<PAGE> 1
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): December 15, 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)
<PAGE> 2
Item 5. Other Events
Matters Relating to First Merchants Acceptance Corporation
Purchase and Disposition of Bank Debt Claims. As previously disclosed,
in August of 1997, the Company purchased approximately 78% of the senior secured
bank debt (the "Senior Debt") of First Merchants Acceptance Corporation ("FMAC")
from a group of commercial banks at a discount of 10% of the principal balance
thereof. Approximately 80% of the purchase price for the purchase of such Senior
Debt was financed through a loan to the Company by the selling banks (the
"Selling Bank Loan"). On July 11, 1997, FMAC had filed for reorganization under
the Federal Bankruptcy Code in the United States District Court for the District
of Delaware (the "Bankruptcy Court"). Also as previously disclosed, in November
of 1997, the Company entered into an agreement to purchase the remaining 22% of
FMAC's Senior Debt, subject to certain conditions precedent. Pursuant to such
agreement, on December 18, 1997, the Company purchased such remaining debt at an
approximately 5% discount (the "Remaining Debt Purchase"). On December 15, 1997,
the Bankruptcy Court entered an order approving a transfer (the "Transfer")
whereby the agent for the holders of the Senior Debt (the "Agent") exchanged
this debt for the contracts which secured the debt (the "Owned Contracts").
Concurrently with the exchange, the Agent sold the Owned Contracts to a third
party purchaser (the "Contract Purchaser") for 86% of the principal balance of
certain eligible Owned Contracts (approximately $78.9 million) (the "Base
Price") plus a residual interest in the Owned Contracts. Of the sale proceeds to
the Company, approximately $60.4 million were used to make the Remaining Debt
Purchase and repay the Selling Bank Loan, approximately $15.5 million have been
added to working capital, and approximately $3.0 million were placed in a
holdback account for a period of sixty days. The Company expects to record a
gain of approximately $6.0 to $7.0 million ($3.6 to $4.2 million after income
taxes) from this transaction. The Company has guaranteed to the Contract
Purchaser a return on the Owned Contracts equal to the Base Price plus interest
at the rate of 10.35% per annum, subject to a maximum guarantee amount of $10
million. The Company has the option to purchase the Owned Contracts from the
Contract Purchaser at certain times upon certain events. Concurrently with the
Transfer, the Agent released the lien of the bank group on the remaining assets
of FMAC. The principal agreements pursuant to which the Agent sold the Owned
Contracts to the Contract Purchaser and evidencing the Company's guarantee to
the Contract Purchaser and its right to repurchase the Owned Contracts are filed
herewith as Exhibits 10.2 and 10.3 and the discussion herein of the terms of
such agreements is qualified in its entirety by reference to such Exhibits.
The Company, FMAC, and the Official Committee of Unsecured Creditors of
FMAC (the "Committee") have entered into that certain Binding Agreement to
Propose and Support Modified Plan Agreement (the "Letter Agreement") dated as of
December 15, 1997, which supersedes and replaces the previous letter agreement
dated as of November 14, 1997 previously reported by the Company. The Letter
Agreement is filed herewith as Exhibit 10.1. Some of the terms of the Letter
Agreement are summarized in the following paragraphs. This summary does not
purport to be complete and is qualified in its entirety by reference to Exhibit
10.1. The Letter Agreement embodies certain terms that will be included in a
proposed consensual chapter 11 plan of reorganization of FMAC (the "Proposed
Plan").
2
<PAGE> 3
Pursuant to the Letter Agreement, FMAC has agreed to (A) guarantee on a
non-recourse basis full and timely payment to the Agent and the Company of an
11% return on the Owned Contracts, plus an additional charge for servicing the
Owned Contracts (the "Owned Contracts Servicing Fee"), calculated on a monthly
basis, of the greater of 1/12 of 3-1/4% of the outstanding principal balance of
the Owned Contracts or $15.00 per Owned Contract, applied only to Owned
Contracts that are less than 120 days past due and for which the related vehicle
has not been repossessed (collectively, the "Secured Claim Recovery Amount"),
which guarantee would effectively support the Company's guarantee to the
Contract Purchaser with respect to the Owned Contracts, and (B) grant a lien
(the "Replacement Lien") on the stock of First Merchants Auto Receivables
Corporation ("FMARC") and First Merchants Auto Receivables Corporation II
("FMARC II"), the holders of the residual interests and certain equity
certificates (collectively, the "B Pieces") of the various securitized pools of
FMAC (the "Securitized Pools"), to secure the Secured Claim Recovery Amount and
the Modified UDC Fee (defined below under "DIP Facility"). In the event that the
Owned Contracts are not being serviced by the Company, a wholly-owned subsidiary
of the Company or any successor or assignee to be agreed upon in the Proposed
Plan, unless FMAC has consented to another servicer (an "Owned Loan Servicing
Change"), which consent will not be unreasonably withheld, the Secured Claim
Recovery Amount will be limited to $10 million. However, in the event that the
Company withdraws its support for or is unable or unwilling to consummate the
Proposed Plan for any reason, the Replacement Lien will be null and void and no
distribution on the B Pieces will cover any shortfalls on the Secured Claim
Recovery Amount. Conversely, in the event that FMAC or the Committee is unable
or unwilling to consummate the Proposed Plan, the Agent and Company will retain
the Replacement Lien.
Any recovery on the Owned Contracts in excess of the Secured Claim
Recovery Amount will be shared with the unsecured creditors of FMAC (or if the
unsecured creditors have been paid in full, the stockholders of FMAC) on the
basis of 82-1/2% for the benefit of the unsecured creditors and 17-1/2% for the
benefit of the Company (the "Excess Collections Split"). After payment in full
of the Secured Claim Recovery Amount, the DIP Facility (defined below), and the
Modified UDC Fee (defined below), any further distributions from the B Pieces
will be shared between the Company and the unsecured creditors of FMAC (or if
the unsecured creditors have been paid in full, the stockholders of FMAC) on the
same basis as the Excess Collections Split. In the event that an Owned Loan
Servicing Change occurs, the Excess Collections Split will change to 85% for the
benefit of the unsecured creditors (or if applicable, stockholders of FMAC) and
15% to the Company with respect to the B Pieces, and, subject to certain
adjustments, 100% for the benefit of the unsecured creditors (or if applicable,
stockholders of FMAC) and 0% to the Company with respect to the Owned Contracts.
The Company will not be entitled to receive any share of the Excess Collections
Split relating to a Securitized Pool for any period during which the Company, a
wholly-owned subsidiary of the Company or any successor or assignee to be agreed
upon in the Proposed Plan is not acting as servicer for such Securitized Pool.
The Letter Agreement contemplates that, at the option of the Company,
subject to certain conditions precedent, the Company may distribute shares of
common stock of the Company (the "Distribution Shares") to FMAC or at the
request of FMAC and pursuant to its instructions directly
3
<PAGE> 4
to the unsecured creditors or equity holders of FMAC, in lieu of FMAC's right to
receive all or a portion of distributions under the Excess Collections Split
(including both recoveries under the Excess Collections Split from the Owned
Contracts and the B Pieces) in cash. If the Company were to exercise this
option, at such time in the future as distributions under the Excess Collections
Split may begin, the Company would estimate FMAC's share of such distributions
and issue, one time only, the Distribution Shares in advance of distributing
such distributions to FMAC. The aggregate value of the distribution would be
determined by multiplying the Distribution Shares by 98% of the average of the
closing prices for the previous 10 trading days of the Company common stock on
Nasdaq or such other market on which such stock may be traded (the "Stock Option
Value"). After issuance and delivery of the Distribution Shares, the Company
will be entitled to receive FMAC's share of cash distributions under the Excess
Collections Split (including both recoveries under the Excess Collections Split
from the Owned Contract and the B Pieces) from and after the exercise date until
the Company has received cash distributions equal to the Stock Option Value.
This will be in addition to the Company's right to receive its share under the
Excess Collections Split. The Company will not be entitled to exercise the Stock
Option unless the value of its common stock on the exercise date and the closing
price for its common stock on each day during the previous ten trading days
shall be at least $8.00 per share and certain other conditions are satisfied.
DIP Facility. At the commencement of the Bankruptcy Case, the Company
agreed to provide up to $10 million of "debtor-in-possession" financing (the
"DIP Facility"), approximately $9.5 million of which was outstanding as of
December 15, 1997. Borrowings under the DIP Facility originally were to mature
on February 28, 1998 and accrue interest at the rate of 12% per annum. The DIP
Facility was originally secured by super priority liens on all of FMAC's assets
then existing or thereafter acquired. The Letter Agreement contemplates that the
DIP Facility will be amended (i) to provide for additional advances to pay
administrative and post-plan confirmation operating expenses of FMAC, provided
that total advances under the DIP Facility may not exceed $16.5 million, (ii) to
be secured by certain retained assets of FMAC, including certain expected tax
refunds, (iii) to reduce the interest rate on borrowings outstanding under the
DIP Facility (effective on the date of confirmation of the plan of
reorganization) to 10% per annum; and (iv) to waive the maturity date of the DIP
Facility. FMAC believes that it is entitled to certain tax refunds, and the
first $10 million of tax refunds of FMAC will be used to pay down the DIP
Facility and will permanently reduce the amount of the DIP Facility. Thereafter,
the DIP Facility will be permanently paid down from distributions on the B
Pieces, after payment of the Secured Claim Recovery Amount. Payments made from
other sources on the DIP Facility will not permanently reduce the amount thereof
and FMAC would be allowed to reborrow such amounts under the facility.
The Letter Agreement contemplates that FMAC will pay the Company on a
non-recourse basis a fee of $450,000 payable prior to any payments pursuant to
the Excess Collections Split solely from collections on the B Pieces and secured
by a pledge of the stock of FMARC and FMARC II, subordinate only to the DIP
Facility, the Secured Claim Recovery Amount and prior pledges of the FMARC II
stock (the "Modified UDC Fee"). Pursuant to the Letter Agreement, the Company
will also be entitled to reimbursement of out-of-pocket expenses related to the
DIP Facility not to exceed $100,000 on the effective date of the Proposed Plan.
4
<PAGE> 5
Servicing. The Company has entered into a Servicing Agreement dated
December 18, 1998 (the "Owned Contracts Servicing Agreement") with the Contract
Purchaser, pursuant to which the Owned Contracts will be serviced by the Company
in the event that FMAC ceases to service the Owned Contracts, which is expected
to occur upon confirmation of the Proposed Plan. The Company will receive a
servicing fee under the Owned Contracts Servicing Agreement. The Owned Contracts
Servicing Agreement is filed herewith as Exhibit 10.4 and the description of the
Owned Contracts Servicing Agreement contained herein is qualified in its
entirety by reference to such Exhibit.
It is contemplated that the Company will enter into agreements pursuant
to which it will acquire, following confirmation of the Proposed Plan, certain
servicing rights of FMAC in the Securitized Pools. The Company would also
acquire the servicing platform to allow servicing of such receivables.
Additional Matters. Under the Letter Agreement, upon confirmation of
the Proposed Plan, the Company will contribute to FMAC the shares of FMAC common
stock which it owns (approximately 2 1/2% of the outstanding common stock of
FMAC) in consideration for the acquisition of the servicing platform; will issue
Warrants to purchase up to 325,000 shares of Company common stock (the
"Warrants") to FMAC for the benefit of the unsecured creditors of FMAC or, in
certain cases, its equity holders; and will waive certain fees to which it may
otherwise be entitled.
Risks Relating to FMAC Transaction. There can be no assurance that the
Proposed Plan as described herein will be approved, or that, if approved, the
servicing rights and interests in the Excess Collections Split to be obtained by
the Company will prove valuable or profitable. The Company's obligations under
the Letter Agreement and under the agreements with the Contract Purchaser are
not conditioned upon the profit ultimately achieved by the Company. Further, the
Warrants, shares of common stock underlying the Warrants, and Distribution
Shares will further dilute the Company's equity and could adversely affect the
market and price for the common stock. The Company has guaranteed a 10.35%
return on the Owned Contracts acquired from FMAC and sold to the Contract
Purchaser, subject to a maximum guarantee of $10.0 million. Although FMAC has
agreed to provide a similar guarantee to the Company payable out of the B
Pieces, the guarantee would be subject to certain conditions and, even if FMAC
makes such guarantee, there can be no assurance that there will be sufficient
distributions from the B Pieces to support the guarantee. The Company's
debtor-in-possession loans to FMAC and certain fees payable to the Company would
be payable out of certain expected tax refunds of FMAC and/or distributions from
the B Pieces and there can be no assurance that these loans or fees will be
paid. Payments pursuant to the B Pieces may not be made until the senior
certificates in the securitization transactions are paid in full. In addition,
the Company's ability to obtain certain servicing rights and the related
servicing platform of FMAC is subject to negotiation between the parties and to
consents of certain parties that have not yet been obtained. Moreover, certain
benefits to the Company in the transaction would be contingent on the Company
or, in certain cases, a wholly-owned subsidiary of the Company servicing the
Owned Contracts and/or certain other receivables currently serviced by FMAC. In
the event that the Company, its subsidiary, or an approved assignee does not
obtain or retain such
5
<PAGE> 6
servicing rights, the Company could be materially adversely affected. In
addition, ALLTEL Financial Information Services, Inc. ("Alltel") is the licensor
of certain software utilized by FMAC in its servicing platform. FMAC is
currently in default under the licensing agreement for such software and Alltel
claims that the cost to cure such default is approximately $525,000. At such
time as the Company takes over servicing of receivables currently serviced by
FMAC and obtains the FMAC servicing platform, the Company would be required to
enter into a new licensing agreement or obtain an assignment of the existing
licensing agreement with Alltel. In the event that for any reason the Alltel
software cannot be utilized to service the receivables, FMAC or the Company may
be required to convert to new servicing and collections software. This could
result in integration and implementation issues and could disrupt and delay
certain servicing functions that may have a material adverse effect on the
Company or its ability to effectively service the Owned Contracts and
Securitized Pools of FMAC. Collections under the Owned Contracts and Securitized
Pools could also be materially adversely affected. Other contracts may also have
to be assigned and necessary consents obtained in connection with the transfer
of servicing functions to the Company in order to maintain uninterrupted
servicing on the FMAC receivables.
Stock Repurchase Loan Program. The Board of Directors of the Company
has authorized loans of up to $1 million in total to be made to directors and
certain senior officers of the Company at their discretion to facilitate the
purchase by such directors and officers of common stock of the Company. Any
loans made are unsecured but fully recourse to the borrowing directors or
officers. During November 1997, senior officers purchased 50,000 shares of
Company common stock under this program and the Company advanced $500,000 to the
senior officers for these purchases. Director and officer purchases under this
program are independent of and in addition to the Company's previously announced
repurchase program under which the Board of Directors authorized the purchase
by the Company of up to one million shares of Company common stock through
December 31, 1998.
This Form 8-K includes statements that may constitute forward-looking
statements, usually containing the words "believe," "estimate," "project,"
"expect" or similar expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
By making these forward-looking statements, the Company undertakes no obligation
to update these statements for revisions or changes after the date of this
release. Investors should also consider factors that would cause or contribute
to such differences, which include, but are not limited to, factors detailed in
this Form 8-K under the heading "Matters Relating to First Merchants Acceptance
Corporation - Risks Relating to FMAC Transaction," in the section entitled "Risk
Factors" in the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on December 22, 1997, and in the sections
entitled "Factors That May Affect Future Results and Financial Condition" and
"Factors That May Affect Future Stock Performance" and elsewhere in the
Company's most recent reports on Form 10-K/A and Form 10-Q, and in the
Company's other Securities and Exchange Commission filings.
6
<PAGE> 7
(C) Exhibits.
Exhibit No. Description
10.1 Binding Agreement To Propose and Support Modified Plan
Agreement, dated December 15, 1997, by and among First
Merchants Acceptance Corporation, The Official Committee of
Unsecured Creditors of First Merchants Acceptance Corporation,
and Ugly Duckling Corporation.
10.2 Purchase Agreement dated as of December 18, 1997 among the
Company, the Agent and the Contract Purchaser.
10.3 Guaranty dated as of December 18, 1997 by the Company to the
Contract Purchaser.
10.4 Servicing Agreement dated as of December 18, 1997 between the
Company and the Contract Purchaser.
7
<PAGE> 8
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: December 31, 1997 By: /s/ Steven P. Johnson
---------------------------------------
Steven P. Johnson, Senior Vice President
and General Counsel
8
<PAGE> 9
EXHIBIT INDEX
Exhibit No. Description
10.1 Binding Agreement To Propose and Support Modified Plan
Agreement, dated December 15, 1997, by and among First
Merchants Acceptance Corporation, The Official Committee of
Unsecured Creditors of First Merchants Acceptance Corporation,
and Ugly Duckling Corporation.
10.2 Purchase Agreement dated as of December 18, 1997 among the
Company, the Agent and the Contract Purchaser.
10.3 Guaranty dated as of December 18, 1997 by the Company to the
Contract Purchaser.
10.4 Servicing Agreement dated as of December 18, 1997 between the
Company and the Contract Purchaser.
<PAGE> 1
Exhibit 10.1
BINDING AGREEMENT TO PROPOSE AND SUPPORT
MODIFIED PLAN AGREEMENT
This Agreement is made as of this 15th day of December, 1997, among the
undersigned parties.
Recitals
WHEREAS, First Merchants Acceptance Corporation (the "Debtor"), Ugly
Duckling Corporation ("UDC") and the Official Committee of Unsecured Creditors
of First Merchants Acceptance Corporation (the "Committee") have engaged in
intensive discussions regarding a possible consensual chapter 11 plan of the
Debtor.
WHEREAS, the basis for that discussion is that certain agreement
reached between UDC and the Debtor, as embodied in that letter from Christopher
Bayley to Bob Richards and Laura Jones dated October 22, 1997, for a chapter 11
plan ("Plan Agreement").
WHEREAS, the Committee has expressed an interest in joining the Debtor
and UDC in such proposed chapter 11 plan, and actively supporting such plan, if
UDC and the Debtor would agree to certain modifications.
WHEREAS, both UDC and the Debtor have generally agreed, subject to
execution of a binding agreement, to make certain modifications to their Plan
Agreement, subject to the express agreement of the Committee to support such
modified Plan Agreement, the terms of which are set forth in this letter
("Modified Plan Agreement");
THEREFORE, the Committee, the Debtor and UDC agree that any such
Modified Plan Agreement must first be memorialized in a formal written agreement
prior to any agreement by the Debtor and/or UDC to deviate from the existing
Plan Agreement. Consequently, the following terms and conditions are acceptable
to both UDC and the Debtor as a modification of the existing Plan Agreement.
Signatures by the Chairperson of the Committee to this Modified Plan Agreement
will be accepted by the Debtor and UDC as a binding commitment and agreement by
the Committee to support confirmation of a chapter 11 plan containing terms
consistent with the terms of this Modified Plan Agreement ("Chapter 11 Plan"),
except as otherwise provided in paragraphs 16, 17, 20 and 21 of this Modified
Plan Agreement. Absent such binding agreement by the Committee, UDC and the
Debtor reject such Modified Plan Agreement, and reserve the right to file and
seek approval of the Plan Agreement as previously disclosed to the Committee.
OPERATIVE TERMS
1. Sale of the Bank Group Collateral. An agreed order to approve a sale
pursuant to 11 U.S.C. Section 363 (the "Sale") of the Debtor's owned retail
installment automobile loan contracts ("Contracts"), whether current, delinquent
or charged off, all of Debtor's rights in the collateral securing said
Contracts, and all related repossessed vehicles (collectively
<PAGE> 2
hereinafter referred to as the "Owned Loans" provided, however, that as used
herein, Owned Loans shall not include the Contracts and related vehicles
("Greenwich Collateral") pledged to Greenwich Financial Products, Inc.
("Greenwich")),consistent with the terms of this Modified Plan Agreement will be
submitted to the Court for entry. The date of entry of such order will be
referred to herein as the "Sale Date". If the pending objection of the U.S.
Trustee to the Sale cannot be consensually resolved, the Debtor will promptly
request a hearing to address such objection and approve the Sale. UDC, as
Majority Lender (as defined in that certain "Fourth Amended and Restated Loan
and Security Agreement" dated as of February 28, 1996 (the "Bank Group
Facility") by and among the Debtor and the Bank Group (as defined in the Bank
Group Facility)), will cause LaSalle National Bank, as Agent (the "Agent") to
credit bid the entire amount of the Bank Group's indebtedness, including, but
not limited to any and all outstanding principal, accrued and unpaid interest
(including default interest from and after July 11, 1997 (the "Petition Date")
through and including the Sale Date), and an agreed amount of $150,000.00 of
attorneys' fees, costs and expenses of the Bank Group incurred through August
21, 1997 (the "Acquisition Date") and stipulated as allowable under 11 U.S.C.
Section 506(b) plus all post-Acquisition Date attorneys' fees, costs and
expenses of the Bank Group allowable under 11 U.S.C. Section 506(b)
(collectively, the "Purchase Price"), for the Owned Loans at the Sale, and the
Agent, on behalf of the Bank Group will acquire the Owned Loans in exchange for
the credit bid of the Purchase Price. Post-Acquisition Date attorneys fees,
costs and expenses of the Bank Group will be assumed to be $450,000 for purposes
of determining the Purchase Price, but subject to adjustment under paragraph 8
hereof if there are objections to such fees by the Debtor, the Committee or any
other party-in-interest after review of detailed supporting invoices. No other
assets of the Debtor will be sold at the Sale, and all other assets of the
Debtor, including, but not limited to, the Debtor's uncollected state and
federal income tax refunds for 1996 and prior years (the "Tax Refunds") and
other tax attributes, the Greenwich Collateral and the Debtor's furniture,
fixtures, equipment, general intangibles and causes of action (collectively, the
"Retained Property") will remain the property of the Debtor, the disposition of
which will be effected pursuant to the terms of the Chapter 11 Plan. In
consideration of the credit bid equal to the Purchase Price and the Debtor's
retention of the Retained Property, the Agent will be granted the Replacement
Lien (defined below) to secure the Secured Claim Recovery Amount (defined
below). The Debtor will treat the Sale as a financing for tax purposes.
2. Release of Lien on and Application of Tax Refunds to Payment of DIP
Facility, Assessment of Modified Financing and Overadvance Fee and
Granting of Additional or Replacement Lien to Bank Group or UDC.
A. Release of Lien and Application of Tax Refunds. Upon entry
of a court order, pursuant to 11 U.S.C. Section 363, approving the Sale,
the Bank Group, through the Agent, will release its pre-petition lien on
the Retained Property. In exchange, the Chapter 11 Plan will reaffirm the
lien on the Retained Property, including the Tax Refunds, in favor of UDC
as collateral for repayment of any and all outstanding amounts due UDC
pursuant to that certain "Final Order (1) Authorizing Debtor in
Possession Financing; (2) Granting Liens and Superpriority Administrative
Claims; (3) Modifying the Automatic Stay; (4) Specifying Use of Cash
Collateral; and (5)
<PAGE> 3
Granting Adequate Protection Therefor Pursuant to Sections 361 and 363
of the Bankruptcy Code" dated August 28, 1997 including any amendment
providing for overadvances under the Overadvance Cap ("DIP Facility").
The Debtor covenants and agrees to utilize all of the Tax Refunds,
proceeds from sales of the retained furniture, fixtures and equipment
(but excluding the furniture, fixtures or equipment which are part of
the Debtors' servicing platform) and excess collections on the
Greenwich Collateral for no other purpose but toward the repayment of
the outstanding amount due under the DIP Facility at the time the Tax
Refunds are collected, unless and until such amount is fully paid.
Except as set forth in the previous sentence, the Debtor may, but shall
have no obligations to, apply proceeds of any other Retained Property
to pay down the DIP Facility. The first $10 million of Tax Refunds, as
well as all monies received from or on account of the B Pieces, as
defined below, shall be applied as a permanent paydown of the DIP
Facility but any additional payments on the DIP Facility, whether by
payment of excess Tax Refunds above $10 million, proceeds from sales of
the retained furniture, fixtures and equipment, excess collections on
the Greenwich Collateral or voluntary prepayments from other sources
such as the Debtor's causes of action or proceeds from the UDC Warrants
(as hereinafter defined), shall not result in a permanent paydown of
the DIP Facility, and the Debtor will be allowed to reborrow under the
DIP Facility to the extent provided in the amended DIP Facility
documents.
B. Modified Financing and Overadvance Cap Fee. In
consideration of UDC's agreement to (i) waive the maturity date of the
DIP Facility, if necessary, and (ii) extend the Overadvance Cap (as
defined below), the Committee and the Debtor stipulate and agree that
the Debtor will pay UDC on a non-recourse basis a $450,000.00 flat fee
(the "Modified UDC Fee"), payable prior to initiation of the Excess
Collections Split (as defined below) solely from collections from the B
Pieces and secured by a pledge of the stock of First Merchant Auto
Receivables Corporation ("FMARC") and First Merchants Auto Receivables
Corporation II ("FMARC II") subordinate only to the DIP Facility and
the Secured Claim Recovery Amount and prior pledges of the FMARC II
stock.
C. Grant of Replacement or Additional Lien to UDC. In exchange
for the Bank Group's release of its liens on the Retained Property, the
Debtor will (i) guarantee on a non-recourse basis full and timely
payment to the Bank Group (or its successor and assigns) of the Secured
Claim Recovery Amount (as defined below) and (ii) grant the Agent for
the Bank Group a pledge (the "Replacement Lien") of the stock of FMARC
and FMARC II, the holders of the residual interests and certain equity
certificates (collectively herein referred to as the "B Pieces") of the
Debtor's various securitized loan pools (the "Securitized Pools"). The
Replacement Lien will secure payment of (a) any shortfall between (i)
collections and proceeds of the Owned Loans and (ii) the Purchase Price
plus interest at the rate of 11% from and after the Sale Date until
paid in full, plus an additional charge (the "Owned Loan Servicing
Fee"), calculated on a monthly basis, of the greater of 1/12 of 3-1/4%
of the outstanding principal balance of the Owned Loans, or $15.00 per
Contract, applied only to
<PAGE> 4
Contracts which are less than 120 days past due at the end of such
month and for which the related vehicle has not been repossessed
(collectively, the "Secured Claim Recovery Amount") and (b) the
Modified UDC Fee. In the event that UDC withdraws its support for, or
is unable or unwilling to consummate the Chapter 11 Plan for any
reason, the Replacement Lien will be null and void and, notwithstanding
any other provisions of this Modified Plan Agreement, neither UDC nor
the Bank Group (nor any successor thereto or assignee thereof) will be
entitled to any distributions from the B Pieces to cover any shortfalls
on the Secured Claim Recovery Amount and the guaranty contemplated in
paragraph 2 hereof shall be null and void. In the event that the Owned
Loans are not being serviced by UDC or a wholly-owned subsidiary of UDC
or any successor or assignee to be agreed upon in the Chapter 11 Plan
without the prior written consent of the Debtor (an "Owned Loan
Servicing Change"), which consent will not be unreasonably withheld,
the Secured Claim Recovery Amount (including payments made on behalf of
the Secured Claim Recovery Amount from the B Pieces prior to the Owned
Loan Servicing Change), will be limited to $10 million (the "Owned Loan
Servicing Change Cap Amount"). In all other circumstances, including
whether no plan is confirmed or a competing plan not involving UDC is
confirmed, the Agent will retain the Replacement Lien. UDC, the Debtor
and the Committee further acknowledge and agree, if, and as long as,
UDC services the Owned Loans, that the Owned Loan Servicing Fee will be
payable to UDC rather than the Bank Group and will be payable solely
from the proceeds of the Owned Loans and the Replacement Lien.
3. Servicing of Bank Group Collateral, Greenwich Collateral and
Securitized Pools. Upon completion of the Sale, UDC will assist in all
servicing of the Owned Loans, the Greenwich Collateral and the
Securitized Pools. Prior to Plan Confirmation, UDC and the Agent will
contract with the Debtor to allow the Debtor to service the Owned Loans
with supervision or consultation by UDC. In the event of an Owned
Loan Servicing Change, the Secured Claim Recovery Amount will be
limited to the Owned Loan Servicing Change Cap Amount. As to the
Greenwich Collateral and the Securitized Pools, the Debtor will
continue to service with the management, supervision, or consultation
of UDC until confirmation of the Chapter 11 Plan ("Plan Confirmation").
Upon Plan Confirmation, UDC will acquire that portion of the Retained
Property and only that portion of the Retained Property comprising the
Debtor's servicing platform to allow UDC (subject to approval by
Financial Security Assurance Inc. ("FSA") and such other consents as
may be required by the applicable agreements) to continue to service
the Owned Loans, the Greenwich Collateral and the Securitized Pools in
consideration of the terms of this Modified Plan Agreement. Wherever in
paragraphs 3 and 4 of this Modified Plan Agreement there are references
to servicing of the Securitized Pools, such references shall not be
deemed to reference the 1997-2 securitized loan pool unless the Debtor
or UDC becomes the servicer of that pool.
4. Increased Securitized Pools Servicing Fee and Greenwich Collateral
Servicing
<PAGE> 5
Fee. Subject to FSA approval (or any other consents required pursuant to
governing documents), UDC and the Debtor will require immediate adjustment of
the base percentage servicing fee to the greater of 1/12 of 3 1/4%, or $15.00
per Contract, calculated on a monthly basis, on the outstanding principal
balance of the Securitized Pools applied only to Contracts which are less than
120 days past due consistent with current practice, and for which the related
vehicle has not been repossessed plus all other amounts payable or reimbursable
to the servicer pursuant to the servicing agreements for the Securitized Pools,
including without limitation the reimbursement of fees, costs and expenses
(including recovery of third party recovery expenses), and all late fees and
charges payable by any obligor under any Contracts in the Securtized Pools, all
as set forth in the servicing agreement (the "Securitized Pools Servicing Fee")
for servicing and collection of the Securitized Pools. Prior to Plan
Confirmation, and so long as the Debtor is servicing such pools, the Securitized
Pools Servicing Fee will be received by the Debtor. After Plan Confirmation, the
Securitized Pools Servicing Fee will be received by UDC as long as UDC is
servicing the applicable Securitized Pool. UDC acknowledges that the pre-Plan
Confirmation and post-Plan Confirmation management and/or servicing agreements
between UDC and the Debtor must be acceptable to the Committee to ensure optimal
collections for the benefit of all parties.
5. Excess Collections Contribution Agreement. As to collections and
proceeds of the Owned Loans, once either the Bank Group (or General
Electric Capital Corporation ("GE") as its assignee) collects in the
aggregate the Secured Claim Recovery Amount, UDC will share with the
Debtor for the benefit of Debtor's unsecured creditors (and if
applicable in the event such unsecured creditors have been paid in
full, stockholders) 82 1/2%-17 1/2% (82 1/2% for the benefit of the
unsecured creditors (and if applicable, stockholders), and 17 1/2% to
UDC) on all excess collections and proceeds received from the Owned
Loans ("Excess Collections Split"). UDC's obligation pursuant to the
Excess Collections Split shall be absolute and shall not be effected by
any subsequent transfer or sale of the Owned Loans to GE or any other
party or the transfer of servicing rights on the Owned Loans or
Securitized Pools. In the event of an Owned Loan Servicing Change, the
Excess Collections Split shall change to 85% for the benefit of the
unsecured creditors (and if applicable, stockholders of the Debtor) and
15% to UDC.
The distributions to the Debtor from the B Pieces (to which the Debtor
is entitled directly or by dividend or other transfer from FMARC and
FMARC II) will be utilized to first retire the Secured Claim Recovery
Amount, to the extent that the Secured Claim Recovery Amount remains
outstanding. Any excess distributions to the Debtor from the B Pieces
will be used to satisfy in full any remaining indebtedness to UDC under
the DIP Facility (including any advance within the Overadvance Cap, as
defined below), if any (after application of the Tax Refunds). After
payment of the Secured Claim Recovery Amount and the DIP Facility, the
next proceeds from the B Pieces will be utilized to satisfy the
Modified UDC Fee in full. After application of the distributions to the
Debtor from the B Pieces as set forth above, UDC will share with the
Debtor's unsecured creditors (and if applicable,
<PAGE> 6
stockholders) all remaining proceeds of the B Pieces on the same basis
as the Excess Collections Split.
At the option of UDC, UDC may distribute shares of UDC common stock to
the Debtor or if the Debtor so requests at the Debtor's expense and
solely in accordance with the Debtor's instructions (and UDC and its
officers, directors, employees or agents shall have no liability to any
party in connection with any such distribution unless UDC acted with
gross negligence or wilful misconduct), direct distribution to the
Debtor's unsecured creditors (and if applicable, stockholders) in lieu
of the Debtor's right to retain or receive a portion of the Debtors'
82-1/2% share of the Excess Collections Split in cash on the B Pieces
and the Owned Loans (the "Stock Option"). If UDC decides to exercise
the Stock Option, UDC must give the Debtor at least 15 days' advance
written notice (the "Option Notice") (and make a public announcement on
the same date as the giving of the notice) of the date on which UDC
will exercise the Stock Option (the "Exercise Date") and the number of
shares of UDC common stock (the "Stock Option Shares") that UDC will
issue to the Debtor on the Exercise Date. UDC may exercise the Stock
Option one time only, with exercise being the actual delivery of the
Stock Option Shares. Revocation of the Option Notice shall not be
deemed to be an exercise of the Stock Option by UDC. On the Exercise
Date, the aggregate value of the Stock Option Shares shall be
determined by multiplying the Stock Option Shares by 98% of the average
of the closing prices for the previous 10 trading days of UDC common
stock on the NASDAQ National Market or such other market as such stock
may be traded (the "Stock Option Value"). In the event that UDC
exercises the Stock Option, and delivers the Stock Option Shares to the
Debtor, UDC shall be entitled to receive and retain the Debtor's
82-1/2% share of cash distributions on the B Pieces and the Owned Loans
under the Excess Collections Split (the "Debtor's Split") from and
after the Exercise Date until UDC has received or retained cash
distributions thereon equal to the Stock Option Value. This is in
addition to UDC's right to receive its 17-1/2% share of the B Pieces
and the Owned Loans. Once UDC has received cash distributions equal to
the Stock Option Value (without regard to any post-issuance change in
the market value of the issued Stock Option Shares), the Debtor shall
be entitled to and shall retain the remaining portion of the Debtor's
Split, if any, in excess of the Stock Option Value. In no event shall
UDC be entitled to receive any portion of the Debtor's Split in excess
of the Stock Option Value, nor shall UDC be entitled to recover any
portion of the Stock Option Value from any source other than the
Debtor's Split. UDC shall not be entitled to exercise the Stock Option
unless and until (i) the value of UDC common stock on the Exercise Date
and the closing price for UDC common stock on each day during the
previous ten trading days shall be at least $8.00 per share, (ii) UDC
shall have caused (at UDC's sole cost and expense) the Stock Option
Shares to be registered under the Securities Act of 1933, as amended,
unrestricted and fully transferable and shall have taken all steps
necessary to allow the Debtor to distribute the Stock Option Shares to
the Debtor's unsecured creditors, and if applicable, shareholders, and
(iii) UDC shall not have purchased any of its common stock (except upon
the exercise of previously issued and outstanding options,
<PAGE> 7
warrants, stock appreciation rights or other rights) or announced any
stock repurchase programs from and after the delivery of the Option
Notice to the Debtor through the Exercise Date. In the event that UDC
exercises the Stock Option, the Debtor shall distribute the Stock
Option Shares directly to its unsecured creditors (until they have been
paid in full under the Plan, at which point, any remaining Stock Option
Shares after such payment in full shall be distributed to the Debtor's
shareholders under the Chapter 11 Plan).
The Chapter 11 Plan will also provide for any and all collections and
proceeds received on the Greenwich Collateral, after payment of the
debt to Greenwich, to be contributed first toward repayment of the DIP
Facility, then to the Debtor's post-Plan Confirmation operating
expenses.
6. Advance Under the DIP Facility to Pay Administrative and Post-
Confirmation Operating Expenses. UDC agrees to allow the Debtor to
utilize the DIP Facility to pay all administrative expenses required to
be paid under the Chapter 11 Plan (including professional fees charged
to the bankruptcy estate), plus post-Plan Confirmation operating
expenses of the Debtor. Promptly after execution of this Modified Plan
Agreement, UDC hereby agrees to amend the DIP Facility to provide for
additional advances under the DIP Facility (in excess of the current
limit of $10,000,000 on such advances) to pay administrative and
post-Plan Confirmation operating expenses of the Debtor; provided,
however, that the total amount of the advances under the DIP Facility
shall not exceed $16,500,000.00 (the "Overadvance Cap"). Included in
such administrative expenses to be paid on the effective date of the
Chapter 11 Plan is a payment to UDC for reimbursement of UDC's
out-of-pocket expenses related to the DIP Facility not to exceed
$100,000 and subject to submission to the Debtor and the Committee of
detailed supporting documentation. No administrative and post-Plan
Confirmation operating expenses of the Debtor can be paid by the Debtor
through the DIP Facility in excess of the Overadvance Cap.
7. Press Releases. All parties will work cooperatively with one another
regarding sharing of expected public disclosure of this Modified Plan
Agreement to provide each party sufficient time to prepare for the
reaction to such public disclosure. This provision does not, however,
apply to announcements or other disclosures by the Debtor to its
employees.
8. Agreement as to Allowance of Professional Fees. Subject to paragraph
1(A), above, the Debtor, the Committee and UDC agree to confer with one
another and attempt to mutually agree upon the amount of the
professional fees and costs for all parties that are to be incorporated
into and paid in this bankruptcy case, subject to appropriate court
approval. This includes the fees and costs of the Debtor and Committee
professionals, as well as fees and costs to be charged to the DIP
Facility. Absent such agreement, UDC and the Committee's and Debtor's
professionals reserve the right to seek court approval of all such fees
upon motion, notice and a hearing. As to the Purchase Price, if (i) no
agreement is reached as to the
<PAGE> 8
post-Acquisition Date fees and costs to be included, (ii) UDC, the
Debtor, the Committee or some other party in interest files an
objection to such fees and expenses, and (iii) at a subsequent hearing,
the court reduces or increases the amount of the post-Acquisition Date
fees and costs that may reasonably be included in the Purchase Price
(the "Adjusted Amount"), the Purchase Price will be increased or
reduced (as applicable) by an amount equal to the Adjusted Amount for
the purpose of calculating the Secured Claim Recovery Amount.
9. Modification of DIP Facility Interest Rate Upon Confirmation.
Commencing upon the date of Plan Confirmation, the total outstanding
principal amount then due under the DIP Facility (including any advance
within the Overadvance Cap) shall accrue interest (until paid in full)
at the rate of ten percent (10%) per annum.
10. Contribution of Warrants. UDC will agree to provide to the Debtor's
estate 3-year warrants to purchase 325,000 shares of UDC common stock
at a price of $20.00 per share ("UDC Warrants"). The UDC Warrants will
be callable by UDC when UDC common stock trades at a price of $28.50
per share, or greater, for 10 consecutive days. The UDC Warrants and
the common stock to be issued on exercise of the UDC Warrants will be
registered pursuant to the Securities Act of 1933, as amended, prior to
any solicitation with respect thereto. All registration expenses will
be paid by UDC. UDC shall use its best efforts to ensure that such
registration shall be effective for three (3) years after the effective
date of the Chapter 11 Plan.
11. UDC Waiver of $1 Million Fee, and Elimination of DIP Facility
Commitment Fee; Condition on Excess Collections Split.
(a) UDC agrees to waive its required $1 million one
time only commitment fee as contemplated under the Plan
Agreement, and (subject to paragraph 17 herein) further agrees
to waive its DIP Facility commitment fee. UDC has also agreed
to contribute to the Debtor as treasury stock all of its
shares in the Debtor as part of its additional consideration
for the terms of this Modified Plan Agreement.
(b) In no event will UDC be entitled to receive any
share of the Excess Collections Split related to a Securitized
Pool for any period of time during which UDC or a wholly-owned
subsidiary of UDC or any successor or assignee to be agreed
upon as set forth in the Chapter 11 Plan shall not be acting
as servicer for that Securitized Pool. In the event UDC or a
wholly-owned subsidiary of UDC or any successor or assignee to
be agreed upon as set forth in the Chapter 11 Plan shall not
be acting as servicer for the Owned Loans, UDC's share of the
Excess Collections Split related to the Securitized Pools will
be reduced from 17.5% to 15% and UDC shall receive a 15%
share of the Excess Collections Split on the Owned Loans
solely to the extent that the B Pieces have been applied to
satisfy the Secured Claim Recovery Amount and the Debtor will
receive 100% of excess Owned Loans above the amount of such B
Pieces application. In no event, however, shall UDC's status
as servicer for the Owned Loans or Securitized Pools limit or
otherwise prohibit UDC's collection in full of the DIP
Facility (as modified to incorporate the Overadvance Cap) and
the Modified UDC Fee.
12. Chapter 11 Plan. Each of UDC, the Debtor and the Committee will
support confirmation of the Chapter 11 Plan consistent with the terms
of this Modified Plan Agreement and which further provides that the UDC
Warrants and the net proceeds (after payment of the Greenwich debt from
proceeds of the Greenwich Collateral) of
<PAGE> 9
all Retained Property including the Debtor's distributions from the B
Pieces not otherwise dealt with in this Modified Plan Agreement will be
distributed to the Debtor's unsecured creditors (unless otherwise
modified by agreement between the Debtor and the Committee or by order
of the Court for good cause shown), subject to reallocation of UDC
Warrants to the stockholders of the Debtor pursuant to paragraph 18
herein, and the stockholder's right to receive remaining Retained
Property after allowed unsecured claims are paid in full.
13. UDC, Bank Group, Committee and D&O Releases. The order approving
the sale of the Owned Loans to either the Bank Group or GE will
expressly provide that, at the time of the Sale, the Bank Group
possessed a valid, enforceable, first priority lien in the Owned Loans.
Upon confirmation of the Chapter 11 Plan, the Debtor and any creditor
or interestholder class receiving a distribution or other payment under
the Chapter 11 Plan shall be deemed to grant a complete and
unconditional release and waiver of any and all claims and causes of
actions to: (i) all directors, officers, employees, professionals and
agents of the Debtors (or affiliates thereof) who served the Debtors on
or after the Petition Date; (ii) UDC and all directors, officers,
employees, professionals and agents of UDC (or affiliates thereof);
(iii) the current and former members of the Bank Group and all
directors, officers, employees, professionals and agents thereof (or
affiliates thereof) (including LaSalle National Bank as Agent for that
Bank Group); but specifically excluding LaSalle National Bank as
indenture trustee or any of the members of the Bank Group as parties to
unsecured swap or interest rate cap agreements; and (iv) each member of
the Committee and the Committee's professionals and agents in such
capacity. The Committee's agreement to support the releases of parties
related to the Debtor as set forth above is subject to the Debtor's
provision to the Committee of weekly updates until Plan Confirmation of
the detailed Overadvance budget previously provided to the Committee.
14. Continuance of Pending 9019 Motion. Upon execution of this Modified
Plan Agreement, the request by the Bank Group, UDC and the Debtor to
approve the settlement agreement and releases pursuant to that certain
"Joint Motion for Order Authorizing and Approving (1) Settlement and
Compromise Pursuant to Bankruptcy Rule 9019 Between and Among the
Debtor, the Bank Group and Ugly Duckling Corporation Regarding DIP
Financing; and (2) Sale and Transfer of the Bank Group's Secured Claim
Against the Debtor to Ugly Duckling Corporation Pursuant to Bankruptcy
Rule 3001(e)" (the "9019 Motion") will be continued until Plan
Confirmation, and all Bank Group and UDC releases will be dealt with
and acquired through the confirmed Chapter 11 Plan, at which time the
9019 Motion will be dismissed.
15. Interim Expansion of $500,000.00 Carve Out. UDC will agree during
the pendency of the Chapter 11 Plan confirmation process that,
notwithstanding UDC's interpretation of the $500,000.00 professional
fee carve out in the DIP Facility, professionals of the Debtor and
Committee may be paid 80% of their reasonable fees
<PAGE> 10
and 100% of their costs on an interim basis, and be entitled to full
payment of such fees and expenses on the effective date of the Chapter
11 Plan, subject to Court approval, even though such payment exceeds
the existing $500,000.00 cap. This agreement to modify UDC's
interpretation of the existing professional fee limitation is
contingent upon the parties executing this binding agreement.
16. No Shop. The Debtor and the Committee agree and are hereby
prohibited from further "shopping" this Modified Plan Agreement to
third parties and, except as otherwise provided herein, later
withdrawing its support of the Modified Plan Agreement. However,
neither the Committee nor the Debtor is prohibited from analyzing and
supporting competing third-party proposals if such proposal provides a
higher percentage return to creditors of the bankruptcy estate.
17. Breakup Fee. If a competing plan (other than the Chapter 11 Plan)
is confirmed, UDC will be entitled to recover as a breakup fee on a
superpriority basis (a) its $500,000.00 commitment fee under the DIP
Facility; and (b) in addition to all other fees and costs recoverable
under the DIP Facility and the Bank Group Facility, all of its
attorneys' fees and costs incurred involving any and all matters
related to negotiation, documentation and prosecution of the Plan
Agreement, the Modified Plan Agreement and the Chapter 11 Plan.
18. Cure of Executory Contracts and Unexpired Leases. All payments
necessary to cure defaults as a precondition to the Debtor assuming and
assigning to UDC the ALLTEL Contract (the "ALLTEL Cure Costs") will be
paid by the Debtor. Any and all other payments necessary to cure
defaults as a precondition to the Debtor assuming and assigning leases
and contracts to UDC pursuant to the Chapter 11 Plan (or otherwise)
will be paid by UDC. In the event that the amount of the ALLTEL Cure
Costs to be paid by the Debtor are less than $524,782.32 (the "Base
ALLTEL Cure Costs"), a percentage of the UDC Warrants equal to the
percentage reduction in the ALLTEL Cure Costs below the Base ALLTEL
Cure Costs will be reapportioned between and among the Debtor's
unsecured creditors and the holders of the equity ownership in the
Debtor at Plan Confirmation.
19. Extension of 11 U.S.C.Section 1121 Exclusivity. The Committee and
UDC have stipulated and agreed to the entry of an order extending for
an additional ninety (90) days, both the Debtor's 120 and 180 day
exclusivity periods for filing a plan and soliciting acceptances
pursuant to 11 U.S.C. Sections 1121(b), and (c)(3); provided,
however, that nothing contained herein shall be construed as a waiver
of the Committee's right to file a motion to terminate the Debtor's
extended exclusivity period.
20. Prior Approval. This Modified Plan Agreement is expressly subject
to: (a) execution and filing with the bankruptcy court of a definitive
Chapter 11 Plan, the related documents contemplated herein and approval
by the court with jurisdiction over the Debtor's Chapter 11 Case; and
(b) approval of the Securitized Pools
<PAGE> 11
Servicing Fee (provided that UDC may unilaterally waive this Section
20(b)).
21. Acceptance. By signing this letter where appropriate below, UDC,
the Debtor and the Committee agree that this letter will suffice as an
agreement binding the signatories to support confirmation of a Chapter
11 Plan containing terms consistence with the Modified Plan Agreement,
and not containing other provisions materially altering the provisions
herein, subject only to the fiduciary obligations, if any, of the
Debtor and the Committee to consider higher and better offers, if any.
22. Counterparts. This Modified Plan Agreement can be signed by all
parties in counterparts. Facsimile signatures are acceptable.
23. Replacement of Prior Agreement. This Modified Plan Agreement shall
supersede and replace that certain latter agreement dated as of
November 14, 1997 by and among the Debtor, UDC and the Committee (the
"November 14 Agreement"), and upon execution of this Modified Plan
Agreement, the November 14 Agreement shall be of no further force or
effect.
Expressly reviewed, accepted, acknowledged and agreed to.
FAEGRE & BENSON LLP
By /s/ Stephen M. Mertz
---------------------------
Stephen M. Mertz
Michael R. Stewart
Attorneys for Official Committee of Unsecured Creditors
<PAGE> 12
FIRST MERCHANTS ACCEPTANCE CORP.
DEBTOR AND DEBTOR IN POSSESSION
By /s/ William Plamondon
----------------------------------------
William Plamondon, President and CEO
SONNENSCHEIN NATH & ROSENTHAL
By /s/ Robert E. Richards
----------------------------------------
Robert E. Richards
Attorneys for the Debtor and Debtor in Possession
<PAGE> 13
THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF FIRST MERCHANTS
ACCEPTANCE CORPORATION
By /s/ James Graves
------------------------------
Its Chairperson
----------------------------
<PAGE> 14
UGLY DUCKLING CORPORATION
By /s/ Ernest C. Garcia II
-----------------------
Its Chairman
---------------------
<PAGE> 15
SNELL & WILMER L.L.P.
By /s/ Christopher H. Bayley
------------------------------------
Christopher H. Bayley
Attorneys for Ugly Duckling
Corporation
<PAGE> 1
PURCHASE AGREEMENT
by and among
GENERAL ELECTRIC CAPITAL CORPORATION,
LASALLE NATIONAL BANK, AS AGENT
and
UGLY DUCKLING CORPORATION
Dated as of December 18, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1
PURCHASE AND SALE OF ASSETS.................................................................10
1.1 Purchased Assets..........................................................10
1.2 Excluded Assets...........................................................11
1.3 Assumption of Liabilities.................................................11
1.4 Excluded Liabilities......................................................11
ARTICLE 2
CONSIDERATION FOR THE PURCHASED ASSETS......................................................13
2.1 Purchase Price............................................................13
2.2 Allocation of Purchase Price..............................................14
2.3 Creation of Reserve.......................................................14
2.4 Monthly Adjustments.......................................................15
2.5 Shortfalls and Charges....................................................16
2.6 Payment of Reserve Balance................................................16
2.7 Holdback..................................................................16
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UDC AND SELLER............................................17
3.1 Representations and Warranties of UDC.....................................17
3.2 Representations and Warranties of Seller..................................19
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
AS TO THE FINANCE CONTRACTS.................................................................20
4.1 Representations and Warranties as to the Finance Contracts................20
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................23
5.1 Corporate Organization and Power..........................................23
5.2 Authorization.............................................................23
5.3 Governmental Authorities and Consents.....................................23
5.4 Brokerage.................................................................23
5.5 Litigation................................................................24
5.6 Closing Date..............................................................24
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 6
COVENANTS PRIOR TO CLOSING..................................................................24
6.1 Affirmative Covenants.....................................................24
6.2 Negative Covenants........................................................25
6.3 Bankruptcy Court Approval.................................................25
ARTICLE 7
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE...............................................25
7.1 Conditions to Purchaser's Obligation......................................25
7.2 Waiver by Purchaser.......................................................27
ARTICLE 8
CONDITIONS TO THE OBLIGATION OF SELLER AND UDC TO CLOSE.....................................28
8.1 Conditions to the Obligation of Seller and UDC............................28
8.2 Waiver by Seller or UDC...................................................28
ARTICLE 9
CLOSING TRANSACTIONS........................................................................28
9.1 The Closing...............................................................28
9.2 Action to Be Taken at the Closing.........................................28
9.3 Closing Documents.........................................................29
9.4 Possession................................................................30
9.5 Election by Purchaser.....................................................30
ARTICLE 10
INDEMNIFICATION.............................................................................31
10.1 Indemnification by UDC....................................................31
10.2 Indemnification by Purchaser of UDC.......................................31
10.3 Survival..................................................................31
10.4 Method of Asserting Claims................................................32
ARTICLE 11
TERMINATION.................................................................................33
11.1 Termination...............................................................33
11.2 Effect of Termination.....................................................34
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
11.3 Effect of Closing.........................................................34
ARTICLE 12
ADDITIONAL AGREEMENTS.......................................................................34
12.1 Press Release and Announcements...........................................34
12.2 Expenses..................................................................34
12.3 Best Efforts To Consummate Closing Transactions...........................34
12.4 Specific Performance......................................................34
12.5 Remittances...............................................................35
12.6 Financing Statements......................................................35
12.7 Purchase Option...........................................................35
ARTICLE 13
MISCELLANEOUS...............................................................................36
13.1 Amendment and Waiver......................................................36
13.2 Notices...................................................................36
13.3 Assignment................................................................37
13.4 Severability..............................................................37
13.5 No Strict Construction....................................................37
13.6 Captions..................................................................37
13.7 Complete Agreement........................................................37
13.8 Counterparts..............................................................37
13.9 Governing Law.............................................................37
13.10 Remedies Cumulative.......................................................38
13.11 Limitation on Capacity; Non-Recourse......................................38
</TABLE>
iii
<PAGE> 5
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Agreement.............................................................................................1
Purchaser.............................................................................................1
Seller................................................................................................1
UDC...................................................................................................1
FMAC..................................................................................................1
Business..............................................................................................1
Lenders...............................................................................................1
Loans.................................................................................................1
Bankruptcy Code.......................................................................................1
Bankruptcy Court......................................................................................1
Bankruptcy Case.......................................................................................1
Final Sale Order......................................................................................1
1933 Act..............................................................................................2
Affiliate.............................................................................................2
Bankruptcy Contract...................................................................................2
Bankruptcy Rules......................................................................................2
Business Day..........................................................................................2
Certificate of Title..................................................................................2
Charge-Off Contract...................................................................................3
Charge-Off Deficiency.................................................................................3
Code..................................................................................................3
Contract..............................................................................................3
Contract Debtor.......................................................................................3
Contract Debtor Documents.............................................................................3
Report of Sale........................................................................................3
Guaranty of Title.....................................................................................3
Contract Debtor Records...............................................................................4
Contract Rights.......................................................................................4
Credit Application....................................................................................4
Dealer Invoice........................................................................................4
Delaware Law..........................................................................................4
Discharge Date........................................................................................4
Disclosure Schedule...................................................................................4
Due Period............................................................................................4
Effective Date........................................................................................4
Eligible Finance Contract.............................................................................5
ERISA.................................................................................................5
Excluded Finance Contract.............................................................................5
Finance Assets........................................................................................5
Finance Contract......................................................................................5
Financed Vehicles.....................................................................................5
FMAC Servicing Agreement..............................................................................5
</TABLE>
iv
<PAGE> 6
INDEX OF DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
FMN...................................................................................................5
GAAP..................................................................................................5
Governmental Entity...................................................................................6
Guaranty..............................................................................................6
Insurance Proceeds....................................................................................6
IRS...................................................................................................6
knowledge.............................................................................................6
known to..............................................................................................6
Laws..................................................................................................6
Liens.................................................................................................6
Liquidation Proceeds..................................................................................7
List of Finance Contracts.............................................................................7
Loan Agreement........................................................................................7
Magna.................................................................................................7
material adverse effect...............................................................................7
material adverse change...............................................................................7
Monthly Principal.....................................................................................7
Monthly Yield.........................................................................................8
Nonassigned Finance Contract..........................................................................8
Magna Assignments.....................................................................................8
Optional Contract Debtor Insurance....................................................................8
Outstanding Principal Balance.........................................................................8
Person................................................................................................8
Portfolio of Finance Contracts........................................................................8
Remittances...........................................................................................8
Required Contract Debtor Insurance....................................................................9
Required Monthly Return...............................................................................9
Required Reserve Level................................................................................9
Schedule of Payments..................................................................................9
Scheduled Payment.....................................................................................9
Servicing Agreement...................................................................................9
Servicing Fee.........................................................................................9
Taxes.................................................................................................9
Trial Balance........................................................................................10
UCC..................................................................................................10
UDC Servicing Agreement..............................................................................10
Undelivered Finance Contract.........................................................................10
Yield Measurement....................................................................................10
Purchased Assets.....................................................................................11
Excluded Assets......................................................................................11
Assumed Liabilities..................................................................................11
Excluded Contracts...................................................................................11
</TABLE>
v
<PAGE> 7
INDEX OF DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Excluded Liabilities.................................................................................11
Purchase Price.......................................................................................13
Aggregate Principal Balance..........................................................................13
Reserve..............................................................................................13
Holdback.............................................................................................13
Secured Obligations..................................................................................14
Monthly Adjustments..................................................................................15
Holdback Termination Date............................................................................17
UDC Agreements.......................................................................................18
Seller Agreements....................................................................................19
Purchaser Agreements.................................................................................23
Motion...............................................................................................25
Transaction..........................................................................................25
Bankruptcy Order.....................................................................................25
Closing..............................................................................................28
Closing Date.........................................................................................28
Purchaser Indemnified Parties........................................................................31
Losses...............................................................................................31
Purchaser Losses.....................................................................................31
UDC Indemnified Parties..............................................................................31
UDC Losses...........................................................................................31
Expiration Date......................................................................................32
Indemnified Party....................................................................................32
Purchaser Indemnified Party..........................................................................32
UDC Indemnified Party................................................................................32
Notifying Party......................................................................................32
Indemnifying Party...................................................................................32
Claim................................................................................................32
</TABLE>
vi
<PAGE> 8
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is dated as of December 18, 1997 (the
"Agreement") by and among GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("Purchaser"), LASALLE NATIONAL BANK, a national banking
corporation, as agent for the Lenders and not in its individual capacity (herein
referred to in such capacity as "Seller"), and UGLY DUCKLING CORPORATION, a
Delaware corporation ("UDC").
W I T N E S S E T H :
WHEREAS, First Merchants Acceptance Corporation, a Delaware corporation
("FMAC") was engaged in the business of purchasing and servicing of retail
automobile installment contracts originated by automobile dealers and in
securitizing certain of such contracts (together, the "Business");
WHEREAS, UDC has advised Purchaser that pursuant to the Loan Agreement
(as defined below) among LaSalle National Bank, a national banking association;
NBD Bank, a Michigan banking corporation; Harris Trust and Savings Bank, an
Illinois banking corporation; NationsBank, N.A., a national banking association,
as successor to the Boatman National Bank of St. Louis; First Bank National
Association, a national association; Fleet Bank, National Association (f/k/a
NatWest Bank, N.A.); Mellon Bank, N.A., a national banking association; First
Star Bank Milwaukee, N.A., a national banking association; and Core States Bank,
N.A., a national banking association (collectively, the "Lenders"), Seller and
FMAC, the Lenders provided various credit facilities to FMAC (the "Loans"),
which Loans are secured in part by a first perfected priority security interest
in and to, among other assets, the Purchased Assets (as defined below);
WHEREAS, on July 11, 1997, FMAC filed a Chapter 11 petition under the
provisions of Title 11, United States Code, as amended (the "Bankruptcy Code")
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"), and such petition is currently pending in the Bankruptcy
Court as Case No. 97-1500 (the "Bankruptcy Case").
WHEREAS, UDC has advised Purchaser that UDC has purchased from the
Lenders an aggregate of 100% of all right, title, claims and interest in the
Loans, and UDC, as holder of 100% in interest of the Loans, has directed Seller,
on behalf of UDC as the sole Lender, to credit bid the entire amount of the
Loans to acquire, among other assets, the Purchased Assets from FMAC;
WHEREAS, the Court is expected to enter an order on or about December
15, 1997, pursuant to which Seller shall purchase pursuant to Sections
363(b)(1) and (f) of the Bankruptcy Code the Purchased Assets (the "Final Sale
Order"); and
WHEREAS, Purchaser desires to purchase the Purchased Assets from
Seller, subject to the conditions, among others, that Seller's purchase of the
Purchased Assets shall be approved by the Bankruptcy Court as hereinafter
provided and that UDC shall execute and deliver to Purchaser the UDC Servicing
Agreement and the Guaranty (as defined below).
<PAGE> 9
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, representations, warranties and covenants herein contained, the
parties, intending to be bound hereby, hereby agree as follows:
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall
have the respective meanings set forth below. The definitions of such terms are
applicable to the singular as well as to the plural forms of such terms.
Wherever from the context it appears appropriate, each term stated in either the
masculine, feminine or neuter gender shall include the masculine, feminine or
neuter.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" of any particular Person shall mean any other
Person controlling, controlled by or under common control with such
particular Person, where "control" means the possession, directly or
indirectly, of the power to direct the management and policies of a
Person whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" is defined in the preamble.
"Bankruptcy Code" is defined in the Preamble.
"Bankruptcy Contract" shall mean a Finance Contract for which
the related Contract Debtor is a debtor under Chapter 13 of the
Bankruptcy Code and for which a court ordered payment plan is in
effect.
"Bankruptcy Court" is defined in the Preamble.
"Bankruptcy Order" is defined in Section 7.1(a).
"Bankruptcy Proceedings" is defined in the Preamble.
"Bankruptcy Rules" shall mean Federal Rules of Bankruptcy
Procedure.
"Business" is defined in the preamble.
"Business Day" shall mean any day that banks and similar
financial institutions are open for business in Chicago, Illinois.
"Certificate of Title" shall mean with respect to any Financed
Vehicle, the Certificate of Title (or other evidence of ownership)
issued by the department of motor vehicles, or other appropriate
governmental body, of the state in which the Financed Vehicle is or
is to be registered, showing the Contract Debtor as owner with
either notation of the first lien of
2
<PAGE> 10
FMAC or, if applicable, FMN or Magna, or such other status indicated
thereon which is necessary to perfect the security interest of FMAC
or, if applicable, FMN or Magna, in the Financed Vehicle as a first
priority interest, and showing no other actual or possible ownership
or lien interests.
"Charge-Off Contract" shall mean a Finance Contract for which
any of the following applies: (a) which is past due for more than
one hundred twenty (120) days; (b) for which the Financed Vehicle
has been surrendered, repossessed, damaged beyond repair or unable
to be located; (c) which has been settled for less than the
Outstanding Principal Balance associated with such Finance Contract;
(d) which has been written off as uncollectible in accordance with
the policies set forth in the Servicing Agreement and, if the
Servicing Agreement is terminated, in accordance with Purchaser's
policies; or (e) for which the Contract Debtor related to the
Finance Contract has become a debtor under Chapter 13 or Chapter 7
of the Bankruptcy Code for more than one hundred eighty (180) days
and for which Finance Contract there is no court-ordered payment
plan or reaffirmation in effect.
"Charge-Off Deficiency," with respect to each Charge-Off
Contract, shall mean the amount by which its Outstanding Principal
Balance exceeds its Liquidation Proceeds, Insurance Proceeds and any
other recoveries, to the extent that such amount has not been
included in a previous calculation and monthly report of Charge-Off
Deficiency.
"Claim" is defined in Section 10.4(a).
"Closing" is defined in Section 9.1.
"Closing Date" is defined in Section 9.1.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Contract" shall mean any contract, agreement, lease,
instrument, undertaking, or commitment, written or oral, to which
the Person in question is a party or by which such Person or any of
his assets are bound.
"Contract Debtor" shall mean the Person(s) that has(ve)
executed a Finance Contract, including, without limitation, any
guarantor, co-signer or other Person obligated to make payments
under the Finance Contract.
"Contract Debtor Documents" shall mean with respect to each
Finance Contract, (a) the original Certificate of Title; (b) the
original executed Finance Contract with original signatures; (c) a
copy of the Dealer Invoice and invoices for any additional equipment
included in the Finance Contract, if applicable; (d) a copy of the
original signed Credit Application; (e) verification for the
Required Contract Debtor Insurance that FMAC was the loss payee,
additional insured or lienholder at the time of FMAC's purchase of
the Finance Contract; (f) a copy of the "Report of Sale" and/or
"Guaranty of Title" executed by the
3
<PAGE> 11
selling dealer which has been forwarded to the appropriate
department of motor vehicles; (g) copies, if applicable, of: (i) the
credit bureau reports, (ii) the completed credit investigation form,
(iii) the completed verification of employment and income forms and
(iv) Contract Debtor references; (h) verification of Required
Contract Debtor Insurance including the policy number; (i) FMAC's
funds disbursement invoice or listing, if applicable; (j) a
certificate for each type of Optional Contract Debtor Insurance
purchased by Contract Debtor, if applicable; (k) FMAC's loan process
or "deal structure" sheet, if applicable; (l) a "fact sheet" from
the dealer; and (m) other documents that may be required by FMAC in
the ordinary course of business.
"Contract Debtor Records" shall mean with respect to each
Finance Contract, and whether existing before or after the date of
this Agreement (a) the Contract Debtor Documents; and (b) all other
records, files and documents, whether consisting of paper or
computerized or in some other form, which relate specifically to
Contract Debtor, the Finance Contract, the Financed Vehicle or
associated Contract Right.
"Contract Rights" shall mean with respect to the Finance
Contracts, (a) Seller's interest in the Financed Vehicle; (b) all
rights of Seller with respect to the Finance Contract and Financed
Vehicle under all assignments and dealer agreements pursuant to
which the Finance Contract was acquired by Seller including any
rights or obligations of Seller to any dealer reserve accounts; (c)
all rights of Seller with respect to Required Contract Debtor
Insurance and Optional Contract Debtor Insurance; (d) all rights of
Seller, if any, to prepaid dealer rate participation in connection
with the Finance Contract; and (e) all rights of Seller with respect
to Contract Debtor Records and Remittances.
"Credit Application" shall mean the credit application
completed by Contract Debtor in order to request financing for
Contract Debtor's purchase of the Financed Vehicle.
"Dealer Invoice" shall mean as to new Financed Vehicles, the
invoice prepared by the manufacturer showing the net cost; and as to
used Financed Vehicles, the NADA wholesale value, adjusted for
mileage and hard adds.
"Delaware Law" shall mean the General Corporation Law of the
State of Delaware.
"Discharge Date" shall mean the first date by which all of the
Finance Contracts have been paid in full or forgiven by Purchaser
and all of the servicer's obligations under the Servicing Agreement
and this Agreement have been performed.
"Disclosure Schedule" shall mean, collectively, the schedules
delivered by Seller to Purchaser simultaneously with the execution
and delivery of this Agreement.
"Due Period" shall mean a calendar month during the period
beginning with the calendar month during which the Effective Date
occurs and ending with the calendar month
4
<PAGE> 12
when all of the obligations of Seller and UDC to Purchaser under
this Agreement and all obligations of the servicer under the
Servicing Agreement are fully paid and performed.
"Effective Date" shall mean the opening of business on
December 1, 1997.
"Eligible Finance Contract" shall mean a Finance Contract
which (a) is for a Financed Vehicle; (b) is not, nor are any of the
other Finance Assets associated with the Finance Contract, in breach
of any of the representations and warranties contained in Article 4
of this Agreement; (c) has not been extended during the ninety (90)
days before the Effective Date, except in the ordinary course of
business; (d) is a full payout obligation; (e) has no insurance
claim, litigation or dispute pending relating in any way to the
Finance Contract, the Financed Vehicle or Contract Debtor's
obligations or performance in connection with the Finance Contract
or the Financed Vehicle (other than any proceeding under Chapter 13
of the Bankruptcy Code with respect to any Bankruptcy Contract); (f)
meets the published credit and advance standards of FMAC as of the
Effective Date; (g) is properly documented; (h) has an "Annual
Percentage Rate" which does not exceed the applicable state maximum;
and (i) is not a Charge-Off Contract as of the Effective Date.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Excluded Finance Contract" means the motor vehicle
installment or conditional sale contracts which FMAC has pledged to
Greenwich Financial Products, has failed to fund or has securitized.
"Finance Assets" shall mean Finance Contracts and the
associated Contract Rights and Contract Debtor Records.
"Finance Contract" shall mean each motor vehicle installment
or conditional sale contract, with any amendments, purchased by
Purchaser from Seller hereunder, including, without limitation, each
such contract identified on the List of Finance Contracts, pursuant
to which a Contract Debtor has: (a) purchased a new or used motor
vehicle, (b) granted a security interest in the motor vehicle to
secure Contract Debtor's payment obligations and (c) agreed to pay
the unpaid purchase price and a finance charge in monthly
installments.
"Financed Vehicles" shall mean the motor vehicles, together
with all accessions thereto, which are subject to the Finance
Contract.
"FMAC Servicing Agreement" shall mean the servicing agreement
among Purchaser, FMAC and Seller pursuant to which FMAC, in
consultation with UDC, shall service the Purchased Assets subsequent
to the Closing and which agreement shall be in form and substance
acceptable to Purchaser.
5
<PAGE> 13
"FMN" shall mean First Merchants Acceptance Corporation of
Nevada, a Nevada corporation and a wholly-owned subsidiary of FMAC.
"GAAP" shall mean U.S. generally accepted accounting
principles.
"Governmental Entity" shall mean, collectively, any court,
tribunal, arbitrator, authority, agency, commission, official or
other instrumentality of the United States, any foreign country or
any state, county, city or other political subdivision.
"Guaranty" shall mean the guarantee made by UDC in favor of
Purchaser with respect to the Purchased Assets, which shall be in
form and substance acceptable to Purchaser.
"Holdback" shall have the meaning set forth in Section
2.1(b)(i).
"Insurance Proceeds" shall mean, with respect to a Finance
Contract, amounts, including rebates and refunds, recovered under
any warranty, Required Contract Debtor Insurance or Optional
Contract Debtor Insurance, net of any amounts required by Law to be
remitted to the Contract Debtor.
"IRS" shall mean the Internal Revenue Service.
"knowledge," "known to" or any similar phrase means, with
respect to an individual, that such individual has "knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or
other matter; or
(b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter in the
course of conducting a reasonable investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) shall be deemed to have
"knowledge" or to "know" of a particular fact or other matter if any
individual who is serving as a director, officer, partner, executor
or trustee of such Person (or in any similar capacity) has, or at
any time had, knowledge of such fact or other matter.
"Laws" shall mean, collectively, any domestic (federal, state
or local) or foreign law, statute, ordinance, rule, regulation or
judgment, decree, order, writ, permit or license of any Governmental
Entity.
"Liens" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without
limitation, any conditional sale or other title retention agreement
or lease in the nature thereof), any sale of receivables with
recourse against Seller, any filing or agreement to file a financing
statement as debtor under the UCC or any similar
6
<PAGE> 14
statute other than to reflect ownership by a third party of property
leased to Seller under a lease that is not in the nature of a
conditional sale or title retention agreement, or any subordination
arrangements in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Liquidation Proceeds" shall mean with respect to a Finance
Contract, all amounts, other than Insurance Proceeds, received from
the sale or other disposition of a Financed Vehicle, net of any
amounts required by Law to be remitted to the Contract Debtor.
"List of Finance Contracts" shall mean Schedule 4.1(b) which:
(a) identifies each Finance Contract owned by Seller by account
number, Contract Debtor's name, Outstanding Principal Balance as of
the Effective Date, and the year, make, model and Vehicle
Identification Number of the Financed Vehicle, and (b) shows the
total number of the Finance Contracts and the aggregate amount of
the Outstanding Principal Balances for the Finance Contracts as of
the Effective Date.
"Loan Agreement" means that certain Fourth Amended and
Restated Loan and Security Agreement, dated as of February 28, 1996,
among the Lenders, Seller and FMAC; as amended by that certain First
Amendment to Fourth Amended and Restated Loan and Security
Agreement, dated as of May 1, 1996 among FMAC, Lenders and Seller;
as further amended by that Second Amendment to Fourth Amended and
Restated Loan and Security Agreement, dated as of December 26, 1996,
among FMAC, Lenders and Seller; and that certain Consent and
Amendment to Fourth Amended and Restated Loan and Security
Agreement, dated as of October 29, 1996, among FMAC, Lenders and
Seller; and that certain Forbearance Agreement, dated as of May 8,
1997, between FMAC and Seller; and those certain Consents, dated as
of June 17, 1997 and June 20, 1996, between FMAC and Seller; and a
certain Letter Agreement, dated June 27, 1997, between FMAC and
Seller; and that certain Letter Agreement, dated June 30, 1997,
between FMAC and Seller.
"Magna" shall mean Magna Bank of St. Louis, a Missouri banking
corporation.
"material adverse effect" and "material adverse change" shall
mean a single event, occurrence or fact or related or unrelated
series of events, occurrences or facts (a) which, in relation to any
quantifiable matter or matters, singularly or in the aggregate, has
or have an impact in an amount greater than One Hundred Thousand
Dollars ($100,000), and (b) which, in relation to any
nonquantifiable matter or matters, singularly or in the aggregate,
or when combined with any quantifiable matter or matters, is or are
materially adverse to the ability of Seller or UDC to perform their
respective obligations under the Seller Agreements or the UDC
Agreements, the Purchased Assets or the Business.
"Monthly Principal," with respect to a Due Period and a
Finance Contract, shall mean the Outstanding Principal Balance of
such Finance Contract as of the last day of the preceding Due Period
minus the Outstanding Principal Balance of such Finance Contract as
of the last day of the Due Period.
7
<PAGE> 15
"Monthly Yield" shall mean the product of 10.35% times the
Yield Measurement for the preceding Due Period divided by 365 times
the number of days in the current Due Period (see formula below):
<TABLE>
<S> <C>
( 10.35% x prior Due Period Yield Measurement ) x number of days in current Due Period
( -------------------------------------------------------- )
365
</TABLE>
"Nonassigned Finance Contract" shall mean any Eligible Finance
Contract for which the related certificate of title or other
evidence of ownership shows the lien of Magna and for which Seller
shall be unable to deliver to purchaser at Closing for any reason an
original executed copy of a proper assignment of such Eligible
Finance Contract to FMAC or an original executed power of attorney
in customary form pursuant to which Magna appointed FMAC as Magna's
agent to deal with such Eligible Finance Contract (said assignment
and power of attorney are referred to collectively as "Magna
Assignments").
"Optional Contract Debtor Insurance" shall mean any insurance
which insures a Financed Vehicle or a Contract Debtor's obligations
under a Finance Contract, including but not limited to credit life,
credit health, credit disability, unemployment insurance, and any
service contract, mechanical breakdown coverage, warranty or
extended warranty for a Financed Vehicle.
"Outstanding Principal Balance" shall mean (a) with respect to
a precomputed Finance Contract, the outstanding principal balance of
such Finance Contract which is calculated by subtracting the
unearned finance charge on such Finance Contract from the unpaid
Scheduled Payments due under such Finance Contract (the "Outstanding
Principal Balance") and (b) with respect to a simple interest
Finance Contract, the Outstanding Principal Balance of such Finance
Contract plus accrued and unpaid interest thereon.
"Petition" is defined in the Preamble.
"Person" shall mean an individual, a partnership, a
corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated
organization and a Governmental Entity.
"Portfolio of Finance Contracts" shall mean the aggregate of
individual Finance Contracts which are identified on the List of
Finance Contracts.
"Purchase Price" is defined in Section 2.1.
"Purchaser" is defined in the preamble.
"Remittances" shall mean any amounts received with respect to
the Finance Contracts and associated Contract Rights, including, but
not limited to, Scheduled Payments,
8
<PAGE> 16
prepayments, payoffs, Liquidation Proceeds, Insurance Proceeds, late
charges and fees (including not-sufficient-funds fees, and extension
and modification fees).
"Required Contract Debtor Insurance" shall mean any casualty
insurance a Contract Debtor is required to obtain pursuant to the
terms of the Finance Contract.
"Required Monthly Return" shall mean the Monthly Yield, the
Monthly Principal and all Charge-Off Deficiencies for all Finance
Contracts.
"Required Reserve Level," as to the Reserve, shall mean (a)
the greater of $2 million and 14% of the Aggregate Principal Balance
as of the end of any month between the date hereof and the end of
the month during which Purchaser notifies UDC that Purchaser, in its
discretion, has determined that Charge-Off Deficiencies from the
Portfolio of Finance Contracts have stabilized (such month end is
referred to herein as the "Stabilization Date") (i.e., the
Charge-Off Deficiencies from the Portfolio of Finance Contracts
shall have commenced to decline from their prior levels which will
cause the Reserve to commence to increase as a percentage of the
Aggregate Principal Balance, which is expected to occur
approximately thirty-two (32) months after the Closing Date); or (b)
the greater of $2 million and 12% of the Aggregate Principal Balance
as of the end of any month between the Stabilization Date and the
Discharge Date.
"Reserve" is defined in Section 2.1(a)(i).
"Schedule of Payments" shall mean the schedule of monthly
payments disclosed on a Finance Contract.
"Scheduled Payment" shall mean the monthly payment amount
indicated on Schedule 4.1(h) hereto.
"Servicing Agreement" shall mean the FMAC Servicing Agreement
or the UDC Servicing Agreement, whichever is in effect as of the
date in question or as the context may otherwise require.
"Servicing Fee" shall mean the Servicing Fee and the
Reimbursable Expenses as defined in the Servicing Agreement and all
third party charges for not-sufficient fund checks and returned
checks which relate to payments made by Borrowers, to the extent not
otherwise received from obligor or, if the Servicing Agreement is
terminated, the amounts paid to a successor servicer or the
Purchaser's cost to service the Finance Contracts if the Purchaser
services the Finance Contracts.
"Taxes" shall mean all taxes and other governmental charges
(including, without limitation, interest, additions to tax and
penalties) which have been incurred or are shown to be due on any
federal, state, local or foreign tax information or tax return, or
whether or not shown on any such return, are due from Seller or
imposed on Seller, or its properties,
9
<PAGE> 17
assets, incomes, payroll, franchises, licenses, sales or use of any
property, by any federal, state, local or foreign taxing authority.
"Trial Balance" shall mean an installment loan trial balance
report prepared by Seller, containing such information as Purchaser
deems reasonably necessary.
"UCC" shall mean the Uniform Commercial Code.
"UDC" is defined in the preamble.
"UDC Servicing Agreement" shall mean the servicing agreement
between Purchaser and UDC pursuant to which UDC shall service the
Purchased Assets from and after the termination of the FMAC
Servicing Agreement and which UDC Servicing Agreement shall be in
form and substance satisfactory to Purchaser.
"Undelivered Finance Contract" shall mean any Eligible Finance
Contracts, the original executed copy of which, Seller shall be
unable to deliver to Purchaser at Closing for any reason.
"Yield Measurement" shall mean, as of the last day of a Due
Period, the Aggregate Principal Balance less the sum of the
outstanding balance of the Reserve and the Holdback, without
duplication.
ACCOUNTING TERMS. Unless otherwise specified in this Agreement, all
accounting terms used in this Agreement shall be interpreted, all accounting
determinations under this Agreement shall be made, and all financial statements
required to be delivered by any person or entity pursuant to this Agreement
shall be prepared, in accordance with GAAP as in effect from time to time
applied on a consistent basis. To the extent GAAP does not apply to certain
reports or accounting practices of Seller, the parties shall mutually agree on
such accounting practices.
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 PURCHASED ASSETS. On the terms and subject to the conditions of
this Agreement, on the Closing Date, Purchaser shall purchase from Seller, and
Seller shall sell, convey, assign, transfer and deliver to Purchaser, free and
clear of all interests, including, without limitation, Liens, all of the
following assets as of the Effective Date:
(a) all Finance Contracts, together with all related Contract
Rights and Contract Debtor Documents, including, without limitation,
all Finance Contracts that have been written-off;
10
<PAGE> 18
(b) the right to receive mail and other communications
addressed to Seller or FMAC and relating to the Finance Contracts
(including, without limitation, mail and communications from
Contract Debtors, suppliers, dealers, agents and others and
Remittances);
(c) all claims, refunds, causes of action, choses in action,
rights of recovery and rights of set-off of every kind and nature
related to the Finance Contracts;
(d) all repossessed Financed Vehicles; and
(e) all Remittances received by FMAC or Seller subsequent to
the Effective Date.
For purposes of the Agreement, the term "Purchased Assets" means all properties,
assets and rights which Seller shall convey to Purchaser or shall be obligated
to convey to Purchaser under this Agreement.
1.2 EXCLUDED ASSETS. Seller shall retain, and Purchaser shall not
purchase, any assets of Seller or FMAC related to the Business and not
specifically described in Section 1.1 hereof, including, without limitation, the
Excluded Finance Contracts (the "Excluded Assets"). Said assets are expressly
excluded from the purchase and sale contemplated hereby and, as such, are not
included in the Purchased Assets.
1.3 ASSUMPTION OF LIABILITIES. Subject to the conditions specified in
this Agreement, on the Closing Date, Purchaser shall assume and agree to pay,
defend, discharge and perform as and when due only those obligations of Seller
to Contract Debtors expressly set forth in the Finance Contracts which first
arise subsequent to the Closing (excluding any liability or obligation for any
breach of any such Finance Contract or violation of Law in connection therewith
occurring prior to the Closing Date), but only to the extent that Seller's
rights and benefits under such Finance Contracts have been validly assigned to
Purchaser pursuant to this Agreement, subject to Seller's warranty that all
other obligations of Seller and prior holders related to the Finance Contracts
have been performed (the "Assumed Liabilities") (all other Contracts are
referred to herein as the "Excluded Contracts").
1.4 EXCLUDED LIABILITIES. Notwithstanding anything to the contrary
contained in this Agreement, Purchaser shall not assume or be liable for any of
the following liabilities or obligations of Seller or FMAC (the "Excluded
Liabilities"), and none of the following liabilities or obligations of Seller
and/or FMAC shall be Assumed Liabilities for purposes of this Agreement:
(a) liabilities or obligations under this Agreement, the Loan
Agreement or the Loans;
(b) liabilities or obligations for expenses, Taxes or fees
incident to or arising out of the negotiation, preparation, approval
or authorization of this Agreement or the
11
<PAGE> 19
consummation of the transactions contemplated hereby, including,
without limitation, all attorneys', accountants' and investment
bankers' fees and sales, use and transfer taxes;
(c) liabilities or obligations with respect to any amount of
federal, state, local or foreign taxes, including interest,
penalties and additions to such taxes;
(d) liabilities or obligations arising by reason of any
violation or alleged violation of any Law or any requirement of any
Governmental Entity or by reason of any breach or alleged breach of
any Finance Contract, regardless of when any such violation or
breach is asserted;
(e) liabilities or obligations which would not have existed
had the respective representations and warranties of Seller and UDC
(other than Article 4) been true as of the Closing Date;
(f) liabilities or obligations relating to claims for breach
of warranty, personal injury, damage to property or other loss based
upon or arising out of the sale, distribution or repossession of
Financed Vehicles or other products or the provision of services by
or on behalf of Seller or FMAC;
(g) liabilities or obligations under all Excluded Contracts;
(h) liabilities or obligations in connection with any Required
Contract Debtor Insurance or Optional Contract Debtor Insurance
purchased by a Contract Debtor in connection with a Finance
Contract;
(i) liabilities or obligations relating to reserves or
participations established for any originator or prior holder of a
Finance Contract;
(j) liabilities or obligations relating to any breach,
repurchase obligation, payment obligation or other liabilities or
obligations of any kind under any Contract that constitutes an
Assumed Liability arising out of transactions entered into at or
prior to the Closing, any action or inaction prior to the Closing or
any state of fact existing at or prior to the Closing, regardless of
when asserted, including, without limitation, any obligation to pay
any amount to a Contract Debtor under any Finance Contract;
(k) all other liabilities or obligations not expressly assumed
by Purchaser under Section 1.3, including, without limitation, any
liabilities or obligations arising out of transactions entered into
at or prior to the Closing, any action or inaction at or prior to
the Closing or any state of fact existing at or prior to the
Closing, regardless of when asserted.
12
<PAGE> 20
ARTICLE 2
CONSIDERATION FOR THE PURCHASED ASSETS
2.1 PURCHASE PRICE.
(a) In addition to the assumption of the Assumed Liabilities,
the aggregate purchase price for the Purchased Assets (the "Purchase
Price") shall be:
(i) Eighty Million Eight Hundred Forty-One Thousand Four
Hundred Sixteen and 36/100 Dollars ($80,841,416.36), which
amount equals the aggregate amount of the Outstanding
Principal Balance as of the Effective Date under each Eligible
Finance Contract as reflected on the books and records of FMAC
maintained in the ordinary course of business immediately
prior to the Effective Date (the "Aggregate Principal
Balance"), less fourteen percent (14%) of such Aggregate
Principal Balance (the "Reserve");
(ii) the right to receive an amount in cash equal to
amounts payable to Seller pursuant to Section 2.4(a)(viii);
and
(iii) the right to receive an amount in cash equal to
the unused portion, if any, of the Reserve in accordance with
Section 2.6.
(b) The Purchase Price under Section 2.1(a)(i), less a credit
in the amount of One Million Nine Hundred Nineteen Thousand Seven
Hundred Nine and 88/100 Dollars ($1,919,709.88) (which represents
the aggregate amount of Remittances received by FMAC or Seller with
respect to the Finance Contracts between the Effective Date and the
close of business on December 16, 1997 net of Remittances dishonored
or returned during such period), shall be paid by or on behalf of
Purchaser at the Closing to Seller by wire transfer of immediately
available funds to such account as Seller shall direct in writing
not less than two (2) Business Days prior to Closing as follows:
(i) an amount by UDC equal to Three Million and no/100
Dollars ($3,000,000.00) (the "Holdback") which represents
UDC's calculation of the Aggregate Principal Balance as of
December 15, 1997 of the Undelivered Finance Contracts and the
Nonassigned Finance Contracts; and
(ii) an amount by Purchaser equal to Seventy-Five
Million Nine Hundred Twenty-One Thousand Seven Hundred Six and
48/100 Dollars ($75,921,706.48) which represents the balance
of the Purchase Price payable at Closing under this Section
2.1(b).
(c) Seller shall cause to be paid to Purchaser any Remittances
for Finance Contracts which were not applied prior to the posting of
the Outstanding Principal Balance for such Finance Contracts used in
the calculation of the Purchase Price or which were
13
<PAGE> 21
received after the Effective Date and were not credited against the
Purchase Price under Section 2.1(b).
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price for the
Purchased Assets shall be allocated to and among the Purchased Assets in the
manner set forth on Exhibit C hereto. Each party shall report the sale and
purchase of the Purchased Assets contemplated by this Agreement on all
applicable federal, state, local and foreign income, franchise, excise and sales
tax returns in accordance with such allocation. The parties agree to provide
such cooperation and information as may be required by the other for the purpose
of preparing such reports.
2.3 CREATION OF RESERVE.
(a) Purchaser has agreed to purchase Eligible Finance
Contracts based on the assumption that most of the Scheduled
Payments shall be paid within a certain period of their due dates.
Because the purchased Finance Contracts may not perform well enough
to meet Purchaser's assumptions, Seller has agreed to fund the
Reserve to allow Purchaser a way to recover, to the extent of the
Reserve and the Guaranty, shortfalls from the assumed performance.
The Reserve shall be established on the Closing Date. The initial
amount of the Reserve shall be fourteen percent (14%) of the
Aggregate Principal Balance of the Eligible Finance Contracts
purchased on the Closing Date. At the end of each subsequent Due
Period, the Reserve shall be required to equal the Required Reserve
Level. The Reserve shall be maintained by Purchaser as a book-entry
account and shall not consist of segregated funds or an interest in
cash. Purchaser may commingle and use as its own funds any funds
which are accounted for as an addition to the Reserve. The Reserve
shall not bear or earn interest. The only right, title and interest
of Seller with respect to the Reserve shall be the residual right to
receive any remaining balance as provided in Section 2.6 after the
deduction of all charges to the Reserve that Purchaser has a right
to make pursuant to this Agreement or the Servicing Agreement.
(b) (i) Seller hereby grants to Purchaser a security interest
in all of its right, title and interest in the Reserve and payments
to be made under Section 2.4(a)(viii) and (ii) UDC hereby grants to
Purchaser a security interest in all of its right, title and
interest in the Reserve, the Holdback and reimbursement of any
amounts paid by UDC under the Guaranty, in each case, to secure the
obligations of Seller and UDC to Purchaser under this Agreement, the
obligations of UDC to Purchaser under the Guaranty and the
obligations of UDC, as servicer, under the UDC Servicing Agreement
(collectively, the "Secured Obligations"). In the event that any
party other than Purchaser defaults under any Secured Obligation and
such default continues beyond any applicable grace period, Seller
and UDC shall be deemed to be in default hereunder and Purchaser
shall have all of the rights of secured party under the applicable
version of the Uniform Commercial Code with respect to the
collateral in which Seller and UDC have granted Purchaser a security
interest hereunder and Purchaser shall have the right to set off any
obligations of Seller and UDC to Purchaser against any payments owed
under this Agreement by Purchaser to Seller and UDC, respectively.
14
<PAGE> 22
2.4 MONTHLY ADJUSTMENTS.
(a) As of the last Business Day of each Due Period, the
Remittances for such Due Period, net of Remittances dishonored or
returned during such Due Period plus any payments made by UDC under
the Guaranty during the applicable Due Period and interest earned on
Remittances or payments under the Guaranty at the rate of 10.35% per
annum from the date received until the end of such Due Period, shall
be applied, to the extent of Remittances and the aforementioned
Guaranty payments and interest available and unless otherwise not
payable under the terms of this Agreement or the Servicing
Agreement, in the following order (the "Monthly Adjustments"):
(i) payment of the Servicing Fee;
(ii) payment to Purchaser of the Monthly Yield of all
Finance Contracts;
(iii) prior to the second anniversary of the Closing
Date, $10,000 as payment to Purchaser to reimburse Purchaser
for audit, maintenance and other administrative expenses
relating to the Finance Contracts;
(iv) payment to Purchaser of the aggregate Monthly
Principal of all Finance Contracts;
(v) payment to Purchaser of all Charge-Off Deficiencies
related to all Finance Contracts;
(vi) payment to Purchaser for addition to the Reserve to
the extent necessary to restore the Reserve to the Required
Reserve Level;
(vii) so long as the Reserve is maintained at the
Required Reserve Level, reimbursement to UDC of any amounts
paid by UDC to Purchaser under the Guaranty (excluding any
amounts paid under Section 9 of the Guaranty); and
(viii) prior to the first anniversary of the Closing
Date, as payment to Purchaser for addition to the Reserve, and
after the first anniversary of the Closing Date, as payment to
Seller;
(b) To the extent the Remittances for any Due Period, net
of Remittances dishonored or returned during the Due Period, and
said Guaranty payments and interest are insufficient to satisfy in
full items (i)-(v) above for all Finance Contracts, then the
additional amount required to satisfy in full items (i)-(v) above
for all Finance Contracts for such Due Period shall be deducted from
the Reserve balance.
(c) Within ten (10) Business Days after the end of such Due
Period, Purchaser shall require the servicer under the Servicing
Agreement to provide a report to Purchaser
15
<PAGE> 23
setting forth all of the information reasonably necessary to make
the payments under Section 2.4(a)(i)-(viii), and within fifteen (15)
days after the end of such Due Period Purchaser shall pay the
amounts set forth in Section 2.4(a)(i), (v) and (viii).
2.5 SHORTFALLS AND CHARGES. In the event that all Remittances
collected on or prior to the Discharge Date are not sufficient to restore the
Reserve to the Required Reserve Level, Purchaser shall have no liability to pay
any such shortfall. In addition to other charges allowed by this Agreement or
the Servicing Agreement, Purchaser shall have the right to charge the Reserve
for (a) all amounts which Seller or UDC owes to Purchaser pursuant to this
Agreement or otherwise but fails to pay when due, and (b) all amounts which
Purchaser incurs to perform or enforce any obligations of Seller or UDC under
this Agreement, the servicer under the Servicing Agreement or UDC under the
Guaranty.
2.6 PAYMENT OF RESERVE BALANCE.
(a) Monthly Reserve Fund. After the Monthly Adjustments are
made pursuant to Section 2.4 hereof and subject to Section
2.4(a)(viii), if Purchaser has received through Remittances and/or
the Reserve all of the Required Monthly Returns for all of the
Finance Contracts, Seller and UDC have performed all of their
respective obligations under this Agreement, the servicer has
performed all of its obligations under the Servicing Agreement and
UDC has performed all of its obligations under the Guaranty,
Purchaser shall pay first to reimburse UDC for any payments made by
UDC under the Guaranty and second to Seller the amount by which the
positive balance, if any, of the Reserve exceeds the Required
Reserve Level.
(b) Final Reserve Payment. Provided that Purchaser has
received through Remittances and/or the Reserve all of the Required
Monthly Returns for all of the Finance Contracts and all other
amounts due to Purchaser under the Servicing Agreement and this
Agreement, then within thirty (30) days after the Discharge Date,
Purchaser shall pay first to reimburse UDC for any payments made by
UDC under the Guaranty and second to Seller the positive balance, if
any, of the Reserve. The respective interests of Seller and UDC in
the Reserve shall at all times be merely a residual interest in the
positive balance of the Reserve as of the Discharge Date, if any,
after Purchaser has received all amounts due Purchaser hereunder,
including, without limitation, the Required Monthly Returns.
2.7 HOLDBACK.
(a) The Holdback shall be maintained by Purchaser as a book
entry account and shall not consist of segregated funds or an
interest in cash. The Holdback, without interest, shall be payable
to UDC at the time or times set forth in and in accordance with the
terms of Section 2.7(b). Until such time or times, UDC shall have no
right to payment of any of the Holdback.
16
<PAGE> 24
(b) In the event that on or before January 31, 1998 UDC
delivers to Purchaser the original executed copy of an Undelivered
Finance Contract or a Magna Assignment to a Nonassigned Finance
Contract, Purchaser shall release from the Holdback to UDC an amount
equal to the Aggregate Principal Balance as of the Effective Date of
such Undelivered Finance Contract or of such Nonassigned Finance
Contract, as may be appropriate; provided, however, that said date
shall be extended to February 28, 1998 in the event that on or
before January 31, 1998 UDC shall have delivered to Purchaser the
original executed copies of Undelivered Finance Contracts and Magna
Assignments to Nonassigned Contracts, which as of the Effective Date
constituted two-thirds (2/3) or more of the Aggregate Principal
Balance of all Undelivered Finance Contracts and Nonassigned
Contracts (the applicable of such two dates is referred to herein as
the "Holdback Termination Date"). All payments due hereunder from
Purchaser to UDC shall be made on the date the Servicing Fee is
payable to the servicer under the Servicing Agreement in the month
immediately following the month in which the original executed copy
of any Undelivered Finance Contract or a Magna Assignment to a
Nonassigned Finance Contract is received by Purchaser.
Notwithstanding the foregoing, in the event Purchaser reasonably
determines at any time after the Closing that the Aggregate
Principal Balance of the Undelivered Finance Contracts and/or
Nonassigned Finance Contracts will or will likely exceed the balance
of the Holdback, in addition to all other rights and remedies
available to Purchaser, Purchaser shall have no obligation to make
any further payments of the Holdback to UDC until and unless
Purchaser shall have determined that the amount of the Holdback
exceeds the Aggregate Principal Balance of the Undelivered Finance
Contracts and/or Nonassigned Finance Contracts. In the event the
Holdback is less than the Aggregate Principal Balance of the
Undelivered Finance Contracts and/or Nonassigned Finance Contracts,
Purchaser shall be entitled to charge any losses that it suffers by
reason thereof against the Reserve. All Remittances received by
Purchaser with respect to the Undelivered Finance Contracts and/or
Nonassigned Finance Contracts shall be applied in accordance with
Section 2.4(a). As of the Holdback Termination Date, the Aggregate
Principal Balance as of the Effective Date of all Eligible Finance
Contracts which are Undelivered Finance Contracts or Nonassigned
Finance Contracts as of the Holdback Termination Date shall be added
to the Reserve and UDC shall have no further rights in or to any
portion of the Holdback.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UDC AND SELLER
3.1 REPRESENTATIONS AND WARRANTIES OF UDC. As an inducement to
Purchaser to enter into this Agreement, UDC hereby represents and warrants
to Purchaser as of the date hereof and as of the Closing Date that:
(a) Organization and Power. UDC is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware. UDC has all requisite
17
<PAGE> 25
power and authority and all material licenses, permits and other
authorizations necessary to own and operate its properties, to carry
on its business as currently conducted and, as holder of a majority
in interest of the Loans, to direct Seller to purchase the Purchased
Assets pursuant to the Final Sale Order and to sell the Purchased
Assets to Purchaser pursuant to this Agreement. The Seller
Agreements (as defined below) shall constitute a valid sale,
transfer and assignment to Purchaser of the Purchased Assets
enforceable against creditors of and purchasers from Seller and
FMAC.
(b) Authorization; No Breach. The execution, delivery and
performance of this Agreement, the UDC Servicing Agreement, the
Guaranty and the other agreements contemplated hereby to be
executed by UDC (the "UDC Agreements") and the transactions
contemplated thereby have been duly and validly authorized by UDC.
No other corporate act or proceeding on the part of the Board of
Directors or stockholders of UDC is necessary to authorize the
execution or delivery of, or performance under, the UDC Agreements,
or the consummation of the transactions contemplated thereby. The
UDC Agreements have been or at or prior to the Closing will be duly
executed and delivered by UDC, and this Agreement constitutes, and
upon execution and delivery of the other UDC Agreements by UDC, the
other UDC Agreements shall each constitute, a valid and binding
obligation of UDC, enforceable in accordance with its terms. The
execution, delivery and performance of the UDC Agreements by UDC and
the consummation of the transactions contemplated thereby does not
and shall not (i) conflict with or result in any breach of any of
the provisions of; (ii) constitute a default under, result in a
violation of, cause the acceleration of any obligation, or give rise
to any purchase or sale obligation under; (iii) result in the
creation of any Lien upon any of the Purchased Assets under; or (iv)
require any authorization, consent, approval, exemption or other
action by or notice to any Governmental Entity under, the provisions
of UDC's charter or by-laws or any Contract by which UDC is bound or
affected (including, without limitation, the Loan Agreement), the
Final Sale Order or any Law to which UDC is subject or by which any
of the Purchased Assets are bound.
(c) Title to Purchased Assets. On the Closing Date, Seller
shall own good and marketable title to the Purchased Assets, free
and clear of all Liens. At the Closing, Seller shall convey to
Purchaser good and marketable title to the Purchased Assets, free
and clear of all Liens.
(d) Litigation; Proceedings. There are no actions, suits,
proceedings, orders or investigations pending or, to the best
knowledge of UDC, threatened against or affecting UDC, Seller or the
Purchased Assets at law or in equity, or before or by any
Governmental Entity which (i) asserts the invalidity of this
Agreement, (ii) seeks to prevent the consummation of any of the
transactions contemplated by this Agreement, or (iii) seeks any
determination or ruling that, if determined adversely to UDC or
Seller, would have a Material Adverse Effect on the performance by
UDC or Seller of their respective obligations under, or the validity
or enforceability of, any of the UDC Agreements or Seller
Agreements, and there is no basis known to UDC for any of the
foregoing.
18
<PAGE> 26
(e) Brokerage. There are no claims for brokerage commissions,
finders fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement
or agreement made by or on behalf of UDC or Seller.
(f) Governmental Consents, Etc. Except for Bankruptcy Order,
no permit, consent, approval or authorization of, or declaration to
or filing with, any Governmental Entity is required in connection
with the execution, delivery or performance of the Seller Agreements
by Seller or the UDC Agreements by UDC, or the consummation by
Seller or UDC of any of the transactions contemplated thereby.
(g) Compliance with Laws. Seller and UDC have complied with
all applicable Laws of all Governmental Entities which affect the
Purchased Assets or to which either of them may otherwise be
subject, including, without limitation, the Bankruptcy Code,
Bankruptcy Rules and orders of the Bankruptcy Court. No claim has
been filed against Seller or UDC alleging a violation of any such
Law and no basis exists for any such claim. Seller holds all of the
permits, licenses, certificates, consents and other authorizations
of Governmental Entities required under all applicable laws for the
acquisition and sale to Purchaser of the Purchased Assets.
(h) Disclosure. UDC has responded in all respects to all
written requests for information and has accurately answered in all
respects, all written questions from Purchaser concerning the
Purchased Assets, properties, liabilities, financial condition,
results of operations or prospects of the Business, and UDC has not
withheld any facts relating thereto which are material with respect
to the Purchased Assets, properties, liabilities, financial
condition, results of operations or prospects of the Business, taken
as a whole. There is no fact known to UDC relating to Seller or
FMAC, or to the prospects, operations, affairs or financial
condition of the Business, which materially and adversely affects or
in the future could reasonably be expected to materially and
adversely affect the same which has not been disclosed in this
Agreement or the Exhibits or Schedules hereto.
(i) Closing Date. All of the representations and warranties of
UDC in this Section 3.1, Article 4 and elsewhere in this Agreement
and all information delivered in any schedule, attachment or exhibit
hereto or in any certificate delivered to Purchaser by are true and
correct in all respects on the date of this Agreement and shall be
true and correct in all respects on the Closing Date.
3.2 REPRESENTATIONS AND WARRANTIES OF SELLER. As an inducement to
Purchaser to enter into this Agreement, Seller hereby represents and
warrants to Purchaser as of the date hereof and as of the Closing Date
that:
(a) Organization and Power. Seller is a national banking
association duly organized, validly existing and in good standing
under the laws of the United States of America. Seller has all
requisite power and authority to purchase the Purchased Assets
pursuant to the Final Sale Order and to sell them to Purchaser
pursuant to this Agreement.
19
<PAGE> 27
(b) Authorization; No Breach. Seller is the duly constituent
and acting agent of the Lenders under the Loan Agreement. The
execution, delivery and performance of this Agreement and the other
agreements contemplated hereby to be executed and delivered by
Seller (the "Seller Agreements") and the transactions contemplated
hereby and thereby have been duly and validly authorized by Seller
and, to the extent required, the Lenders. No other act or proceeding
on the part of Seller or the Lenders is necessary to authorize the
execution or delivery of, or performance under, the Seller
Agreements or the consummation of the transactions contemplated
thereby. This Agreement and the other Seller Agreements have been or
at or prior to the Closing will be duly executed and delivered by
Seller, and constitute (i) a valid sale, transfer and assignment to
Purchaser of the Purchased Assets enforceable against creditors of
and purchasers from Seller and (ii) this Agreement constitutes, and
the other Seller Agreements, upon execution and delivery thereof by
Seller, shall each constitute, a valid and binding obligation of
Seller, enforceable in accordance with its terms. The execution,
delivery and performance of the Seller Agreements by Seller and the
consummation of the transactions contemplated hereby and thereby
does not and shall not (A) conflict with or result in any breach of
any of the provisions of; (B) constitute a default under, result in
a violation of, cause the acceleration of any obligation, or give
rise to any purchase or sale obligation under; (C) result in the
creation of any Lien upon any of the Purchased Assets under; or (D)
require any authorization, consent, approval, exemption or other
action by or notice to any Governmental Entity under, the provisions
of Seller's charter or by-laws or any Contract by which Seller is
bound or affected, or any Law to which Seller is subject.
(c) Title to Purchased Assets. On the Closing Date, Seller
shall own good and marketable title to the Purchased Assets, free
and clear of all Liens. At the Closing, Seller shall convey to
Purchaser good and marketable title to, the Purchased Assets, free
and clear of all Liens other than Liens.
(d) Closing Date. All of the representations and warranties of
Seller in this Section 3.2 and elsewhere in this Agreement and all
information delivered in any schedule, attachment or exhibit hereto
or in any certificate delivered to Purchaser by Seller are true and
correct in all respects on the date of this Agreement and shall be
true and correct in all respects on the Closing Date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
AS TO THE FINANCE CONTRACTS
4.1 REPRESENTATIONS AND WARRANTIES AS TO THE FINANCE CONTRACTS.
As a further inducement to Purchaser to enter into this Agreement, UDC hereby
represents and warrants to
20
<PAGE> 28
Purchaser with respect to the Finance Contracts as of the Effective Date and as
of the Closing Date that, to UDC's knowledge:
(a) Finance Contracts. As to each Finance Contract (i) the
Finance Contract has been validly sold and assigned to FMAC by any
holder immediately preceding FMAC, free from all Liens, in the
ordinary course of business of such holder, (ii) the Finance
Contract was purchased from any holder immediately preceding FMAC in
the ordinary course of FMAC's business, (iii) FMAC has paid any
holder immediately preceding FMAC the entire amount owed by FMAC to
the holder in connection with FMAC's purchase of the Finance
Contract, (iv) the Finance Contract is an Eligible Finance Contract,
(v) the Finance Contract is "chattel paper" as that term is used in
the UCC, and (vi) the Finance Contract contains customary and
enforceable provisions such that the rights and remedies of the
holder thereof are adequate for enforcement of Contract Debtor's
obligation to pay the amounts due thereunder, and are adequate for
realization of the security interest against the Financed Vehicle in
the event of default.
(b) List of Finance Contracts. The information set forth in
the List of Finance Contracts on Schedule 4.1(b) is true and
accurate in all respects as of the Effective Date and will be
updated on or prior to the Closing to be true and accurate in all
respects as of the Closing and such updated Schedule 4.1(b) shall be
delivered to Purchaser on or prior to the Closing.
(c) Compliance with Law. Each Finance Contract and the sale of
the Financed Vehicle complied at the time it was made, and each
Finance Contract complies with, all requirements of applicable Laws,
including, without limitation, usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations
"B" and "Z," and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code, and other consumer credit Laws,
equal credit opportunity and disclosure Laws.
(d) Account History. FMAC has maintained accurate records of
all financial transactions, documents, and material conversations
regarding the Finance Contracts, Financed Vehicles and Contract
Debtors, including without limitation, Contract Debtor Documents for
each Finance Contract, and such records are computerized regarding
financial transactions and Contract Debtor contacts.
(e) Binding Obligation. Each Finance Contract and associated
Contract Right is a genuine, legal, valid and binding obligation of
the Contract Debtor, enforceable by the holder thereof in accordance
with its terms.
(f) Security Interest in Financed Vehicle. The Contract
Debtor's obligations with respect to each Finance Contract are
secured by a validly perfected first priority security interest in
the Financed Vehicle in favor of Seller as secured party and the
sale under this
21
<PAGE> 29
Agreement shall convey to Purchaser the validly perfected first priority
security interest in the Financed Vehicle.
(g) Enforceable Obligations. There are no facts, events or
occurrences known to UDC or Seller which would in any way impair the
validity, collectibility or enforcement of any Finance Contract or
associated Contract Right or tend to reduce the amount payable by the
Contract Debtor on any Finance Contract or the obligated party for any
Contract Right.
(h) Contract in Force. No Finance Contract has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released from
the security interest granted by the Finance Contract in whole or in part,
and Seller's and each prior holder's obligations under the Finance
Contract have been performed in accordance with the terms thereof, except
those which first shall arise subsequent to the Closing.
(i) No Modifications. No provision of a Finance Contract has been
waived, altered or modified in any respect except for routine extensions
done in accordance with FMAC's customary extension routines to the extent
allowed by item (d) of the definition of Eligible Finance Contract.
(j) No Defenses. No claim of rescission, setoff, counterclaim or
defense has been asserted or threatened with respect to any Finance
Contract or associated Contract Rights.
(k) No Liens. There are no Liens for work, labor or materials or
otherwise relating to a Financed Vehicle that are Liens prior to or equal
with the Lien granted by the Finance Contract and no Financed Vehicle has
been materially damaged and not repaired.
(l) Insurance. Each Finance Contract required the Contract Debtor to
obtain Required Contract Debtor Insurance and as of the date the Contract
Debtor entered into such Finance Contract FMAC was noted as an additional
insured, loss payee, or lienholder on any such insurance policy actually
obtained. There is no claim pending with respect to Required Contract
Debtor Insurance or Optional Contract Debtor Insurance.
(m) No Reductions. No arrangements have been made with any Contract
Debtor or Contract Rights obligor for the reduction of any amounts due
under a Finance Contract or Contract Rights.
(n) All Filings Made. All filings (including, without limitation,
UCC filings) necessary in any applicable jurisdiction to give Seller the
paramount interest in the Finance Contracts have been made.
(o) Registration of Vehicles. Each Financed Vehicle has been
registered with the appropriate department of motor vehicles or
corresponding agency in the state in which the Financed Vehicle is located
and all fees and taxes due in connection with the registration and
Contract Debtor's purchase have been paid in full.
22
<PAGE> 30
(p) Registered Owner. A Certificate of Title has been issued, or
applied and paid for, for each Financed Vehicle. All fees and taxes due in
connection with the titling of the Financed Vehicles have been paid in
full.
(q) Capacity. Each of the Contract Debtors for the Finance Contracts
had the capacity to contract at the time the Finance Contract was
executed.
(r) No Setoffs. There are no disputes existing or asserted with
respect to any Finance Contracts or associated Contract Rights.
(s) Bona Fide Transactions. The Finance Contracts represent
undisputed, bona fide transactions being carried out in accordance with
the terms and provisions contained in the Finance Contracts.
(t) Insurance Company. Neither FMAC nor any of its officers,
directors, employees, agents or representatives has taken any action which
would require FMAC or any such officer, director, employee, agent or
representative to obtain a license or qualify to do business as an
insurance company or insurance agent under any Law.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller and UDC as of the date
hereof and as of the Closing Date that:
5.1 CORPORATE ORGANIZATION AND POWER. Purchaser is a corporation duly
organized and validly existing under the laws of the State of New York with full
corporate power and authority to enter into this Agreement and the other
agreements contemplated hereby and perform its obligations hereunder and
thereunder.
5.2 AUTHORIZATION. The execution, delivery and performance by Purchaser of
this Agreement and the other agreements contemplated hereby to which Purchaser
is a party (the "Purchaser Agreements") and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
requisite corporate and stockholder action on the part of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize
the execution, delivery or performance of the Purchaser Agreements.
5.3 GOVERNMENTAL AUTHORITIES AND CONSENTS. Subject to approval of this
Agreement by the Bankruptcy Court as provided herein, Purchaser is not required
to submit any notice, report or other filing with any Governmental Entities in
connection with the execution or delivery by Purchaser of this Agreement or the
consummation of the transactions contemplated hereby. No
23
<PAGE> 31
consent, approval or authorization of any Governmental Entity or any other
Person is required to be obtained by Purchaser in connection with its execution,
delivery and performance of the Purchaser Agreements or the transactions
contemplated hereby, except for the approval of the Bankruptcy Court as provided
herein.
5.4 BROKERAGE. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Purchaser.
5.5 LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Purchaser's knowledge, threatened
against or affecting Purchaser, at law or in equity, or before or by any
Governmental Entities which would materially adversely affect Purchaser's
performance under this Agreement or the consummation of the transactions
contemplated hereby.
5.6 CLOSING DATE. All of the representations and warranties of Purchaser
contained in this Article 5 and elsewhere in this Agreement and all information
delivered in any schedule, attachment or exhibit hereto or in any certificate
delivered to Seller are true and correct in all material respects on the date of
this Agreement and shall be true and correct in all material respects on the
Closing Date.
ARTICLE 6
COVENANTS PRIOR TO CLOSING
6.1 AFFIRMATIVE COVENANTS. From the date hereof until prior to the
Closing, UDC shall:
(a) keep in full force and effect its corporate existence and all of
its material rights and franchises;
(b) use reasonable efforts to permit Purchaser and its employees,
agents, accounting and legal representatives and potential lenders and
their respective representatives to have access to FMAC's books, records,
invoices, Contracts, key personnel, independent public accountants,
property, facilities, equipment and other items reasonably related to the
Business or the Purchased Assets;
(c) use its best efforts to obtain all consents and approvals
necessary or desirable to consummate the transactions contemplated hereby
and to cause the other conditions to Purchaser's obligation to close to be
satisfied;
(d) promptly inform Purchaser in writing of any variances from the
representations and warranties contained in Article 3 or 4 of this
Agreement; and
24
<PAGE> 32
(e) keep Purchaser and its counsel fully apprised of all Bankruptcy
Proceedings, and, prior to making any filing with the Bankruptcy Court
that relates to or affects this Agreement or the transactions contemplated
hereby, shall allow Purchaser and its counsel reasonable time under the
circumstances to comment on any such filing.
6.2 NEGATIVE COVENANTS. Prior to the Closing, without the prior written
consent of Purchaser, UDC shall not directly or indirectly (including through
any agent, broker, finder or other third party), offer or agree to sell, dispose
of, negotiate (whether such negotiations are initiated by any third Person or
otherwise) for the sale or other disposition of, initiate, continue discussions
or provide any information concerning the sale or other disposition of Purchased
Assets or UDC's interest in the Loans.
6.3 BANKRUPTCY COURT APPROVAL. Upon execution of this Agreement and to the
extent it has not already done so, UDC shall cause Seller promptly to file its
motion ("Motion") for approval of the credit bid that UDC shall cause Seller to
make to purchase the Purchased Assets from FMAC and the transactions
contemplated hereby (collectively, the "Transaction") with the Bankruptcy Court
and shall immediately serve notice (in form and substance acceptable to
Purchaser) of the hearing on the Motion and the Transaction on FMAC's creditors,
stockholders, the IRS, other relevant taxing authorities and other parties in
interest entitled to such notice pursuant to 11 U.S.C. Section 363 and the
relevant sections of Bankruptcy Rule 2002, 6004, 6006, 9008 and 9014. UDC shall
seek the earliest date and time available for a hearing on the Motion, if
required, and the Transaction and objections, if any, thereto. UDC shall
promptly notify Purchaser and its legal counsel of any and all objections to the
Motion and the Transaction, and UDC shall be responsible for responding to any
and all such objections and for securing the entry of the Bankruptcy Order as
defined below. UDC, to the extent necessary, shall also oppose any motion to
alter or amend the Bankruptcy Order and any motion for a stay of the Bankruptcy
Order pending an appeal unless such motions are made by UDC and consented to by
Purchaser.
ARTICLE 7
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE
7.1 CONDITIONS TO PURCHASER'S OBLIGATION. The obligation of Purchaser to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) the Bankruptcy Court shall have entered an order, in form and
substance satisfactory to legal counsel for Purchaser, which order (the
"Bankruptcy Order"), among other things, shall, unless specifically waived
in writing by Purchaser: (i) make a finding that those matters which are
the subject of the Transaction are "core" matters over which the
Bankruptcy Court has jurisdiction pursuant to 28 U.S.C. Sections 1334
and 157; (ii) make a finding that due and proper notice of the Transaction
has been given to creditors, stockholders and other parties in interest
pursuant to 11 U.S.C. Section 363 and the relevant sections of the
25
<PAGE> 33
Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006 and 9014; (iii) make
a finding that the credit bid made by Seller at the direction of UDC
constitutes fair value for the Purchased Assets; (iv) make a finding that
the Purchased Assets are being purchased by Seller in good faith and that
credit bid made by Seller at the direction of UDC was not controlled by an
agreement among potential bidders; (v) make a finding that "sound business
reasons" exist for court approval of the Transaction outside of a plan of
reorganization; (vi) make a finding that the Finance Contracts are not
executory contracts pursuant to 11 U.S.C. Section 365; (vii) approve the
Transaction, and provide that the Purchased Assets are to be conveyed by
FMAC to Seller free and clear of any and all interests in such Purchased
Assets, including, but not limited to, mortgages, liens, security
interests, encumbrances, claims, restrictions and limitations pursuant to
11 U.S.C. Sections 363(b) and (f); (viii) provide that the Purchaser
is expressly subject to 11 U.S.C. Section 363(m) and Bankruptcy Rule 7054;
(ix) provide that Seller shall not be liable or obligated for any
liabilities, Liens, interests, damages, costs, expenses, claims or demands
arising from or relating to FMAC's ownership or operation of the Purchased
Assets or FMAC's conduct of the Business prior to the Closing Date,
including, without limitation, any liability or obligations for any breach
of any Contracts that are Assumed Liabilities or violation of any Law in
connection therewith; (x) direct the Clerk of the Bankruptcy Court to
enter the Bankruptcy Order and provide that there is no just reason to
delay entry of the Bankruptcy Order pursuant to Bankruptcy Rule 7054; and
(xi) specifically overrules objections, if any, to the Transaction;
provided, however, that the Bankruptcy Order shall not have been stayed,
materially modified, withdrawn or reversed as of Closing, and that as of
Closing no motion for a stay of the Bankruptcy Order pending appeal has
been timely filed and granted in a court of competent jurisdiction and
that the authorization pursuant to the Bankruptcy Order and the
Transaction have not been stayed by a court of competent jurisdiction;
(b) the representations and warranties set forth in Article 3 and 4
hereof shall be true and correct in all material respects at and as of the
Closing as though then made and as though the Closing Date was substituted
for the date of this Agreement; provided, however, that said materiality
qualifier shall not apply to any representation or warranty that contains
a materiality qualifier;
(c) Seller and UDC each shall have performed all of the covenants
and agreements required to be performed by it under this Agreement prior
to the Closing, including, without limitation, the delivery of all
documents referred to in Sections 9.3(a) and (b);
(d) there shall have been no material adverse change in the
operations, financial condition, operating results, the Purchased Assets
or business prospects of the Business or the occurrence of any event or
existence of any circumstance which could reasonably be expected to result
in the same, except for the filing of the Petition;
26
<PAGE> 34
(e) all governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby
shall have been duly made and obtained on terms and conditions reasonably
satisfactory to Purchaser;
(f) all consents of third parties that are required (i) for the
transfer of the Purchased Assets to Seller and subsequently to Purchaser,
(ii) for the consummation of the transactions contemplated hereby or (iii)
to prevent a breach of, or a default under or a termination or
modification of, any Finance Contract to be acquired by Purchaser or to
which any of the Purchased Assets are subject, and releases of all Liens
on the Purchased Assets shall have been obtained on terms and conditions
satisfactory to Purchaser;
(g) no action or proceeding before any Governmental Entity shall be
pending or have been asserted in writing which, in the judgment of
Purchaser, made in good faith and upon the advice of counsel, makes it
inadvisable or undesirable to consummate the transactions contemplated
hereby by reason of the probability that the action or proceeding shall
result in a judgment, decree or order which would prevent the consummation
of this Agreement or any of the transactions contemplated hereby, declare
unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded;
(h) Purchaser shall have received from counsel to UDC, an opinion
with respect to the matters set forth in Exhibit D attached hereto,
addressed to Purchaser and dated the Closing Date, in form and substance
satisfactory to Purchaser;
(i) concurrently with the Closing, Purchaser, FMAC and Seller shall
have duly executed and delivered to one another the FMAC Servicing
Agreement and Purchaser and UDC shall have duly executed and delivered to
one another the UDC Servicing Agreement;
(j) concurrently with the Closing, UDC shall have duly executed and
delivered to Purchaser the Guaranty;
(k) Purchaser shall have completed its due diligence review of the
business and operations of FMAC to its satisfaction;
(l) Seller shall have delivered to Purchaser an executed UCC
financing statement containing the language set forth in Exhibit E
attached hereto sufficiently far in advance of the Closing to be filed and
file-searched by Purchaser prior to the Closing;
(m) all proceedings to be taken by FMAC, Seller and UDC in
connection with the consummation of the Closing and the other transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated hereby
reasonably requested by Purchaser shall be reasonably satisfactory in form
and substance to Purchaser and its counsel; and
27
<PAGE> 35
(n) FMAC and UDC shall have entered into a consultation and
assistance agreement with respect to the FMAC Servicing Agreement in form
and substance satisfactory to Purchaser.
7.2 WAIVER BY PURCHASER. Any conditions specified in Section 7.1 may be
waived by Purchaser; provided, however, that except as otherwise provided in
Section 11.3 hereof, no such waiver shall be effective unless it is set forth in
a writing executed by Purchaser.
ARTICLE 8
CONDITIONS TO THE OBLIGATION OF SELLER AND UDC TO CLOSE
8.1 CONDITIONS TO THE OBLIGATION OF SELLER AND UDC. The obligation of
Seller and UDC to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) the representations and warranties of Purchaser set forth in
Article 5 hereof shall be true and correct in all material respects at and
as of the Closing as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations
and warranties;
(b) Purchaser shall have performed in all material respects all of
the covenants and agreements required to be performed by it under this
Agreement prior to the Closing;
(c) the Bankruptcy Court shall have approved the Transaction as
provided herein and entered the Final Sale Order; and
(d) Seller shall have acquired the Purchased Assets pursuant to 11
U.S.C. Section 363.
8.2 WAIVER BY SELLER OR UDC. Any condition specified in Section 8.1 may be
waived by Seller or UDC; provided, however, that except as otherwise provided in
Section 11.3 hereof, no such waiver shall be effective against Seller or UDC
unless it is set forth in a writing executed by Seller or UDC, respectively.
ARTICLE 9
CLOSING TRANSACTIONS
9.1 THE CLOSING. Subject to the conditions contained in this Agreement,
the closing of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Vedder, Price, Kaufman & Kammholz in Chicago,
Illinois at 10:00 a.m. local time on December 18,
28
<PAGE> 36
1997, or at such other place or on such other date as may be mutually agreeable
to the parties. The date and time of the Closing are referred to herein as the
"Closing Date".
9.2 ACTION TO BE TAKEN AT THE CLOSING. The sale, conveyance, assignment
and delivery of the Purchased Assets and the payment of the amount of the
Purchase Price payable at the Closing pursuant to the terms of this Agreement
shall take place at the Closing and, simultaneously, the other transactions
contemplated by this Agreement shall take place by the delivery of the closing
documents set forth in Section 9.3.
9.3 CLOSING DOCUMENTS.
(a) Seller hereby agrees to deliver to Purchaser at the Closing the
following documents, duly executed by Seller and/or FMAC where necessary
to make them effective:
(i) copies of all necessary third party and governmental
consents, approvals, releases and filings required in order to
effectuate the transactions contemplated by the Final Sale Order and
this Agreement;
(ii) such instruments of sale, transfer, assignment,
conveyance and delivery (including all vehicle titles), as are
required in order to transfer to Purchaser good and marketable title
to the Purchased Assets, free and clear of all Liens;
(iii) all of the Contract Debtor Documents, a limited power of
attorney in the form of Exhibit G attached hereto from FMAC to
Seller, the Blanket Endorsement in the form of Exhibit H attached
hereto from FMAC to Seller, an Insurance Assignment in the form of
Exhibit I attached hereto from FMAC to Seller, and an assignment
from FMAC to Seller of each UCC Financing Statement filed of record
in any jurisdiction that identifies FMAC as the secured party
thereon;
(iv) a limited power of attorney in the form of Exhibit G
attached hereto from Seller to Purchaser, the Blanket Endorsement in
the form of Exhibit H attached hereto from Seller to Purchaser, an
Insurance Assignment in the form of Exhibit I attached hereto from
Seller to Purchaser and an assignment to Purchase of each UCC
Financing Statement referred to in (iv) above;
(v) a certified copy of the Bankruptcy Order from the
Bankruptcy Court and a certified copy of the docket sheet from the
Bankruptcy Court, showing, unless specifically waived in writing by
Purchaser: (A) the entry of the Bankruptcy Order on the docket
sheet; (B) if timely motions to alter or amend the Bankruptcy Order
have been filed with the Bankruptcy Court, then the entry of an
order by the Bankruptcy Court which order overrules or denies such
motions; or (C) if timely notices of appeal have been filed with the
Bankruptcy Court, that no orders for a stay pending appeal have been
granted; or that the authorization pursuant to the
29
<PAGE> 37
Bankruptcy Order and the Transaction have not been stayed by a court
of competent jurisdiction;
(vi) such other documents or instruments as Purchaser may
reasonably request to effect the transactions contemplated hereby.
All of the foregoing documents in this Section 9.3(a) shall be
satisfactory in form and substance to Purchaser and shall be dated the
Closing Date.
(b) At the Closing, UDC shall deliver to Purchaser the following
items, duly executed by UDC where necessary to make them effective:
(i) a certificate of UDC in the form set forth in Exhibit F
attached hereto, stating that the preconditions specified in Section
7.1(a) through (n), inclusive, have been satisfied;
(ii) certified copies of the resolutions duly adopted by the
Board of Directors of UDC authorizing the execution, delivery and
performance of the UDC Agreements, and the consummation of all other
transactions contemplated by the UDC Agreements; and
(iii) such other documents or instruments as Purchaser may
reasonably request to effect the transaction contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller the following
items, duly executed by Purchaser where necessary to make them effective:
(i) the Purchase Price payable at the Closing as provided in
Section 2.1(b) hereof;
(ii) an officer's certificate in the form set forth in Exhibit
J attached hereto, stating that the preconditions specified in
Section 8.1(a) and (b) hereof have been satisfied;
(iii) copies of all necessary third party and governmental
consents, approvals, releases and filings required in order for
Purchaser to effect the transactions contemplated by this Agreement;
and
(iv) such other documents or instruments as Seller reasonably
may request to effect the transactions contemplated hereby.
All of the foregoing documents in this Section 9.3(c) shall be
reasonably satisfactory in form and substance to Seller and shall be dated
as of the Closing Date.
30
<PAGE> 38
9.4 POSSESSION. Simultaneously with the Closing, Seller and UDC shall take
such steps as are necessary or desirable to put Purchaser in actual possession
of the Purchased Assets. Without limiting the generality of the foregoing, at
the Closing, Seller and UDC shall cause to be delivered (a) to Purchaser all
Remittances arising between the Effective Date and the Closing which were not
credited against the Purchase Price pursuant to Section 2.1(b), all Finance
Contracts, and all vehicle titles with respect to each Financed Vehicle and (b)
to the servicer under the Servicing Agreement all Contract Debtor Records,
correspondence and other documents related to the Finance Contracts to the
extent not otherwise delivered to Purchaser.
9.5 ELECTION BY PURCHASER. Upon written notice to Seller prior to Closing,
Seller shall convey such Purchased Assets as Purchaser may identify to such
Affiliate of Purchaser as Purchaser may identify, in each case, as specified in
said written notice.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION BY UDC. UDC agrees to indemnify in full Purchaser and
its officers, directors, employees, agents and stockholders (collectively, the
"Purchaser Indemnified Parties") and hold them harmless against any loss,
liability, deficiency, damage, expense or cost (including, without limitation,
costs of investigation and preparation to defend against any Claim, salaries and
other costs of in-house and outside consulting, accounting and other
professionals, executives and employees, and reasonable legal expenses of
in-house and outside counsel) whether liquidated or unliquidated, accrued or
contingent (collectively, "Losses"), which Purchaser Indemnified Parties may
suffer, sustain or become subject to, as a result of (a) any breach of any of
the representations or warranties of Seller or UDC contained in any of the
Seller Agreements or UDC Agreements; (b) any breach of, or failure to perform by
Seller or UDC, any agreement of Seller or UDC contained in any of the Seller
Agreements or the UDC Agreements; (c) any of the Excluded Liabilities; (d) any
Claims or threatened Claims against Purchaser arising out of the actions or
inactions of Seller, UDC or FMAC prior to the Closing with respect to the
Purchased Assets; (e) any Claims or threatened Claims against Purchaser made by
any Lender under the Loan Agreement or by any purchaser of any interest of any
Lender under the Loan Agreement or (f) any act or omission of FMAC as servicer
under the FMAC Servicing Agreement while the FMAC Servicing Agreement is in
effect which Losses the Purchaser Indemnified Parties would not have suffered or
sustained had the UDC Servicing Agreement been in effect, and had UDC complied
in full with all of its obligations thereunder, at all times from and after the
Closing Date, including, without limitation, by reason of the more extensive
representations, warranties, covenants and indemnities in favor of Purchaser
that are contained in the UDC Servicing Agreement as compared to the FMAC
Servicing Agreement (collectively, the "Purchaser Losses"); provided, that, in
each case, a Purchaser Indemnified Party provides written notice of a claim with
respect thereto as required by Section 10.3 prior to the applicable Expiration
Date.
31
<PAGE> 39
10.2 INDEMNIFICATION BY PURCHASER OF UDC. Purchaser agrees to indemnify in
full UDC, and its officers, directors, employees, agents and stockholders
(collectively, the "UDC Indemnified Parties") and hold them harmless against any
Losses which any of the UDC Indemnified Parties may suffer, sustain or become
subject to as a result of (a) any breach of any of the representations or
warranties of Purchaser contained in the Purchaser Agreements or (b) any breach
of, or failure to perform, any agreement of Purchaser contained in the Purchaser
Agreements (collectively, "UDC Losses"); provided, that in each case, a UDC
Indemnified Party provides written notice of a claim with respect thereto as
required by Section 10.3 prior to the applicable Expiration Date.
10.3 SURVIVAL.
(a) The representations and warranties set forth in this Agreement
shall not be affected by any investigation made by any party hereto and
shall survive the consummation of the Closing and for a period of three
(3) years after the Closing Date; provided, however, that the
representations and warranties set forth in Article 4, the truth and
accuracy of which are intended by the parties to be only a condition
precedent to Purchaser's obligations under this Agreement, shall terminate
upon the consummation of the Closing and shall not survive the Closing
Date; provided further, however, that any representations and warranties
that were made fraudulently shall survive until the expiration of all
applicable statutes of limitation.
(b) The respective covenants of each party shall survive the Closing
until fully performed by such party.
(c) The respective dates upon which the respective representation,
warrants and covenants of the parties shall terminate and expire are
referred to herein collectively as the "Expiration Date."
10.4 METHOD OF ASSERTING CLAIMS. As used herein, an "Indemnified Party"
shall refer to a "Purchaser Indemnified Party," or a "UDC Indemnified Party," as
applicable, the "Notifying Party" shall refer to the party hereto whose
Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Party" shall refer to the party(ies) hereto obligated to indemnify
such Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made (or, in
the case of a Purchaser Indemnified Party, is threatened to be made) a
defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party for the liability or the
costs or expenses of which are Purchaser Losses or UDC Losses, as the case
may be, (any such third party action or proceeding being referred to as a
"Claim"), the Notifying Party shall give the Indemnifying Party prompt
notice thereof. The failure to give such notice shall not affect any
Indemnified Party's ability to seek reimbursement except to the extent
such failure has materially and adversely affected the ability of the
Indemnifying Party to successfully defend a Claim. The Indemnifying Party
shall be entitled to contest and defend such Claim; provided, that the
Indemnifying Party (i) has a reasonable basis for concluding
32
<PAGE> 40
that such defense may be successful, and (ii) diligently contests and
defends such Claim. Notice of the intention so to contest and defend shall
be given by the Indemnifying Party to the Notifying Party within ten (10)
Business Days after the Indemnified Party's notice of such Claim (but in
all events, at least five (5) Business Days prior to the date that an
answer to such Claim is due to be filed). Such contest and defense shall
be conducted by reputable attorneys employed by the Indemnifying Party and
reasonably satisfactory to the Notifying Party. The Notifying Party shall
be entitled at any time, at its cost and expense (which expense shall not
constitute a Loss unless the Notifying Party reasonably determines that
the Indemnifying Party is not adequately representing or, because of a
conflict of interest, may not adequately represent, any interests of the
Notifying Party), to participate in such contest and defense and to be
represented by attorneys of its own choosing. If the Notifying Party
elects to participate in such defense, the Notifying Party shall cooperate
with the Indemnifying Party in the conduct of such defense. Neither the
Indemnified Party nor the Notifying Party may concede, settle or
compromise any Claim without the consent of the other party, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, in the event the Indemnifying Party fails or is not entitled to
contest and defend a Claim, the Notifying Party shall be entitled to
contest, defend and settle such Claim and pursue its indemnification
rights hereunder.
(b) In the event any Indemnified Party should have a claim for
Losses against the Indemnifying Party that does not involve a Claim, the
Notifying Party shall deliver a notice of such claim with reasonable
promptness to the Indemnifying Party. (However, the failure to give any
such notice shall not affect any Notifying Party's ability to seek
reimbursement for Losses.) If the Indemnifying Party notifies the
Notifying Party that it does not dispute the claim described in such
notice or fails to notify the Notifying Party within thirty (30) days
after delivery of such notice by the Notifying Party whether the
Indemnifying Party disputes the claim described in such notice, the Loss
in the amount specified in the Notifying Party's notice shall be
conclusively deemed a liability of the Indemnifying Parties. If the
Indemnifying Party has timely disputed the liability of the Indemnifying
Party(ies) with respect to such claim, the Chief Executive Officers of
each of the Notifying Party and the Indemnifying Party (or their
respective designees) shall proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through the negotiations
of such Chief Executive Officers (or their respective designees) within
sixty (60) days after the delivery of the Notifying Party's notice of such
claim, such dispute (except for any such dispute which gives rise or could
give rise to equitable relief under this Agreement) shall be resolved
fully and finally in Chicago, Illinois, by an arbitrator selected pursuant
to, and an arbitration governed by, the Commercial Arbitration Rules of
the American Arbitration Association. The arbitrator shall resolve the
dispute within thirty (30) days after selection and judgment upon the
award rendered by such arbitrator may be entered in any court of competent
jurisdiction.
33
<PAGE> 41
ARTICLE 11
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of Purchaser, Seller and UDC;
(b) by either Seller and UDC or Purchaser if there has been a
material misrepresentation or breach of a warranty or covenant on the part
of the Purchaser on the one hand or Seller and/or UDC on the other hand in
the representations and warranties or covenants set forth in this
Agreement and any such misrepresentation or breach, if capable of cure, is
not cured within fifteen (15) days after written notice thereof is given
to such other party(ies), or if events have occurred which have made it
impossible to satisfy a condition precedent to the terminating party's
obligations to consummate the transactions contemplated hereby (other than
as a result of any willful act or omission by the terminating party); or
(c) by Purchaser or by Seller and UDC if the transactions
contemplated hereby have not been consummated by December 31, 1997;
provided, that a party shall not be entitled to terminate this Agreement
pursuant to this subsection (c) if such party's(ies') willful breach of
this Agreement has prevented the consummation of the transactions
contemplated hereby.
11.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 11.1 hereof, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except
liability for willful breaches of this Agreement prior to the time of such
termination and except for the provisions of Section 12.4 hereof.
11.3 EFFECT OF CLOSING. Seller, UDC and Purchaser shall be deemed to have
waived their respective rights to terminate this Agreement upon the completion
of the Closing. No such waiver shall constitute a waiver of any other rights
arising from the non-fulfillment of any condition precedent set forth in Article
7 or 8 unless such waiver is made in writing.
ARTICLE 12
ADDITIONAL AGREEMENTS
12.1 PRESS RELEASE AND ANNOUNCEMENTS. No press release related to this
Agreement or the transactions contemplated hereby, or other announcements to the
employees, customers, dealers or suppliers of FMAC shall be issued without the
joint approval of Purchaser and UDC. Purchaser and UDC shall cooperate to
prepare a joint press release to be issued on the Closing Date or, upon the
request of Purchaser or UDC at the time of the signing of this Agreement. No
other public
34
<PAGE> 42
announcement related to this Agreement or the transactions contemplated hereby
shall be made by any party, except as required by Law, in which event the
parties shall consult as to the form and substance of any such announcement
required by Law.
12.2 EXPENSES. Except as otherwise specifically provided in this
Agreement, each party shall pay all of its expenses in connection with the
negotiation of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated by this Agreement.
12.3 BEST EFFORTS TO CONSUMMATE CLOSING TRANSACTIONS. On the terms and
subject to the conditions contained in this Agreement, Seller, UDC and Purchaser
each agree to use its best efforts to take, or cause to be taken, all reasonable
actions, and to do, or cause to be done, all reasonable things, necessary,
proper or advisable under applicable Laws to consummate the Closing on the date
Seller makes its credit bid to purchase the Purchased Assets from FMAC,
including the satisfaction of all conditions thereto set forth herein; provided
that none of Purchaser, Seller or UDC shall be required to make any material
payment to obtain any consent or approval hereunder.
12.4 SPECIFIC PERFORMANCE. Seller acknowledges that the Purchased Assets
are unique and recognizes and affirms that in the event of a breach of this
Agreement by Seller, money damages would be inadequate and Purchaser would have
no adequate remedy at law. Accordingly, Seller agrees that Purchaser shall have
the right, in addition to any other rights and remedies existing in its favor,
to enforce its rights and Seller's obligations hereunder not only by an action
or actions for damages but also by an action or actions for specific
performance, injunction and/or other equitable relief, without posting any bond
or security.
12.5 REMITTANCES. Subject to the occurrence of the Closing and the terms
of the Servicing Agreement, all Remittances and mail and other communications
relating to the Purchased Assets or Assumed Liabilities received by FMAC, Seller
or UDC at any time after the Effective Date (other than those which were applied
as a credit against the Purchase Price under Section 2.1(b)) shall be
immediately turned over to Purchaser by Seller or UDC, as may be appropriate, in
the form received, with any such cash Remittances being turned over to Purchaser
by wire transfer as set forth in the Servicing Agreement or, in the event of the
termination thereof, within one (1) Business Day after the receipt thereof.
Until such Remittances are turned over to Purchaser, neither Seller nor UDC
shall have any right, title or interest therein and Seller or UDC, as may be
appropriate, shall be deemed to hold such Remittances in trust for Purchaser.
Seller and UDC each shall cooperate with Purchaser, and take such actions as
Purchaser reasonably requests, to ensure that after the Closing Contract Debtors
send their Remittances directly to Purchaser, and to assure that Remittances
from Contract Debtors and which are improperly sent to Seller or UDC are not
commingled with the assets of Seller or UDC and are turned over to Purchaser.
12.6 FINANCING STATEMENTS. At the request of Purchaser, Seller shall
execute such financing statements as Purchaser determines may be required by Law
or desirable to perfect, maintain and protect the interest of Purchaser in any
of the Purchased Assets and Financed Vehicles and in the proceeds thereof.
35
<PAGE> 43
12.7 PURCHASE OPTION. At any time subsequent to the third anniversary date
of the Closing Date and provided that UDC shall not have breached any provision
of the UDC Agreements, UDC shall have the option, exercisable by written notice
to Purchaser, to purchase without warranty or recourse of any kind all of the
then outstanding Finance Contracts at a purchase price equal to the sum of (a)
the Yield Measurement as of the end of a Due Period not more than 90 days after
the date of such notice and (b) a premium of 2 1/2% of such Yield Measurement as
of the end of such Due Period. In the event that at any time after the Closing
(i) the Aggregate Principal Balance of the Finance Contracts is less than $5
million or (ii) the UDC Servicing Agreement is terminated by Purchaser other
than as a result of an Event of Default or (iii) Purchaser assigns this
Agreement without UDC's consent (which consent UDC agrees not to unreasonably
withhold) to any third party other than an Affiliate of Purchaser, then UDC
shall have the option, exercisable by written notice to Purchaser at any time in
the event of the occurrence of the event in (i) above, and for a period of 30
days after the occurrence of the event in (ii) or (iii) above, to purchase
without warranty or recourse of any kind of all of the then outstanding Finance
Contracts at a purchase price equal to the Yield Measurement as of the end of a
Due Period not more than 90 days after the date of such notice. The closing of
any such purchase and sale shall take place as of the end of the applicable Due
Period at Purchaser's principal office in Illinois on such date and at such time
as Purchaser and UDC shall agree, payment of the purchase price shall be made in
cash at such closing, UDC shall assume all of Purchaser's obligations under
Sections 2.3-2.7 of this Agreement and all documentation relating to such
purchase and sale shall be in form and substance acceptable to Purchaser.
ARTICLE 13
MISCELLANEOUS
13.1 AMENDMENT AND WAIVER. This Agreement may be amended and any provision
of this Agreement may be waived; provided, that any such amendment or waiver
shall be binding on a party only if such amendment or waiver is set forth in a
writing executed by such party. No course of dealing between or among any
persons having any interest in this Agreement shall be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
13.2 NOTICES. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested. Notices, demands and
communications to a party shall, unless another address is specified in writing
in accordance herewith, be sent to the address indicated below:
Notices to Seller: LaSalle National Bank
135 S. LaSalle Street
Chicago, Illinois 60603
Attention: James Thompson
36
<PAGE> 44
with copies to: Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Jeffrey T. Elegant, Esq.
Notices to UDC: Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85010
Attention: Steven P. Johnson, Esq.
with copies to: Snell & Wilmer LLP
One Arizona Center
Phoenix, Arizona 85004-0001
Attention: Timothy W. Moser, Esq.
Notices to Purchaser: General Electric Capital Corporation
Auto Financial Services
540 Northwest Highway
Barrington, Illinois 60010
Attention: Farhaan Hassan, Account Executive
with copies to: Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, Illinois 60601
Attention: Dalius F. Vasys, Esq.
13.3 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder of
Seller or UDC shall be assignable by Seller or UDC, respectively, without the
prior written consent of Purchaser; provided, however, that Seller may assign
this Agreement to UDC and UDC may assign this Agreement to a wholly-owned
subsidiary of UDC without Purchaser's consent; provided, further, however, that
no such assignment shall release UDC from any of its obligations under this
Agreement. Subsequent to the Closing, Purchaser shall have the right to assign
this Agreement without the consent of any other party.
13.4 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable Law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
37
<PAGE> 45
13.5 NO STRICT CONSTRUCTION. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any Person.
13.6 CAPTIONS. The captions used in this Agreement are for convenience of
reference only and do not constitute a part of this Agreement and shall not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement shall be enforced and construed
as if no caption had been used in this Agreement.
13.7 COMPLETE AGREEMENT. This document and the documents referred to
herein contain the complete agreement between the parties with respect to the
subject matter hereof and supersede any prior understandings, agreements or
representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
13.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
13.9 GOVERNING LAW. Except to the extent the Bankruptcy Code applies, the
internal Law, not the Law of conflicts, of the State of Illinois shall govern
all questions concerning the construction, validity and interpretation of this
Agreement and the performance of the obligations imposed by this Agreement.
13.10 REMEDIES CUMULATIVE. All remedies of the parties provided herein
shall, to the extent permitted by Law, be deemed cumulative and not exclusive of
any thereof or of any other remedies available to the parties, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained herein, and every remedy given herein or by
Law to any party hereto may be exercised from time to time, and as often as
shall be deemed expedient, by such party.
13.11 LIMITATION ON CAPACITY; NON-RECOURSE. Seller is entering into this
Agreement solely in its capacity as agent for the Lenders and not individually.
It is expressly understood and agreed that nothing contained herein shall be
construed as creating any liability upon Seller to pay or perform any of the
obligations, undertakings, covenants, representations, warranties or agreements,
either expressed or implied, contained herein or in any other document executed
and delivered by Seller in connection herewith, any such liability being
expressly waived by Purchaser, except that Seller shall be liable, individually,
to account for funds or other property actually received by Seller; provided,
however, that nothing herein contained shall any way limit the liability assumed
by UDC or on its behalf by Seller as agent for the Lenders, or any other party,
or Purchaser's rights in any of the Purchased Assets, or any collateral in which
Purchaser acquires a lien under this Agreement.
[SIGNATURE PAGE FOLLOWS]
38
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Edward M. Lindsey
-------------------------------------
Its Manager of Underwriting
---------------------------------
LASALLE NATIONAL BANK, as Agent as
aforesaid
By: /s/James Thompson
-------------------------------------
Its Senior V.P.
---------------------------------
UGLY DUCKLING CORPORATION
By: /s/ Donald L. Addink
-------------------------------------
Its Vice President
---------------------------------
39
<PAGE> 47
EXHIBIT C
PURCHASE PRICE ALLOCATION
One hundred percent (100%) of the Purchase Price shall be allocated to the
Eligible Finance Contracts.
C-1
<PAGE> 48
EXHIBIT E
UCC LANGUAGE
This financing statement is filed to perfect the interest of General
Electric Capital Corporation in all installment contracts, chattel paper,
security interests, accounts, contract rights, general intangibles, notes,
instruments and in all proceeds of the foregoing, which are purchased by General
Electric Capital Corporation from _________________________________. A list of
the installment contracts and chattel paper (collectively, "Chattel Paper") is
attached as Exhibit A.
E-1
<PAGE> 49
EXHIBIT F
FORM OF
CLOSING CERTIFICATE OF UDC
The undersigned, as President and Chief Financial Officer of Ugly Duckling
Corporation, a Delaware corporation ("UDC"), hereby certify pursuant to Section
9.3(b)(i) of that certain Purchase Agreement dated as of December ___, 1997 (the
"Agreement"), by and among UDC, Purchaser and Seller (as said later two terms
are defined therein), and that:
1. The representations and warranties of UDC contained in the Agreement
are true and correct as of the date of this certificate with the same force and
effect as though made on and as of the date hereof, without taking into account
any disclosures made by UDC to Purchaser pursuant to Section 6.1(i) of the
Agreement.
2. UDC has performed and complied with all covenants, agreements and
conditions contained in the Agreement which are required to be performed or
complied with by UDC as of the date hereof.
3. The preconditions specified in Section 7.1(a) through (n), inclusive,
of the Agreement have been satisfied.
Dated as of this _____ day of ______________, 1997.
UGLY DUCKLING CORPORATION
By:
____________________________________
Its President
and
By:
____________________________________
Its Chief Financial Officer
F-1
<PAGE> 50
EXHIBIT G
FORM OF
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS:
The undersigned ("Principal"), hereby constitutes and appoints [LASALLE
NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS, UNDER THAT CERTAIN FOURTH AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF FEBRUARY 28, 1996, AS
AMENDED, AMONG SAID LENDERS, FIRST MERCHANTS ACCEPTANCE CORPORATION AND LASALLE
NATIONAL BANK, AS AGENT,] [GENERAL ELECTRIC CAPITAL CORPORATION] ("Agent") as
its true and lawful agent and attorney in fact to act in its name and stead or
on its behalf with authority to do the following acts with respect to motor
vehicle retail installment contracts and related rights which Agent purchased
from Principal (the contracts and related rights are referred to herein as the
"Property"):
1. Agent can receive, endorse and collect all payments made payable to or
owed to Principal in connection with the Property.
2. Agent can enforce, release, modify and transfer the rights and
interests granted to Principal with respect to the Property, which on their face
give Principal rights regarding the Property, including, but not limited to,
rights with respect to insurance policies, motor vehicles, certificates of title
and motor vehicle liens.
This power of attorney is coupled with an interest and cannot be
terminated by Principal.
This power of attorney is made on December __, 1997.
[FIRST MERCHANTS ACCEPTANCE CORPORATION, AS
DEBTOR AND DEBTOR-IN-POSSESSION] [LASALLE
NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS
UNDER THAT CERTAIN FOURTH AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT DATED
AS OF FEBRUARY 28, 1996, AS AMENDED, AMONG
SAID LENDERS, FIRST MERCHANTS ACCEPTANCE
CORPORATION AND LASALLE NATIONAL BANK, AS
AGENT]
By:
____________________________________
Its:
_________________________________
G-1
<PAGE> 51
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, ________________________, a Notary Public in and for said County, in
the State aforesaid, do hereby certify that the person personally known to me to
be the same person whose name is subscribed to the foregoing instrument has
appeared before me this day in person and acknowledged that he/she signed and
delivered such instrument as his/her free and voluntary act for the uses and
purposes therein set forth.
Given under my hand and official seal this _______ day of December __,
1997.
____________________________________
Notary Public
<PAGE> 52
EXHIBIT H
FORM OF
BLANKET ENDORSEMENT
The undersigned, by execution of this instrument, hereby endorses to
[LASALLE NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS UNDER THAT CERTAIN FOURTH
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF FEBRUARY 28, 1996,
AS AMENDED, AMONG SAID LENDERS, FIRST MERCHANTS ACCEPTANCE CORPORATION AND
LASALLE NATIONAL BANK, AS AGENT] [GENERAL ELECTRIC CAPITAL CORPORATION]
("Assignee") the attached Contract which is one of the Contracts described or
referred to in the Bill of Sale and Assignment executed by the undersigned in
favor of Assignee pursuant to the terms of that certain [__________ ORDER
ENTERED BY THE UNITED STATES BANKRUPTCY COURT FOR THE STATE OF DELAWARE]
[PURCHASE AGREEMENT AMONG THE UNDERSIGNED, ASSIGNEE AND A CERTAIN THIRD PARTY
DATED AS OF DECEMBER ___, 1997]. This endorsement is in blank, unrestricted
form. This endorsement may be effected by attaching either this instrument or a
facsimile thereof to each or any of the Contracts.
The undersigned agrees that anyone relying on any statement by Assignee as
to which Contracts this Blanket Endorsement applies to shall have no liability
to the undersigned for relying on such statements.
Dated:December __, 1997
[FIRST MERCHANTS ACCEPTANCE CORPORATION, AS
DEBTOR AND DEBTOR-IN-POSSESSION] [LASALLE
NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS
UNDER THAT CERTAIN FOURTH AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT DATED
AS OF FEBRUARY 28, 1996, AS AMENDED, AMONG
SAID LENDERS, FIRST MERCHANTS ACCEPTANCE
CORPORATION AND LASALLE NATIONAL BANK, AS
AGENT]
By:
____________________________________
Its
_________________________________
H-1
<PAGE> 53
EXHIBIT I
FORM OF
INSURANCE ASSIGNMENT
The undersigned ("Assignor"), hereby absolutely and irrevocably assigns to
[LASALLE NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS UNDER THAT CERTAIN FOURTH
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT DATED AS OF FEBRUARY 28, 1996,
AS AMENDED, AMONG SAID LENDERS, FIRST MERCHANTS ACCEPTANCE CORPORATION AND
LASALLE NATIONAL BANK, AS AGENT] [GENERAL ELECTRIC CAPITAL CORPORATION]
("Assignee") all of Assignor's right, title and interest in, under, and with
respect to all insurance and service contracts which provide any of the
following coverages with respect to motor vehicle retail installment contracts
which Assignor has sold to Assignee:
1. credit life, credit disability or credit accident and health;
2. casualty, damage, theft, loss or liability;
3. involuntary unemployment;
4. mechanical breakdown, warranty, maintenance or servicing;
5. lender protection, vendor/lender single interest, skip, repossessed
vehicle casualty (including damage, theft and loss), confiscation, nonfiling,
failure of lien perfection, contract default or residual value; or
6. any other coverage assigned in writing by Assignor to Assignee.
Without limiting the rights included in this assignment, this assignment
entitles Assignee to claim and collect all benefits, refunds and other amounts
with respect to all coverages that Assignor would be entitled to claim and
collect, and to make such claims and collections in its name or Assignor's name.
Assignor hereby authorized Assignee to sign Assignor's name on all such claims
and collections Assignee makes, and to endorse Assignor's name on all such
payments it receives. Assignor hereby instructs and authorizes all providers of
the foregoing coverages to rely on this Assignment and any statement or
instruction in writing by Assignee with respect to the operation and effect of
this Assignment and the installment contracts covered by it. Assignor hereby
agrees that the providers of the coverages who so rely shall have no liability
to Assignor for complying with this Assignment and such statements and
instructions by Assignee.
Dated: December __, 1997
[FIRST MERCHANTS ACCEPTANCE CORPORATION, AS
DEBTOR AND DEBTOR-IN-POSSESSION] [LASALLE
NATIONAL BANK, AS AGENT FOR CERTAIN LENDERS
UNDER THAT CERTAIN
I-1
<PAGE> 54
FOURTH AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT DATED AS OF FEBRUARY 28,
1996, AS AMENDED, AMONG SAID LENDERS, FIRST
MERCHANTS ACCEPTANCE CORPORATION AND LASALLE
NATIONAL BANK, AS AGENT]
By:
------------------------------------
Its
---------------------------------
I-2
<PAGE> 55
EXHIBIT J
CLOSING CERTIFICATE
OF
GENERAL ELECTRIC CAPITAL CORPORATION
The undersigned, as __________________ of General Electric Capital
Corporation, a New York corporation ("Purchaser"), hereby certifies pursuant to
Section 9.3(c)(ii) of that certain Purchase Agreement dated as of December __,
1997 (the "Agreement"), by and among Purchaser, UDC and Seller (as said later
two terms are defined therein), that the preconditions specified in Sections
8.1(a) and (b) of the Agreement have been satisfied.
Dated as of this _____ day of December, 1997.
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
____________________________________
Its:
____________________________________
J-1
<PAGE> 1
EXHIBIT 10.3
GUARANTY
This GUARANTY is made as of December 18, 1997 by UGLY DUCKLING
CORPORATION, a Delaware corporation ("Guarantor") in favor of GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Purchaser, Guarantor and LaSalle National Bank, as agent for
certain lenders under a certain Fourth Amended and Restated Loan and Security
Agreement dated as of February 28, 1996, as amended ("Seller"), have entered
into that certain Purchase Agreement dated as of December 18, 1997 (the
"Purchase Agreement");
WHEREAS, in connection with the Purchase Agreement, First Merchants
Acceptance Corporation, a Delaware corporation as debtor and
debtor-in-possession ("FMAC"), Purchaser and Guarantor shall enter into the
Servicing Agreement (as defined in the Purchase Agreement) pursuant to which
FMAC, and after confirmation of FMAC's plan of reorganization, Guarantor shall
service the Finance Contracts (as defined in the Purchase Agreement) acquired by
Purchaser under the Purchase Agreement;
WHEREAS, Guarantor is a major secured creditor of FMAC and consummation
of the transactions contemplated by the Purchase Agreement and its entry into
the Servicing Agreement will be to the direct financial benefit of Guarantor;
and
WHEREAS, it is a condition precedent to Purchaser's obligation to
consummate the transactions contemplated by the Purchase Agreement that, and
Purchaser is not willing to consummate such transactions, unless, among other
things, Guarantor executes and delivers this Guaranty to Purchaser.
NOW, THEREFORE, in consideration of the above premises, the mutual
covenants set forth below and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Guarantor hereby agrees in
favor of Purchaser as follows:
1. DEFINITIONS. All obligations and liabilities of each Contract Debtor
existing or hereafter arising under the Finance Contracts, whether voluntary or
involuntary, including, without limitation, the Schedule of Payments are
referred to herein collectively as the "Obligations." All capitalized terms used
but not defined herein shall have the respective meanings assigned to them under
the Purchase Agreement.
2. GUARANTY. Guarantor hereby acknowledges and agrees that upon
acquisition of the Finance Contracts from Seller, Purchaser shall or shall be
deemed to have established a Reserve on its books for charges which Purchaser is
entitled to make against the Reserve pursuant to the
<PAGE> 2
Purchase Agreement or the Servicing Agreement (the "Losses"), which shall be
solely a ledger account and shall not consist of segregated funds or an interest
in cash, equal to fourteen percent (14%) of the aggregate amount of the
Outstanding Principal Balance under the Eligible Finance Contracts (the
"Aggregate Outstanding Principal Balance") as of the Effective Date (i.e., the
amount of the Purchase Price paid by Purchaser at Closing under Section
2.1(a)(i) of the Purchase Agreement). Guarantor further acknowledges and agrees
that Purchaser shall charge all Losses arising from the Obligations against the
Reserve. The Guarantor hereby guarantees to Purchaser the full and punctual
payment when due (whether at stated maturity, by required pre-payment, by
acceleration or otherwise), as well as the performance, of all of the
Obligations including all such which would become due but for the operation of
the automatic stay or other provisions of the Federal Bankruptcy Code. Subject
to the Cap (as defined in Section 3 below), this Guaranty is an absolute,
unconditional and continuing guaranty of the full and punctual payment and
performance of all of the Obligations and not of their collection only and is in
no way conditioned upon any requirement that Purchaser first attempt to collect
any of the Obligations in default from any Contract Debtor or resort to any
collateral security or other means of obtaining payment. Upon the occurrence and
during the continuance of a Deficiency Event (as defined below), the obligations
of the Guarantor hereunder with respect to such Obligations in default shall
become immediately due and payable to Purchaser, without demand or notice of any
nature, all of which are expressly waived by the Guarantor. Payments by the
Guarantor hereunder may be required by Purchaser on any number of occasions.
3. DEFICIENCY EVENT. In the event that as of any month end prior to the
Discharge Date the Reserve is less than $2 million or any Remittances have been
seized, withheld or misappropriated by, or otherwise remitted to, Financial
Security Assurance, Inc. (collectively, the "Misappropriated Remittances"), a
Deficiency Event shall be deemed to have occurred hereunder. Upon the occurrence
of a Deficiency Event, Guarantor, within 24 hours of a demand by Purchaser,
shall pay Purchaser an amount equal to (a) the difference between $2 million and
the actual Reserve as of such month end and/or (b) the Misappropriated
Remittances, in each case, as set forth in Purchaser's demand. All payments to
be made by Guarantor to Purchaser hereunder shall be made in lawful money of the
United States of America, in immediately available funds, to such account as
Purchaser shall specify in writing to Guarantor from time to time, and shall be
accompanied by a notice from Guarantor stating that such payments are made under
this Guaranty. Notwithstanding any provision of this Guaranty to the contrary,
Guarantor's aggregate liability under this Guaranty shall not exceed (a) the sum
of (i) Ten Million Dollars ($10,000,000) and (ii) all amounts payable under
Section 9 hereof, less (b) the aggregate Remittances actually received by
Purchaser with respect to all Finance Contracts that were not Eligible Finance
Contracts as of the Effective Date, less all Servicing Fees paid with respect to
such Financing Contracts (the "Cap"). Any amounts paid by Guarantor to Purchaser
under this Guaranty which are returned to Guarantor pursuant to the Purchase
Agreement shall not reduce Guarantor's aggregate liability under this Guaranty.
4. WAIVERS BY GUARANTOR; PURCHASER'S FREEDOM TO ACT. Guarantor agrees
that the Obligations will be paid and performed strictly in accordance with
their respective terms, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of Purchaser with respect thereto. Guarantor waives, to the extent
permitted by law, promptness, diligence, presentment, demand, protest, notice of
acceptance, notice of any
2
<PAGE> 3
Obligations incurred and all other notices of any kind, all defenses which may
be available by virtue of any valuation, stay, moratorium law or other similar
law now or hereafter in effect, any right to require the marshaling of assets of
any Contract Debtor or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations, and all suretyship defenses
generally. Without limiting the generality of the foregoing, Guarantor agrees to
the provisions of any Finance Contract and other instruments evidencing,
securing or otherwise executed in connection with any Obligation and agrees that
the obligations of Guarantor hereunder shall not be released or discharged, in
whole or in part, or otherwise affected by: (a) the failure of Purchaser to
assert any claim or demand or to enforce any right or remedy against any
Contract Debtor or any other entity or other person primarily or secondarily
liable with respect to any of the Obligations; (b) any extensions, compromises,
refinancings, consolidations or renewals of any of the Obligations; (c) any
changes in the time, place or manner of payment of any of the Obligations or any
rescissions, waivers, compromises, refinancings, consolidations, amendments or
modifications of any of the terms or provisions of any of the Finance Contracts
or any other agreements evidencing, securing or otherwise executed in connection
with any of the Obligations; (d) the addition, substitution or release of any
entity or other person primarily or secondarily liable for any of the
Obligations; (e) the adequacy of any rights which Purchaser may have against any
collateral security or other means of obtaining repayment of any of the
Obligations; (f) the impairment of any collateral securing any of the
Obligations, including, without limitation, the failure to perfect or preserve
any rights which Purchaser might have in such collateral security or the
substitution, exchange, surrender, release, loss, failure to insure or
destruction of any such collateral; (g) the nonexistence, invalidity or
unenforceability of any Finance Contract or any other agreement evidencing,
securing or otherwise executed in connection with any of the Obligations; (h)
the breach of the Purchase Agreement or of the Servicing Agreement by any party
to either such agreement or the rightful or wrongful termination of the
Servicing Agreement by any party thereto; or (i) any other act or omission which
might in any manner or to any extent vary the risk of Guarantor or otherwise
operate as a release or discharge of Guarantor, all of which may be done without
notice to Guarantor. To the fullest extent permitted by law, Guarantor hereby
expressly waives any and all rights or defenses arising by reason of any law
which in any other way would require any election of remedies by Purchaser.
5. UNENFORCEABILITY OF OBLIGATIONS AGAINST ANY CONTRACT DEBTOR. If for
any reason a Contract Debtor has no legal existence or is under no legal
obligation to discharge any of the Obligations, if any of the Obligations have
become unrecoverable from any Contract Debtor by reason of such Contract
Debtor's insolvency, bankruptcy or reorganization or by other operation of law
or for any other reason or if acceleration of the time for payment of any of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of any
Contract Debtor, or for any other reason, this Guaranty shall nevertheless be
binding on Guarantor to the same extent as if Guarantor at all times had been
the principal obligor on all such Obligations.
6. SUBROGATION; SUBORDINATION; OFFSET.
(a) Until the final payment and performance in full of all of the
Obligations, Guarantor shall not exercise any rights against any
Contract Debtor arising as a result of payment by Guarantor hereunder,
by way of subrogation, reimbursement, restitution, contribution or
otherwise, and will not prove any claim in competition with Purchaser
in
3
<PAGE> 4
respect of any payment hereunder in any bankruptcy, insolvency or
reorganization case or proceedings of any nature; Guarantor will not
claim any setoff, recoupment or counterclaim against any Contract
Debtor in respect of any liability of Guarantor to such Contract
Debtor; and Guarantor waives any benefit of and any right to
participate in any collateral security which may be held by Purchaser.
In the event Guarantor exercises any such rights against any Contract
Debtor, Guarantor shall indemnify Purchaser against any claims, damages
and expenses, including reasonable attorneys' fees, suffered or
incurred by Purchaser as a result of Guarantor's exercise of any such
rights.
(b) The payment of any amounts due with respect to any indebtedness
of any Contract Debtor now or hereafter owed to Guarantor is hereby
subordinated to the prior payment in full of all of the Obligations.
Except to fulfill its obligations under the Servicing Agreement or
otherwise as agent of Purchaser, Guarantor agrees that, after the
occurrence of any Deficiency Event, Guarantor will not demand, sue for
or otherwise attempt to collect any such indebtedness of any Contract
Debtor to Guarantor until all of the Obligations shall have been paid
in full. If, notwithstanding the foregoing sentence, Guarantor shall
collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by
Guarantor as trustee for Purchaser and be paid over to Purchaser on
account of the Obligations without affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
(c) Guarantor shall not claim, as a defense hereunder, any setoff,
recoupment, counterclaim or similar right against Purchaser in respect
of any liability of Purchaser to Guarantor.
7. FURTHER ASSURANCES. Guarantor agrees to do all such things and
execute all such documents as Purchaser may consider necessary or desirable to
give full effect to this Guaranty and to perfect and preserve the rights and
powers of Purchaser hereunder. Guarantor acknowledges and confirms that
Guarantor itself has established its own adequate means of obtaining about
Contract Debtors on a continuing basis all information desired by Guarantor
concerning the financial condition of Contract Debtors and that Guarantor will
look to Contract Debtors and not to Purchaser in order for Guarantor to keep
adequately informed of changes in Contract Debtors' financial condition.
8. TERMINATION; REINSTATEMENT. This Guaranty shall remain in full force
and effect until Purchaser is given written notice of Guarantor's intention to
discontinue this Guaranty, notwithstanding any intermediate or temporary payment
or settlement of the whole or any part of the Obligations. No such notice shall
be effective unless received and acknowledged in writing by an officer of
Purchaser at the address of Purchaser for notices set forth in Section 12 of
this Guaranty. No such notice shall affect any rights of Purchaser hereunder,
including, without limitation, the rights set forth in Sections 2 and 3, with
respect to any Obligations incurred or accrued prior to the receipt of such
notice or any Obligations incurred or accrued pursuant to any contract or
commitment in existence prior to such receipt. Notwithstanding the foregoing,
this Guaranty shall automatically terminate upon the indefeasible payment and
performance of the Obligations in full. This Guaranty shall continue to be
effective or be reinstated, notwithstanding any such notice or termination, if
at
4
<PAGE> 5
any time any payment made or value received with respect to any Obligation is
rescinded or must otherwise be returned by Purchaser upon the insolvency,
bankruptcy or reorganization of any Contract Debtor, or otherwise, all as though
such payment had not been made or value received.
9. GUARANTOR'S AGREEMENT TO PAY ENFORCEMENT COSTS, ETC. Guarantor
agrees, as the principal obligor and not as a guarantor only, to pay to
Purchaser, on demand, all costs and expenses (including court costs and
reasonable legal expenses) incurred or expended by Purchaser in connection with
this Guaranty and the enforcement hereof, together with interest on amounts
recoverable under this Guaranty from the time when such amounts become due until
payment, whether before or after judgment, at the rate of 13% per annum.
10. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by Purchaser and its successors, transferees and assigns; provided,
however, that Guarantor shall not have the right to assign its obligations under
this Guaranty without the written consent of Purchaser.
11. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Guaranty nor consent or any departure by Guarantor therefrom shall be
effective unless the same shall be in writing and signed by Purchaser. No
failure on the part of Purchaser to exercise, and no delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right.
12. NOTICES. All notices and other communications called for hereunder
shall be made in writing and, unless otherwise specifically provided herein,
shall be deemed to have been duly made or given when delivered by hand or mailed
first class, postage prepaid, addressed as follows:
(a) If to Guarantor: Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, AZ 85010
Attention: Steven P. Johnson, Esq.
(b) If to Purchaser: General Electric Capital Corporation
Auto Financial Services
540 Northwest Highway
Barrington, Illinois 60010
Attention: Farhaan Hassan, Account
Executive
13. GOVERNING LAW; CONSENT TO JURISDICTION. THIS GUARANTY SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS, without giving effect to its conflicts of laws principles.
Guarantor agrees that any suit for the enforcement of this Guaranty may be
brought in the courts of the State of Illinois or any federal court sitting
therein and consents to the nonexclusive jurisdiction
of such court and to service of process in any such suit being made upon
Guarantor by mail at the address specified by reference in Section 12 hereof.
Guarantor hereby waives any objection that it
5
<PAGE> 6
may now or hereafter have to the venue of any such suit or any such court or
that such suit was brought in an inconvenient court.
14. WAIVER OF JURY TRIAL. GUARANTOR HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS GUARANTY, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY OF SUCH RIGHTS OR OBLIGATIONS.
15. MISCELLANEOUS. This Guaranty constitutes the entire Agreement of
Guarantor and Purchaser with respect to the matters set forth herein. The rights
and remedies herein provided are cumulative and not exclusive of any remedies
provided by law or any other agreement, and this Guaranty shall be in addition
to any other guaranty of or collateral security for any of the Obligations. The
invalidity or unenforceability of any one or more sections of this Guaranty
shall not affect the validity or enforceability of its remaining provisions.
Captions are for the ease of reference only and shall not affect the meaning of
the relevant provisions. The meanings of all defined terms used in this Guaranty
shall be equally applicable to the singular and plural forms of the terms
defined. This Guaranty may be executed in one or more counterparts, all of which
together shall constitute one and the same instrument.
16. SECURED OBLIGATION. Guarantor hereby agrees that all obligations of
Guarantor under this Guaranty also shall be secured by all of the collateral
pledged to Purchaser as collateral security for the obligations of Guarantor
under that certain Loan and Security Agreement dated as of August 15, 1997, as
amended, by and between Guarantor and Purchaser.
[SIGNATURE PAGE FOLLOWS]
6
<PAGE> 7
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
UGLY DUCKLING CORPORATION
By: /s/ Donald L. Addink
------------------------------------
Its Vice President
---------------------------------
ACCEPTED AND AGREED TO
as of December 18, 1997
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Edward M. Lindsey
----------------------------------
Its Manager of Underwriting
-------------------------------
7
<PAGE> 1
Exhibit 10.4
SERVICING AGREEMENT
BY AND BETWEEN
UGLY DUCKLING CORPORATION,
A DELAWARE CORPORATION
"SERVICER"
AND
GENERAL ELECTRIC CAPITAL CORPORATION
A NEW YORK CORPORATION
"OWNER"
DECEMBER 15, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C>
ARTICLE I.
DEFINITIONS....................................................................... 2
Section 1.1 Defined Terms.......................................... 2
Section 1.2 Accounting Terms....................................... 8
ARTICLE II.
APPOINTMENT AND GENERAL RESPONSIBILITIES OF SERVICER.............................. 8
Section 2.1 Appointment of Servicer................................ 8
Section 2.2 Independent Contractor................................. 8
Section 2.3 General Servicing Standards............................ 8
Section 2.4 Listing of Officers and Locations...................... 8
Section 2.5 Perfection of Ownership Interest....................... 9
Section 2.6 Servicer Compliance.................................... 9
ARTICLE III.
MAINTENANCE OF FILES AND RECORDS.................................................. 9
Section 3.1 Maintenance of Files................................... 9
Section 3.2 Records................................................ 10
Section 3.3 Original Documents..................................... 10
Section 3.4 Examination of Records................................. 10
Section 3.5 Retention of Files..................................... 10
ARTICLE IV.
SPECIFIC SERVICING DUTIES......................................................... 10
Section 4.1 Collections............................................ 10
Section 4.2 Lock-Box............................................... 11
Section 4.3 Servicer to Act as Custodian for Owner................. 11
Section 4.4 Customer Service....................................... 11
Section 4.5 Insurance.............................................. 11
Section 4.6 Payoffs................................................ 11
Section 4.7 Delinquent Payments and Defaults....................... 12
Section 4.8 Purchased Receivable Modifications..................... 12
Section 4.9 Realization upon Delinquent Purchased Receivables...... 12
Section 4.10 Contract Rights and Collection of Deficiencies......... 12
Section 4.11 Liquidation Expenses................................... 12
ARTICLE V.
STATEMENTS AND REPORTS............................................................ 13
Section 5.1 Reports and Monthly Back-Up Tape....................... 13
Section 5.2 Notice of Claims....................................... 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE VI.
SERVICING FEES.................................................................... 14
Section 6.1 Servicing Fee, Reimbursable Expenses and Fees.......... 14
ARTICLE VII.
REPRESENTATIONS AND COVENANTS..................................................... 15
Section 7.1 Representations and Warranties of Servicer............. 15
Section 7.2 Covenants of Servicer.................................. 16
ARTICLE VIII.
DEFAULT........................................................................... 17
Section 8.1 Event of Default....................................... 17
ARTICLE IX.
INDEMNIFICATION................................................................... 19
Section 9.1 Indemnity.............................................. 19
ARTICLE X.
TERMINATION....................................................................... 19
Section 10.1 Termination of Agreement............................... 19
Section 10.2 Effect of Termination or Resignation................... 19
ARTICLE XI.
GENERAL TERMS AND CONDITIONS...................................................... 20
Section 11.1 Ownership and Possession............................... 20
Section 11.2 Entire Agreement....................................... 20
Section 11.3 Applicable Law......................................... 20
Section 11.5 Headings............................................... 21
Section 11.6 Attorneys' Fees........................................ 21
Section 11.7 Severability........................................... 21
Section 11.8 Successors and Assigns................................. 21
Section 11.9 Counterparts........................................... 22
Section 11.10 Waiver................................................. 22
Section 11.11 Offset................................................. 22
</TABLE>
EXHIBITS
Exhibit A Collection Policy
Exhibit B Depository Accounts
Exhibit C Performance Certificate
Exhibit D Reimbursable Expenses and Costs
ii
<PAGE> 4
SERVICING AGREEMENT
This SERVICING AGREEMENT (this "Agreement") is entered into as of
December 15, 1997, by and between UGLY DUCKLING CORPORATION, a Delaware
corporation ("Servicer"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("Owner").
RECITALS
A. On July 11, 1997, First Merchants Acceptance Corporation, a Delaware
corporation, as debtor in possession in the Bankruptcy Case as defined below
("FMAC") filed a Chapter 11 petition under the provisions of Title 11, United
States Code, as amended (the "Bankruptcy Code"), in the United States District
Court for the State of Delaware (the "Court") and such petition is currently
pending as Case No. 97-1500 (JJF) (the "Bankruptcy Case").
B. FMAC is a national specialty finance company, primarily engaged in
the business of dealing with and servicing retail installment sale contracts
(the "Contracts") for the purchase of new or used automobiles, trucks, vans and
sport utility vehicles by consumers who have limited access to traditional
sources of credit. Such Contracts, together with all amendments, modifications
and any and all security interests, contract rights and other rights related
thereto, are referred to herein as the "Receivables."
C. LaSalle National Bank, as Agent ("Agent")has purchased from FMAC a
portfolio of Receivables set forth on Schedules I and II attached hereto (the
"Purchased Receivables") pursuant to that certain Order Approving Debtor's Sale
of Bank Group Contracts Free and Clear of Liens, Claims and Encumbrances and
Authorizing Debtor to Enter into, a Contribution Agreement and Guaranty and
Pledge Agreement entered by the Court on December 15, 1997.
D. FMAC has agreed to service the Purchased Receivables pursuant to
that certain Servicing Agreement dated as of December 15, 1997 and effective as
of December 1, 1997, by and between FMAC and Agent (the "FMAC Servicing
Agreement").
E. GE has executed of even date herewith a Purchase Agreement
("Purchase Agreement") by and among GE, Agent and Servicer pursuant to which GE
shall purchase from Agent the Purchased Receivables upon terms and conditions
set forth in the Purchase Agreement.
F. Pursuant to the Consulting Agreement, Servicer is to provide
consulting services to FMAC regarding FMAC's servicing of the Purchased
Receivables pursuant to the FMAC Servicing Agreement.
G. Servicer has agreed to commence servicing the Purchased Receivables
pursuant to this Agreement upon termination of the FMAC Servicing Agreement.
<PAGE> 5
AGREEMENTS
NOW, THEREFORE, in consideration of the agreements, covenants and
conditions contained herein, and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Defined Terms. Whenever used in this Agreement, the
following capitalized words and phrases shall have the respective meanings set
forth below. The definitions of such terms are applicable to the singular as
well as to the plural forms of such terms.
Borrower. The person(s) or entity(ies) that have executed a Contract,
including any guarantor, cosigner, or other person or entity obligated to make
payments under the Contract.
Borrower Documents. With respect to each Purchased Receivable, (i) the
original Certificate of Title or proof of lien perfection; (ii) the executed
Original Purchased Contract with original signatures; (iii) if available or
unless electronically stored, a copy of the dealer invoice and invoices for any
additional equipment included in the Contract, (iv) a copy of the original
signed Credit Application; (v) verification for the Required Borrower Insurance
(including policy number) that FMAC was the loss payee, additional insured, or
lienholder at the time of FMAC's purchase of the Contract; (vi) a copy of the
"Report of Sale," "Guaranty of Title" or other comparable document executed by
the selling dealer which has been forwarded to the appropriate department of
motor vehicles; (vii) if available or unless electronically stored, copies of:
(a) the credit bureau reports, (b) the completed credit investigation form, (c)
the completed verification of employment and income forms, (d) Borrower
references, and (e) the credit scoring sheet; (viii) FMAC's funds disbursement
invoice or listing; (ix) a certificate for each type of Optional Borrower
Insurance purchased by Borrower; (x) if available, FMAC's loan process or "deal
structure" sheet; (xi) if available, a "fact sheet" from the dealer, and (xii)
if available, other documents, or copies, as applicable, that may be reasonably
required in the ordinary course of business with respect to the enforceability
of the Borrower's obligations.
Borrower Records. With respect to each Purchased Receivable, and
whether existing before or after the date of this Agreement (i) the Borrower
Documents; and (ii) all other records, files, and documents, whether consisting
of paper or computerized or in some other form, which relate specifically to the
applicable Purchased Receivable, Borrower or Financed Vehicle or associated
Receivable Rights.
Borrower's Outstanding Principal Balance. The outstanding and unpaid
principal balance with respect to the Purchased Receivable calculated as of a
certain date.
Business Day. Any day other than (i) a Saturday or Sunday or (ii)
another day on which banking institutions in the State of Illinois or Arizona
are authorized or obligated by law to be closed.
2
<PAGE> 6
Certificate of Title. With respect to any Financed Vehicle, the
certificate of title (or other evidence of ownership) issued by the department
of motor vehicles, or other appropriate governmental body, of the state in which
the Financed Vehicle is registered or is to be registered, showing the Borrower
as owner with either notation of the first lien of FMAC or, if applicable, FMN
or Magna, or such other status indicated thereon which is necessary to perfect
the security interest of FMAC or, if applicable, FMN or Magna, in the Financed
Vehicle as a first priority interest, and showing no other actual or possible
ownership or lien interests.
Charge-Off Deficiency. With respect to each Charge-Off Receivable, the
amount by which the Borrower's Outstanding Principal Balance exceeds the
Liquidation Proceeds and Insurance Proceeds, to the extent that such amount has
not been included in a previous calculation and report of Charge-Off Deficiency.
Charge-Off Receivable. A Purchased Receivable; (i) which is a Defaulted
Receivable; (ii) in connection with which Insurance Proceeds or Liquidation
Proceeds have been received, or (iii) for which the Borrower has made what
purports to be the final payment or a prepayment in full but the amount paid
results in a failure to satisfy the then remaining Borrower's Outstanding
Principal Balance.
Collection Account. The account established prior to the Effective Date
by Owner at a bank selected by Owner and of which Owner gives Servicer written
notice.
Collection Policy. The Collection Policy (Rev: 6/95) of Servicer, a
copy of which is attached hereto as Exhibit A.
Consulting Agreement. The Consultation and Assistance Agreement to be
entered into by and between Servicer and FMAC pursuant to which Servicer shall
provide FMAC with consultation and assistance with respect to FMAC's servicing
of the Purchased Receivables and other Receivables serviced by FMAC for so long
as FMAC is the servicer under the FMAC Servicing Agreement.
Credit Application. The credit application completed by the Borrower in
order to request financing for the Borrower's purchase of the Financed Vehicle.
Defaulted Receivable. For any Due Period, a Purchased Receivable for
which (i) any Scheduled Payment is delinquent (not paid by the due date) more
than 120 days as of the end of the Due Period; (ii) a petition requesting relief
under the Bankruptcy Code or a similar law was filed by or against the Borrower
during the Due Period, and any Scheduled Payment is delinquent (not paid by the
due date) more than 90 days as of the end of the Due Period; (iii) as of the end
of the Due Period, the Financed Vehicle is missing, has been damaged beyond
ordinary means of repair, or has been leased or disposed of by sale or other
transfer of title; (iv) Servicer or Owner shall have reasonably determined as of
the last date of the Due Period that by reason of a claim, lien, charge, pledge
or encumbrance regarding the Purchased Receivable or the Financed Vehicle, or
otherwise, payments under the Purchased Receivable will not be made; or (v) a
Skip Loss Investigation was
3
<PAGE> 7
initiated and not satisfactorily resolved within 90 days or the occurrence of
the event in (i) above, whichever occurs first.
Deferred Contracts. Any Purchased Receivable for which a Scheduled
Payment has been advanced into the next Due Period without receipt of at least
75% of such Scheduled Payment.
Depository Account. The bank accounts in the name of Servicer
designated in writing to the Owner as the Depository Accounts, with the initial
Depository Accounts set forth on Exhibit B hereto.
Discharge Date. The first date by which all of the Purchased
Receivables have been paid in full or forgiven by Owner and all of Servicer's
obligations under the Purchase Agreement and this Agreement have been performed.
Due Period. A calendar month during the Servicing Period.
Effective Date. The effective date of the termination of the FMAC
Servicing Agreement or the termination of FMAC as Servicer thereunder.
Event of Default. This term has the meaning provided in Article VIII of
this Agreement.
Financed Vehicle. The new or used automobile, truck, van or sport
utility vehicle purchased by a Borrower pursuant to a Contract.
FMN. First Merchants Acceptance Corporation of Nevada, a Nevada
corporation.
Governmental Rule. Any law, rule, regulation, ordinance, order, code,
interpretation, judgment, decree, policy, decision or guideline issued by any
branch of government.
Insurance Proceeds. With respect to a Purchased Receivable, amounts,
including rebates and refunds, recovered under any warranty, Required Borrower
Insurance, or Optional Borrower Insurance, net of any amounts required by law to
be remitted to Borrower.
Liquidation Expenses. The out-of-pocket expenses incurred in connection
with the collection and enforcement of a Purchased Receivable (including without
limitation, the attempted liquidation of a Purchased Receivable which is brought
current and is no longer in default during such attempted liquidation), and the
repossession and sale of a Financed Vehicle.
Liquidation Proceeds. With respect to a Purchased Receivable and a Due
Period, all amounts (other than Insurance Proceeds) received from the sale or
other disposition of a Financed Vehicle, during such Due Period, net of any
amounts required by law to be remitted to the Borrower.
Lock Box. The lock-box maintained by Servicer at the Lock Box Bank
pursuant to the Lock-Box Agreement.
4
<PAGE> 8
Lock Box Agreement. The agreement between Servicer and the Lock Box
Bank regarding the maintenance and operation of the Lock Box and containing such
terms and conditions as are acceptable to Owner.
Lock Box Bank. LaSalle National Bank, a national banking association,
or any other banking institution acceptable to Owner.
Magna. Magna Bank of St. Louis, a Missouri banking corporation.
Optional Borrower Insurance. Any insurance, other than Required
Borrower Insurance, which insures a Financed Vehicle or a Borrower's obligations
under a Purchased Receivable, including but not limited to credit life, credit
health, credit disability, unemployment insurance; and any service contract,
mechanical breakdown coverage, warranty, or extended warranty for a Financed
Vehicle.
Original Purchased Contract. With respect to each Purchased Receivable,
the original contract, together with the original of any and all modifications,
amendments or assignments with respect thereto.
Performance Certificate. A certificate signed by an officer of the
Servicer in the form of Exhibit C attached hereto.
Receivable Rights. With respect to a Purchased Receivable, (i) FMAC's
interest in the related Financed Vehicle; (ii) all rights of FMAC with respect
to the related Contract and Financed Vehicle under all dealer agreements
pursuant to which such Contract was acquired by FMAC including, any rights or
obligations of FMAC to any dealer reserve accounts; (iii) all rights of FMAC
with respect to Required Borrower Insurance and Optional Borrower Insurance;
(iv) all rights of FMAC, if any, to prepaid dealer rate participation in
connection with the related Contract; (v) all rights of FMAC with respect to
Borrower Records and Remittances.
Reimbursable Expenses. The costs and expenses of Servicer set forth on
Exhibit D hereto.
Remittances. Any amounts received with respect to the Purchased
Receivables and associated Receivable Rights, including, but not limited to,
Scheduled Payments, prepayments, payoffs, Liquidation Proceeds, Insurance
Proceeds and late charges (including not-sufficient-funds fees).
Required Borrower Insurance. Any casualty insurance the Borrower is
required to obtain pursuant to the terms of a Purchased Receivable.
Rolling Average Charge-Off.
(a) For the month ending December 31, 1997, the Charge-Off Deficiency
for such month, divided by the aggregate Borrower's Outstanding Principal
Balance of Purchased Receivables as of the beginning of such month which as of
such time are not Charge-Off Receivables, expressed as
5
<PAGE> 9
a percentage. For each of the succeeding five (5) months, the sum of each of the
preceding months' (i.e., commencing with the month ending December 31, 1997)
Charge-Off Deficiencies, divided by the sum of each of such preceding months'
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables as
of the beginning of each of such months which as of such time are not Charge-Off
Receivables, expressed as a percentage.
(b) For the month ending June 30, 1998, the Charge-Off Deficiency for
such month, divided by the aggregate Borrower's Outstanding Principal Balance of
Purchased Receivables as of the beginning of such month which as of such time
are not Charge-Off Receivables, expressed as a percentage. For each of the
succeeding five (5) months, the sum of each of the preceding months' (i.e.,
commencing with the month ending June 30, 1998) Charge-Off Deficiencies, divided
by the sum of each of such preceding months' aggregate Borrower's Outstanding
Principal Balance of Purchased Receivables as of the beginning of each of such
months which as of such time are not Charge-Off Receivables, expressed as a
percentage. For the next six (6) months thereafter, the sum of each of the six
(6) consecutive calendar months ending with the month in question, of Charge-Off
Deficiencies for such months divided by the aggregate Borrower's Outstanding
Principal Balance of Purchased Receivables as of the beginning of each of such
months which as of such time are not Charge-Off Receivables, expressed as a
percentage.
(c) For the month ending June 30, 1999, the Charge-Off Deficiency for
such month, divided by the aggregate Borrower's Outstanding Principal Balance of
Purchased Receivables as of the beginning of such month which as of such time
are not Charge-Off Receivables, expressed as a percentage. For each of the
succeeding five (5) months, the sum of each of the preceding months' (i.e.,
commencing with the month ending June 30, 1999) Charge-Off Deficiencies, divided
by the sum of each of such preceding months' aggregate Borrower's Outstanding
Principal Balance of Purchased Receivables as of the beginning of each of such
months which as of such time are not Charge-Off Receivables, expressed as a
percentage. For all months thereafter, the sum of the six (6) consecutive
calendar months ending with the month in question, of Charge-Off Deficiencies
for such months divided by the sum of the aggregate Borrower's Outstanding
Principal Balance of Purchased Receivables as of the beginning of each of such
months which as of such time are not Charge-Off Receivables, expressed as a
percentage.
Rolling Average Delinquency.
(a) For the month ending December 31, 1997, the Purchased Receivables
which as of such month end are two or more payments delinquent, divided by the
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables
which as of such month end have not been paid in full, expressed as a
percentage. For each of the succeeding five (5) months, the sum of each of the
preceding months' (i.e., commencing with the month ending December 31, 1997)
Purchased Receivables which as of the end of each of such months were two or
more payments delinquent, divided by the sum of each of such preceding months'
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables
which as of the end of each of such months have not been paid in full, expressed
as a percentage.
6
<PAGE> 10
(b) For the month ending June 30, 1998, the Purchased Receivables which
as of such month end are two or more payments delinquent, divided by the
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables
which as of the end of such month have not been paid in full, expressed as a
percentage. For each of the succeeding five (5) months, the sum of each of the
preceding months' (i.e., commencing with the month ending June 30, 1998)
Purchased Receivables which as of the end of each of such months were two or
more payments delinquent, divided by the sum of each of such preceding months'
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables
which as of the end of each of such months have not been paid in full, expressed
as a percentage.
(c) For the month ending December 31, 1998, the Purchased Receivables
which as of such month end are two or more payments delinquent, divided by the
aggregate Borrower's Outstanding Principal Balance of Purchased Receivables
which as of such month end have not been paid in full, expressed as a
percentage. For each of the succeeding five (5) months, the sum of each of the
preceding months' (i.e., commencing with the month ending December 31, 1998)
Purchased Receivables which as of the end of each of such months were two or
more payments delinquent, divided by the sum of each of such months' aggregate
Borrower's Outstanding Principal Balance of Purchased Receivables which as of
the end of each of such months have not been paid in full, expressed as a
percentage. For all months thereafter, the sum of each of the six (6)
consecutive calendar months ending with the month in question, of the aggregate
Borrower's Outstanding Principal Balance for Purchased Receivables which as of
the end of such months were two or more payments delinquent, divided by the sum
of each of such months' aggregate Borrower's Outstanding Principal Balance of
Purchased Receivables which as of the end of each of such months have not been
paid in full, expressed as a percentage.
Schedule of Payments. The schedule of monthly payments disclosed on a
Purchased Receivable, as modified or extended pursuant to and consistent with
the Collection Policy and this Agreement.
Scheduled Payment. The monthly payment amount indicated on the Schedule
of Payments.
Servicing Fee. With respect to each Purchased Receivable outstanding as
of the first day of a Due Period, a fee to be calculated and paid for each Due
Period equal to the greater of (i) 1/12 of 3.25% of the Borrower's Outstanding
Principal Balance as of such first day of a Due Period for each such outstanding
Purchased Receivable (other than any Defaulted Receivable), or (ii) Fifteen
Dollars ($15.00) per month per such outstanding Purchased Receivable (other than
any Defaulted Receivable).
Servicing Period. The period of time from the date of this Agreement to
the Discharge Date, unless this Agreement or Servicer is sooner terminated
pursuant to the terms of this Agreement.
Skip Loss Investigation. An investigation of the whereabouts of a
Financed Vehicle or Borrower which has been initiated by Servicer.
7
<PAGE> 11
Section 1.2 Accounting Terms. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
accounting determinations under this Agreement shall be made, and all financial
statements required to be delivered by any person or entity pursuant to this
Agreement shall be prepared, in accordance with generally accepted accounting
principles as in effect from time to time, applied on a consistent basis. To the
extent generally accepted accounting practices do not apply to certain reports
or accounting practices of Servicer, the parties will mutually agree on the
accounting practices.
ARTICLE II.
APPOINTMENT AND GENERAL RESPONSIBILITIES OF SERVICER
Section 2.1 Appointment of Servicer. Provided Owner continues to own
the Purchased Receivables, upon the Effective Date, Owner shall be deemed to
have appointed Servicer, and Servicer shall be deemed to have agreed, to service
the Purchased Receivables according to the terms of this Agreement.
Section 2.2 Independent Contractor. In the performance of its duties
hereunder, Servicer shall be an independent contractor acting on its own behalf
in its own name and for its own account. It shall have no authority, express or
implied, to act in any manner or by any means for or on behalf of Owner in any
capacity other than as an independent contractor. Servicer and Owner are not
partners, joint venturers, agents or assignees of each other. Notwithstanding
the foregoing provisions of this Section 2.2, pursuant to express provisions of
this Agreement, Servicer may be authorized or directed to take certain actions
on behalf of or for the direct benefit of the Owner, provided that, in the
taking of such actions, Servicer shall continue to be acting as an independent
contractor. Except as set forth in Section 6.1 hereof, Servicer shall perform
all of its obligations under this Agreement at its own expense.
Section 2.3 General Servicing Standards. Servicer shall service and
administer the Purchased Receivables and Borrower Records with due care and in
accordance with the terms of this Agreement, and shall have full power and
authority, subject only to the provisions of this Agreement, to do any and all
things in connection with such servicing and administration that it may in good
faith deem necessary or desirable. Servicer shall service the Purchased
Receivables and maintain the Borrower Records in accordance with customary and
usual procedures employed by financial institutions servicing installment
contracts secured by motor vehicles and, to the extent more exacting, in
accordance with the Collection Policy or the procedures used by it to service
and administer similar motor vehicle installment contracts owned or serviced by
Servicer; provided, however, that Servicer shall not release or waive, without
the prior written consent of Owner, any obligation of any Borrower except to the
extent allowed in Article IV.
Section 2.4 Listing of Officers and Locations. Contemporaneously with
the execution and delivery of this Agreement, Servicer shall deliver to Owner a
list of the servicing locations of Servicer and the officers involved in, or
responsible for, the administration and servicing of the Purchased Receivables,
which list shall be promptly updated in writing by the Servicer to Owner as
changes are made. Servicer shall not change a location where it administers or
services the
8
<PAGE> 12
Purchased Receivables unless it first gives Owner 60 days written notice and
takes what action Owner reasonably requests in order to protect Owner's interest
in the Purchased Receivables and Borrower Records at the new location.
Section 2.5 Perfection of Ownership Interest. Servicer shall use
reasonable best efforts (or when Servicer knows or should have known of facts
that would require action to maintain the security interests granted by
Borrowers under the respective Purchased Receivables, Servicer shall take all
actions necessary), consistent with the standard set forth in Section 2.3, and
such other reasonable actions requested by Owner, to maintain continuing
perfection and priority of Owner's right, title and interest in the Purchased
Receivables, Borrower Records and Financed Vehicles, including, but not limited
to, obtaining the execution and the recording, filing, and refiling of all
security agreements, Certificates of Title, cautionary financing statements,
continuation statements or other instruments as are necessary to maintain the
security interests granted by the Borrowers under the respective Purchased
Receivables. Without affecting the Servicer's obligations set forth in the first
sentence of this Section 2.5 or any liability that Servicer may incur
thereunder, Owner authorizes Servicer to re-perfect or cause the re-perfection
of such security interests on its behalf, as reasonably necessary. In the event
Owner directs Servicer to reissue in Owner's name the Certificate of Titles
related to the Purchased Receivables, Owner shall reimburse Servicer for its
reasonable out-of-pocket expenses therefor. Servicer may release the lien on a
Financed Vehicle upon payment in full of the applicable Purchased Receivable or
upon disposition or liquidation of the Financed Vehicle pursuant to the
Collection Policy.
Section 2.6 Servicer Compliance. Servicer shall, at all times while
performing its duties and obligations hereunder, comply with all applicable
Governmental Rules, including, but not limited to, state and federal
Governmental Rules pertaining to financing, licensing, sales, debt collection,
consumer protection, credit reporting, the Uniform Commercial Code, foreclosure,
record retention and financial privacy. Servicer shall regularly train its
collection employees to comply with applicable Governmental Rules.
ARTICLE III.
MAINTENANCE OF FILES AND RECORDS
Section 3.1 Maintenance of Files. Servicer shall establish and maintain
the Purchased Receivable files and records in a safe, up-to-date manner, either
segregated from its own account files or marked on its electronic files to
disclose the ownership thereof by Owner. All Purchased Receivable files and
records shall be stored and maintained at one or more of the locations
identified pursuant to Section 2.4. Servicer shall keep in each Purchased
Receivable file all Borrower Records to be maintained by or in the possession of
Servicer pursuant to the terms of this Agreement and that are not exclusively
computerized, including, but not limited to, all correspondence received
regarding the Purchased Receivable, Borrower, Financed Vehicle and copies of all
correspondence and documents sent by Servicer regarding the Purchased
Receivable, Financed Vehicle or Borrower.
Section 3.2 Records. Servicer shall maintain records (including,
without limitation, computerized records) reflecting its activities servicing
the Purchased Receivables, which records
9
<PAGE> 13
shall be clearly marked to indicate that the Purchased Receivables and Borrower
Records are owned by Owner.
Section 3.3 Original Documents. Owner will, with respect to each
Purchased Receivable, retain (a) the Original Purchased Contract or proof of
lien perfection and (b) the Certificate of Title. To the extent necessary for
enforcement, lien release, or correction, Owner shall deliver the Original
Purchased Contract or Certificate of Title to Servicer. Whenever Servicer
obtains any Original Purchased Contract or Certificate of Title other than from
Owner pursuant to the foregoing sentence, it will hold it as agent for Owner and
immediately deliver it to Owner unless this Agreement provides otherwise.
Servicer shall not grant or allow any person or entity other than Owner an
interest in original documents related to the Purchased Receivables or rights
thereunder.
Section 3.4 Examination of Records. At any time during Servicer's
normal business hours, after not less than 24 hours notice to Servicer, Owner
and its agents and representatives may (a) physically inspect the Borrower
Records, to the extent in the custody of Servicer, and any other documents,
files or other records of Servicer relating to the Purchased Receivables,
including records relating to the performance and servicing of the Purchased
Receivables, and (b) discuss the same with Servicer's officers and employees.
Servicer shall make available to Owner copies of any such documents, files, or
other records for this purpose.
Section 3.5 Retention of Files. Unless otherwise requested by Owner, or
unless otherwise required by law, Servicer shall retain, with respect to each
Purchased Receivable, copies of the Borrower Records, to the extent held by
Servicer pursuant to the terms of this Agreement, and all other records, files
and documents related to the Purchased Receivables, to the extent held by
Servicer pursuant to the terms of this Agreement, until the earlier of (a) six
(6) months after Servicer closes its files for the Purchased Receivables, or (b)
the date upon which Servicer transfers such items to Owner. Servicer may retain
copies of any such documents for its own files.
ARTICLE IV.
SPECIFIC SERVICING DUTIES
Section 4.1 Collections. Servicer shall in every event deposit all
payments and other amounts, if any, made directly to Servicer by or received by
Servicer with respect to any Purchased Receivable on behalf of the Borrower,
including all Remittances and all other actual payments, Insurance Proceeds,
recoveries, collections and all proceeds relating to the repossession or
disposition of the Financed Vehicles (the "Collections") , in either one of the
Depository Accounts or the Collection Account not later than the first Business
Day after its receipt. The Servicer shall arrange that available funds on
deposit in the Depository Accounts be swept into the Collection Account by wire
transfer or ACH on a daily basis, pursuant to standing written instructions
provided by Servicer to the applicable banking institution; provided, however,
that sufficient funds will be kept on deposit in each Depository Account to
cover fees related to such account.
Section 4.2 Lock-Box. Prior to the Effective Date, Owner and the
Lock-Box Bank shall enter into the Lock-Box Agreement or agree that an existing
lock-box agreement between Servicer
10
<PAGE> 14
and the Lock-Box Bank will constitute the Lock-Box Bank for purposes of this
Agreement. Servicer shall cause the Lock-Box Bank to take such actions as are
necessary for Servicer to perform its obligations with respect to this Agreement
regarding all transactions related to the Lock-Box (the "Lock-Box
Transactions"). The Lock-Box Agreement shall contain a provision requiring the
Lock-Box Bank to provide Servicer with (a) copies of monthly statements, (b) a
daily list of deposits, (c) all original correspondence, envelopes, coupons and
all other documents (other than Remittances) received by the Lock-Box Bank, (d)
a daily and monthly list of Remittances by Borrower to the extent the Borrower
is identifiable by the Lock-Box Bank from the Remittance (and documents
accompanying the Remittance), and (e) copies of Remittances for which the
Lock-Box Bank is not able to identify the Borrower. Servicer shall not amend or
modify the terms of the LockBox Agreement without the prior written consent of
Owner. Servicer shall take and perform such actions as are necessary for the
Lock-Box Bank to perform its obligations with respect to the LockBox Agreement,
such as providing assistance to the Lock-Box Bank with respect to identifying
payments. Servicer shall arrange that available funds on deposit in the Lock-Box
be swept into the Collection Account by wire transfer or ACH on a daily basis,
pursuant to standing written instructions provided by Servicer to the Lock-Box
Bank; provided, however, that sufficient funds will be kept on deposit in the
Lock-Box account at the Lock-Box Bank to cover fees related to said account.
Section 4.3 Servicer to Act as Custodian for Owner. Servicer shall
direct Borrowers and others making payments with respect to the Purchased
Receivables to remit payments to the Lock-Box Bank. Owner recognizes that from
time to time Remittances may come into Servicer's possession and it hereby
appoints Servicer as custodian of Owner to receive such Remittances.
Notwithstanding this appointment, or any other provision in this Agreement,
Owner shall remain the sole and absolute owner of the Remittances, Purchased
Receivables and associated Receivable Rights. Servicer shall maintain any
Remittances received by it separate and apart from other funds and shall clearly
denominate the funds so as to indicate the paramount interest of Owner therein.
If any Remittance is received by Servicer, Servicer shall deposit the Remittance
pursuant to Section 4.1, and until so deposited any such Remittance shall be
held in trust by Servicer for Owner.
Section 4.4 Customer Service. Servicer shall provide sufficient
staffing and telephone lines to: (1) quote payoffs to requesting Borrowers
verbally and in writing, (2) record changes in garaging and billing addresses
for Borrowers, (3) record name changes, (4) answer billing questions and (5)
respond to any other reasonable written or telephonic inquiries relating to the
Purchased Receivables.
Section 4.5 Insurance. Servicer shall collect refunds and benefits
payable to Owner with respect to Required Borrower Insurance and Optional
Borrower Insurance.
Section 4.6 Payoffs. In the event a Purchased Receivable is paid in
full with good funds or released as provided in Section 4.9, Servicer shall, if
requested by the Borrower, and upon receipt thereof by Servicer from Owner or
otherwise (a) stamp the Original Purchased Contract "Paid" and return the
Certificate of Title to the Borrower, and (b) release the lien on the related
collateral.
Section 4.7 Delinquent Payments and Defaults. If a payment is not
received from a Borrower within 5 days after the date it is due under the
Purchased Receivable, Servicer shall begin
11
<PAGE> 15
contact (by phone and/or mail as Servicer deems appropriate) with the Borrower
to effect collection and to encourage timely payment.
Section 4.8 Purchased Receivable Modifications. Based on Borrower's
reasons for delinquency, Servicer may grant short extensions (monthly payment
deferrals) to those Borrowers Servicer deems to be having temporary cash flow
problems, provided such extensions are limited to two (2) one (1) month
extensions in any consecutive twelve month period. Servicer may also modify
Purchased Receivable terms to allow collateral substitutions or assumptions.
Servicer will exercise care in offering extensions and modifications so as not
to defer losses likely to occur. During the life of a Purchased Receivable,
extensions and modifications shall not have the effect of extending the final
date for payment in full of the Purchased Receivable for more than six (6)
months beyond the original final date for such payment in full or reducing the
Borrower's Outstanding Principal Balance. Servicer shall not permit any due date
changes in a Purchased Receivable other than in the same month.
Section 4.9 Realization upon Delinquent Purchased Receivables. If no
satisfactory arrangements can be made for collection of delinquent payments
after giving the Borrower all required notices and opportunities to cure,
Servicer shall, to the extent permitted by law, accelerate the Purchased
Receivable and pursue foreclosure of Owner's security interest in the Financed
Vehicle. In connection with the foreclosure of Owner's security interest in a
Financed Vehicle, Servicer may commence and prosecute legal proceedings in
respect of the related Purchased Receivable in its own name or, if Servicer's
counsel determines it is necessary, in the name and on behalf of Owner. Servicer
shall foreclose on Owner's security interest in a commercially reasonable
manner, following the procedures necessary to preserve the right to pursue
collection of any deficiency. Neither Servicer nor its employees or their
relatives shall be allowed to purchase Financed Vehicles being foreclosed upon,
except through an open auction procedure. Liquidation Proceeds and Insurance
Proceeds shall be applied against the Borrower's Outstanding Principal Balance.
Servicer will use its reasonable efforts to sell Financed Vehicles within 90
days of repossession.
Section 4.10 Contract Rights and Collection of Deficiencies. Servicer
shall collect and enforce any and all contract rights that comprise a Purchased
Receivable in a timely manner. If there is a deficiency balance after all
Insurance Proceeds and Liquidation Proceeds have been received, Servicer shall
pursue collection of the deficiency, except to the extent that such pursuit is
not economically practical pursuant to the Collection Policy.
Section 4.11 Liquidation Expenses. All Liquidation Expenses legally
recoverable from the Borrower shall be added to the Borrower's Outstanding
Principal Balance.
ARTICLE V.
STATEMENTS AND REPORTS
12
<PAGE> 16
Section 5.1 Reports and Monthly Back-Up Tape. Servicer shall furnish to
Owner the following reports in a form reasonably acceptable to Owner, except
that the Static Pool report shall be in form mutually acceptable to Servicer and
Owner.
Report Frequency
------ ---------
Cash Report Daily
Trial Balance of Contracts Monthly
Contract Delinquency Report Monthly
Paid Off Contract Report Monthly
Charge-Off Contract Report Monthly
Recovery Report Monthly
Repossession Report Monthly
Title Tracking Report As Required
Servicing Fee Report Monthly
Deferment Report Monthly
Static Pool Quarterly
The monthly reports shall be provided to Owner by the earlier of (a) ten (10)
Business Days after the Lock-Box Bank provides Servicer with all of the daily
reports for the month, or (b) the fifteenth of the month following the period to
which such reports relate. The daily reports shall be provided to Owner no later
than four (4) Business Days after the day covered by the report. Along with the
monthly reports Servicer shall deliver to Owner an executed Performance
Certificate.
Servicer shall furnish to Owner no later than when the monthly reports
are due, an up-to-date back-up tape of all information related to Purchased
Receivables which Servicer has placed on electronic media, including but not
limited to customer names, addresses and phone numbers, loan numbers, the
Borrower's Outstanding Principal Balance, last payment and next payment;
provided that, until Servicer has the system to do so, which it shall make a
good faith effort to acquire, in lieu of the monthly tape, Servicer can instead
provide Owner with (a) a disk which has such information on it, and (b) a trial
balance which shows the Borrower's Outstanding Principal Balance, the last
payment date and amount, the unearned finance charge, and the next payment date
and amount.
Servicer shall furnish to the Owner such additional reports in such
form the Owner determines is reasonably necessary for it to track and monitor
(a) Servicer's performance of this Agreement, and (b) the Purchased Receivables,
Remittances and Financed Vehicles; provided that, if such additional reports
cannot be done in-house by Servicer, Owner shall reimburse Servicer for
reasonable out-of-pocket expenses that Servicer incurs in developing the
capabilities to prepare and in otherwise furnishing such additional reports,
including, but not limited to, reasonable computer programming and software
expenses, to the extent the expenses do not exceed an amount approved in advance
by Owner.
Section 5.2 Notice of Claims. Within two (2) Business Days of receipt,
Servicer shall provide Owner with copies of all correspondence, notices, and
legal and administrative documents which allege that Servicer committed a
wrongful act with regard to a Purchased Receivable,
13
<PAGE> 17
Borrower, Receivable Rights obligor, Optional Borrower Insurance, Required
Borrower Insurance or Financed Vehicle which claims damages or loss are in
excess of $20,000 per occurrence or $100,000 in the aggregate (collectively, the
"Notice Items"). Within two (2) Business Days of receipt, Servicer shall inform
Owner in writing of the following:
(a) the receipt of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation regarding the Notice
Items involving an uninsured amount in excess of $20,000 in any one instance or
$100,000 in the aggregate;
(b) the receipt of a notice from any agency or governmental body having
authority over the conduct of its business that (i) it is being placed under
regulatory supervision, (ii) any license, permit, charter, membership or
registration needed to perform this Agreement or material to the conduct of its
business is to be suspended or revoked, or (iii) it is to cease and desist any
practice, procedure or policy employed by it in the conduct of its business, and
such cessation will materially adversely affect the conduct of its business or
materially adversely affect its financial affairs or adversely affect its
ability to perform this Agreement; or
(c) the receipt of any claim or the initiation of any legal process,
litigation or administrative or judicial investigation against it which may
materially and adversely affect the operations, financial condition or business
of Servicer or Servicer's ability to perform this Agreement or which in any way
involves Owner's security interest in the Purchased Receivables or related
collateral or other rights therein or under this Agreement.
ARTICLE VI.
SERVICING FEES
Section 6.1 Servicing Fee, Reimbursable Expenses and Fees. In
consideration of Servicer's obligations, Owner shall pay to Servicer for the
prior Due Period, within five (5) Business Days after delivery of the Servicing
Fee Report (a) the Servicing Fee for such Due Period, (b) the Reimbursable
Expenses for such Due Period and (c) all third party charges for not-sufficient
fund checks and returned checks which relate to payments made by Borrowers to
the extent not otherwise recovered from obligor. Additionally, Servicer shall be
permitted to collect and retain modification and extension fees actually paid by
Borrowers. If there is an Event of Default by Servicer, or an event has occurred
which with the passage of time or the giving of notice or both will become an
Event of Default by Servicer if it is not cured, at the time any Servicing Fee
is payable by Owner, Owner may withhold the payment until the Event of Default
or other event is cured to Owner's satisfaction, if this Agreement or Owner
allows Servicer an opportunity to cure; provided that, before an Event of
Default by Servicer, Owner shall not withhold payment with respect to an event
which can be readily quantified as a monetary amount except to the extent of
such amount. If an Event of Default by Servicer or other event is cured to
Owner's satisfaction, Owner shall make the payment for the period withheld.
14
<PAGE> 18
ARTICLE VII.
REPRESENTATIONS AND COVENANTS
Section 7.1 Representations and Warranties of Servicer. Servicer makes
the following representations and warranties. The representations and warranties
are made hereby as of the execution and delivery of this Agreement, and each
time Servicer delivers a Performance Certificate to Owner the representations
and warranties are made hereby again as of that time. The representations and
warranties shall survive the sale of the Purchased Receivables to Owner and the
execution of this Agreement. Owner's knowledge of any breach of the
representations and warranties contained herein shall not void or waive any of
the representations or warranties.
(a) Servicer (i) is duly organized, validly existing and in good
standing as a Delaware corporation, (ii) is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of its properties or the nature of its activities makes such
qualification necessary, and (iii) has full power, authority and legal right to
own its property, to carry on its business as presently conducted, and to enter
into and perform its obligations under this Agreement.
(b) The execution and delivery by Servicer of this Agreement are within
the corporate power of Servicer and have been duly authorized by all necessary
corporate action on the part of Servicer. Neither the execution nor performance
of this Agreement by Servicer conflicts with or will result in a breach of, or
constitutes a default under, any of the provisions of the Final Sale Order (as
defined in the Purchase Agreement) any Governmental Rule binding on Servicer,
the certificate of incorporation or by-laws of Servicer, or any of the
provisions of any indenture, mortgage, contract or other instrument to which
Servicer is a party or by which it is or may hereafter become bound, including
but not limited to the following agreements (the "Existing Contracts"): (i)
Confidentiality Agreement between First Merchants Acceptance Corporation, Ugly
Duckling Corporation and ALLTEL Information Services, Inc. dated as of July 23,
1997; (ii) Remote Outsourcing Agreement by and between ALLTEL Financial
Information Services, Inc. and First Merchants Acceptance Corporation dated June
1, 1996; (iii) Master License Agreement between SAS Institute, Inc. and First
Merchants Acceptance Corp. dated as of June 20, 1997 and June 9, 1997,
respectively; (iv) Systems Integration Task Order under the CMSI Professional
Services Agreement and First Merchants Acceptance Corporation between CMSI
Professional Services Agreement and First Merchants Acceptance Corporation dated
October 14, 1996; and (v) Master Lease Agreement between Insight Financial
Corporation, as Lessor, and First Merchants Acceptance Corporation, as Lessee,
dated as of June 4, 1997; nor will they result in the creation or imposition of
any lien upon any of Servicer's property.
(c) Servicer has all governmental permits, licenses, approvals and
registrations which are necessary for the execution, performance, validity and
enforceability of this Agreement.
(d) This Agreement has been duly executed and delivered by Servicer,
and constitutes a legal, valid and binding obligation of Servicer enforceable in
accordance with its terms.
15
<PAGE> 19
(e) Servicer has obtained all consents, approvals, waivers and
notifications of creditors, lessors and other nongovernmental persons and
entities necessary for the execution and performance of this Agreement.
(f) There are no actions, suits or proceedings pending or, to the
knowledge of Servicer threatened, against or affecting Servicer, before or by
any court, administrative agency, arbitrator or governmental body with respect
to any of the transactions contemplated by this Agreement, or which will, if
determined adversely to Servicer, materially and adversely affect it or its
business, assets, operations or condition, financial or otherwise, or adversely
affect Servicer's ability to perform its obligations under this Agreement.
Servicer is not in violation of any Governmental Rule.
(g) There is no fact known to Servicer which Servicer has not disclosed
to Owner in writing with respect to the Purchased Receivables or the assets,
liabilities, financial condition or activities of Servicer or its affiliates
which would or may be likely to have a material adverse effect upon the
Purchased Receivables (or associated Borrower Records or Receivable Rights) or
Servicer's ability to perform its obligations under the Agreement. All
information and documents prepared by Servicer and provided to Owner at any time
are and will be true and accurate.
Section 7.2 Covenants of Servicer.
(a) Servicer shall keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Delaware. Servicer
shall retain and preserve its right to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
perform this Agreement, and shall hold all licenses in all jurisdictions which
are necessary to perform this Agreement.
(b) Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Agreement.
(c) Except as specifically allowed by this Agreement, Servicer shall
not take any action, or permit any action to be taken by others, which would
diminish or impair (i) the obligations of Borrowers and Receivable Rights
payors, (ii) the Borrower Records to the extent required to be held by or are in
the possession of Servicer, (iii) Owner's rights under this Agreement, or (iv)
Owner's rights with respect to the Purchased Receivables.
(d) Servicer shall not resign from its obligations under this Agreement
unless (i) its Board of Directors determines that by reason of a change in
Governmental Rules the continued performance by Servicer of its obligations
under this Agreement is no longer legally permissible, (ii) said determination
is evidenced by a resolution of its Board of Directors to such effect, and (iii)
said determination is accompanied by a legal opinion, satisfactory to Owner, to
such effect. No such resignation shall become effective until Owner appoints a
successor servicer or undertakes to do the servicing itself.
(e) During the term of this Agreement, Servicer shall provide Owner
with quarterly financial statements within 45 days of the end of each of
Servicer's fiscal quarter, and with annual
16
<PAGE> 20
audited financial statements within 90 days of the fiscal year-end. The annual
financial statements shall be audited by a public accounting firm acceptable to
Owner. Along with the financial statements, Servicer shall also provide Owner
with a certificate in the form of Exhibit B attached hereto.
(f) Servicer shall promptly notify Owner if an Event of Default occurs,
or if an event occurs which with the passage of time or giving of notice will be
an Event of Default if not cured.
(g) Servicer shall throughout the term of this Agreement maintain types
and amounts of insurance customary for its business, covering, without
limitation, fire, theft, burglary, public liability, property damage' and
workers' compensation. Servicer shall pay all insurance premiums payable for
such coverage and shall upon request of Owner deliver a copy of the policies of
such insurance to Owner, together with evidence of payment of all premiums
therefor.
(h) Servicer shall take such additional action as is reasonably
requested by Owner in order to carry out this Agreement.
(i) On or prior to the Effective Date, Servicer (i) shall assume all
executory obligations of FMAC under any Existing Contract to which Servicer is
not a party; (ii) shall enter into an agreement that is substantially comparable
to any Existing Contract to which Servicer is not a party and which it does not
assume; or (iii) shall enter into such agreements with such third parties as
shall permit Servicer to take over the servicing of the Purchased Receivables in
accordance with this Agreement without adverse effect upon the Purchased
Receivables, Servicer's ability to service them or Owner's rights therein by
reason of Servicer not being a party to or not having assumed any Existing
Contract.
(j) Effective from and after the date hereof, Servicer shall use its
best efforts to enable Owner to obtain "blocking rights" with respect to the
depository accounts identified in the FMAC Servicing Agreement. "Blocking
Rights" means the right to direct the depository bank to send all Remittances
received in any such account directly to Owner or as Owner shall otherwise
direct.
ARTICLE VIII.
DEFAULT
Section 8.1 Event of Default. Any of the following events shall
constitute an Event of Default under this Agreement:
(a) The failure of Servicer to make any payment or deposit required to
be made under the terms of this Agreement which failure continues unremedied for
a period of two (2) Business Day after the date when originally due.
(b) The failure of Servicer to observe or perform in any material
respect any covenant or agreement required to be performed under this Agreement,
other than the payment or depositing
17
<PAGE> 21
of money, which failure continues unremedied for a period of five (5) Business
Days after written notice of such failure shall have been given by Owner to
Servicer.
(c) If any of the following types of orders are not dismissed within 30
days of being entered: (i) an order for relief against Servicer in an
involuntary case under a federal or state bankruptcy, insolvency or similar law;
(ii) an order appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of Servicer or of any substantial part of
its property; or (iii) an order ordering the winding up or liquidation of the
affairs of Servicer.
(d) The commencement by Servicer of a voluntary case under any federal
or state bankruptcy, insolvency or similar law; or the consent by Servicer to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of Servicer or of any
substantial part of its property; or the making by Servicer of an assignment for
the benefit of creditors; or the failure by Servicer generally to pay its debts
as such debts become due; or the taking of action by Servicer in furtherance of
any of the foregoing.
(e) Owner determines that a material adverse change has occurred in the
business, operations, servicing, or financial condition of Servicer or in its
ability to perform this Agreement.
(f) Servicer breaches the Purchase Agreement or the Guaranty (as
defined in the Purchase Agreement) and fails to cure such breach within five (5)
Business Days after written notice of such failure shall have been given by
Owner to Servicer.
(g) Any representation, warranty or statement made by Servicer in this
Agreement or in any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time when
the same shall have been made.
(h) An Event of Default as to Servicer shall occur under the Loan and
Security Agreement dated as of August 15, 1997, as amended, by and between
Servicer and Owner.
(i) The Purchased Receivables in total as a group, or the motor vehicle
installment contracts owned by Servicer in total as a separate group, shall have
(i) a Rolling Average Delinquency greater than 16% during any of Due Periods
1-6, 12% during any of Due Periods 7-12 or 11% during any Due Period thereafter;
(ii) a Rolling Average Charge-Off greater than 2.5% during any of Due Periods
1-6, 1.75% during any of Due Periods 7-18 or 1% thereafter; or (iii) Deferred
Contracts greater than 2% during any Due Period.
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; provided, however, that the termination of any
Existing Contract shall not relieve Servicer of its obligation to perform under
this Agreement.
18
<PAGE> 22
ARTICLE IX.
INDEMNIFICATION
Section 9.1 Indemnity. Servicer shall indemnify and hold Owner harmless
from any and all losses, damages, costs, good faith settlements, expenses,
taxes, reasonable attorneys' fees and other liabilities including, without
limitation, costs of investigation, fees and expenses at trial and on appeal,
and costs in successfully asserting the right to indemnification hereunder (all
of the foregoing are referred to in this Section as "Losses") incurred by Owner
at any time and pertaining to (a) a default of Servicer's obligations under this
Agreement or the otherwise; (b) facts which are, or allegations which if true
would be, a breach of any representation, warranty, agreement or covenant of
Servicer contained in this Agreement; provided, however, that in the event of
the occurrence of an Event of Default under Section 8.1(e), (h) or (i), Servicer
shall not (without in any manner affecting its liability under this Agreement
for any other Losses) be liable to Owner for any credit losses arising solely by
reason of the occurrence of any such Event of Default; or (c) activities,
operations or conduct of Servicer as Servicer under this Agreement. If legal
action is commenced against Owner regarding a matter for which Owner is entitled
to indemnification under this Section, Owner will give notice to Servicer of the
action within 60 days following Owner's knowledge thereof. The failure to notify
will not relieve Servicer from any liability which it may have to Owner
hereunder or otherwise. With respect to each such notice, Servicer shall, at
Owner's option, immediately take all action necessary to minimize any risk or
loss to Owner including retaining counsel reasonably satisfactory to Owner and
take such other actions as are necessary to defend Owner or to discharge the
indemnity obligations hereunder. If Servicer is not actually defending the
matter in good faith, Owner may, at its option, conduct such defense at the
expense of Servicer. Servicer shall pay on demand any indemnified Losses
incurred by Owner. Owner and Servicer shall fully cooperate with each other in
fulfilling the intent of this Section of this Agreement. Neither Owner nor
Servicer shall settle any claim in which Owner is named without the prior
written consent of the other, which consent shall not be unreasonably withheld;
provided, however, that Owner shall not be obligated to obtain Servicer's
consent unless Servicer is actively defending such claim in good faith.
ARTICLE X.
TERMINATION
Section 10.1 Termination of Agreement. Unless sooner terminated, this
Agreement shall terminate on the Discharge Date. Owner has the right to
terminate this Agreement prior to the Discharge Date following the occurrence of
any of the following events: (a) an Event of Default by Servicer or (b)
termination of the Purchase Agreement.
Section 10.2 Effect of Termination or Resignation. Following the
effective date of termination of this Agreement or the effective date of the
termination or resignation of Servicer as servicer of the Purchased Receivables:
(a) Servicer at Owner's request and at Servicer's expense shall deliver the
Borrower Records, and all records and files described in Article III, as
instructed by Owner, and shall use its best efforts to effect the orderly and
efficient transfer of the servicing of the Purchased Contracts to the party
which will be assuming responsibility for such servicing
19
<PAGE> 23
including, without limitation, directing Borrowers to remit all Remittances to
an account or address designated by Owner; (b) Owner is authorized on behalf of
Servicer, and in Servicer's name if Owner so elects, to take such action as is
necessary to transfer servicing from Servicer; (c) except as otherwise
specifically provided in this Agreement, Owner's rights and Servicer's
obligations under this Agreement shall not be affected by the termination or
resignation; (d) Owner is no longer obligated to pay the Servicing Fee; (e) at
Owner's request, Servicer shall assign to Owner such portion of Servicer's
right, title and interest under any Existing Contract identified by Owner
relating to, or as may be necessary for a successor servicer to continue to
service, the Purchased Receivables; and (f) Servicer hereby (i) irrevocably
consents and agrees that Owner also shall have the right to contact any third
party to an Existing Contract and to obtain from such third party any
information, and (ii) Servicer agrees to continue to provide to Owner
information, in each case, in such form as Owner shall reasonably request, which
Servicer is entitled to receive pursuant to any such Existing Contract. Servicer
hereby directs each such third party to comply with any such request of Owner.
ARTICLE XI.
GENERAL TERMS AND CONDITIONS
Section 11.1 Ownership and Possession. All Remittances, all records and
files described in Article III, and Borrower Records and associated Receivable
Rights are the sole and exclusive property of Owner. Any possession of such
items by Servicer is temporary, in trust for the benefit of Owner, and subject
to the superior ownership and possession rights of Owner. Servicer has no
interest in, and shall not create or convey an interest in Remittances or
Borrower Records.
Section 11.2 Entire Agreement. This Agreement, the Purchase Agreement
and the documents incorporated by reference herein and therein, express the
entire agreement of the parties hereto, and supersede all prior promises,
representations, understandings, arrangements and agreements between the parties
with respect to the subject matter contained herein. The parties hereto further
acknowledge and agree that neither of them has made any representations to
induce the execution and delivery of this Agreement except those expressly set
forth herein.
Section 11.3 Applicable Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Illinois without regard to
its conflicts of law principles.
Section 11.4 Notices. All notices, authorizations, approvals, and
consents provided for, required, or desired to be given in connection with this
Agreement shall be in writing and shall be given to the parties hereto at the
addresses set forth below or at such other address as the parties may hereafter
specify by notice given in the manner provided in this Section.
If to Servicer: Ugly Duckling Corporation
2525 East Camelback Road, Suite 1150
Phoenix, Arizona 85016
Facsimile: (602) 852-6696
Attention: Steven P. Johnson, Esq.
20
<PAGE> 24
With a copy to: Snell & Wilmer L.L.P.
400 East Van Buren
Phoenix, Arizona 85004-0001
Facsimile: (602) 382-6070
Attention: Timothy W. Moser, Esq.
If to Owner: General Electric Capital Corporation
1000 Hart Road
Barrington, Illinois 60010
Facsimile: (708) 304-3456
Attention: Manager, Asset Based Financing
with a copy to: General Electric Capital Corporation
1000 Hart Road
Barrington, Illinois 60010
Facsimile: (708) 304-3444
Attention: Counsel-Auto Financial Services
Each such notice or other communication, together with appropriate copies, shall
be (a) mailed by United States registered or certified mail, return receipt
requested, postage prepaid, (b) delivered by overnight delivery service such as
Federal Express, providing for signed receipts, (c) delivered by personal
service in the manner provided for service of legal process, or (d) transmitted
by facsimile at the above facsimile numbers, with a copy by United States mail
as provided in subsection (a) hereof. Counsel to a party may give notice for its
client provided such notice is otherwise made in accordance with the provisions
of this Section. Notices shall be effective on the first business day following
the date of mailing or transmission, or upon receipt or personal service.
Section 11.5 Headings. Paragraph headings have been inserted in this
Agreement as a matter of convenience for reference only. The paragraph headings
shall not be used in the interpretation of this Agreement.
Section 11.6 Attorneys' Fees. In the event of any action at law or suit
in equity or a claim in bankruptcy or other proceeding to enforce this
Agreement, Owner shall be entitled to receive, in addition to any other sums
which it is awarded, all costs and expenses of such action or suit, including
reasonable attorneys' fees incurred.
Section 11.7 Severability. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions of this Agreement shall not
be in any way impaired.
Section 11.8 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Servicer may not assign this Agreement or any
right or obligation hereunder without Owner's prior written consent and any
prohibited assignment shall be void ab initio; provided, however, that Servicer
shall have
21
<PAGE> 25
the right to delegate its duties hereunder to any wholly-owned subsidiary of
Servicer so long as Servicer supervises such subsidiary's performance hereunder
and no such delegation shall release Servicer from liability hereunder.
Section 11.9 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. This Agreement may also be executed by facsimile.
Section 11.10 Waiver. The failure or delay of either party to strictly
enforce the terms of this Agreement shall not be a waiver of the party's right
to do so. A party can only waive a right under this Agreement if the waiver is
in writing, identifies the right being waived, and is signed by the party
waiving the right. Any approval of a document or procedure by Owner shall not be
a waiver of Owner's rights regarding any breach of this Agreement arising from
the procedure or document.
Section 11.11 Offset. Owner has the right to offset, apply or recoup
any obligation of Servicer to Owner against any obligation or payments Owner
owes to Servicer, or against any property of Servicer held by Owner. Servicer
shall not have any right to offset, apply, counterclaim or recoup against any
obligation it owes to Owner.
Section 11.12 Waiver of Jury Trial. Owner and Servicer hereby WAIVE ANY
RIGHT TO A TRIAL BY JURY waive any right to a trial by jury for a claim based on
an Event of Default or otherwise arising from or related to this Agreement.
Section 11.13 Amendments. This Agreement may be amended only by an
instrument in writing executed by Owner and Servicer.
This Agreement is entered into as of December 15, 1997.
UGLY DUCKLING CORPORATION
By: /s/ Donald L. Addink
----------------------------------------
Title: Vice President
-------------------------------------
"Servicer"
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Edward M. Lindsey
----------------------------------------
Title: Manager of Underwriting
-------------------------------------
"Owner"
22
<PAGE> 26
EXHIBIT A
COLLECTION POLICY OF SERVICER
[SEE ATTACHED]
23
<PAGE> 27
EXHIBIT B
DEPOSITORY ACCOUNTS
Bank One, Arizona, N.A.
201 N. Central Ave., 26th Floor
Phoenix, Arizona 85004
Attn: Mr. Russ Gunderson
(602) 221-1033
Acct: 0987-4687 (Collection)
Acct: 0987-4628 (ARD)
Bank One, Texas, N.A.
P.O. Box 655415
Dallas, Texas 75265-5415
Attn: Ms. Kim Spencer
(214) 290-2533
Acct: 1826339630
Barnett Bank, Inc.
1 Progress Plaza, Suite 290
St. Petersburg, FL 33701
Attn: Mr. Jeff McRae
(813) 892-1559
Acct: 1266693164 (Collection)
Acct: 1266692930 (ARD)
Las Vegas Business Bank
P.O. Box 82503
Las Vegas, Nevada 89180
Attn: Ms. Mary Gould
(702) 794-0070
Acct: 1008625
NationsBank
P.O. Box 25500
Albuquerque, NM 87125
Attn: Ms. Claire Dobbins
(505) 282-4361
Acct: 2864323730
24
<PAGE> 28
EXHIBIT C
PERFORMANCE CERTIFICATE
The undersigned, ______________________________, the ____________ of
UGLY DUCKLING CORPORATION, an Arizona corporation ("Company"), does hereby
certify on behalf of Company pursuant to that certain Servicing Agreement dated
December ___, 1997, between Company and General Electric Capital Corporation
("GE Capital") (the "Servicing Agreement") that (i) all reports and data,
regardless of the form or medium in which delivered to GE Capital, prior to or
contemporaneously with this Certificate, are accurate and complete, (ii) the
representations and warranties of Company contained in the Servicing Agreement
and made as of the execution thereof are true and correct on and as of the date
of this Certificate, and (iii) Company is not in default of the Servicing
Agreement as of the date of this Certificate.
Date: _____________, 199__ UGLY DUCKLING CORPORATION, an Arizona
corporation
By___________________________________
Its__________________________________
25
<PAGE> 29
EXHIBIT D
REIMBURSABLE EXPENSES
To the extent of collection or recovery of the following costs and
expenses incurred by Servicer at and after the time at which a Purchased
Receivable became a Charge-Off Receivable or Defaulted Receivable, and all of
the following costs and expenses incurred by Servicer with respect to any other
Purchased Receivable, except for any of the following costs and expenses that
are netted against any Remittances made to Servicer by any third party:
1. All reasonable expenses incurred by Servicer in the repossession and
seizure of any Financed Vehicle and in the sale or liquidation of such Financed
Vehicle including, but not limited to, repossession fees and charges, auction
fees, towing charges, storage fees, repair expenses and detailing expenses; and
2. All lien, impound or storage fees and expenses incurred by Servicer
in securing any Financed Vehicles.
26
<PAGE> 30
SCHEDULE 1
PURCHASED RECEIVABLES
27
