Expenses, and Fees. In consideration of the servicing
obligations to be undertaken by Servicer pursuant to this Agreement, Collection
Agent shall (a) commencing as of the Effective Time, pay to Servicer a monthly
fee on the fifth (5th) day of each calendar month, in an amount equal to the
greater of (i) 3 1/4% per annum computed on a monthly basis of the aggregate
outstanding Principal Balance of all of the Loans, other than Charged-Off Loans,
as of the first day of the immediately preceding month, or (ii) $15.00 per
month, per Loan, other than Charged-Off Loans, that was being serviced by
Servicer as of the first day of the immediately preceding month; (b) reimburse
Servicer for all expenses incurred by Servicer as set forth on Exhibit I
attached hereto; (c) pay to Servicer an amount equal to, with respect to
Charged-Off Loans, 30% of all Collections arising from collateral recovery and
50% of all Collections or proceeds arising from non-collateral recoveries; and
(d) permit Servicer to collect and retain modification and extension fees
actually paid by Account Debtors but only after all Scheduled Payments which are
due from such Account Debtor have been collected in full, the Obligor is current
under the Obligor's Loan Documents and subject to the limitation that without
the prior written consent of MBIA, no more than 3% of all Loans serviced
hereunder may be the subject of such fees in any single Collection Period. To
the extent the amount specified in Section 2.9(a), (b) and (c) are paid to
Servicer by Agent or MBIA, or by retention by Servicer from the Collections
pursuant to Section 2.2(c), Collection Agent shall have no right to receive
compensation or reimbursement pursuant to the
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Purchase Agreement or the Master Transfer Agreement, and the Collection Agent
hereby expressly waives its right to the Collection Agent Fee.
2.10. Adequacy of Computer System. Subject to the terms of this Section
2.9, Servicer, in its sole discretion, may modify the computer hardware and
software transferred from Seller to Buyer pursuant to the Purchase Agreement in
such manner so that any problem associated with the "year 2000" is resolved and
handled appropriately by such computer system. Pursuant to the other Servicing
Agreement, Seller and Servicer have agreed to share the costs which may be
incurred by Servicer for any such modification. Following receipt of notice of
Servicer's determination of the inability to resolve the "year 2000" problem
pursuant to the Other Servicing Agreement, Seller and Agent thereunder may, in
their sole discretion, terminate the Other Servicing Agreement. Upon such
election, MBIA or the Agent (with the consent of MBIA) may also elect to
terminate this Agreement. In the event this Agreement is not terminated as to
Servicer pursuant to the preceding sentence, Servicer shall not be responsible
for information provided by it in accordance with this Agreement which is
affected by the problem intended to be corrected by this Section 2.10 and
Section 2.8 of the Other Servicing Agreement.
2.11. Crime Insurance. Servicer shall maintain, at its own expense, a
crime insurance policy, with broad coverage with responsible companies on all
officers, employees or other Persons acting on behalf of Servicer in any
capacity with regard to the Loans to handle funds, money, documents, and papers
relating to the Loans. Any such insurance shall protect and insure Servicer
against losses for dishonest acts of such Persons and shall be maintained in a
form that would meet the requirements of prudent institutional auto loan
servicers and in an amount of not less than $10,000 per occurrence. MBIA shall
be named as loss payee and as an additional named insured on such policy.
2.12. Responsibilities of Servicer. Servicer shall have no duties,
obligations or responsibilities other than those specifically expressed and set
forth herein, and no implied obligations of Servicer shall be read into this
Agreement.
2.13. Notice of Store Closing. Servicer shall provide at least sixty (60)
days advance written notice to Agent and MBIA of any closing of stores acquired
from the Sellers and shall include with such notice a description of the
Servicer's alternate arrangements for collecting Receivables associated with
such stores. Servicer agrees, in the absence of any other arrangement acceptable
to Servicer, Agent and MBIA to provide coupon payment books to the Obligors who
are affected by such store closing.
2.14. Inspection.
(a) At all times during the term hereof, Servicer shall afford Agent
and MBIA and their respective authorized agents, upon one (1) Business Day's
prior written notice, reasonable access, during normal business hours, to
Servicer's collection centers, payment centers and records relating to the
Receivables, without charge, and will cause its personnel to provide reasonable
assistance in any such examination. The examination referred to in this Section
2.14 will be conducted in a manner which does not unreasonably interfere with
Servicer's normal operations or customer or employee relations. Without
otherwise limiting the scope of the examination, Agent or MBIA may, using
generally accepting auditing principles, conduct a quarterly cash audit,
including, but not limited to, a review of the daily collection reports prepared
pursuant to Section 2.2(b) and the deposits relating thereto, verify the status
of each Loan and review Loan Files and records relating thereto for conformity
to Monthly Servicer Reports prepared pursuant to Section 2.2(d) and compliance
with the standards represented to exist as to each Loan subject to this
Agreement. Nothing herein shall require Agent or MBIA to conduct any inspection
pursuant to this Section, and
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any expense incurred by the inspecting party incident to the exercise by Agent
or MBIA of any right under this Section 2.14 shall be borne by the inspecting
party. In addition, nothing in this Section 2.14 shall affect the obligation of
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of Servicer to provide access to
prohibited information as a result of such obligation shall not constitute a
breach of this Section 2.14.
(b) At all times during the term hereof, Servicer shall keep
available a copy of the Loan Files at its office located at 600 North Pearl
Street, Dallas, Texas, or at such other location as to which it shall give
written notice to Agent and MBIA for inspection by either of them.
2.15. Covenants of Servicer; Notices. Except as otherwise provided in the
Collection Policy:
(a) Servicer shall (i) not release any Financed Vehicle securing any
Loan from the security interest granted therein by such Loan in whole or in part
except in the event of payment in full by the Obligor thereunder, or upon
transfer of the Financed Vehicle to a successor purchaser following repossession
by Servicer, (ii) not impair the rights of Collection Agent or MBIA in the
Loans, (iii) not sell, pledge, assign, or transfer to any other Person, or
grant, create, incur or assume any Lien on any Loan or any interest therein or
permit any creditor of Servicer to have any Lien on any Receivable or any
interest therein, (iv) immediately notify Collection Agent and MBIA of the
existence of any Lien on any Loan (other than the Lien of MBIA) if Servicer has
actual knowledge thereof other than normal mechanics liens and impound notices
which Servicer will treat in a customary manner, (v) defend the right, title,
and interest of Collection Agent and MBIA in, to and under the Loans against all
claims of third parties claiming through or under Servicer, (vi) deposit into
the Designated Deposit Accounts and to the Collection Account all payments
received by Servicer with respect to the Loans in accordance with this
Agreement, (vii) promptly notify Collection Agent and MBIA of the occurrence of
any Event of Servicing Termination and any breach by servicer of any of its
covenants or representations and warranties contained herein, and (viii) upon
the discovery of the relocation out of state of a Financed Vehicle, promptly
notify Collection Agent and MBIA of the occurrence of any event which, to the
knowledge of the Servicer, would require that Collection Agent or MBIA make or
cause to be made any filings, reports, notices, or applications or seek any
consents or authorizations from any and all government agencies, tribunals, or
authorities in accordance with the UCC and any state vehicle license or
registration authority as may be necessary or advisable to create, maintain, and
protect a first-priority security interest of Agent in, to and on the Financed
Vehicles and a first-priority security interest of MBIA in, to, and on the
Receivables. Any out-of-pocket expenses and costs incurred by Servicer in
complying with Subsection 2.15(a)(viii) shall be reimbursed to Servicer pursuant
to Exhibit I.
(b) Servicer shall, within four (4) Business Days after its receipt
thereof, respond to all reasonable written directions or written requests for
information or data extract disks that Collection Agent, MBIA, or Backup
Servicer might have with respect to the administration of the Loans; provided,
however, that in the event that any request received, requests information not
otherwise required to be set forth in the Monthly Servicer Report and not
reasonably available from the electronic files and the computer system, Servicer
shall have a reasonable period of time to meet such request and shall be
reimbursed for the cost of providing such information pursuant to Exhibit I.
(c) Servicer will promptly advise Collection Agent and MBIA of any
inquiry received from an Obligor which contemplates the consent of Collection
Agent and MBIA. Inquiries contemplating the consent of Collection Agent and MBIA
shall include, but shall not be limited to, inquiries about settlement of any
unasserted claim or defense, or compromise of any amount an Obligor owes or any
other matters Servicer should reasonably understand are not within Servicer's
authority under this Agreement, provided however, that, in accordance with the
Collection Policy,
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Servicer shall have the ability to settle any account that does not result in a
charge-off of greater than $500. Any amount over such limit will require that
Servicer notify Collection Agent and MBIA of such request, and that Collection
Agent and MBIA respond to Servicer within five (5) Business Days as to whether
or not Collection Agent and MBIA shall accept such proposal. If Owner or Agent
does not respond to Servicer within such time period, the proposal shall be
deemed approved by Collection Agent and MBIA.
2.16. Costs and Expenses. Except as set forth on Exhibit I and as
otherwise specifically provided in this Agreement, all costs and expenses
incurred by Servicer in carrying out its duties hereunder, and all other
customary fees and expenses shall be paid or caused to be paid by Servicer out
of the compensation to be paid to Servicer pursuant to Section 2.9.
2.17. Responsibility for Insurance Policies; Processing of Claims Under
Insurance Policies; Daily Records and Reports.
(a) Servicer, on behalf of Collection Agent, will administer and
enforce consistent with the standard of care set forth in Section 2.7 hereof,
all rights of Collection Agent provided for in the insurance policies relating
to the Financed Vehicles (the "Insurance Policies").
(b) Servicer will administer consistent with the standard of care
set forth in Section 2.7 hereof, the filings of claims under an Insurance
Policies covering the Loans by filing the appropriate notices related to claims,
including initial notices of loss, as well as claims with the respective
carriers or their authorized agents all in accordance with the terms of the
respective policies. Servicer shall use its best efforts to file such claims on
a timely basis after obtaining knowledge of the events giving rise to such
claims, subject to the servicing standard set forth in Section 2.9 hereof.
Servicer will utilize such notices, claim forms and claim procedures as are
required by the respective insurance carriers. Servicer shall not be required to
pay any premiums or, other than administering the filing of claims and
performing reporting requirements specified in the insurance policies in
connection with filing such claims, perform any obligations of the named insured
under the insurance policies, and shall not be required to institute any
litigation or proceeding or otherwise enforce the obligations of any insured
thereunder. Servicer shall not be responsible to Collection Agent with respect
to any Insurance Policies for any act or omission to act done in order to comply
with the requirements or satisfy any provisions of the insurance policies.
Notwithstanding anything else in this Section 2.17, Servicer shall have no
responsibility to monitor, report or track whether Insurance Policies are in
effect covering each Loan.
2.18. Processing of Information. Information with respect to each Loan
shall be recorded into Servicer's receivable management and accounting system.
2.19. Warranties and Representations with Respect to Compliance with Law
and Enforcement. Servicer warrants, represents and covenants that, in the event
that Servicer realizes upon any Loan, which realization may occur, without
limitation, by collection, repossession, sale or lawsuit, the methods utilized
by Servicer to realize upon such Receivable or to otherwise enforce any
provisions of the Receivable will be conducted in accordance with the provisions
of this Agreement and the standard of care set forth in Section 2.7.
2.20. Records. Servicer shall maintain or cause to be maintained such
books of account and other records as will enable MBIA to determine the status
of each Receivable.
2.21. Modifications. Except as provided in the Collection Policy or
otherwise in this Agreement, Servicer may not increase or reduce the amount of
any scheduled payments or extend or modify any term of any Loan.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1. Representations and Warranties of Servicer. Servicer hereby
represents, warrants and covenants to the Purchaser and MBIA that as of the date
of this Agreement and, for so long as Servicer shall continue to act as Servicer
hereunder:
(a) Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Arizona and is qualified to do
business in each other state where the failure to be so qualified would have a
materially adverse effect on its business or properties.
(b) All necessary corporate, regulatory or other similar action has
been taken to authorize and empower Servicer and the officers or representatives
acting on Servicer's behalf, and Servicer has full power and authority, to
execute, deliver and perform this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by Servicer and the performance and compliance with the terms of this Agreement
will not violate Servicer's articles of incorporation or bylaws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any material contract
or agreement to which Servicer is a party or which may be applicable to Servicer
or any of its assets, or create any adverse claim upon its assets.
(d) Servicer is duly licensed and qualified to perform the functions
specified herein, and this Agreement constitutes a valid, legal and binding
obligation of Servicer, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other laws affecting the enforcement of creditor's' rights
generally and to general principles of equity.
(e) Servicer is not in violation of, and the execution, delivery and
performance of this Agreement by Servicer will not constitute a violation with
respect to any order or decree of any court or any order, regulation or demand
of any federal, state, municipal or governmental agency, which violation might
have consequences that would materially and adversely affect the condition
(financial or other) or operations of Servicer or its properties or might have
consequences that would affect the performance of its duties hereunder.
(f) No proceeding of any kind, including but not limited to
litigation, arbitration, judicial or administrative, is pending or threatened
against or contemplated by Servicer which would under any circumstance have an
adverse effect on the execution, delivery, performance or enforceability of this
Agreement. There is no injunction, writ, restraining order or other order of any
nature to which Servicer is subject that would adversely affect Servicer's
operations, including the performance of its agreements and the transactions
contemplated hereby.
(g) No information or statement furnished in writing or report
delivered or which will be delivered to Purchaser, MBIA, Agent, Collection Agent
or Back-up Servicer by Servicer required under this Agreement contains or shall
contain any untrue statement of a material fact or omits a material fact
necessary to make the information, certificate, statement or report not
misleading; provided, that Servicer makes no representation or warranty with
respect to any information incorporated into or forming the basis for any
information, statement or report provided by Servicer that is provided to
Servicer by any other Person.
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<PAGE> 17
(h) Servicer has the knowledge, the experience and the systems,
financial and operational capacity available to timely perform each of its
obligations hereunder.
(i) Servicer has made or obtained all consents, filings or
governmental approvals required for the due execution, delivery and performance
of agreements and the servicing of the Loans.
(j) No event has occurred which would adversely affect Servicer's
ability to perform the agreements and transactions contemplated hereby.
(k) Servicer's principal place of business and chief executive
office are at the address specified in Section 5.3 and there have been no other
such locations during the four (4) month period preceding the date hereof.
(l) If payments with respect to the Loans are not to be remitted
directly to Servicer, each Obligor will be directed, and will be required, to
remit such payments to a lockbox or other similar account acceptable to MBIA.
(m) The Servicer has made no change to the Collection Policy except
as permitted by this Agreement.
3.2. Representations; Warranties and Additional Covenants of Collection
Agent. Collection Agent hereby represents and warrants to Servicer that:
(a) With respect to each Loan, Collection Agent has conveyed to
Servicer or will convey to Servicer, Loan Files other than the Excepted Loan
Files.
(b) At the time of transfer of each Loan File (other than the
Excepted Loan Files) to Servicer, all information contained in such Loan File
with respect to the Loan has been, or will be, so conveyed.
(c) The equipment and computer system purchased by Buyer from
Collection Agent pursuant to the Purchase Agreement is fully operational and
capable, without any material modification, of being utilized by Servicer to
service the Loans pursuant to this Agreement.
3.3. Survival of Representations and Warranties. The representations and
warranties set forth in this Article III are continuous and shall survive the
date of this Agreement. Upon discovery by Servicer or Collection Agent of a
breach of any of the foregoing representations and warranties, Servicer or
Collection Agent shall give prompt written notice to the breaching party and to
MBIA.
3.4. Affirmative Covenants of the Servicer. The Servicer shall, unless the
Purchaser and MBIA shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders and maintain its corporate
existence, rights, franchises, qualifications and privileges except to the
extent that the failure to so comply with such laws, rules and regulations or
the failure to so preserve and maintain such existence, rights, franchises and
privileges would not materially adversely affect the collectibility of the Loans
or the Related Security or the ability of the Servicer to perform its
obligations under this Agreement.
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(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification would
materially adversely affect (i) the interests of the Purchaser or MBIA
hereunder, or (ii) the ability of the Servicer to perform its obligations
hereunder.
(c) Audits. At any time and from time to time during regular
business hours (but subject to two Business Days notice at any time when no
Event of Servicing Termination Event exists), permit MBIA or their respective
agents or representatives or assigns, (i) to examine and make copies of the
abstracts from all books, records and documents (including, without limitation,
computer tapes and disks) in the possession or under the control of the Servicer
relating to Loans or Related Security, and (ii) to visit the offices and
properties of the Service for the purpose of examining such materials described
in clause (i) above, and to discuss matters relating to Loans and Related
Security or the Servicer's performance hereunder, under the Loans with any of
the officers or employees of the Servicer having knowledge of such matters.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Loans.
(e) Location of Records. Keep its chief executive office at the
location stated in Section 5.3, and keep the offices where it keeps its records
concerning the Loans, the Related Security and related Loan Files, at 600 North
Pearl Street, Dallas, Texas or, upon 30 days' prior written notice to the
Purchaser and MBIA, at such other locations specified in such notice.
(f) Collection Policy. Comply, at its expense (except as otherwise
provided in this Agreement), in all material respects with the Collection Policy
in regard to each Loan.
(g) Repurchase. Upon the repurchase of any Transferred Loans by the
Transferor pursuant to Sections 1.04(g)(ii), 1.04(g)(iii) or 3.01(c) of the
Master Transfer Agreement, the Servicer shall execute such assignments and other
documents as may be necessary to effect the retransfer to the Transferor of such
Transferred Loans and the Related Security with respect thereto.
(h) Back-Up Servicer. The Servicer shall cooperate with the Back-up
Servicer in connection with the obligations and rights of the Back-up Servicer
under the Back-up Servicing and Custodial Agreement.
(i) Dennis Adams. Servicer will not terminate the employment of
Dennis Adams for a period of one year from the date of this Agreement, other
than for cause. For purposes of the preceding sentence, "cause" shall mean (i)
Adams fails to perform his duties with Servicer, or engages in gross misconduct,
gross negligence or acts in bad faith in the performance of such duties; (ii)
Adams refuses or fails to follow any lawful direction of any of the officers or
directors of Servicer or any of his supervisors within the management of
Servicer, or violates any lawful rule or regulation established by Servicer from
time to time regarding the conduct of its business; (iii) Adams knowingly
violates any law, rule or regulation applicable to the business of Servicer; or
(iv) Adams is convicted of committing a felony or crime involving moral
turpitude or engages in conduct that is detrimental to Servicer or that could
reasonably be expected to have an adverse impact on the standing or reputation
of Adams or Servicer.
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(j) Deposits. All payments received by Servicer with respect to the
Loans will be received in trust by Servicer for the benefit of Collateral Agent
and MBIA and will be deposited into the Designated Deposit Accounts which are
not subject to any Lien in favor of any other Person.
(k) Collection Center. Servicer will not close or relocate its
Dallas, Texas collection center for a period of two years from the date of this
Agreement without the prior consent of MBIA, which consent shall not be
unreasonably withheld.
3.5. Reporting Requirements of the Servicer. The Servicer shall, unless
the Purchaser and MBIA shall otherwise consent in writing, furnish to the
Purchaser and MBIA:
(a) Other Information. Promptly, from time to time, such other
information, documents, records or reports respecting the Loans, the Related
Security or as the Purchaser or MBIA may from time to time otherwise reasonably
request in order to protect the Purchaser's and MBIA's interests under or as
contemplated by the Sale Agreement.
(b) Collection Policy. Promptly, all changes or amendments to the
Collection Policy.
(c) Annual Statement as to Compliance. On or before January 31st of
each year, an Annual Officer's Certificate (the "Annual Officers Certificate"),
dated effective as of December 31 of the preceding year, stating that (i) a
review of the activities of the Servicer during the preceding twelve (12) month
period (or such shorter period, as is applicable) and of its performance under
this Agreement during such period has been made under such officer's
supervision, and (ii) based on such review, Servicer has materially fulfilled
all its obligations under this Agreement throughout such period, or if there has
been a material default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof and
the remedies thereof being pursued.
(d) Required Reports. The reports as set forth on Exhibit J of this
Agreement (the "Required Reports").
(e) Litigation. As soon as possible and in any event within three
(3) Business Days of the Servicer's knowledge thereof, notice of (i) any
litigation, investigation or proceeding which could reasonably be expected to
materially impair the ability of the Servicer to perform its obligations under
this Agreement or have a material adverse effect on the collectibility of the
Purchased Loans, and (ii) any material adverse development in previously
disclosed litigation.
(f) Termination Events. As soon as possible and in any event with
three (3) Business Days after Servicer has knowledge of the occurrence of an
Event of Servicing Termination or each which, with the giving of notice or lapse
of time or both, would constitute an Event of Servicing Termination, a written
statement of the chief financial officer or chief accounting officer of the
Servicer setting forth the details of such event and the action the Servicer
proposes to take with respect thereto.
3.6. Negative Covenants of the Servicer. The Servicer shall not, without
the written consent of the Purchaser and MBIA:
(a) Sales, Liens, Etc. Except as otherwise provided herein, create
or suffer to exist (by operation of law or otherwise) or otherwise dispose of,
or create or suffer to exist any
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Adverse Claim upon or with respect to, any Loan or Collections or Related
Security, or upon or with respect to any collection account to which any
Collections of Loans are deposited, or assign any right to receive income in
respect thereof.
(b) Extension or Amendment of Loans. Except as provided in the
Collection Policy, extend, amend or otherwise modify the terms of any Loan.
(c) No Petition. So long as this Agreement is in effect, file any
involuntary petition or otherwise institute a bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other proceeding under any
federal or state bankruptcy or similar law against the Purchaser.
(d) Amendments to Collection Policy. Amend or modify the Collection
Policy.
ARTICLE IV
TERMINATION, REMEDIES AND INDEMNITY
4.1. Events of Servicing Termination. Any of the following acts or
occurrences shall constitute an "Event of Servicing Termination" under this
Agreement:
(a) any failure by Servicer to make any payment, transfer or deposit
to the Collection Account on the date such payment, transfer or deposit is
required to be made;
(b) any failure by Servicer to provide the Monthly Servicer Report,
the Weekly Delinquency Report, the Officer's Certificate, the Annual Officer's
Certificate or any of the Required Reports as and when due, and such failure has
not been cured within five (5) Business Days after the date of such failure;
(c) the Rolling Average Delinquency exceeds fifteen percent (15%);
(d) the Rolling Average Charged-Off Losses attributable to
Charged-Off Loans exceeds three and fifteen hundredths percent (3.15%) for any
month;
(e) the Total Collections for the period indicated do not equal or
exceed the amount in the total cash column for the same period and the Total
Cumulative Collections for the period indicated do not equal or exceed the
amount in the cumulative cash column for the same period set forth on Exhibit K
attached to this Agreement;
(f) except with the consent of MBIA, which shall not be unreasonably
withheld, there shall occur a "Change of Control of Servicer" or a "Change of
Control of UDC." For purposes of the preceding sentence, a "Change of Control of
Servicer" shall mean the occurrence of any event following which at least
fifty-one percent (51%) of the outstanding voting securities of Servicer shall
not at such time be beneficially owned by UDC or a direct or indirect subsidiary
of UDC. A "Change of Control of UDC" shall mean any one or more of the following
events:
(1) A change of control of UDC of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of the
Securities Exchange Act of 1934, as amended ("1934 Act");
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(2) A change of control of UDC through a transaction or series of
transactions, such that any person (as that term is used in Section
13 and 14(d)(2) of the 1934 Act), excluding affiliates of UDC as of
the date hereof, is or becomes the beneficial owner (as that term is
used in Section 13(d) of the 1934 Act), directly or indirectly, of
securities of UDC representing eighty percent (80%) or more of the
combined voting power of UDC's then outstanding securities;
(3) Any consolidation or merger of UDC in which UDC is not the
continuing or surviving company or pursuant to which stock would be
converted into cash, securities or other property, other than a
merger of UDC in which the holders of the shares of stock
immediately before the merger have at least fifty-one percent (51%)
of the ownership of common stock of the surviving company
immediately after the merger;
(4) The shareholders of UDC approve any plan or proposal for the
liquidation or dissolution of UDC; or
(5) Substantially all of the assets or UDC are sold or otherwise
transferred to parties that are not within a "controlled group of
corporations" (as defined in Section 1563 of the Internal Revenue
Code of 1986, as amended) in which UDC is a member.
Notwithstanding anything to the contrary above, this provision shall not apply
to any "Change of Control of Servicer" or "Change of Control of UDC" if the
person obtaining such control has a net worth equal to or greater that the net
worth of UDC as of the date of such Change of Control.
(g) any failure, other than as set forth in paragraphs (a) - (e)
above, on the part of Servicer to either duly observe or perform in any material
respect any other covenants or agreements of Servicer set forth in this
Agreement and such failure continues unremedied after the date which is the
earlier of ten (10) days from (i) the date of knowledge of such failure by
Servicer or (ii) the date of receipt by Servicer of written notice of such
failure by MBIA provided such time period may be extended in writing by MBIA, to
the extent Servicer is diligently pursuing a cure of such failure;
(h) any representation, warranty or certification made by Servicer
in this Agreement, or any certificate delivered pursuant to this Agreement,
shall prove to have been incorrect when made in any material respect;
(i) an involuntary case shall be commenced against UDC or Servicer
and the petition shall not be dismissed, stayed, bonded or discharged within
sixty (60) days after commencement of the case; or a court having jurisdiction
in the premises shall enter a decree or order for relief in respect of UDC or
the Servicer in an involuntary case, under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect; or any other similar relief
shall be granted under any applicable federal, state, local or foreign law; or
the board of directors of UDC or the Servicer adopts any resolution or otherwise
authorizes any action to approve any of the foregoing. A decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over UDC or the Servicer or over all or a substantial part of the assets
of UDC or the Servicer shall be entered; or an interim receiver, trustee or
other custodian of UDC or the Servicer or of all of a
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substantial part of the assets of UDC or the Servicer shall be appointed or a
warrant of attachment, execution or similar process against any substantial part
of the assets of UDC or the Servicer shall be issued and any such event shall
not be stayed, dismissed, bonded or discharged within sixty (60) days after
entry, appointment or issuance; or the board of directors of UDC or the Servicer
adopts any resolution or otherwise authorizes any action to approve any of the
foregoing;
(j) UDC or the Servicer shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order of relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee, or other custodian for all or a substantial part of its
assets; or UDC or the Servicer shall make any assignment for the benefit of
creditors or shall be unable or fail, or admit in writing its inability, to pay
its debts as such debts become due, or the board of directors of UDC or the
Servicer adopts any resolution or otherwise authorizes any action to approve any
of the foregoing;
(k) at any time, for any reason, any Designated Deposit Account is
subject to a Lien;
(l) there is a draw on the Surety Bond;
(m) there shall have occurred any event which materially adversely
affects the ability of the Servicer to perform its obligations hereunder;
(n) there is a material adverse change in the financial condition or
operations of the Servicer or UDC;
(o) Dennis Adams ceases to hold a senior position with the Servicer
having primary responsibility for collections of the Receivables during the
period from the date of this agreement to the first annual anniversary of this
Agreement, except in connection with his termination for cause. For purposes of
the preceding sentence, "cause" shall mean (i) Adams fails to perform his duties
with Servicer, or engages in gross misconduct, gross negligence or acts in bad
faith in the performance of such duties; (ii) Adams refuses or fails to follow
any lawful direction of any of the officers or directors of Servicer or any of
his supervisors within the management of Servicer, or violates any lawful rule
or regulation established by Servicer from time to time regarding the conduct of
its business; (iii) Adams knowingly violates any law, rule or regulation
applicable to the business of Servicer; or (iv) Adams is convicted of committing
a felony or crime involving moral turpitude or engages in conduct that is
detrimental to Servicer or that could reasonably be expected to have an adverse
impact on the standing or reputation of Adams or Servicer; or
(p) UDC or the Servicer shall fail to make any payment when due with
respect to any Indebtedness of UDC or the Servicer (other than an obligation
payable hereunder), or any breach, default or event of default shall occur, or
any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to permit the
holder or holders of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness
and such failure relates to the acceleration of an amount in excess of
$10,000,000, in the case of UDC and $2,000,000, in the case of the Servicer, and
such failure shall continue for a period of sixty (60) days following the
occurrence of such failure.
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4.2. Remedies.
(a) If an Event of Servicing Termination shall occur and be
continuing, unless such Event of Servicing Termination shall have been waived in
writing by MBIA pursuant to Section 4.4, or if MBIA and Agent elects to
terminate this Agreement pursuant to Section 2.10, then, by written notice to
Servicer (a "Termination Notice"), all of the rights of Servicer under this
Agreement shall be terminated in accordance with the provisions of such notice.
(b) After receipt by Servicer of a Termination Notice pursuant to
this Section 4.2, all authority and power of Servicer under this Agreement shall
terminate in accordance with the provisions of such notice. Servicer hereby
agrees to cooperate with Purchaser and Agent in effecting the termination of the
responsibilities and rights of Servicer to conduct servicing under this
Agreement.
(c) On and after the receipt by Servicer of a Termination Notice
pursuant to this Section 4.2, Servicer shall continue to perform all servicing
functions under this Agreement until the date specified in the Termination
Notice or otherwise specified by MBIA in writing. During such period, Servicer
shall continue to receive the Servicing Fee and reimbursement pursuant to the
terms of this Agreement. Any successor servicer shall be acceptable to MBIA
4.3. Accountability and Liability. Servicer shall be strictly accountable
and liable for all payments actually received by Servicer on the Loans. Servicer
shall be liable under this Agreement for (i) a breach in the performance of its
obligations under this Agreement, and (ii) for its own willful misconduct and
(iii) for Servicer's gross negligence. Servicer shall not be liable to
Collection Agent, MBIA, Agent or to any other Person for any action taken or for
refraining from the taking of any action in accordance with this Agreement or
for errors in judgment other than gross negligence or willful misconduct, or for
any Event of Servicing Termination contained in Section 4.1 (c), (d), (e), (f),
(i), (j), (l), (m), (n), (o) or (p). In no event shall Servicer be liable to
MBIA, Purchaser or the Agent for any consequential or punitive damages.
4.4. Waiver of Events of Servicing Default. MBIA may waive in writing any
Event of Servicing Termination by Servicer in the performance of its obligations
hereunder and its consequences. Upon any such waiver of an Event of Servicing
Termination, such termination event shall cease to exist, and any terminating
event arising therefrom shall be deemed to have been remedied for every purpose
of this Agreement. No such waiver shall extend to any subsequent or other Event
of Servicing Termination or impair any right consequent thereon except to the
extent expressly so waived.
4.5. Survival. The agreements in this Article IV shall survive the
termination of the Purchase Agreement and payment in full of the Loans.
4.6. Force Majeure. Notwithstanding anything herein to the contrary,
Servicer shall not be considered in default hereunder or have any liability to
any party for any failure to perform if such failure arises solely out of the
following causes beyond the control of Servicer, as the case may be: acts of God
or a public enemy, fire, flood or war.
4.7. Termination Other than an Event of Servicing Default. If MBIA or
Agent (with the prior written consent of MBIA) or their successors or assigns or
any future owner of the Loans
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terminates this Agreement or any of the rights of Servicer other than pursuant
to Section 4.2 or Section 2.10 above (any party terminating pursuant to this
Section shall be referred to herein as the "Terminating Party"), each
acknowledges that Servicer will suffer economic loss that is difficult to
calculate at this time and, as such, the Terminating Party (and MBIA if
terminated by Agent with the consent of MBIA) agrees that it shall pay to
Servicer as liquidated damages an amount equal to the Termination Penalty set
forth on Exhibit L hereto.
4.8. Effect of Termination. Upon termination of this Agreement, Servicer
shall, at the direction of MBIA, promptly deliver all Loan Files, electronic
files, and any related files and correspondence in its possession as are related
to the management of the Loans and the services provided hereunder to the Person
designated by MBIA. All reasonable expenses related to the foregoing shall be
borne by Servicer, except in connection with a termination under Section 2.10 or
4.7, in which case MBIA shall pay such reasonable expenses.
4.9. Limitation or Termination. Notwithstanding any provision in the
Purchase Agreement or the Master Transfer Agreement, including without
limitation the occurrence of an Event of Termination or Re-Liening Trigger Event
thereunder, or the exercise of any rights pursuant thereto, the Servicer shall
not be terminated and this Agreement shall not be terminated except (i) as
permitted pursuant to Sections 4.2 or 2.10 hereof, or (ii) upon payment to
Servicer of the Termination Penalty. Collection Agent shall have no right or
power to terminate this Agreement or to terminate the Servicer.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1. Amendments. This Agreement may only be amended by mutual written
consent of the parties hereto, and by Purchaser and Agent.
5.2. Waivers. The provisions of this Agreement may only be waived by
written consent of the parties hereto. The failure of any party at any time to
require performance by the other of any provision of this Agreement shall in no
way affect that party's right to enforce such provision, nor shall the waiver by
any party of any breach of any provision of this Agreement be deemed or held to
be a waiver of any further breach of the same provision or any other provision.
5.3. Notices.
(a) All notices, requests and other communications provided for
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided, that, any matter transmitted by
facsimile (i) shall be immediately confirmed by a telephone call to the
recipient, and (ii) shall be followed promptly by a hard copy original thereof)
and mailed, faxed, telecopied or delivered, to the address or facsimile number
set forth below; or, as to Servicer, Collection Agent, Purchaser, MBIA or Agent,
to such other address as shall be designated by such party in a written notice
to the other parties, and as directed to each other party, at such other address
as shall be designated by such party in a written notice to Servicer, Collection
Agent, Purchaser, MBIA or Agent.
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If to Servicer: CHAMPION ACCEPTANCE CORPORATION
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Attn: Steven Johnson
Facsimile No: (602) 852-6696
With a copy to: SNELL & WILMER L.L.P.
One Arizona Center
400 East Van Buren, 10th Floor
Phoenix, Arizona 85004-0001
Attn: Steve Pidgeon
Facsimile No.: (602) 382-6070
If to Collection KARS-YES FINANCIAL, INC.
Agent: P.O. Box 2923
Dallas, Texas 75221-2923
Attn: Harish Naran
Facsimile No: (214) 777-4750
If to Purchaser: KARS-YES RECEIVABLES INC.
P.O. Box 2923
Dallas, Texas 75221-2923
Attn: Harish Naran
Facsimile No: (214) 777-4750
If to MBIA: MBIA INSURANCE CORPORATION
113 King Street
Armonk, New York 10504
Attn: Insured Portfolio Management - SF
Facsimile No.: (914) 765-3810
Confirmation: (914) 273-4545
If to Agent: CITICORP NORTH AMERICA, INC.
450 Mamaroneck Avenue
Harrison, New York 10528
Attn: U.S. Securitization Dept.
Facsimile No.: (914) 899-7015
If to Back-up Norwest Bank Minnesota, National Association
Servicer: Sixth Street and Marquette Avenue
Minneapolis, Minnesota 65479-0069
Attn: Corporate Trust Department
Facsimile No.: (612) 667-9825
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery or faxed, be effective when delivered for
overnight (next day) delivery, transmitted by facsimile machine, respectively,
or if delivered, upon delivery.
5.4. Severability of Provisions. If one or more of the provisions of this
Agreement shall be held invalid for any reason, such provisions shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect the validity or enforceability of such
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remaining provisions. To the extent permitted by law, the parties hereto waive
any law which renders any provision of this Agreement prohibited or
unenforceable.
5.5. Rights Cumulative. All rights and remedies under this Agreement are
cumulative, and none is intended to be exclusive of another. No delay or
omission in insisting upon the strict observance or performance of any provision
of this Agreement, or in exercising any right or remedy, shall be construed as a
waiver or relinquishment of such provision, nor shall it impair such right or
remedy. Every right and remedy may be exercised from time to time and as often
as deemed expedient.
5.6. No Offset. Prior to the termination of this Agreement, the
obligations of Collection Agent under this Agreement shall not be subject to any
defense, counterclaim or right of offset which Collection Agent may have against
Servicer whether in respect of this Agreement, any Loan or otherwise.
5.7. Powers of Attorney. Collection Agent shall, from time to time,
provide to the employees of Servicer limited, revocable powers of attorney or
other such written authorizations as may be reasonably appropriate to enable
Servicer to perform its respective obligations under this Agreement; provided,
however, that Collection Agent shall not be required to provide such powers with
respect to any matter for which Collection Agent does not have authority to
perform itself.
5.8. Assignment and Binding Effect. This Agreement may be assigned only
with the written consent of the parties hereto; however, in the event of an
assignment, all provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto.
Notwithstanding the forgoing, Servicer may assign its rights and delegate its
obligations under this Agreement to any affiliate or subsidiary of Servicer,
provided that Servicer shall remain responsible for the performance of all
obligations of the Servicer under this Agreement.
5.9. Captions. The article, paragraph and other headings contained in this
Agreement are for reference purposes only, and shall not limit or otherwise
affect the meaning hereof.
5.10. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which counterparts shall be deemed to be an
original and such counterparts shall constitute but one and the same instrument.
One or more counterparts of this Agreement may be delivered via telecopies with
the intention that they shall have the same effect as an original executed
counterpart hereof, with the understanding that originals of such facsimile
signature will follow.
5.11. Governing Law. This Agreement shall be deemed entered into with and
shall be governed by and interpreted in accordance with the internal laws of the
State of Arizona, except to the extent that it is mandatory that the laws of
some other jurisdiction apply.
5.12. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon the parties hereto, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision contained herein.
5.13. Relationship of the Parties. The relationship of the parties to this
Agreement is that of independent contractors. Neither this Agreement nor any of
the activities contemplated hereby shall be deemed to create any partnership,
joint venture, agency or employer/employee relationship between Servicer and
Collection Agent.
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5.14. Incorporation by Reference. Each of the Exhibits to this Agreement,
including but not limited to the Collection Policy, are incorporated by
reference into this Agreement and shall be binding on the parties hereto to the
same extent as if said Exhibits were set forth in their entirety in this
Agreement. Notwithstanding anything else in this Agreement, to the extent there
is a conflict between this Agreement and the Collection Policy, this Agreement
shall control.
5.15. Servicer Obligations. In order to more fully assure the monetary
obligations and liability, consistent with Section 4.3, of Servicer to
Collection Agent, MBIA and Agent, UDC is executing this Agreement for the
limited purpose of this Section 5.15. In the event any monetary obligation of
Champion Acceptance Corporation is undisputed and is due and owing by Champion
Acceptance Corporation to Collection Agent, MBIA or Agent, UDC will, upon
written notice of same, make payment of such amount to Owner or Agent, as
directed in the notice, within thirty (30) days of receipt of the notice. Any
disputed amounts owing by Champion Acceptance Corporation shall be resolved in
accordance with Exhibit M hereto.
5.16. Undertaking by Servicer. Servicer agrees to obtain the
acknowledgment of General Electric Capital Corporation ("GECC") and of
SunAmerica Life Insurance Company ("SunAmerica") and Harris Bank and Trust
Company, as Trustee ("Harris"), that none of them have a Lien on the Designated
Deposit Accounts.
5.17. MBIA Payment. Any payment obligation of MBIA under Sections 4.7, 4.8
and 2.14 hereof, shall first be satisfied by retention from the Collections by
Servicer and, to the extent Servicer is unable, to so retain for any reason or
there are not sufficient Collections, then MBIA shall promptly pay such
obligations.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed as of the date first written above.
CHAMPION ACCEPTANCE CORPORATION, an
Arizona corporation
By: /s/ RUSSELL GRISANTI
-----------------------------------------
Name: Russell Grisanti
Title: President
"Servicer"
KARS-YES FINANCIAL, INC., a Delaware
corporation
By: /s/ HARISH NARAN
-----------------------------------------
Name: Harish Naran
Title: President
"Collection Agent"
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MBIA INSURANCE CORPORATION, a New York
stock insurance company
By: /s/ JOHN D. LOHRS
-----------------------------------------
Name: John D. Lohrs
Title: Vice President
"MBIA"
UDC executes this Agreement as to Section 5.15 only as of the date first
written above.
UGLY DUCKLING CORPORATION, a Delaware
corporation
By: /s/ GREGORY B. SULLIVAN
-----------------------------------------
Name: Gregory B. Sullivan
Title: President
CONSENTED AND AGREED:
YES RECEIVABLES INC.,
a Delaware corporation
By: /s/ HARISH NARAN
-------------------------------------
Name: Harish Naran
Title: Vice President
"Purchaser"
CITICORP NORTH AMERICA, INC.,
a Delaware corporation
By: /s/ BRADLEY I. DIETZ
-------------------------------------
Name: Bradley I. Dietz
Title: Vice President
"Agent"
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EXHIBITS
Exhibit A Collection Policy
Exhibit B Designated Depository Account
Exhibit C Loans
Exhibit D Monthly Servicer Report
Exhibit E Officers' Certificate
Exhibit F Weekly Delinquency Reports
Exhibit G Excepted Loan Files
Exhibit H Request for Release of Documents
Exhibit I Reimbursed Expenses
Exhibit J Required Reports
Exhibit K Cash Collection Schedule
Exhibit L Termination Penalty
Exhibit M Payment Reimbursement Resolution Policy
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